TRUST COMPANY FAILURES

ADDRESS DELIVERED BY A. A. JACKSON, VICE-PRESIDENT OF THE GIRARD TRUST COMPANY OF PHILADELPHIA, BEFORE THE AMERICAN BANKERS' ASSOCIATION, AT NEW YORK CITY, SEPTEMBER, 1904.

THE fact that there is no central bureau for the filing of statistics relating to trust companies, such as exists for national banks, which are under federal control and subject to the duty of making periodical reports to the government at Washington, renders it a matter of some difficulty to obtain reliable data as to trust companies throughout the United States. This is perhaps the more apparent in connection with any search for data relating to failures among these institutions, for while due diligence will collect a mass of figures relating to live corporations, those of companies that have suffered insolvency and passed their present activity are to be gained in many instances only from persons who were identified with them in their management or liquidation. It is only within comparatively recent years, as the assets of the class of corporations that we represent have assumed steadily increasing proportions of great magnitude, that the legislatures of the various states now having banking departments have enacted laws providing for officials whose duty it is to examine periodically the condition of trust companies to ascertain that they are being managed in accordance with the existing statutes. Even now some states have no such provisions, and although for the purposes of preparing some figures for your consideration I have approached the executives of all the states in the Union, this fact has somewhat handicapped me and rendered it necessary that for the purposes of making the data as complete as possible I should in some instances have recourse to unofficial figures for my calculations. Indeed I think that I have trespassed somewhat upon the good nature of my correspondents in this matter, but their uniform courtesy has possessed me of details of a scope beyond which I could not well go without becoming a nuisance to those to whom I have necessarily applied for information.

Trust companies of course had their birth in the older states, New York granting the first charter to the Farmers Loan and Trust Company, then known as the Farmers Fire Insurance Company, in the year 1822, and in 1830 to the New York Life Insu

rance and Trust Company; while Pennsylvania in February of 1836 granted to the Pennsylvania Company for Insurances on Lives and Granting Annuities the powers to transact a trust business, it having formerly from its charter in 1812 transacted solely the business indicated by its title. In the next month of the same year, that is in March of 1836, the present Girard Trust Company was chartered under its then name of the Girard Life Insurance, Annuity and Trust Company of Philadelphia. These two states of New York and Pennsylvania practically monopolized the creation of trust companies until after the Civil War.

It may be proper before giving general figures to consider what failures have occurred in these states just mentioned, which have over sixty per cent. of the aggregate resources of the trust companies of the country, New York with $1,200,000,000 and Pennsylvania with $1,069,000,000.

The banking department of the state of New York was established in the year 1851, and in 1874 trust companies were placed generally under the supervision of the superintendent of banks. Mr. Kilburn, the present incumbent of this office, has very kindly provided me with figures showing that from the date of this supervision in 1874 to December 31, 1903, seventy-five trust companies have been incorporated, of which only two have failed: one in 1877 as a result of fraudulent management, and one in 1891 because of imprudent conduct by its officers. In each case the capital involved was one million dollars. These figures with which I am provided do not include those of companies that may have been temporarily in trouble, nor the unfortunate necessary reorganization under a new name of a company in the city whose short life was apparently devoted by its officers to the one end of floating securities in a manner that betrayed a lamentable lack of conservatism.

It would seem, therefore, that in the last fifteen years no company in the state of New York has actually failed to the extent of not being able to resume business, and although the company to whose failure I have referred as occurring in 1877 was a debtor to the total of seven per cent. of the aggregate assets of trust companies within the state of New York, we must remember that at that time, so closely following the depression of the panic of 1873, New York was possessed of very few trust companies, and a

failure of the size of the corporation which then became insolvent would naturally show a large percentage of the total assets then employed within the state. On the other hand, by the year 1891, when the second failure took place, the total assets of trust companies in the state had increased five and one-half times over the figure at which they were in 1877, and although the total liabilities of the insolvent company of the later year were $3,947,000, they form only 4 of 10 per cent. of the total assets of trust companies in the state. Since that time, too-that is, in the last fifteen years -the aggregate assets of trust companies have increased above four and one-quarter times over the large totals of that day.

