19
THE CHICAGO BANKER
December 5, 190#]
national campaign, a great deal of interest was aroused among the bank clerks, and there was a large attendance at the meeting.
The affirmative side was espoused by B. B. Hicks, John Greiner, Jr., and E. H. Houser. The debaters on the negative side were: :Charles S. Ross, J. D. D. Gladding, and John Benfield.
The telling points made by the affirmative side, which decided the debate for them, were as follows : That the general public is demanding positive guaranty as to the security of their bank deposits as shown by the planks in political platforms; that it is a measure which will benefit the greatest number of people ; that it will inspire confidence and act as an antidote for panics ; that it will prevent losses and hardships to depositors and increase the earning capacity of banks; that it will reduce the number of bank failures and protect the assets of failed banks from forced sales; that it will necessitate a more uniform and rigid censorship of loans ; and that it will promote sound
New Orleans Chapter Debate
W. B. Machado, F. G. Walle, and R. S. Hecht, representing the affirmative, were declared the winners of the New Orleans Chapter debate on postal savings banks, which was introduced as the feature of the last meeting of the chapter. The subject was: “Resolved, That the Establishment of Postal Savings Banks Would be in the Best Interests of Our Country.” A large crowd heard the six good papers introduced. Abe Luria, E. S. Luria, and F. S. Ramos represented the negative. The judges were: Lynn H. Dinkins, president of the Inter State I rust and Savings Bank; Prof. U. B. Phillips, of Tulane University, and Will Beer, librarian at the Howard Memorial Library. A. Breton, vice-president of the German-American Savings Bank and Trust Company, was the time-keeper.
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Milwaukee Chapter Meeting
“Bank Checks” was the subject of an interesting talk to the Milwaukee Chapter of the American Institute of Banking, in the Merchants & Manufacturers’ Association Assembly Hall, in the University building, on Friday night, November 20th, by James I. Ennis, a Chicago attorney. Mr. Ennis spoke on certification and endorsements, and of the distinctions given the old and new negotiable instruments laws in regard to checks. More than 100 were present. The Milwaukee chapter now has a clubroom on the second floor of the University building.
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Cleveland Chapter Meeting
The meeting of the Cleveland Chapter, A. I. B., Tuesday evening, November 24th, had^ a double attraction. B . B. Seymour, Superintendent of Banks, and Hon. Francis W. Treadway, 1 .ieutenant-Governor •elect of Ohio, both addressed the meeting on “The Thomas Law.” It was also bank officers’ night, and an especial effort was made to secure the attendance of officers from every bank in the city. It was one of the best meetings of the year.
Purchases Chicago Bank Stocks
Joseph N. Field’s recent purchases of Chicago bank stocks include 600 shares of Illinois Trust, around 500, 1,000 Corn Exchange National at 400, and 500 Merchants’ Trust between 385 and 395.
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The capital stock of the Farmers & Mechanics Bank, of Honesdale, Pa., has been increased from $50,000 to $75,000.
assets by $535,171.20, a difference of approximately $675,000.00, while the fixed assets carried on the books at $1,500,000.00, should have been carried at $1,161,000.00. We found amongst other things :
I.	That the merchandise inventory had been calculated at selling prices.
II.	That the customers’ accounts contained bad debts of over $300,000.00.
III.	That the president of the company outside of his ownership of the common stock of the company, was not worth over $20,000.00, and that the value of the common stock was worth nothing, for even the value of the preferred stock was reduced by over 33^%•
IV.	That no depreciation had ever been charged against the plant and that therefore the plant accounts stood on their books at too great a valuation.
V.	That the profits had been fictitiously increased by making book entries, charging plant account and crediting profit and loss.
