The entire matter is one of great complexity and while I will do my best to respond to specific questions from the committee, the following principal points might serve as a worthwhile summary:

One, the initiative for this credit facility came entirely from the Hunt family and the private banking system. At no time was the debt restructuring suggested or initiated by any regulatory authority.

Two, in view of the Federal Reserve's voluntary special credit restraint program, I telephoned Chairman Paul Volcker on Saturday, April 5, to inform him of the proposed credit facility for the purpose of avoiding any misunderstandings with respect to the nature and purpose of the proposed credit facility. Since the Comptroller of the Currency is our bank's principal regulatory authority, I met with Mr. John G. Heimann, members of his staff, and representatives of other regulatory authorities in Washington, D.C., on April 10 for the purpose of making information available to them concerning the proposed credit facility. Prior to that date, representatives of the Comptroller's staff were briefed on the proposed credit facility and related matters. We have subsequently kept representatives of both the Comptroller of the Currency and the Federal Reserve informed concerning the development of the credit facility.

Three, neither Chairman Volcker, nor any other regulatory official, made any attempt to pass judgment on the structure of the credit facility except as related to appropriate restrictions on the use of the proceeds and safeguards regarding any speculative investments which might be made by the Hunts or their affiliated interests during the term of the credit facility. I believe that such safeguards and restrictions have been included in the final credit agreement and related documents and are, in my opinion, in the best public interest given the conditions from which this credit facility has arisen.

Four, this credit facility does not result in new speculative financing, nor does it result in net new financing. It should be viewed as a restructuring of existing debts and obligations, the nature of which does not place additional pressures on domestic credit markets. Rather, it brings stability to what at best was a most uncertain outcome of a serious problem with broad market implications.

Five, given the conditions which existed in late March and early April, one must raise the question of what would have been the consequences of not making this credit facility available for the purpose of restructuring the existing debts and obligations of the Hunt brothers. On this point, I do not believe that a definitive and final judgment could be rendered at the time the credit facility was initiated or even now. It was abundantly apparent to me, and to other banking officials with whom our bank consulted, that potential problems existed which would have far reaching implications. While the Hunt brothers have considerable assets, they faced a serious liquidity problem and could not meet their obligations to many creditors in a timely and orderly manner. Recognizing these facts, it appeared prudent and advisable to effect a debt restructuring which would be in the best interests of all concerned. While maintaining sensitivity to the Federal Reserve's special credit re

straint program, the private banking system and the Hunt family worked together to bring about a satisfactory solution to this major problem. I do not believe that what has been achieved is contrary to the broad public interest.

Mr. Chairman, I shall be pleased to attempt to answer any questions which you or the other distinguished members of this committee may have.

The CHAIRMAN. Thank you very much, Mr. Mason.

Mr. Boisi, I apologize for having inaccurately identified you. I ought to know better. I used to work for one of the two parent corporations out of which your company emerged 40 years ago, and I enjoyed that very much.

Go right ahead, sir.

STATEMENT OF JAMES O. BOISI, VICE CHAIRMAN OF THE BOARD, MORGAN GUARANTY TRUST CO.

Mr. Boisi. If I may make just a few introductory remarks, Mr. Chairman, I am James O. Boisi, vice chairman of the Board of Morgan Guaranty Trust Co. I appear today in response to the committee's subpena calling for testimony on recent developments in the silver market and related matters.

I understand that the committee's interest in this subject encompasses the $1.1 billion revolving credit extended to Placid Oil Co. by a group of 13 banks. Morgan Guaranty is a participant in the credit, and together with the First National Bank in Dallas is agent for the bank group. With one exception, all of the 13 banks were lending to Placid before the present credit was put in place. Placid, as you know, is a private company organized by the late H. L. Hunt. The need for the credit arose out of developments relating to three of Mr. Hunt's sons-Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt, and a concern for the effect that these developments might have on the stability of the financial markets.

