Home Bank - Early Controversies

Early Controversies

Early in its history a number of questionable loans were advanced, including one to A.C. Frost Company to buy timber rights in British Columbia, and another to the New Orleans Gouther and Grand Isle Railway secured by a rolling stock of dilapidated rail cars. In 1912 it undertook a campaign of expanding in Quebec and eastern Canada, to the chagrin of the western Canadian Directors who were seeing much of the banks capital unavailable for western loans. At the same time, many of the large loans went unpaid and the accrued interest, through a form of bank fraud, was recapitalized onto the principal of the loans.

William Machaffie, Manager of the Winnipeg Branch and a banker since 1882 told the western directors as early as 1914 that the "cooking of the books" through the adding of unpaid interest to the principal and then calculating the interest as profit to pay dividends to major shareholders and directors was wrong. Machaffie wanted to tell the minister of finance at the time, Thomas White, but the western directors were not so sure.

This was war time and this issue of a Bank Crisis was not something the government of the time was prepared to deal with. After a leave of absence in 1917 Machaffie returned to his desk to find his position was gone. He in turn wrote a letter to the minster of finance outlined issues regarding bad loans, capitalization of unpaid interest, and accounting malpractice at head office, and stated the only hope for the banks survival was a merger. He made the decision not to send the letter to the minister but instead to the Board to "stir things up a bit". He was fired. On Aug 29 1918 he drafted a new letter and this time sent it to the Minister of Finance outlining his concerns and a litany of delinquent and non-arms length loans as well as issues related to serious flaws in the Home Bank's internal auditing process.