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SALE OF FOREIGN BONDS OR SECURITIES
IN THE UNITED STATES
HEARINGS
BEFORE
THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
S E V E N T Y - S E C O N D
C O N G R E S S
FIRST SESSION
PURSUANT
TO
S. Res. 19
A RESOLUTION AUTHORIZING THE FINANCE COMMITTEE
OF THE SENATE TO INVESTIGATE THE SALE, FLOTATION, AND ALLOCATION BY BANKS, BANKING
INSTITUTIONS, CORPORATIONS, OR INDIVIDUALS OF FOREIGN BONDS OR SECURITIES IN THE UNITED STATES
PART 2
JANUARY 4, 5, 6, AND 7, 1932
Printed for the use of the Committee on Finance
UNITED
STATES
GOVERNMENT PRINTING
W A S H I N G T O N : 1982
OFFICE
COMMITTEE ON FINANCE
REED. SHOOT, Utah, Chairman
JAMES E. WATSON, Indiana.
" *
PAT HARRISON, Mississippi.
DAVID A. REED, Pennsylvania.
WILLIAM H* KING, Utah.
>T,
SAMUEL M. SHORTRIDGE, California.
WALTER F. GEORGE, Georgia.
JAMES COUZENS, Michigan.'»i
DAVID I. WALSH, Massachusetts;
HENRY W. KEYES, New Hampshire.
, ALBEN W. BARKLEY, Kentucky.
M
HIRAM BINGHAM, Connecticut.
TOM CONNALLY, Texas.
*
ROBERT M. LA FOLLETTE, Jr., Wisconsin,.' i THOMAS P. GORE, Oklahoma.
JOHN THOMAS, Idaho. . „
; «j EDWARD.P. COSTIGAN, Colorado.
WESLEY L. JONES, Washington.
' CORDELL HULL, Tennessee.
! Mi
JESSE H. METCALF, Rhode Island:1
ISAAC M. STBWABT, Clerk
H
CONTENTS
Aldrich, Winthrop W., Chase National Bank
Anderson, C. P., jr., Chase, Harris, Forbes Corporation
Corliss, James C., Department of Commerce
Billon, Clarence, Dillon, Reed & Co
Granberry, E. C., Chase, Harris, Forbes Corporation
Jones, Gr os veil or M., Department of Commerce
Kahn, Otto H., Kubn, Loeb & Co
Lamont, Thomas M., J. P. Morgan & Co. (letter)
Speyer, James, Speyer & Co
Stralem, Casimer, Hallgarten & Co., New York City
Swan, Joseph K., Guaranty Co
—
in
PAS*
400
507
747
445
507
723
299
1261
605
1115
866
SALE OF FOBEIGN BONDS OS SECURITIES IN THE
UNITED STATES
M O N D A Y , J A N U A R Y 4, 1932
U N I T E D STATES SENATE, COMMITTEE ON F I N A N C E ,
Washington, D. G.
The committee met at 10 o'clock a. m., pursuant to adjournment
on Monday, December 21, 1931, in the committee hearing room in
the Senate Office Building, Senator Reed Smoot, presiding.
Present: Senators Smoot (chairman), Watson, Reed, Shortridge,
Couzens, Kej'es, Jones, Metcalf, Harrison, King, George, Connally,
Gore, Costigan, and Hull.
Present also: Senator Johnson.
The C H A I R M A N . If the committee will come to order we will proceed with the hearing. Mr. Kahn, you are ready to proceed with
your testimony, I take it?
Mr. K A H N . Yes, Mr. Chairman.
The
CHAIRMAN.
We will be glad for you to do so at this time.
TESTIMONY OF OTTO H. KAHN, MEMBER OF THE BANKING HOUSE
OF KUHN, LOEB & CO., NEW YORK, N. Y.—Resumed
(The witness was duly sworn by the chairman of the committee
when he took the stand on December 21,1931.)
Mr. K A H N . I assume, Mr. Chairman, that I am to go on reading
the loans.
The C H A I R M A N . Just where you left off on Monday, December 21,
1931, which I think was the date you last testified.
Mr. K A H N . In June of 1927, the city of Copenhagen, Denmark,
25-year, 5 per cent, gold loan due in 1952, $15,000,000. The price
paid was 94.29 per cent. The issue price, that is, the net price at
which the bonds were offered to the public, was 97% per cent. The
spread was 2.90 per cent, the purpose of the loans was refunding
and public works and buildings.
Senator JOHNSON. Mr. Kahn, is it possible for you to state while
you are giving these details of loans, the present market price of
the particular bonds of the bonds that were floated by you?
Mr. K A H N . I have not got those data here, I am sorry to say, but
I can say that of all the loans enumerated in list from which"! am
reading and which go back to 1919, in other words, covering a period
of 12 years, there is only one single borrower in default. All the
others are meeting their interest and sinking fund.
Senator JOHNSON. N O ; I was not asking about that. I was asking
what the present market rate is in regard to the particular bonds
299
300
SALE OF FOREIGN BONDS, OB SECUEITIES
or securities about which you are talking and which your house
floated.
Mr. K A H N . I have not got those data here.
Senator JOHNSON. May I at this point call attention to the fact, as
it may save a good deal of the committee's time, that Congressman
LaGuardia put! in ;the; Congressional»Record on, ,the ;10th .of December very lengthy tables showing the. amounts of foreign loans
that have beenfloatedin-this country} the prices at which they were
floated, the present values, and so on. Mr. Kahn, have you ever
examined that table?
M r . K A I I N . NO.
Senator JOHNSON.
V;R .=
. T
.
It purported to be a "series of publications
from the,New York American.
....
. ,
Mr..KAHN. I liaye not examined that statement, Senator Johnson.
,. M' Senator JOHNSON. Very well.
\ Mr; K A H N . I am Jifraid that a similar statement could be;put
into the Congressiohai Record as to a great number of American
bonds and other; American securities which are selling at the present
time not on the basis of their intrinsic value but on the basis of
:
unreasoning fear.
Senator JOHNSON. Just what is the object of that answer? I
queriedyou about foreign investments •
Mr. B W ; Yes.
Senator JOHNSON! Andinimediately your .reflex is that I am going
to say something about American bonds.
Mr. K A I I N . Senator Johnson, my motive is to prove that the present market prices of bonds do not constitute a situation relating
•exclusively-to foreign bonds, but reflect the .prevailing all too widespread attitude of. unreasoning fear on the'part of the American
:
investor. 1
"
Senator JOHNSON. So that you would make a comparison, or at
least leave the implication, that United States Government bonds
are in exactly the same situation as these foreign government bonds
that have been floated.
Mr. K A H N . That they are "in exactly the same situation"Xdo
not say, of courses. In fact, I did not mention American Government bonds. But I do say that the same fear which applies to foreign bonds likewise applies to American bonds^ and I should say
that present values as quoted do not express what I believe to be
the intrinsic value, generally speaking, of foreign bonds any more
than they express the intrinsic value of American bonds.
Senator JOHNSON. Eliminating either: the psychological or the
metaphysical aspects of the case would you say that American Government bonds have been reduced in price in like fashion with foreign government securities that have been floated by your house
and others?
. .
Mr. K A H N . You say, "in like fashion," Senator Johnson?
Senator JOHNSON. Yes5.
. Mr. K A H N . You must permit me to use my own language in replying to your question, otherwise I should > create a, wrong impression.
.. .
V
„
~ Senator JonN'soN. It goes without saying that I want you to use
your own language and to answer as you see fit.
301 SALE OF FOREIGN BONDS, OB SECUEITIES
Mr. K A H N . With your permission I would say that American
Government bonds are in a class by themselves, good and safe beyond peradventure or question, and that an acute and general decline
in foreign bonds or in ordinary American bonds, inspired by fear,
suspicion, a credit crisis, or shaken confidence would not express
itself, of course, by merely the same or a similar percentage as in
American Government bonds. The fact is that the market price
of the last issue of American Government bonds, Federal Government bonds, has declined within about three months by 15 per cent,
an extraordinary heavy and rapid shrinkage for the premier security of the world. If you translate this, and apply it to foreign
bonds, the fact that such bonds have suffered a vast dimunition
in market value does not seem so utterly extraordinary a phenomenon by comparison.
Senator JOHNSON. All right. Now, that is your justification for
the answer that you originally made, is it? I do not want to pursue the subject, but would it be too much to ask you either to
furnish a table or to look at the tables furnished by Congressman
LaGuardia which are in the Congressional Record of December
11, 1931, and state whether or not those tables furnished by Congressman LaGuardia are accurate? Can you do that without too
much difficulty?
Mr. K A H N . I can easily do it when I get back to my office,
Senator Johnson.
Senator JOHNSON. That is what
do it now.
I
mean.
I
am not asking you to
Mr. K A H N . I will be very glad to do it.
Senator JOHNSON. I will submit at the conclusion of your testimony a copy of the Congressional Record of December 11, 1931,
and I will ask you to advise us subsequently whether or not the
tables submitted' by Congressman LaGuardia as appearing in that
record are substantially correct.
Mr. K A I I N . I shall be very glad to do that, Senator.
Senator JOHNSON. All right. Now, pardon me, Mr. Chairman,
for 1
!
lay I have received
from Palm Beach, Fla., from Mr. Otto H. Kahn, a letter in which
he desires to add something to his testimony, and in fairness to him
I am very glad to have that letter inserted as a part of the record.
The C H A I R M A N . I have a similar letter, and was going to ask
that it be made a part of the record, but yours will be sufficient.
Senator JOHNSON. I thank you. The letter is as follows [readPALM BEACH, FLA.,
Hon. HIRAM: W . JOHNSON,
January 5, 1932,
Senate Office Building, Washington D. C.
: Having been at my office uninterruptedly every business day since last July, I have come down here for two weeks of needed
rest Therefore, I am not in a position to check the quotations contained
in the address of Congressman LaGuardia, as you desired me to do. I have
perused the address carefully and have sent it to my firm in New York, with
the request that they check the quotations as best they can and advise you
of the result as promptly as possible.
DEAR SENATOB JOHNSON
302
S A L E OF F O R E I G N B O N D S , OB S E C U E I T I E S
I; wonder whether I would be in order, and whether I may trespass upon
your courtesy, in asking you to read at the next hearing of the Senate Finance
Committee and place into the record of the bearing, the following three statements on my.part, which I had intended to include in my Informal closing
»remarks, but failed to so include, inasmuch as it was manifest that the committee was anxious to proceed to the examination of the next witness:
" 1. I venture to think that the statement which you quoted as attributed
to Mr, S. Parker Gilbert is not couched in his precise language and that, taken
apart from its context, it tends to give an impression somewhat differing, of
course wholly unintentionally on your part, from the meaning intended by
the author.
, "2. My firm originated only two German loans; that is, to the North German
Lloyd and to the city (and port) of Hamburg. It originated loans with one
in only two South American countries, that is, loans to the Argentine Government and to the Mortgage Bank of Chile (a governmental institution similar
.to our Farm Loan Board)..
" 3. Without haying any intention of reflecting upon others, who, perhaps,
showed greater enterprise and eagerness than we did, I should like to say that
" my firm sent no representative to either South America or Europe, for the
purpose of offering American loans or stimulating foreign countries, municipalities or corporations to have recourse to the American Si vestment market.
v "Believe me, dear Senator, with high regard,
" Very faithfully yours,
;
" OTTO H . KAHN."
P.' S.-—As indicating the risks and responsibilities, to which originating bankers and' Underwriting syndicates are inevitably subject, I am asking my firm
to send you, in the hope that you may see fit to insert it in the record of the
.hearings* a statement which I wrote on this subject some years ago, together
with a record of a few examples of more recent date, exemplifying the same
: subject.
Senator J O H N S O N . In addition to that if the chairman will recall
I submitted to Mr. Kahn at the conclusion of his testimony ;a statement of loans which had been put in the Congressional Record by
Congressman LaGuardia. That statement of loans Mr. K a h n said
he would submit to his office and would advise us w h e t h e r or not it
was correct. I am now: in receipt of a letter from Mr. Kahn's officer
and that letter is as follows [reading]:
K U H X , LOEB St Co.,
H o n ; HIRAM W . JOHNSON,
New York, January 6\ 1932.
Senate Office Building, Washington, D. C.
Referring to Mr. Otto H. Kahn's letter to you
of the 5th instant, wherein he stated that he would send Congressman LnGuardia's address of December 11,- 1931, to this office in order to have the prices
of the securities mentioned therein checked in accordance with your request,
I now beg to return to you herewith that address and to advise you that, so
far as we have been able to ascertain them, and this covers the bulk of the
quotations contained therein, they appear to be correct as of the time indicated
in that address.
Referring to the postscript of Mr. Kahn's above-mentioned letter and to
his testimony before your honorable committee, I also beg to inclose herewith
a memorandum written by our firm some years ago, entitled " The Marketing
of American Railroad Securities," exemplifying the risks and responsibilities
taken by bankers and underwriting syndicates, together with a few example*
of more recent date on the same subject.
Believe me, dear sir,
Yours faithfully,
BANJAMIN J. BUTTEBNIESES.
M Y DEAR SENATOR JOHNSON:
The C H A I R M A N . Is that all, Senator Johnson?
Senator J O H N S O N . N O W I offer as well the s t a t e m e n t o f Congressman LaGuardia to which that letter refers* which appeared in the
Congressional Record of December 11- 1931, arid ask that it be made
a part of this record..
The C H A I R M A N . That is all right.
303 S A L E
O F F O R E I G N B O N D S , OB S E C U E I T I E S
EXAMPLES OF SECURITY OFFERINGS W H E R E THE UNDERWRITING SYNDICATE W A S
CALLED UPON TO P A Y FOB A SUBSTANTIAL PART UNSOLD TO TIIE PUBLIC
NEW YORK, N. Y., Manh 11, 1929.
To the Stockholders of the Southern Pacific Company:
Pursuant to a resolution of the executive committee of the board of directors,
.adopted March 7, 1929, but subject to approval of the proposed issue by the
Interstate Commerce Commission, the privilege will be given to the holders of
the stock of the company to subscribe, at 94 per cent and accrued interest, upon
the terms and conditions hereinafter stated, before 3 o'clock p. m. (New
York time), May 15, 1929, for an amount of the bonds hereinafter described,
•equal to 17^ per cent of the par value of the stock of the company registered
in their respective names on its books at 3 o'clock p. m. (New York time),
-April 8, 1929. The bonds referred to will be 40-year 4V& per cent gold bonds of
1929 of an authorized issue not exceeding $65,166,000. The bonds will be
issued in the denomination of $1,000 each. Each $1,000 bond will have attached
thereto a warrant, nondetachable until exercised, entitling the bearer thereof to
purchase, at any time on or before May 1, 1934, three shares of common stock of
the compauy at $145 per share, plus accrued dividend at the then current rate.
Provision will be made in the indenture under which the bonds will be issued
for appropriate adjustment of the purchase price of the stock, in case of the
issue of additional common stock at less than $145 per share, or as a stock
dividend, but in no event will the purchase price be less than the par value of
the stock.
Messrs. Kuliu, Loeb & Cu. have agreed to underwrite the subscription of
stockholders for these bonds. Application will be made to list these bonds
•on the New York Stock Exchange.
In order to insure the necessary funds to provide for its requirements the
•company requested Its bankers to underwrite the above offering and the
hankers formed a syndicate therefor.
Stockholders of the company subscribed for only approximately 20 per cent
•of the above bonds and the bankers were forced to call on participants in the
syndicate to take up the remaining 80 per cent of the issue.
1 During the interval from March to June the bonds sold as low as 89%.
PHILADELPHIA, P A . , OCTOBER 8 , 1 9 2 9 .
To the holders of voting trust certificates for common stock of The Pennroad Corporation:
The board of directors of The Penn road Corporation has decided to Issue and
sell 3 , 0 2 5 , 0 0 0 additional shares of Its common stock without par value. Holders of voting trust certificates for common stock of the corporation will have
the right to purchase on or before November 1 9 , 1 9 2 9 , at $ 1 6 . 5 0 per share, upon
the terms and conditions stated in the accompanying letter from the treasurer,
Toting trust certificates for a number of shares of said additional common stock
equal to one-half of their respective holdings as registered on the books at the
close of business on October 18, 1929.
Messrs. Kuhn. Loeb & Co. havp agreed to underwrite the subscription of
voting trust certificate holders to voting trust certificates for this additional
.stock.
Kuhn, Loeb & Co. as bankers for The Pennroad Corporation formed a syndicate to underwrite the above offering. The offering to stockholders was only
about 50 per cent subscribed thus making it necessary for the syndicate participants to take up and pay for 50 per cent of their participation.
When the above offer was originally made the stock was selling arotrad $23
per share but had declined to around $ 1 5 . 5 0 per share prior to the time whejc
the syndicate had to take over the unsold portion.
N E W YORK, SEPTEMBER 1 0 , 1 9 2 9 .
To the stockholders of Chicago North Western Railway Co.;
The Board of directors of Chicago & North Western Railway Co. (hereinafter
•called "the company") has by resolution authorized an Increase of the authorized capital stock of the company from $200,000,000, par value, to $300,000,000.
304
SALE OF FOREIGN BONDS, OB SECUEITIES
par. value,: by increasing the authorized common stock of the company by. $100,000,000, par value, and has called a special meeting of the stockholders of the
company to be held November 18,1929, for the purpose, among others, of obtaining the approval by the stockholders of such proposed increase.
The board of directors of the company has also determined, subject to
approval of the Interstate Commerce Commission and to the approval by the
stockholders of the company of such proposed increase of the authorized capital stock, to issue $72,335,000, principal amount of 20-year 4% per cent convertible gold bonds, series A, and to offer to the holders of stock of the
company, both preferred and common, the privilege of subscribing, at their
principal amount and accrued interest, upon the terms and conditions hereinafter stated, before 3 p. m. eastern standard time, November 25, 1920, for a
principal amount of said 20-year 4% per cent convertible gold bonds, series A,
equal to '40 per cent of their respective holdings of the stock of the company
as registered on its books at 3 p. m. eastern standard time, September 24,
1929.
" ; .
.
.
Messrs. Kuhh, Loeb & Co., have agreed to underwrite the subscription of the
stockholders for the bonds of series A. '
*'
Thie Chicago & North Western Railway Co. arranged with its bankers !to
form a syndicate to Underwriter the above offering. In November, 1929, tlie
syndicate was called upon to take up approximately 50 per cent of the issue,
stockholders having subscribed to only 50 per cent. h
.:»!?
m; ! •!«
—
, '
Y?»
,f
EXAMPLES OF SECUBITY OFFERINGS NOT UNDERWRITTEN BY A B A R K I N G SYNDICATE
WHERE ISSUE H A D TO B E CANCELED BECAUSE T H E PUBLIC SUBSCRIBED FOR
ONLY A NEGLIGIBLE AMOUNT.
NORTHWEST BAN CORPORATION 175,000 SHARES COMMON STOCK
;R
:
>
On October 10, 1929, common stockholders of this company offered right to
purchase ^additional stock at $72.50 per share in ratio of 1 new share for
every 10 shares held. The offering was underwritten by a syndicate.
. At the time of offering stock seUing around 94. Final subscription date
advanced from November 15, 1929, to December 16, 1929. Stockholders subscribed for only about 10 per cent of the offering so syndicate participants
requested to take up remaining 90 per cent. At the time the stock; was paid
for by the syndicate the stock Was selling for around 63.
Syndicate received as compensation $1 per share and an additional $1 per
share <on all shares purchased at $72.50 per share.
BETHLEHEM STEEL CORPORATION 800,000 SHARES COMMON STOCK.
Stockhplders of record September 20,1929, were offered right to subscribe to
the above stock at $110 per share. At the time of the offering the stock was
selling at $140 per share. The offering was underwritten by a group of bankers. The result of the transaction was that stockholders subscribed to only
50 per cent of the offering and the syndicate was called upon to, take up the
balance at $110 per share although the stock had dropped to $90 per share.
, For this service the underwriting syndicate was paid $1 per share on the
800,000 shares and an additional $1 per share on all shares not subscribed
for by stockholders.
STOCK OFFERINGS NOT UNDERWRITTEN
BY BANKERS
'
.. North American Co* stockholders of record October 16, 1929, were offered
the right to subscribe to New stock at $100 per share in the ratio of l .new;
share for 6ach 10 shares held; the rights to expire November 15, 1929. Inasmuch as the company had outstanding approximately 5,600,000 shares as of the
date of issue of the rights, the total dollar amount which the company would
have received had all rights been exercised, would have been about $56,000,000.
On November 14, 1929, the board of directors of the company decided that in
view of the decline in the market price of the common stock of the company from a high of $186 per share to a low of $69 per share, the rights', were
valueless and should be canceled, which,was subsequently done. The price
of the.rights declined from a high.of $7% to a nominal quotation of?
si
.
305
SALE;
OF , F O R E I G N
B O N D S OR
SECURITIES
American Rolling Milte common, stockholders of record October 25, 1929,
were given the right to subscribe until June 16, 1930, for 285,867 additional
shares at $101 per share on the basis of 1 new share for each 5 shares
held. The total amount which the company would have received had all
rights been exercised in $29,501,000. Only three shares of stock were subscribed for. The price ranged during June, 1930, from a high of $70% to a low
of $51^.
T H E MARKETING OF AUEBICAN RAILROAD SECURITIES
[In the matter o f terms ant! conditions to be prescribed by the commission in connection
with the issuance of securities under section 20a of the interstate commerce act, as
amended]
INTRODUCTION—THE PROBLEM
No more important problem to-day challenges the skill and wisdom of American railroad managements—and the public authorities charged with the function of regulation—than that of how to obtain the capital necessary to provide
the facilities required to transport the commerce of our growing country.
It has been estimated by several high authorities that in order to meet with
any degree of adequacy the requirements for new construction, for additional
main tracks, sidings, and yards, for equipment and terminal facilities, for
elimination of grade crossings, especially in the larger cities, for block signaling
and other safety appliances, and the requisite general strengthening and improvement of existing properties, expenditures are called for, aggregating as
much as $1,000,000,000 a year for a series of years to come.
There is a never-ceasing demand in the United States for more and better
railway services. Unless this demand is to remain unsatisfied the railway management must llnd some way to attract to the railway industry an uninterrupted and steadily augmenting flow of new capital.
The problem is no less vital to the public whose prosperity and convenience
so largely depend upon the adequacy of its transportation service. At the same
time, the public which pays the rates providing the return earned upon capital
invested in railroads, has a clear interest in having the railroads sell their
securities—and obtain their new capital—upon terras which involve no burden
upon rates beyond that actually necessary to attract the required capital.
Capital already invested in railroad facilities is irrevocably committed, but
any and all new capital must be attracted from the investing public upon terms
and under conditions >vhich appear to that public.
It is thus of essential importance that the following purposes be accomplished :
(1) Obtain the capital.
(2) Attract it upon fair and reasonable terms.
(3) Have a broad and stable market for railroad securities and a favorable
disposition on the part of investors toward such securities.
Generally speaking, the existing method of disposing of railroad securities is
by three processes:
(1) Offering stock pro rata to existing shareholders, the issue usually being
underwritten by bankers;
(2) Selling bonds at a fixed price to bankers, who through the medium of a
syndicate and with the cooperation of distributing houses throughout the
country, market them to the public; and
(3) Selling an issue through a banker to the public, with a commission to
the banker for his services. (This method is very rarely employed.)
The question is now raised whether it would be well that the existing practice be changed and that railroad securities hereafter be sold by one of the
following methods, viz:
(1) Unrestricted public bidding; or
(2) Competition among bankers.
Such a change would, of course, involve the abandonment of the heretofore
prevailing method, under which a railroad company usually selects a banking
house of high standing and, so long as the services of that banker are satisfactory, makes its issues of securities customarily through or with the aid of
that house.
The suggested change contemplates that the relationship between the railroad and the investment market shall be similar to that between American
municipalities and the investment market, wherein issues of securities are
usually sold by competitive bidding.
. 306
SALE;
OF , FOREIGN BONDS OR SECURITIES
In considering this problem, the paramount question is: How can it be made
certain that the vast amounts of new capital required by the railroads, year
in and year out, shall be forthcoming upon the most advantageous, terms?,
I . T H E EXISTING PRACTICE OF DEALINO THROUGH BANKERS
A . WITH AMERICAN BAHJJOADS
As a rule, railroad companies of the United States, like those of other countries* market their bonds by selling them either to or through bankers. In
cases where securities are offered for pro rata subscription to stockholders it
is customary for the corporation to protect itself by arranging with bankers to
underwrite, or to form a group to underwrite, their sale; tlmt is, to agree to
purchase such of the securities as are not taken by the stockholders.
Most of the important railroad companies, as well as industrial corporations,
make a practice of dealing with a particular banking house or a particular
group of bankers in marketing securities. This relationship rarely rests on
formal contract. As a rule, the relationship is informal and tacit and its duration, as will be developed in detail further on, depends wholly upon the satisfaction of the railroad with the services rendered. A railroad company gradually comes to recognize a particular banking house as its banker.
The existence of such a relationship means that the railroad has at its disposal continuously the services, skill, standing, experience, advice, and financial
influence and capacity of the banker.
: Among the banker's functions are to keep track of the financial situation and
requirements of the railroad, to assist in the preparation, in advance of the
need, of a proper and serviceable system for financing such requirements; to
advise as to the class, kind, and denomination of securities to be issued and
as to the best time for selling them, so that liis clients may not miss'an opportune moment for meeting their requirements; to indicate from his survey of
the markets of the world ihis judgment as to the amount of securities which
could be absorbed in one or the other market; to scrutinize the mortgages and
deeds of trust under which securities are to be issued, with a view to their
provisions being, on the one hand, carefully protective of the investor, and, on
the other hand, sufficiently broad and elastic not to hamper and restrict the
corporation unduly In respect of its future requirements.
The terms of a negotiation are by no means imposed by the banker, for it is
easily .within the means, and is recognized as an important and responsible
duty, of those conducting negotiations on behalf of the railroad company, to
acquaint themselves with the reasonable market value of the securities which
it desires to sell and to insist upon obtaining a fully adequate price.
The railroads for whom bankers act nowadays can have no inducement to
continue that affiliation except satisfaction with the services rendered.
A railroad company generally is, and always ought to be, free to terminate
its relationship with its bankers at any time and entirely within its own
discretion.
That changes In the relationships between railroads and bankers do occur
is indicated by the variations which take place in the course of time, in the
connections, and the relative influence and position of the prominent banking
firms which deal in railroad securities.
The relationship between the railroad and its bankers is one which, whilst
not limiting the railroad's freedom of action according to its own judgment
•of its best interest, does Involve upon the part of the bankers certain definite
and continuous duties and obligations, more fully referred to later on.
B. WITH INDUSTRIAL CORPORATIONS
Industrial corporations, unlike railway companies subject to public regulation, are entirely free to sell their securities in whatever way they deem most
advantageous. Their managers, or presidents, are very frequently among the
larger stockholders, and indeed, in numerous cases, are the principal stockholders, of the respective concerns, and therefore have a more direct and
important pecuniary stake in their enterprises than can be the case with the
chief executives of our large railroad corporations, the ownership of which
is scattered in the hands of several hundred thousand shareholders.
Yet, there are hardly any industrial concerns either here or in Europe which
dispose of their securities by competitive bidding a m o n g bankers o r b y direct
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offering to the public. Practically all such corporations pursue the course
of negotiating with one particular banker or group of bankers and entrusting
the handling of their security issues to such banker or group of bankers so long
as their services prove satisfactory. Their action is conclusive evidence that
the system of competitive bidding is found unsuitable and disserviceable by
the consensus of opinion of those in charge of industrial affairs, here and in
Europe.
I I . H o w RAILROAD SECURITIES ABE PLACED W I T H THE PUBLIC
The great complexity involved in the sale of securities will readily be seen
from a brief outline of the methods usually adopted in marketing a large issue
of bonds. The railroad, in the iirst instance, sells the issue to a strong banking
firm at a price mutually agreed upon through negotiation. That firm then
associates with itself a syndicate consisting of many (usually hundreds) of
other banking, brokerage, investment, and distributing houses throughout the
country, each having its clientele of investment customers.
Bankers, of course, do not buy securities for permanent investment by
themselves. If bankers or syndicates permanently kept the securities which
they bought from the railroads their capacity to undertake such transactions
would be exhausted very soon.
If securities are to be placed, they must ultimately find lodgment with
investors, and. while the amounts of securities taken by large investors, such
as the life insurance companies, savings banks, and capitalists, appear large,
their aggregate, especially since the advent of the high surtaxes, is small compared with the investments of the rank and file of small investors.
Pending the formation of a syndicate, the firm which has contracted with
the railroad stands in the breach, and is responsible to the railroad whether
or not it succeeds in forming the syndicate. Even after the formation of the
syndicate, the practice is that the responsibility of the contracting firm continues and it remains liable to the railroad for the due fulfillment by each
syndicate member of the obligation undertaken by him.
Then begins the laborious process of selling securities to ultimate investors,
through advertising, letters and circulars, and presonal presentation, and in
this labor are engaged large numbers of dealers in securities, each with his
own clientele. In time, if the issue is a success, the securities are absorbed.
If the issue Is not a success the participants in the syndicate must either sell
the securities at a loss or carry them along until the advent of propitious
times enables them to dispose of them.
The selling of securities to the public has in recent years undergone a radical
change. Formerly, the principal buyers of railroad bonds were wealthy individuals and large corporations, especially insurance companies and savings
banks. The former, owing to the surtaxes, have practically been eliminated
as absorbers of railroad bonds and confine their investments very largely to
tax-exempt securities, while the insurance corporations and savings banks
jtlo not invest as largely as before the war in railroad securities.
It has therefore been found necessary to discover new channels for the
absorption of railroad bonds. This has been accomplished within the past
few years by a most intensive campaign of education and distribution among
the rank and file of Investors.
The result has been exceedingly gratifying in that a vast army of small
investors has been developed. The achievement is of great public consequence from the social and economic point of view.
I I I . T H E PROPOSAL TO MARKET RAILROAD SECURITIES BY COMPETITIVE BIDDING
It is now urged in certain quarters that railroad companies would do better
if they should discontinue dealing habitually with particular banking houses,
and, whenever they have securities to sell, would offer them for sale by competitive bidding among bankers, regardless of past affiliations.
Some even go so far as to advocate that bankers, as such, should not1 be
used at all, not even upon a competitive basis, but that the railroad companies
should sell their securities directly to their own stockholders or to the public
at large, preferably offering them for public tender and accepting the proposals
of the highest bidders.
If rairoads offered bonds direct for public subscription in limited amounts,
the result might be fairly satisfactory in good or normal times, although even
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then, deprived, of the facilities, the skill, and the sponsorship of responsible
bankers, the prices obtained would probably be lower than those which would
have been realized by dealing with a banker, and that consideration takes
no account of the uncertainty in which the railroad would necessarily find
itself as to what portion of the funds it required would be in fact realized
as the result of the public offering.
Moreover the public demand would naturally concentrate itself upon the
issues of the best known and most prosperous railroads, making it very difficult
for railroads • not. enjoying high ; credit to obtaur necessary funds—all the
more difficult, as the system of competitive bidding would offer no inducement
to bankers to > take .upon themselves the risk and responsibility of acquiring
such issues. ,
Under that plan there would likewise be less assurance of the pursuance by
railroads of a sound and consistent financial policy such as a prudent and conservative banker requires as a basis for commending securities to the confidence
of the investing public which looks to the banker for advice and leadership.
In unfavorable times, of course, the public's response to an offering of securities is small, at times exceedingly small. It occurs frequently that bankers or
syndicates have to carry issues of bonds, which they have purchased, for many
months or even! years, until investment demand revives. If an issue of bonds
offered by a railroad for competitive bids on direct public subscription resulted
in non-success, the issue, if saleable at all, could only be disposed of at a very
heavy sacrifice.
The failure of a public offering and the consequent public knowledge that
the railroad had been unable to obtain the funds it requires, would cause grave
damage to a railroad's credit, if it did not for the time, entirely destroy it, would
cause alarm amongst investors, and in not a few cases might cause bankruptcy.
That is the'vital and fundamental difference between the risk incurred by
municipalities and that incurred by railroads in the disposal of their bonds by
public bidding. If a municipality fails to dispose of its bonds, the situation
thereby created, though embarrassing, does not ordinarily involve grave hann,
and can be. dealt with. If a railroad.fails, however, the damage done is exceedingly grave at best—and may be irremediable.
THE "PUBLIC" DOES NOT BID
As a matter of fact, unrestricted public competition does not in practice
mean what the term implies, because all experience has shown that the public
does not care for such bidding and actually refrains from participating therein
to any appreciable extent. Even in the case of municipal securities, it is amply
demonstrated that the offerings are not taken by the public in the process of
competitive bidding, except in a very limited measure. The successful bidders
both as to quantity and price are almost invariably bankers or banking syndicates, who buy for resale to the investor.
The public wisely requires, even in the case of municipal securities, the advice and moral responsibility of bankers. They want to be sure that all legal
matters have been properly looked into by somebody, not the seller, and that
the soundness and validity of the security is vouched for by a competent and
reliable firm.
If, as experience has shown, the public can not be depended on to cover the
offering even of municipal bonds by competitive bidding, this would be so in a
still more pronounced degree in the case of , railroad securities. It follows that
public competition would really mean not-offering securities to the public, but
offering them to the bankers.
The banker, if he were—as he would be in this case—entirely free to bid
or not bid, to pick and choose, to take the best and leave the less good alone,
would actually leave the less good alone, with the result that many railroads
would find themselves freed with the grave consequences of the failure of
public offerings.
Municipal and State securities possess the immense advantage of being tax
free. Yet it has happened, in the past quite often, and even not unfrequently
of more recent dates, that such issues were not covered when offered foir
public bidding, the failure, entire or partial; being due usually to their being
unsuited to the market or because of some doubt as to their legality. Can
it be doubted that the same result would occur much more .frequently in the
case of railroad securities if offered for public bidding?.
.309SALE;OF , FOREIGN BONDS OR SECURITIES
THE EXPERIENCE OF CITIES
It is true that Government and municipal securities in this country are
usually offered for competitive bidding, but Government, State, and municipal
financing is not comparable with corporation financing. In the former case
the securities based upon the taxing authority are in the simplest form—
generally little more than a plain promise to pay—and in recent years, since
the advent of high surtaxes, a ready market is usually assured by the taxexemption feature.
Nevertheless, public officials usually deem it wise to consult bankers before
determining their financial policies and particularly before Issuing large loans,
and at times have sought and obtained in advance informal guarantees from
bankers that offerings will be covered. They can, of course, rely upon bankers rendering assistance as a matter of civic duty. In the case of railroads,
with the element of habitual clientage between railroad and banker eliminated, it would naturally be impossible to count upon any such uncompensated
advice and assistance.
As illustrating the point that the financing of State and even the highest
grade municipal bonds has not always been successful in spite of the tax
exemption feature, it may be mentioned that in June and August, 1907, the
city of New York offered two issues of bonds of $29,000,000 and $15,000,000,
respectively, for which bids of only $2,100,000 and $2,700,000, respectively, were
received. The issues were sold by private sale to bankers a few months later.
About the same time a small offering of bonds by the State of New York
met with a similar result.
In 1914, shortly after the outbreak of the war, the city of New York, finding itself in immediate need of $100,000,000 of gold to pay notes maturing
in England and France, turned to J. P. Morgan & Co. and Kuhn, Loeb & Co.,
who, without compensation, as a matter of public duty, undertook to organize,
and in the midst of conditions of unprecedented difficulty, did organize a
syndicate to provide the necessary funds.
In more than one instance in the years preceding that occurrence, the city
was compelled, in order to avoid failure of an issue offered for public tender
for the purpose of meeting pressing requirements, to have recourse to one
or the other of the leading banking houses. In numerous cases, it was only
large subscriptions by such banking houses—made often without any expectation of profit and resulting none too rarely in losses—which avoided the, at
least partial, failure of public offerings of the bonds of the city of New York.
There is no reason to believe that the cities have been better off under the
practice of selling bonds at public offering to the highest bidders than they
would have been had they been permitted to deal privately with the bankers
as do the railroads. But, even If it were otherwise, it is manifest that railroad companies could not possibly expect to fare as well as do the municipalities if they had to depend upon the uncertain and fluctuating public demand
when they attempt to sell their securities at public offering to the highest
bidder.
Especially does this hold true in the case of the less strong railroads, where
a careful analysis and study of the condition of the company and sometimes
even an auditor's or an expert's report is required before a conservative banker
will stand sponsor for the company's securities. The investing public will
neither take the trouble, nor does it possess the qualifications, to analyze for
itself the position of the securities of the less well-known properties and to
form a reasoned estimate as to their degree of safety, based, as such estimate
must be, upon the compilation and study of statistical and other data, which
it is among the functions of the banker to gather and to make available to his
investment clients in convenient and easily understood form.
In this connection it is significant that the Farm Board Bureau of the United
States Treasury has found it advantageous to issue the bonds of the farm-loan
banks not by competitive bidding but through a group of bankers selected by
the bureau whom it may at all times feel free to consult and who watch the
markets in the interest of the bureau.
EUROPEAN PRACTICE
In not a single European country does the system prevail of competitive sale,
either general or limited, of securities on the part of corporations. Moreover,
many, even of the governments and municipalities in placing their loans, have
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recourse not to competitive bidding but to regularly established and continuous
connections with a banking house or a group of banking houses. Not one of the
foreign governments, belligerent or neutral, which during the European war
have found access to the American investment market for the securities of
their respective countries, has recourse to competitive bidding among bankers
or otherwise. In each instance the government concerned has dealt with some
one particular banker or group of bankers whom It selected as efficient and
worthy of confidence.
A cabled inquiry addressed within a week to eight different countries in
Europe, and also to Japan, to find out whether, since the war, the practice has
been modified in those countries of dealing with selected bankers for the sale
of public service and other corporate securities and even, in numerous cases,
governmental or municipal bonds, elicits the information that no reason, has
been found to change that, practice and that it continues to prevail.
I V . T H E PRESENT METHOD OF UNDERWRITING THE SALE OF STOCKS TO SHAREHOLDERS
Under the laws of most States the charters of most corporations, It is necessary that new issues of stock, or of bonds carrying the privilege'of conversion
into , stock, must first be offered for pro rata subscription to the corporations"
stockholders. In such cases the banker's knowledge of markets is valuable to
advise the corporation of the character of securities which its shareholders are.
likely to accept or for which the subscription rights would command a market
value.
When, an offering of new stock is made to shareholders of a corporation it
creates a technically weak market position, inasmuch as both the existing stock-,
holder and the speculator know that there is a mass of new stock about to
issue, .and the market must absorb it Consequently the speculator is apt to
incline towards rushing into the market, arguing to himself: I will sell that
stock. I will get it back cheaper. The market must absorb such and such a
number of millions of new stock, and it can not do that without going down.
I am quite safe in selling some."
Experience has shown .that in many cases the stockholder to whom the so-,
called right to subscribe for new stock is offered, does not exercise that right
He is not always prepared to put up additional cash. He frequently sells his
" rights " for whatever may be their market value.
Consequently, by the very issue of additional stock, offered to existing stockholders, there is created an unfavorable and somewhat hazardous market condition. Naturally, the tendency invariably is for the offering of stock to depress the existing level of the stock. That may go so far as to remove any
inducements to the stockholder to subscribe for the n e w stock, and to render
rights" valueless. An unprotected offering, that is, an offering not pro-,
tected by underwriters, is a target for selling.
Moreover, not to mention the damage to its credit in case of the failure of
such an offering, the railroad is uncertain pending the time in which the securities are under offer to the stockholders (usually not less than from 45 to 60
days whether or not, or to what extent, the stockholders will subscribe, and is,
conseuqently, in doubt whether, at the end of the subscription period, it will
come into possession of the funds it requires.
M
All of this is obviated by the formation of an underwriting syndicate inasmuch as it guarantees to take and pay for any part of the offering which the
stockholders may not want to take. The existence of such a syndicate and the
resulting guarantee, of the success of the offering has a strong moral effect
upon the stockholders In encouring them to subscribe, and an equally strong
effect in discouring speculators from " short selling " while ; an unprotected
offering invites such selling,.
,
It follows - that a railroad can snfely afford to offer securities at a much
higher price when underwritten than they would risk fixing when not secured
and protected by an underwriting.
. T ?
..-».!•
A characteristic illustration of the foregoing is furnished by the experience
of the Pennsylvania Railroad Co., than which there is no stronger railroad
corporation in the country, when in 1903* it without underwriting, offered
$75,000,000 of its stock for subscription by its stockholders at 120 per cent.
The market: price, of the stock:at the time was, and for some time had been,
around 145 per cent. Owing to the large difference, between i the market price,
and the price ;of< the: offering,-the• officers and directors of the,railroad: deemeu
it unnecessary to insure success by an underwriting.
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As a result of changes In market conditions, sales of rights by stockholders,
and selling by speculators, it being known that there was no underwriting syndicate, the market value of the stock rapidly decUned. When the price in its
descent had reached 125%, and the failure of the offering appeared imminent,
the railroad finally called upon its bankers to form a syndicate to underwrite
the issue, which was promptly done. The reassuring effect of the mere public
announcement that a syndicate had guaranteed to take and pay for any part
of the offering which was not subscribed for by the stockholders, was such as
to arrest immediately the selling on the part of alarmed stockholders as well as
by speculators. The decline In the market stopped, and a threatened failure,
which might have involved serious consequences and affected railroad credit
generally, was turned Into a complete success.
Even after taking into consideration the expense of an underwriting syndicate, a railroad will usually obtain materially higher net proceeds from an underwritten offering, than from one not underwritten, in addition to the advantage of being certain of securing the required funds.
Manifestly, It is more advantageous to a railroad's financial position and the
maintenance of the price level of its securities to offer a security, even to its
stockholders, at say 110, and pay a reasonable underwriting commission, rather
than to offer it at par without an underwriting.
The cases in which railroad companies or other corporations have successfully
sold their securities direct to the investor are exceedingly rare, and even then
usually at prices below what could have been obtained from bankers.
