The Banco de Sonora during the revolution

In early 1913, as part of a policy of forced loans, interim Governor Pesqueira forced $50,000 from the banks in Hermosillo, including the Banco de Sonora. He then demanded a further loan, but Müller replied that it was impossible as there was no money in the bank, as it had been shipped out of Hermosillo.

Intervention

Because Sonora did not recognise the federal authority, Pesqueira put the bank under the intervention of Heriberto Borunda, who carried out an extraordinary inspection on 11 March 1913. The bank’s manager, Brauer, objected to Borunda’s credentials, though he was willing to go along with the inspection, so they summoned the federal Interventor, Fidel Pujol, to attend as well. The inspection revealed that the bank had moved $300,000 to the United States (including $75,000 on 3 March) and the bank’s reserves consisted of

Three certificados of the Comisión de Cambios y Moneda $900,000.00
Deposit in the Consolidated National Bank, Tucson, Arizona 200,000.00
Deposit in the United States Fidelity and Guaranty Company, Los Angeles 100,000.00
Banknotes 1,680.00
Silver coins 2,657.95
Cheques 7,331.83
Total $1,211,669.78

The Ley General de Instituciones de Crédito of 1897 stipulated that the value of notes in circulation, together with the value of short-term deposits, could not be more than twice the value of coins, silver and gold in reserves. At this time the bank had liabilities of

Short term deposits $90,061.65
Notes in circulation 3,069,690.00
  $3,159,751.65

and assets of

Comisión de Cambios y Moneda certificates $900,000.00
Silver coins 2,657.95
Reserves in its branches (according to 1 January report) 540,585.01
  $1,443,242.96

so even with these dubious assets it was technically in default.

It seems that the Interventor did not produce a complete picture as it was later reported that Bley and Mülller had moved more than $16,000,000 in assets, including several million dollars in gold, across the border and deposited it in various institutionsLos Angeles Times, 9 January 1914. Not all the assets would have belonged to the bank itself..

On 15 March the bank was raided, but only $2,400 was found as Müller had made provisions to safeguard the restEl Paso Herald, 15 March 1913: Los Angeles Times, 16 March 1913. Pesqueira then arrested Müller, allegedly on suspicion of complicity in a crime against the state, a charge (Pesqueira claimed) based in part on one of his own lettersAGHES, Fondo Oficialidad Mayor, tomo 2913. The Mexican Herald, 23 March 1913, was probably closer in stating that it was because he had refused to float a loan through the bank or hand over its funds., and held him incommunicado in the Palacio Municipal for two days, notwithstanding the fact that he was the German consular agent at Hermosillo.

Friends of Müller tried to get him out by offering bonds, but Pesqueira refused. He finally consented to let him go to his house, on account of his being sick, but had a guard of policemen constantly watching him. He was offered his liberty for $20,000, but as Müller had no money in Hermosillo, it was arranged to let him go on 22 March to Nogales, Sonora, under guard, where on payment of the ransom he would be allowed to cross to the American side. The arrangement was duly carried into effect: the money was paid to Roberto V. Pesqueira and Eduardo C. Gonzalez, representatives of Pesqueira, and Müller was allowed to walk across to the American town of Nogales, ArizonaThe Oasis, 17 May 1913: Mexican Herald, 25 March 1913.

On 18 March the Secretario General wrote to the agent of the Banco Nacional de México, Hermosillo, and the managers of the Banco de Sonora, Banco Hipotecario y Agrícola del PacificoThe Banco Hipotecario y Agrícola del Pacifico was established in Hermosillo in November 1910. and of the branches of the Banco Occidental de México and Banco Minero, that the Governor had decreed that, as the banks had been withdrawing their funds from the state, he was suspending all credit operations without his prior knowledge that they would not harm the stateAGHES, Fondo Oficialidad Mayor, tomo 2960.

