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i'i«Hli1lilimMtHnniit)rf**<ji«<tHtefe, 
 
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 I QUKEX STllKKT WKHT, 
 
 i TdliONTo, l.ltli May, 18G9. 
 
 ■ !■ To flie Skircholden of llie liuijal CuiuuUitii Bank: — . , . .,,,.,1, ,. , . , 
 
 nKNTI.KMEN, 
 
 Oil tlic 13tli April, 1 vciiturc'il to addiT.ss you, pihati'ly ami ''oiitidi'iitially, ifspcctiiiy the iiiiiiiagcniciit and 
 affairs of the Koyal Canadian Bank. I wrote as a Shareholder to Shareholders, with no intention of enlisting 
 the pnblic in the controversy. The other Directors, in their associate capacity, and the late President individnally, 
 have issued circnlars in reply, marked like mine, "])rivate and confidential," hut unlike mine, so used as to invest' 
 the matter with a iiublic character. For the apjiearance of the correspondence thej', not I, nnist he held respon- 
 sible ; and if in its pi'ogress, it assume a more disagreeable complexion than the sincere friends of the l?ank <l('sire,, 
 the circumstance will be attributable to them and them alone. Afy desire was to eschi^w personalities. In their 
 anger at my criticism they have indul;;ed freely in inneiido and abuse. You are the judges between us, and l)y 
 your verdict upon this point I am content to abide. 
 
 Let me say, before proceeding further, that the unworthy weapons emiiloyeil by my ass.ailants will not deter 
 me from the performance of what has become a duty. 1 am willing that eveiy statement jtresented in my last 
 shall be subjected to searching scrutiny, and if I liavi; misrepresented the condition of the [}ank or maligned it.s 
 management, I siuiU not ho[ie to escape your cens\ire. Hut I demand evidence, and will not accept calumny in 
 its nlace. I linv<! set forth what I know to be facts, and I call for facts in reply. You, 1 am confident, under- 
 stiand too well the matters in issue to allow your attention io be turned asiilt; liy vituperation directed against 
 myself. In the contest which has begun, the inteicsts at stake are those of tlu; Hank ; and concerning these, the 
 gentlemen who control its management have; little or nothing to say. 
 
 \'ou cannot ha\t' failed to observe that with regard to the traiiactions of tlie IJank with Mr. "W. U. Ihowri, 
 and afterwards with Messrs. IJrown iV Chewett, the circular of tlu" Directors is silent. They do rmt altempt 
 d(!nial or explanation of the serious accusations I have preferred. Even the late President, who, without consul- 
 tation with the IJoard, fiist entered into the arrangement with Mr. Brown, even he does not challengt\ a single 
 essential fact. It is of lu) avail for him to declare that I "was advised and knew of I5rown's transa'tions 
 and arrangements with the Bank." I rejieat, 1 h;id no knowledge of .Mr. Smith's arrangement witli .Mr. iirown, 
 jior that the latter had a credit, until after the disclosures conse(pient on tlh' arrest of Mr. Chewett. Mr. Smith 
 does not assert that either his arrangement with Mr. Brown, or Mr. Jletcalfe's arrangenuMit witii Brown ami 
 Chewett ever came before the Board. In each case the Pi'csident act'' \ on his own rcsponsil)ility, not only with- 
 out submitting his action for ratification by the Directors, but without rejjorting the existence of the arrangement.' 
 So far as I know, the first intinuition the Board, as .such, had of transactions which resulted so disastrously was 
 subsequent to Brown and Chewctt's failure. What "Oath" Mr. Smith may be able to procure on the subject, 
 1 neither know noi' care. Ofthe pnjceedings ot tin; Board the minutes are evidSiice, and by the minutes let lutf 
 be judged. 
 