To quote only one example of nonsuccess in the case of direct dealing with
the public, the Vermont Valley Railroad in 1014 offered for competition by
sealed tenders an issue of $2,300,000 of its 0 per cent 1-year notes. Although
the Vermont Valley Railroad was a very prosperous concern, having a record
at that time of having paid dividends at the rate of 10 per cent per annum
for nine years, and the notes had the additional security of being guaranteed
by the Connecticut River Railroad Co., the offering resulted in complete
failure, practically no bids having been received.
On the other hand, the case of the American Telephone & Telegraph Co.
which recently sold a large issue of stock at par directly to its stockholders,
without the intermediation of hankers, has been cited as significant and indicative of the possibilities of effectve results without the cooperaton of bankers.
The real significance in that case, however, lies in the patent fact that had that
issue been underwritten by bankers a considerably higher price for the company could have been obtained. The security sold by the American Telegraph
& Telephone Co. was seasoned stock paying 9 per cent dividends. It was offered
at par. Bankers, in consideration of a reasonable commission, would gladly
have underwritten the offering at a considerably higher price. It should be
understood that this does not imply any suggestion of criticism as to the course
pursued by the company. There were valid considerations of broad policy
which guided the decision of those in responsible charge, to give to the vast
body of its stockholders the benefit of a stock offering at a particularly attractive price.
V . EFFECTIVE COMPETITION
PREVAILS UNDER
PBESENT
METHODS
: There are ever-present elements of actual or potential competition which
assure favorable terms to a railroad company dealing habitually with the same
bankers.
The price and the margin of profit or commission at which a hanker concludes a negotiation with a railroad company for its securities is necessarily
in competition with the terms upon which other bankers negotiate with other
railroad companies for their securities.
The prices at which railroads sell their securities are now matters of public
record. Moreover, the terms of a contract between the railroad and the banker
are subject to the approval of the Interstate Commerce Commission. No banker
expecting to maintain his regular connection with a railroad company can do
otherwise than pay full and fair value for the securities which it has to sell.
It Is a matter of necessity and self-interest for him to do so.
Railroad companies, through various means, are well able to place an accurate estimate upon the market value of securities which they have for sale,
and no board of directors could afford to Incur the opprobrium and responsi92928^-32—PT 2
2
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bility of selling securities to their regular banking connections otherwise than
on the basis of what they are reasonably and fairly worth, considering the time
and the conditions.
The prevailing market prices of existing issues fix very closely the prices at
which new securities can be sold to investors. The banker who would make
a practice of marketing the securities of his clients at prices materially below
the prevailing prices, for issues of similar character and quality would soon
lose his clients.
.
In isolated instances, for the purpose of obtaining advertisement or position,
or even, in certain instances, for reasons of a less legitimate kind, others than
the regular banking connections of particular railroads may conceivably be
willing to pay a somewhat higher price for an issue of securities than such
regular connections; but there is no reason whatever to think that such "occasional" bidders would be able or willing to do better for the railroads, year
in arid year out, than the bankers usually acting for those railroads. On the
contrary, there is every reason to expect the reverse.
Whether through a system either of unrestricted public bidding or of competitive bidding limited to banks, the railroads year in and year out would
obtain higher prices for their securities than have been, and are being realized
under the existing time-tested system, is a matter of opinion and can not be
anything else. Whether that opinion is pro or con, there can be no question
that as against gaining a wholly problematical and uncertain benefit the railroads stand to lose the certain, well-established and weighty advantages which
now accrue to them through the responsibility and moral and practical obligations toward them of the bankers with whom they habitually deal.
To market railroad securities on a large scale requires a combination of skill,
experience, capital, reputation, and connections that, from the nature of the
case, can be possessed by only a limited number of concerns at any one time,
because only the test of time will produce most of these necessary qualities.
That skill, experience, and reputation it is the business of the banker to
make available to his clients, together with his financial potency and relationships. ,
A banker of long experience with a record of success, conservatism, and integrity, develops a power to place securities that is of great value to his clients,
cumulatively so the longer the relationship is maintained.
RESULTS MUST BE JUDGED OVER PERIOD COVERING BOTH RISING AND DECLINING
MARKETS
The question of the best and most serviceable method of selling railroad securities must be determined not from the wholly exceptional and fortuitous
circumstances which have prevailed during the last year, but in the light of
the experience of the longer past and the needs of the future.
In the marketing of securities, as in other businesses, there are occasional
periods of excessive activity, usually of comparatively short duration, occasional periods of acute depression and longer periods of normal activity.
It happens that this year has been a period of unparalleled activity in the
marketing of securities of domestic issues, simultaneously with, and partly
caused by, growing reluctance to Invest in issues of European countries. There
has been a vast and almost insatiable demand for new domestic securities, particularly bonds, an almost uninterrupted decrease in interest rates and a
corresponding increase in the market value of securities.
The result has been that bankers and syndicates have been m u c h more than
usually successful in marketing the domestic security issues which they have
purchased and that as a rule new security issues have advanced in the market
and reached prices in excess of the Issue price. The upward trend of security
values is illustrated by the fact that in the last 10 months the average market
price of 10 standard railroad bond issues taken at random has increased about
13 points.
It has been a time when it was possible to indulge in improvident bidding or
"spite bidding," without being deterred by the swift penalty of nonsuccess in
marketing, which follows such practices under normal circumstances.
Under these conditions, it is easy for critics who consider only recent experience, and whose knowledge does not carry them back to the pre-war years
(which, after all, furnish the best standards for judging the future), to jump
at the conclusion that the railroads have not been receiving the best possible
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prices for the securities they have marketed and that higher prices would have
been realized if the sale of railroad securities had been opened, up for competition.
Criticism has been especially easy and abundant on the part of those who
have little or no background of experience in the marketing of railroad securities to guide tliein. who have not had to bear the responsibility of financing the
requirements of great railroad properties in normal times and during periods
of depression and who do not realize the necessity of looking ahead to the
future periods of depression or of more normal demand for securities when
tbe railroads of the country will have the same need for new capital as now.
V I . PRESENT PROCEDURE H A S PROVED OF ADVANTAGE TO THE RAILROADS
To deal through bankers in accordance with present practice, has actually
proved itself a source of distinct financial advantage to railroads—even the
most prosperous and soundly financed companies.
A few conspicuous cases may be cited here to illustrate the point: 1
1. In March, 1005, the Pennsylvania Railroad arranged with its bankers to
form a syndicate to underwrite the oiler to its shareholders at par of $100,000,000 Pennsylvania Ilailroad 3J/£ per cent convertible bonds (convertible into
stock at 150 per cent). The stockholders subscribed for less than 10 per cent
of the offering and, consequently, the underwriting syndicate had to take and
pay for about $00,000,000 of the bonds. The bonds within the year declined to
97% per cent and never again reached par, the price at which they were first
offered.
If it had not been for the underwriting syndicate, the situation, resulting
from the failure of the stockholders to subscribe and thus provide the money
needed by tbe railroad, would have been very embarrassing to the railroad and
very serious in its effect upon the general financial and investment situation
of the country.
2. In 1903, a situation had arisen which had brought the market for railroad
bonds in this country to a complete standstill. Railroads for many months
were unable to obtain funds, except, to a limited extent, by means of the costly
and dangerous expedient of selling short-term notes. The effect was cumulative and far-reaching and threatened to bring about serious consequences. At
this juncture the bankers of the Pennsylvania Railroad succeeded in inducing
the two foremost banking houses in England, Messrs. N. M. Rothschild & Sons,
and Messrs. Baring Brothers & Co. (Ltd.) (the former of whom had not issued
an American security for many years), to purchase and bring out jointly with
them at 96 per cent an issue of $40,000,000 Pennsylvania Railroad 4 per cent
consolidated bonds.
Largely in consequence of the prestige and placing power and investment
following of the issuing houses, the public offering was a complete success and
its effect, as recognized by many published comments here and abroad, was to
break the deadlodc which had existed, and to cause capital to flow again freely
into the investment market.
3. In August, 1913, bankers formed a syndicate to underwrite the offer to
Union Pacifip stockholders of $88,000,000 Southern Pacific stock trust certificates
at 92 per cent The effectuation of that sale was of very great Importance
as, failing it by a certain very near date, the Southern Pacific stock in question
would have been placed, under a court decree, in the hands of a receiver, the
sentimental and actual effect of which course would have been grave.
In the face of many predictions that a syndicate to guarantee the sale of
so vast an amount of stock could not be formed under the then prevailing
generally disturbed and unfavorable conditions, the bankers, with the aid of
their connections throughout America and Europe* succeeded in the undertaking,
the syndicate as finally made up consisting of nearly a thousand participants.
'It is entirely safe and well within bounds to say that if that mass of stock
had been offered without guarantee and protection of an underwriting syndicate,
it would not have been sold—if at all, within the time limit set by the court—
at a price averaging better than 80 per cent
4. In connection with the first plan for the dissolution of the Union PacificSouthern Pacific combination approved by Attorney General Wickersham (which
* A number of additional instances of a similar value to the railroads will be found on
pages 33 to 37.
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of adoption because of the refusal of the California railroad commission
to approve certain of its features), he imposed the condition that the sale of
the Union Pacific Co/s holdings of Southern Pacific stock (which would be
offered for pro rata purchase to the stockholders in the Southern Pacific Co.),
should be underwritten by a syndicate.
He imposed that condition for the manifest reason that the sale of the stock,
however attractive the price to the stockholders might be, could be insured
only in case definite arrangements were made for a sale of the stock that
might not be taken by the stockholders upon the offering.
None of the aforementioned transactions, under the circumstances of the
cases and the times, could have been effected equally well, if at all, by any
method of competitive negotiating or bidding.
failed
VII.
T H E PAYMENT TO THE BANKER IS FOB ASSUMING A
AND PERFORMING A VALUABLE SERVICE
SUBSTANTIAL RISK
The risk taken by the banker and the syndicate he may organize is always a
real and at times a very great one. There is widespread misapprehension as to
the profits made by bankers and syndicates upon the underwriting and purchase
of securities of railroad companies.
There is also a frequently encountered misconception to the effect that the
railroads are in the habit of paying a commission to the banker when selling
securities to him.
When the banker forms a syndicate to underwite an offer of securities to
shareholders a fixed commission is naturally stipulated, commensurate with
the advantage secured by the railroad company in obtaining through the underwriting the certainty of the success of its offering, and with the risk incurred by
the banker and the syndicate affiliated with him.
On the other hand, in the case of the sale of railroad securities to or through
bankers without an offering to stockholders, it is very unusual for the sale to be
on a commission basis. As a rule, the procedure is that the banker makes
a firm bid to the railroad for such securities at a fixed price, said price with
the addition of a reasonable standardized percentage for his own compensation
being the figure at which he expects to be able to form a syndicate. That
compensation is in return for his preparatory work, his moral and actual
responsibility and risk and his services in managing the syndicate. It is
a charge made by the banker to the syndicate.
The compensation of the banker and the anticipated profit of the syndicate
lire practically a fixed percentage. The banker*s method is not, to buy low
and seU high. In fixing the selling price to the public, he merely adds to the
purchase price a certain percentage to cover his own and his syndicate's compensation and expenses, and that percentage does not vary materially irrespective of whether the purchase price was say 90 per cent or 95 per cent or
100 per cent.
His aim and inducement are to buy at a price which will enable the securities
to be sold to the public after adding to that price the customary compensation. He has no inducement whatever to buy at a lesser price, because his
compensation would not be increased thereby, but on the other hand the
good will and approval of the railroad concerned would be jeopardized.
When a syndicate is formed the banker's financial risk is by no means
ended, as, in practically aU cases, he is himself a large participant in the
syndicate—is, in fact, expected to be. Moreover, generally, he remains financially responsible, to the railroad for the commitment of each Individual syndicate participant.: The railroad looks to him for the due performance of
the contract, and not to the hundreds of syndicate members.
Again, his moral risk and responsibility towards the syndicate is great,
inasmuch as he is relied upon by its members to have examined carefully into
the soundness of the security, to-have scrutinized the mortgage, to have
taken competent legal advice, to have correctly gauged the moment and esti-r
mated the price at which the securities can be advantageously placed with the
public, to do the principal work in marketing them, and to guide the work done
by others. .
;
,-:
^
\
If the banker is found wanting in any of these respects, or his j u d g m e n t proves
to be faulty, he loses the confidence of those who habitually participate in'
syndicates, and with it, his capacity to engage in financial transactions on a;
torge scale, as it is only with the cooperation, financial or otherwise, of
syndicates that large transactions can be carried through.
.
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The spread on which the syndicate figures as between the purchase price
and the price of resale to the public is not more than sufficient to cover the
expense of "overhead/' the outlay for advertising, circularizing, and counsel
fees, and reasonable compensation divided over hundreds of syndicate participants and distributing houses for their risk and their work in placing the
securities with the public. In view of the change which has taken place, as
previously referred to, in the clientele for railroad bands (owing to the preference of large investors for tax-exempt bonds) the selling of railroad securities
has become both a more laborious and intensive and a more costly process than
formerly. In addition to a highly trained and expensive office staff, bondhouses
nowadays must employ an army of traveling salesmen.
In order to get issues of railroad securities well placed among, and absorbed
by, bona fide investors, it is necessary, under the conditions created by the
advent of high surtaxes, to employ retail distributing houses throughout the
country to a far greater extent than used to be the case. The margin upon
which the calculations of the syndicate and its managers are based, must
therefore .be sufficient to enable reasonable compensation .to be afforded to
such retail distributing houses so as to give them a fairly adequate inducement
to put forth their efforts in placing the securities.
It through an excessive narrowing of the margin, whether due to vagaries
of competitive bidding or to other causes, such adequate inducement can not be
given to that nation-wide force of distributing houses in the case of railroad
securities, the inevitable result would be that these houses would more and
more relinquish that field and devote their principal attention to pushing the
distribuion of industrial and other securities, of which a constantly growing
supply is available.
Under the methods now prevailing, it is wholly impossible that the originating banker, the syndicate participants, and the distributing houses can make
an undue profit as between the railroads and the public. The expected compensation for their respective services is expressed in practically standardized
percentages, varying somewhat in accordance with the quality of the security
and the risk und difficulty of the business. There can be no profit to bankers,
syndicates, or distributors over and above these percentages, but of course then*
can be a loss if the banker's judgment as to the price which a given security is
worth or as to the general condition of the investment market is at fault,
or if a sudden change occurs In that market owing to unforeseen events. The
limit of possible profit is fixed, the limit of possible loss is indeterminate.
It is worth mentioning in this connection that the banker in England does
not render the same measure of service to the corporations whose securities he
sells to the public, as does the American banker. It is the practice of the
London banker, immediately after the public issue has taken place, to dissolve
his syndicate, distribute amongst the syndicate participants any bonds remaining unsold, and leave it to them to sell at the best price they can get He does
not usually consider himself responsible to endeavor to protect the stability
of the issue price.
The practice of the American banker, on the contrary, in cases where a
public issue has not resulted in placing with the public the entire amount
offered, is to keep his syndicate together for a certain length of time (sometimes for a great length of time), to retain charge of the disposal of the
unsold balance and to continue his efforts to place the same with the investing public at the original issue price—a practice fairer and more serviceable
both to the railroads and to the public. Even in the case of wholly successful
issues, it is the usual practice here to keep the syndicate together for from
two to three months, so as to be ready to u protect" the market, as more fully
explained later.
SOME INSTANCES OF SYNDICATE BISKS TURNED INTO IJOSSES
The following actual cases which are by no means exhaustive, indicate the
risks incurred by banking syndicates, and illustrate the losses and vicissitude
to which they are subject:
(1) In September, 1905, the Erie Railroad arranged with its bankers to
form a syndicate to underwrite the offer to its shareholders at 100 per cent
of $12,000,000 convertible 4 per cent bonds, series B (convertible into common
stock at $60 per share). The result of the offering was that the stockholders
subscribed for only 18 per cent and, consequently, the syndicate had to takeand pay for $9,840,000 of the bonds. The syndicate was dissolved in Decern-
. 316
SALE;
OF,FOREIGN BONDS OR SECURITIES
ber, 1906, none of the bonds taken by it having been disposed of. The bonds
were listed on the stock exchange in February, 1907, when they sold at 85
?
per cent
(2) In January, 1906, The Missouri, Kansas & Texas Railway arranged with
its bankers to form a syndicate to underwrite the offer to its shareholders
at 87% per cent of $10,000,000 general mortgage 4% per cent bonds. The
stockholders subscribed for only 50 per cent of the offering and the syndicate
had to take $5,000,000 of the bonds. The syndicate was dissolved In December; 1907, only a few of the bonds taken by it having been disposed of.
(3) In May, 1907,i the Union Pacific arranged with its bankers to form a
syndicate to underwrite the offer to its stockholders at 90 per cent of $75,00,000 4 per cent convertible bonds (convertible into stock at 175 per cent).
The stockholders subscribed for barely 5 per cent of the offering < and, consequently, the syndicate had to take and pay for about $70,000,000 of the
bonds. The bonds in the course , of the following six months declined to 78%
per cent.
. .. . .
(4) In January, 1913, the Baltimore & Ohio Railroad Co. arranged with
its bankers to form a syndicate to underwrite the offer to its stockholders
at 95% per cent of $63,000,000 4% per cent convertible bonds (convertible at 110
per cent). The stockholders subscribed for barely 30 per cent of the offering
and, consequently, the syndicate had to take and pay for about $44,000,000 of the
bonds. In the course.of a few months the bonds declined to 88% per cent.
(5) In April, 1906, the Wisconsin Central Railway arranged with bankers
to form a syndicate to underwrite the offer to its shareholders at 89 per cent
and interest, of $7,000,000' Superior & Duluth Division & Terminal first mortgage 4 per cent bonds. The stockholders subscribed for only 1 per cent of
the offering and the syndicate had to take $6,930,000 of the bonds. ; The syndicate expired by limitation July 1, 1908, none of the bonds taken by it
having been disposed of in the Interval.
(6) In March, 1910, the Atchison, Topeka & Santa Fe Railway Co. arranged
with its bankers to form a syndicate to underwrite the offer to its shareholders
at 102% per cent of $43,686,000 convertible 4 per cent bonds due 1960. The
stockholders subscribed for . only about 12% per cent of the offering, leaving:
about $38,000,000 of the bonds to be taken by the syndicate.
(7) In February, 1906, the Southern RaUway sold to its bankers $20,000,000
development and general mortgage 4 per cent bonds at 89 per cent less commission. The syndicate formed by the bankers to handle this transaction remained in existence for nearly two and one-half years, i. e., till July 1, 190S,
at which time the syndicate members had to take up 68 per cent of their
participations. The market price of the bonds at that date was 74 per cent.
(8) In January, 1909, the Western Maryland Railroad sold to bankers
$6,500,000 first mortgage 4 per cent bonds. On January 18, 1909, about 90 per
cent of the bonds had to be taken up by syndicate participants. No bonds were
disposed of by the syndicate until September, 1910, and from then on, at various
dates up to February 28, 1911; thus the syndicate lasted more than two years.
(9) In June, 1909, the Seaboard Air Line arranged with bankers for the
formation of a syndicate to guarantee the sale of $18,000,000 adjustment bonds
at 70 per cent November 1, 1909, syndicate members took up about 90 per
cent of the bonds, which were disposed of in small lots between February, 1910,
and November 30,1910, the syndicate thus lasting about one and one-half years.
(10) In January, 1910, bankers purchased §22,000,000 Chicago City & Connecting Railways collateral trust 5 per cent bonds, and formed a syndicate at
91 per cent. The syndicate expired in February, 1912, leaving syndicate members with almost 90 per cent of the total amount unsold in their hands.
It will be observed that all the above examples, the list of which could be
considerably prolonged, relate to the period preceding the war. The selectioa
has been so made purposely, because ever since the beginning of the war the
conditions of the investment market have not been normal. During the greater
part of that period they were abnormally adverse, while since the beginning
of the present year they have been abnormally favorable; Therefore, the war
and postwar periods offer no basis upon which to found permanent conclusions.
However, a few examples from these periods, which might be greatly multiplied,
may be inserted here:
'
' '
(11) In March, 1916, bankers formed a syndicate to underwrite the" offer to
stockohlders of $40,180,000 Chesapeake & Ohio Railway Co; 30-year 5 per cent
secured convertible gold bonds at 97% per cent and accrued interest. ' The stockholders subscribed for but slightly over 5 per cent of the offering and the
.
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SALE;
OF , FOREIGN BONDS OR SECURITIES
syndicate had to take and pay for $38,047,500 of the bonds, equal to 94% per
cent of the issue. At the time when the syndicate was called upon to make
good its obligation, the bonds were selling in market at 94% per cent.
(12) In January, 1917, the Chicago, Milwaukee & St Paul Railway sold toits bankers at 93% per cent $25,000,000 general and refunding mortgage 4% per
cent bonds, series A, due January, 2014. On April 24 the syndicate was dissolved, the members having to take up 43 per cent of their participations. The
bonds at that time were selling in the market at 88% per cent
(13) In June, 1919, the Baltimore & Ohio Railroad Co. sold to its bankers
at 93% per cent $35,000,000 of 10-year 6 per cent secured gold bonds. The
syndicate remained in force until January 30, 1920, when the members had
to take up 23 per cent of their participations. The bonds were then selling
in the market at 83% per cent
(14) In July, 1919, the Cleveland, Cincinnati, Chicago & St Louis R. R. Co.
sold to its bankers at 95% per cent $15,000,000 6 per cent bonds. On December
1,1919, the syndicate was dissolved, the members having to take up 11 per cent
of their participations. The bonds were then selling in the market at about
86 per cent
V I I I . T H E NATURE AND V A L U E OP AN ESTABLISHED B A N K I N G RELATIONSHIP
The considerations which make a system under which railroads would offer
their securities direct for public bidding, precarious, hazardous, and futile areso patent and so conclusive that it may well be assumed that no reasonably
informed person will contend seriously that it would be either advantageous or
safe for railroad companies to pursue the course of attempting to market their
securities without the trained cooperation of bankers.
The question remains to be discussed whether it is in the public interest
that a railroad company should habitually deal with a particular banker and'
give that banker the preference when it has securities to be sold or underwritten as long as—and only so long as—it is satisfied with his services. The
following considerations are offered in support of this, the existing practice:
(1) The present plan enables a railroad to be certain of its ability to secure
the necessary funds for its commitments.
It is of the greatest importance for a railroad, when making commitments
for expenditures for improvements, new construction, equipment, etc., to be
certain that it will be able to sell the requisite securities when such commitments come due and must be met That is a fundamental principle of sound
railroad financing.
In dealing regularly with a banking house of ample financial strength and
wide connections, the railroad company is assured that it will be able to obtain
the requisite funds, even in unfavorable times, because the banking house, in
order to insure the continuity of the connection and the solvency of the railroad, can not do otherwise than use to the utmost the resources and the
facilities of connections and credits at its disposal, to provide for the requirements of the railroad.
If, on the other hand, the railroad had been,in the habit of selling its securities on a competitive basis, it would have no such friend in need, and the >
various bond and banking houses would naturally buy Its securities only as it
suited their own purposes. The strongest railroads have found themselves in
the situation where large sums of money have been imperatively needed in most
unfavorable times and where only their claims upon their regular bankers have
enabled them to obtain the necessary funds.
It has of late years been a matter of not infrequent occurrence that during
the pendency of applications for the removal by a public service commission of
proposed bond issues, railroads have found themselves in need of temporary
financial accommodation. For such accommodation, if not readily or opportunely obtainable from the railroad's banks and trust company connections,
the railroad would turn to its banker.
'Furthermore, in the ense of bonds, the application for the issue of which is
pending before a public service commission, it is not unusual for the banker, at
the railroad's request, to obligate himself to purchase such bonds, subject to
the approval of their issue by such commission, so that the railroad is protected against an unfavorable change in the investment markets while its application is being considered and is certain of obtaining the needed funds as
soon as the application Is granted.
The temporary financial accommodation previously referred to, and the definite
sale of bonds in advance of, and subject to action by public service commissions,.
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SALE;
OF , FOREIGN BONDS OR SECURITIES
have at times been of great service and value to railroads. It is doubtful
whether either expedient would be at the service of a railroad if securities
-were sold by competitive bidding among bankers.
There have also been numerous instances when railroads which found themselves confronted with grave financial purposes have applied to bankers to
•evolve plans and inaugurate measures for dealing with these problems comprehensively, for strengthening their credit, or for their financial rehabilitation
without the expense and detriment of a receivership. The accomplishment of
this task on the part of the banker involves much time, thought and study as
well as a degree of financial risk and the assumption of great moral responsibility toward investors who, following the banker's advice, may aid in furbishing the requisite funds and who look to the banker to safeguard such
investments.
Last April, for example, the New York, New Haven & Hartford Railroad Co.
was faced with the maturity of $28,000,000 of debentures of which one-half
were held in France and one-half in this country. The company's credit was
not sufficient to make a new issue of securities possible. Failure to meet or
-extend the debentures at maturity would have meant bankruptcy.
With the active aid of banking houses through whom the debentures had been
placed originaUy and with whom the company had been in consultation many
months in advance, a voluntary extension of the debentures was secured. The
negotiations involved a great deal of time, thought, skill, and effort, and, it is
fair to say, could not have been successfuUy concluded, except through the influence, prestige, skiU, and activity of the banking houses concerned.
It is a significant fact that most of the railroads which have gone into
receivers' hands in recent years had followed the practice of selling their
securities to different bankers at different times, and for the financing and
support of, and advice to, such railroads, and the preservation of their solvency,
^accordingly, no single banking house felt itself responsible.*
(2) A railroad's financial requirements must be foreseen and assured long
in advance of the actual need, and the present practice makes that possible.
In July, 1921, when investment conditions had not yet become propitious an
issue of the combined bonds of the Northern Pacific and Great Northern Cos.
aggregating $200,000,000 fell due. The refunding of this vast amount of bonds
was successfully accomplished with the aid of the bankers who had been concerned in their issue originally. The preparations for this refunding operation
had been in progress for the best part of a year and were necessarily of the
.most elaborate character.
Manifestly, this Immense operation could have been successfully carried
through on an acceptable basis only by experienced bankers of high standing
and nation-wide connections, who were familiar with the history of the transaction and the manner in which the securities to be refunded were held, anil
who had adequate inducement to give to this complex and difficult negotiation
the time and thought and the painstaking effort which its preparation required.
In June, 1906, when the investment market in this country was practically
at a standstill, American bankers placed an issue of francs 250,000,000 Pennsylvania Co. 3% per cent bonds in France; in February, 1907, an issue of
francs 145,000,000 New York, New Haven & Hartford Railroad Co. 4 per cent
"bonds in France and Germany; in March, 1910, an issue of francs 150,000,000
Chicago, Milwaukee & St. Paul 4 per cent bonds in France and England; and
in February, 1911, an issue of francs 250,000,000 Central Pacific Railway Co.
4 per cent bonds in France and England.
All of these loans were negotiated at times when it was of great advantage
to the railroads as well as to the general financial situation to obtain money
abroad. They took many weeks for preliminary negotiations and complex arrangements and could not possibly have been negotiated on a competitive basis.
- One railroad company alone must provide for $130,000,000 of maturities in
1925—and another for $50,000,000 the same year. It will inevitably be necessary for these companies to consult with bankers a long time before the maturity date, and devise plans for refundingy and obtain competent advice as to
the best moment and method for carrying out these large transactions.
No banker could reasonably be expected to undertake the task and assume
the responsibility of building up a railroad's credit, of studying and advising
* (Examples: Wabash, Western Maryland. Wheeling & Lake Erie, Kansas City, M«dcoj&
•Orient, St. Louis & San Francisco, Norfolk & Southern, Chicago Great Western, Chicago
Bock Island & Pacific, etc.)
.
319
SALE;
OF , FOREIGN BONDS OR SECURITIES
upon financial policies arid methods, and putting his skill and placing power
and sponsorship at Its disposal if he bad to expect that after having devoted
his time, effort and reputation to the work, the security issues of the railroad
would be thrown open to competitive bidding, whether general or confined to
bankers, regardless of whether or not his own services were faithful and efficient and satisfactory to the board of directors and management.
(3) The technical advice and the assistance growing out of the practical
experience of the banker are of great value to the railroad.
A. IMPORTANCE OF ADVICE A S TO T H E BEST TIME TO ISSUE SECURITIES
In dealing regularly with one banking house, a railroad obtains the benefit
of expert advice (and that from some one thoroughly familiar with, and interested In, its affairs) as to financial policy, as to the best and most opportune
time for selling securities, and for providing for its financial requirements, as
to the class and kind of securities best suited to conditions prevailing and to be
anticipated, and as to the best method of offering them to the public.
The element of the selection of time is of much Importance in itself, for it
happens not infrequently that the lapse of a single week or less measures
the difference between reasonably favorable and unfavorable or even totally
forbidding conditions.
The ebb and flow of the currents in the investment markets depend on many
and complex conditions and considerations, and it is one of the functions of
the competent banker to keep himself posted as to affairs, aspects, and prospects in America, Europe, and elsewhere, and to anticipate in his judgment
and advice their results and their effects upon the money and investment
markets.
The advice and cooperation of the banker are especially important to railroad
companies during periods of declining security values with which the Interstate Commerce Commission has not yet had occasion to deal, inasmuch as
during the more recent past there has been an almost continuous upward trend*
. of prices. In times of declining markets for securities, quick action and sound
advice are particularly essential. Premature publication of a company's intention to issue new securities must be guarded against. Apart from other
considerations, holders of its securities already outstanding might hasten to sell
their holdings without waiting for full information. Such premature selling
might so affect the market as to make the new transaction more costly or
perhaps impossible.
Furthermore, public knowledge that one or more issues of railroad securities
are contemplated, might cause Industrial concerns or foreign governments
or municipalities to hasten offerings of their own securities, as indeed has
occurred in the past, so as to anticipate the railroads', offerings and get prior
access to the investment market. The supply of available investment capital
has, of course, its limitations, and in normal times the rule "first come, first
served does apply to a certain degree.
' If a sale by public tender or by competitive negotiating or bidding among
bankers were required, no one would be interested in supporting the market
for a company's outstanding securities; in fact, prospective bidders would be
benefited by a decline. On the other hand, with bankers having a continued
interest in Its welfare and a publicly recognized moral responsibility for its
securities, the situation is quite different
In this connection the question may be pertinent as to the relative desirability of the practice of selling securities before (or simultaneously with) the
application to the Interstate Commerce Commission for approval, the transaction being made subject to the commission's subsequent approval, or of delaying the offering until the commission's approval has actually been obtained.
On the whole, the first method, although not free from objection, would seem
to be the safer and more desirable from the point of view of the railroads.
It Is quite impossible for any banker to definitely advise a corporation, with
any degree of positiveness, as to the price its securities will command several
weeks later. Too many elements of uncertainty are involved. The publication,
weeks in advance of the actual consummation of the transaction, of the intention of railroad companies to make issues of securities might prove seriously
detrimental as indicated in the preceding paragraph.
Everything considered, it would seem best that the companies should bfr
accorded discretion to exercise their own best Judgment in each instance
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SALE; OF , FOREIGN B O N D S OR S E C U R I T I E S
whether they should sell subject to subsequent approval by the commission,
or should first obtain the,commission's leave for selling, at a price .not below
:5SL stated minimum..
'
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.h ;;
E. IMPORTANCE OF. ADVICE AS .TO .TECHNICAL DETAILS . SUIFFIOTJNDING ISSUANCE OF
SECURITIES
:
\ii
It is of great importanuce that care should be taken that new issues ,of
bonds should comply with the statutory requirements of various States respecting legal investments of insurance companies, savings banks, and other
fiduciary institutions. Whether or not a given issue of bonds meets these
.requirements will, often make a difference of several points in their value.
Investors attach considerable importance to knowing tliat the. mortgages,
trust deeds, etc.,,and all legal steps relating to the issue of securities which
they are asked to buy have been carefully examined by bankers of repute
and experience and their counsel, with a view, to safeguarding the interest
oi; the holders of the bonds as distinguished from ;those of .the railroads, the
, makers of the bonds.
The mortgages and trust deeds under which-the securities are to be issued,
before being put in final shape, are carefully gone over by the banker,' and
his advice is given with the view to creating the best and most .salable
instrument satisfactory both to the public and to, the railroad company, and
having due regard both' for the protection of the investor and for the future
financial requirements of the railroad. Such advice is frequently, especially
in the case of large refunding mortgages which are meant to be the principal
means of raising money for the railroads for years to come, of very great
utility. It is likewise greatly valued by the Investor who has come to rely
upon the tried and tested thoroughness, and competence of experienced ,and
highly reputed bankers to protect the interests of the investing public in
respect of not only the intrinsic goodness of a security for which they become
. sponsors,, but also in respect of the provision of the mortgage or trust deed
appertaining to such security.
,:
(4) The bankers' dual obligation to: the investing public on the one hand
and oh the other to the corporations whom he serves, constitutes a protection
to both.
The leading bankers could,not.maintain-their position as such, if they did
not have the confidence of the investing public and a large following amongst
investors, large and small, both here and abroad.
Careful analysis, continuous and watchful scrutiny, In respect of securities
issued by him. and of the companies concerned, are essential functions of the
banker. In buying securities and offering them for sale, he gives public notice,
so to speak, that: he has examined into, and satisfied himself as to, their
N
safety and merit
The banker does not safeguard merely the technical and, to the best of his
ability, the intrinsic soundness of the securities be Issues; it is alike his duty
and to his own self-interest to protect and stand behind the securities for
which he is recognized as sponsor, just as it is his duty and. to his own selfinterest to satisfy himself by careful investigation as to the soundness of such
securities, because the banker whose clients suffer loss through following his
advice will very soon lose his reputation and the confidence and patronage of
his clients.
The banker knows well that such reputation and confidence are the inain.stays of the prosperity and success of .his own business and, once forfeited, are
exceedingly difficult to regain.
; ,
:
" PBOTECTING " THE MABKET
. . . .
^
...
.
.
;>>
The function of the banker in " protecting " the market for securities issued
through his house is of peculiar importance.
...-.,.
Reference has been made, to the altered character of the investment market,
in which a great army of small investors has come into existence to take the
place of the larger investors who because of preference for tax-exempt securities, can no longer be counted upon to be a considerable factor in absorbing railroad securities.
If that army, so important and desirable from the social and economic viewpoint, and created at such great cost and effort, is not to disintegrate, again,
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SALE;
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it is absolutely indispensable that the market for the securities which they
have bought, be " protected " at least for a reasonable length of time after the
offering (barring exceptional economic or financial changes)—which protection
is one of the useful and legitimate functions of leading issuing houses and has
no relationship whatever to what is usually termed manipulating or " rigging"
the market.
It must be made somebody's business to see to it that if the investor wishes
to sell within a reasonable time after having bought, he can, under normal conditions, find a market at or near the price at which he bought
To provide such a market by being able and willing to a reasonable extent
to repurchase bonds sold by him, is part of the business of the banker who
made the public offering—provided that he has a definite and acknowledged relationship toward the company whose bonds he has offered. If he has no such
relationship, if the public offering is simply the result of competitive bidding,
either general or limited, the banker may be expected to be apt to feel that his
functions are completed when he has marketed the securities.
The result would be that the immensely valuable work which had been
done lately of popularizing railroad bonds might be largely undone, the vast
clientele which had been created for railroad bonds , might be materially curtailed, and the resulting diminished demand for railroad bonds could not fall
to be reflected in the price level which they would command.
The continuing responsibility of the banker for bonds which he has offered
and sold under the existing system of dealing between bankers and: railroads
is an exceedingly valuable element from the point of view of the small investor
und a strongly steadying factor in the market for railroad securities.- That
responsibility would be jeopardized by competitive bidding, whether general
or limited:
It is interesting to note in this connection that even so eminently successful
a public offering as that of the recently issued United States Government 4%
per cent bonds was followed by a substantial decline in the market price of
those bonds below the price of issue. There being no one responsible for the
" protection " of the market for those bonds, the price declined quickly from the
Issuing price of 100 to 98.90 per cent, which In the case of the world's premier
government security has considerably greater significance than a like decline
would have in the case of a corporate issue.
It is to the interest of a railroad company that its securities should be
absorbed by the investing public and that their market value should be maintained, under normal conditions. It is more important to the railroad industry
at large that a favorable reputation, the good will of the investing public and a
broad; steady demand for its securities should be preserved than that in every
instance the very top-notch price should be obtained to which, through taking
advantage of fortuitous circumstances, the purchasing banker may be driven.
To disappoint and disgruntle the investor by selling him] securities at unduly
high prices which will not stand the test of the workings of ordinary supply
and demand is, in its ultimate consequences, to be " penny wise and pound
foolish," especially since railroad securities are more and more coming into
competition for public favor with industrial securities.
The end the railroad company should always have in mind is to maintain
a broad and stable market for its securities, and to that end wise direction
In the interest of railroad credit generally and of the particular borrower may
even make it desirable, in given instances, under all the surrounding circumstances of the case, to accept an offer which would enable resale to the public
under tested and responsible auspices at a fair and reasonable jprice,* rather
than an offer of an extreme price with the resulting consequence of the resale
to the public being attempted necessarily at an unduly high level.
It may safely be said that such railroad Issues as are known to be under
the habitual sponsorship and consequent moral responsibility of well-known and
strong bankers have a wider and steadier market and command better prices
amongst investors than those which are not under such auspices and responsibility.
*
If the sale of securities were, thrown open to competitive negotiating or
bidding, either general or limited, the possession of large capital would tend
to become the prime requisite for dealing In securities, and the financier or
combination of financiers controlling the largest amount of capital would have
a much more potent advantage over others than under now existing conditions.
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,
FOREIGN BONDS OR SECURITIES
The exercise of care, skill, industry, scrutiny and the sense of moral responsibility toward clients, which now are and always have been the prerequisite for acquiring the reputation and the public-confidence upon which an
investment bankers position depends and without which it can not be maintained for any length of time, would no longer be essential.
I X . SUMMARY AND CONCLUSION
(A) The vital necessity is to obtain for the railroads the assurance of
adequate capital upon favorable terms.
(B) The existing practice of selecting, and dealing with, a particular banking house as long as its services give satisfaction, is an outgrowth of actual
experience in the effective marketing of securities.
(C) In dealing with so delicate a matter as security markets it is of
primary consequence that any plan adopted for the sale of securities shall
command the utmost confidence on the part of investors.
(D) The existing practice has proven itself, in numerous instances, of the
greatest utility to railroad corporations, and actual experience demonstrates
that the remuneration to bankers and syndicates is but a fair equivalent for
very real services actually performed and risks assumed, and that the average
of such remuneration, over a term of years, has afforded no more than a reasonable return upon the capital involved, and due compensation for the work
rendered,
(E) The existing practice has been found effective by Industrial corporations
not subject to public regulation, and it is the method employed by many foreign governments and municipalities in the issuing of securities.
(F) Some of the advantageous characteristics of the present practice are:
1. The relationship between railroad and banker is wholly informal and continues only as long as it is deemed advantageous to the railroad by its:officers
and directors.
-..«•.
2. The relationship, while in no way limiting the railroad's freedom of action, does impose upon the banker definite and continuous duties and obligations.
3. The bankers have no power to determine the decision of railroads in such
matters.
4. The banker is not only the distributor of and propagandist for railroad
securities, but he fulfills, at his own risk and cost, the important and valuable
function of steadying and protecting.the market for such securities.5. The railroad receives continuously the knowledge, services, skill; standing,
financial advice, and financial potency of the banker In both good and evil
times.
.f
6. The banker advises as to the financial situation and policy of the railroad, prepares plans for meeting requirements, recommends the kind and character of the security to be created, scrutinizes mortgages and trust deeds, and
. indicates the best moment at which to sell.
7. The bonds of the corporation represent a promise to pay. The value of
that promise depends not merely upon the tangible security offered, but also
upon excellence and fidelity of management. While strictly refraining from
any attempt to influence the operating and tariff policies of the railroad, it is
the banker's duty and self-interest, to the best of his ability, to promote wise
and sound management and safe financial policies on the part of the corporation, the securities of which he has issued and for which he has consequently
assumed moral sponsorship before the investing public.
8. Even where affiliations between particular bankers and railroads avoid
nominal competition, there Is a potential competition which operates powerfully in the following particulars:
(a) The fact that complete publicity is by law enforced as to the terms upon
which security issues are obtained by bankers naturally causes both the banker
and the railroad to seek to give, on the one hand, and to obtain on the other,
the best terms which, conditions and circumstances warrant.
(&) The fact that the terms involved in a contract between the railroad and
the banker must be approved by public authority id a moral guarantee that
such terms will be proposed as will stand well-informed scrutiny.
(c) If railroads find that other companies are securing better terms through
other bankers, it is inevitable, Umt oUier bankers will ultimately obtain the
business.
.
323
SALE;
OF , F O R E I G N
B O N D S OR
SECURITIES
(d) If railroads can not obtain what they consider satisfactory terms from
their regular bankers, they are entirely free to terminate the negotiations and
do business with others.
(G) There is no reason to think that, year in and year out, railroads would
obtain higher prices for their securities under any form of competitive negotiating or bidding than under the present practice. There is every reason to
think that the stability and broad receptiveness of the market for railroad
securities would be lessened and the interests of the investors less carefully
and responsibly safeguarded.
(H) Many, if not all of the effective values of the advantages (both to the
railroads and to the Investing public) Inherent in the present practice, would be
eliminated by competitive negotiating or bidding, whether unrestricted or confined to bankers. No banker could be expected to give his time, effort, reputation, and responsibility, material and moral, to the financial affairs of a
corporation if he is wholly uncertain whether he will reap any return for his
services, as must necessarily be the case in the event of competitive negotiating
or bidding.
. . .
(I) To change the prevailing practice would mean to give up definite and.
tested benefits, alike to the railroads and to the public, for the sake of one
wholly problematical advantage.
(J) Practical experience shows that the operation of the present method
under public supervision and with full publicity attending it, assures more^
success than any other plan yet proposed or practiced in obtaining the necessary
capital for the railroads upon favorable terms.
(K) To the extent that the terms upon which securities are sold have a
bearing upon the rates paid by the public for railroad service, the present
method secures to the public* insofar as that item is concerned, the lowest
burden upon the rates and the greatest assurance of the railroads being able to
obtain the capital to provide necessary facilities.
