is ample for bookkeeping departments. The vault contains separate space for use by the bank and safe-deposit customers, and contains 2,000 safe-deposit boxes which are now leased for safe-deposit rental by an individual. The basement contains storage facilities, restrooms, and a large assembly room which is used for community purposes. Modernization of cages, redecorating and equipping the building are expected to cost about $10,000.

The bank is to occupy the building, except for space on one corner now used by a drugstore, under a 15-year lease. Minimum rental is to be $4,200 a year, with that amount being the maximum for the first year, $7,950 the maximum the second year and $11,700 a year thereafter. The minimum rental is to be supplemented at the rate of one-eighth of 1 percent of deposit volume beginning with the second year. After the first year the bank also is to be responsible for payment of onethird of real-estate taxes in excess of the levy for 1950. There is no information to indicate that acquisition of the banking house by the bank is contemplated. This factor is found to be favorable.

2. Adequacy of capital structure

The proponents estimate that the proposed bank would acquire about $2 million in deposits by the end of 1 year, with the expectation that deposits would reach $3,500,000 in 2 years, $5 million in 3 years, and perhaps an ultimate volume of $10 million in 10 years. The investigation report does not contain any study or analysis of the local deposit potential. The examiner concludes that the estimate of the proponents covering the first 3 years is reasonably accurate, but feels that their long-range expectations are optimistic.

Discussion of the matter of capital during the investigation of this proposal resulted in an informal agreement by proponents to provide $525,000 capital structure. Supervising Examiner Gover later discussed this with proposed President Beutel and proposed Director Louis Schorsch. He suggested $600,000 capital structure to them and gained the understanding that it would be acceptable, if not wholly agreeable. However, these people have pleaded misunderstanding and contend that the raising of even $525,000 will be difficult because of what they report to be strong opposition on the part of an existing institution. Proposed President Beutel has expressed willingness to proceed on the basis of $525,000 initial capital, subject to conditions restraining the payment of any dividend for 5 years and requiring that the national average of capital be maintained. Although the estimate of the probable deposit volume of this bank in 3 years seems to have been arbitrarily made, a $525,000 capital structure is sufficient to meet corporation standards. This factor is found to be favorable. 3. Future earnings prospects

The proponents had not devoted much attention to this subject prior to the investigation, except to consider the bank's prospects to be favorable, based on the experience in a few other situations believed comparable. The investigation report contains an estimate of earnings which predicts a deficit of $26,000 for the first year's operation. The principal expense is in salaries listed at $41,000, while safe deposit income and various charges for services are expected to produce more than 50 percent of the intake for the first year.

Proposed President Beutel has indicated that the Belmont National Bank of which he is president might sell some loans to the new bank. The Schörsch family has developed the residential housing in this area, apparently selling most of the resulting mortgages to a college. It was indicated that most of this business could be diverted to the new bank.

Experience with Chicago banks generally and with new banks in particular indicates difficulty in realizing adequate earnings on a sound basis. This appears due largely to the high cost of personnel, arising not only from official salaries, but also from the apparent need to maintain large staffs to handle the variety of business in this area. This has resulted in liberal credit policies which have impaired the soundness of earnings in many instances. Proposed President Beutel is now connected with two comparatively new banks, both of which have developed substantial loan volumes in which liberal credit tendencies are observed.

It is difficult to conclude just what the earnings outlook for this bank will be but the factor is resolved favorable on the basis that the indicated business volume of the bank should make it possible to realize a fair measure of sound earnings.

4. General character of the management

The board of directors of this bank is to consist of the following:

Six Schorsch brothers operate a partnership and corporation in the area of this proposed bank and have been engaged in home building and financing for many years. It is reported that various individuals on at least three previous occasions have tried to interest the family in promoting a bank for this area. It is reported that the family has finally decided that proposed President Beutel was the proper man to back and they have followed that course. They disclaim that the motive was to obtain a profitable tenant for their bank building. Although this family proposes that the stock not acquired by directors will be sold in small lots to local residents, they have indicated they will underwrite any deficiencies in the total subscription. Proposed Director Albert Schorsch was a director in the closed bank which previously operated at this point. The Schorsch brothers have indicated that they would not tolerate unsatisfactory management performance on the part of any officers.

Proposed President Henry J. Beutel is regarded as an opportunist who has risen quickly in the last several years to top positions in two relatively new banks. Apparently he entered banking work in 1925, gradually rising through a series of positions until he became vice president of Southeast National Bank of Chicago some time before he left it late in 1947. In December 1947 he went to Belmont National Bank as president, apparently obtaining that position by acquiring a large stock investment for which he seems to have become heavily indebted. The Belmont National Bank was organized in February 1946. Not until 1948 was it able to pass the break-even point in earnings and its net for that year was very nominal. In 1949 the bank passed the $10 million mark, with about 30 percent of its assets in loans. Examiners of the national bank have not been particularly critical of the management of Mr. Beutel and loan classifications have been nominal when present at all.