 Touching the Cobourg, Seaforth and Kingston agencies, my opponents are m(jre positive, but their positive- 
 ness is confined to comparatively innnaterial points. Referring to Cobourg, the Diiectors remark : '• It is not 
 correct that the appointment of Mr. W'allace was made against the remonstrance of Jlr. McDonald," in proof of 
 which they cite the fact that I was n(jt jjresent at the time when the appointment was made, nor at several suc- 
 ceeding meetings. But this is an evasion. The subject of the appointment was discussed at the Board before 
 the datt^ of the ajipointment itself, and on those occasions I jjrotested against it ; in one instance citing a remark 
 of the Honorable iMr. Perry, that if Wallace were appointed the Bank would "make a snuishing businesgs." At 
 that meeting the Cashier replied that if Wallace followed his instructions no loss could arise ; and if he did not 
 tbllow them he would hi' dismissed. Wallace did m)t follow his instructions and was not, as he shoidd have been, 
 at once dismissed. Ilr. Smith says that tlu? " temj)orary contiiuiance " of Wallace, which he suggested, Avas 
 for the purpose of securing some large amounts which would have been jeopardized by his sudden dismissal, and 
 which suggestion the Board concurred in." I was not present when this concurrence was given, and I regard the 
 reason assigned for it as a pretext for extending further help to parties indebted to the Bank. At any rate, the 
 " temporary continuance" was not justified by the result. The books shew that instead of " .securing some largo 
 amounts" the action of Mr. Smith was followed by an almost total los.s. Increased advances led to increased 
 end)arrassment. 
 
 The Directors' statement in relation to the Seaforth Agency is that "it is not correct either that Mr. McDon- 
 ald proposed the dismissal of Mr. Ku.ssell, the agent, or that the Board (pialified the motion, with a proviso giving 
 Mr. Russell time to adjust his accounts." They atld, "there was no such motion." The motion in question was 
 introduced by myself several weeks before the <lisnussal took place. I proposed simply that Mr. Russell bo 
 dismissed. Air. Smith objected, on th<> gnnind that there was nothing against Russell. I pointed out the 
 un.satisfactory nature of his accounts, and was met by Mr. Smith with the remark that I wished to "hang a man 
 first and try him afterward." An adtlition was suggested, that the dismissal take efft'ct so soon as his accounts 
 were adjusted, and in this shape the motion passed unanimously. Mr. Smith now insists that my re)>res(!ntation 
 of the case, hi its bearing upon himself, is "pure fabrication, having no foundation whatever in fact, the result of 
 a personal enmity," and so forth. Ofthe value of this declaration you will be better able to judge, when I shew 
 the peculiai- relation existing between Mr. Smith, the President, and Mr. Russell, the defaulting agent, as I shall 
 do before ch)sing this letter. 
 
 Of the Kingston agency, the Directors observe, "the Cashier was the first to direct attention to the inegu- 
 larities there." If he was satisfied that irregularities existed, it was his duty to send the Inspector at once, whicli 
 he neglected to do, although that officer was and is subject to his direction. Undoubtedly the affairs of the 
 agency came before the Committee on Agencies in the regular course of investigation, and what I drd in the 
 
2 
 
 
 il 
 
 matter was done as a member of that comiuittee. But how does this circiiiiistance affect my original statement ? 
 I claimed no special credit in the premises. I only culled your attention to t'lo fact that the affairs of the agency 
 had been grossly mismanaged, and that culpable delays occurred in the application of remedies. Mr. Smith says 
 1 do not "dare" to connect his name directly with the irregularities complained of. J "dare" to say that the a^ent 
 was a confidential correspondent of Mr. Smith, and acted for him in procuring itroxies in support of his policy ; 
 and, moreover, that the relation thus existing was the occasion of reluctance on the part of Mr. Metcalfe in dealing 
 with the agency. 
 
 You are told " it is not correct that Mr. McDonald was compelled to abandon the investigation undertaken by 
 the Committee on Agencies." I reiterate my assertion that I abandoned the task because obstacles wero thrown 
 in the way of such an investigation as the case required, and because I found a majority of the Board supporting 
 the measures of the late President. The Directors declare " There was no such division." Well, let me give an 
 instance. After the Board became acquainted with the Brown & Chewett arrangement, I moved a vote of cen- 
 sure upon the late President for having granted the original credit, and that motion was not even seconded. 
 Again, when the affairs of the Cobourg Age.icy were under discussion, Messrs. Metcalfe & Manning, as well as 
 myself, expressed disappointment that the expectations held out by Mr. Smith in recommending a certain course 
 had not been realized. Tliis was in the Committee on Agencies. When the subject came before the Board, the 
 reference was objected to, and was expunged against my vote. Are not these evidences of division t 
 