CONCLUSION
To compel railroads to have recourse for the sale of their securities to competitive negotiating with or bidding on the part of bankers and brokers, or to
direct offerings to the pubUc, would be to run counter to the practice and experience of every country in the world.
It would confuse and trouble the investing public and destroy elements and
features of evident and proved value for public protection.
It would, tend to make the possession of capital the sole requisite for dealing
in securities, irrespective of skill, care, reputation, and the confidence of
investors.
It would limit, hamper and restrain the flow of capital into American railroad securities and cause delay, uncertainty, risk, and damage to railroad
corporations.
Railroads and other corporations should be left free, under the responsibiUty
of their board of directors, and subject to such authority over the issue of their
securities as is now exercised by the Interstate Commerce Commission, to deal
with whatever banking houses they deem it in their best interest to employ.
They should neither be bound by contract or control to deal with any one
banking house exclusively, nor forced by statute or regulation to take the
chances involved in competitive negotiating or bidding among bankers or of
direct deaUng with the public.
Respectfully submitted.
KUHN, LoEp & Co.
OCTOBER 2 5 , 1 9 2 2 .
WAR DEBTS AND REPARATIONS—EXTENSION OF REMARKS OP HON. FIOBELLO H .
LAGUARDIA, o r NEW YORK, IN THE HOUSE o r REPRESENTATIVES FRIDAY, D E CEMBER 11, 1 9 3 1
ARTICLES FROM THE NEW YORK AMERICAN CONCERNING INVESTMENTS OF AMERICANS
I N FOREIGN SECURITIES
Mr. LAGUARDIA. Mr. Speaker, the New York American has published figures
indicating the extent to which Americans have Invested in securities of foreign
countries.
. 324
SALE;
OF , FOREIGN BONDS OR SECURITIES
It. Is evident from tiiese articles that a thorough search was made-for facts.
The results of the New York American's survey were published in a series of
articles.
.
*
In view of the widespread interest In this subject, with Congress considering
the war debts owed the United. States by foreign nations, I believe:the articles
from the New York American will be of great assistance to Congress and the
country.
Tiie articles are as follows:
[No. 1, November 8, 1031]
BILLIONS OP DOLLARS L O S S T O AMERICAN PRIVATE INVESTORS IN FOHEJGN SECURITIES I s DISCLOSED IN A SURVEY JUST COMPLETED BY: T H E N E W YOKE
AMERICAN
•
The survey, covering the entire field of the American public's foreign financing,
since the war, reveals enormous depreciation in at least 90 per cent of the
foreign bonds, and stocks sold to the American public during the hectic period
facetiously characterized as "America's attainment of Its financial majority."
What this achievement has cost America's private investors is tragically portrayed in facts and figures which will be presented in a series of articles of
which this is the first.
COST ENORMOUS
What the cost of the foreign financing folly has been indirectly can only be
approximated. How serious an Influence the phenomenal losses in. foreign
securities have been on the American securities market can only be surmised.
Suffice to accept as probably enormous the pressure which the huge losses
have exerted upon banking and private loans secured in large part by the
supposedly safe foreign securities. With the rapid shrinkage of their value
the effect undoubtedly has been to force heavy dumping of our own American
securities with disastrous consequences to the American markets.
The survey includes only those securities actually publicly offered in the
United States and, presumably, bought by the public in firm conviction that
they were participating in sound investments, as represented by the Nation's
leading bankers.
SCOPE LIMITED
No account is taken of the enormous aggregate of short-term credits, central
bank credits, etc., running upward of a billion dollars, and advanced in great
part out of public funds: placed with the Nation's banking community. Nor is
Canada's vast borrowings included in the survey.
The story of America's private foreign " investments " is one of simple faith
and bitter disillusionment.
It is a tale of violent depreciation, of virtual cancellation of Invested funds.
It is written across the boundaries of virtually all nations, great and minor,
of Europe, and.through the whole of South America. Other parts of the, world
contribute to the tragedy, but these two continents—Europe and South America—absorbed the greatest proportion of America's private foreign lending,of
the postwar and war periods.
America's private foreign financing Is a portrait of a nation following blindly
the dictates of a banking community suddenly become Jnternatiorial-minded
getting into " foreign entanglements " in a financial sense, and running amuck
on misguided conception of foreign " investing " or lending, extension of loans
with a colossal ignorance of prospects, and, with a prodigality unequaled in the
economic history of the world.
The American,private investor's experience in foreign financing.has become-;
a nightmare,* and hundreds of f thousands 1 of,our investors have buffered therefrom.
In all, the world at large during the period of 1914-1030 came to the United
States: for a total of $15,000,000,000 in loans.
This is wholly exclusive of the billions, advanced directly by our Government to Europe's governments as " w a r loans" and which the debtor countries
to-day. are seeking to, have; canceled.
Kunds for.those loanti too,.came from.the American investor via .theXiberty
and Victory loans, but for the purpose of the present survey they are entirely
SAUS
OF FOREIGN
B O N D S OS. S E C P B I T I E S
3 2 5
Ignored. As a matter of foot, these government loans have at least the United
States Government's hacking and as such presumably are subject to protection
by Uncle Sam.
Bnt what of the private " investor "?
THREE CLASSIFICATIONS
There are three classcs of foreign financing:
L Government loans—by the United States Government to foreign governments (the war loans).
2. Private credits-rextendcd by banks and banking houses out of funds in
their control.
3. Public loans—advances by American banks and bankers to foreign governments and corporations and municipalities, the funds being derived from
sale to American private investors of the bonds and stocks of the foreign governments or corporations.
It Is with the latter class of financing alone that the American's survey is
dealing.,
From ah insignificant annual lending of a comparatively few millions, or
better still, from being itself a borrower, the United States following the war
became the great supplier of capital for the entire world.
QUESTION OP PRIORITY
Naturally, in view of the difficulties which since have become publicly known,
the major question becomes—
Which class of loan shall have priority, government-to-government, private
credits, or loans made by private American investors? This is a matter of
prime importance to the private Investor, especially in view of the violent
campaigns now engaging the financial world with respect to priority of loans.
For a great many investors the question already lias been answered by reason
of the virtual wiping out of their investments.
Our annual private lending abroad bounded forward with amazing rapidity,
until it finally crossed the billion-dollar mark in 1924. Then followed a remarkable era of billion«Iollar years, during which governments, corporations,
municipalities, churches, and almost every other conceivable enterprise or
element the world over drew upon the seemingly endless American reservoir
of capital.
NO DEFINITE ROLICT
And borrowing was easy. The American* Investor was relying upon the
bankers. And faith in the banker was virtually the only measuring rod for
the investor, for the bankers themselves were subjected to virtually no
restriction.
The State Department at Washington, which conceivably is the proper safety
valve for such activities has never had a definite policy regarding private loans
to foreigners or foreign issues floated In the United States. From Washington
comes this explanation of the State Department attitude:
"There is an understanding between financiers and the department by which
all such loans are submitted informally to the State Department before any action is taken In order to secure State Department approval.
"This has been the practice for some time now dating back to the Coolldge
administration. In general, loans are approved If for constructive, purposes
rather than for military purposes."
LTTTUS RESTRAINT
Actually the State Department control over foreign issues has been perfunctory. its restrictive powers were exercised, if at ail* In exceptionally few instances on record.
"
'
,
No official restraint was practiced anywhere in,the United States with respect
to foreign J o a n s being sold to American private investors. Not even the bluesky control which frequently detects and prevents, fraudulent or suspicious
domesticfinancingwas effective in stemming the tide of foreign loans.
s ,
The sellers of these foreign securities enjoyed an absolutely free hand in
their foreign-issue offerings in the American market, even securing listing on
the New York Stock Exchange and .other •American exchanges -by < the mete
formality of presenting ati intiocuoUB'document prepared by the minister^of::
finance ^treasurer of the foreign nation..municipality* or>enterprise, s »
. 326
SALE;
OF , FOREIGN BONDS OR SECURITIES
No check-up was made by the stock exchange to ascertain the accuracy of the
statements therein made, and no recourse is left to the American investor but
to sit idly by while his investment suffers untold shrinkage.
NO RECOURSE
For to what source is the American private investor to appeal for aid in
providing suspicions of fraud or immorality in the financing? At least the
great banks of the country and the banking houses now worried by their
"frozen.credits" in foreign nations can demand Government support to their
attempts to recuperate their losses.
• But the individual private investor has nothing but a vicious loss to record
his participation in the Nation's rise to "world banking leadership."
How great an outpouring of pnblic offerings of foreign securities was experienced during the last • eight years alone is graphically evidenced in the
following table:
3923
_ $497,000,000
1,217,000,000
1925
1,316,000,000
: :
1,288,000,000
1927__1_„™
——
1,577,000,000
1928
— ™ 1,489,000,000
1929
705,000,000
1930
- 1,087,000,000
What amazing influence had stretched itself over the United States sufficient
to induce such prodigal lending? True, the Nation emerged from the war
powerful in resources, and its material wealth, aside from loss of man power,
was tremendously increased. . '
But why the staggeringly immense foreign lending?
SECBET GUARDED
Representative McFadden, chairman of the Congressional Banking and Currency Committee, has publicly declared that international bankers reap commissions or profits of 8 to 10 per cent on foreign financing.
The exact figures of commissions or profits are closely guarded secrets. The
New York American attempted to ascertain the figures from New York bankers,
from Washington, Paris, London, Berlin, and elsewhere, but all to no avail.
They may hold the secret for the great banking flotations! There has lately
arisen a growing demand for congressional investigation of the whole sordid
story of American foreign financing spree.
Representative McFadden's assertions, if they can be accepted, would place
a possible profit to the bankers on their foreign financing operations at from
twelve hundred million to fifteen hundred million dollars. At 5 per cent the
profits to the security dealers would be $750,000,000.
But whatever the inducement for the great fiood of foreign financing, the
American investor is paying the fiddler.
SOUTH AMERICA H I T
What is the record? Only facts and figures are presented.
In the course of the American's survey a compilation became available from
a seemingly unprejudiced source. It is a table presenting details of the United
States public's " investing " record in South America;: The source is the LatinAmerican Bondholders' Association (Inc.), an organization formed, incidentally*
because of the tragic depreciation in our investments on that continent.
The losses suffered in South American investments are fantastic.
The association's compilation relates that approximately 80 per cent of
American investments in that continent had been wiped out by reason of the
depreciation in market values of the "dollar loans" sold to the United States
public!
Here are the association's figures:
One hundred and twenty-two South American dollar loans have shrunk in
value an aggregate of $1,100,000,000.
Their aggregate par value is only $1,531,906,000.
WORTH ONLY LO PER CENT
For some countries the bonds sold to American private investors dropped to
an average of less than 10 per cent of their par value. Peru's bonds were
selling this year at 6.8 per cent of part
SAUS
OF FOREIGN
BONDS O S . SECPBITIES
3 2 7
Nor was this an isolated case.
Bolivia's bonds were quoted at but 7.7 per cent of par.
But why take individual instances for recording? H e r e is theiiassociation's
compilation, country by country:
Total
1,531, GOG, 000 1,396,135,000
Per
cent
of par
3L4
7.7
18.1
12.0
18.7
6.8
24.0
272,743,000
Contraction
in values
from par,
§§§§§!§
Dollars
[iiiiiii
—
$339,414,000
69,£3,000
359,745,000
282,635,000
154,358,000
©0,960,000
59,490,000
Approximate market value at 1931
low,
jsstgijjgjs
Argentina..*..*
Bolivia
Brazil
Chile
Colombia
Peru.
Uruguay
§§§§!§!
Amounts
issued
Approximate
principal
amounts
outstanding
1,123.M2.000
One of the Peruvian National Government issues sold at 5%. The interest
alone called for 6. The bonds were sold at 9V&.
The association estimates that 200,000 investors and millions of other people
in the United States are directly involved in these loans. The chairman of the
association remarks:
11 It is too much to hope that all of these issues will ever be paid 100 per
cent"
Chile, Bolivia, and Peru already have defaulted on their bonds.
EXACT STATUS VAGUE
Brazil, while not actually in default, has made an arrangement whereby its
obligations are paid by coupons of interest-bearing scrip. Considerable mystery
still surrounds the actual disposition of the Brazilian debts.
The scrip policy has been official adopted by the Government of Brazil through
an arrangement with creditors, but as yet the Brazilian States and municipalities have not announced their status regarding their securities.
(The New York American's next article in this sseries, to be published tomorrow, will deal with the individual records of the various Soutli American
dollar loans sold to the American investor. Subsequent articles will deal with
the European phase of the foreign-securities spree.)
[No. 2, November 0, 1931]
FINANCING COMPLETED M A I N L Y THROUGH SALE OF " DOLLAB BONDS "
(Following Is second article in the New York American series on foreign
securities publicly sold in the United States. First article disclosed billions of
dollars loss to American private Investors who bought foreign securities. It
related a loss of $1,100,000,000 in American purchases of South American
M dollar loans.")
_
During the period 1914-1930, inclusive, §2,238,000,000 South American government and corporate bonds and stocks were sold to private investors in the United
States.
The total borrowings were divided as follows:
Argentina—
™0,000
Chile
•
514,052,000
—
448,007,000
Colombia
;
—
219,774,000
p
.
103,710,000
2,930,000
Bolivia
—
53,918,000
Uruguay
42,892,000
Venezuela
2.272.000
Paraguay
92928—32- -PT 2 — — 3
328
SAT.E OP F O B E I G K B O N D S OR
SECURITIES
The greatest portion of South American financing in this market has been
through sale of " dollar bonds " to the American private investor. There are
still outstanding, at par value, $1,396,000,000 of such bonds.
VALUE AT LOW PRICES
Their value, however, at the 1931 low prices, approximated $272,000,000, a
depreciation of 80 per cent.
The above table of South American u investments " sold to American investors
entirely excludes whatever credits have been advanced to South American governments, business enterprises, municipalities, and others, where the funds were
not obtained through direct sale of securities to the American public.
It is understood that the aggregate of such credits is enormous. There has
also been a huge total of offerings to the American public of securities representing United States or semi-United States companies operating in South
America, but which also has been excluded from the present study.
BIB SHRINKAGE
v The record of the "dollar loans" of South America bought by American
private investors is dramatic evidence of the phenomenal shrinkage in values.
The complete record of each " dollar loan," as compiled by the Latin-American
Bondholders Association (Inc.), is shown in the following table:
*-
Complete record of
Amount
issued
Borrower
$40,000,000
30,000,000
45,000,000
29,700,000
20,000,000
16,900,000
27,000,000
21,200,000
40,000,000
20,000,000
14,472,000
10,600,000
41,101,000
11,675,000
8,490,000
3,3&6,000
3,396,000
6,943,000
4,669,600
2,547,000
6,600,000
10,183,000
2,122,500
2,122,500
3,396,000
420,418,500
National Government.
Buenos Aires Province..
Buenos Aires City..
Cordoba Province.,
Cordoba City
Mendoza Province..
Santa Fe Province...
Santa Fe City
Tecum an Province..
Tucuman City
Total for Argentia...
u
dollar loans "
\
Approximate
Coupon Year Price
Market
Amount
per
value, low,
outstandcent
1931
ing
6
6
7
7
7
p
7
7
7
1924 96^£ $35,938,000
1924 ^ 27,657,000
41,818.000
1925
27,605,000
1925
19,008,000
1926
15,942.000
1926
25,650,000
1927
20.268,000
1927
33,227,000
1927
19,217,000
102S
12,588,000
1926
8,978,000
1926
39,496,000
1923
11,500,000
1930
7,676,000
1921
3,221,000
1927
3,242,000
1928
4,743,000
1925
4,414,000
1927
1,750,000
, 1927
5,000,000
1927
7,734,000
1925
1,795,000
1927
1,897,000
1927
3,150,000
1928
389,414,000
$12,758,000
8,918,000
14,845,000
9,800,000
6,748,000
5,659,000
9,106,000
7,195,000
13,571,000
5,957,000
3,147,000
2,110,000
7,702,000
2,099,000
2,341,000
902,000
908,000
1,945,000
706,000
525,000
1,062.000
2.320,000
449,000
474,000
788,000
BOLIVIA
National Government..
Total for Bolivia—
.„
2,400,000
21,000,000
3,065,000
2,188,500
14,000,000
23,000,000
68,653,500
1917
1922
1924
1924
1927
1923
97H 1,279,000
93 122,074,000
93
98H 13,380. 000
WH 22,560,000
59,293,000
101
90,000
2,207,000
870,000
1,354,000
4,521,000
329
S A L E OF F O R E I G N B O N D S OR S E C U R I T I E S
Complete record of " dollar loans "—Continued
Borrower
Amount
issued
Approximate
Coupon
per Year Price Amount Low,
cent
outstand- 1931
ing
BRAZIL
•150,000,000
25,000,000
60,000,000
41.500,000
Federal Government
Riode Janeiro City.
12,000,000
30,000,000
1,770,000
2,000,000
Ceara State
Maranhao State
Minas Geraes State.
1,760,000
8,500,000
Parana State
Pernambuco State
Rio de Janeiro State
Rio Grande do Sul State.
Cons. Municipal.
Porto Alegre City
Santa Catbarina State..
Sao Paulo State
8,000,000
4,860,000
6,000,000
6,000.000
10,000,000
10,000,000
23,000,000
4,000,000
3,500,000
4,000,000
2,250,000
5,000,000
10,000,000
15,000,000
7,500.000
15,000,000
35,000.000
8,500,000
4,000,000
Sao Paulo CIty.u
Total, tor Braiil—
$32,546,000
17,881,000
56,121,000
39,477,000
8,295,000
30,000,000
1,770,000
1,980,000
1,702,000
1021
1922
6H1920
m
8
m
1927
1921
192S
1928
6
1921
1925
m 1928
6.4 1929
1928
1927
7
m 1929
1921
8
1927
7
6
1923
7
1930
1922
8
Itt 1926
7
1928
1922
8
1921
8
1925
5
1926
7
1928
6
1930
7
1919
0
1922
8
8,128,000
7,812,000
4,642,000
5,248,000
6,000,000
6,000,000
9,748,000
23,000,000
3,893,000
3,105,000
3,664, OGO
2,097,000
4,705,000
4,950,000
15,000,000
6,914,000
14,698,000
31,489,000
5,706,000
3,174,000
20
15
17
18
UH
10
20
15
10
12
12
m
7
12M
25
12
10
12
12
10
8
12
%
10
10
47
19
14)4
359,745,000
414.130; 000
cm®
National Government...
IS, 000,000
42,500,000
Z7,500,000
16,000,000
45,912,000
10,000,000
2%
. 000,000
7
6
6
6
6
6
6
*
15,100,000
40,413,000
26,004,000
15,577,000
44,152,000
9.790^000
24,875,000
18,700,000
18,623,000
10,000,000
19,237,000
19,797,000
14,767,000
3,722,000
2,178,000
1922
1926
1927
1928
1928
1929
1930
1925
1926
1926
1928
1929
1929
1928
1930
Chilean Cons. M a n .
Santiago City
20,000,000
20,000,000
10,000,000
30.0001000
20,000,000
15,000,000
4,000,000
Total, for Chile
296,112,000
282,935,000
25,000,000
35,000,000
3,000,000
3,000,000
5,000,000
92H 23,750,000
33,600,000
95
2,200.000
94
Mortgage Bank of Chile..
2,200,000
6
6
6
7
7
7
18
10
10
12
12
12
11
12
23M
12
10
w!
8
8
COLOMBIA
National Government
Agricultural Mortgage Bank.
Ant]lioquia Department*
1st..
3d
„ Interest.,..—
Medeilin C i t y . —
—
Caldas Department.....—
Cauca Valley Department..
92
5,000,000
mi
3,000,000
3,000,000
90
93
2,500,000
3,760,000
1,750,000
4,000,000
4,000.000
4,350,000
96 H
95 h
6,000,000
C„.
D..
2,600.000
97fi 4,250,000
WO, 000
3,000,000
9,000.000
6,000,000
4,000,000
2,500,000
1,500,000
4,500,000
4,250,000
• 5,200,000
5,100,000
2,000,000
5,000,000
3,716,000
3,670,000
94]
96] _ 4,121,000
WH
800,000
93H
93K 2,600,000
95H
98
8,350,000
8,500,000
3,500,000
4,125,000
20
19
21K
20M
20
21H
4,750.000
6,365,000
467,000
533,000
850,000
914,000
l€H
WW
m
16H
14
13
13
17
22
UH
20H
858,000
842,000
325,000
813,000
520,000
477,000
536,000
136,000
572,010
1,232,600
1,721,0C<5
20
17
700,000
701,000
330
S A L E OF, F O B E I G N B O N D S OR
SECURITIES,
Complete record of " dollar loans "—Continued
Amount
issued
Borrower
Approximate
Coupon Year
Price Amount Low, Market
per
outstand- 1931 value, low,
cent
1931
ing
98 I
91
94 |
H
m
15
25
25
23
25
25
25
25
25
a
'1X4.358.000
170,335,000
'Total for Colombia
93H
99 1
100
101
102 1
99 j
22
§
93K
eJ.-Vct-tf
A
B
C
D
£
1 §§§§§!!!§§
93
97
97
i
1927
1928
1030
1823
1924
1927
1028
1928
1025
1925
1927
1928
1930
r
m
7
Condinamarca Department
Bogota City
Santander Department.
Tolima Department
Barranquilla City
$2,000,000
7
635,000
7
250,000
7
12. oca 000
6,000.000
2,700,000
2,000,000
2,500,000
7
500.000
8
500,000
8
500,000 ' 8
500,000
8
500,000
8
§§§§§§§§§§ §
j
COLOMBIA—continued
Call City.
National Government
.
Lima .City
Total for Peru...
15,000,000
50,000.000
25,000,000
1,500,000
3,000,000
7
6
6
1927
1927
1928
1927
1928
7H
m
96H 14,400,000
WH 48,000,000
24,400,000
91
1,250,000
99
2,900,000
03
iiiii
PEEU
10
*
10
13 H
6,152,000
90,950,000
94,500,000
OTUGT7AY
Total for Uruguay
mm
Montevideo City.
&§§§§*5 s
National Government
5
8
6
6
76
1915
1921
1926
1030
1922
1926
67,757,000
1,293,000
90
S8H 3,500,000
96k 28,026,000
17,354,000
98
4,500,000
07
4,867,000
m
59,490; 000
20
30
25
25
.
259,000
%050>000
7,007,000
4,326.000
154,000
876,000
!
m
18
14,272,000
(Next article in the American series will be devoted to a study of European
government bonds sold to American investors. It will be another story of enormous losses for American investors.)
[No. 3, November 10, 1931]
MORE T H A N SIX BILLION BORROWED HEBE FEOJI PUBLIC INVESTORS
(Following is third article in the New York American survey on American
private investors' losses in foreign-security investments. Previous articles detailed the enormous aggregate depreciation in such investments In South America. More than a billion dollars' shrinkage in " dollar loans " to South America
alone were disclosed in yesterday's article.—Editor's note.)
European governments and; semigovernmental agencies, when they sought
loans in this country in recent years, found the American investor's podketbook
wide open.
Advised by American bankers that they were making sound and safe investments, American private investors absorbed a staggering amount of European
securities.
The price they have paid for their error is colossal.
•
The New Xork American's survey discloses a depreciation of almost $SOO.000,000 has taken place in American private investors' holdings of European
government and quasi-government securities.
What the American private investor has lost in European corporate securities
as distinguished from government and government-guaranteed issues is another
story, but equally tragic.
'
Since 1914 Europe as a whole obtained upwards of sixty-seven hundred
lion dollars from American private investors in the form of loans or through
sale of stocks in this country. .
SAUS OF FOREIGN BONDS OS. SECPBITIES
331
This is 40 per cent of all foreign investments made by American private investors during the period 1914-1930, inclusive. In all, fifteen billions of foreign;
offerings were floated in the American market to private investors.
Emphasis is placed on private Investors throughout the present series so that
there will be no misconception of the field covered.
This series deals only with foreign bonds and stocks actually sold to the
private American investor through public offering by American bankers. It
ignores entirely the billions lent directly by the United States Government to
Europe's governments as "war loans.'*
Twenty-six European nations and political subdivisions dipped into the American private investor's funds at some time or other during the last 17 years.
And where the government or municipality of a country or region for some
reason or other failed to float an American loan, its corporations borrowed in
the United States.
Governments, however, accounted for approximately five-sixths of the total
borrowings.
The complete record covering the 17-year period 1914-1930 for every European country or division will be found at the right.
Not all of these securities still are outstanding. Some have been retired, and
a great number of " refunding" operations have been effected whereby new
securities were issued, almost invariably through the American market, to substitute for or retire issues previously outstanding.
There still are outstanding in excess of $2,400,000,000 of such European government and government-guaranteed issues, at par value. This is the total now
owned by American investors.
The current market value of these Issues is $1,600,000,000.
Their depreciation from par value Is $772,000,000.
(How this enormous loss is divided among the different European nations will
be disclosed in the next article in the New York American survey.)
European securities publicly offered in the United States, 19H-19S0
Government
$1,470,287,000
l t 157,295,000
949,842,000
410,795,000
305,545,000
184,625,000
105,322,600
25,000,000
96,451,000
99,111,000
.132,075,000
215,077,000
. 3,000,000
11,500,000
48,650,000
75,000,000
9,169,000
70,000,000
4,000,000
England
France
Germany
Italy
Belgium.
Norway..:.-..,
Switzerland
Sweden
Netherlands....
AustriaPoland
v-.
Denmark.
Danzig
Saar Territory..
Hu
Rumania
Finland
Estonia.
~
Spain..
Luxemburg.....
Greece.......
Czechoslovakia...
Bulgaria.
Ireland...—
Yugoslavia
Total
29,000,000
53,750,000
13,500,000
15,000,000
64,285,000
-
5,548,200,000
Corporate
$97,828,000
21,950,000
430,794,000
206,837,000
34,130,000
26,515,000
12,480,000
142,846,000
18,947,000
15,009,000
39,250,000
7,164,000
40,293,000
"7,~666*66o
44,400,000
7,500,000
600,000
5,500,000
" " 8 7 ^ 666"
1,159,000,000
Total
$1,568,915,000
1,179,245,000
1,380,637,000
617,632,000
339,675,000
211,140,000
117,802,000
167,846,000
115,398,000
114,120,000
171,325,000
222,241,000
3,000,000
11,500,000
88,943,000
75,000,000
9,169,000
77,000,000
4,000,000
44,400,000
7,500,000
29,600,000
69,250,000
13,500,000
15,875,000
64,285,000
6,708,000,000
I No. 4, November 12, 1931]
Here is the fourth article in New York American survey of foreign securities
sold to American private investors. Thus far the following facts have been
shown:
r . . ..' 1
1
First Some fifteen billions of foreign government and foreign corporation
securities have been floated in the United States since 1914. ;
Second. Eleven hundred million dollars!1 depreciation has taken place from
par in American private investors* holdings of South American " dollar bonds."
. 332
SALE;
OF
,
F O R E I G N B O N D S OR S E C U R I T I E S
Third. European government and semigovernment issues of European countries sold to American private investors have shrunk in value almost
$800,000,000.
Fourth. The list of American citizens* investments in the government bonds
of the 16 European countries shows a loss of 43 per cent from par value at a
recent figure, which was not the low figure of the European debacle.
Fifth. Banking commissions on the sale of the fifteen billion of foreign
securities floated in the United States since 1914 would amount to $750,000,000
if 5 per cent can be accepted as a fair average commission.
These bankers' commissions, however, sometimes greatly exceed 5 per cent,
so that an estimate of $1,000,000,000 in commissions would not be excessive.
Sixth. None of the foregoing figures have anything to do with United States
Government loans direct to European nations during and immediately following
the war.
Securities of 16 European governments and government agencies have shrunk
in value more than 43 per cent since they were sold to American private
investors.
Total depreciation from par value of these European securities amounts to
more than $700,000,000.
And still this enormous loss excludes entirely the vast amount of European
corporation securities which also were sold to American investors.
LOSSES TO INVESTORS
For the purpose of ascertaining the status of American private investment in
European government and semigovernment enterprises the New York American
survey was divided into two parts. The part dealt herewith covers those
countries where the decline has been bigger than 10 per cent.
Losses to American investors run into staggering amounts. The $75,000,000
old Russian loans, for example, have been completely wiped out.
Depreciation of 50 per cent or more are frequent.
Accompanying compilation reveals the tragic consequences of America's
liberality in lending billions of dollars to Europe, over and above the billions
advanced by our Government as war loans.
Every country in Europe availed itself of the American liberality.
Germany was a particular beneficiary. That nation's government anil semigovernment units now owe to American private investors over $700,000,000.
CTTBBENT VALUE
How the market rates this debt is exemplified by the current value of only
$277,000,000.
Depreciation in German Government and semigovernment securities alone
approximates 57 per cent
It is a sad commentary on the German lending that some of the nation's
outstanding citizens now complain that they were virtually implored by American bankers to accept loans. The proceeds in a great many instances, notwithstanding the supposedly dire needs of the country, were utilized for the
construction of bathing facilities, parks, playgrounds, and similar developments.
The bankers' funds for making those loans of course came from the private
American investor who bought the German bonds offered by the bankers.
But even this isn't the worst experience for the American investor, forgetting
the Russian loan folly.
Bulgarian securities sold to the American private investor have dropped in
value 62 per cent.
Hungarian issues have slumped 60 per cent. Yugoslavian securities are
available now for 45 per cent of par, a depreciation of 55 per cent Poland's
securities have slumped 43 per cent And so on down the line for the entire
16 nations of Europe.
Czechoslovakia, Italy, and Normay, along among the 16 countries surveyed
to-day; show depreciation of 20 per cent or less. Norway's securities have
slumped 10 per cent
.
These facts are reflective of aggregate totals for each nation.
"
Individual issues have slumped as much as 75 per cent. - ^ v - • 'f
The table gives in detail the experiences of the: average A m e r i c a n investor
.in the 16countries. ;
,
'•
i-h*
''
(Next article in New Xork American survey will*deal with G e r m a n ' Government issues sold to United States private investors.)
Enormous depredation shown in American holdings of European government issues
Par value of
oflerlngs now
whole or In
part outstanding
Actual cash Invested by
public of
United States
Austria
Bulgaria
Denmark
Estonia
Finland
Germany.....
Greece
Hungary.
Ireland
Italy
Norway . . . .
Poland....
Rumania—
Russia
Saar Territory.
Yugoslav—...
$135,611,000
13,600,000
151,077,600
4,000,000
70,000,000
711,102,600
26,000,000
44,660,000
15,000,000
187,160,000
170,600,000
122,075,750
5,410,600
75,000,000
11,600,000
40,286,400
$127,273,000
12,870,000
146,100, MO
3,780,000
66,225,000
656,239,050
23,330,000
43,606,100
14,560,000
17fi, 150,000
165,002,325
114,718,250
4,769,160
73,687,500
11,052,500
45,992; 200
$132,426,000
13,348,637
149,216,750
4,9-16* 600
02,948,260
619,089,110
25,603,000
42,599,300
3,612,600
171,610,655
166,313,000
108,280,030
5,419,600
75,000,000
7,834,000
49,285,000
$91,520,130
5,209,605
114,9-10,310
2,967,900
36,561,370
277,413,160
14,985,480
13,911,630
2,709,375
137,386,302
135,322,146
61,052,800
3,251,700
750,000
5,481,170
22,003,000
$10,905,870
8, 138, 932
34,276,410
1,978,600
26,383,890
371,675,950
10,617,520
28,687,770
903,125
34,221,353
31,020,864
47,227,230
2, 167,800
74,250,000
2,352,830
27,192,000
Total J . _
1,792,872,000
1,684,437.000
1,667,562,000
925,559,000
742,003,000
Country
Par value of
outstanding
Issues
Current vntue
of outstanding
issues
Depreciation
from par
8
O
a
»
H
Ui
CO
CO
CO
. 334
SALE;
OF , FOREIGN BONDS OR SECURITIES
[No. 5, November 14t 1931]
(Following is fifth article in New York American survey of foreign securities
sold to private investors in United States, aggregating $15,000,000,000 since 1911
Previous articles disclosed eleven hundred million depreciation in South American "dollar bonds" held by Americans. Eight hundred million decline in
European government and semigovernment securities sold to American private
investors also has been disclosed. Decline of 43 per cent has taken place in
value of 16 European countries' securities sold here. Bankers' commissions on
the fifteen billion foreign financing in the American market has netted them at
least a billion dollars, it is estimated. This series ignores the European " war
debts" to the United States Government.—Editor's note.)
1. Four hundred and fifty million dollars depreciation has taken place in
value of German Government and semi-Government securities sold to American
private investors.
2. American investment losses in German securities are the largest in any
foreign nation.
3. There is outstanding to-day and owed to American investors more than
$700,000,000 of German Government and semi-Government loans.
4. Germany has been the most prodigious European postwar borrower from
the United States. Her aggregate borrowings from private investors in this
country have exceeded thirteen hundred millions, almost all advanced during
the period 1924-1930, inclusive. Our international bankers sold these securities
to American investors, thereby earning large commissions.
5. Germany for years used her American borrowings to meet her reparations
debts.
6. The ogre of a possible moratorium for Germany hangs over all her obligations.
For seven years, 1924-1930, inclusive, Germany indulged in the greatest borrowing spree the world has ever, witnessed,.
In that period the Reich and its political divisions and German corporations
marketed in the United States more than thirteen hundred million dollars of
their securities.
Liberality with which American investors' funds were advanced to Germany
embodied all of the ignorance and amazing lack of foresight which characterized the whole postwar foreign financing era in the United States.
As a result American investment losses in German securities are the largest
in any foreign land.
57 PEE CENT DEPRECIATION
Of the thirteen hundred and seventy-two million dollars total German
financing in the United States, there still is outstanding $780,000,000 of Government and semi-Government issues at par value.
Market value of these securities to-day is $329,000,000.
Depreciation totals $450,000,000, or 57 per cent.
And even this enormous shrinkage is totally exclusive of losses suffered in
German corporate securities floated to an aggregate above $400,000,000.
Successful flotation of the Dawes plan loan in the international capital
markets opened the eyes of Germany to the vast possibilities for enticing foreign
capital into that country. There followed then a period of foreign financing
for Germany which has no duplicate in world history.
From years of absolutely no German financing in the American market there
developed an amazing growth of German security sales here. The United
States, then in the supposedly endless era of prosperity at home, absorbed
hundreds of millions in German securities.
Germany, to her amazement, found the American money markets actually
eager to secure her bonds and stocks. And Germany finally discovered some
embarrassment in using these foreign funds.
For several years during the fantastic era Germany utilized the proceeds of
her foreign financing, chiefly from American investors, to meet her reparations
requirements.
USB OF LOANS
Furthermore, German recipients of American investors' liberality deemed it
advisable to build up their industrial machinery to compete once again in the
world's markets. Proceeds of loans were also used in the construction of
SAUS
OF FOREIGN BONDS OS. SECPBITIES
335
public conveniences above and beyond necessities. Playgrounds, home developments, public parks, and similar undertakings were all financed with the
inflowing foreign capital.
How freely the American market absorbed German securities is evidenced
in the following table. It presents yearly totals of German Government and
semi-Government securities publicly sold to American private investors:
(Thousands omitted]
Year
1921
1925
1926
1927
1928
1029
1930
TotaL.
Government
Corporate
Total
$110,000
158,750
151,138
150,405
186,370
21,476
143,308
$8,000
59,500
143,106
80,120
106,106
10,149
23,510
$118,000
218,250
294,245
2301,525
292,476
31,625
166,818
941,846
430,793
1,37^639
The aftermath of this fantastic era of foreign lending by the American investor is chilling. To-day the world is rife with ugly rumors concerning Germany's capacity to pay, her inclination to meet her obligations, and similar
doubts questioning the safety of all foreign investments in Germany. And the
United States investor has the biggest stake of any nation's private investors.
This, of course, excludes the political and intergovernmental debts.
The dollar-and-cents story of American loans to German Government and
semigovernment bodies is graphically told in the accompanying table.
(Next article in this series will deal with American private investors' losses
in European corporate securities.)
German State issues publicly sold in United'States and.now outstanding
Amount currcnt
Interest'
Amount
Issued
Borrower
$1,760,000
1(5,000,000
8,000,000
3,800,000
16,000,000.
9,651,000
12, 778, QGO
Free State of Anhalt...
Free State of Bavaria..
Bavarian Palatinate Consolidated CitiesBerlin City Electric Co
681v 000
Berlin Elevated Underground R. B. C o . .
Brandenburg Electric Co
Brown Coalln dust rial Corporation
City of Iiorlin
City of Cologne
German consolidated municipal loan of German savings banks and clearing bouse associations.
Central Bonk of Agriculture
Central Bank of German State and Provincial Banks (Inc.).
Central German Power Co. of Madgeburg
Consolidated Agricultural Loan of German Provincial and C
Consolidated Hydroelectric Works of Upper Wurtcmburg...
Consolidated Municipalities of Baden
Consolidated municipal loan of German savings banks
Dortmund Municipal Utilities
City of Dresden
City of Dulsburg
City of Dusseldorf
Elcctrlc Power Corporation
i Banks.
East Prussian Power Co
City ol Frankfort on the Main
German Building & Land Bank
Government ot Germany...
.........
.
6,000,000
.2,000.000
13,000,000
: 178,000
1, 190,000
Ifi, 000,000
8,000.000
17,500,000
19,000, (XX)
19,000,000
43,000
20,000,000
3,500,000
10,000,000
2,430.000
21,000,000
4.0(10,000
4,500,000
19,050,000
3,000.000
-3.7f 0.000
3,000,000
1,750,000
0,000,000
2. £00,000
5,000,000
-3,500,000
-2,800,000
- 6,250,000
: -6.2.10.000
110,000,000
- 08,260,000
Rato : Issue
per cont . price
7
m
m
7
6;
01
6J-6
OH
6
m
G
5
G
c,y>
6;
7
6
6
6
6
6
G
o!i
7
7
7.
6>*
7.
7
7
6H
G>j
Oh
Q
7
6!
ttl
61
7 ,
6V4l
mi
8SW
mi
93H
mi
93M
90^5
mi
mi
mi
MI
75
9196
05
87J4
mi
U3
05
95J5
95fc
95
05
98M
97 tf
93
!)3
U354
mi
IH
KM
98H
87
87
99 J4
91
94
99 J4
DSHi
02
UO
QuotaOutstanding
tion
$1,400,000
; 11,250,000
7,838,000
3,335,000
14,288,000
0,541,000
12.778,000
0.681,000
4.765; 000
2,000,000
11,579.000
133,000
671.000
14,616,000
7,014,000
]fi,433,000
17,300,000
18,3S5,000
14,130,000
21,963,000.
3,310,000
9,275,000
2,430,000
20,290,000
3,778,000
4,135,000
18,385,000
3,000,000
3,174,000
2,250,000
1,312,500
5,000,000
2,500.000
5,000,000
3,426.000
2,800,000
: 6,002,000
s. art), ooo
83,701,000
08,250,000
25"
35
35
25
40
41
35
41
29
40
37
25
65
29
34
32
51
50
40
52
31
33
40
30
35
45
32
25
80
38
38
35
30
40
29
HI
114
38
Curront
' value
"$350,000
-3,837,000
.2,743,000
846,000
-4,715,000
3,912,000
4,472,000
4,025.000
1,381,000
800,000
4,234,000
33,000
436,000
4,23S, 000
2,385,000
5,25*. 000
8,823,000
0,192,000
20,153,000
12.070,000
1,035.000
3,060,000
2,162,000
7,710.000
1,615,000
1,240,000
G. 431.000
1,350.000
1,015,000
562.000
1,050, (XX)
1,900,000
950,000
1,750,000
1,027,000
1,120,000
1,758,000
1,523,000
53,731,000
37,83A, 000
•Depreciation1
^ from par
$1,050,000
7,412,000
5,094,000
2,539,000
' 8,572,000
5,629,000
8,305,000
5,123,000
3,383.000
1,200,000
7,295,000
100.000
231,000
10,477,000
4,629,000
11,17-1,000
8,477,000
0,192,000
20,976.000
11,992,000
2,305, (XX)
6,214.000
267,000
12,579,000
2.273.000
2,891,000
11,950,000
1,650,000
2,158,000
1,687,000
262,500
3.100,000
1,550,000
3,250,000
2,30H, 000
1,680,000
4,301,000
. 3.565.000
30,000, (XX)
: 00, ois, 000
Hamburg Electric Co
llnmburk Efovntcd, Underground A Street liys. Co._
City of Hamburg
City of IJnnovor.
City of He Idol berg.
Provincu of Hanover Ilorz Water Works
„
.
.*„
:
City of Leipzig
Leipzig Overland Power Co
.
Luncburg Power, Light A* Waterworks (Ltd.)
Free State of Oldenburg
.
Man helm A Palatinate Electric Co
City of Munich
..
Municipal Bank of State of I lessen
..
Municipal Gasdc Electric of Iteckiinhausen
Nassau Land Bank
.
City of Nuremberg
. —
Obcrpfatz Electric Power C o r p o r a t i o n . . . . . . . . . . . .
F w State of Oldenburg
Pomcrnnift Electric Co
Provincial Bank of Westphalia
Free State of Prussia
.7..,
Prussian Electric Co
Rhino Main Danube Corporation
Rhino Ruhr Water Servico Union
Rhino Westphalia Etcctric Power Corporation...
.
.1.
...
.
f.
;
..
.
„
I
.. .
...i.
.-„„
..
—..
. ...
'
Saion Public Works...
Saxon State Mortgage Institutions..
Stato of Bremen
Stettin Public Utilities
Untcrelbo Power & Light Co
United Industrial Corporation
Vestcn Electric Rys
Westphalia United Power Corporation.