The Hunt brothers had testified before committees of Congress with respect to their silver trading. Morgan Guaranty played no role in that activity and has made no loans to the Hunt brothers. It has made loans to Placid Oil Co., a large, profitable, creditworthy company which has been a client for a number of years. We have worked closely with First National Bank in Dallas as coagent in past Placid loans, as in the current one. All of the prior loans have been for Placid's general corporate purposes and none of them for the purpose of financing the purchase of silver.

As a matter of policy, Morgan Guaranty Trust Co. does not make commodity loans to individuals or to any borrower who is assuming a speculative risk. In entering into this transaction, careful consideration was given to the relationship of this credit to the Federal Reserve's credit restraint program, and the banks participating in the credit believe it is consistent with that program, since the credit is a refinancing of existing debts and obligations.

Placid is contributing proceeds of the credit to a partnership which will own, manage, and dispose of in an orderly manner the silver positions and other assets which have been contributed to the partnership by the three Hunt brothers. The agreements pro

vide that neither Placid or the Hunt brothers will take speculative positions in silver or in the commodities markets.

The banks participating in the credit also believe the loans for which it provides are prudent. The credit was extended upon careful analysis of the underlying assets and anticipated cash flow of Placid. The credit is secured by collateral pledged by Placid, the guarantees of Placid's subsidiaries, and the guarantees of the three Hunt brothers and collateral pledged by the Hunt brothers in support of their guarantees.

The credit is repayable over a maximum term ending in 1990, but it is expected, however, that it will be paid off within a shorter period.

I shall be pleased to answer any questions that the Committee may have, Mr. Chairman.

The CHAIRMAN. Thank you, sir. Senator Stewart has to leave, so I am going to yield to him first.

Senator STEWART. I guess this first question should go to the bankers that are participating in the restructuring in a lead fashion, so either one of you can answer it, if you know.

Are there banks that are participating in this restructuring or who will be paid out by this restructured loans that are foreign banks, and if so, who are those banks that are being paid out? Mr. Boisi. If I understand the question

Senator STEWART. Under the line of credit, I would assume there would be certain banks paid off, and those banks are not participating in the loan. If there are foreign banks in that category, who are they?

Mr. BOISI. There are foreign banks in the credit-the $1.1 billion credit.

Senator STEWART. I'm talking about previously extending credit to the Hunts and who are being paid out.

Mr. Boisi. There is one foreign bank that is being paid out as a result of this credit.

Senator STEWART. Who is that?

Mr. Boisi. That is the Swiss bank.

Senator STEWART. Is that in connection with a loan that was made to the Hunts that was collateralized by silver?

Mr. Boisi. Yes, it was.

Senator STEWART. Will that silver be transferred to Placid as a part of the collateral?

Mr. BOISI. That silver will be transferred to the partnership. Senator STEWART. And will be liquidated in accordance with the agreement.

Mr. Boisi. In an orderly fashion, yes, sir.

Senator STEWART. Now there were no other banks who were paid out-that are foreign banks that would be paid out in connection with this particular loan?

Mr. MASON. There was one payment made in early April from the original advance. That was made in anticipation of this full credit being put together in which one foreign bank, in addition to the Swiss bank corporation, did receive a payment on a loan that was secured by silver, and the same effect would take place with respect to the silver coming from that bank as did the one that Mr. Boisi has mentioned.

Senator STEWART. And what bank was that?

Mr. MASON. Credit Lyonnaise, but it was for a much smaller amount, and it was simply on a note that was due and was paid. Senator STEWART. Will there be any forward contracts that will be paid off as a result of the restructuring of the loan, the $1.1 billion?

Mr. MASON. All of the Hunts' position in the silver market, both-well, in all respects-bullion, coins, and forward contracts will become part of the partnership to which Mr. Boisi has already referred. They will be managed by the general partner within that partnership, being Placid Oil Co. and its subsidiaries with, I might add, a requirement on the part of the banks that they be advised and consulted with by professional counsel and assistance.

The forward contracts can technically be changed and conveyed to that partnership. Therefore, there are forward contracts that will go into that partnership.

Senator STEWART. Are there forward contracts that will not? Mr. MASON. No.

Senator STEWART. So they will all.

