Manhattan Report

The second oldest bank in Manhattan first opened for business at No. 40 Wall Street in 1799. Unable to obtain a bank charter from a New York legislature which was under the thumb of Alexander Hamilton, a slick politician named Aaron Burr wangled a charter for a concern to supply the City of New York with "pure & wholesome water." As all the world now knows, there was tucked away in that charter a harmless-looking clause permitting The Manhattan Co. to transact any financial business within the law.

The Manhattan Co. laid its wooden water mains and sold pure and wholesome water for nearly 50 years but its "Discount & Deposit'' office promptly became the only private competitor of Hamilton's Bank of New York. The ways of Aaron Burr and his Manhattan Co. soon parted, he to high adventure and a trial for treason, the little water company to a long and honorable history.

At last year's annual meeting the young chairman of the $500,000,000 Bank of the Manhattan Co. broke all precedents by taking his shareholders into his full confidence. Asked by a startled stockholder why he did it, Chairman John Stewart Baker, 40, replied: "The spirit of the times!"

Last week at the 136th annual meeting at No. 40 Wall Street, Chairman Baker delivered his second "spirit of the times" bank report. As frank and full as the first, it was an intimate case history of a typical big super-solvent Manhattan bank in the second year of Roosevelt II.

The handsome, curly-headed, iron-jawed chairman first discussed the effects of new banking legislation on his institution. He noted a payment of $225,000 to Federal Deposit Insurance Corp., an additional liability for $676,000 and an unlimited liability after July 1 unless the deposit insurance law is modified. Yet, Mr. Baker found that new Federal laws as a whole had affected his bank "but little, except in one respect." Three directors had to resign because they were connected with the securities business.

Mr. Baker proudly reported that a quorum had attended all but two of the weekly directors' meetings in the past year. The Board's trust committee, responsible for investment of fiduciary funds, had been troubled by "the uncertainty pertaining to the future economic and monetary policies of the country." A special directors committee had thoroughly examined the bank in April.

Turning to his latest statement, Mr. Baker pointed out that investments in Government bonds had jumped $22,000,000 in twelve months--standing at $77,000,000. During the year the bank had bid for or subscribed to no less than $1,396,000,000 of long-term and short-term Government issues, for its own and its customers' accounts. Summing up the experience of bankers big & little. Chairman Baker remarked: "With the small demand for credit from our customers, it was necessary to invest a greater amount in securities."

One by one the big bank's major divisions were ticked off. The foreign department, particularly important to Bank of the Manhattan Co., did not do so well this year as last because of the decline in foreign trade financing. Personal trust business was substantially better but the corporate trust department was still in the dumps. In the commercial field deposits averaged 11% above 1933, but the average return on all loans and investments dropped in one year from 3.16% to 2.14%. Since that meant a decline of 1% on the return from nearly $300,000,000, Banker Baker ruefully added: "This tells a vital story."

New Era skeletons still dangled in Bank of Manhattan's closets. Caught with $70,000,000 of German credits four years ago, the bank has liquidated all but $11,800,000, at a loss of $7,000,000. "It may be wise," declared Chairman Baker, "to continue further the policy of liquidating German credits . . . even though such liquidation occasions further loss." More than $5,000,000 was used this year for write-off and reserves and Mr. Baker proposed to draw on surplus and undivided profits for an additional $6,500,000.

Another skeleton boldly rattled by Banker Baker was New York Title & Mortgage, a former subsidiary divorced before the guaranteed mortgage scandal broke. New York Title's rehabilitator is suing for various sums including dividends paid to the Manhattan Co. after the title company's capital was allegedly impaired. Mr. Baker did not seem worried.

But when it came to earnings Mr. Baker was worried. Expenses could not be trimmed any more without hurting the bank's business. The annual payroll had been cut another $200,000 to $4,600,000, and the staff of 2,141 employes was at rock bottom. Seven branches had been closed, leaving 66. Including large profit from Government bond trading, probably a non-recurring item, earnings for 1934 would be about $4,900,000, down slightly from the year before. So, with no end to the Government's easy money policy in sight, Banker Baker recommended a cut in the dividend from $2 to $1.50.

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