State of Wurttenibcrg
Total-..
f 4,000,000 7 I 95HI 3, OOO, 000
84
6, 500, OOO5H1 92Mi (1, 203, 000I1 GO
\ to, 000,000 6
»1>
91)4 10.000,000
7
3, £00,000
35
OS 3.469,000
1, COO, 000
1,401.000
32
7H mi
0
95
1,0G0,000
35
; .1,000,000
3,725.000
•3,725,000
WM
20
m
7
• 3,750.000
mi " 3.339,000 - 35
.2,425,000
2.101,000
30
92)4
6H
7
1,100.000
98
"1,087,000
40
3,000,000
-2,075,000
S,700.000
3,600.000
" 1,500,000
3.000.000
5,000,000
1,250,000
3,000,000
3,500,000
.3,000,000
17.500,000
24,500.000
. 4,000,000-
7
7
7
7
7
6*4
6
77
v
-
6
7
11,00a 000
10,000,000
2„ 000,000
5
6 .
7
5,000,000.
4,000,000
. 11,250,000
3,000,000
4,250,000
845,068,000
m ~
e •
6
7
6
7,500,000
10,000,000
10,500,000
14,850,000
12,500,000
15,000,000
8,400,000
6 .
6
6
-6,00a 000
. 6,000,000
" 1,750,000
' 20,000,000
93?*
06*4 .
93*4 OSH
98
97*4
91
m
7
7
6
7
6
7
.......
95
91
96
93
94
95H
93
91
v 02
• 91J4
97*4
95
93*4
97
M
WH
93
07H
98
m
z
mi
mi
fir n
mi
i
'
WJ4
..
*
:
'r
-
.
•
2,403.000
45
-2.675,000
46
6,525.000
34
2,700,000
30
1,384,000
25
3.000.000
45
4.6(50.000
26
1.077,000
35
2,403.000
45
3.427.000
29
.3,00a 000
25
17,500,000
35
23,078,000
35
4,000.000
30'
43
5,414,000
7,070,000
29
:8,510,000 " c 62
10,098,000
49
14,850,000
50
12,168,000
49
15,000,000
... 45
10,698,000
- 38
10,000,000 "
43
.1,849,000
25
4,346,000
50
3,579,000
42
10,019.000
45"
2,400.000
30
34
-4,097,000
6,000,000
36
•1,614,000
25
20,000,000
34
6,300,000 * " 25
. 780,226,000'
2, J520, 000
3,14(1, 000
3, 000,000
1,210,000
488,000
350,000
068, COO
1,168,000
630,000
434,000
1,031,000
1,230,000
1,631,000
" 810,000
3-16,000
1,350,000
1,211.000
377,000
1,081,000
003,000
750,000
. 6,125,000
7* 8,077,000
1,210,000
2,328,000
2,050,000
5,276,000
4,018,000
7,425,000
5,062,000
6,750,000
4,065,000
4,325.000
462,000
2,173,000
1,503,000
4,508,000
720,000
1,302,000
2,160,000'
480,000
3,146,000
0,100,000
2,24*, 000
-012.000
.750,000
2,750,000
2,170,000
1,370,000
652,000
1,321,000
lf444.000
4, MM, 000
1,890,000
1,384,000
1,650,000
3,418,000
700.000
1,321,025
3.427.000
2,250,000
11,375,000
15,000.000
2,790,000
3,085,000
5,019,000
3,223,000
5,150,000
7,425,000
0,206,000
8,250,000
6,633,000.
5,675,000
1,386,000
2,173,000
2,075,000
5,510,000
1,680,000
2,701,000
3,840,000
403,500
6,075,000
1,675,000
13,025,000
4,725,000
329,536,000
450^375,000
1,210,000
xn
1
o
NJ
O
©
^
W
O
X
O
t/i
o
03
HO
3
03
- Current quotations of above table represent either last sale, fast bid, or nominal prtcfv
CO
CO
M
. 338
SALE;
OF,FOREIGN BONDS OR SECURITIES
[No. 6, November 15, 1931]
1. Thirteen hundred million dollars have been raised by European corporations through sale of their securities to American private investors since 1914.
2. Eight hundred millions of such securities still are outstanding and held by
American investors.
3. Four hundred and sixty million dollars depreciation has taken place in
these securities. This represents 56 per cent loss from par value. By countries, the depreciation runs as high as 83 per cent
4. Much of this money raised in America has been used in improving and
strengthening the competitive position of foreign industries.
5. Value of many foreign corporate securities can not be ascertained because
of absence of quotations.
6. German corporations securities represent almost half all American holdings of European securities. Loss in German corporate issues alone totals
$210,000,000.
7. Bankers' commissions on European corporate securities ranged from 5 per
cent up to several times this rate.
Through sale of their securities to American private investors Europe's corporations raised an aggregate of $1,134,000,000 new capital during the period
1914-1930, inclusive.
' ""
The American investor, through American bankers who sold them these
securities, have become (a) creditor of European corporations through purchase of their bonds and notes, or (5) partner by buying their stocks.
Either " investment" has proved extremely expensive.
The American private investor still holds $826,956,000 of European corporate
securities. This is entirely distinct from European government and seimgovernment issues publicly floated in the United States during the same period.
These latter, as disclosed in previous articles in the New York American survey,
represent an aggregate loss of about $800,000,000 to the American investor.
Those American investors who bought European corporate securities have
been equally unfortunate.
Depreciation of $464,398,000 has taken place in these corporate issues.
The shrinkage represents 56 per cent of their par value.
And still this stupendous loss excludes millions more lost in securities for
which no present value can be established, or which represent enterprises which
have virtually disappeared in recent years.
Corporations of all Europe dipped into the American investment funds for
new capital, but German corporations obtained almost half the total for the
entire continent
In these1 German corporate issues American investors now suffer a depreciation of $210,000,000, equal to 60 per cent
Accompanying table discloses the experiences of the American investor in
Europe's corporation issues sold in this country.
The shrinkage, by countries, runs from 9 per cent for Denmark all the way
up to 83 per cent for British corporate flotations in the United States.
Besides Britain and Germany, decline of 60 per cent or more is shown in
corporate securities of the following countries: Belgium, 62 per c e n t ; Luxemburg, 63 per cent; Poland, 63 per cent; Netherlands, 70 per cent
Almost invariably the American investor's money placed in European corporate issues was used to modernize, strengthen, or otherwise improve the competitive position of the corporation. In some instances the American capital
provided the wherewithal to build new plants in foreign lands. It would not
be a far exaggeration to say that American private investors capitalized the
postwar industrial revival of Europe.
(Next article in this series will deal with another interesting phase of
American foreign investments.)
VALUE OF UNITES) STATES INVESTORS* HOLDINGS OF FOREIGN STATE ISSUES DOWN
*2,000,000.000
^
Two billion dollars loss to American private investors who bought European
and South American Government securities sold in tbe United States since 1914
has been disclosed to date by the New York American. These losses, covering
only government and semigovernment securities, are divided as follows
SAUS
OF FOREIGN BONDS OS. SECPBITIES
339
(a) Eleven hundred millions depreciation in South American " dollar bonds*"
which have dropped SO per cent in value; and
(&) Eight hundred millions decline, from par, in European government and
semigovernment issues sold to private American investors.
Europe and South America combined have taken the bulk of the $15,000,000,000 raised from the American private investor through sale in the United
States of foreign securities during the last 17 years.
To-day's article, sixth in the series, is devoted to another phase of the foreign
financing era: Sales of European corporation securities to the American public
by American bankers, who, it is estimated, profited $1,000,000,000 through sell'
ing foreign government and corporation securities in the United States during
the period covered by this survey, 1914-1030, inclusive.
Enormous depreciation shown in American holdings of European corporate issue*
....
.
Total
......
.
883,850,000
855,968,000
826,956,000
§§§§§§§§!§§§§§
$10,758,000*
13,089,000
6,672,000
17,350,000
6,937,000
23,749,000
34,425,000
10,450,000
6,918,000
130,924,000
365,759,000
146,193,000
39,140,000
42,674,000
nmmmm*
§§§§§§§§§§§§§§
...
-£
Austria.
Belgium
.
Denmark
France
Luxemburg...
Norway..
Poland
Switzerland
Netherlands
Sweden
Germany
Italy.....
Hungary
Great Britain
mummm?
§§§§§§§§§§§§§§
Country
£ P 2 JL^, £££
Par value of Actual cash
offerings
investments Par value of Current value
now in
by United outstanding of outstand- Depreciation
whole or
ing issues
States
issues
from par
In part outpublic
standing
363,053,000
Depreelation
$4,939,000
9,891,000
357,000
3.990,000
4,376,000
6,840^000
19,368,000
6,236,000
4,857,000
78,733,000
210,294,000
60,193,000
19,264,000
35,060,000
PtT
cent
55
62
9
22
63
28
63
59
70
52
60
41
66
*3
464,398,000
56
{No. 7t November 10, 10311
Following is seventh article in the New York American survey of foreign
securities sold to American private Investors since 1914. The survey has
disclosed to date :
1. Approximately $15,000,000,000 of such" securities have been sold to the
American private Investors.
2. Losses on such purchases run into billions of dollars. Nearly two and
one-half billion depreciation has already been proven In three classes of foreign
issues held by American investors:
(а) Eleven hundred million in South American dollar bonds."
(б) Eight hundred million in European government issues.
(c) Four hundred and sixty-four million In European corporation issues.
3. Probably a billion dollars in commissions were made by America's international bankers in selling these foreign securities to the United States investor.
4. Depreciation of some issues run above 90 per cent; not a few issues have
been entirely wiped out.
5. Above figures have nothing whatever to do with United States Government
loans direct to European nations during and immediately following the war.
SAUB OF FOREIGN" BONDS(1OR SECURITIES
340
Capital issues of all foreign countries of the world puWcly offered iny the
United States, 1914-1930, inclusive
, ' ;.r
Country
Government
$1,470,287,000
1,157,295,000
W9,842,000
410,795.000
305.545,000
184,625.000
105,322,000
25,000,000
96,451,000
99.111,000
132,075,000
215,077,000
3,000.000
11,500,000
48,650,000
75,000.000
9,169.000
70,000,000
4,000,000
England..
.France
Germany.—
Italy
—~
Belgium
—
Norway
Switzerland
Sweden
Netherlands
Austria
Poland
Denmark
Danzig
Saar TerritoryHu
Rumania. _
Finland
Estonia
Spain
LuxemburgGreece
Czechoslavakia..
Bulgaria...
Ireland.*
Yugoslavia.-.—
29,000,000
53,750,000
13,500,000
15,000,000
64,285,000
Total..
Total
Corporate
$97,828,000
21,950,000
430,794,000
206,837,000
34.130,000
26.515,000
12,480,000
142,846,000
18,947,000
15,009,000
39,250,000
7,164,000
$1,568,915,000
. 1.179,245,000
1,380,637.000
617,632,000
339,675,000
211,140,000
117,802,000
167,846.000
115,398,000
114,120,000
171,323,000
222,241,000
3,000,000
11,500,000
88,9*3.000
40,293,000
75,000,000
9,169,000
77,000,000
7,000,000
4,000,000
44,400,000
41,400,000
7,500,000
7, SCO, 000
29,600,000
GOO. 000
59.250,000
5,500,000
13,500,000
15,875,000
875,000
. 64,285,000
1,159,000,000
6,707,000,000
1,500,000
1,238,847,600
1,500,000
3,592.727,000
472,092,000
2,250.000
18,900.000
21,765,600
13,192,500
44,082,900
1,000,000
940,000
609,392,000
19,550,000
19,450,000
: 37,765,000
13.682,000
49,879,000
1,000,000
27,740,000
7,520,000
2,576,466,000
1,814.570,000
4,391,036,000
824,421,000
63,230.000
423,682,000
325,692,000
172,588,000
100,313,000
9.700.000
24,985,000
189,000,000
47,186,000
2,272.249
8,000,000
£,548,200.000
NORTH AMEBIC*
British West Indies
Canada (including Newfoundland).
Costa Rica..—
Cuba
Dominican Republic
Guatemala
.
....
Haiti
Honduras..
Mexico
Nicaragua
Panama
SalvadorTotal..
% 353,88a 000
10,820.000
137,300.000
17,300,000
550,000
16,000.000
500,000
5,796,288
26,800,000
7,520,000
10,820,000
SOUTH AMERICA
"31,923,756
924,734,000
r 72,930,000
448.667,000
514,692,000
219,774,000
2,272,000
103.710.000
53,918,000
31,923,000
1,959.241,000
413,379,000
2,372,62a 000
Australia..
269,188,000
7,750,000
276,938,000
China.
Japan. —
Netherland East Indies..
Palestine
—
10,75ir00
177,667,000
153,29a 000
35a 000
193,574,000
27,136,000
50,00a 000
6a 752; 000
371,241,000
180,426,000
350,000
342,059,000
270,710,000
612,769,000
Argentina:...
Bolivia
Brazil
Chile..:..—.
Colombia..:.-,
Paraguay
Peru
Uruguay
Venezuela
95,710,000
53,918,000
Total..
AUSTRALIA
Total
World totals (1914-1930), $10,695,154,000 and $3,665,410,000— $14,360,3G4,000
International loans 1
260,047,000
1931 foreign issues in United States
263,222,0W
Grand total.
14,883,633,000
SALE OF FOREIGN. BONDS OB SECURITIES
,341
Relatively few* countries In the world passed up the opportunity to take
advantage of American liberality with respect to purchases of foreign securities
publicly offered in the United States during the last 17 years.
Nearly $15,000,000,000 of such securities were sold to American private
investors In this period.
,
Of this aggregate, foreign governments received more than'ten'billion, or
two-thirds.
i . . . .
Foreign corporations raised $3,G65,000,000 through sale of their securities to
American private Investors.
The $15,000,000,000 total referred to is. exclusively proceeds of the sale of
foreign securities direct to American private investors.
It does not include the billions of dollars advanced by our Government to
European governments as "war loans." Neither does it include the billions
which have been Invested abroad by American corporations.
; The New York American survey is concerned only with foreign securities sold
to the American private investor.
European governments and other political divisions and corporations have
taken upwards of 40 per cent of the total American " investments " In all foreign securities. Three of her nations, England, France, and Germany, have
taken upward of a billion dollars each.
Largest of all countries' security sales to Americans, however, is the Canadian
total, $3,502,727,000. Argentina's total comes close to a billion. Other large
foreign totals are Italy, with $017,000,000, Chile with a half billion, and Cuba,
$609,000,000. By continents, the totals are:
Government
North
South Atucrica....
Far East
.
5
Corporate
$5, MS, 200,000 $1,159,000,000
2,576,466,000
1,814,570,000
1,659,241,000
413,379,000
269,183,000
7,750,000
312,059,000
270,710,000
Tptal ;
$6,707,000,000
4,391,036,000
2,372,620,000
- 276,938,000
612,769,000
i Flotations which can not be charged to any specific nation.
Senator K I N G . Mr. Kahn, in view of your statement let me ask
you: Isn't one of the reasons for the decline in American bonds,
and I am not speaking now of Government bonds, but pf corporate
bonds, the result of a belief on the part of many people that corporations have unloaded upon investors not only stock but bonds
at higher prices by far than the conditions of the corporations
warranted? In other words, taking advantage of the inflated condition brought about largely by brokers and speculators and by banks
that contributed to it^ corporations unloaded upon the investing
public millions and hundreds of millions of dollars of bonds and
hundreds of millions of dollars of stock at prices far beyond their
intrinsic value.
Mr. K A H N . A S a general proposition, I very respectfully beg to
differ, Senator, though I admit that errors have been made and that'
in some respects ground for criticism does exist. The price at which
a bond is sold is determined not by the banker, as no banker has
the power to do that, and no combination of bankers or of corporations has the power to do that, but is determined by supply and
demand. I f the people want to buy bonds or are in a mood to : buy
bonds, if the market conditions and the monetary conditions of the
time are such that bonds are in great demand, the bankers' job,
among other tilings, is to form an estimate as to what is the market
price at which a bond that they believe to be good, intrinsically,
according to their investigations, can be sold, according to their best
judgment It is not, correct,; -with all due respect to yoij, Senator
. 342
SALE;
OF , FOREIGN BONDS OR SECURITIES
King, to say that reputable bankers are unloading bonds upon the
public. They are finding out what is the demand; they are finding
out what is the supply; and they just seek to adjust the price to that
situation. And I wish to point out that they are not making 1 cent
more in the way of commissions if they sell a bond at 100 than if
they sell at 90. They have no interest to sell at a high price. Their
profit or spread or margin is no different, as a general proposition,
in the case of a bond that they sell at a high valuation than in the
case of a bond that they sell at a low valuation.
Their interest is to find what is the correct market at the time,
at what price can and should these bonds be sold. Their first duty,
of course, before offering any bonds to the public, is to find out by
careful investigation if such bonds are intrinsically sound and if
they are justified in taking the responsibility of inviting the pubjdc
to subscribe! I repeat that no banker or combination of banks or
corporations has tne power to create investment conditions. They
do not make the market. Tliey. do not
Senator KING (interposing). Mr. Kahn, of course, I respectfully
dissent from the last expression, but that is immaterial. Isn't it a
fact that many investment bankers and brokers, the National City
Bank among the number that I now have in mind, carried on a very
active campaign to unload upon the investing public not only stocks
but bonds at very high values, and that, they made the market by
their improper advertising and by their high-powered salesmanship.
Mr. K A H N . Senator King, I would respectfully suggest that the
National City Bank speak for itself. Mr. Mitchell was here and no
doubt you have asked him whatever questions you thought appropriate. I can only speak for my house, and I can say for my house
that for every issue that we made we declined six others, or probably more, because we alwavs want to be sure that what we offer
is intrinsically sound, and that ifc is offered at a price justified bj
what in our best judgment is its real value and by the then existing
conditions of demand and supply. Perhaps I may repeat that only
one of the borrowers whose bonds my house issued, of the whole list
of bonds that I have here, and going back 12 years, is in default. As
to the matter of high-powered salesmanship to which you have referred, that is a practice which has been exaggerated and overdone.
There may be two opinions, but my personal opinion is that it has
been greatly overdone.
Senator KING. And when $8,000,000,000 of brokers' loans——
Mr. K A H N (interposing). I say, Senator King, my opinion is that
it has been distinctly overdone.
Senator KING. Too much high-powered salesmanship?
Mr. K A H N . Yes-; and I agree with you as to the d e s e r v e d criticism
of such exaggerated proceedings and methods in the way of highpowered salesmanship, and I feel sure that it would be desirable and
called for that greater self-restraint be practiced in thatfieldhenceforth.
Senator KING. I think that is a very wise a d m i s s i o n which you
have made. It does not go quite far enough, but I do not want to
project, Mr. Chairman and members of the committee, into this discussion on foreign bonds a discussion on domestic stocks and bonds.
But if we were permitted to go into that matter at this time I think
SAUS OF FOREIGN BONDS OS. SECPBITIES
343
we would perhaps have some pertinent questions to propound in
regard to it.
Senator JOHNSON. Mr. Kahn, do you know whether or not there
was keen competition among the various houses to obtain South
American securities and float them in this country?
Mr. K A H N . Yes; among many of them.
Senator JOHNSON. Could you name the houses that were competing, literally competing, in the South American countries to obtain
securities there in order that they might be sold in this country?
Mr. K A H N . Yes; I think s o / Perhaps I may mention that it is
a strict tradition of my house not so to compete, either in South
America or elsewhere.
Senator JOHNSON. AVhat houses were they?
Mr. K A H N . Many houses. Some of them were rather novices in
thefieldof the issuing business. I think if you will give me a little
time I can probably give you a list of not less than 25 or 30 corporations or houses.
Senator JOHNSON. That is, you mean that the representatives of
a particular house in New York would be in Peru, Bolivia, or the
Argentine, and the like, there seeking to obtain thefloatingof a loan?
Mr. K A I I N . S O I am informed.
Senator JOHNSON. And that was so in the case of many houses,
was it?
Mr. K A H N . I believe that was so in the case of many houses.
Senator JOHNSON. Will you now take a specific loan in order that
we may have it on our record and in order that the committee may
follow it, and let us go through with it. For instance, take the second French loan that wasfloatedin this country in 1924 by the house
of Morcan. Do you recall it?
Mr. KAHN. Y e s .
Senator JOHNSON.
It is in testimony here that J , P. Morgan & Co.
bought that loan outright of $100,000,000; is that a fact?
Mr. K A H N . Yes; as far as I know.
Senator JOHNSON. And that immediately J . P. Morgan & Co. sold
it to a very small syndicate for an advance of 1 per cent. That is,
that thev bought it at 94 and sold it at 95; is that correct?
Mr. ILUIN. I could not tell you about that without having the
record before me, but I have no doubt what you state is taken from
the testimony of Mr. Lamont.
Senator JOHNSON. I am speaking, I think, from the record. My
intention is to be accurate in that regard, of course.
Mr. K A H N . I assume that all those facts are of record.
Senator JOHNSON. If J. P. Morgan & Co. purchase a loan like
that of $100,000,000 from France, and take into partnership as it
were in theflotationof it three or four houses at 1 per cent advance,
who obtains that 1 per cent?
Mr, K A H N . There would be an originating group formed usually,
who, together with Morgan & Co., would share in the commission,
which is measured by the degree of responsibility that the originating group enters into.
. Senator JOHNSON. D O you recall the other two or three who were
interested, or perhaps four, as the case may be, with Morgan & Co.
in that French loan?
92928—32—PT 2
i
.344
SALE;
OF
,
FOREIGN BONDS OR SECURITIES
Mr. K A H N . I should not like, to guess, Senator Johnson, but I will
say that I have a general idea.
Senator JOHNSON. Well, Kuhn, Loeb & Co^ were one of them?
MI*. K A H N . Yes; I believe.
#
Senator JOHNSON. Was the National City one?
Mr. K A H N . My associate here calls my attention to the fact that
he doubts whether we were one of them.
Senator JOHNSON. YOU were interested in it at one stage, were
you not ?
The CHAIRMAN. Senator Johnson, are you speaking of the Argentine loan now?
Senator JOHNSON. N O ; I am speaking of the second French loan,
in 1924.
Mr. K A H N . I can tell you, I think, in a second by referring to
some papers I have here.
Senator JOHNSON. All right. I just want to follow through with
one of these so as to indicate to the committee what transpires.
Mr. K A H N . N O ; we were not interested in that French loan.
Senator JOHNSON. S O much the better, for you can testify without
;being interested in that particular loan.
The CHAIRMAN. I notice here the first French loan, and I do not
know which one it is that you are referring to, Senator Johnson.
Senator JOHNSON. It is the second French loan, in 1924, purchased
by J. P. Morgan & Co. outright for 94.
Mr. K A H N . N O ; my house was not interested in that loan.
Senator JOHNSON. We will assume A hypothetical , case. Suppose
one of the banks purchased a loan at 94 from a foreign country, and
then formed a syndicate, composed of 2, 3, or 4 other houses, as the
case may be, to whom is the loan transferred at 95 ?
Mr. K A H N . All right.
Senator JOHNSON. Y O U say that 2 , 3 , or 4 houses are thus acting
in conjunction with the one house, and participate in the 1 per cent
increase?
Mr. K A H N . Yes; usually.
Senator JOHNSON. I do not quite fathom how that can be, but I
have no doubt you are correct in it. Then assume, or is it the practice to form another syndicate of a little larger number to whom
may be transferred a particular loan of this character?
Mr. K A H N . Yes, Senator Johnson.
Senator JOHNSON. N O W , in this particular instance my recollection
of the testimony is that the little larger syndicate received the loan
at 96.
Mr. K A H N . I have no doubt your recollection is accurate, but I
do not know.
Senator JOHNSON. I think it is accurate, but we will call it a hypothetical case if you wish so that we can follow the matter on through.
Here is a loan that first came at 94 and upon which s o m e b o d y received 1 per cent, and it is then taken by a small syndicate, composed
of 2 , 3 , or 4 members, at 95, and then a syndicate of 15 20 members
of New York, to whom the loan is given at 96.
o r
Mr.
KAHN.
Not necessarily of New York.
Senator JOHNSON. Well, you may take in one or two others LIKE
Xee, Higginson & Co., or some Chicago house, but it would be limited
SALE OF FOREIGN BONDS OB SECUBITIES
,345
to a few, who subsequently then allocated the loan to many banks
•throughout the country at 100. Is that right?
Mr. K A H N . May I say, Senator Johnson, first of all, that a spread
of 6 per cent is not a usual spread, and that generally it is not a
•question as between 94 and 100. It Is usually a question, as you will
see from the statement I am going to read later on, as between 94
and 97 or 97^. Secondly, if I may repeat the testimony already
given by me on December 21, the justification for the originating
group's commission is that that group stands in the breach, and says:
AH right we will take your $100,000,000 of bonds. They are sold. Whatever
•may happen we -urn responsible for that $100,000,000. You want to be sure
that you will get the m o n e y f o r your Io:i;» and we guarantee that you shall
have it
Then, that originating group having taken that responsibility, they
turn around and form wliat is called an underwriting group to re*
lieve themselves as far as they think appropriate or as far as possible
and as quickly as possible of"that responsibility. That underwriting
group, for the responsibility which it takes, is entitled to a commission.
Senator JOHNSON. You have testified as to the modus operandi of
such a transaction, and I am seeking to get that modus operandi into
the record, whether justified or not you and I may subsequently discuss, but I am perfectly willing that your views justifying it may be
put into the record. However, I want to get the mode by which
the action is taken clearly stated in the record.
Mr. K A H N . All right.
Senator JOHNSON. We have the purchase at 9 4 , and then the sale
to the small syndicate at 95, and then the sale to the little larger
syndicate for 96, and then to the bankers generally, to be sold at 100.
Mr. K A H N . May I say that it is not to the bankers generally, but
to a very large distributing group which is not generally composed
of banks, and only to a certain extent of large bankers. It is composed of a very great number, sometimes as many as 1,000 or even
1,500: distributors, large or small, some of them of very small size,
people that make their living by buying bonds in limited quantities
*and selling them at retail*
Senator JOHNSON* Exactly.
Mr. K A H N . Of which banks and bankers are really a minority, the
bulk of them being distributing houses all over the country.
Senator JOHNSON. All right. We will say that there are houses
engaged in receiving bonds and selling them.
Mr. KAHN. Y e s , sir.
JOHNSON. That is their business?
M r . ICAHN. Y e s , s i r .
Senator JOHNSON. And their business is to
Senator
of the bonds?
Mr. KAHN. Y e s , sir.
Senator JOHNSON. And
get what they can out
the banking houses in 5Tew York that
form the original underwriting syndicate of course know that fact,
and know exactly what is to be done with the bonds ultimately,
isn't that true!
Mr. K A H N . They know what they plan to do with the bonds ultimately, but whether they succeed or not depends up6n conditions.
. 346
SALE;
OF,FOREIGN BONDS OR SECURITIES
I have heard of numerous cases where they did not succeed in completing their syndicates or groups; where they did not succeed in
carrying out their plans: where they were, to use a common term,
stuck with the bonds and had to sit on them.
Senator JOHNSON. Y O U justify the particular mode that we have
just been talking about upon the theory that the original house that
takes the bonds assumes the liability in respect of them.
Mr. KAHN. Yes.
Senator JOHNSON. N O W , is that so generally?
M r . KAHN. Yes.
Senator JOHNSON. So that generally when bonds
are taken by one
of your houses for the purpose of sale in this country, you underwrite them and you assume the responsibility in relation to them?
M r . KAHN. Yes.
Senator JOHNSON.
Well then, that justification extends to every
sale, doesn't it; that is, to substantially every sale?
:Mr. K A H N . T O substantially every sale; yes.
• Senator JOHNSON. What was the use, then, of saying that the
justification in this particular instance was the liability that would
be incurred by the original house?
Mr. K A H N . I did not mean to say in this particular instance,
except that you asked me as to a particular instance and I answered
you as to that instance, but it holds good generally.
Senator JOHNSON. But you say as to the 6 per cent spread.
Mr. K A H N . N O ; I beg pardon. I did not refer to the spread of
6 per cent except when I said it was an unusual spread.
Senator JOHNSON. And you justified it because, as you said, of
the liability which was undertaken by those who took the bonds for
sale?
Mr. K A H N . Again I say that I did not enter into the question of
the justification for that large margin. That must depend upon the
circumstances of a particular case, as to the times which then prevailed and the difficulties which existed, the amount involved, and
the work that had to be done. I did not enter into the question of
either justification or criticism.
Senator JOHNSON. And I am doing neither, but simply trying to
develop the facts. We may take now as settled that a particular
transaction of that sort, at 94, is transferred at 1 per cent increase,
or 95, to two or three others, and is transferred at a 1 per cent increase by the two or three who were joined with the o r i g i n a l purchaser of the bonds, to a larger syndicate of 15 or 20 as the case may
be, at 96.
Mr. K A H N . Probably, a great many more.
Senator JOHNSON. And possibly more. All right. And then by
these underwriting houses transferred to bond houses in the United
States. You object to using the word " bank " and we will therefore
omit the use of that word, but to the various bond houses, whose sole
business is selling at a profit the bond^ entrusted to them, is that
right?
Mr. KAHN. Yes.
Senator JOHNSON.
^
Mr. K A H N / Y e s .
-
That knowledge being held, o f
of those who were dealing with that particular issue.
it
course,
hy all
SAUS OF FOREIGN BONDS OS. SECPBITIES
347
Senator COUZENS. If 1 might interrupt at that point I should like
to ask, at what price are those bonds sold at retail f
Mr, K A H N . I beg your pardon!
Senator COUZENS. May I ask at what price those bonds Senator
Johnson is referring to were sold at retail. Were they sold at 100?
Mr. K A H N . Senator Johnson tells me that they were sold at 100.
Senator JOHNSON. That is my understanding, Senator Couzens.
The C H A I R M A N . That is what the record shows.
Senator COUZENS. I think Senator Johnson in pointing out the
steps has overlooked one step, that second large group that he refers
to, and then the retail group, that sold at a price between 96 anc
100, did they not?
Mr. K A H N . The chairman has stated that the record so shows.
Senator COUZENS. What would that spread be?
Mr. K A H N . It depends upon the circumstances of the case.
Senator COUZENS. S O that as a matter of fact the difference between the 96 that Senator Johnson refers to and the 100 is divided
between the wholesalers and the retailers, is it not?
Mr* K A H N . It depends upon the question to what extent the wholesalers participate or are able to participate in the retail distribution.
Perhaps I can give you something that is not guessing, and it is not
taking the practice of another house but my own.
Senator COUZENS. Well now, we were speaking about a hypothetical case. Assuming for instance that the second underwriting group
paid 96 for them.
Mr. K A H N . All right.
Senator COUZENS. What would be the usual difference between the
96 and the 10 Othat would be the cost to the retailer?
Mr. K A H N . The usual spread for the retailer would be from one
and one quarter to one and three quarters per cent.
Senator COUZENS. So that the difference between 9 0 and 1 0 0 , a part
of that goes to the large underwriting group that Senator Johnson
refers to, and a part ol it goes to the man who does the retailing.
Mr. KAHN.
N o Senator COUZENS.
(continuing).t You did not understand my
question, I take it, because you have just said yes.
Mr. K A H N . I TEG your pardon, but I said to the extent that the
underwriter participates or is in a position to participate in retail
distribution. To that I have said yes. But few houses are in that
position except to the extent that they may be able to place bonds
vfith a few particular clients. Generally speaking, the spread between the underwriting svndicate and the distributing syndicate goes
to the hundreds or thousands of retailers throughout the country;
except that to the extent that any individual members of the underwriting group are capable or have an organization to participate in
retail selling or distributing they would naturally be in the same
position that any other distributor is. and they would participate to
that extent in that spread that the distributing group has.
Senator COUZENS. And the National City are both wholesalers
and retailers?
Mr. KAHN. Y e s , sir.
. 348
SALE;
OF , FOREIGN BONDS OR SECURITIES
Senator COUZENS. And they would participate in the spread between the underwriting and the retail sales because they would'participate not only in the underwriting but in the retail sales proper?
M r . K A H N . YES.
Senator COUZENS. S O they are in a different category from you?'
1
5
M r . K A H N . Y e s , sir.
'
.
Senator. COUZENS. Andiira different category from J . ' P I 1 Morgan
& Co.?
' Mr! KAHN.
Yes.
Senator /'COUZENS.'Because neither.you nor J. P:'Morgan & Co.
participate in retail sales, as I understand ? ~
Mr. K A H N . That is. generally correct.
Senator COUZENS.
that the 4 per cent spread is divided in some
cases differently, than in others ; in One' case exclusively -to the retailer,
and in /anothercase it is divided between the wholesaler and the
retailer,.?
Mr. K A I I N . That is .quite correct to the extent that the wholesaler
can and does .participate lin. retailing.
. Senator JOHNSON! The big houses in New York have typical syndicates, haveihey .iiotl' Tliat is to say,, there f:is a typical/Morgan
syndicate, and a typical Kuhn, Loeb & Co. syndicate, and tlie like?
They are substantially the same people, howeyer ?
M R . K A I I N . To a' large extent the same people, yes.
'Senator JOHNSON. There has been furnished to me in writing a
statement that a typical syndicate in the case of. a Morgan issue
is of this sort, and if you can state the fi\ct" I.^vould be ,'very glad
if you would, and if youi can .not. very-well: J. P. Morgan & Co.,,
Kuh n, Loeb & Co., First National Bank, National C i t y B a n k , Guar-'
anty Trust Co., Bankers Trust' Co. Kidder, Peabocfy & Co.,.Lee.
Higginson & Co., Harris, Forbes & Co. Is that, a typiical syndicate?
, Mr. K A H N . You. are referring to a Morgan underwriting syndicate, I take it?
Senator JOHNSON. Yes.
Mr. K A H N . Well, again I can only answer for our own house.
Senator JOHNSON. And there has also been given to me information that a typical Kuhn, Loeb & Co. syndicate is this: Kuhn, Loeb
& .Co.,' National .City Bank, Guaranty Trust Co., First National
Bank, Brown Bros., Kidder, Peabody & Co., Chase National Bank,
Lee, Higginson & Co., Continental & Commercial Trust & Savings
Bank of Chicago, Union Trust Co., and Mellon National Bank of
Pittsburgh, these two last are of Pittsburgh, and First National
Bank of St. Paul, and Blair & Co.
Mr. K A H N . I do not recognize that as a close family resemblance.
Senator JOHNSON. Can you give me the family, then?
Mr. K A H N . I shall be very glad to give you not only a guess at it
generally, but I shall be very glad to give you in any case you may
ask about in regard to our house, the details of the underwriting syndicate and of the distributing syndicate, so that there may be no
guessing about it
Senator JOHNSON. I prefer that there should be no guessing about
it.
Mr. K A H N .
in any case.
I
shall be gladly at your disposal to give you the facts
SAUS OF FOREIGN BONDS OS. SECPBITIES
349
Senator JOHNSON. You would not say, then, that that is a typical
Kuhn, Loeb & Co. syndicate?
(
Mr. KAHN. NO.
Senator JOHNSON. D O
you answer that you do not know or do
you answer that that is not ft typical Kuhn, Loeb & Co. syndicate?
Mr. K A H N . I beg your pardon.
Senator JOHNSON.* I asked, do you say that you do not know or
that that is not a typical Kuhn, Loeb & Co. s}*ndicate ?
Mr. K A H N . I say I do not recognize it as a close family resemblance.
.n .
. ,
Senator'CouzKNs. Doesn't the size of the family depend uyori the
size of the loan ?
, 1
v
!
Mr. K A H N . T O a large extent, yes. .
.., 1
Senator COCZENS. So that the family Is larger when the loan^is
i!
1 .
larger.
' '
r
Mr.ItAHX. Y e s ,
Senator JOHNSON.
,
,,
\
. '1V1
,,
That syndicate which I mentioned, it has been
asserted to me, distributed*''the''Swedish.$30;000.000#loan of 1924.
/l
i .
Do you recall it? 1,1
Mr. K A H N . There was a Swedish'loan iii 1924 tut/I could riot
from recollection tell you who were the members of that"syndicate.
But I will gladly ascertain it if you so wish.
. "
'.
;.Senator JOHNSON. I will ask you for more of, those details subsequently.
,\ '
" ' '
,
.. ^
Mr. K A H N . Perhaps I might' now 'complete, the answer which I
tried to make to Senator Couzeris's inquiry.'I can only speak as
to the spread or margins in cases within myown knowledge, or
which relate to,my own firm. According to this precise, list which
I have here the complete compensation, the gross compensation from
all sources which went to my house, is slightly; above one-half of
1 per cent, in the case of issues of our own,, in which connection
it may be appropriate to consider the fact that myfirmhas a number
of partners, at present ten. I should say tliat the average compensation which went to the underwriting syndicate and to the distributing syndicate together would be slightly above 3 per cent.
I should say that the average for the wlfiole thing, the average
spread, and I mean by that the gross margin, from which must be
deducted overhead, taxes, and so on, the gross spread I should say
would be about 3% per cent, out of which the share of my firm is
Rightly above one-half of 1 per cent. And perhaps I might say
in this connection that a real estate broker, who is not called upon
to take any risk or responsibility whatever, gets a commission or
spread varying from 1 to 6 per cent; that a trustee or executor
gets a compensation in my State of 2 or, if he acts as both executor
and trustee, 4 per cent, without having to take any responsibility
in the way of putting up his own money whereagainst a banker
does take a very large financial responsibilty and may well find
himself hung up in tne case of bonds which have been contracted
for or purchased by him in the belief that they can be sold and as
to which hefindsthat circumstances have changed or that his judgment was at fault.
Senator JOHNSON. D O you think it perfectly fair to make a comparison between the charges of executors or administrators with the
.350
FTXR.V.
OF
FOREIGN BONDS OR SECURITIES
amount received as a profit by a banking or investment house for the
sale of bonds to the public?
Mr. K A H N . I think it more than fair, because in the case of a
banker there enters the elements of the responsibility which he takes,
the risk which he assumes, the correctness of his judgment, his inevitably high overhead and the instances where he finds that circumstances have changed, that his original estimate of values is no longer
applicable to existing conditions, and that he may find himself with
bonds on hand which he is unable to dispose of, except at a considerable loss.
Senator JOHNSON. Has that occurred frequently with you house?
Mr. K A H N . I am happy to say it has not occurred frequently, because as I have been perhaps immodest enough to mention before,
our house is one of great conservatism. But it has occurred.
Senator JOHNSON. And when it does occur, what do you do with
the bonds that you have?
Mr. K A H N . We sit on them as long as we have to.
Senator JOHNSON. What do you do with them ultimately?
Mr. K A H N . Ultimately, if conditions make it possible to dispose
of them, we dispose of them as best we can.
Senator JOHNSON. Have you done that in every instance?
Mr. K A H N . Whenever we could; yes.
Senator JOHNSON. Well, has it been done in every instance?
Mr. K A H N . N O . I am sorry to say there are some bonds we still
have and in regard to which it has not been possible.
Senator JOHNSON. Does that exist to any considerable extent?
Mr. K A H N . With your leave, Senator, I do not wish to reflect
upon our judgment by answering that question.
Senator JOHNSON. And I am the last one who would reflect upon
your judgment, Mr. Kahn.
Mr. K A H N . Thank your very much.
Senator JOHNSON. But the fact of the matter is that when you
are stuck, if you will permit my use of the expression, with any
bonds you get rid of them as best you can, do you not ?
Mr. K A H N . As best we can, yes ; and when we can, without affecting the market to an extent which would be unfair to those to whom
we have sold bonds.
Senator JOHNSON. You have not found that essential in the last
few years, haveyou?
Mr. K A H N . We have found it essential in some cases; yes.
Senator JOHNSON. If in the statement yoil have before you yon
reach any particular bond issue where you have been stuck for the
bonds will you please state that fact, and then state how ultimately
you disposed of them and at what price you disposed of the bonds
for which you were then stuck?
.
l l r . K A H N . Senator, I shall be quite willing to state in which
cases the bond issues were not wholly Successful, but I respectfully,
ask to be excused from saying at what price we sold such bonds, ast
we may have bought in the market subsequent to the issues, when
we sold, and what loss we incurred, because I do not believe that that
is something which ought to be made public property.
Senator GORE. Mr. Kahn, you stated that you
these bonds, that the originating house or
m a n a g i n g
u s u a l l y
h o u s e
purchase
purchases.
SAUS OF FOREIGN BONDS OS. SECPBITIES
351
them, and that the price at which purchased is controlled by supply
and demand.
Mr. K A H N . By supply and demand?
Senator GORE. Yes; I understood you to say that.
.Mr. KAHN. Y e s .
Senator GORE. The
next step is for the managing house to organize
an underwriting syndicate?
Mr. KAHN. Y e s .
Senator GORE. An
underwriting group or syndicate. Does the
underwriting syndicate pay a price based on their conception of the
ratio between supply and demand?
Mr. K A I I N . Yes; "because they arc at entire liberty to decline the
offer which comes to them from the originating house, and if they
think the originating house ha? paid n price which is excessive they
do not hesitate to decline.
Senator GORE. Yes. Now, the next step is the distributing group
or the retailers. Do they take those bonds at a price which they
think reflects the ratio between supply and demand?
Mr. K A H N . The price naturally is* fixed by the manager's judgment. If the distributor does not think that the price is reasonable
he simply does not go along.
Senator GORE. Now, then, the next step is for the retailer to sell to
the private investor. Do you think the private investor bases his
purchase price on a ratio between supply and demand?
Mr. K A H N . The private purchaser would probably base his action
upon two things: First, his need or desire to make an investment.
Secondly, his belief as to the merit and attractiveness of the offering,
influenced, probably, though I hope, generally, to a leaser and lessening extent, by the persuasiveness of the salesman.
Senator GORE. Do you think that the private investor has any conception at all about the ratio between supply and demand in the case
of bonds of that particular type?
Mr. K A H N . He has it in this way, Senator, in the prevailing quotations for bonds and other securities, which are of course available to
him, and in his own case he knows whether he has money for investment or not, and if so what he can get for that money.
Senator GORE. D O you think that the distributing house took into
consideration the ratio between suppty and demand when they
undertook to sell these bonds?
Mr. K A H N . They undoubtedly did, in making up their own mind
whether they wished to go along with a syndicate or not. If they
think that the price put upon certain bonds is not in accordance with
their conception of supply and demand, they do not go along.