Mr. Beutel appears to have acquired stock control of First State Bank of Elmwood Park, located in a Chicago suburb, in 1949. The 1950 examination by the Corporation discloses a noticeable, but not excessive, volume of classified loans, and Supervising Examiner Gover advises that a recent examination discloses a similar picture. This bank has assets exceeding $12 million, and both banks are quite low on capital.

Although Mr. Beutel is slated only to act in an advisory capacity in the new bank, he has indicated that he has in mind disposing of his investment in the national bank and transferring his activity to this proposed bank in which he believes opportunities are better. He is still heavily in debt for his bank stocks and examiners have reported discrepancies in his financial statements, both as to just how his obligations are carried and how his bank stocks are registered. This man is regarded as an opportunist and a promoter, and the apprehension of Supervising Examiner Gover at further extension of his influence in the circle of new banks is fully shared by the undersigned. His operations have been confined entirely to times generally favorable to liberal credits and the outcome of his policies in the two banks he now dominates remains to be seen. Unfortunately, the misgivings about this individual are largely confined to apprehensions which do not as yet have material support in the record. Consequently, while his presence in the management picture is objectionable, it is not believed that there is a sufficient case to justify disapproval of the application solely for that

reason.

John L. Chleboun, 40, is proposed as cashier of this bank at a salary of $7,500. He is listed as contemplating a $5,000 par value investment in the stock of the

83551-56-pt. 1-2

new bank, although his net worth is estimated to be only $10,000. He has had considerable banking experience and has been executive officer of Commercial National Bank of Berwyn, another Chicago suburb, since its organization in 1947. He is reported to be conservative and is credited with doing a satisfactory job at Berwyn. His willingness to accept this proposed post is not certain. is reported that his reason for taking a position under Mr. Beutel is that some difficulties have arisen at Berwyn involving him.

It

Apparently Mr. Beutel contemplates obtaining some other subordinates from the other banks now under his control.

Supervising Examiner Gover discussed the management arrangement with Mr. Beutel and proposed director Louis Schorsch. Mr. Schorsch would not agree to elimination of Mr. Beutel from the picture. As previously stated, the overall management setup is looked upon with considerable reservation because of the presence therein of Mr. Beutel, and this factor is accordingly found to be a borderline matter, with the doubts resolved in favor of the proponents.

5. Convenience and needs of the community to be served

The area in which this bank would serve is described as primarily a business and residential area, with manufacturing nearby but not in the immediate neigborhood. The trade area is estimated to extend about 11⁄2 miles in all directions except west, where it is said to extend to the city limits, about 5 miles distant. Population of this area is estimated at over 100,000 people. The residential area is known as Schorsch Village and consists largely of people who obtained housing through the Schorsch interests. Apparently the area is served by the business establishments and public educational facilities that might ordinarily be expected in such places. Most residents apparently are employed in the city, but many work in the manufacturing plants nearby.

At present there are eight banks operating within 51⁄2 miles of this immediate community. They range in size from about $2,500,000 to $105,000,000. The nearest bank is the Northwest National Bank, 11⁄2 miles east, which has deposits of a little more than $40 million and $10 million in loans. This bank has lodged a protest with the corporation against the subject organization. However, investigating Examiner Adkins states that its growth has been so rapid that it probably would not materially notice the diversion of deposits to the proposed bank.

It is not believed that the subject bank would seriously infringe upon the business of any other bank operating in this general area and no information has been offered to indicate that it would have difficulty obtaining sufficient business to justify its existence. Accordingly, this factor is found to be favorable.

6. Consistency of corporate powers

In the opinion of Counsel the corporate powers of Illinois State banks are consistent with the purposes of Federal deposit insurance law. Trust powers are included therein, accordingly, a restraining condition has been imposed in this memorandum. The application states that the operation of a trust department is not contemplated. Branch banking is prohibited entirely in Illinois.

Correspondent: Mr. Henry J. Beutel, 3179 North Clark Street, Chicago, Ill. The CHAIRMAN. Welcome, Senator Sparkman. I didn't see you come in. Delighted to have you here.

Senator SPARK MAN. Go right ahead.

The CHAIRMAN. Mr. Harl, your answer that you as a member of the board didn't know anything about this has at least temporarily upset my line of questions. I had assumed that the Board of Directors of the FDIC was aware of this sort of thing. If you will bear with me, I'll try to give you some of the background that I think would indicate that if you weren't aware you should have been.

Mr. HARL. O. K.

The CHAIRMAN. In this report which is directed to the Board of Directors of the Federal Deposit Insurance Corporation of March 28, 1951, there are 2 or 3 paragraphs about Mr. Beutel.

I think it's very important to develop the matter, that we understand Mr. Beutel and his operations, because these banks, of course,

that are involved were dominated by Mr. Beutel. At least the Elmwood was, with 1 or 2 others.

Mr. HARL. Who was that memorandum to, Senator?

The CHAIRMAN. This is to the Board of Review and the Board of Directors of the Federal Deposit Insurance Corporation. It is from Roger B. West, Senior Review Examiner, March 28, 1951--which is up in the right-hand corner, with many initials, indicating that it had

been

Mr. HARL. What was the date, please?