In June 1913 Pesqueira had a meeting in Douglas with various prominent citizens, including Max Müller, to discuss renewing banking within the state and establishing a new bank, capitalised at $1,000,000. Müller said that he could not negotiate as the rebellion had no hope of success and Huerta would annul all the acts of the new institution. In addition, he was owed the 20,000 dollars he had paid in ransomEl Pais, Mexico, 8 June 1913. Ludwig Brauer denied reports from Nogales that the bank would resume in Hermosillo. He said that as long as the rebels controlled the state the bank would not open for business. Guaymas, Chihuahua, Culiacán and La Paz, he added, were open and doing business as usual, and that when Hermosillo closed, the bank lost very little as all cash and other valuables had been taken to the border in timeMexican Herald, 10 June 1913. In September, Calles, aware that the bank was trying to send valuables abroad, arrested cashier Alejandro F. Tarín at Nogales and found that he was carrying $22,000 in banknotes. Tarín claimed that the money did not belong to the bank but to an individual named Julio PiñaAGHES, Fondo Oficialidad Mayor, tomo 2965. In a deposition on 2 February 1915 Tarín reported that the previous October a Jorge Miles and a Sr. Araiza (of the Administración del Timbre) had tried to shake down Piña for $500 and $2,000 respectively. They had handed over some documents that Piña had subsequently burnt (JMM papers, box 5, folder 2, Statement of A.F. Tarín (to Judge of Court of First Instance), 2 February 1915). This might be connected with this case. Piña had already made a dubious appearance. In January 1911 he was sent by the bank on a commission from Hermosillo to Fronteras, though there were problems as he was on parole (MM papers, copybook, vol. 2, p1, Mascareñas, Nogales to Banco de Sonora, Hermosillo 14 January 1911).

Huerta

Although Sonora was in the hands of the rebels the Banco de Sonora was still answerable to the federal authorities in Mexico City. On 5 November 1913 Huerta decreed that the banknotes of state banks should be legal tender and have compulsory circulation within the limits of their respective states (en cada Estado los billetes que legítimamente pongan en circulación los Bancos locales que en él tengan establecida su matriz o algunos sucursales). The decree required the banks of issue to maintain their reserves against notes in the proportion required by the Ley General de Instituciones de Crédito, but prohibited the banks from redeeming their notes in metallic money.

On 6 January 1914 Huerta issued a decree creating a Guarantee Fund to protect holders of banknotes against losses from bank failures. If at any time the assets of a contributing bank which failed should be insufficient to redeem the bank’s outstanding notes in full, the balance required was to be taken from the Guarantee Fund, and if the Guarantee Fund should be unable to meet the obligation, then the Mexican government would pay the necessary amount. This obviously amounted to a full government guarantee of the banknotes of contributing banks. It was provided in the decree that state banks that contributed their quota to the Fund should enjoy the privilege of having their banknotes made unlimited legal tender and compulsory admission in all payments throughout the Republic. The Banco de Sonora joined the Guarantee Fund on 12 January.

Carranza

On 1 September 1913 Alejandro C. Villaseñor, the Prefecto of Nogales, reported that the Banco de Sonora (and the Banco Nacional) were refusing to cash their own banknotes and the next day that the American banks were refusing to accept Mexican banknotes at any priceAGHES, Fondo Oficialidad Mayor, tomo 2971. On 10 September Villaseñor stated that the lack of small change was causing great alarm and asked the government to threaten the Banco de Sonora in Nogales, Arizona, with confiscation of their goods in Sonora if they did not exchange their banknotes for silver coin. Maytorena agreed, and instructed him to tell the bank to (re)open a branch in the state or face the consequencesAGHES, Fondo Oficialidad Mayor, tomo 2971 telegram Villaseñor,Nogales to Maytorena, Hermosillo, 10 September 1913: telegram Maytorena to Villaseñor, 10 September 1913.

On 6 December 1913 Carranza (circular núm. 7) ordered all the banks operating within the territory controlled by the Constitutionalists to re-open their doors to the general public within thirty days. The period of grace was later extended until 1 February 1914circular núm. 3, Hermosillo, 29 December 1913.