# Senator GORE. Y O U stated two reasons why A private investor was
induced to take these bonds. I had here the other day an address
?y Dwight Morrow who was enumerating the different things that
induced them to take bonds. He mentioned first and primarily the
faith in the banking house handling the bonds. Would you mention
that as the first consideration ?
. Mr. K A H N . I should hardly describe it, Senator, as a first consideration at all times. I hope £hat it is an essential consideration, and
I hope henceforth increasingly so.
. 352
SALE;
OF , FOREIGN BONDS OR SECURITIES
Senator GORE. Take a private investor in Texas or Oklahoma;
when he goes to buy a foreign bond, do you think he knows anything
at all, I mean, anything in an accurate way, about the credit or the
resources of the government issuing those bonds?
Mr. K A H N . I do not think he does, very much, Senator; no.
Senator GORE. He has got to put faith in somebody else?
Mr. K A H N . Yes, Senator.
Senator GORE. I was down in Waco, Tex., last summer, and they
were telling me down there about a big house in New York that had
floated a great many sugar bonds all over the State, and the banks
took them, and the bonds were practically worthless. Those bonds
were bought by Tom, Dick, and Harry, I suppose, without any reference to the solidity or the solvency of the bonds or the concern issuing
them, but entirely on the faith of the house issuing them in New
York.
Mr. K A H N . I suppose, Senator, you are right; and that only intensifies my own very strong conviction that a banker, as I have
stated before, must be ever and conscientiously mindful of his great
moral responsibility toward those who buy securities from him.
Senator GORE. Exactly so. You say the originating or managing
house takes these bonds from the issuing government at a nxea
price?
Mr. K A H N . Yes, Senator.
Senator GORE. He stands in the breach; he takes the loss if he is
stuck?
M r . KAHN. Yes.
Senator GORE. Does not
that put him under pretty strong pressure
to resort to high-power salesmanship methods to get rid of those
bonds whether or no, whether they really reflect the ratio of supply
and demand or not?
Mr. K A H N . Not if he is a banker who, first of all, knows his own
business and, secondly, is conscious of the call of his integrity, his
moral responsibility and, above all, his enlightened self-interest.
The banker's prosperity, indeed his very existence, depends on the
confidence of the public. If he has not got that, he lacks in the very
essential of his calling, his business will shring to negligible proportions, if not fail completely. Confidence can not be bequeathed;
it is not like money that you can give to your descendants. It must
be acquired every day by the way you conduct your business and
the way you conduct yourself and the principles you adhere to, and
by the good opinion which you reap from those with whom you are
dealing.
Senator GORE. There is no doubt about that. But when the originating house closes.a deal it has two situations confronting it:
Either to be stuck with those bonds or to dispose of them to somebody else, and if there is any sticking, to let somebody "hold the
bag," if I may use that phrase.
Mr. K A H N . Is not that more or less the same thing with everybody who buys anything from anybody? If I am a wholesale house
and I lay . in a stock of dresses and the ladies determine that they
are going to wear their dresses shorter or longer than I thought, they
were, I am stuck.
tU
SAUS OF FOREIGN BONDS OS. SECPBITIES
353
Senator GORE. But the women can look at fashion plates and see
whether skirts are to be longer or shorter.
Senator SHORTRIDGE. I would not go into that, Senator, if I were
you. Let us stick to the subject of bonds.
Senator GORE. My point is this, that private investors in California and Oklahoma, for instance, have taken a lot of worthless
bonds. I do not think the investor is in exactly the same attitude
as the woman who is buying a dress. She passes on the length of
her own skirt and gets the length that she wants, and that is not a
matter of speculation, entirely.
Senator JOHNSON. You say, entirely?
Senator COUZENS. I S it not true that investment bankers are no
different from merchants, like "Wanamaker or Marshall Field, or
the fruit peddler, who buy goods and find that there is not a sufficient market for them and they arc anxious to get rid of them?
Mr. K A H X . Yes, Senator.
Senator Corzr.xs. In other words, there is nothing sacrosanct about
a banker that makes him any different from a merchant who sells
clothes, or bananas, or apples, or boot and shoes; if he has not properly exercised his judgment, he gets; rid of the goods as quickly as
possible.
Mr. K A H N . Yes; except that I think the banker is called upon to
exercise a greater degree of care than pretty nearly any one else
who is dealing with the public* because he is dealing in a commodity
as to which he is considered to be an expert adviser and as to which
many people rely on his integrity
Senator JOHNSON. And judgment?
Mr. K A H N . His integrity and judgment. His adherence to worthy
ethical standards. He is called upon to use his utmost endeavors to
see to it that what lie offers to the public warrants their confidence
in him. He must sec to it that he offers only securities which, as
far as he can ascertain from diligent, painstaking research, are intrinsically sound and which he feels justified in selling to the public
with the consciousness that his moral trademark^ his moral responsibility goes with them. He must resolutely decline, whatever be the
monetary inducement, to attach that trademark and that responsibility to any securities as to the soundness of which there is, or ought
to be, any doubt in his own mind. If lie does not do all that, he is
not the kind of banker that deserves to live.
Senator COI-ZENS. That raises a question of the exact accuracy of
a previous statement of yours to the effect that some subunderwriter
has the freedom to sav ves or no to an offering of yours. You said
he was entirely free.
Mr. K A I I N . Yes, Senator.
Senator COUZENS. I think that is not quite accurate. Perhaps
you think it is accurate, but it is not, as a matter of fact, because these
dealers, most of them, or subunderwriters, knowing the reputation
that you have built up, and to which you nave just referred, accept
offerings at times because of the fact that they do not want to lose
their, connection and making it impossible to get into " soft things "
that may be offered from time to time in the way of securities.
354
SALE OP FOREIGN BONDS OB SEOTJBITIES
Mr. K A H N . Your statement is quite correct, Senator, but the distributor is still free to decline or not to decline. As a rule, he
would not——Senator COUZENS. He is just as free as our seven or eight million
unemployed are free to either work or not work. But in practice
they are not free. They are subject to economic conditions; and so
are these dealers or subunderwriters only theoretically free, because,
as a matter of fact, their subsistence would be cut off if they, in
practice, did not follow along with the offerings made by these
big houses in New York who have the good securities or whatever
kind of securities you choose to call them, to offer to the public from
'time to time.
Mr. K A H N . I can not altogether differ from you, .Senator, and
yet, on the other hand, I can not altogether agree witli you, because
to my own knowledge it has happened more than once that offerings from my own house have been declined by this or that distributor, because he thought that we were making a mistake as to
the price at which we were seeking to place the bonds. That does
not mean that next time we will have nothing to do with him. If
he did it persistently, instead of in rare instances, we would say
to ourselves, "Well, evidently that fellow does not care to deal
with us, ana so we do riot care to deal with him"; and his name
would go off our list.
Senator JOHNSON. That is an important subject that has been
raised by Senator Couzens, and I should be very glad if any member
of the committee would pursue it further.
Senator SHORTRIDGE. I wish to pursue it just for a moment. You
have told us, as I understand your testimony, that you are a merchant-bahker or banker-merchant?
Mr. K A H N . Yes, Senator.
.Senator SHORTRIDGE. YOU buy and dispose of and sell bonds?
Mr. K A H N . Yes, Senator.
Senator SHORTRIDGE. Bonds issued by private corporations, by
municipalities and by governments ?
M r . K A H N . Y e s , sir.
Senator SHORTRIDGE. YOU
probably have answered this question,
but I would like to have you advise us further. Before you buy
bonds from either a private corporation, a municipality or an established government do you make careful inquiry as to the validity of
the bonds?
Mr. K A H N . We make the most careful inquiries that we are capable of, Senator; yes.
Senator SHORTRIDGE. In the making of that inquiry how far do
you go?
Mr. K A H N . I have furnished a statement, Senator2 at the request or
one of your colleagues who . is not here to-day, giving the precise
process by which we investigate securities that are offered to us before we in our turn conclude the transaction and offer them/to the
public. That includes investigation; it includes legal opinions as
to the validity of the issues; it includes, in m a n y cases,,accountants
reports; it includes going back over a series of years as to the credit
and standing and reliability of the particular corporation or governs
SAUS OF FOREIGN BONDS OS. SECPBITIES
355
ment concerned. The statement that has been furnished the chairman
Senator SHORTRIDOE. Your answer is really a response to another
question which I was about to put My first question, you observe,
was whether you make inquiry as to the validity of the bonds, the
steps taken by the corporation, the municipality or the Government,
in and about the issuing and putting forth of the bonds?
Mr. K A H N . . Yes, Senator.
Senator SHORTRIDOE. Do you make inquiry as to the ability and
resources of the issuing house, company, municipality or government,
with respect to its ability to meet the payments of dividends called
for or ultimately to pay at maturity?
Mr. K A H N . The most careful inquiries, Senator, that we are
capable of; yes.
Senator SHORTRIDGE. That is a fact?
Mr. K A H N . That is a fact; and I have here the statement, if you
would like to read it, which I furnished to your chairman, setting
forth the steps which we take before we handle any security which
we offer to the public.
The CHAIRMAN. Y O U had better put it into the record at this point.
(The statement referred to and submitted by the witness is here
printed in full as follows:)
MEMORANDUM TO THE UNITED STATES SENATE COMMITTEE ON FINANCE, FROM K U H N ,
LOKB & CO., REGARDING FOREIGN FINANCING
Oar primary consideration In any foreign loan, as it would be in any domestic
loan, Is to endeavor to appraise from the facts obtainable the Intrinsic merit of
the bonds to be Issued and consequently estimate the assurance of their principal and Interest and sinking fund, if any, being punctually paid -when due.
(a) In the case of a governmental issue this would Involve a careful
analysis of—
1. Purpose of the loan.
2. Its past debt record and Its credit standing as indicated by the market
price of its outstanding securities and the level at which its currency is quoted
In the American and other world markets.
3. Its record of income and expenditures for a period of from five to ten
years preceding the time at which the loan is being considered and its budget
for the succeeding year or two years.
4. Its import and export statistics for the past five or ten years and an
analysis of its " invisible " trade, if any.
5. Its national debt, both on a total and a per capita basis.
6. Its natural wealth.
7. Its fiscal position as to its holdings of gold or the gold holdings of its
mitral bank in relation to its outstanding currency.
8. Analysis of whether or not the Government has given special security for
previous loans or whether it has merely issued its loans on the so-called 44 negative pledge " basis. In the former case, we form independent judgment whether
the situation of the Government requires insistence upon special security.
By " negative pledge M is meant that while no specific lien or security is given
for a loan, the borrower pledges that if, while any of the bonds of the loan in
•Question are outstanding, the borrower should create or issue or guarantee
any indebtedness or obligations secured by specific lien or security, the bonds
of the loan in question will be secured equally and ratably with such other
indebtedness or obligations or such guarantee.
9. Its political stability.
10. Value of its actual or potential trade with the United States.
11. Whether a sinking fund should be required, and, if so, whether the
sinking fund should be of such size as to retire the entire loan or only a part
of the loan by maturity.
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FTXR.V.
OF FOREIGN BONDS OR SECURITIES
In some countries the Government owns and operates the railroads, telegraph systems, tobacco monopolies, salt monopolies, etc., anil in such cases
we would analyze the income therefrom and the asset value ot' these holdings.
(b) In the case of a State, city, or other political subdivision of a foreign
country we would consider—
1. Purpose of the loan.
2. Its past debt record and its credit standing as indicated by the market
price of its outstanding securities.
. .. , . .
3. Its record of income and expenditures for a period of from 5 to 10 years
preceding the time at which the loan is being considered and its budget for
the succeeding year or two years.
4. Its debt both on a total and a per capita basis.
5. The value of the property owned by the borrower, together with an analysis of how much of this property is revenue producing.
6. Analysis of whether or not the borrower has given security for previous
loans or whether it has merely issued its loans on the so-called "negative
pledge" basis. In the former case, we form independent judgment whether
the situation of the borrower requires insistence upon special security.
, 7. Whether a sinking fund should be required, and if so, whether the sinking
fund should be of such size as to retire the entire loan or only a part of tbe
loan by maturity.
In a general way, all of the matters analyzed in considering a governmental
loan would be considered in relation to the country in which tbe borrower is
located: so as to ascertain whether, if the borrower itself is intrinsically sound,
it would be in a position to obtain the foreign exchange necessary with which
to meet the dollar obligation incurred.
(c) In the case of a foreign corporation we would consider—
1. Purpose of the loan.
2. Its past debt record and its credit .standing as indicated by the market
price of its outstanding securities.
3. Its profit and loss account and balance sheet for a period of from 5 to 10
years preceding the time at which the loan is being considered.
4. The nature of its business and general condition of the industry'In which
it is engaged.
5. A general appraisal of its management both as to ability and standing.
6. Analysis of the type of loan which would best suit its purposes and yet
be salable and whether or not specific security for the loan should be re*
quired or whether it need merely be issued on the so-called "negative pledge"
basis. In the former case, we form independent judgment whether the situation of the borrower requires insistence upon special security.
7. Appraisal of the market equity of the securities junior to the loan to be
issued.
8. Whether a sinking fund should be required, and if so, whether the sinking fund should be of such size as to retire the entire loan or only a part of the
loan by maturity.
9. Whether, in our judgment, an independent audit of the company's accounts
should be made by accountants other than the company's own accountants
and whether, in our judgment, the nature of the company's business makes it
advisable to have an independent engineering or other expert survey of its
situation.
The reference made in subheading (6) to the general analysis of
the country in which the borrower is located would, to some similar
extent, likewise apply to the case of a corporate borrower,
DECEMBER 2 8 , 1 9 3 1 .
Senator SHORTRIDGE.
Having then acquired the bonds, y o u dispose
of them in the manner developed by the several questions and
answers ?
Mr. K A I I N . Yes, Senator.
Senator SHORTRIDGE. D O you regard yourself as legally responsible
up to and including the purchase of the bonds by the public?
Mr. K A H N . We consider ourselves and we are legally responsible
to the corporation, municipality, or government from whom we
bought the issue. The moment we have attached our signature to the
SAus
OF FOREIGN BONDS Os. SECpBITIES
357
contract, we are legally responsible to that government, municipality, or corporation, and we are responsible irrespective of whether
we are able to form a syndicate and irrespective of the solvency of
any individual members of that syndicate.
Senator SHORTRIDGE. I am reminded that you have covered that.
Thank you.
Senator JOHNSON. Is that done by contract?
Mr. K A H N . Yes, Senator.
Senator JOHNSON. Duly executed by the government in question
and by yourself?
Mr. KAHN. Y e s , sir.
Senator JOHNSON. And
a copy of such a contract, if desired, could
be furnished the committee?
Mr. KAHN. Y e s , sir.
Senator JOHNSON. Y O U
have just handed to the reporter for insertion in the record considerations which actuated you in the matter
of the making of a foreign loan and the investigations that you make
in regard to any such foreign loan?
Mr. K A I I N . Yes, Senator.
Senator JOHNSON. The first subdivision that you make of your
statement is in the case of a governmental issue, as to which j*ou say,
"This would involve a careful analysis of. first, purpose of the
loan"?
Mr. KAIIN. Y e s .
Senator JOHNSON.
Mr. KAHN. Y e s .
Senator JOHNSON.
Do you make that analysis?
If the loan were for military purposes, for arms
and the like, would the loan be made?
Mr. K A H N . We have declined such loans. Senator.
Senator JOHNSON. And would a house such as yours, doing business
in the fashion that you do. decline loans of that character?
Mr. K A H N . We have done so, and we should do so again unhesitatingly.
Senator JOHNSON. And that ought to be the case in relation to
foreign loans?
Mr. K A H N . In my opinion, unqualifiedly so.
Senator COUZENS. Have you any way of following the funds up
after having made a loan to a government like the French Government?
Mr. K A H N . I am afraid, Senator, that that is a physical impossibility.
Senator COUZENS. Certainly. So that, as a matter of fact, no matter how carefully you may go into a government's request for money
and into its purpose, as a matter of fact, when it gets into the general fund, you are unable to follow to see what they do with it?
Mr. K A H N . That is correct, sir,
_
Senator SHORTRHXJE. Docs a given government indicate specifically
the purpose of issuing the bonds?
Mr. K A H N . Yes, Senator.
Senator SHOKTRIDGE. And the need for the money to be secured
by their sale?
/
.- ,
Mr. K A H N . Yes, Senator; and, of course, there goes with that a
moral responsibility on the part or such government. To what extent
.358
FTXR.V.
OF FOREIGN BONDS OR SECURITIES
that moral responsibility is in every instance strictly followed is
beyond our power or anybody else's power to control.
Senator COUZENS. As a matter of fact, even though they were entirely sincere and faithfully carried out their promises, they might
use those funds for that purpose and use other funds for the purpose
.of building lip their armaments?
Mr. ICAHN. Unquestionably.
Senator JOHNSON. From your knowledge of the amount of loans
that have been floated in the United States from foreign governments
or foreign corporations in the last few years and the manner in
which they have been floated, would you not say that there ought to
be some legal curb upon the indiscriminate sale of foreign securities?
Mr. K A H N . If I were a legislator, Senator, I should probably have
asked that same question and the subject would probably worry me
considerably.
Senator JOHNSON. IT worries us.
Mr. K A H N . I fully understand that it would; and yet I do not
see how it is possible to deal with it in a way that is effective and
that is not likely to do more harm than good.
I f I may explain myself a little more fully: There are certain
things which can not be covered by the statute book, but which must
be covered by the force of public opinion and by the sense of decency
of the people who have responsibility. I f you set up on organization
of the kind to which your question alludes, you would to that extent
relieve the individual investor from exercising his judgment, which
by all means he ought to be educated and made responsible to exercise. I think that, if there is anything more needed in that field than
another, it is to make it plain to the individual investor that he must
seek to educate himself and practice care and discrimination before
he parts with his investment funds. I f there were to be set up in
this connection a governmental body, however informal or limited,
the result would be that he would be apt to rely to a, perhaps, undue
extent upon what would not be meant to be a government moral
guarantee, but which he would probably look upon as such.
Secondly, in the case of the existence of a governmental body of
the nature indicated, there can be little question that, as to any borrowings passed by such body, the prospectus by which such securities are offered to the public would carry the legend, so to speak, or
at least convey the impression, " approved by the United States censor," just as the movies do in the case of State censorships. Of course,,
it would not be really correct, but the fact would be that foreign borrowers would assume that loans having been passed upon by some
authority in the United States, charged with some kind, however
safeguarded, of supervisory, regulating, or restraining function, they
would be at liberty to say so.
That would be very apt to imply to the investor the assumption
of a certain moral responsibility on the part of some governmental
or semigovernmental agency in the United States.
Senator COUZENS. Does not our experiences with the State " bluesky " commissions justify your statement?
Mr. K A H N . It does justify it. I f there were any way in which
this thing could be done without causing, in my opinion, more
harm than good, or without further strengthening that paternalism
SAus
OF FOREIGN BONDS Os. SECpBITIES
359
and that reliance upon bureaucracy, of which I think we have enough
in this country, and without weakening the individual reponsibility
of every one to look after his own, to inform himself as carefully
as he can, to seek advice from sources of proven integrity and sound
judgment rather than from such as hold out the lure of " get rich
quick,5' and not to be led either by some kind of governmental say so
or by the persuasion and insistence of high-power salesmen, and if,
furthermore, it would not tend to diminish the moral responsibility
of the banker, if there were any such way, I should say, let us try
some such method. But I d o very sincerely believe after full consideration of the subject that there is no way in which what you
have in mind, Senator, can be accomplished other than by educating
public opinion and by emphasizing again and again the moral
responsibility resting upon the banker.
Senator JOHNSON. Your whole argument goes to the fundamental
that in a democracy education ought to be the appropriate and the
prime object. But admitting that that be so. that you are to educate
your public as best you can, you have an obligation as well to protect
your public, have you not ? And your public has not been adequately
protected in this regard ?
Mr. K A H N . I think the public is as adequately protected in this
regard as it seems to me possible to do without creating more likelihood of harm than of good.
Senator C O N N A L L Y . As a matter of fact, your house has asked
the State Department's judgment and permission to circulate lots of
these loans?
Mr. K A H N . Senator, it was not the judgment or permission of the
State Department that we asked. W e merely followed the request
by the late President Harding that the bankers enter into the practice of submitting an informal inquiry to the State Department
as to whether it saw any objection to such and such a foreign loan
being made by American bankers.
Senator C O N N A L L Y . Whenever the State Department said it had
no objection, you took that as an approval, did you not?
Mr. K A H N / Only from the political point of view. We took it as
a statement that the United States Government saw no political
reason why such a loan should not be made.
Senator C O N N A L L Y . Has it been your custom to submit all these
bond issues to the State Department?
Mr. K A H N . Every one; yes.
Senator CONNALLY. O f corporations as well as governments?
Mr. K A H N . Everv one relating to a foreign country; yes.
Senator C O N N A L L Y . S O that every bond issue you have made since
President Harding instituted that policy has had the confirmation
of the State Department that there was no reason why you should not
proceed to sell the bonds?
Mr. K A H N . The State Department emphasizes particularly that
such permission does not relate to the intrinsic value of the loan.
Senator CONNALLY. O h , yes; I understand.
B u t your firm and
these other firms had been'doing, in ft way, so long as it was approved, exactly what you are protesting against as suggested by
Senator Johnson?
'92928—32—pt2——
'360
SALE , :OF> FOREIGN BONDS; OR 'SECURITIES
.Mr;-KAHN. May I say, Senator, that I think there is a basic difference between- (Senator Johnson's suggestion, the motives of which
I fully respect, and what has been done heretofore. In compliance,
I understand; with a specific request of the State Department, nothing has ever been said in any prospectus or other literature issued
in connection with any foreign loan as to its-having been submitted
to, or passed upon by, the State Department.
Senator, CONNALLY. S O ; but it has been generally known over the
country that you do submit these matters to the State Department,
and the State Department has made no objection. That is known
generally over the country, is it not?
Mr.: K A H N . T O what extent it was generally known, I do not
know. It is now generally known, because it has been brought out
here before this committee.
Senator CONNALLY. But during all these sales by these distributing retailers of these bonds—they-all knew that?
Mr; K A H N . I doubt it.
Senator CONNALLY. In your correspondence with them did you
not advise them of that?
Mr. K A H N . N O ; it was never mentioned in any prospectus or letter. It was never given any kind of publicity; and it was particularly insisted by the State Department that it must not be put in a
position where its attitude may be held to imply any kind of moral
responsibility as to the intrinsic value of the loans.
Senator; CONNALLY. Oh, I understand that, of course. As a matter of fact, has the State Department declined permission to issue
any of these bonds ?
Mr. .KAHN. In no instance of my own knowledge. There was a
case or two cases where the State Department did object—1—
t; Senator CONNALLY. D O you recall those?
Mr. KAHN., There was one German loan connected with the potash
monopoly.
Senator CONNALLY. That was for political reasons. What was
the political reason ?
.
M X . K A H N , I could not tell you precisely. We had nothing to do
with it,; and it would only be hearsay if I did repeat it.
Senator GORE. It was based on economic objections, was it not?
Mr. ? K A H N . Yes, Senator, I believe.
Senator CONNALLY. YOU stated a while ago that the only reason
the State Department assigned was that for political reasons certain
issues could not be circulated—r
Mr. K A H N . The only reasons we understood why t h e department
wished to be consulted were of a political character.
Senator GORE. In that case the State Department objected on
request of the Department of Commerce.
Senator K I N G . For my own information, while it is n o t germane,
Mr. Chairman, why did the Department of Commerce get into that
matter ? .Did they want to protect some monopoly ?
f j[
.. Senator GORE. They thought this was a part of the monopoly, tne
international cartels over in Europe, and they objected to it on that
ground.
,
Senator JOHNSON. I think, Senator King, to do the Department oi
Commerce justice,' that before we conclude this hearing we will see
SAus
OF FOREIGN BONDS Os. SECpBITIES
361
that there has been a marked tendency on the part of the Department
of Commerce to discourage various foreign loans, and that there
has been some—I will not say u friction, 5 ' but difference of opinion,
between the State Department and the Department of Commerce
upon these matters. I say that in justice to the Department of Commerce, which I think was entirely right in the matter of the discouragement.
Senator GORE. It was an economic objection.
Senator JOHNSON. D O you recall a letter by S. Parker Gilbert in
the latter pail of 1927 in which he said in very vigorous language
that Germany was overborrowed ?
Mr. K A I I N . Yes, Senator.
Senator JOHNSON. And that was given wide publicity, was it not ?
Mr. K A H N . Yes, Senator.
Senator JonNsoN. And subsequently German loans were made just
the same, were they not ?
Mr. K A I I N . Yes, Senator.
Senator JOHNSON. The German loans were floated in this country
by institutions, notwithstanding what he said ?
Mr. K A H N . Yes, Senator; and not one of those loans is in default.
Senator JOHNSON. They are running from 1 2 to 150 years yet,
are they not?
Mr. K A I I N . I assume that is correct. I do not know, the exact
dates. But they are paying punctually their sinking fund and their
interest.
Senator JOHNSON. You did not believe Mr. Gilbert at that time, in
the views that he expressed publicly ?
Mr. K A H N . I did not believe him, you say?
Senator JOHNSON. In the views that Mr." Gilbert then expressed.
Mr. K A H N . I thought that his views were extreme, Senator, but
to a considerable extent I agreed with him. My own firm originated only two bond issues by German borrowers; but were for
strictly productive purposes.
Senator JOHNSON. D O you recall that he said in substance, in
the letter that he then published, that if the policy of loaning money
to Germany continued the world would face a terrific financial depression?
Mr. K A H N . I do not recall the exact words.
Senator JOHNSON. I do not claim them to be exact, but I claim
them to: be in substance what he then wrote. Do you recall that
he said in substance that there would be a great financial depression
if the policy of loaning money to Germany was continued?
Mr. K A H N . I do not recall the exact language; no, sir.
Senator JOHNSON. The letter I will obtain and put in evidence subsequently, so far as that is concerned.
Senator GORE. Y O U stated a while ago that two years ago there
was considerable competition between some 20 or 30 banking houses
to obtain business with South American governments issuing bonds,
in order to handle and float their bonds. ;
Mr. K A H N . Yes, Senator.
Senator GORE. Did your house take any part in any of those flotations?
'362
SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
Mr. K A H N . To a restricted extent. The only issues we floated
were of two South American governments or governmental institutions, both of leading countries, that is, Argentine and Chile.
Senator GORE.: Are any of those in default now?
Mr. K A H N . The bonds of one institution, issued by us, are in default, being the Mortgage Bank of Chile.
Senator GORE. A number of South American issues are in default,
are they not?
M r . KAHN. Yes.
Senator GORE. They were
Mr. K A H N . Yes, Senator.
Senator GORE. SO in spite
handled by other houses than yours?
of their foresight their bonds have gone
bad?
Mr. K A H N . Yes. At that time the general atmosphere was one of
great encouragement as-to the future of South America. It was
considered at that time, as I believe it still is, our economic duty and
to our political advantage to do everything that could be done to
further cement the bonds of friendship and commercial intercourse
between the United States and the South American countries. There
was considerable sentiment at the time to the effect that South
America had entered a new era. That became fashionable at that
time, as you remember, Senator.
Senator GORE. Yes; I remember.
Mr. K A H N . And it was generally believed that South America
had passed the stage of those defaults which too often had occurred
in the past, and haa now come to be stable and sound business risk.
Senator GORE. It was a new era, but in exactly the opposite sense
from what the public thought?
Mr. K A H N . Yes. Unfortunately that has turned out to be so. But
I have confidence that as time goes on South America will come into
its own and will reestablish , itself and become a t h o r o u g h l y solvent
and financially sound part of the world again.
Senator GORE. Everybody shares that wish, of course.
Mr. K A H N . After all, the same thing has been gone through by
the English who long before we had any financial dealings with
South America to any great extent, advanced very large amounts of
money to South American states, many of which later on came to
default, and many of which, in. fact, most of which, in the course
of time became good again.
%
Senator JOHNSON. Y O U are looking for changing conditions in the
world constantly, are you not?
Mr. K A H N . Yes, Senator.
Senator JOHNSON. Who could tell 1 0 years ago that F r a n c e would
be to-day sitting on top of the world ?
Mr. K A H N . No one could, as far as I know.
•
The C H A I R M A N . When these loans were made and were handled by
your house or other houses, did you know of any American or anybody else in the world that thought or had an idea or e x p r e s s e d an
idea or opinion that within a period of 10 years the world financially
would be in the horrible condition that it is to-day?
Mr. K A H N . I know of none, Senator, and none of us b e l i e v e d that
such a nightmare as we are now facing would possibly confront us.
Senator COUZENS. I S it not true that S. Parker Gilbert said IT
in 1927?
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OF
FOREIGN BONDS Os. SECpBITIES
363
Mr. K A H N . He said it in relation to Germany only and as a
warning not to overdo the loaning of funds to (jermnay.
Senator COUZENS. I understand that he went further than that,
and said there would be a crisis if this thing continued.
Mr. K A H N . I do not recall his precise language, Senator. I have
no doubt that Senator Johnson quoted it as it was written.
Senator COUZENS. I think that answers the chairman's point, that
there was a warning issued within the 10-year period.
The C H A I R M A N . Senator, did you read that statement?
Senator J O H N S O N . Yes.
The C H A I R M A N . At the time it was issued?
Senator J O H N S O N . I did, but I have not it before me now. I have
not read it of late. I will have it here for presentation to the committee.
It is recalled to ine, also, that John Maynard Keynes, British
economist, in 1922 said substantially the same thing.
Mr. K A H N . John Maynard Keynes has been a Cassandra ever
since 1918 when he left the British Commission for Negotiating
Peace and threw up his job, for good reasons in my opinion, which
do him credit. Since then he has held that the world was going
to the dogs, unless his formulae, his private and patented formula,
as they formed themselves in his brilliant mind from time to time,
were adopted. He is a very able man, an exceedingly able man,
for whose opinions I have great respect; but like many economists
he is swayed by his own mental eloquence into taking rigid attitudes
as to present and future and persuade himself of things of his conviction, perhaps to a greater extent than nonprofessionals would be
able to persuade themselves as to the indisputableness of their views
and forecasts.
Senator SHORTRIDOE. Let me recur to the South American defaults.
Has any one of the now existing governments repudiated its debts,
or is it "a mere case of temporary default ?
Mr. K A H N . It is a case of temporary default or moratorium. None
of them has repudiated at ail.
Senator SHORTRIDGE. There has been no repudiation of a given
issue?
Mr. K A H N . N O , Senator.
Senator J O H N S O N . It is a case of moratorium ?
Mr. K A I I N . It is a case of moratorium, in some cases, and, of
course, of plain default in other cases.
Senator J O H N S O N . The moratorium, in the cases where it exists,
we will grant next week, then.
Senator GORE. Does anybody underwrite this temporary proposition? You are not underwriting that or certifying that it is
temporaiy?
Mr. K A H N . A S a member of a conservative banking house, may I
say that the underwriting of such contingencies is not within the
lines of our business?
Senator GORE. That protects the record.
Senator K I N G . Y O U mentioned Mr. Keynes a few moments ago
and said that he was lost in his own verbosity. You recall that
he was for many years a strong devotee of gold and denounced the
use of silver, particularly bimetallism?
Mr. KAHN.
Yes.
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SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
Senator K I N G . But in his recent book, in two volumes, in the last
volume he has repudiated those earlier views and said that gold is a
parvenu, and that it becomes necessary, or at least that is the implication, that we should have the restoration of silver to a monetary
status in order to avert these catastrophes to which we have referred.
Would you agree with that view?
Mr. K A H N . Senator, I have read his book, though not very thoroughly, but I have read it, and I have also read various other recent
articles of his. They are all tinged of late .with the color of the tail
of the fox which was no longer in the place where nature intended
it to be. The fox, in the fable to which I refer, had lost his tail and
therefore he wanted everybody else to lose his tail. Some of the
European governments would like the United States to lose its tail;
but I am wholly convinced that the United States is going to do 110
such thing to accommodate them.
Senator GORE. The United States lost its head instead of its tail?
Mr. K A H N . I think, Senator, that in 1 9 2 9 there was-a general
brainstorm. u Let him who is without sin first cast the stone."
Senator SHORTRIDGE. What does the metaphorical phrase mean
that you gave ?
Mr. K A H N . I mean that England, lias not by its own choice but
by necessity gone off the gold:standard; and that is true of several
other countries.
Senator K I N G . But his book was written two years ago. That was
before Great Britain had abandoned - the gold standard. You are
not insisting, are you, that Mr. Keynes predicated his book upon the
assumption that Great Britain had lost her tail or her head and was
going off the gold standard ?
Mr. K A H N . I rather think, Senator, he did, because he at that
time was already urgently in favor of a so-called managed currency
which he has preached ever since. Winston Churchill in 1926
brought the gold standard back to England, and ever since then
Maynard Keynes has preached the unwisdom of that action and the
inevitable necessity of introducing what is generally termed " managed currency." I do not4understand that at present he is in favor
of bimetallism. He is now, I believe, wholly in favor of managed
currency and is convinced that the world has got to come ultimately
to follow Great Britain in the formula of a managed currency.
Senator GORF. D O you think that is feasible?
Mr. K A H N . He thinks it is feasible——
Senator GORE. D O you think so?
Mr. K A I I N . I do not Senator. At least, it has never, been proven
that it is feasible. I believe I said on the last occasion when I had
the honor of testifying before this committee that the main purpose
of gold currency is to put certain restraints upon the potential
excesses of inflation, because your money is gauged and measured
by a metal which it is not within the province o f man either to increase or decrease at his own choosing, but which nature allots to
the world within a certain definite measure. Its supply does not
vary excessively, talcing it over a long range of time,, and it has
other qualities making it particularly suitable as a basis fpr currency, though I do believe that the fluctuations of its value in relation to prices, wages, and living costs are a problem which calls for
searching study and, if feasible, for correction. In-any event, it is
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beyond our power to increase or decrease, and therefore as long as
we maintain a certain relationship between
Senator GORE. D O you think the gold standard can be maintained
if countries who control embargoes and control foreign exchange
accept the international free use of gold?
Mr. K A H N . I believe it can be maintained by the United States
and I think it should be so maintained, while at the same time means
should be sought to bring its fluctuations as a measure of value
under better control. There is 110 scarcity of gold at present. The
total supply of "old in the banks of the world is twice as great as it
was in 1913. I can see no reason why the United States should
permit itself to be affected in its own best judgment by the currency
policies of other countries.
Senator GORE. This is a little afield, Mr. Chairman, but it is a
subject in which I am very much interested.
Mr. Morgan was in England at the time England went off the
gold standard, and he said it was an encouraging rather than a discouraging sign.
Mr. K A H N . I think it was not only an encouraging sign, under
the then prevailing circumstances in England, but it was an abso^
lute necessity, because they had come to the point where the maintenance of the gold standard had become impossible.
Senator K I N G . So with Japan and the Scandivanian countries,
and more than 17 of the countries of the world.
Senator GORE. Would the same advantages inure to the United
States if it should go off the gold standard ?
Mr. K A H N . Those advantages, in my opinion, are liable to a large
extent to prove illusory and even disadvantageous- How serious
the disadvantages will turn out to be the future only,can tell. That
will vary in different countries. X o one can foretell what is the
degree of abuse of the printing press which would or might occur
when you remove the limitation that you have imposed upon yourselves bv making your currency hold a definite relation to a definite
metal. "There is'nothing of"proved reliability then that stands
between you and the use of the printing press for currency- You
must depend mainly, then, upon your own self restraint, the wisdom of your people and the power of the government to withstand
popular pressure. Precisely what will be the course of events in the
case of countries who, not by their own choice but because they
could not help themselves, were taken off the gold standard, is
beyond any man's wisdom to foretell. But the fact is that if they
did not have had to get off the gold standard there is no reason
to think that they would have got off*
Senator K I N G / Is it not a fact that Paul Warburg and some of
you bankers who suffer from the gold mentality, instead of standing
by a gold reserve of 40 per cent have advocated and are advocating
not only a redistribution of gold, but a reduction of the reserves
down to 10 or 20 per cent, on the theory of a managed currency, so
that you would have more paper money without gold reserve than
you would have if you had bimetallism with silver behind your
issue? ,
•
Mr. K A H N I do not know what Paul Warburg stands for. I have
never expressed myself in public on the subject except to say, as
I am saying now, "that in my opinion the United States is amply
'366
SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
capable of maintaining the existing gold standard, or any standard
which, in its own discretion, from its own choice, uninfluenced by
any other country, it elects to maintain. Whether that ultimately
be the gold standard just as it is now or any modification thereof,
is not, as I understand, now in question. I feel quite certain that
there is not any doubt whatsoever that the United States is amply
capable of continuing the existing gold standard; and if France
chooses to withdraw all the gold that it now has here, the United
States is still amply capable of maintaining the gold standard.
What .it chooses to do thereafter, at its own time and of its own
free choice in making currency conditions
Senator GORE. How much gold has France here now?
Mr. K A H N . Roughly speaking, I should say the equivalent of
something in excess of $500,000,000; and I should say she is welcome
to it.
Senator GORE. D O you think the gold standard can be maintained
in a true sense unless it is allowed to flow freely in the settlement
of international balances?
Mr. K A H N . I am entirely convinced that there is no power on
earth that can get the United States off the gold standard by anything which any other nation may do or which all of them combined
may do, except the United States'itself, if and when it so choosesI can see no reason whatever why the United States should so
choose.
, Senator GORE. The gold standard would lose a great many of
its advantages if embargoes were placed on it, and it is not allowed
to flow freely where it is demanded in the settlement of international balances. If you isolate the United States and just have a
gold standard here, it is almost as bad as the other situation.
Mr. K A H N . I do not see that it would lose any of its essential
advantages to us. It might lose advantages to those who, not by
their own choice, have been driven off it; but there is an immense
advantage to the country which is able to say that it has maintained,
year in and year out, through good and evil times, its record for
monetary integrity. That kind of virtue ultimately finds its reward.
It is the same reward which you get for gaining the confidence of
the people in whatever line of business you may be engaged in.
Confidence pays. It is a paying asset; and the confidence of the
people, our own people and those of the outside world, in the monetary integrity of the United States, in many years to come, will
pay us—by which I do not mean to say, Senators, that there are not
certain things which could and should, with advantage, be done now,
in this particular emergency, to deal with the extreme deflation which
prevails.
The CHAIRMAN. Mr. Kahn, will you at this point give for the
record your definition of "controlled currency "? I w a n t to know
how far you would go.
Mr. K A H N . My definition of what, Senator?
V
The C H A I M M A N . Controlled currency. I want to know how far
your thoughts or your beliefs go as to that form of circulation. ''
Mr. K A H N . I had hoped to get some light here as to what " controlled currency " really means. :
367
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SALE OF FOREIGN, BONDS OB SECURITIES
The CHAIRMAN. I think perhaps there are half a dozen different
opinions as to what controlled currency means, and I wanted you to
put your idea at this time into the record, as to what it really is.
Senator SHORTRIDOE. What he considers it to be.
Mr. K A H N . Senator, that means explaining something which, so
far as I know, has never been defined accurately by those who have
advocated it—which is one of the reasons why it is easy to advocate
it. I know of no one whose voice has claim to authoritative utterance who has precisely said what he means by it in practical and
feasible application.
The CHAIRMAN. I was aware of that, and I thought perhaps I
was mistaken on it. I wanted to know whether you had come to
a conclusion as to just what it was.
Mr. K A H N . I have never come come across any responsible personage who advocated it who was able or willing to define to me,
in precise'words, how it is to be worked, except in the main, by the
old process of setting the printing presses to work whenever and to
the extent that it seemed expedient. I know of nothing more
dangerous. I know of nothing more disastrous in its potentialities
than setting the printing presses to work for currency purposes.
The CHAIRMAN. That would be uncontrolled.
Senator COUZENS. Oh, no.
Mr. K A H N . The people of the United States fought that fight at
the time of the greenback craze, and they have made it plain, beyond
peradventure o f doubt, that they do not mean to have a depreciated
and fluctuating currency.
.
Senator JOHNSON. I S Kuhn, Loeb & Co. a copartnership or a
corporation?
Mr. K U H N . A copartnership.
Senator JOHNSON. Would you please state for the record the
names of the partners?
Mr. K A H N . I have furnished those in the statement that I sient to
your chairman.
Senator JOHNSON. I had not seen the statement I did not know
that.
Senator K I N O . They are in the record, Senator.
Mr. K A I I N . The names are Felix M. Warburg, Otto H. Kahn,
Jerome J. Hanauer, George W. Bovenizer, Lewis L. Strauss, Sir
William Wiseman, John M. Schiff, Gilbert W. Kahn, Frederick M.
Warburg, and Benjamin J. Butteriwieser.
Senator JOHNSON. Are any of these gentlemen members of any
other houses that deal in like fashion to Kuhn, Loeb & Co.?
Mr. KAHN. NO, sir.
Senator JOHNSON. Have
you directorates upon various banking
institutions? Are there, among your partners, directors in various
banking institutions ?
Mr. K A H N . T W O of my partners are directors in banks. John M.
Schiff is a director in the Chemical Bank & Trust Co. and Felix M.
Warburg is a director in the Manhattan Co. (which owns the Bank
of Manhattan Trust Co.) and in the International Acceptance Bank,
j. Senator JOHNSON. Any others?
*
^
Mr. K A H N . None other.
;.
Senator JOHNSON. What is the Bond Mortgage & Guaranty Co: ?
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SALE OF FOREIGN, BONDS OB SECURITIES
Mr. K A H N . I beg your.pardon. I did not recall that. It is a mortgage and guaranty company, as its name indicates, of which Felix
Warburg is still a director, I believe, as he has been for many years.
Senator JOHNSON. You are ,a director in the Morristown Trust Co. ?
Mr. K A H N . N O , Senator. For a long time I have not been a director in that company. I am a director in no bank or trust company.
Senator CONN ALLY. I S Felix Warburg a director of the International. Acceptance Bank (Inc.)?
Mr. K A H N . The International Acceptance Bank (Inc.) is a subsidiary of the Manhattan Co., which I have mentioned.
r Senator JOHNSON. Do the Manhattan and the International Acceptance Bank deal in securities, too ?