 Much is said concerning my motives, wliich are assailed both by the Directors and Mr. Smith. Both allege 
 that my difference with the Board dates from the rejection of a proposal for my own advantage which I am 
 alleged to have made. The Directors' version, that " Mr. McDonald, a short time since, made a proposal to the 
 Board which, in the interest of the Stockholders, the members present unanimously felt bound to decline." From 
 that time, they go on to say, " the undersigned observed a marked change in his conduct towards all the members 
 of the Board." Mr. Smith's story is, that on the 29th January last, I applied for a loan of $100,000, which 1 
 wanted " for the purpose of investing in one of the most dangerous enterjjrises in the United States," and the 
 refusal of which is the cause of my present action. What are the facts ? Homotime previous to the date men- 
 tioned, a gentleman of high cluaracter and standing in this comnumity invited me to take an interest in a large 
 enterprise, which seemed to him to promise great pecuniary results. The operation required considerable banking 
 accommodation, and I promised him that I would speak to the Officers of the Bank, and ascertain if the advance 
 could be conveniently made. The officers told me there was a large amount of idle funds, and that the proposition 
 should be submitted to the Board. Of the nature of the enterprise, I am not at' liberty to speak. I may say, 
 however, that it is in all respects legitimate, that I did not commit myself to it either in my intercourse with the 
 gentleman or my communicaticn to the Board, and that I assured both that if thA .Bank entertained the proposi- 
 tion, before availing myself of it, I should personally investigate the nierits of the project, and form my own 
 judgment as to its probable advantages. I further informed the Board that in the event of the accommodation 
 oeing required, I should bind Inyself to furnish adequate security for every dollar loaned. In a proposal so made, 
 and accompanied with such conditions, I see nothing irregular, nothing incompatihle tvith the interests of the 
 Stockholders, and nothing of which I have any reason to be ashamed. True, the Board declined the proposal. 
 But the President subsequently offered, on his own authority, to let me have the $100,000 if I would spread the 
 amount over three weeks ! The whole matter, however, had been dismissed from my mind, and I declined his 
 oftbr. 
 
 Th6 supposition that this affair was the beginning of my difference with the Boa-d, is an effort of the Dir- 
 Sctors' imagination. At no time during my conection with the Bank has there been agreeable relations between 
 myself and some members of the Board. With Mr. Smith, especially, I have steadily refused to act. With 
 Messrs Metcalfe and Manning there was no interruption of amicable intercourse, until the issue of my circular. 
 Indeed these gentlemen associated themselves with me, in March, in a j>lan for the purchase of the Toronto 
 Street Railway. But, declare the Directors, I "next endeavoured, under threat of issuing a circular to gain a 
 personal advantage, coupled with a promise" that if my offer were accepted, my "lips would be sealed." I cannot 
 recall any incident which can be tortured into a basis for this calumny. This I remember : — The discussions at the 
 Board, consequent upon the Brown-Chewett revelation, induced n.e more than once to remark that I should find 
 myself compelled to appeal to the Sha'-eholders as against the management of the Bank. This is the only "threat" 
 with which I am truly chargeable. Out of the Board, the President and the Cjvshier maintaineil that the position 
 of the Bank was better than I described it ; that not only was the stock intact, but that means were on hand to 
 pay a dividend out of profits. I renewed the conversation on the 17th or 18th of April ; observing to the Cash- 
 ier that if he could satisfy me of the accuracy of his representations, I should confess myself mistaken, and with- 
 draw from the Board and the Bank, of course t<aking my interest with me. The wortli of the stock was spoken 
 of, and I said that if the Cashier's view were tenable, the stock should sell at par, plus a proportion of the con- 
 templated dividend, and that at this rate, 1 for one, was quite prepared to sell. At the time I insisted that the real 
 state of affairs was unfavorable — that not only wivs the Bank not in a condition to declare a dividend, but that its 
 reserve, or most of it, had been swept away, -Mil disaster could be averted only by the interference of the Share- 
 holders, and the introduction of other management. The Cashier requested me at least to delay the circulation 
 of my circular, which, as the date shews, was then ii; type, in order that the Bank might realize its advances on 
 
 f)roduce. In support of this request, he stated that the Bank had already suffered seriously from th** want of pub- 
 ic confidence ; the run produced by the Brown-Chewett disclosures and the Taylor failure having drained the 
 Bank of nearly a million dollars in gold. I complied with the request so far as to delay the issue until the 27th 
 of April J though ot the necessity of the sweeping change, I desired to bring about the Cashier's confession was 
 conclusive proof. Beyond these conversations, these statements and counter statements, these declarations pro and 
 
