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WASHINGTON, D.C., April 19, 1963. Hon. JOSEPH P. MCMURRAY, Chairman, Federal Home Loan Bank Board, Washington, D.C.
DEAR MR. MCMURRAY: The proposed proxy statement embodying the plan of merging Long Beach Federal with Equitable Savings, was delivered to Board Member Joseph Williams for the Board's consideration.
Such proxy statement and merger agreement contained therein embodies the changes resulting from the suggestions of Mr. Clarence Smith, assistant to the Board, and Mr. Max Wilfrand, Board attorney. It also embodies the suggestions of chief deputy savings and loan commissioner of the State of California. It has been approved by both associations.
I arrived on April 16, 1963, to be available for consultation in the hope the matter may be resolved for the greatest benefit to Long Beach shareholders. The proxy statement plan is substantially the same in principle as the plan submitted to you early in December 1962, except that in lieu of establishing the value of each association by a cash bid in escrow, the valuation has been established by Standard Research Consultants at the request of the California commissioner. The summary report of Standard Research Consultants is at tached to the proxy statement as an exhibit.
I am sorry that a conference with you and Board Member deLaittre was not possible during my stay. However, we have pointed out to Board Member Joseph Williams, and Mr. Clarence Smith, assistant to the Board, the difference in proceeding by a straight merger as here contemplated, and proceeding by a two-step plan under your previous interpretation of article XV.
The merger plan here proposed would assure in excess of $3 million more profit to Long Beach shareholders plus other benefits totaling more millions of dollars. These multimillion dollar benefits, as such, will be lost to Long Beach shareholders unless the Bank Board takes affirmative action before the shareholders are required to make a decision at their shareholders meeting noticed for April 27, 1963.
The call of the meeting of the members was necessary to prevent a forfeiture of the shareholders' consideration under the settlement agreement between the Board et al., and the Long Beach Federal and its shareholders. The extended period under article XV of the settlement agreement expired on March 31, 1963. The notice for the Long Beach members meeting was called prior to such expiration. The notices were mailed on March 29, 1963.
The date of the Long Beach members meeting is set for April 27, 1963, which is within the required 30-day period.
During the last 11 months the combining of the Long Beach Federal and Equitable has been prevented because of procedural difficulties which we hope are resolved in the merger plan described in the proxy statement.
We feel the Long Beach members are entitled to the Bank Board's decision prior to the Long Beach members meeting on April 27. We hope in coming to your decision you will consider the following factors :
1. That the Bank Board by the adoption of the settlement agreement containing article XV authorized combining Long Beach Federal Savings with Equitable Savings.
2. That such settlement agreement was entered into upon the representation that the Board would implement the agreement “* * * from time to time by such action and documents as may be necessary or appropriate to aid in carrying out the purposes and intent thereof."
3. The Board received release of multimillion dollar damage and other claims against it as a consideration, among other things, for authorizing Long Beach Federal Savings and Equitable Savings to combine.
4. That the U.S. district court and the superior court of the State of California each approved the dismissal of the claims against the Bank Board et al. upon the representation that the settlement agreement would be carried
out. If the proxy plan should be consummated interpretation of article XV would be a moot question.
We hope you will act in favor of the Long Beach shareholders irrespective of your interpretation of article XV. Sincerely,
T. A. GREGORY, President of Long Beach Federal Savings & Loan Association, Long
FEDERAL HOME LOAN BANK BOARD,
Washington, D.C., April 24, 1963. Mr. THOMAS A. GREGORY, President, Long Beach Federal Savings & Loan Association, Long Beach, Calif.
DEAR MR. GREGORY: With reference to your letters of April 19 and 20, 1963, the Board regrets that its schedule prevented all its members from meeting with you while you were in Washington during the latter part of last week. In this regard you will recall that under the arrangements made between our Mr. Smith and your Mr. Clark which, I understand, were relayed to you, you were to transmit to the Board, in advance of your arrival in Washington, the new proxy statement so that the Board and its staff would have an opportunity to review and study the same. Instead, you personally delivered the new proxy statement on April 17 and sought a meeting with the Board for the following day. In the circumstances, the Board could not meet with you, though Mr. Williams did for short periods attend the April 19, 1963, meeting which you had with Messrs. Smith and Wilfand and George E. Monk, Esq.