The Constitutionalists argued that, as the Banco de Sonora had issued notes within Mexico but had moved the assets that backed these notes to the United States, they should confiscate the bank’s real estate and order all mortgage loans to be paid into the courts. Most of the bank’s officials were in the United States but on 4 January cashier Tarín returned to Hermosillo to try to persuade the Constitutionalists to give the bank time to reorganise. However, there were rumours that Tarín had obtained Los Angeles capital to take over the bank’s concession on his own account, so as he was boarding his special train to go back to Nogales he had to make a statement that he still was loyal to the former owners and was working to save their property, said to be worth more than ten million gold. "We have been given a short extension of time in which to reopen our main banking-house at Hermosillo, as well as the different branches located all over Northern Mexico," Tarín said. "We also expect to meet the terms proposed by the Constitutionalist officials, but if we are unsuccessful I cannot predict the outcome."Los Angeles Times, 5 January 1914

On 6 January 1914 the Constitucionalist Secretaría de Hacienda wrote to Brauer that Carranza had agreed to extend the time given to the banks to reopen their offices until 10 February 1914 and also that it ‘would not be inconvenient’ for the government to open a deposit account at the bank. However, he could not decree the forced circulation of the bank’s notes, either throughout the Republic or in Sonora itself, as that would be contrary to banking lawCONDUMEX, Fondo XXI, carpeta 6 legajo 777.

A few days later the Los Angeles Times reported that friends of Bley and Müller were charging that Tarín was in sympathy with the Constitutionalists and had given out misleading statements concerning the bank. He was accused of faithlessness and of trying to gain control of the bank (or at least the Sonora shell) in the absence of the head officialsLos Angeles Times, 9 January 1914.

On 17 January a Nogales newspaper reported that H. J. Smith and Tarín had been up from Hermosillo and reported that Brauer was in Hermosillo, negotiating with the Constitutionalist authorities for resumption of business by the bank, with guaranties and safeguards for depositors and shareholders that would insure against interference in the conduct of the institutionThe Oasis, 17 January 1914. The next day it was reported that definite steps were being taken to submerge the old Banco de Sonora in favour of a new $10,000,000 concern, probably to be known as the Banco Hipotico Constitutionalista. Former cashier Tarín has been on the ground for several weeks negotiating a new concession, and inasmuch as Bley and Müller, the reputed owners of the bank, in Los Angeles, refused to return to Mexican soil with the assets of the old institution, the present regime had decided to listen to the prayers of the new organizers. The new banking company offered to start with a capital of ten million gold subscribed largely by American bankers and investors who had been induced to interest themselves on the remarkable record made by the old Banco de Sonora. As well as Tarín, the proposed concessionaires included Alejandro Villasenor, prefecto of Northern Sonora, who through business ability and attention to duty was said to have interested a number of Los Angeles capitalists as well as several bankers from the interior of Arizona in a bond issueLos Angeles Times, 19 January 1914; Douglas Daily International, 21 January 1914.

On 20 January Rafael Zubarán told Carranza that Brauer was asking for a period of six months to bring up the bank's metallic reservesCONDUMEX, Fondo MVIII. The same day Carranza instructed him to tell the bank that on opening its operations to the public it needed to have the amount of reserves prescribed by lawCONDUMEX, Fondo XXI-4. However, as Carranza’s orders still went unheeded he ordered the treasury department to take over the bank’s head office in Hermosillo and its branch in Nogalescircular núm. 8, Nogales, 18 February 1914. Thus the rebels could claim that the Banco de Sonora was operating normally in its territory¡Patria Libre!, 19 February 1914.

In March 1914 the bank’s officers set up the Sonora Bank & Trust Company in Nogales to operate under Arizona banking laws. Adolfo Bley was the new company’s president, Max Müller vice-president, Ludwig Brauer secretary, and many employees of the Banco de Sonora had desks in the new company. The company was based in commodious new quarters in the James Breen building on Morley Avenue, just north of the Montezuma hotelThe Border Vidette, 16 May 1914 and opened for business on 25 May 1914The Border Vidette, 23 May 1914. In the short space of five weeks the aggregate of business showed balances amounting to $578,974.45, while deposits had already reached $475,808.60The Oasis, 18 July 1914.