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 con, nothing occurred or was hinted at, looking to any compromise or arrangement as between myself and the 
 Board. 
 
 Mr. Smith has another explanation of my position. Ho seeks beyond the date fixed by the Directors for 
 the commencement of my opposition and traces it to July last. " The first cause of his (my) real discontent was 
 the fact that he (I) was not elected President in July last when my (Mr. Smitli's) term :»f office expired." How 
 little reason I had to be dissatisfied with the action of the Shareholders on the occasion referred to, the result of 
 the voting will best explain. Tims th>3 list stood : 
 
 Donald McDonald 4,0.")2 votes. 
 
 William Barber 3,916 " 
 
 James Metcalfe 3,702 " 
 
 R A. Harrison 3,202 " 
 
 Alex. Manning 2,926 " 
 
 A.M.Smith 2,924 " 
 
 J.Crombie 2,800 " 
 
 So decided an expression of confidence on the part of the Shareholders left ino nothing to desire. With the 
 subsequent election of Mr. Metcalfe to the Presidency by the Board I avowed myself dissatisfied, because that 
 gentleman was then heavily indebted to the Bank ; and I contended that the chief executive of such an institution 
 should not be one of its debtors. Mr. Metcalfe deprecated criticism or opposition on the ground that, having been 
 cliosen President, he could niit retire before the expiration of the year without prejudice to his interests. 
 
 One other point raised afresh by the Directors and Mr. Smith requires attention. The Directors inform you 
 that it is not correct that returns to the Government have been so manipulated as to conceal lot is. " Tlie.=c 
 returns," they assert, " have been prepared by the proper officers of the Bank, and are correct." Mr. Smith, 
 also, has " no doubt " that the monthly returns were correctly prepared. Now, returns to the Goviirnment, to 
 be trustworthy, should exhibit precisely the position of the Bank's affairs. The statement of afdcts, for example, 
 sliould include only those which have a hona-fidt existence. But the returns of the Royal Canjidian Bank have 
 exhibited assets without deducting losses actually experienced. Thus, the indebtedness of men known to be 
 insolvent haa been used to swell the volume of reported assets. The President and the Cashier in the conversa- 
 tion of the 17th April, admitted losses to the extent of $200,000, which amount had not been deducted 
 ftom the aggregate of assets returned to the Government. My estimate of the bisses far exceeds these figures. 
 I know that the losses at one agency, which the President and Cashiei* put down at $20,000, really run up to 
 twice that sum ; and though Ather of their representations may not be so far from Jjie truth, I am convinced that 
 they fall considerably short of the reality. 
 
 But, says Mr. Smith, "any unbiassed reader will plainly see Mr. McDonald had the remedy in his own hand 
 — in no instance was information withheld from the Board." Undoubtedly certain books are placed on the table 
 when the Directors meet, butitheir time during the brief sitting is occupied with matters which render personal 
 inspection of the books practioally impossible. Nor, were the case otherwise, is it the business of the Directors to 
 institute a scrutiny into the records at every meeting. It is the duty of the President to report to them the true 
 state of affairs; to inform them of new arrangements, and to take their opinion as to matters that are pending or 
 in contemplation. My complaint is that neither the late nor the present President performed this duty — that 
 neither accustomed himself to consult the Board with reference to credits granted or applied for, or even to report 
 losses, until they had become desperate. In short, both of these gentlemen have uniformly acted on the idea that 
 the President may do as he pleases, and that the Directors are entitled only to such information as he may choose 
 to give them. 
 