FORWARD CONTRACTS AND FUTURES CONTRACTS

Mr. MASON. But I would like to distinguish between forward contracts and futures contracts, because the futures contracts cannot technically be changed.

With respect to the forward contracts, they will go into the partnership. It will be the responsibility of the general partner to manage those forward contracts. And when you ask the specific question of when they will be paid off, I think that is a matter to be determined with respect to the management of the overall silver position. They might elect not to pay those off; they might elect to carry them or close them out. But that becomes a management technique.

But the full responsibility and ownership of those forward contracts does go into the partnership.

Senator STEWART. All right. All those forward contracts or some of those forward contracts with foreign banks?

Mr. MASON. Yes.

Senator STEWART. And which of those forward contracts are with foreign banks?

Mr. MASON. Which of those?

Senator STEWART. Are all of them with foreign banks?

Mr. MASON. I do not believe that all of them are.

Senator STEWART. How many of them are there?

Mr. MASON. There's about 9 million ounces of silver. Let me check that to be certain that my recollection of the number is correct, but as I recall it, there are about 9 million ounces.

Yes, there are 9,234,600 ounces of silver involved in forward contracts, all of which will go into the partnership. And I think a large percentage of those are through the Swiss Bank Corp.

Senator STEWART. What other foreign banks are involved?

Mr. MASON. To my knowledge, no other foreign bank with respect to the contracts for the silver position.

Senator STEWART. All right, then. You've got the Swiss bank and the other banking institution. What about other collateral that is

being transferred to the partnership? Are any foreign banks connected in any way with that collateral?

Mr. MASON. Only in the sense that the silver bullion position securing Hunt indebtedness at Swiss Bank Corp., which has now been paid off, that silver position will be released and come into the partnership on a direct basis.

Senator STEWART. Did any of your banks make loans that were collateralized with silver during the period of January through March of 1980?

Mr. THOMAS. Yes.

Senator STEWART. To whom did you make those loans in connection with this?

Mr. THOMAS. Senator, we made one loan to Lamar Hunt in late February, I believe it was, 1980, that was partially secured by silver. It was not for the purpose of acquiring or adding to any position in silver, but it was for the purpose of enabling him to meet margin calls so that his exit from the silver business could be facilitated.

Senator STEWART. What was the amount of the loan?

Mr. THOMAS. $50 million.

Senator STEWART. Has that loan been repayed?

Mr. THOMAS. That loan was repaid as was another $50 million outstanding to Nelson and William Herbert by the proceeds of an advance payment under the new $1.1 billion Placid loan.

Senator STEWART. How was the loan collateralized, the $50 million to Nelson and William Herbert.

Mr. THOMAS. Well, it was collateralized in small part by some silver that had been there as collateral for some period of time, well over a year, as I recall, but most of the collateral consisted of sundry stock and other securities. It consisted of oil properties in several parts of the world. It consisted of some cattle holdings. It was quite an assortment of collateral, reflective of the general areas of interest of the brothers.

Senator STEWART. Did you all make any loans to any brokerage houses that were hypothecating loans that were collateralized by silver during this period of time?

Mr. THOMAS. Yes, we made loans beginning in late fall, 1979, to a subsidiary of Bache, Halsey, Stewart, Shields; Bache Metals. We had had a relationship with the parent for 35 years, with the metals subsidiary for 5 years. These loans were initially secured by holding certificates reflecting gold and silver stocks at refineries. These were subsequently replaced by warehouse receipts on gold and silver and ultimately by only silver, and we had a $75 million facility for the usage of Bache and/or its subsidiary which was guaranteed by the parent, and this facility was drawn upon and was fully outstanding by the end of February.

Senator STEWART. Now were you aware of the fact that this $75 million made its way perhaps back to the Hunts in connection with their either taking positions in the market or margin calls?

Mr. THOMAS. We were not aware of that until March 26, I believe it was. We were advised that these were hedged positions in silver owned by Bache and/or customers, and we were not advised that the Hunt brothers were involved in any way in these transactions. Senator STEWART. Did you later find out, though, that they were?