Mr. K A H N . The International Acceptance Bank does not. The
Manhattan itself does not.. The^y have an affiliate called the International Manhattan. Co., which is just about to go out of business,
as a number of other bank affiliates have gone out of business lately.
M Senator JOHNSON. You have branch houses outside of New York
City?
Mr. K A H N . No, Senator.
Senator JOHNSON. None at all?
Mr. K A H N . None at all.
Senator JOHNSON. Neither in the Americas nor in Europe?
Mr. K A H N . Nowhere.
Senator JOHNSON..Nowhere at all?
Mr. K A H N . Nowhere.
Senator CONNALLY. May I interrupt you right there? The other
.day I believe you said none of your firm had anything to do with the
political organizations.
Mr. K A H N . Yes, Senator.
Senator CONNALLY. Is Mr. Lewis L. Strauss a member of your
firm?
M r . KAHN. Yes.
Senator CONNALLY.
Is he the same Mr. Strauss who is vice treasurer of the Republican National Committee?
Mr. K A H N . I did not even know it. He may be, Senator, I do not
know.
Senator CONNALLY; If he is, then you were in error the other day
in making that statement ?
Mr/KAIIN. Not as I understood the question.
Senator CONNALLY. I understood that. Can you not verify that,
as to whether he is or not?
Mr. K A H N . I do not believe that was my expression, but I can
easily verify whether he is or not.
Senator CONNALLY. I do not mean to catch you on your expression.
.
Mr. K A H N . While I said the firm or the individuals connected
with it had nothing to do with political organizations—or whatever
may have been my precise expressions—I hope every member of my
firm does his duty as an American voter.
Senator CONNALLY. To be sure.
Mr. K A H N . Either in the Democratic or the Republican ranks.
Senator CONNALLY. I S he, or not, vice treasurer o f t h e Republican
National Committee?
.
<
.
Mr. K A H N . Frankly, I do not know.
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SALE OF FOREIGN, BONDS OB SECURITIES
Senator CONNALLY. I S he the same Mr. Strauss who was private
secretary to Mr. Hoover when he was Food Administrator, during
the World War, in 1917,1918, and 1919?
Mr. KAHN. Y e s .
Senator CONNALLY.
And a member of the American Relief Administration?
Mr. K A H N . Yes, I believe.
Senator CONNALLY. The Russian relief, and so forth?
Mr. K A H N . Frankly, I do not know.
Senator CONNALLY. Chairman of the Joint Distribution Committee on Russian Relief?
Mr. K A H N . That I do not know, Senator.
Senator JOHNSON. D O you know whether or not the State Department at one time wrote a letter against further German loans?
Mr. K A H N . Not to my knodwleclge, Senator. If it did, it has not
come to my knowledge, or I fail to recall it. The German loans,
taken all together, are really only a relatively moderate part of
the total loans made by America since 1918. As I figure it, these
total loans are about $*10,000.000,000, and as I figure it the German
loans made in America are about IB per cent of that—about $1,300,000,000. So I do not believe, even if Mr. Parker Gilbert was right,
that the:injection into the totality of our loans of $1,300,000,000,
could have been of so vital an effect as some people are apt to think.
Senator GORE. D O you include both long and short term loans
in that?
Mr. K A H N . I include only the long time loans. The short term
loans, I believe to about $600,000,000, roughly speaking.
Senator King. Mr. Kahn, if the papers state—and my recollection is not very clear—that the loans to Germany, long and short—
and when I say Germany I mean, of course, private institutions,
cities, provinces, and some of the industries—amount to $4,000,000,000, would that be excessive t
Mr. K A I I N . In my opinion, 3'es. I am speaking of American loans
to Germany.
Senator King. That is what I am speaking of. DO TOU know
what the loans are to private corporations and individuals, and
to the industrialists of Germany, made by the United States?
Mr. K A H N . I think all that 'is included in the total of $1,300,000,000. I think, in addition to that
Senator K I N G . There is one other question I wanted to ask you,
if I may. In 1920, 1921, 1922, and 1923, particularly in 1922 and
1923, Germany emitted large issues of paper marks, and large
quantities of those marks were unloaded upon the American public. I was wondering if any of the banks, to your knowledge, were
instrumental in unloading those marks upon the American public.
Mr. K A I I N . S O far as I know, none of them were. If I may say
so, Senator, is it not rather a reflection upon the mental capacity
of the American people to speak of " unloading " in this connection?
A great many people in numerous countries at that time believed
that the mark ultimately would be all right; and without any
agitation on the part of anybody, of their own volition and as a
result of their own judgment, a great many of them bought marks.
Senator K I N G . I know that. Mr. K A H N . But I do not believe anybody " unloaded."
'370
SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
Senator K I N G . Strike out the word "unloaded" if that does not
express the view to you, to meet your understanding; did any of
the banks become the conduit by which those marks, whether they
were bad or whether they were good, were sold to the American
public?
Mr. K A H N . T O the best of my knowledge, no.
Senator K I N G . D O you know how many marks, during all periods
after the war, were sold to the American public, to the banks, or
to individuals?
Mr. K A I I N . I do not know, Senator.
Senator K I N G . You know that large quantities were disposed of
in the United States.
M r . KAHN. Yes.
Senator K I N G . And
that it was reported in the papers that Germany had obtained, by the sale of those marks, considerably more
than $1,000,000,000 from the United States, and more than $1,000,000,000 dollars from France, Great Britain, Holland, Switzerland,and some of the Scandinavian states? When I say " Germany*" I
mean, of course, the banks and the people, the government, and
the provinces.
•>•
Mr. K A H N . I could not give you a competent answer to that,
Senator, without attempting to make an investigation from sources
that may be available in Germany. I suppose it would only be
known in Germany itself.
Senator K I N G . It was generally known, was it not, so as to become,
really, a matter that was accepted as a fact, that Germany did
obtain from.various countries a large amount of money by the sale
of marks to those countries?
Mr. KAHN. Yes.
Senator K I N G . And
those marks afterwards, of course, were entirely repudiated?
Mr. K A H N . They were entirely repudiated, or practically so.
Senator SHORTRIDGE. Were they, Senator, repudiated by governmental action?
Senator K I N G . Yes.
Senator SHORTRIDGE. I merely wanted it for the record.
Senator K I N G . They were repudiated by governmental action,
and the rentenmark was issued after the reorganization.
Mr. K A H N . They called it by the euphonious-name of " revalorization," instead of "repudiation." They were "revalorized by governmental action.
Senator GORE. Can you tell us where we can find out to WHAT
extent money borrowed in the United States by Germany was used
to pay reparations to France, either directly or by substituting and
.releasing other money for such payments?
Mr. K A H N . Of course, this question enters into the field t o which
Senator Couzens has very correctly called attention, namely, that
no one can say to what extent money that goes into the pockets of*
•government finds itself in its waistcoat pocket, its trousers pocket,
or its hip pocket, or what precisely it does with any. particular
portion of that money. ;
r ' =. ' Senator GORE. We constantly see the statement—I saw it yesterday—that Germany borrowed money* f r o m the i United States to
371:SALE OF FOREIGN, BONDS OB SECURITIES
make her reparations payments. I do not know whether it is the
truth or not, and I do not know how to find out whether it is true
or not, if there is any way.
Mr. K A H N . I do not believe, Senator, that even Germany would
know that, because a government can not earmark money which it
has and spends out of its total resources. There is no doubt that i f
Germany had not been able to borrow money it would have been
unable, long since, to pay reparations, and therefore, to that extent,
it is a generally correct statement to say that out of the money
which Germany borrowed it did pay reparations. On the other
hand, Germany could probably prove, by its statistics and figures,
that all the money it borrowed was spent for social purposes, for
erecting workingmen's dwellings, for creating opportunities to
make life, which was difficult enough, more bearable for the masses
of the people, for the dole, for artistic, cultural, and other efforts,
which benefited the German people, for reconstructing, as they did
to a very large extent, factories, and so forth. I think Germany,
by a clever statistician, could prove that not one dollar of borrowed
money has been spent for. reparations. I am equally sure that the
reverse can be proved.
Senator GORE. I understand the technical difficulties. I f a revolution should come in Germany and it should be followed by repudiation of these debts, Germany has the improvements and we have
the bonds.
The CHAIRMAN. If there are no other questions to be asked the
witness, he may be excused. We thank you, Mr. Kahn.
Senator JOHNSON. Wait a moment, Mr. Chairman. . I have many
questions, and particularly concerning the statement that Mr. Kahn
has. He might put it in the record. I have not had the opportunity
to look at it yet. You are going to adjourn until 2 o'clock, are you
not?
T h e CHAIRMAN. Y e s .
Senator JOHNSON. Very
well. I shall not take very long with
him then, but there are quite a few questions-1 desire to ask then.
The CHAIRMAN. Y O U will return at 2 o'clock, then, Mr. Kahn.
(Whereupon, at 11.50 o'clock a. m., the committee recessed until
2 o'clock p. m.)
AFTER RECESS
The committee resumed at 2 o'clock p. m. at the expiration of the
recess. .
The C H A I R M A N . If the committee will come to order we will
proceed with our hearing. Mr. Kahn, understood that that you
wanted to make a further statement before concluding your testimony.
Mr. K A I I N . Yes, if you will permit.
TESTIMONY OF OTTO H. KAHN, A MEMBER OP KUHN, LOEB & CO.,
NEW YOBK, N. Y.—Besumed
Mr; K A H N . Unless Senator Johnson or any other Senators wish
to# ask further questions, I will proceed, as there are a very few
things I should like to clear up.
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SAIiE OF FOREIGN BONDS OR SECURITIES
Senator JOHNSON. Would you rather leave that to the end of your
testimony?
Mr. KAHN. Yes.
Senator JOHNSON. D O
you know anything about Canadian loans
made in this country ?
Mr. K A H N . Yes; in a general way.
Senator JOHNSON. Were you interested in them or in any of
tliem ?
Mr. K A H N . The only ones, Senator Johnson, in which we were
interested were loans made to certain Canadian Provinces, to the
Provinces of Ontario and Alberta.
Senator JOHNSON. Will you tell us about those, please?
Mr. K A H N . The loan to the Province of Ontario, $20,000,000,
20-ycar, 5 per cent gold loan. That was bought at 97.67, and the
price to the public was 991,4, leaving a spread of 1.58 per cent.
The next one was in 1926, a loan of $6,000,000 to the Province of
Alberta, 30-year, 4% per cent gold debentures, due in 1956. The
purchase price was 92% and it was sold to the public at ,94%, the
spread being 1% per cent.
Senator JOHNSON. Are those the only Canadian loans. in which
you have participated?
M r . KAHN, Y e s , sir.
Senator JOHNSON. Are
you familiar at all with other Canadian
loans that have been made?
Mr. K A H N . Only in a general way. We were not in any of
the other syndicates. * ;;
Senator JOHNSON. Do you know who made them?
Mr. K A H N . Various concerns made them. I think, Dillon, Bead
& Co. made some of them, if I recall correctly; and J. P. Morgan &
Co. made some of them. And I believe the National City Co.
made some. I do not recall exactly who made them.
Senator JOHNSON. D O you recall whether the Pittsburgh banks
made any of them?
M r . KAHN. I d o not.
Senator JOHNSON. Y O U
M r . KAHN,'No.
.
have no recollection of them at all?
Senator JOHNSON. Do you know anything about loans that were
made to Cuba?
Mr. K A I I N . Yes, Senator Johnson; in some of them we participated. I have on this list of mine two loans made to the Republic
of Cuba, one of them in 192T,
per cent, due in 1928 to 1937,
a serial loan, $9,000,000. The price paid was 100, and the price
sold to the public was 101%. This loan was made under the leadership of J. P. Morgan & Co., but we participated in it, I mean in
the originating group. I might mention that in regard to that
loan $3,600,000 has been retired. The next loan in which we participated likewise that was made Jo
the Republic of Cuba, under the leadership of J. P. Morgan & Co.,
but we being membersrof the originating group, was an external
loan, 30-year, sinking fund, by2
cent gold bonds, due in 1953.
The amount was $50,000,000. The purchase price was 96.77. The
issue price to the public was 99*4, leaving a spread of slightly less
than 2y 2 per cent. $23,000,000 of that loan has been retired.
373
:
SALE OF FOREIGN, BONDS OB SECURITIES
Senajtor JOHNSON. Did you participate in any loans made to any
sugar corporations in Cuba ?
Mr.KAHN. No, sir; we did not.
Senator JOHNSON. You had nothing to
Mr. KAHN. NO, sir.
Senator JOHNSON. And I assume that
them.
Mr. KAHN. NO, sir.
Senator JOHNSON. Will
do with them?
you know nothing about
you state whether or not any proceeds of
bond issues that you have referred to, or of security issues to which
you have adverted, were left on deposit with the banking house
or with those who dealt with the loans?
Mr. K A H N . That varies.
Senator JOHNSON. Oftentimes it is the case, is it not?
Mr. K A H N . Sometimes it is the case, according to the convenience
of the borrower.
Senator JOHNSON. Does that make an indirect profit to the house
that is dealing with the proposition?
Mr. K A H N . Well, if that house judges the market correctly and
is able to loan out the money on deposit with it at a better rate than
that which it has agreed to pay to the depositor, naturally it makesa profit.
"
'
v
Senator JOHNSON. Would you say that that means a considerable
sum ?
Mr. K A H N . The amount deposited might mean a considerable
sum. The percentage of profit could be only a quite moderate one.
Senator JOHNSON. Well, that is comparative and relative.
Mr. K A I I N . I will admit that it is relative.
Senator JOHNSON. Speaking from the standpoint of the debtor
class it would be one thing, and speaking from the standpoint of,
Jthe banking fraternity it would be quite another perhaps.
Mr. K A H N . I think V e can to a certain extent agree on the amount;
of profit; if it would be one-half of 1 per cent per annum it woiild*
be a moderate profit.
Senator JOHNSON. In the matter of loans that you have made i n
the fashion you have indicated, has a very considerable sum of
money been left on deposit with you ?
;
5 Mr. K A H N . A very considerable sum, hardly, but apiiri 'that is
relative. We are not a house of deposit in the general sense. Oiv
the other hand, if some of our clients have money left over which
they desire us to administer for them, as a depositary for the time
being or for a specified length of time, of course we do it. But we
do not look upon that primarily as a source of revenue. It is more
or less a service we are rendering because of our connection withthem, but we are not generally looking for deposits, and we are
not a bank of deposit in the general sense of the word.
Senator JOHNSON. That often happens with various institutions
that float loans, does it not?
Mr. K A H N . It would happen if a loan is floated and the institution for which we float it should say: We have no use for that money
until say the first of next July. Will you keep it for three months
and give us the best rate of interest you can? In which case we
say, yes'; we will gladly do so. But it does not amount to sums of
great significance. In our case, it is rather unusual than usual.
374
SALE ; 0E FOREIGN BONDS; OR SECURITIES
Senator JOHNSON.-/Might that be said of any sums left with you
oil any loans?
Mr. K A H N . My description of the size, do vou mean ?
Senator JOHNSON.; Yes.; Very considerable portion, according to
the information that has been given me, are left with those by whom
loans ,are floated.
Mr. K A H N . It would depend entirely upon the requirements of
the corporation, government, or municipality that was borrowing
the money. In.some,cases they want the money even before it is
subscribed , or paid for by the public. In other cases it suits them
better to leave.it for a certain length of time. That situation varies,
and it is a matter of their own convenience.
Senator JOHNSON. Is a charge made at any time by any institutions you are familiar with acting as fiscal agents?
Mr. K A H N . We are not fiscal agents for any government, except
to the extent of cashing coupons in a few instances, and of paying
off the principal, when due, in a few instances. For that service a
small charge is made.
Senator JOHNSON. You are familiar with the fact that a charge
has,;been made, or is made, that it'is not uncommon, for acting as
fiscal agent,- are you not ?
Mr. K A H N . The practice of being formally designated as fiscal
agent is not so much in vogue nowadays.
Senator JOHNSON. Well, I will change the characterization if you
desire.
. .
Mr. K A H N . But in ; the matter of paving coupons when due, and
paying off principal when due, that does usually involve a small
charge.
Senator JOHNSON. Exactly what I am driving at is this: There is
the profit that the house makes that sells a security, first of all.
You may call it the spread. I think that is the characterization1
used by the house of Morgan, that it is a spread rather than a profit.
I am not quarreling with the terminology in the slightest degree
because that is a matter of computation, I think of accurate computation. In addition to that there is an indirect profit made out of
money that sometimes is held.
M r . KAHN. Yes.
Senator JOHNSON.
And in addition to that there is an indirect
profit that is made as fiscal agent at times as well.
Mr. K A H N . For services rendered from time to time, but that has
nothing to do with the original issue.
Senator JOHNSON. I realize that. While it has nothing to do
with the original issue, yet out of the issue comes the particular
profit that I have referred to.
Mr. K A H N . Out of that connection there may come a continuing
service, and that is compensated for in some way.
Senator JOHNSON. Those things are looked forward to, I pre*
sume, as not only appropriate but as valuable things for the particular house to have, are they not?
M r . K A H N . Valuable, to use your own words, is a v e r y relative
term.
Senator JOHNSON. But valuable, either relatively or otherwise, that
is correct, is it not ?
Mr. KAHN.
Yes.
375
:
SALE OF FOREIGN, BONDS OB SECURITIES
Senator JOHNSON. N O W , do you know how much short-time loans
of Germany are outstanding at the present time?;
>«»I;JI;
:: ;
Mr. K A I I N . I should say, roughly, $600,000,000.
R
Senator JOHNSON. Where are those short-time loans heldt
Mr. K A H N : They are held as far. as I am aware and of course I am
not speaking of hiy own positive knowledge, mainly by banks and
trust companies more or less throughout the country;
Senator JOHNSON. When you speak of $600,000,000 of short-time
loans that are held, you mean $600,000,000 held in this country?
Mr. KAHN. Yes.
,
.
...
:Senator JOHNSON. There is a vast sum held by other* countries*
as well?
if
V;:!
Mr. K A H N . Yes, and relatively—I mean , in proportion to their
resources-—a larger sum is held by other;countries,than by;America.
Senator JOHNSON. $600,000,000 of short-time loans of Germany
are held in this country.
n
Mr. K A H N . Yes, in my judgment. I have not the exactfigures,T
Senator JOHNSON. And those are held by the banks?
,
: ;
Mr. K A H N . Mainly by banks and trust, companies.
<r
Senator JOHNSON. They are held, mainly by what banks and trustcompanies?
;[; :,]
Mr. K A H N . I could not give fyou the precise percentage or the
precise amounts in each instance.
Senator JOHNSON. I did not expect that, Mr.:Kalin, but are.they
held principally in New York City ?
/
Mr. K A H N . Again I do not wish to give this committee anything
that I do not know about of my own knowledge. X .know that a
certain percentage, and naturally a considerable percentage, is held
in New York City.
Senator JOHNSON. Your very knowledge of the situation would
demonstrate to you, wouldn't it? that the majority of the short-time
credits are held in New York City ?
Mr. K A H N . I am not prepared to say that the majority is but it
may be so. I do not like to guess, Senator, Johnson,; in my responses
to questions.
Senator JOHNSON. D O you know by what banks or houses these,
short-time credits are held?
Mr. K A H N . Again I do not know, and I question whether it would
be proper for me to give you, an answer which is; not based upon
knowledge on my part.
......
P
Senator JOHNSON. I do not wish anything that is not fairly within
your knowledge. But isn't it a matter that is fairly within your
knowledge where the short-time credits are held; I, mean in New
York City, and by whom?
i ^
Mr. K A H N . A S to some of them I would know, and as to others,
again I would not know. But I think I could say in a general way
that as compared to the undivided profits surplusj capital, and other
assets of the banks, the total of the German open credits would not
be an exorbitant amount. I am comparing it to the total sums which
they have at their disposal, and it would not give any cause whatsoever for concern*
Senator COUZENS. Mr. Kahn, that was not what Senator Johnson
asked for.
92028—32—PT 2
6
376
SALE I OF 'FOREIGN BONDS . OR SECURITIES
^Senator JOHNSON;:'No ; T am* not tallring about any concern.- I am
not assuming that there is any matter of concern- so far as the solvency of any institution is concerned.
>
Mr. K A H N . I fully agree with you.
i' Senator JOHNSON. I did not ask you about that; But I do want
to; know,if it'be : possible.to find out, where the bulk of these shorttime credits are; whether they are held in New York City.
:>;Mr. KAHN.' I could mention a few names, but I could not guarantee that they would be complete or anywhere near complete. However, I understand that the Federal Reserve Bank in New York
City'has the precise figures and the precise names of the institutions
that hold those advances.
^Senator JOHNSON ; D O you mean short-time credits?
Mr. K A H N . Yes, sir;and I feel sure that the Federal reserve bank
could give you that information accurately and quickly.Senator JOHNSON. Well, give the names of three or four institutions that hold relatively large sums of short-time credits in New
York City.
Mr. K A H N . T O the best of my knowledge, even though I am not
a director and have had no occasion to examine their portfolios,
the Chase National Bank and
-Senator JOHNSON (interposing) . Is the Chase National Bank the
institution with which Mr. Alfred Wigging is connected?
M r . KAHNL Y e s , s i r . ; '
Senator JOHNSON. What other institutions?
-Mr: K A H N ; • Well, the National City Bank.
Senator JOHNSON. Yes?
<
1 Mr. K A H N . > Also; I might mention as among
those holding lesser
amounts of such short-term credits, the Chemical National Bank,
; ;r
and-^—
Senator J6kNSON (interposing); With whom is the Chemical National Bank affiliated, if at all; I mean as to any large houses there
are in New. York* City ? • ': M '
Mr. K A H N ; I think all our banks pride themselves upon their independence, and the days when it was possible f o r any one bank or
trust company to be designated as so and so's bank or so and so's
trust company, are gone. They have grown too big, and their capital
is miiiph too large, and their stockholders much too diversified for
anything of that kind. These banks to which you refer in New York
City alone have probably from 250,000 to 300,000 stockholders.
Senator JOHNSON. Yes; I know.
Mr. K A H N . There is no longer any such thing as may h a v e been
referred to in past investigations as certain b a n k s b e i n g the more
or less exclusive affiliation of one group and other banks of another
group.
Senator-JOHNSON. Is there any member of your house a director
in the Chemical National Bank?
Mr. KAHN. Yes.
Senator JOHNSON. Who ?
Mr. K A H N . J o h n Schiff.
Senator JOHNSON. I S there any member of the house of
a director in the Chemical National Bank?
M r . K A H N . NO, sir.
Morgan
377
:
SALE OF FOREIGN, BONDS OB SECURITIES
Senator
J O H N S O N . Or any member
M r . KAHN. NO, sir.
Senator J O H N S O N . But Mr. Scliiff
the Chemical National Bank?
of the National City ? •
of your house is a director in
Mr. KAIIN. Y e s , sir.
Senator J O H N S O N . I S
there any other member of your house a
director in the Chemical National Bank?
Mr. K A H N . N O , sir. By the way, my attention is called to the;
fact that the correct name of that concern is the Chemical Bank
Trust Co.
Senator J O H N S O N . N O W , as to the these short time credits that we
have referred ..to and of which there are $600,000,000 in this country
from Germany, they run for about what length of time, please?
Mr. K A H N . That would be guessing, and I can only suggest again
that if you want the exact facts I feel sure in twenty-four hours you
could have them positively. I hesitate to try to give any of it to
you by way of guessing.
Senator J O H N S O N . Would you furnish that information exactly?
. Mr. K A H N . I could not furnish you with that information, but
the Federal reserve bank in New York City could no doubt give it
to you.
Senator COUZENS. Why not get that data, Senator Johnson, from
the Federal reserve bank in New York City ?
Senator J O H N S O N . We will try to do so. I will say that I wrote
to the Comptroller of the Currency, and he sent me his report. However, that does not cover what I want. I have not gotten it from
the Federal Reserve Bank of New York City.
Senator COUZENS. Let us call them down here.
Senator J O H N S O N . I do not criticize the Comptroller , of the Currency at all for not answering my question. But the information
I received from the Comptroller of the Currency upon the subject
was the report that he made as to the investments of national banks
as of September 29, 1931. You are quite right, Senator Couzens,
that we can likely get that by calling on the Federal Reserve Bank
of New York City.
Mr. K A H N . I can not state, of course, to what extent, if any, the
Federal Reserve Bank in New York City would hold that information as being confidential.
Senator J O H N S O N . Permit me, please, Mr. Kahn, to suggest that
you do not concern yourself with that matter, because if it is confidential we won't be able to get it, and if it is not confidential we will.
So do not trouble yourself with whether somebody in New York
City shall consider that it may or may not be confidential so far as
that is concerned. Now, we had the Chase National Bank, the
National City Bank. They were two that you named that hold short
time credits. And the Chemical National Bank. What other banks
or trust companies?
Mr. K A H N . The Guaranty Trust Co.
Senator J O H N S O N . I S there any representative of your house upon
the board of directors of the Guaranty Trust Co.?
M r . K A H N . N o , sir..
Senator J O H N S O N . Is there any representative of the house of
Morgan on the board of directors of the Guaranty Trust Co.?
378
SAIiE OF FOREIGN BONDS OR SECURITIES
Mr. K A H N . I believe so.
Senator JOHNSON. Who, if you please?
Mr. K A H N . I do not know what particular member of J. P.
Morgan & Co. is on that board.
Senator JOHNSON. Could you give me the name of any other
institution that holds these short-time credits?
Mr. K A H N . I should say that pretty nearly every important bank'
in New York would have some participation in these short-time
credits. I think I might take a list of all the principal banks there,
and you would find there would be very few if any of them tliat
are not in the list.
Senator JOHNSON. Mr. Kahn, you realize that the subject matter
of controversy abroad at the present time is as to whether or not
these short-time credits shall be first paid or the governmental
obligations shall be first paid, do you not?
Mr. K A H N . May I answer that question by reading a very brief
statement, only a page and a half, which I prepared in view of the
fact thatr——
Senator JOHNSON (interposing). I have no desire to do otherwise
than let you answer as you see fit.
Mr. K A H N . I should like to read it so as to get a c o r r e c t presentation of the matter, because the last time I started to answer a question propounded by you on this subject, proctically at the s a m e itme
Senaor Reed of Pennsylvania asked a question, "and I do not believe I made myself quite plain, as the two questions created a cross
current that rather broke in on my trend of though. I should like
to have the opportunity to state correctly what I meant to answer.
Senator JOHNSON. In respect to what question?
Mr. K A H N . In respect to this very question you have asked.
Senator JOHNSON. The one I asked just a moment ago?
Mr. K A H N . Yes, sir; and I will say that I anticipated that question.
Senator JOHNSON. All right.
Mr. K A H N . This is my statement: With your permission I should
like to say a few words on the question asked me at the last hearing
before your honorable committee (as to which my testimony was not
completed) as to the relative position of German debts due to corporations or private citizens m the United States as compared; to
the debts due to the American Government on the part of foreign
nations.
The elements entering into this question are threefold and separate:
1. Germany owes war reparations to European governments,
which, rightly or wrongly, the overwhelming majority of her people'
look upon as unjust and oppressive, especially when considered in
connection with certain provisions of the treaty of Versailles, and
as imposed upon her under duress, and which they feel she ought not
to be called upon to pay and believe she can not pay.
. .
2 . Germany also owes debts incurred by her g o v e r n m e n t , by individual states, municipalities, corporations, firms, and individuals,
which debts are held by corporations, firms, and individuals in
foreign countries. The great majority of her people feel that such
debts ou^ht to be paid, as they realize that, for her commercial honor,
for regaining prosperity, for the functioning of her economic machinery (including the ability to pay taxes for the necessary support
379:SALE OF FOREIGN, BONDS OB SECURITIES
of her government), and for her world trade, the restoration of
her business credit among the nations and confidence in her integrity
in respect of obligations voluntarily entered into are indispensable
essentials.
3. The allied nations owe to the United States certain amounts,
repayable in instalments, as arrived at by settlement made several
years after the termination of the war and based upon " capacity to
pay."
As far as I am aware, this country has not been called upon thus
far for a choice as to the relative position of German debts due to
American corporations or private citizens, and debts due to the
American Government on the part of European governments to
whom we advanced funds during and after the war.
If and when that alternative does confront us. and, if and when we
know the precise form which it will take, I shall then be quite prepared to express my personal opinion on the subject before your
honorable committee", if so desired.
Meanwhile, I ask very respectfully to be excused from replying
categorically to a question which is now hypothetical and may remain
so.
Senator JOHNSON. With all due deference, Mr. Kahn, I do not
think that has anything to do with the question I asked. The question I asked was: Whether or not you were aware that the controversy now existing in Europe among those who were investigating Germany's capacity to pay and what should be done, was as to
whether short-time credits should be paid first; that is, whether
private obligations should be paid first, or whether governmental
obligations should be paid first That is the controversy that is
existing abroad at this time, is it not?
Mr. K A H N . I am not sure that is so, Senator Johnson. I know that
we have heard a great deal about it in reading the newspapers but
1 am not sure it is a fact that that controversy does exist. And with
all due respect I should rather know whether it exists, and whether
and in what way it will confront us if it ever does confront us, before
I attempt to make any answer.
Senator JOHNSON. All right.
Senator COUZENS. Mr. Kahn, will you define who the makers of
thijse short-time securities are?
Mr. K A H N . The makers of short-time securities?
Senator COUZENS. Yes.
Mr. K A H N . German industrial corporations, and German firms of
various kinds, and German banks to a large extent.
Senator COUZENS. Well, then, as a matter of fact there is no difference between those obligations and the obligations of the Government Is that a fact?
Mr. K A H N . Pardon me, I did not quite catch that question.
Senator COUZENS. Isn't it true, that we often have a conflict in oxir
own minds, and that the American public have a conflict in their
minds of the difference between governmental loans or debts and
private obligations?
•
Mr. KAHN. Yes.
Senator J O H N S O N .
And you don't care to answer that question until
you are more fully advised?
'380
SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
Mr.'KAHN. Until I know precisely what confronts us. I know
there are a lot of rumors, but they are very indefinite.
The C H A I R M A N . What is your judgment as to the private debts?
Are they as secure as the national debts, and would you consider those
private debts as good collateral for a bank as a Government, debt?
Mr. K A H N . I was asked a somewhat similar question this morning, and I took refuge behind my firm's conservatism. I should like
again to take such refuge.
The CHAIRMAN. All right.
Senator SHORTRIDGE. Mr. Kahn, can not you express an opinion
without embarrassment?
Mr. K A H N . I do not believe it is possible to express an opinion on
a question of that nature? in a general way, without some embarassment, or at least an opinion that would be worth anything.
Senator JOHNSON. Mr. Kahn, will you state what loan it was from
-Chile that you floated in this country?
Mr. K A H N . Yes. It was a series of loans of the Mortgage Bank
of Chile: Guaranteed sinking fund $20,000,000, 0y2 per cent gold
bonds first. Followed by another loan of 6% per cent sinking fund
gold bonds of $20,000,000. Followed by another loan of 5-year 6
per cent notes of $10,000,000. Another loan of sinking fund gold
bonds 6 per cent, $20,000,000. ? Another loan of guaranteed sinking
fund 0 per cent gold bonds of $20,000,000. The total being $90,000,000, all having been issued between the years 1925 and 1929.
Senator COUZENS. And are they all in default?
Mr. K A H N . They are all the same series of loans. They are all
loans of the Mortgage Bank of Chile, unconditionally guaranteed by
indorsement by the Republic of Chile as to principal, interest, and
sinking fund. And I might add that Chile for over 70 years has had
a record of no loan being overdue and no sinking fund overdue.
Senator COUZENS. But they are all in default now.
M r . K A H N . Y e s , sir.
Senator COUZENS. As
to interest only, or as to both principal and
interest?
Mr. K A H N . Both principal and interest and sinking fund. In
other words, they are in complete default.
Senator JOHNSON. What were they sold for?
Mr. K A H N . For the first loan we paid 9 3 per cent and sold them
for 97% per cent, the spread being
j>er cent.
Senator JOHNSON. N O W , in the beginning who were the ones interested
Mr. K A H N (continuing). I might mention, Senator Johnson, that
in the case of these loans the Guaranty Trust Co. was our partner.
Senator JOHNSON. Just the two of you?
Mr. K A H N . The Guaranty Trust Co. were our o r i g i n a l partner,
and then we formed an underwriting group and a participating
group.
Senator JOHNSON. Let us follow that out: You and the Guaranty
Trust Co. first undertook to float the Mortgage Bank of Chile
being a 1925-1937 loan.
Mr. K A H N . A 1925-1957 loan. Yes, sir.
Senator JOHNSON. That was a $20,000,000 loan.
M r . K A H N . Y e s , sir.
381
:
SALE OF FOREIGN, BONDS OB SECURITIES
Senator Joiixsox. You undertook to take that at 93, did you say?
You were to take them at 93?
Mr. K A H N . We paid 93.
Senator JOHNSON. N O W , then, you formed, that is, the Guaranty
Trust Co. and Ivuhn, Loeb & Co. formed a syndicate or second
organization for the purpose of disposing of those bonds? •
:
.<<>" •
• ur v -i^i
Mr. K A H N . Yes.
Senator JOHNSON. Who were in that second organization?
Mr. K A H N . I have not the precise names here but will be glad
to furnish them.
Senator JOHNSON. Well, about how many of them were there?
Mr. K A I I N . Probably 30 or 4 0 . No, my associate says there were
probably more than 10*0 in the underwriting group.
Senator JOHNSON. In the group you mean that-you immediately
formed?
M r . KAHN. Y e s , sir.
Senator JOHNSON. And
did you transfer to that .underwriting
group the mortgage bonds for a specific sum?
Mr. KAHN.
Yes.
Senator JOHNSON. For what sum?
Mr. K A H N . The spread between the sum paid and the sum at
which the underwriting group participated was iy2 per cent, in
which originating group again others participated.
Senator JOHNSON. First now as to the originating group: You
have told me they were Kuhn, Loeb & Co. and the Guaranty Trust
Co.?
Mr. K A H N . Yes, sir; and there may have been, although I have
no precise names with me, a few others in the originating group.
Senator JOHNSON. Can your associate tell you who they were?
You have told me once that there were only two in the originating
group, being Kuhn, Loeb & Co. and the Guaranty Trust Co. Can
he say whether there were any others in that group ?
Mr. K A H N . Neither he nor I have the exact names, but there
may have been, and there were one or two more: in the originating
group he thinks.
Senator JOHNSON. But }*ou can not recall them.
Mr. K A H N . N O , not precisely.
Senator JOHNSON. Y O U have said that they were taken at 9 3 and
then transferred to the next group at d-^/U.
Mr. KAHN. Y e s , sir.
Senator JOHNSON. And
the next group was composed of how
many?
Sir. K A H N . The next group being the underwriting group that
you refer to, do you ?
Senator JOHNSON. I don't know. I am taking them as they were
given to me.
Mr. K A H N . There were three groups.
Senator JOHNSON. Here are two groups to begin with and we are
agreed on that. The Guaranty Trust Co. and Kuhn, Loeb & Co.
took them at 93.
M r . KAHN. Yes, sir.
/
Senator JOHNSON. Now.
94y2.
*
they were transferred to somebody at
382
:
SALE
OF FOREIGN, BONDS OB SECURITIES
-/Mr;- K A H N . T O the soJcalled underwriting syndicate they were
transferred at 94%. That consisted of more than 100 firms, i
Senator JOHNSON. And that underwriting syndicate transferred
-them to somebody else, didn't they?
i.' Mr. K A H N . That underwriting syndicate then d i d n o t transfer,
but offered the bonds which they had underwritten to the distributing syndicate, and the distributing syndicate receive the commission
of 1% per cent. •*<
1, Senator JOHNSON; Now,let us get our figures right: 9 3 , 9 4 I / 2 , and
then 1% more.
n
M r . K A H N . I T i s 97%:
.
Senator JOHNSON. Which would be 9 6 ^ as I make
Mr. K A H N . The first group had 1 % per cent, and the
it.
second group
had 1 % per cent, and the third group had 1% per cent. That means
the difference between 93 and 97%.
Senator JOHNSON. Then they sent them to the ultimate distributors who sold them for 100.
Mr. K A H N . Oh, no. The ultimate distributing group sold them
to the public not at 100 but at 97% net. The compensation of 1%
per cent, which that group received, was: included in that public
offering price of 97% per cent, or, in other words, it came off that
price;"
• '*
Senator JOHNSON. They received 1 % per cent ?
- Mr. K A H N . As a commission ; yes.
Senator JOHNSON. And in all of these percentages the originating
houses of course participated.
MrJ K A H N . No, sir. The originating group's compensation would
be in the first commission; that is, in the originating commission.
Senator JOHNSON. In the 1 y 2 per cent,
i Mr. K A H N . Yes; The members of the originating group would
also be free to share in the underwriting group's commission in precise proportion—and no more—to the amount in which they share
in the risks and obligations undertaken by the members of the
underwriting group. But the originating group would not participate ordinarily in the distributors' commission, w h i c h .usually is
the main commission, because, as a group, it would not have distributing facilities.
Senator JOHNSON. But the distributing group you have not
reached as yet?
M r . KAHN. O h , yes.
Senator JOHNSON. You start out with the originating group?
Mr. KAHN. Yes.
Senator JOHNSON. That is your -first group. And then you
your second group?
M r . KAHN. Yes.
Senator JOHNSON.
"
»
have
And in the percentages of these three the originating group participates, doesn't it?
Mr. K A H N . May I try i o make it plain in my own language?
A
Senator JOHNSON. Certainly.
Mr. K A H N . There isfirstthe originating group consisting of Kuhn,
Loeb & Co. and the Guaranty Trust Co. and one or two other intimate friends, who got the bonds at 93, which is the price that WE
paid to the Chilean bank. For our risk, for our negotiations in the
383
:
SALE OF FOREIGN, BONDS OB SECURITIES
matter^ and for our standing in the breech until the underwriting
group is formed, we—that is, the originating group—received a commission'of
per cent. Therefore, the underwriting group receives
the bonds at 94%.
Senator COUZENS. The point that Senator Johnson is trying to
make is this: Did you participate in the difference there ?
Mr. K A H N . We would not except to the extent that it may be
expedient or necessary for us to join in the obligation of the second
group.
Senator Couzens. That is what Senator Johnson is trying to find
out. Was it necessary in this instance for you to participate with
the second group ?
r
t , •
Mr. K A H N . I can not recall, but I could very easily find: out
whether we participated in the second group or not. J i
Senator JOHNSON. When you got rid of the securities to the second
group, did your responsibility and your service end?
Mr. K A H N . Our responsibility and our service do not end until
the bonds are distributed and the money is paid over to .our client.
Senator JOHNSON. Exactly.
Mr. K A H N . And we are responsible for the solvency of each member of the underwriting group, and we are responsible for the solvency of every distributor, until we pay the money to the Government concerned or to the corporation concerned.
Senator JOHNSON. In going through these separate stages there
were certain percentages allowed or charged and I assume you
participated in them.
Mr. K A H N . We share in the first; that is, the originating stage.
If it is expedient or necessary, we also participate in the second
stage—that is, the underwriting group—as I have tried to explain;
Senator JOHNSON. Well, was it necessary in the case of the Chilean
mortgage bonds?
Mr. K A H N . I can not tell you without looking it up.
Senator JOHNSON. Very well.
Mr. K A H N . But I want to make it plain that there were really
only two syndicate stages, namely, the stage of the originating group
which received
per cent, and there it ended. After that this
underwriting group sends perhaps a thousand telegrams, or rather
we sent them as managers in its behalf, to various distributors
throughout the country, some of them banks, but the most of them
not banks, some of them people who make a somewhat precarious
living selling bonds at retail, sometimes in good times and sometimes
in bad times, and those distributors received 1% per cent. There is
no one else who received anything. Amongst these distributors we
do not figure generally, as we are not a distributing organization.
There were three commissions altogether which aggregated 4% per
cent. That percentage is the total margin or spread between the
price which the wholesaler contracts to pay and the price at which
the retailer or distributor sells to the public.
Senator JOHNSON. Without pursuing the subject any further, I
will ask: You do not know whether you participated in any of these
percentages or not?
Mr. K A H N . I know, as I stated this morning, that the total of our
gross profits from all percentages or stages in all these loans covering
12 years is slightly more than one-half of 1 per cent.
384
SALE OF FOREIGN; BONDS OR SECURITIES
Senator JOHNSON. That does not answer M Y question at all. If
you do not-know, I do not wish to prolong the discussion or ask you
any further-questions.'- If you do not know whether you participated
in all three percentages, that ends it.
Mr. K A H N . T know that we do .not: generally participate in the
last percentage, because we are not a distributing house, though it
happens sometimes that we are in a position to sell to a few special
clients. >
Senator JOHNSON. D O you know that you participated in two
percentages?;
i
r Mr. K A H N . I do not know offhand in what instances we participated in the underwriting commission. It would depend upon the
circumstances;
Senator JOHNSON. Were those mortgage bonds of Chile bonds that
were listed upon the stock1 exchange ?
M r . KAHN. Y e s , sir.
i*
i; Senator JOHNSON. -And are they so listed now?
; Mr. K A H N . They are now.
Senator JOHNSON. What are they worth now?
Mr. K A H N . They are listed now at from 10 to 20 per cent.
'Senator JOHNSON. We will take the second issue of mortgage bonds
of Chile, 6J/2 per cent,'1920-1961?
Mr. K A H N . They were purchased at, 95% and were sold at 9 9 ^
per cent, the spread being 3% per cent.
Senator JOHNSON. And I presume the same process was followed
as you have shown in relation to the first issue?
Mr. K A H N . Except the division of the compensation was a somewhat different one. The originating group and the underwriting
group'were merged into one and received together 1% per cent,
and the distributors received 2% per cent.
Senator JOHNSON. And the originating group consisted of whom?
Mr. K A I I N . The originating group consisted of the same group
as before. That is, the Guaranty Trust Co., and ourselves, and one
or two others whose names I do not recall.
Senator JOHNSON. Is that issue listed on the stock exchange now?
M r . K A H N . Y e s , sir.
Senator JOHNSON. What are they quoted at at the present time?