The CHAIRMAN. What?

Mr. HARL. What is the date, please?

The CHAIRMAN. March 28, 1951. This is the West Irving State Bank. The significance is that it has some very revealing paragraphs about Mr. Beutel. Whether or not Mr. Beutel was a proper man to run a bank is one of the key questions. Whether or not the Board of Directors of FDIC discharged its duties property depends upon their treatment of Mr. Beutel and the banks which he dominated. Among other things, the memorandum says:

Proposed President Beutel is regarded as an opportunist who has risen quickly in the last several years to top positions in two relatively new banks. Apparently, he entered banking work in 1925, gradually rising through a series of positions until he became vice president of Southeast National Bank of Chicago sometime before he left it late in 1947.

And so on. Then I will skip a little. This all will go in the record. but I wanted to call your attention to it.

Although Mr. Beutel is slated only to act in an advisory capacity in the new bank, he has indicated that he has in mind disposing of his investment in the national bank and transferring his activity to this proposed bank, in which he believes opportunities are better. He is still heavily in debt for his bank stocks, and examiners have reported discrepancies in his financial statements, both as to just how his obligations are carried and how his bank stocks are registered. This man is regarded as an opportunist and a promoter, and the apprehension of Supervising Examiner Gover at further extension of his influence in the circle of new banks is fully shared by the undersigned. His operations have been confined entirely to times generally favorable to liberal credits, and the outcome of his policies in the two banks he now dominates remains to be seen. Unfortunately, the misgivings about this individual are largely confined to apprehensions which do not as yet have material support in the record. Consequently, while his presence in the management picture is objectionable, it is not believed that there is a sufficient case to justify disapproval of the application solely for that

reason.

Then later it says:

Apparently Mr. Beutel contemplates obtaining some other subordinates from the other banks now under his control

and

goes on about it.

It is a statement highly critical of Mr. Beutel as of 1951.

In this statement which was put in the record, that Mr. Coburn had agreed to, I believe as a statement of fact, I want to read one paragraph.

In the spring of 1951 Mr. Beutel and his associates organized the West Irving State Bank. Eugene Gover, supervising examiner, Chicago district, FDIC, objected to the proposed management of the new bank and recommended to the Washington office that insurance not be granted. Subsequently, Gover agreed to recommend insurance, if $600,000 in capital was provided. Beutel and Gover engaged in a heated argument over the amount of capital, which included a trip by Mr. Beutel to Washington to complain directly to the FDIC. The capital was

finally set at $525,000, and the West Irving opened as an insured nonmemberState bank in May 1951. Beutel became president of the bank, with his associates controlling 51 percent of the stock.

When Mr. Beutel came to Washington, whom did he see, Mr. Harl?
Mr. HARL. What date was that?

The CHAIRMAN. This was in 1951, in the spring.
Mr. HARL. I wouldn't know that.

Can I go back to this a minute?

The CHAIRMAN. Yes.

Mr. HARL. If you examine this, I notice this was recommended all the way up the line, from the State supervisory authority to the review examiner, by the Chief of Examination, by the senior review examiner, by the Review Section Chief, and by the entire Board of Review to the Board of Directors. This was screened by 11 people, including the Head of the Examination Division, Research and Statistics, and so on, and then came to the Board of Directors having been screened by 11 people, and the 11 people recommended this to the Board.

The CHAIRMAN. I was offering that to show that there was considerable notice to the Board as to the character of Mr. Beutel. It's what happened subsequent to that with regard to Mr. Beutel that becomes more significant.

Mr. HARL. Well, what I was trying to get here to your attention and to the record is that this was screened by 11 people.

The CHAIRMAN. But it did come to the attention of the Board; didn't it?

Mr. HARL. After this screening, yes.

The CHAIRMAN. Yes. Well, now, this recommendation of Mr. Gover that it not be given and then that it be given only on the condition $600,000 capital be provided. Did that not come to your attention?

Mr. HARL. This is what came to the attention of the Board.
The CHAIRMAN. That's all that came?

Mr. HARL. After it was screened.

The CHAIRMAN. When Mr. Beutel came to Washington, whom did he see?

Mr. HARL. I don't know.

The CHAIRMAN. Does anybody here from the FDIC know whom he saw?

Mr. COBURN. We have a memorandum of a conference when Mr. Beutel came in 1953, but

The CHAIRMAN. Didn't he come in 1951?

Mr. COBURN. I don't know.

The CHAIRMAN. Mr. Gover, do you know? He was arguing with you, according to this statement. Can you enlighten us a little?

Mr. GOVER. I had so many arguments with Mr. Beutel, Senator, that I cannot remember the dates. But as I recall, the original capital for the bank proposed by Mr. Beutel was between $300,000 and $375,000, and on the application he indicated he was not to have control of the bank. As I remember, he showed that he and anyone we could associate with him would have no more than $12,500 of par value of the capital stock.

So after the bank was open, the first examination we found that Mr. Beutel had control, more than-51 percent or more.