In Pennsylvania the banking department of the state was by law given supervision over trust companies in 1892. The records of this department show that there were deserved the laudatory phrases contained in the first report of the superintendent of banking upon the excellent condition in which he found the companies of the state. In 1892 a small concern that bore the word “trust” in its title, but was in reality transacting none of the business for which a trust company is properly organized, failed for a comparatively small sum. In 1895 another company with total liabilities of $105,000 made an assignment, the failure being 2-100 of 1 per cent. of the total assets in the banking and trust department of the Pennsylvania companies in that year. In 1896 a company that dealt almost exclusively in western mortgages assigned with total liabilities of $1,420,000, or about 2-10 of 1 per cent. of the aggregate assets of the companies of the state. In 1897 a receiver was appointed for another trust company which transacted materially the same kind of business, and found that its investments had so suffered by the bad years for farm lands in the West as to make it impossible for it to continue business. The failure of this company was also to an extent of only 2-10 of 1 per cent. of the aggregate resources of the companies in the state. In 1898 a trust company which was closely affiliated with a national bank for which a receiver had just been appointed, and to the president of which it had imprudently loaned money, found it necessary to make an assignment. This failure was a startling evidence of the evils of using one borrower as an outlet for money, and of the domination of one man or set of men in the directorate, while the other mem

bers of the board were content to let the company be managed without devoting to its affairs the scrutiny that they should be bound give. It is, however, a gratification to know that although this company failed for over $2,000,000, it finally paid its creditors and stockholders in full. In 1901 a company that had not been formerly under the examination of the state department was placed in the hands of a receiver. Its total liabilities I do not know, but they were not of great aggregate.

There are no other failures of which I have knowledge within the state of Pennsylvania in the years during which the banking department has been in existence, save that of a very small company rejoicing in an illustrious and imposing name, and developing liabilities of $13,000; and another company, Pensylvanian in incorporation, but transacting no business other that that of having in its annual meetings within the borders of the state, its dealings being entirely in western mortgages.

From the foregoing it is gratifying to note that, taking as examples the two states which by their customs are perhaps more definitely engaged in what is the established practice of a trust company business, the ratio of failures to general assets has in no case amounted in New York within the last twenty-five years to more than one and four-tenths per cent., and in Pennsylvania in the last fifteen years to more than two-tenths of one per cent. I understand that in every instance the moneys and securities held by these corporations in fiduciary capacities, or, in other words, trust funds. in the more literal acceptation of the term, were unimpaired by the difficulties experienced by the companies themselves. I may say that under the Pennsylvania statute and the laws of many of the eastern states, it is provided that trust funds shall be kept separate and apart from other assets of the company holding them.

Taking up now the broader field of trust companies throughout the country, I have arrived at the following results of my investigations:

In the New England states, the figures being official for all save Maine and Vermont, one company failed in 1891, three companies in 1893, one in 1896, one in 1897, and one in 1904. Those of 1896 and 1904 paid in full and resumed, and the others have paid their creditors from 38 per cent. to 55 per cent. The aggregate of all

three is less than 2 of 1 per cent. of the present assets of the companies in these states. As I am not provided with the assets of the companies in the several years in which occurred the failures, I cannot give the smaller percentage applicable to those years.

In the eastern states I have already read figures concerning New York and Pennsylvania. In New Jersey a company failed in 1890 with liabilities bearing a ratio of 1-10 of 10 per cent. to the total assets of the companies in the state in that year; and a company failed in 1903, whose nominal liabilities amounted to 2-6 of 10 per cent. of the total assets of that year, but this was a corporation that had a life of but a few months before it was convicted of practices at variance with reputable trust company methods, and its charter was surrendered. In Delaware likewise a failure occurred in 1903 of a company holding a charter under the laws of that state, but which was virtually a Mexican corporation with branches in different parts of the United States, and engaged in business which was foreign to trust company in our acceptance of the term. We remember very well the failures of last year in Baltimore of two companies, and a third which was a branch of the Delaware corporation of which I have just spoken; and if we place the liabilities of these companies against the total assets in the state of Maryland we shall find that they amount to 20 per cent. of them. Investments of large sums in one asset was the primary cause of these failures, but one of the companies came out of the hands of its receiver and resumed operations a little over two months after its suspension with capital unimpaired, and the other a larger corporation, has disposed of the interest which had carried it to the wall, and I understand that there is every likelihood of a settlement in full with its depositors and creditors.

Even aggregating all failures in the eastern states within the lives of the several banking departments, the total liabilities form but one per cent. of the present assets within these states.

Of the southern states, Virginia, West Virginia, Mississippi, and Louisiana are the only ones furnishing me with official figures; in fact Georgia, Mississippi, and Tennessee have no banking departments with supervision over trust companies. From none of these states, however, am I advised that there have been any failures,