Exhibit “B”
My address has already taken much longer than I had at first expected, so with your permission I will make my comments on exhibit “B” very brief. This exhibit brings out many of the same points which I have already alluded to under exhibit “A,” such as the increase in the real estate, buildings, machinery, etc., from $232,000.00 at November 30, 1906. to $843,000.00 at November 30, 1907, necessitating a corresponding increase in their liabilities. But in addition, I desire to point out. another lesson to be derived from this exhibit. Opposite accounts receivable I present the amounts which were reported as accounts receivable to the bankers. As a matter of fact, out of a total of $726,325.62 reported as accounts receivable, only $244,869.27 could properly be classified under that heading, the balance being consignments of merchandise, outside investments and overdrafts of officers of the company. As a foot-note I show such overdrafts at the close of each fiscal year and you will note how they increase from $99,000.00 in 1904 to $210,000.00 in 1907• This company was making good profits and paying all of them out in dividends, but the officers, not content with milking the concern of all its profits, drew out of the company a further $110,000.00 to which they had no right. Here again, a careful scrutiny by a banker by comparing the amount reported as accounts receivable with the amount reported as annual sales, would have revealed to him that the alleged accounts receivable must have contained assets of some other nature, for the annual sales amounted to $1,800,000.00 during the last fiscal period or only 2j4 times greater than the accounts receivable at the close of the period, and in the earlier periods the sales were only three times greater than the reported accounts receivable.
Gentlemen, I have attempted to show you the banker’s standpoint towards the commercial balance sheet and the manner in which he tries to read between the lines^ of the figures submitted to him and learn their true significance, and, while I am no prophet nor a son of a prophet, I will venture to predict that at no far distant date the banker’s standpoint will be to insist on receiving a balance sheet certified by a reputable firm of public accountants before parting with the funds entrusted to him by his depositors.
Scranton Chapter Debate
“Resolved, That the deposits in the national banks be guaranteed by the government,” was debated at a meeting in Scranton (Pa.) Chapter of. the American Institute of Banking, and the judges awarded the decision to the affirmative side.
Inasmuch as this was one of the issues m the
in the Net Quick Assets, which is the difference between the Quick Assets and Current Liabilities. At November 1, 1902, the company’s financial condition was strong, and ei^en three years later, there was, if the figures were correct, nothing to make the banks apprehensive, unless they studied the figures more closely, for a margin of over $600,000 of Quick Assets over Liabilities appears safe to the most critical. But why such a reduction in the Net Quick Assets? The cause is apparent enough, for a moment’s study will show you that the company has enlarged its plant by an expenditure of $600,000 and increased its bills payable by a like amount. This fact alone should have made the banker beware, for it is clear that the funds of other people have been sunk in Fixed Assets. Furthermore, this plant was of such a size and the nature of the plant was such, that in the event of failure, it would be almost impossible to have disposed of it. It will also be seen from the statement that the surplus of the company was approximately the same m 1905 as in 1903; therefore it follows that if profits had been made they had all been used as dividends. Inquiry would have elicited the information that the alleged profits were about $80,000 to $100,000 per annum after paying-dividends on preferred stock and that as all the common stock was owned by the president, his income was also $80,000 to $100,000. But bj reference to the Quick Assets we find that m 1903 the president owed the company $47,000 and in 1905, $67,000, showing that he was living beyond even the income stated above, or was making outside investments. The banker should have then and there called a halt, for it appears to me as a ridiculous situation when the president should be drawing- out of the concern $100,000 a year, when the cash was needed by the company to pay for the increase in its plant.
Another point which will attract your atten-tion, is the fact that in T905 the amount due by customers was practically the same as in 1903, the reason being that the amount of their annual sales were no larger. _ If their sales were no larger, why should the size of the plant be more than doubled?
Coming now to a comparison of the yeai s 1905 and 1907, we find practically the same conditions, only worse. On account of the increased size of the plant, orders had to be taken at any price to keep it going; and sales actually increased from $i,575>000 to $2,900,-000, with a corresponding increase 111 the amount due by customers. The plant had further enlargements made upon it to the extent of $300,000 and the president of the company continued to live extravagantly and increased his indebtedness to the company by $37,000. As all these expenditures and increased outstandings required more money to run the business, we find that at November 1. 1907, the liabilities had jumped up to nearly two and a half million dollars. This was made possible by the ease with which money could be borrowed in 1906 and 1907, up to the time of the panic, and this company had resorted to the method of raising cash lay selling its paper to brokers. When the panic actually came, you will readily see how impossible it was for the concern to continue. 1 he country banks, strangers to the Optimist Mfg. Co., would not. of course, renew its paper, and there was $1,000,000.00 of this paper out. I maintain that two years prior the banks should have called a halt on the management and insisted upon an independent audit. When the crash came and we were called upon to investigate the affairs of the company, we found facts which the bankers should have discovered two years prior. What we actually found is shown in the last column of exhibit “A.” Instead of there being net quick assets of $140,142.22 as shown by the books, the liabilities exceeded the quick