 I have now noticed in detail the various allegations with which the Directors and the late President have 
 attempted to break the force of my criticism on their management. You will agree with me, I think, in the 
 opinion that their denials and so-called explanations amount to little. Not one of my statements have they 
 disproved. They have touched them only to reveal their inability to justify the proceedings exposed. Their 
 allusions to my private aft'airs are as untrue in their scope and aim as they are mean and malignant in spirit ; and 
 I have no apprehension that they will divert your attention from the grave averments contained in my former 
 circular, not one of which have these gentlemen ventured to assail. 
 
 Let me remind you of the matters which my assailants have passed in most suggestive silence. I have 
 charged that tlie Bank has accorded large and unprotected credits to individuals limited in resources and engaged 
 in irregular and hazardous transactions ; that of these credits the Board were ignorant, having no opportunity of 
 judging of them at the time and no means of averting their consequences ; that tlie Board have been kept unin- 
 formed of all important business ; that the President for the time being, has asserted absolute authority, claiming to 
 be sole judge of credits to be given and sole manager of the business ; and that the result of this method of managing 
 has been attended with disastrous results. I have charged, also, that the evils of this management have been 
 conspicuous in the affairs of the agencies ; that speculative and otherwise improper transactions have been allowed 
 to go on unchecked ; that agents have been allowed, on their own responsibility, to make advances to persons of 
 doubtful credit, and to engage in operations which efficient supervision would have rendered impossible ; that, as 
 a consequence, serious losses have been experienced by the Bank. Finally, I have alleged that this bad manage- 
 ment is worse than a mere error of judgment — worse than bad faith to the Directors, who are supposed to share 
 its responsibilities ; that it is a wrong to the shareholders, and calls for their early and effective interference. To 
 these allegations, specific and emphatic as they are, the six gentlemen who have tried to abuse and slander me 
 into silence, offer not one syllable in reply. They pay your discernment the poor compliment of supposing that 
 
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••'i»meinmttmnm.»j(Mm>m>>t>a> ■ 
 
 i 
 
 you will fail to (liscriininatc between private attacks upon myself and a refutation of my charges, or an explanation 
 that would uiitif.'atf their effect. ^ 
 
 And who are my assailants that they should arraif,'n me under the pretence of guardin{j; the interests of the 
 Shareholders ! What are their relations to the ]5ank that they should talk to youiot my private affairs | I will 
 answer huth (piestions hy the statement of a single fact. Of all the memhers of the, Board, the President included, 
 I alone do n( 1 owe the Jiank a dollar. I was the only one of the nuniber not injlebtetl to the Bank at the date 
 of the election last duly. 1 am the oidy one not indehted to it now. 
 
 Again, v.hat, until recently, were the relations of my assailants, each to the others ( I shall best explain by 
 laying ])ef(ire you passages from certain correspondence between tlu! late President and the then Agent at Sea- 
 forth -the defaulting, and now .absconding liussell— which correspondence was obtaine<l after his arrival at 
 Ciiicago. I shall ((Uote enough to shew you how zealously Mr. Smith labored to prevent the election of the 
 
 nuijority of the present li<iard,^iid how highly he valued them as associates, 
 have the following :^ "-i;!,;^- ^__ 
 
 '.My 
 
 li'nider date June ;i4th, 1808, we 
 
 I: 
 
 Dkak KlssKl.l,, 
 
 Wliat are yon dniii^' in re proxicH for tlio iiiiiiual mt'i'tiuy '' 1 liave not received any from yon. I « ill recjuiru all yo\i can 
 iilt'd on sonu- chwigeH at the Hoanl, and on that account wU have to oncouiit*r some opi)oHition myself. I rely on 
 
 HcnJ nil', as I liave d 
 
 you b'l'ttiuK nie all you can 
 
 Send them m blank, or filled in my own name, an you may think l)e»t.j 
 
 Yours truly, 
 (Sifemed) A. M. SMITH. 
 
 Five days later, June 2'.)th, Mr. Smith wrote thus to the same person : 
 
 Mv Dk.vu Sin, 
 
 I have youri of 
 reciuire them 
 Air. ]{os..i. 
 