Mr. K A H N . Those five loans are quoted at from 10 to 20 per cent.
Senator JOHNSON; Now, take the third one, the Mortgage Bank of
Chile, 6 per cent, 1926-1931?*
Mr. K A H N . We purchased them at 9 5 ^ per cent and sold them to
the public.at 98% per cent, the margin~or gross spread being 3%
percent.
.
Senator JOHNSON! They are L already due and defaulted, as I
understand?,
Mr. K A H N . They are due and defaulted; yes.
The CHAIRMAN, YOU say they are quote'd at from 10 to 20 per
cent. Is that the percentage of the face value of the bonds?
T Mr.: KAHN. Yes. : :
OVTHE. C H A I R M A N . i I n
as the case may be.
cither words,: a
$100
bond is worth
$10
or
$20
385:SALE OF FOREIGN, BONDS OB SECURITIES
M r . KAHN. Y e s , sir.
Senator JOHNSON. With no purchasers.
Mr. K A H N . There are
Senator SHORTRIDGE (interposing). May I ask you a question
right there: Mr. Kahn, you say that you purchased or that your
house purchased these bonds.
M r . K A H N . Y e s , sir.
Senator SHORTRIDGE. Did you pay for them?
M r . KAHN. Y e s , sir.
Senator SHORTRIDGE. When ?
Mr. K A H N . I can not say in every instance the
precise day when
we paid.
Senator JOHNSON. Have you any of them now?
Senator SHORTRIDGE. Pardon me, Senator Johnson. Mr. Kahn,
you did not pay for them until they were finally distributed and
sold to the public, did you ?
Mr. K A H N . That depends upon the nature of the contract. Some
of the money may have gone out at once, but I do not know exactly.
It is years back. It depends upon how soon the client wants the
money. We are responsible for the money, i. e., the purchase price,
not after the bonds are placed but the moment we affix our signature to the contract.
Senator COUZENS. Mr. Kahn, over your years of experience isn't
it a fact that the most of these bonds are sold before, you have to
pay the money to the borrower?
Mr. K A I I N . The most of them; yes. But there have been cases to;
the contrary.
Senator JOHNSON. A S to any of these bonds of the Mortgage Bank
of Chile, is it to the contrary? In other words, have you anyL of;
those bonds now ?
Mr. K A I I N . Senator Johnson, I do not think I ought to be called
upon, with all due respect, to disclose what specific bonds my firm
does or does not hold.
Senator JOHNSON. Very well, then, we will take it up in another
way. When you form your syndicate in the fashion you have stated,
your syndicate disposes of all the bonds, does it not? *
Air. IVAHN. It does not succeed in doing so in all cases; no.
Senator JOHNSON. I am speaking of the Chilean bonds.
Mr. K A I I N . Not in nil of the Chilean bonds; no.
Senator JOHNSON. But your syndicates generally disposed of them ?
Mr. K A I I N . There are some cases where they did not.
Senator JOHNSON. Who would hold them then? Would it be the
original parties who got them or .the distributing agents?
Mr. K A I I N . The distributing agents would attempt to sell them
to their clients. If they do not succeed in selling them then after,
a certain length of time they are free to dispose of them in the
market. In that case it is more or less a moral obligation on the
part of the issuing houses to attempt to sustain the market so that
those who in reliance not only upon their own judgment but upon
the reputation of the issuing houses have bought the bonds either
for distribution or otherwise, may have a market upon which to
sell. That has been the fact in -tins case, and inasmuch as you have
386
F>AT .V. OF FOREIGN BONDS OR SECURITIES
asked that specific question, I will say that we did go into the
market, and we did buy bonds when distributors or the public found
it difficult to sell them, and we did make a considerable loss on what
we bought.
Senator JOHNSON. Will you state when you made your considerable loss on them?
Mr. K A H N . That was in the case of the last loan, and
Senator JOHNSON (interposing). But T have not reached that
loan as yet.
Mr. K A H N . It was in the case of the last loan. In the other cases
we made no loss.
Senator JOHNSON. Of course, not. These other sales were made
in 1925, 1926, again in 1926, and in 1928, were they not ?
M r . K A H N . Y e s , sir.
Senator * JOHNSON. All
those sales were made by your distributing agents without any loss to anybody.
M r . KAHN. Yes.
Senator JOHNSON. So far as
Mr. KAHN. Yes.
Senator JOHNSON. Or so far
M r . KAHN. Yes.
Senator JOHNSON. N O W , the
the syndicate was concerned?
as the underwriters were concerned?
last issue that you had was 1 9 2 9 1962 of the Mortgage Bank of Chile, 6 per cent.
Mr. K A H N . Correct, which we purchased at 89I/> and offered to
the public at 92, the spread being 2y 2 per cent gross. And as I
have just reluctantly admitted in answer to a direct question, that
loan did not go well and we purchased a considerable amount, at
our own risk, our own expense, and made a considerable loss on
them.
Senator JOHNSON. D O you mean the house of Kuhn, Loeb & Co.?
M r . K A H N . Y e s , sir.
Senator JOHNSON. Did the syndicate join you in that purchase?
Mr. K A H N . N O , sir; the originating group did join, I believe.
Senator JOHNSON. And that originating group is what?
Mr. K A H N . The Guaranty Trust Co. and I believe one or two
others. Or, to be more exact, I will say that whenever I mentioned
the name of the Guaranty Trust Co., in connection with this Chile
business, I should have said Guaranty Co.
Senator JOHNSON. The Guaranty Co. ?
M r . K A H N . Y e s , sir.
Senator JOHNSON. I
believe in exactness, and both of us do in that
regard I am sure.
Sir. K A H N . I am sure that we do.
Senator JOHNSON. Now, that disposes of the five issues of bonds
of the Mortgage Bank of Chile.
Mr. KAHN. Yes.
Senator JOHNSON.
no go well.
And the last one was the only one that did
M r . K A H N . Y e s , sir.
Senator JOHNSON. The
issue of 1 9 2 9 - 1 9 6 2 . Do you know when
it was that you put that issue into the hands of distributors?
Mr. K A H N . Yes, sir; on the 26th of June, 1929.
387
:
SALE OF FOREIGN, BONDS OB SECURITIES
Senator COUZENS. When you sent out the telegrams with reference
to that issue which you bought at 89 and a fraction, how many distributors did you send telegrams to?
Mr. K A H N . That depends upon the size and circumstances of the
issue. It may be as many as a thousand. In the case of an issue
of $20,000,000, being given the fact that the borrower was a Government concern which dealt only in first mortgages and had an
excellent record, standing, and credit, we probably would not invite
more than 300 or 400 concerns to participate.
Senator COUZENS. When you say that did not go well, you mean
that those three or four hundred people whom you answered to participate, declined?
Mr. K A H N . Some of them declined.
Senator COUZENS. I f they had not declined the issue would have
gone well, would it not?
Mr. K A H N . That does not necessarily follow, Senator. The question of success or nonsuccess of an issue is one of the public's response. Though being relieved of our legal responsibility, the matter of our moral responsibility and of prestige and of interest as
issuing house remains.
Senator COUZENS. Let us assume as to those three or four hundred
people to whom you sent out telegrams inviting them to participate,
most of them took their allotment. Where was your responsibility
left?
Mr. K A H N . Our legal responsibility was completed the moment the
underwriting syndicate was formed. Our moral responsibility, as
1 have tried to make plain, continues. We were trying to relieve
distributors, as far as practicable, from having to shoulder the
burden of liquidating in a difficult and unfavorable market. _ Therefore, in order to protect them and the public, in order to help them,
we went into the market and bought bonds ourselves.
Senator COUZENS. In other words, with regard to these three or
four hundred distributors whom you asked to participate in this
last Chilean loan, you took back some of the bonds they subscribed
for?
M r . KAHN. Y e s , sir.
Senator COUZENS. And
you took them back at the price you had
allotted them at?
Mr. K A H N . Generallv, yes? sir.
Senator COUZENS. YOU did not take them back at the market?
Mr. K A H N . We would not take them back from the distributors
direct; we would buy them in the market which would give the distributor an opportunity to dispose of bonds left on his hands.
Senator COUZENS. A t what price?
Mr. K A H N . It depends on what the market was at that time. We
would naturally try if possible to maintain the market to the extent
that we legitimately could do so.
Senator COUZENS. That is only a moral obligation?
Mr. K A H N . Yes; a moral obligation.
Senator COUZENS. In other words : if those three or four hundred
people had simply subscribed for this last Chilean loan and you did
not relieve them of their responsibility and they took their chances
388
SALE
OF
FOREIGN;
BONDS OR SECURITIES
of selling them, and if they had to sell them at less than cost they
1
stood to lose?
Mr. K A H N . Yes, Senator.
Senator COUZENS. S O , as a matter of fact, you do not assume any
responsibility to these dealers, after having sold them, to take the
bonds back?
Mr. K A H N . N O legal responsibility; no.
, Senator SHORTRIDGE. I have understood you to say that you purchased from the Chilean.Government this last issue?
Mr. K A H N . From the Mortgage Bank of Chile.
Senator SHORTRIDGE. Y O U bought those bonds ?
Mr. K A H N . Which is A government institution.
Senator SHORTRIDGE. Y O U bought those bonds?
Mr. KAHN. Yes.
Senator SHORTRIDGE. Ajt whatfigure?
Mr. K A I I N . At the figure which I have stated.
Senator SHORTRIDGE. Did your firm in purchasing
those bonds
pay 89 and a fraction for them?
M r . KAIIN. Y e s .
Senator SHORTRIDGE. Y O U
Mr. K A H N . Yes; we paid
the bonds.
Senator
paid it?
the price at which we contracted to buy
SHORTRIDGE. They got the money?
M r . K A H N . Y e s , sir.
Senator SHORTRIDGE. That is all; sir.
Senator JOHNSON. Perhaps my colleague is
asking about the bonds
which subsequently you bought upon the market. You do not
mean to say that you paid 89 and a fraction for them subsequently
upon the market?
Mr. K A H N . Very likely we did.
Senator JOHNSON. And veiy likely you did not, too.
Mr. K A H N . I think we did, Senator. I think the bulk of our
purchase price would have been at, or close to the issue price.
Senator JOHNSON. When they were on the market?
M r . KAHN. Yes.
Senator JOHNSON.
I suppose you had distributed all these bondi,
to distributing agents?
Mr. K A H N . Yes; practically so.
Senator JOHNSON. They disposed of them in the m a r k e t as best
they could ?
Mr. K A H N . Not in the market, sir. They were disposed of throughout the country.
Senator JOHNSON. Some of them, as you say, to quote your exact
language, were eking out a precarious existence in s e l l i n g ; bonds to
other people?,
•>
<
M r . K A H N . Y e s , sir.
Senator JOHNSON. After
they had exhausted their efforts do you
mean to say that they had some of the bonds in their possession still?
M r . KAIIN. Yes.
JOHNSON.
Mr. KAHN. Yes.
Senator JOHNSON.
Senator
'
' \.
And they had actually paid for those bonds *
The amount had been estimated for e a c h bond
that had been sent to these precarious bond salesmen; is that correct?
389
:
SALE OF FOREIGN, BONDS OB SECURITIES
Mr. K A H N . Yes, sir; but I do not think that your sympathy need
be quite as general as that; it is bujt a limited number to whom the
term " precarious " applies ordinarily.
Senator JOHNSON. Y O U sent the bonds with a bill of lading and
a draft, and they paid the draft and got the bonds. .Is that the
system?
"
i
! Mr. K A H N . The system, Senator, is that these houses, practically
all of them, have either direct New York correspondents and accounts
or they have banks in their vicinity which in turn have New York
correspondents. They send an order to us to deliver to such New
York correspondents the amount of bonds which they (those
distributors) have subscribed for, and thus a New York bank pays
for their account. To what extent and in what cases those payments
are based upon loans which distributors have made from banks in
their neighborhood we have no means of knowing.
Senator JOHNSON. D O you keep card indexes of your salesmen?
; i
Mr. K A H N . We have 110 salesmen.
Senator JOHNSON. Of your distributing agents?
Mr. K A H N . Of the distributors throughout the country; yes.
Senator JOHNSON. D O you have allocated so'much of the bond
issue to those that you have card indexes of?
*
Mr. K A H N . It depends upon the nature of the bond issue. We
either send telegrams or telephone messages saying that such, and
such a bond issue is coming out—" How much do you .want?" Or
we send messages saying " Such and such a bond issue is coming out.
We can let you have so much. We have allotted you so much. Do
you want to take it?"
Senator COUZENS. That is the majority way,? You do that more
times than the other way?
-.
Mr. K A H N . My associate says that it is about 5 0 - 5 0 .
Senator GEOKOE. Several times we have reached this point, but
have always been given to understand here by yourself and preceding
witnesses that it is purely optional with those Members of the distributing group whether they take those bonds or not ?
Mr. IVAHN. Yes, senator.
Senator GEORGE. A S a matter of fact, it is quite a common practice simply to call up the member of the distributing group and say
that so many bonds are allotted to that group and ask for and get
an answer. Is not that true?.
Mr. K A H N . It is true in about half the cases.
:
\
Senator GEOKOE. Y O U have already answered, but I wanted to get
it clear in my own mind: In the matter of the Mortgage Bank• of
Chile bonds the distributing group is composed in part of banks, I
believe?
Mr. K A H N . In minor part of banks; yes.
Senator GEORGE. Banks of deposit, or course?
Mr. KAHN. Yes.
*
Senator GEORGE. I S your underwriting group composed at all of
banks?
Mr. K A H N . Our underwriting group may be in part composed of
banks;,yes.
Senator GEORGE. Your underwriting group of.course varies; the
membership in the group varies?
.••:?. > H ^
Mr. K A H N . Yes, Senator.
390
SALE
OF
FOREIGN;
BONDS OR SECURITIES
Senator GEORGE. It grows larger than your distributing group.
Mr..Mitchell referred to his distributing group as a banking group,
perhaps a technical designation. By reference to his testimony you
will see that one issue of Swedish Government bonds was distributed
to a banking group consisting of 422 members.
M r . KAHN. Yes.
Senator GEORGE.
That is rather large, but I am using it as an
example. Mr. Mitchell answered specifically a question which I
put to him that the 422 members of that banking group were in part
at least deposit banks.
M r . KAHN. Yes.
Senator GEORGE.
The same general practice, Mr. Kahn, is followed
in the case of domestic bonds?
M r . K A H N . Y e s , s i r ; i t is.
Senator JOHNSON. Can you
state whether or not any of the recent
bank failures in New York or elsewhere have been caused by these
failing banks holding foreign securities?
Mr. K A H N . I can not state of my own knowledge to what extent
these, failing banks were holding foreign securities. I know that
domestic securities in many cases have suffered a fall at least as large
as the fall suffered by foreign securities. They probably hold a great
many more American securities than they hold of foreign securities.
After all, of the total of foreign securities placed here since the
close of the war only
per cent are in default; 91% per cent have
not defaulted; How great the percentage is of foreign holdings by
the banks as compared with domestic holdings I can not say, but
I have not the slightest doubt that the domestic holdings are much
greater than the foreign holdings.
Senator JOHNSON. That does not answer the question. I will grant
all that you say. But my question is whether the holding of foreign
securities has contributed in any degree to the failure of these banks.
Mr. K A H N . To answer that question in the direct way in which
you ask it, Senator,! should have to know the case of each bank and
precisely what the holdings were, which I do not know.
—
Senator JOHNSON. A S to the proportion, I have before me a statement of the investment of national banks; September 29,1931, handed
me this morning by the Comptroller of the Currency. It shows in
New York, of foreign securities, $119,992,000, and of domestic securities about $615,000,000 held. That is more than one-sixth.
Mr. K A H N . Or, to put it the other way, that they are holding
nearly six times as many domestic securities as foreign securities.
Senator JOHNSON. Pretty nearly six times as many. But foreign
securities, if there were no market for them at all at the present time,
would have a great deal to do, would it not, with the standing
of the company?
-i. ? ?
Mr. K A H N . There is a market for themi
Senator JOHNSON. A market of about 10 per cent.1
Mr; K A H N . It depends; and it varies. In the case of a great many
securities there is a vastly higher market than that.
,
Senator JOHNSON. Do you mean to say that the governmental
securities of South American countries, and of Germany, and the
like, are equal to-day to governmental securities of the United States?
Mr. K A H N . Oh, of course not.
u
<
^
391
:
SALE OF FOREIGN, BONDS OB SECURITIES
Senator JOHNSON. Of course not. That is exactly what I am
speaking to you about.
Senator COUZENS. I think the confusion between what you
said——
Senator JOHNSON. I f there was confusion, I beg your pardon. I
am speaking of governmental securities, foreign and domestic.
Mr. K A H N . Oh. I beg your pardon. I did not catch the word
"governmental."
Senator COUZENS I think that is true. You did not use the word
"governmental " in your first question, Senator.
Mr. K A H N . Of course that makes a complete difference.
Senator JOHNSON. I f there is one-sixth of these foreign governmental securities held by New York banks as against less than
six times that much of United States governmental securities held
by your New York bank, it would leave them in a situation quite
different from that which you were speaking of, would it not?
Mr. K A H N . Senator, I did not understand, from the way you
stated it, exactly to what the comparison embodied in your question
related. But I do want to say that if our banks hold $116,000,000
of foreign governmental securities it depends upon what securities
they are. Some of them are selling at par and higher. French
securities are selling at par and higher. The Belgian securities are
selling near par. The Italian securities are selling at about 85, and
so on.
Senator JOHNSON. We will go into that by the appropriate official.
I will let that pass.
Senator COUZENS. Have you examined the files or portfolios of
any of these suspended banks?
Mr. K A H N . No, sir; I have not.
Senator B A R K L E Y . H O W does the amount of short-term securities,
which I think you fix at somewhere near six hundred million, compare with the amount of domestic securities issued during the same
period in the United States ?
Mr. K A H N . It would only be a fraction of the domestic securities;
but I am unable to give you any figure on the subject.
Senator B A R K L E Y . The amount of domestic securities which might
be termed short-term securities in this country is considerably over
$2,000,000,000, is it not?
Mr. K A H N . A great deal more, I should say, especially if you
include municipal short-term loans.
Senator B A R K L E Y . I am including all sorts, domestic bonds, municipal, State, county, and industrial.
Mr. K A H N . There are surely more than $2,000,000,000.
Senator JOHNSON. Will you make a distinction between long-time
credits, if you have a distinction, and short-term credits?
Mr. K A H N . Long-time credits are a rare thing, Senator, in normal
times. Generally speaking, it is a question of long-term bonds
or corporation notes, and of 9rdinary commercial credits which
would run usually from three to six months.
Senator JOHNSON. But you understand that in speaking to you of
short-time credits a brief period ago we referred to the latter?
# Mr. K A H N . You referred to the short-term credits from three to
six months.
92928—32—PT 2
7
'392
SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
Senator JOHNSON. Exactly.
answer, as well?
And that is what you referred to in
M r . KAHN. Yes.
Senator JOHNSON. D O
you know the bank with which Mr. McRoberts is connected?
Mr. K A H N . The Chatham and Phoenix Bank, which has now been
merged with the Manufacturers Trust Co.
Senator JOHNSON. D O you know whether or not they held any
loans of Germany?
Mr. K A H N . Not of my own knowledge, Senator.
Senator JOHNSON. Y O U have a statement of the loans that have
been made by your house, have you not?
Mr. K A H N . Yes; I have a statement here.
Senator JOHNSON. That has been put into the record, has it?
The CHAIRMAN. I think it has, but if it has not, it should go in
at this point.
Senator GEORGE. It is in the record, Mr. Chairman.
Senator; BARKLEY. What house participated in the Peruvian loan?
Mr. K A H N ; My house did not.
Senator BARKLEY. D O you know what house negotiated or originated that loan?
Mr. K A H N . That was, if I remember correctly, originated by Seligman & Co.
Senator JOHNSON. J . & W . Seligman ?
M r . KAHN. Yes.
Senator BARKLEY.
Your house in no way participated in it as an
originating group or underwriting or distributing group?
M r . K A H N . NO, sir.
Senator BARKLEY. D O
you happen to know the amount of that
issue?'
Mr. K A H N . I do not recall it; no.
Senator BARKLEY. D O you know what it is quoted at now?
Mr. K A H N . I have not the figures before me.
May I have a few moments in which to say a few things which
I would like to refer to, mainly so as not to leave my testimony
too fragmentary, or somewhat in the air, in certain respects?
The CHAIRMAN. Certainly.
Mr. K A H N . I should like to reiterate, with your permission, Senators, that the total gross profit made by my firm throughout these
12 years upon issues originated and handled by ourselves, including participation in any stages of the transactions, was slightly in
excess of one-half of 1 per cent.
Senator COUZENS. Can you reduce that to dollars ?
Mr. K A H N . Yes. Over a period of 12 years it is $3,109,000, or
an average of about $260,000 a year. That is the gross profit from
which we have got to deduct the proportionate share oi our overhead, including the expenses of a highly trained personnel, and our
taxes.
,
,
Senator COUZENS. At that point, would y o u m i n d s a y i n g why; you
operate as. a partnership rather than as a corporation ? * < <
Mr. K A H N . It is a tradition, Senator. We have done it for; 60
J *
years and we hesitate to change it.
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Senator COUZENS. A S a matter of fact, is it not because you do
not have to file a statement as a copartnership with the State secretaries, while you do if you are a corporation ?
Mr. K A I I N . N O ; that does not enter into it. "We would be perfectly willing to file a statement. "We have always felt that there
is an element of additional strength in a copartnership because every
single partner is liable with his whole fortune which, of course, is
not so in the case of an incorporated concern. We have always looked
upon that as an element which justifies additional confidence and
also as an element, perhaps, which induces each partner to be particularly careful and conservative.
To continue my statement, Mr. Chairman, in addition to the profit
which I have given as coming to us from foreign-bond transactions
originated and managed by ourselves, we made on those offerings
in which we joined with J. P. Morgan & Co. a gross profit of
slightly less than one-fifth of 1 per cent calculated on the total
amount in which we participated, which profit, in dollars and cents,
aggregated $1,117,000. That, together with the figure I have previously given as to profits from transactions originated by ourselves
alone or with others, accounts for our complete profits of all kinds
upon issues of foreign bonds for the period m question.
I am emphasizing these figures because of the fantastic calculations which have been published in some of the papers as to the profits
made on these transactions. They were, of course, very large in an
absolute sense without measuring them by the vast total of the transactions to which they applied; but if you bear in mind that they
relate to $10,000,000,000 or more of risk, of responsibility and of
work, and compare them with the customary profits of spreads on
other kinds of business, they are not, I venture to think, excessively
large.
1 am not saying this in self-defense. I am not saying it because
I have any apology to make for being in business as an issuing house
which, in my humble opinion, is as honorable a calling as any, fulfilling a necessary function, by no means an easy job, and resting
upon the confidence of the public, without which it can not exist. I
am saying it simply because I think at this particular time a certain
amount of harm is being done by grossly exaggerated reports as to
rofits squeezed out of the public, through the offering of foreign
onds, many of which, unfortunately, have greatly declined in market value.
Senator JOHNSON. Y O U do not think it is doing harm to spread the
facts, do you?
Mr. K A H N . The facts, no. On the contrary, I think the bringing
out of the truth on any matter in which the public is, or ought to
be, concerned, is of distinct benefit to the community. Your committee has been elucidating the facts as to matters of public conr
cern, about which there was much lack of authoritative knowledge,
a good deal of misunderstanding, and as to which some reckless and'
ignorant reports were being spread, tending to intensify apprehension and bitterness of feeling at a particularly delicate time, which
calls for calm thinking and reassuring action. I venture to say that
yourcommittee is doing a valuable service in producing authori-'
v'
tative arid1 coiTect information.1
^
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SAIIE OF FOREIGN BONDS OR SECURITIES
The second item I should like to emphasize and to which I alluded
this morning in response to a question, is to stress the sense of the
moral responsibility of the banker as a highly important, indeed,
indispensable, element in banking. Such practices as what you might
term " strong-arm methods55 of selling, making raids on rather unwilling buyers, exercising undue persuasiveness, tempting buyers by
excessive facilities, inducements or expectations; in short, high-power
methods of salesmanship, are against the dignity and the ethics of
banking. They are not within the permissible functions of a bank or
banker and, least of all, within the permissible functions of a bank
of deposit.
Senator JOHNSON. YOU realize, do you not, that there are a great
many small banks that have complained to many members of this
committee ?
Mr. K A H N . I assume so.
Senator JOHNSON. I will say to you that I am not bringing any
small bankers here, because I do not want them to have to be submitted to any sort of irritation on the part of any of those with
whom they have to deal; but not one but quite a number have stated
to me in so many words that they have been compelled to take these
securities, not because they wanted them, but because they felt that
if they did not take them they would lose the opportunity'for legitimate business, and they believed they were acting under coercion.
I think you gentlemen ought to know that.
Mr. K A H N ; Senator, human nature is human nature on the part
of small bankers no less than on the part of big bankers. There is
always the temptation to blame someone else or some outside circumstances for one's own decisions or actions, if they turn out disadvantageous. Frankly, and speaking, of course, in a general way,
and admitting exceptions, and confining myself to bond syndicates,
inasmuch as that is my general line of business, I do not believe that
at the time those small bankers took those bonds they acted or felt
they were acting under coercion. They were anxious to take them.
They asked for them. At that period, say, from 1924 to and including 1928, the bond market was extremely eager and very receptive, for bonds, especially those yielding high rates of interest, a
demand greatly exaggerated, as has since become apparent, and
greatly beyond what it ought to have been. These little bankers
wanted to be in bond syndicates just as the big bankers , wanted to
be, because 90 per cent and more of such syndicates at that time
turned out to be profitable. The fact that bankers are little does
not in itself make them any more virtuous than others who are less
little.
I honestly believe, and indeed know from my own knowledge, that
those people wanted to be in bond syndicates at that p e r i o d and
asked for them. I recall numerous applications on the part of small
dealers who wanted to go into our syndicates and ,to whom we had
to say, " We are very sorry, but our lists are completely filled and
we can not handle any more."
Senator JOHNSON. But there were a great many of them that did
not want them and felt that under the circumstances they were
obliged to take them, and took them because they felt obliged to
take them. You may call it moral suasion or whatever you wish to
call it, but it existed nevertheless.
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Senator GEORGE. May I not ask you this, if in your judgment
the practice did not convert small banks of deposit—and I am not
using that term as relating to virtue at all, and wholly aside from
whether it was the fault of the bank or not—but did not,this system
that you have described and that other witnesses have described,
the method of handling these securities, both the foreign and the
domestic, tend to convert these banks of deposit that entered into
this distributing group into brokerage houses, just to put it bluntly,
and did not too many banks in this country become mere brokerage
houses?
Mr. K A H N . Yes; emphatically yes.
May I have a few minutes more, Mr. Chairman?
The C H A I R M A N . Yes; go right along.
Mr. K A H N . I should like to bring out once more—with the purpose of making the fact generally known and not with the purpose
of attempting to cover adverse happenings or circumstances with
the cloak of soft-soap statements—that of the total of $10,000,000,000
issued in-this country in foreign bonds since 1918 only 8i/£ per cent
are in default; 911/* per cent are paying interest and sinking fund.
Senator JOHNSON. Yes; but what is their depreciation?
Mr. K A H N . Surely no one can be responsible for the market quotations which an emotionally disturbed and frightened public sentiment, for the time being, places upon intrinsic values. I have not
the shadow of-a. doubt that thbse quotations are in many cases utterly unjustified, but no one can control them. I am simpiy pointing
out the fact that in 9 1 ^ per cent of the cases of foreign bonds thfc
debtor thus far has paid-in fullSenator JOHNSON. But they are not due yet.
Mr. K A H N . Surely, Senator,, you can not expect the debtor to
anticipate the due date of his loan.
Senator JOHNSON. Does not the depreciation in value measure the
question rather than to say they are not in default when the due
date has not been reached ?
Mr. K A H N . N O ; Senator. I think the depreciation in value
measures mainly the utter demoralization which unfortunately has
taken hold of so many people.
Senator COUZENS. I think that may be said of many railroad
securities. They are absolutely good.
Mr. K A H N . May it not be said in a general way that the two
worst counsellors \)f anv people or any individual are Greed and
Pear? In 1929 Greed sat in the driver's seat, and now Fear sits
in the driver's seat. They are the two worst drivers imaginable.
Greed was primarily responsible for the excesses of 1929, just as
Fear is primarily responsible for the almost unprecedented drop
in values which have taken place in the markets for securities within
the past few months.
Senator B A R R L E Y . Eight in that connection, what practical suggestion have you to make that will get rid of both drivers for good?
Mr. KAHN." That is a big question I should be happy to try and
answer it, but I should have to ask for a little time to mobilize and
marshall my thoughts on the subject.
Senator B A R K L E Y . I will give you all the time you want.
Mr. K A H N . Without attempting now to answer your question adequately, I should say that one practical suggestion for the time being
396
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BONDS OR SECURITIES
is the setting up as quickly as practicable of the Reconstruction
Corporation which Congress now has under consideration, following
the precedent of the War Finance Corporation. I think that would
go a long way to diminish fear.
Another practical suggestion is to make it plain to the people
that the United will not be driven off the gold standard. At the
proper time, of our own volition, in our own way, if we so choose,
and if we see good and sufficient reason after searching considera*
tion, we will do what seems to us best in this as in other matters.
But there is a lot of talk floating around, talk almost treasonable
in these parlous times, as to our being pushed off the gold standard
into some form of paper currency. Some one has said that " Confidence is merely suspicion asleep." Whether that be generally true
or not, it certainly is as applied to a nation's currency and financial
affairs. This surely is no time when any idea should be contemplated or discussed which would tend to awaken suspicion by introducing doubts or questions into the minds of the people as to the
stability of their monetary standard. No one should be listened
to—and the people should be so reassured authoritatively, and none
is more authoritative than the Senate who, would give countenance
to the idea of the United States having to slide off that standard
which we have chosen for ourselves.
The CHAIRMAN. Senator Johnson, perhaps it may be stated that
the low prices of these foreign bonds are in no worse condition than
some of the stocks in the United States.
Senator JOHNSON. I am not comparing stocks abroad, but I am
comparing Government securities abroad.
The CHAIRMAN. For instance, I know one. or two concerns that
have got enough money in their treasury to pay eveiy single, solitary
dollar. They have money enough in their buildings, machinery,
and everything else
Senator JOHNSON. I am not questioning that in the slightest degree. My comparison is between Government securities.
The CHAIRMAN. It is the same thing.
Senator JOHNSON. N O ; it is not the same.
T h e CHAIRMAN. Y e s .
Senator JOHNSON. Pardon me.
The CHAIRMAN. Of course you
I disagree with you.
may; but government bonds are
selling on the same basis that stocks are selling, not because of the
fact that they will not ultimately be paid, but, I suppose, from the
very fact that the owners of the stock, or the bond, are compelled
to sell them to meet their obligations.
Mr. K A I I N . I have two more points, Mr. Chairman, that will take
about two minutes, and then I am through.
A point which I should like to bring out as bearing upon the
functions and services of the so-called international banker is that
during the period of this country's reconstruction, during the time
of this country's great pioneering period, it was England, mainly»
and also Germany, Holland, and, to a lesser degree, France, which
loaned money in the United States, through the intermediacy of
bankers, to an extent which in proportion to the then existing resources was greater than the amount which we have loaned Europe
since the war. On those loans Europe had precisely the same exper-
397:SALE OF FOREIGN, BONDS OB SECURITIES
ience, only more so, that we have now, in the case of the loans that
we have made to Europe and other foreign countries. Our railroads
went into receivership again and again. The bonds which European
investors held
Senator JOHNSON. What period are you referring to?
Mr. K A H N . T O the period from the end of the Civil War to about
1900, mainly, and even after that, until the-beginning of the World
War. European investors had very much the same experience with
their loans to us, as our investors are now having m respect to
foreign loans, only more so.
n... A -r
" 1 11
' their money back.
Senator JOHNSON. The lesson that you give to us from that is
that we are going to get our money back from Europe ?
Mr. K A H N . Far be it from me to be presumptuous enough to
preach lessons here.
Senator JOHNSON. I thought you were.
Mr. K A H N . My moral is that the international banker was very
helpful in bringing money to America when America needed money.
Senator JOHNSON. Let us concede that. Now will he get back
the money that Europe owes us?
Mr. K A H N . He will do all he can.
Senator JOHNSON. Fine!
Mr. K A H N . Likewise speaking of the international banker^ that
much-maligned, or at least much-attacked calling, I should like to
say as one of them that Europe's prosperity is as important to the
international banker as it is to everybody else engaged in business
in this country, but no more so. We are no more and no less part
and parcel of * American business than those engaged in other lines
of trade and commerce. Europe's prosperity or a<iversity can not be
a matter of indifference to America, because it is bound to have repercussions here. But the American banker's stake in America is
immeasurably greater than any possible stake that he may have or
ever did have in Europe. As* a rough estimate, I should say that
an advance of 2 points in the aggregate value of American bonds
amounts to as much as all the money that we have loaned to Germany, and that an advance of 1 point in the aggregate value of
American stocks amounts probably to as much as all the money
that we have loaned to Germany.
While European prosperity is desirable for us
Senator JOHNSON. Everybody's prosperity is desirable for us. I
do not quite see the object of this, because you are reciting the
obvious.
Mr. K A H N . Perhaps it has not always been so considered, Senator.
What I meant to bring out is that whether a man is an international
banker or engaged in any other business, as long as he resides and
works in, and owes allegiance to America, his object is and must be
beyond all other things America's prosperity, not merely from the
point of view of a patriotic and decent citizen, but from the point of
view of his own pocket. The international banker's profit, even in
the case of foreign bonds, is made in this country and not abroad.
European prosperity is desirable. America's prosperity is vital and
indispensable.
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SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
Senator JOHNSON. And yet you told me this morning that you
international bankers were down in South America competing for a
lot of loans that are not worth the paper they are written on.
Mr. K A H N . May I be permitted to question the accuracy of that
appraisal? A t any rate, the bankers did not know at the time that
the bonds, as you say, are not worth the paper they are written on,
and they certainly would not have bought them if they had suspected such a thing.
Senator JOHNSON. They did not buy them; they passed them on.
Mr. K A H N . They bought them. After having bought them they
passed them on, just as a wholesaler in any other line of business
passes on goods which he has bought.
Senator BARKLEY. Referring to the international bankers as a
group, what proportion of their business is in foreign loans as compared with the loans which they float in this country, domestic loans?
Mr. K A H N . Guessing rather roughly—of course since 1 9 3 0 , say, in
the last 18 months, there has been hardly any foreign bond flotation
consummated by American bankers—but generally speaking
Senator BARKLEY. Take the period since 1 9 1 8 if you can reasonably
estimate it.
Mr. K A H N . From 1 9 2 4 to 1 9 2 8 there was very strong and widespread demand for European investments. Most people thought that
Europe was on the road toward getting over its principal troubles,
especially in the economic field, that with the Dawes plan, the various
pacts and conferences, the intimate conversations between Briand
ajid Stresemann, there was good prospect for a getting together of
the European nations, and for the mitigation, at least of some of the
fateful mistakes and the almost inconceivable economic short-sightedness of the treaty of Versailles and the other peace treaties, and
that the thing that we in the United States had so strongly hoped
for, namely, cooperation and better feeling between European nations
and the burying of the age-old rancor between them gave promise
of being,at least striven for seriously and promoted. Thus feeling
and hoping the American people became eager buyers of foreign
securities. They had not been before and thev have not been since,
but from 1924, or even a little earlier, until tKe end of 1928 or even
into 1929, there was that very large demand on the part of the
American people for foreign securities, yielding as they did far
higher rates of interest than American securities paid.
Therefore, if you confine your question to those few years only, I
should say the proportion of foreign bonds as compared with domestic
bonds would be a considerable one. Ordinarily I should say it would
be an insignificant one.
Senator BARKLEY. In percentage what would it amount to as an
average ?
Mr. K A H N . I have asked my associate if he had any definite notion based upon statistical experience, but he has not. He tells me
that he would not care to indicate a percentage ratio. I should be
inclined to say that the offering of foreign bonds in America during
the period which I have indicated would be about six times as
much as in ordinary times.
Senator BARKLEY. My question was based on the idea that the
relative importance of your foreign business as compared with your
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:
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domestic business might determine an average, taking one year with
another. I should like to know—and if you can not answer it, I.
shall not press it—whether your foreign business so predominates
over your domestic business as to give you the character of an international banker in the sense that you are more interested in foreign governments than in the United States; and the percentage
of such loans might have some bearing upon that. I do not mean
you, individually, but the group that is ordinarily referred to as
international bankers.
Mr. K A H N . Well, Senator, the mere imputation that bankers who
are American citizens, who owe everything they have and everything they are to the protection and to the opportunities of this
country, could be swayed in their attitude towards their own country
by any foreign monetary interest—;—
Senator BARKLEY. I am not making such an imputation, of course,
Mr. K A H N (continuing). Is one which I do not believe I need to
enter into. But leaving aside the moral wrong which any such attitude on the part of any American citizen, whatever his calling,
would carry with it, and the condemnation which would be justly
visited upon him, I would say that the percentage of European business done, for instance, by my own firm in years when European
business with America was at its height, would certainly not be
more than one-tenth, if that, of the domestic business which we are
doing*
Senator BARKLEY. Y O U spoke a while ago of the reverse situation
prior to 1896 when our country and its industries were borrowers
of money from Europe, largely from England. I will ask you how
the methods of floating such loans in Europe at that time compared
with the methods now used in floating European loans in this country, and how the compensation compared with that paid American
houses at this time.
Mr. K A H N . In those days compensations were usually somewhat
larger, partly because the amounts of the loans involved in individual cases were rather smaller. Compensations paid were relative
to what was thought to be the risk of the business and the urgency
of the demands for loans. Generally speaking, Europe was weil
paid for the accommodation which it extended to us, though its investors and bankers did go through several trying periods with their
American holdings. Our underlying mortgage bonds were floated
at prices and at interest rates comparable with the prices and interest rates at which foreign bonds were floated here since the World
War. I should think that if you assumed, taking an average, that
the situation was pretty nearly reversed, both as to compensation
and as to interest rates, you would be about right.
Senator JOHNSON. Just because you have mentioned international
bankers, and without any personal implication at all—I beg you to
understand that—in your opinion, would they try to get back first
the money Europe owes them, or the money that Europe owes our
Government ?
Mr. K A H N . I have tried to respond to that question, Senator, by
saying, in the short statement which I made this morning relating
to this subject, that I should have to know what is the exact situation
or alternative which confronts us before I can express any definite
'400
SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
view. As far as I am aware, there is not now any proposition before
us which calls for the choice to which your question relates.
Senator JOHNSON. We will let it go at that, then.
The CHAIRMAN. We thank you, Mr. Kahn.
(Witness excused.)
TESTIMONY OF WINTHBOP W. ALDRICH, PRESIDENT CHASE
NATIONAL BANK
(The witness was duly sworn by the chairman.)
The CHAIRMAN. Mr. Aldrich, whom do you represent?
Mr. ALDRICH. Mr. Chairman, I am president of the Chase National
Bank. I am vice chairman of the board of directors of the Chase
Securities Corporation. The Chase Securities Corporation is owned
by the .stockholders of the Chase National Bank, each holder of a
share of the stock of the Chase National Bank likewise being the
holder of one share of Chase Securities Corporation stock, which is
represented by the same certificate.
On May 31,-1930, upon the merger of the Equitable Trust Co. with
the Chase National Bank, the securities activities previously carried
on by the Equitable Trust Co. and the Equitable Corporation, which
was a securities affiliate of the Equitable. Trust Co., were merized*
those of the Equitable Corporation into the Chase Securities Corporation and those of the Equitable Trust Co. of New York into the
Chase National Bank.
In August of 1930, the Chase Securities Corporation , acquired the
stock ,of the Harris Forbes Co., which was a corporation holding the
stock of the various companies which made up the Harris Forbes
organization,
j The CHAIRMAN. What year was that?
Mr. ALDRICH. In August of 1930. On July 1,1931, the issue business of the Chase Securities Corporation and of Harris, Forbes & Co.
was merged into one, and since that time the Chase Securities Corporation has done no issue business. The Chase National Bank has
not at any time been engaged in the issuance of securities or flotation
of securities.
The CHAIRMAN. That is, foreign securities, or any kind ?
Mr. ALDRICH. Not of any kind. It is purely a commercial bank.
I have been president of the Chase National Bank since a year ago
last June.
Mr. Chairman, I have here the tables which show the various
security issues of Chase Securities Corporation, the Equitable Trust
Co., and Harris, Forbes & Co.
Senator COUZENS. For how far back?
Mr. ALDRICH. Going back to 1 9 2 0 , or 1 9 1 7 , or 1 9 1 8 . It goes way
back. I can not answer that question offhand, but it covers the whole
situation. I would like, if the committee would permit me to do so,
before going into the question of the security issues, to take up with
the committee the question of the short term debt, b e c a u s e that is
the thing in which the Chase National Bank, as a commercial bank,
is primarily interested.
I think that what was said at the hearing here, at the time Mr.
Mitchell testified, is perfectly true. I think that i t is very important
that the banks should state with absolute frankness, and state pub-
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:
SALE OF FOREIGN, BONDS OB SECURITIES
licly what their short-term commitments are, and what the character of those commitments is. I think it is essential from every point
of view that should be done, and if you will permit me to do so, I
would like to read a statement on that, simply because of the fact
that it is the easiest way to make it coherent and give you the exact
picture of what these short-term credits are.
The C H A I R M A N . I think there are no objections to that.
Senator COUZENS. Before you start? would you mind defining just
what you interpret " short term security " to be?
Mr. ALDRICH. That is what this is all about. I am going to define
that specifically and tell you exactly what they are. I am doing it
from the point of view of the commercial banker, which is what I am.
I never have had anything to do with the securities issued myself,
at all.
The C H A I R M A N . H O W long have you been president of the Chase
National Bank?
Mr. ALDRICII. Since a year ago last June.
Senator COUZENS. Were you employed in the bank before that ?
Sir. ALDRICII. I was a lawyer. I was counsel for the Equitable
Trust Co. prior to that time.