The new company received a glowing write-up in the local paper’s end of year review:

A NEW BANKING INSTITUTION IN NOGALES WHICH WITHIN SIX MONTHS HAS MADE A REMARKABLE SHOWING.
One of the features of the business of this bank is its handling of the accounts of the Banco de Sonora and its various branches, including those in the cities of Guaymas, Alamos, Culiacan, La Paz and Chihuahua, the principal office of that bank being in the City of Hermosillo, the capital of the state of Sonora. Any check drawn by any depositor upon the Banco de Sonora at Hermosillo or upon any one of its branches, is negotiated upon presentation, and taken into account between this bank and the office against which it is drawn by the depositor. In that way the Banco de Sonora has conserved the interests of an army of depositors in four states of the Republic of Mexico, giving them financial facili€ties in the United States, with a good, strong institution, operating under American laws, controlled by men they know and in whom they have confidence, to make good their checks upon presentation.
For the present, and so long as conditions in Mexico remain unsettled, the offices in Mexico of the Banco de Sonora are closed, and their employees and officials are connected with the new institution in Nogales, Arizona, so far as their services are availableThe Oasis, 31 December 1914.

For the revolutionaries there was always an ambivalence in their attitude towards banknotes for although the banks were considered hostile to their cause and many were already technically bankrupt, they had not been absolved of their commitment to honour their notes and these still commanded more confidence than the revolutionaries’ own issues. One solution was to order that all banknotes should be exchanged for revolutionary currency, and to use the banknotes to purchase supplies in the United States and so, in February 1914 the new governor, Carlos Randall, decreed that anyone possessing notes of the Banco Nacional de México, Banco de Londres or the state banks had to exchange them at the State Treasury for their face value in rebel currencyMexican Herald, 20 February 1914. When Carranza learnt that Randall and Maytorena were making people turn in all their banknotes and giving them paper money or mere promissory notes in exchange and, more importantly, that they were sending the more desirable money to the United States where it was deposited in banks in their own name, he had Obregón arrest themMexican Herald, 25 March 1914.

Originally Carranza distinguished between notes issued before and notes issued after Huerta’s coup d'etat but as the last issue of Banco de Sonora notes was dated January 1911 (though many were undoubtedly issued after that date), this distinction did not apply and all its notes were accepted as legal tender. Later, Carranza issued various decrees making all banknotes legal tender, for example, on 27 August 1914 he decreed that in order to avoid hardship for the needier classes the federal offices would accept any kind of banknote, without limitation, for any type of duty or tax.

When the revolutionary paper money in use in Sonora depreciated, banknotes began to reappear.

In February 1915 Alejandro F. Tarín was arrested in Hermosillo with $90,000 in counterfeit money. It was thought that he had managed to put into circulation a much larger sum, since it was suspected that he had been doing so for some time. Manuel Lacarra and Esperidión Robles were arrested as Tarín’s accomplicesPrensa, 12 February 1915. The investigating judge could not establish whether what he was accused of was a crime and so referred the case to the Prefecto del DistritoAGHES, Fondo Oficialidad Mayor, tomo 3024.

By June 1915 currency dealers along the border were arguing that if a suit was brought against the state banks by holders of their paper currency they could be forced to redeem them, provided always that they still had any assets left with which to pay. Believing that a settlement was not far distant, the officials of many of the state banks in Mexico were shrewdly purchasing their own money. It is stated by money brokers in El Paso that as an example practically the entire issue of the Banco de Sonora has been purchased by interests identified with the bankEl Paso Herald, 10 June 1915.

In early 1916 the bank’s branch in Chihuahua asked for its property to be returned and on 1 April the Provisional Governor of Chihuahua, J. C. Enríquez, asked his Sonoran counterpart for advice. The Sonoran Governor, Plutarco Elías Calles, replied that the bank’s representatives were "the worst enemies of Constitutionalism in the State"AGHES, Fondo Oficialidad Mayor, tomo 3057.