 ... „ . ■ in re proxies, &e., for wliicli I am uiueh obliged. (j!o on .and get all that vou can, an I fancy I will 
 
 I have heard from .Mr.Whiti-'head. Could you not see him, andtiuietly ml) him up tin m.atters that yim inuKt know ; alno 
 Mr. McDonahl ha-i been up there, and I understand han been tellinu' the natives ho Ik to be next I*renident, &c. Thin I 
 would be f,'lad to second un<ter any other cireuniKtaiiccs, but the interest of those Stoekholderti who have taken stock tn my account, and 
 the fact th.at I hold more j)aid up .stock than all the Hoard together tliat is some reason why I should not trust the affairs of the J5auk 
 to the sweet mercies of NVoodsiile anil Manning. Xo one can or could regret more than 1 do thia Unfortunate affair, but I would not be 
 (leMerving the name of a man if I did not at least try to counteract this attempt to place the affaintof the Jlank in tl e ))OWPr of the two 
 men above nu'Utioued, aiul who, in my opinion, is utterly unfit ; at any rate so say many here. I^et me have a note from you through 
 the week. AddreHs me i)rivate, not iw President. Yours, &c., 
 
 (Signed) A. M. SMITH. 
 
 Of these efforts to nujuld the Board according to Mr. Smith's will, his colleagies were not umiware. They, 
 too, exerted themselves to procure proxies, with a result adverse to Mr. Smit I's plans, as the ^'oting already 
 referred to sufficiently proves, .After the eli^ction, under date July IQtb, Mr. ^iiaith; atldressing " My Dear 
 Russell," wrote : "^ • ,.■ • .^^ 
 
 " I have to tV.ank you f(U' the jid-oxies kindly sent to me, which I made the best use we could of. We did not succeed in putting in 
 all the men we wanted, or rather, in putting out those I did not want." &c., &c. 
 
 Among those whom Mr. Smith desired to elect, but did not succeed in electing, was Mr. W. C. Chewett, of 
 Brown's Bank, for whom 2,.'')92 votes were cast. 
 
 It was in the mid.st of this contest for Director.ships ami for the Presidency that the then Board for the first 
 time learned of Mr. ?; .tcalfe's indebtedness to the Bank on a Bill of Exchange on England for ($ifl,000) Forty 
 
 thousand dollars, cashed on tlu; but I'eturned dishonon-d on the , and which, though in the 
 
 Bank, stood on the books in the account of Foreign Exchange, as if that amount were at the credit of the 
 Bank in England, available to be drawn against. ]\Ii'. Smith's object in lunnasking the transactio:i may be 
 imagined ; mine, in alluding to it here, is to enable you to aov. that the books, which we are told, were always 
 acces.sible to me, do not invariably exhibit the actual nature and position of affairs. In this case they would show 
 $40,000 to the credit of Foreign Exchanges ; whereas the bill was lying in the vault of the Bank dishonored. an<l 
 had been there the greater portion of a year. 
 
 My task is tilmost finished. I have portrajed the evil ; it is for you to apply tlu! remedy. My purpose will 
 be accomplished if I succeed in convincing you of the necessity of prompt and decided action on your part to re- 
 organise the management of the Bank, overhaul its affairs, and invest the control in men wholly unconnected 
 with the present Board, and in no manner subject to the demoralising influences which now prevail. Do not 
 transfer your power incautiously. My six opponents profess a willingness to relinquish their positions ; it will be for 
 you to take care that under the guise of retiring they do lot merely give place to their own nominees, who would 
 but perpetuate their policj". The efforts in progress to obtain proxies renders this warning necessary. Keep your 
 votes, at least for the present, and when you do give proxies, let it be to parties whom you know to be uncon- 
 nected with the present Board, and untrammelled Ity obligations to the Bank. Concerted action will be desirable, 
 perhaps requisite, to secure the desired end. 
 
 I shall be pardoned for adding that, in conjunction with a radical change in the management, you should in 
 my opinion cause to be instituted a thorough investigation into the affairs of the Bank, by parties of experience 
 and character in banking, and in no way related to the Board or its ofiUcers. Only by this proceeding will it be 
 possible to ascertain the entire truth. 
 
 ;!■' 
 
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 For seme time yet my address will be at the Senate, Ottawa. ' 
 
 vi I remain, ,y !,j,i. 1o -jr ir, rmnc r. luul I 
 Your obedient servant, 
 
 DONALD Mcdonald 
 
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