The Board and its staff are now reviewing the new proxy statement in light of our March 12, 1963, suggestions with respect to the previous proxy statement and of the meeting in Long Beach with Messrs. Smith and Wilfand, and the suggestion made in the first paragraph of your letter of April 20, 1963, with respect to your proposed amendment of the proxy statement. Obviously, in view of the many changes which have been made in the proxy statement, the Board is in no position to take action on the plan set forth therein before April 27, 1963. In this connection the Board cannot understand why time is so important in this regard. You will recall that the chief deputy savings and loan commissioner of California advised you on March 22, 1963, in the presence of Messrs. Smith and Wilfand, that the commissioner had not formulated his policies or procedures in connection with a sale of assets to a State association and that it would take a considerable period of time before such policies and procedures could be adopted. In these circumstances, we cannot understand why a decision has to be made before April 27, 1963, when the Long Beach members are scheduled to consider and vote upon your article XV plan. It seems to us that no Long Beach member would in any way be prejudiced by recessing or continuing the April 27 meeting until all problems are resolved.
The Board also wishes to take this opportunity to point out to you certain inaccuracies in your letters which it believes, if only for the sake of the record, should be corrected.
Article XV of the settlement agreement of February 14, 1962, did not authorize, as you say in your letter of April 19, 1963, "combining Long Beach Federal Savings with Equitable Savings.” Any fair and reasonable reading of article XV, as the Board has repeatedly advised you, discloses that that article authorizes only the specific plan of dissolution of Long Beach set forth therein. Under the article XV plan it was agreed that Long Beach would "sell to Equitable Savings & Loan Association * * * certain of its assets equal in value to the aggregate principal amount of all Long Beach share accounts as of the time of such sale, including adjusting dividends thereon * * *" In consideration for this sale Equitable was to concurrently assume full liability for Long Beach share accounts, including adjusting dividends thereon, and issue its investment certificates therefor. Article XV in no way authorized a merger or the combining of Long Beach with Equitable.
For similar reasons, your statement in numbered item (3) of your letter of April 19, 1963, that the settlement agreement authorized “Long Beach Federal Savings and Equitable Savings to combine" and the implication in numbered item (4) of the same letter that the U.S. district court and the superior court of the State of California each affirmed the dismissal of claims against the Board, et al. upon the representation that the combining of the associations would be carried out are inaccurate.
With respect to the free-rider question which the Board has constantly raised with you since the dimensions of the problems came to its attention in July 1962 the Board, without the presentation to it of any substantiating facts, was disturbed by the implication in your letter of April 20, 1963, that its staff has engaged in improper activities during the past year and has withheld information from the Board, apparently for the purpose of preventing the implementation of the plan of dissolution of Long Beach under article XV or the plan of dissolution of Long Beach by way of merger with Equitable. The Board has no reason but to have complete confidence in the fairness and integrity of its staff and hopes that upon further reflection you will agree that the implications in your letter were out of place. If indeed you have evidence of improper activities on the part of the Board's staff, we would appreciate your presenting such evidence to the Board.
For your information, we want you to know that the staff has presented memorandums to the Board, and I have no reason to doubt the completeness of the information contained therein, concerning the influx of large accounts in the association, including those which began to appear in the association during the latter part of 1961 and the early part of 1962. The Board's knowledge of the influx of accounts during the latter part of 1961 and early 1962 was made known to you at the time, as evidenced by the fact that, with your affirmative acquiesence, the Board took steps in January 1962 to stop such influx. And as Mr. Wilfand suggested to you at the meeting in Long Beach on March 20, 1963, and at the meeting in Washington on April 19, 1963, the Board would be willing to eliminate all "freeriders” from participating in the distribution of Long Beach's net worth, including those who made their investments during the latter part of 1961 and the early part of 1962.
Finally, with respect to your statement that the Board is only concerned about free-rider accounts in the amount of $100,000 or over, that figure, as you well know, was used by me only for the purpose of arriving at a mutually agreeable compromise which I thought we had reached on the occasion of our July 27, 1962, meeting. Such a compromise would have eliminated the most flagrant instances of "freeriders," but unfortunately the compromise was not implemented. The Board wishes to make it clear that its concern with the free-rider problem is not limited to accounts of $100,000 or more.
The Board is just as anxious as you are to see the Long Beach matter disposed of as speedily as possible. It is willing to take every reasonable step to achieve that purpose. We hope that in our future discussions we will be able to accomplish the result which we are each earnestly striving for. Sincerely,
JOSEPH P. MCMURRAY, Chairman.