Senator COUZENS. Y O U were not active in the Chase Bank before
becoming its president?
Mr. ALDRICH. I never had anything to do with the Chase National
Bank until we merged with the Chase National Bank. I became
president of the Equitable Trust Co. about two years ago. Up to
that time I had been a lawyer.
I will read this statement, although it is perhaps a little formal.
It has been brought out in previous testimony that the amount
of foreign long term obligations which are now held by the issuing
houses is very small. I think I can say, with a great deal of assurance, that the same thing is true of the large commercial banks. The
foreign obligations which the commercial banks hold, because of
the character of their business, are mostly short term.
The primary function which the commercial banks perform in
granting short term credit internationally is, of course, in connection
with the financing of American foreign trade. We find, for instance,
that an important amount of such credit finances current shipments
of cotton, which, of all commodities so financed, ranks first; then
sugar, coffee, wheat, rubber, tobacco, wool, hides, copper, and so on.
In addition to financing American foreign trade the commercial
banks have taken part in financing the foreign trade of other countries as well. In this connection, while the actual transaction in this
second-class relates to the trade of other countries, the credits
granted have an indirect relation to our own trade, and the stimulation of our foreign trade.
With respect to the short-term debt from German sources to
American commercial banks? it appears from a reliable inquiry recently made among 100 leading American institutions that the total
of the sliort-term commercial debt of German origin held by them
on October 31, 1931, amounted to $415,000,000. In addition they
held about $250,000,000 of other short-dated obligations, largely
representing current loans to the German Government, States, municipalities, and publicly owned enterprises. This makes the total,
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as it stood on October 31 last, about $665,000,000. I assume this
figure has been somewhat reduced in the meantime, but by what
amount I am unable to say.
Senator K I N G . YOU mean the commercial banks exclusively?
Mr. ALDRICH. I am speaking entirety, Senator, of commercial
banks, and commercial short-term debt.
Senator K I N G . You mentioned 100. Did you obtain that information from your own inquiry, or from reports that are made?
Mr. ALDRICH. That information was obtained by reason of the
fact that we are obliged to get that information in connection with
the German Stillhaltung. While I am very glad to give you all the
information, which is general in its scope, that we have obtained
from that source, I naturally am unable to give you the names of the
specific banks, but that is the source of that information. It is information obtained in connection with the Stillhaltung agreement.
Senator KING. There has been no clearing house here in the
United States which would indicate the aggregate of those loans?
Mr. ALDRICH. The only place in which that information has been
collected is in connection with the committee of American bankers
that is acting in connection with the Stillhaltung.
Senator COUZENS. The Federal reserve system has no record of
that?
Mr. ALDRICH. Not that I know of. I am sure they have not.
I have before me, and will read in a moment, a full statement of
the Chase National Bank's holdings of German obligations, both
short and long term, as of December 3 1 , 1 9 3 1 .
In making up this statement we have gone as far as we could
into detail without stating specifically the business of our specific
customers, which, of course, is a part of the confidential relations
between a banker and his client. The statement will be of interest
because it illustrates the kind of obligations which a bank actively
engaged in financing trade and maintaining business relations with
foreign countries ordinarily holds. The German borrowers who are
obligated to us or to other American commercial banks represent
very largely business concerns who, even under the present adverse
conditions in world trade, are making their way, who have every
will to pay their debts, who have enjoyed good credit for years and
desire to maintain that credit as the essential basis for business
progress in the future.
A list of the various classifications is as follows:
1. Acceptance credits to German banks. These have been utilized in the
creation off bankers* acceptances, drawn, f o r the most part, t o finance import
and export trade. They are the unconditional j o i n t obligations of German
banks and of German commercial concerns, o r have the guarantee of the Germ a n Government or the gold discount bank, $24,050,616.
Senator COUZENS. D O you mind an interruption at this point?
Just at what point would the German Government guarantee a commercial credit, and at what point would it not guarantee a commercial credit ?
Mr. ALDRICH. They have guaranteed the credit of certain German
banks which have had difficulty during the past six or eight months
Senator COUZENS. D O I understand that they have not guaranteed
the credit of any commercial houses except banks?
SALE OF FOREIGN BONDS OR SECURITIES
403
Mr. ALDRICH. I think not: not that I know of. I think they have
not at all. They have guaranteed the credit of one or more of the
big German banks, the Darmstaedter, and I am not sure what other.
Senator COUZENS. Is the fact that they have guaranteed some of
these bank credits responsible for the general public impression that
there is a confusion or mixture between the governmental loans and
the commercial loans ?
Mr. ALDRICH. That might possibly be. If you will permit me, I
am going into detail on the nature of these" commercial loans, to
show you exactly what the picture is.
Senator COUZENS. I see quite a difference between the generally
understood commercial loans, on which you might expect the industry to pay, and a loan made with the guarantee of the government.
Mr. ALDRICH. The loans were not made with the government
guarantee. They were made in the ordinary course of commercial
trade, and the government, in the early stages of the Stillhaltung
agreement between the banks of the world, the British, Dutch, and
the other banks that are interested, including American banks, has
guaranteed the obligations of certain of the German banks which
were having difficulty.
Senator COUZENS. The reason I asked you that question is because
the question has been raised here frequently as to whether or not the
private debts should be paid ahead of the governmental debts.
Mr. ALDRICH. I am going to come to that in detail.
Senator K I N G . Just one question, if I may. Are you sure that the
German Government has not guaranteed some of the obligations of
the large cartels?
Mr. ALDRICH. Not as far as I know.
Senator K I N G . I mean the larger ones, if I may differentiate between the German cartels—those engaged in the manufacture of
nitrates, chemicals, and so forth.
Mr. ALDRICH. No: I do not think so.
The amount of that particular type of obligation is $24,650,616.
Senator COUZENS. YOU mean that you hold?
Mr. ALDRICH. That we hold, yes, sir.
2. Acceptance credits to German banks, commercial concerns, or industries.
The bankers' acceptances drawn under these credits serve generally the same
purposes us the foregoing. They are not formally secured or guaranteed,
but depend upon the good name of the borrower, $4,071,131. All this, you
understand, is as of December 31.
3. Loans to German banks, commercial concerns, or industries. These loans
are the joint obligations of German banks and commercial or industrial concerns or are guaranteed by the Gold Discount Bank or the German Government, or are collateraled by German securities or bills of exchange, $25T12«fS42.
I was going to say that those are not originally guaranteed by the
German Government or by the Gold Discount Bank, but in connection with the credit crisis which has arisen in Germany in the last
year, those guarantees have been given, and they are given, of course,
to all the banks all over the world which are in the same position.
Senator COUZENS. Were those securities on hand at the time they
were guaranteed by the German Government, or did you purchase
them afterwards?
Mr. ALDRICH. These are riot securities. These are short-term
credits which, as a rule, revolve. The ordinary short-term credit
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SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
which is involved in a commercial transaction runs from three to
six months, and ordinarily, when the credit of a country is good,
they simply turn over. They are liquidated as commerce goes ahead,
and new bills take their place, new obligations. They are given
usually in connection with an acceptance lien, so called.
Senator COUZENS. Did you have any case where they did not
li
°
Senator COUZENS. When you came in contact with cases where they
did not liquidate themselves, did the German Government then come
along and guarantee them?
.Mr. ALDRICH. It never got to that point. It was in connection
with the attempt on the part of the Germans as a whole to prevent
a complete flight of capital from Germany, that the Stillhaltung
agreement was entered into by all the bankers who were engaged in
current commercial transactions with Germany, to remain in there
for a period of time and to grant renewals of these credits, and not
all try to run out of the situation at one time.
In that connection these guarantees were given by the Gold Discount Bank. They have another bank which all the industries in
Germany formed at the time of the Stillhaltung agreement, which
took up the guarantees of various obligations, called the Guarantee
and Acceptance Bank.
Senator COUZENS. There is still confusion in my mind with respect
to your statement that these discounts or acceptances were self11milrlnfiner Tf wnc nnfinnnl fVion
yOU took SOUie .IUOre
j came along. Then we
agreed to continue the same amount of credit, in general, during the
period of the Stillhaltung agreement, and all the other banks all
over the world made the same agreement. In other words, we agreed
that we would not, when a credit ran off and liquidated itself, withdraw that credit from Germany, but we would permit that to remain
in there and be paid off again.
Senator COUZENS. By the same industry, in the same bank, or by
another industry in another bank?
Mr, ALDRICH. By the same bank.
Senator COUZENS. And the same industry ?
Mr. ALDRICH. Not necessarily. It might be another drawer. I
can explain that better after I Save explained the technique of these
short term credits, if you would like to have me do that, because I
have it all here, showing the actual technique of that operation.
Senator COUZENS. I can see a difference between one class of
liquidating acceptances and another class of liquidating acceptances,
and I was wondering whether the classification would change with
the guarantee of the German Government.
.
Mr. ALDRICH. There are about a half a dozen different classes of
self-liquidating acceptances. They take different forms. I have
that all here, and I would be glad to give it to you.
Senator K I N G . Before you proceed with that, may I ask you a
question ? Can you give the aggregate of those guarantees that were
made by those various banks here and throughout the world?
SALE OF FOREIGN BONDS OR SECURITIES
405
Mr. ALDRICII. Y O U mean by the German Government on these
obligations ?
Senator K I N O . Yes.
Mr. ALDRICH. I do not believe I could, Senator. In order to do
that I would have to know the aggregate obligations of the banks
in Germany which the German Government guaranteed. Take the
Darmstaedter Bank. I do not know what its total liabilities are.
I might be able to find it, but I do not know off-hand what the total
obligations of the Darmstaedter Bank, which have been guaranteed
by the German Government, are, because they run all over the world.
They run to bankers in every country in Europe.
Senator K I N O . D O you know the aggregate amount which the
banks guaranteed that they would not withdraw—these self-liquidating obligations?
Mr. ALDRICH. The amount under the Stillhaltung agreement at
the present time?
Senator K I N O . N O ; at the time the Stillhaltung agreement was
entered into, what was the aggregate amount of the obligations due
to the various banks?
Mr. ALDRICH. You mean American banks?
Senator K I N O . N O ; the entire amount You stated these obligations were made by banks all over the world.
M r . ALDRICH. Y e s .
Senator K I N O . What
is the entire amount of the obligations that
were assumed by all the members of that Stillhaltung agreement?
Mr. ALDRICH. I can not answer that question offhand. Mr. Morgan says about $452,000,000 of that was American.
Senator K I N G . Yes. I understood that.
Mr. ALDRICH. The total was $ 1 , 2 9 4 , 0 0 0 , 0 0 0 .
Senator SHORTRIDOE. Have you prepared a statement responsive
to the resolution, giving us the information which is sought by the
resolution?
M r . ALDRICH. Y e s , s i r .
Senator SHORTRIDGE. I would
like to hear the statement made, and
then have the witness subjected to proper cross-examination.
Mr. ALDRICII. May I finish with this short-term situation? I have
it all here.
Senator SHORTRIDOE. Proceed.
Senator JOHNSON. Y O U were discussing loans to German banks
and industries?
Mr. ALDRICH These loans are the joint obligations of German
banks and commercial or industrial concerns, or are guaranteed by
the Gold Discount Bank or the German Government, or are collateraled by German securities or bills of exchange—$25,126,842.
4. Loans to German banks. These loans directly to German banks are not
formally secured, but depend upon the good name o f the borrower—$1,339326.
5. Loans and credits to the German Government and other public bodies.
The largest single Item of this classification represents a participation in
the banking credit of 1930 to the German Government T h e total of that
Item Is $13,737,833.
The total of those short-term obligations held by the Chase National Bank, head office, is $68,925,748.
In addition to that, the London office holds some short-term
German credits amounting to $1,580,000.
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SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
Senator COUZENS. So, in the aggregate, that is just about what the
press has stated, namely, $71,000,000 held by the Chase National
Bank.
Mr. ALDRICH. What the press has stated ?
Senator COUZENS. Yes.
Mr. ALDRICH Yes. I have not quite yet finished with it.
With respect to long-term obligations, that is, bonds; we carried
them on the books at the market value, to the extent of $607,781, for
the Chase National Bank, head office.
Senator COUZENS. "When you say " at the market,'' what would
that be below par?
Mr. ALDRICII. I think the par value is $1,812,000. It is somewhat
under half, but that is the amount at which we carry them on our
books.
The Chase Securities Co. holds, in German long-term bonds,
$1,118,774, at the market. I do not know what the par amount is.
It is about $2,000,000.
Chase Harris Forbes Corporation holds long-term German bonds
of $44,120Senator K I N G . I S that an affiliate?
Mr. ALDRICH. That is the corporation to which I referred first,
which acquired the issuing business of the Chase Securities Corporation.
Senator K I N G . I was not here when you first took the stand, and
I did not hear that statement.
Mr. ALDRICH. The Chase Securities Corporation stock is owned
by the stockholders of the bank, and it, in turn, owns the Chase
Harris Forbes Corporation.
The total German commitments of the Chase National Bank, including the commitment of the London office, are $71,127,981.
In' order to make the record complete, although it has nothing to
do with the bank specifically, I ought to say that we own the stock
of an Edge corporation, a corporation organized under the Edge
law, which is called the Chase Bank, which does business in the
Far East and in Paris. That has short-term commitments—of
course, that has separate capital, and all that sort of thing—of $2,353000, and a bond holding of $5,000.
Senator K I N G . Is the capital subscribed by the Chase National
Bank?
Mr. ALDRICH. As a matter of fact, the history of the thing is that
it belonged originally to the Equitable Trust Co. A part of its
capital was subscribed by the Chase National Bank, through the
transfer of the Paris office of the Equitable Trust Co. to the Chase
bank; afterward the Equitable Eastern Corporation, the institution
operating offices in the Far East, and the Chase Bank were merged
together., The Chase Bank is tin entirely separate institution.
I think it would be of interest, particularly in view of the discussion that took.place in the latter part of Mr. Kahn's testimony, to
notice that 84 per cent of our commercial business- is domestic.
Sixteen per cent is foreign, and approximately a third of the foreign
is German.
Senator COUZENS. When you say " business," you m e a n loans, or
deposits, or what part of the business?.
,
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:
SALE OF FOREIGN, BONDS OB SECURITIES
Mr. ALDRICII. I mean the loans that we make, the commercial
loans we make. Eighty-four per cent of the commercial loans
which the Chase Bank makes are domestic loans.
Senator COUZENS. When you make some 16 per cent foreign loans,
do you require a deposit account?
M r . ALDRICH. Y e s .
Senator COUZENS. Usually of what per cent of the
Mr. ALDRICH. These acceptance credits, of course,
loan?
are not loans,
in the sense that we pay out our own money in making them. We
simply loan our credit. We accept the bills drawn, and if we are
placed in funds to meet these bills, under the agreement, in accordance with the agreement, we never use any of our own money at all.
So far as I know, there is no specific percentage required in deposits
in connection with an acceptance line. I never have seen that happen, but, of course, we do have substantial deposits from all these
hanks, both domestic and foreign, in connection with the business
that we do with them.
Senator COUZENS. When you talk about 16 per cent foreign busiIIPSS, what percentage of that is German or foreign shipments to
America, and what percentage represents American shipments toforeign countries, do you know ?
Mr. ALDRICH. About a third of it is German.
Senator COUZENS. I mean exports and imports. Is it all imports,
or all exports?
Mr. ALDRICH. There, again, I have all this broken down to show
you, but I can not tell you the percentage of the various kinds o f
bills in there.
The gross amount of our German obligations is about 37 per cent
of all our foreign commercial business, and about Zy2 P e r cent o f
our total resources.
Do you care to have me go into detail on the nature of these obligations? I have a very careful analysis of what each one is, in its
technique.
Senator JOHNSON. D O you mean by classification?
Mr. ALDRICH. I give instances of transactions, and show exactly
what they are.
Senator JOHNSON. Short-term credits?
M r . ALDRICH. Y e s .
Senator JOHNSON. G O ahead.
The CHAIRMAN. Would it take you very long to present it?
Mr. ALDRICH. Perhaps I might give you one, and then you
can
judgeSenator SHORTRIDGE. Give one example.
Mr. ALDRICH. These figures are the commercial credits financed
by the acceptances of which I gave the total a short time ago.
The CHAIRMAN. $ 2 4 , 0 0 0 , 0 0 0 and something.^
Mr. ALDRICH. These credits may be divided into four main groups:
(a) Credits extended to finance exports from the United States to
Germany.
The German buyer of cotton opens through his local bank a credit
in United States dollars in favor of the American shipper. The
German bank under its open credit line available at the American
bank requests the latter to accept drafts drawn by the American
92928—32—pt 2
8
'408
SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
-shipper for the amount of his invoice provided the full shipping
idocuments accompany the draft.
The American shipper forwards the cotton and negotiates his
(draft on the American bank with the shipping documents attached
ithrough his local bank.
Upon presentation at the offices of the bank which has opened
'the credit, and the shipping documents being found in order, the
,draft is accepted as a rule payable at the expiration of 90 days
and the shipping documents are forwarded to the German bank for
delivery to the German buyer in order that he may obtain title to
ithe cotton.
The German bank agrees to remit cover to the American accepting bank at maturity of the drafts.
The German bank may either hold the cotton in warehouse or
deliver it to the German buyer upon his promise to pay for the
cotton prior to the maturity of the credit in New York or upon his
.delivering security to the German bank. ^
The American bank receives in addition to the guarantee of the
German bank to pay at maturity, either the joint obligation of the
customer agreeing to pay in case the bank snould not pay, or the
promissory note of the buyer of the cotton.
That is the ordinary transaction.
Senator COUZENS. D O you have any obligations of the seller?
Mr. ALDRICH. The seller draws a draft, and, as drawer of the draft,
he is liable if there is a default in the payment of the draft.
Senator COUZENS. In other words, if the goods are not accepted,
are not taken up on-delivery, the seller is obligated to you, as the
.drawer of the draft?
Mr. ALDRICH. A S the drawer of the draft he is obligated to us.
I have here the cost of that.
The cost of financing such a shipment of cotton is moderate. The
usual commission of the American bank is one-fourth of 1 per cent
for a period of 90 days. The total cost for the German bank at the
present moment is 4% per cent per annum, and for the German
buyer of the cotton 5% per cent or more according to the size of the
-commission charged by the German bank to its customer.
Do you care to have me go ahead with this?
Senator COUZENS. I am satisfied if Senator Johnson is.
Senator JOHNSON. I have no objection to your not continuing.
Mr. ALDRICH. There are a number of transactions, of course. They
take varied forms, but they are all done by bill of e x c h a n g e , and
they are all done by the American bank being the acceptor, and
having the obligation of the German bank to put it in funds to meet
the acceptance at maturity.
Senator COUZENS. I understand you have no experience in the
selling of any securities such as we have been discussing here.
Mr. A L D R I C H . Personally, no, sir.
,
Senator SHORTRIDGE. Y O U mean the bank you represent has had
no such experience?
Mr. A L D R I C H . Neither I nor the bank.
Senator SHORTRIDGE. That is what I wanted to know.
Mr. ALDRICH* The bank has never sold securities.
409
:
SALE OF FOREIGN, BONDS OB SECURITIES
Senator SHORTRIDOE. When you say " I " you are speaking for the
bank you now represent?
Mr. ALDRICH. I thought the Senator was speaking of me personally, but it is equally true of the bank. It has security affiliates
that have done a security flotation business.
I have also here, if it interests you, an analysis of the short-term
debt of Germany, and how it is held in this country. That is
the matter that you were asking Mr. Kahn about. I do not think
Mr. Kahn had the information, but I have.
Senator JOHNSON. All right, if you will present it.
Mr. ALDRICH. Would you like to have me read it?
Senator JOHNSON. Head it if you will.
Mr. ALDKICH. I have it in connection with the volume of long-term bonds.
During the four years from 1925 through 1928 long-term loans
placed in foreign countries for German account were running at
irom $300,000,000 to $400,000,000 a year. Somewhat more than half
*were placed in the United States. Beginning with 1929, the foreign
lloans to Germany became less numerous, but some were important.
'The so-called Young plan loan of 1930 amounted to about $300,4)00,000, of which about one-third was placed in this country.
According to the latest figures produced by the German Government the total foreign funded debt as of July 28, 1931, with a maturity of more than one year from that date, amounts to between
-$2,865,000,000 and $2,985,000,000. This includes, besides foreign
issues with a nominal value of $2,050,000,000, mortgage credits,
German internal issues abroad, and various miscellaneous estimated
items. The American share in the total figure can not be stated
exactly, but it appears from the German figures that 55 per cent of
the foreign issues namely; $1,127,000,000, are held in the United
States. This compares fairly closely with the results of a careful
survey published by the Department of Commerce in September,
1931, which covers a somewhat larger field of investments, and produces the slightly larger total of $1,177,000,000.
As to the German short-dated debt
Senator K I N G . The German what?
Mr. ALDRICH. Short-dated debt, short-term debt. This is the
-commercial debt. As long ago as the end of 1926 the German banks
owed $830,000,000 at short term abroad. These funds, in the form
•of bankers' acceptances were financing German imports and exports,
and in these and other forms were performing other services including the financing of internal commerce. By the end of 1929 the
short-term foreign debt of the German banks had risen to more
than $2,000,000,000. Thereafter it began to go down. By the
spring and early summer of 1931 the decline was precipitate, due
to rapid withdrawals by foreign lenders during the acute period of
the crisis.
According to the official census taken by the German Government,
the amount outstanding on July 28, 1931, was about $1594,000,000.
-By now there has been a further reduction of from 10 to 15 per
;cent, to a total below $1,050,000,000. These progressive reductions
-have brought the foreign short-dated debt of the German banks
•back to about where it stood in the early part of 1927*
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SALE: OF FOREIGN BONDS .OR SECURITIES
The American share in these debts of German banks amounted to
about $520,000,000 last July and to about $450,000,000 now. This
is the short-term commercial debt.
The British share is about two-thirds as much as ours, and since
it is denominated chiefly in sterling, its gold value has declined, in
addition to the repayments effected, in proportion to the decline in
sterling.
In addition to the short-dated commercial debt the Reichsbank has.
a debt of about $100,000,000 to foreign central banks and the Gold
Discount Bank, which is owned by the Reichsbank and its stockholders, owes $50,000,000 to a group of American banks. Both of
these loans were ior the purpose of providing reserves against the
German currency.
Senator JOHNSON. What was that?
Mr. ALDRICH. For the purpose of providing reserves against theGerman currency, to reestablish their gold.
Senator JOHNSON. Who has those loans?
Mr. ALDRICH. The $50,000,000?
Senator JOHNSON. Yes.
Mr. ALDRICH. More or less the same group of banks that hold theshort-term credits. German States, cities, and other governmental
units owed abroad on July 28 last $71,000,000, now somewhat reduced. In addition the German Government owes $125,000,000 to a
group of foreign banks, which amount is not due until next fall, in
which the American participation is somewhat over 60 per cent
Outside of the foregoing, and very widely distributed, is a figure in
the German census return, which is still provisional and contains
duplications and offsets amounting to $1,240,000,000. We believe
that that amount, if it were shorn of duplications and offsets, would
probably be not more than $300,000,000.
That is the amount that has been discussed here, as amount which
is the interindustry debt, as distinguished from bank debt-—the
short-term industrial debt.
We have in the foregoing a total short-dated foreign debt, as it
stands at present, of about $1,700,000,000 in round figures of which
the American share would be between $600,000,000 and $700,000,000.
As I stated before, our information is that the short-term commercial debt is held by about 100 American banks.
In addition to these items there is a third class of American interests in Germany, which is referred in the Government census ani
covers the foreign holdings of shares, real estate, and other values
in Germany, which amounted, on July 28, 1931, to somewhere between $1,072,000,000 and $1,310,000,000.
Senator COUZENS. Have you any idea how many citizens that is
divided among?
Mr. ALDRICH. NO. We have no estimate as to the A m e r i c a n share
in that, except that the Department of Commerce estimates that, at
the end of 1930 Americans had direct investments of that general
classification amounting'to $243,000,000. :
Senator JOHNSON. With respect to the 100 banks that you refer to,,
that have the particular portion that .you have indicated, are they
located mainly in New York?
( ,
.v r
f
411
:
SALE OF FOREIGN, BONDS OB SECURITIES
Mr. ALDRICH. My information is that, in amount, about two-thirds
in amount is held in New York and that about 40 per cent of the
'banks are in New York. I think that is correct.
^ Then, to summarize this, and adding together those figures I have
just given you, the American participation in German debt is as
follows:
In the long-term debt, as given by the Department of Commerce,
$1,177,000,000.
Then, second, a figure for the short-dated debt, based on the German Government report and confirmed from American sources, approximately $700,000,000.
Third, the figure f o r direct investments given by the Department
of Commerce, of $243,000,000, or a total amount of $2,120,000,000.
The short-term commitments to the American banks, as I have
•stated before, are somewhere in the vicinity of $650,000,000.
Senator JOHNSON. Y O U have stated that you are interested to the
extent of about $71,000,000 in those short-term credits. What,
among the banks, may be interested to any considerable extent, can
you state?
Mr. ALDRICH. Senator, I would not like to state the commitments
of any other bank. I can state this to you, that before I came down
here I went and talked to a number of the heads of the big banking
institutions in New York and told them that I thought it was very
important that I should come here and state specifically the commitments of the Chase National Bank; that the question had come up
in the hearing, and that you and Senator Gore, I think it was, had
said—and I agreed with you absolutely—that it was very important
to have these figures brought out. Ail these presidents said to me
that they thought it was important that they snould be brought out.
I can say this, that there is not any bank in New York that I know
of that would not be very glad to give you the figures if you asked
for them.
Senator JOHNSON. Can you not state approximately, then, inasmuch as they do not object, what institutions in New York City, in
addition to yours, have the short-term German credits?
Mr. ALDRICH. In the first place, I do not really know the answer.
I know approximately the answer.
Senator JOHNSON. That is all I am asking you.
Mr. ALDRICH. I am sorry, Senator. I do not think I ought to
-do that.
Senator J O H N S O N . Can you not tell some other banks that hold
them?
Mr. ALDRICH. I would not like to do that.
Senator COUZENS. Can you tell us the banks with whom you conferred ?
Mr. ALDRICH. I would not like to do that either, Senator. I do
not think it is a proper thing for me to discuss the obligations of
other banks. I do not think you will have any difficultv in getting it.
Senator COUZENS. I do not ask you to discuss their obligations.
Mr. ALDRICH. I can say this, Senator, that I do not believe there
are any of the larger financial institutions in New York, Chicago,
412
SALE
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FOREIGN;
BONDS OR SECURITIES
Boston, or St. Louis, who do an international business at all, that
have not got some of these German obligations.
Senator K I N G . Let me ask you one question right there. You are
acquainted, of course, with the investment trusts which have been
doing a good deal of business in the last few years, without any
particular supervision—at least none by the Federal Government.
M r . ALDRICH. Y e s .
Senator K I N G . D O
you know whether they hold any of these
German obligations, long or short? When I say "German obligations," I mean of states, provinces, cities, municipalities, railroads,
or private individuals, and corporations.
Mr. ALDRICH. I do not know that, except from reading the portfolios in the paper. But I have seen that they have them.
Senator K I N G . S O that the figures which you have given, then,
Mr. Aldrich, do not embrace any obligations which these investment trusts may hold ?
Mr. ALDRICH. I think they embrace all the German obligations
that are held in this country. Therefore I think they would include
the holdings of those institutions, but I have no means of breaking
the total down.
Senator SHORTRIDGE. I understand you to say that you have no
objection to giving us full information touching the holdings of
the bank you represent.
;
Mr. ALDRICH. I have just done it.
Senator SHORTRIDGE. Exactly. But you hesitate to speak of or
concerning other banks, is that the idea ?
Mr. ALDRICH. I do not think I have any right to think of what
other banks hold at all.
Senator SHORTRIDGE. I merely wanted to understand what you
said.
Mr. ALDRICH. In the first place, it would simply be gossip.
Senator COUZENS. I can not see any objection to stating the banks
you conferred with, because we might be able to get them down here
to tell us about it.
Mr. ALDRICH. I think, if you got any large bank down herer
you would find they had German obligations.
Senator COUZENS. SO, we might take the banking list, and subpoena them all if necessary.
Mr. ALDRICH. Yes, sir; or anywhere else, for that matter.
Senator JOHNSON. Perhaps I misunderstood you, Mr. Aldrich.
I f I did, please correct me. I understood you had conferred with
various bankers in New York before you came down.
M r . ALDRICH. Y e s .
Senator JOHNSON.
And that they agreed thoroughly with you
that there should be a full disclosure of the short-term credits held
by the banks in this country.
M r . ALDRICH. Y e s .
Senator JOHNSON. That
M r . ALDRICH. Y e s .
Senator JOHNSON. And
is correct, isn't it?
in pursuance of that you have come here
and made your full disclosure of your holdings ?
Mr. ALDRICH. That is right.
Senator JOHNSON. All right. I can not, for the life of me, see
any reason why, if those gentlemen spoke in good faith to you,
413
:
SALE OF FOREIGN, BONDS OB SECURITIES
you should have any hesitancy in saying with whom you talked,and who held these particular obligations.
Mr. ALDRICH. Simply because I do not want to discuss the obligations held by other banks.
Senator JOHNSON. I do not want you to discuss them, and I AM.
not asking you the amount. I ask you what banks hold these shortterm obligations which become, I think, of very great importance in
this particular crisis that confronts us abroad.
Mr. ALDRICII. All I can say to that, Senator, is that I am surethat they will all be very glad to come down here and testify.
Senator JOHNSON. I have not any doubt about that at all. They
are all very kind, and they are all very good, and they are all received
with the utmost courtesy, as I trust they always will be, but I am
utterly unable to understand the distinction that you draw. I do>
not wish to press you on if you do not care to say.
Mr. ALDRICH. I feel very strongly about it.
Senator JOHNSON. Y O U feel very strongly about it?
Mr. ALDRICII. That I should not talk about other banks.
Senator JOHNSON. All right.
Senator K I N O . Mr. Aldrich, I have seen statements quite recently"
that the obligations due American banks and investment companies,corporations, and individuals by Germany—and when I say
" Germany," I mean the Government, the Province, the municipalities; the railroads, corporations, ancl private individuals—exceed
$4,000,000,000. Have you made sufficient investigation to determinewhether those figures are accurate?
Mr. ALDRICH. I should say that they are certainly not.
Senator King. You think that they arc
Mr. ALDRICH. I think I have given you the correct figures.
Senator K I N G . D O you know what the basis of those claims is,,
that they exceed $4,000,000,000?
M r . ALDRICH. N o ; I d o n o t .
Senator K I N G . Have the banks
here, before making the loans,,
attempted to ascertain the domestic obligations of Germany, and her
obligations to Great Britain, France, Holland, Switzerland, and*
other European countries?
Mr. ALDRICH. I should say not. I should say that in granting
a line of credit to a German bank, what you do is to look at the
statement of the German bank, and that you would not go any further than that.
Senator K I N G . I do not want to repeat, but in order that I may
not misunderstand you, the American bankers have loaned to Germany, or loaned in Germany, whether to the Government or to
municipalities, corporations, or individuals, very large sums without
knowing just what the obligations of Germany, including the organizations to which I have referred, were to their own citizens?
Mr. ALDRICH. I think that is probably true.
Senator K I N G . D O you know what the obligations of Germany
are to her own citizens ?
M r . ALDRICH. N O , s i r .
Senator COUZENS. I S there anything more, Mr. Chairman?
.. Senator JOHNSON. Wait iust a moment. Do you know, Mr. A i d richj whether the Chase Securities Corporation disposed of any
foreign obligations in this country?
'414
SALE,:OF>FOREIGN BONDS; OR 'SECURITIES
Mr. ALDRICH. Yes. I have a complete statement of all that
Senator JOHNSON. There is much more to it, you see.
Senator COUZENS. I under-stood somebody else was coming down
to testify for them. Is that true?
Mr. ALDRICH. I am perfectly willing to go ahead with this.
Senator JOHNSON. D O you know whether Harris, Forbes & Co.
•disposed of any German securities in this country?
Mr. ALDRICH. Yes; they did.
Senator JOHNSON. A very large amount of them, didn't they?
Mr. ALDRICH. Yes: I have them right here.
Senator JOHNSON. YOU have all those there ?
M r . ALDRICH. Y e s .
Senator JOHNSON. Have you the dates ?
M r . ALDRICH. Y e s .
Senator JOHNSON. The amounts ?
M r . ALDRICH. Y e s .
Senator JOHNSON. And the profit?
M r . ALDRICH. Y e s .
Senator JOHNSON. That is all in the statement?
Mr. ALDRICH. That is all here.
Senator JOHNSON. And by virtue of the fact that
you are president, now, of the Chase National Bank, with the merger that has
been made, you are prepared to testify in detail to the facts?
Mr. ALDRICH. I am prepared to testify in detail as to the facts.
I am not personally prepared to testify" as to how they did it, or
why they did it, or anything of that sortSenator JOHNSON. Who, from Harris, Forbes & Co., then, which
has become a part of your institution, would be the appropriate
one to testify from his knowledge, or from knowledge of the facts?
Mr. ALDRICH. Mr. Addinsell is president of the Chase, Harris,
Forbes Corporation; or Mr. Granberrv. I am very glad to go ahead
with this and give you all the information.
Senator JOHNSON. The reason I asked you was because your evidence, apparently, had closed, and I have a statement before me
:showing that Harris, Forbes' & Co. disposed of $142,148,500 of
German securities alone.
Mr. ALDRICH. I did not consider that the evidence of the institution was closed, or my own, either, for that matter.
Senator JOHNSON. That is all right. I am not complaining about
that.
Mr. ALDRICH. I have it all here.
Senator JOHNSON. I have a note, as well, with respect to an issue
of $20,000,000, 51/2 per cent bonds of the Commerzund Privat Bank,
with the Chase Securities Corporation.
Mr. ALDRICH. That is correct.
Senatof K I N G . Was the former correct?
Senator JOHNSON. Was the former correct? I am speaking only
of German securities, now—Harris, Forbes & Co., $ 1 4 2 , 1 4 8 , 5 0 0 .
Mr. ALDRICH. The principal amount is $159,000,000.
Senator JOHNSON. I was $17,000,000 off.
Mr. ALDRICH. It may be that of that, $24,260,000 has been retired.
Senator JOHNSON. That is among the possibilities. T h e s e loans
.relate to the Free State of Prussia, the city of Duisburg, the city of
415
:
SALE OF FOREIGN, BONDS OB SECURITIES
Munich, German Savings Bank and Clearing institutions, the Provincial Bank of Westphalia, the East Prussia Electric Power, and the
like—other loans of that character or bonds of that character that
have been floated in this country. If I read you a list of them, will.
you correct me ?
Mr. ALDRICII. Might I read you the list I have?
Senator JOHNSON. Read your list, and I will check with mine.
Mr. ALDRICII. These are the foreign bond issues in which Harris,.
Forbes & Co. had participation.
Senator JOHNSON. Yes.
Mr. ALDRICH. In the origination and/or management, with
Germany:
City of Duisburg, 7 per cent serial bonds, dated November 1, 1925, due November 1, 1926-1045; principal amount $3,000,000; amount outstanding $2,000,000;
purpose of issue, public works and improvements.
Senator JOHNSON. I had $ 2 , 2 5 0 , 0 0 0 . I was $ 1 0 0 , 0 0 0 out of the
way.
Mr. ALDRICII. These figures as to the amount outstanding are as of
December 15.
Senator JOHNSON. That is 7 per cent.
Mr. ALDRICH. Seven per cent serial bond.
Senator K I N G . Mr. Aldrich, just speak a little louder.
Senator SHORTRIDGE. Why not put the whole statement in ?
Senator JOHNSON. We will put the whole statement in? but I am
gaing through it subsequently if the committee will permit me.
Mr. ALDRICH. I have a copy for each Senator. Would you like
to have it read now ?
Senator JOHNSON. Suit yourself; then we will go through it subsequently.
Senator SHORTRIDGE. Let us do that to-morrow, after you have
checked them over.
Senator JOHNSON. That is satisfactory to me. I will be able to*
save time.
For the record, Mr. Aldrich, does this statement you have presented
show the profit made by Harris, Forbes & Co. ?
Mr. ALDRICH. Yes, sir; it shows the gross profit.
Senator JOHNSON. It shows the gross profit?
M r . ALDRICII. Y e s .
Senator JOHNSON. Does
it then show their specific and particular
profit?
Mr. ALDRICH. It shows their specific and particular gross profit.
Senator JOHNSON. Thank you. All right, sir. I will be very glad
to go through this, and I will take only a little time with you in the
morning. Let me call your attention to this one: Commerz und
Privat, 5y2 per cent bonds, $20,000,000, Chase Securities Corporation.
Mr. ALDRICH. $20,000,000 ?
Senator JOHNSON. That is right. What was the profit on that,
unless it is in this list?
Mr. ALDRICH. It is in the list
Senator JOHNSON. Then I will not ask you, and not trouble
about i t
The CHAIRMAN. Mr. Aldrich, I want to ask you just one question.
If the Chase Securities Corporation undertook to loan to Germanyy
or any other country, we will say, $ 4 0 , 0 0 0 , 0 0 0 , or any other amount,
416
SALE OF FOREIGN; BONDS OR SECURITIES
-and you then have affiliates to take part of that loan, do you require
/security from those who are affiliated with you?
Mr. ALDRICH. I do not think I understand the question.
The CHAIRMAN. In other words, take the whole loan, $40,000,000,
•say. There are other banks that are affiliated with you, which take,
perhaps, half of that amount. If they take half that amount, do
[you require any security from those who affiliate with you in that
Joan?
Mr. ALDRICH. That is exactly the same situation that has been
-described by Mr. Lamont and Mr. Kahn, as to the manner in which
-securities are issued. There would be an originating group, an
underwriting syndicate, and a distributing group, and it is exactly
the same situation they described in detail.
The CHAIRMAN. You would carry on your loans exactly the same
-as they are carried on by the National City Bank?
Mr. ALDRICH. The Chase Securities Corporation would. That is
:not the Chase National Bank.
The CHAIRMAN. I said the Chase Securities Corporation.
M r . ALDRICH. Y e s , s i r .
Senator K I N G . There could
be no impropriety in giving to the
:press this statement concerning which you have testified?
Mr. ALDRICH. Y O U mean the securities statement?
Senator K I N G . Yes.
The CHAIRMAN. I would not want to give the press anything that
3ias not been presented to the committee.
Senator COUZENS. It has all been presented to the committee, and
went in the record while you were out.
Senator JOHNSON. I have it before me, and am to go through it
to-night and at a subsequent time take it up in detail, with the
^witness.
Senator K I N G . I would like to ask just one question before we
-adjourn. Has your bank, or any other of the banks in the United
States, used its influence with the administration or otherwise, to
;give a preferred standing to the private indebtedness over the
-reparations ?
Mr. ALDRICH. Naturally I can only answer for our own bank, but
the answer is absolutely not.
Senator K I N G . Were you interested in trying to secure a moratorium ?
Mr. ALDRICH. N O . We did not know that the moratorium was
.going to happen, Senator King.
Senator K I N G . But you have not attempted to secure any-preference for the private creditors over the reparations?
Mr. ALDRICH. N O . SO far as I ain concerned personally, I think
•that is a matter on which Congress has stated its position, and 1
think it would not be proper for us to trv to do it.
Senator K I N G . One other question. 1 understood you a moment
ago to state that you just looked at the statement of" the bank and
then made the loan—I am abbreviating vour statement.
•
Mr. ALDRICH. It is not really a loan. I t is an acceptance credit.
Senator K I N G . I am speaking of loans and acceptance credits tooD o you think that was quite fair—and I do not mean to imply that
it was not—for the American bankers and those who loaned monev
to Germany, to make those stupendous loans without making inn
inquiry as to the solvency of the railroads, the States, the mumci
417:SALE OF FOREIGN, BONDS OB SECURITIES
palities, and the corporations and tlying to ascertain what their
obligations were domestically?
Sir. ALDRICH. Senator, I have been a banker only for about two
years. One of the things I have been very much interested in in the
last year is to see the cooperation that is in existence now to ascertain the facts as to the economy of a country to which the banks
are making loans.
Senator K I N G . I think that is very wise.
Sir. ALDRICH. I think it is a very constructive thing.
Senator K I N G . Y O U mean to ascertain the economic condition?
Mr. ALDRICII. Ancl to discuss with each other the general economic
•conditions of a country before the various banks make their committments in that country. Obviously, in the past the banks have
•competed with each other in making* these loans, and the banking
houses as well, without cooperation and without consultation. I
think that has been a very harmful thing, because it has led to overloaning. But I hope that that is a thing that is very much in the
past.
The C H A I R M A N . There was never a loan made but what every
other bank in New York knew it was to be made, or was on the way
to be consummated.
Mr. ALDRICII. I think that is true.
Senator SHORTRIDOE. Mr. Aldrich, you will note the question of
-Senator King. He asked you if you nad sought to give a superior
status to private loans, over reparations demands. We make no
•claim as to reparations. Do you know of any effort made by your
institution or others to put these private claims—I will call them—
•or loans, above the government debt to us, the government debt of
•Germany, or of France, or of England, Italy, Belgium? I refer
to Government debt pure and simple, not reparations.
Mr. ALDRICH. The same answer would apply. As a matter of fact,
I understand the question to apply to Government debt. I did not
.get the fact that it applied to reparations.
Senator SHORTRIDOE. But the Senator did make use of the word
""reparations" in several questions.
Air. ALDRICH. I overlooked that. The answer to the question was
in my mind, whether we had attempted to have the private debt
lave priority over the Government debt.
Senator SHORTRIDOE. That is what I wanted to develop.
Mr. ALDRICH. I misunderstood him. The answer is, no, I have
aiot.
The C H A I R M A N . The committee will stand adjourned until 10
o'clock to-morrow morning.
Senator JOHNSON. Mr. Chairman, I was going to suggest, out of
consideration for the witness, that perhaps he could be excused for
to-morrow, and come back the day after. He told me that he had
some sickness in his family, and inasmuch as we have somebody else
to go ahead with to-morrow that will take the day, may he not see
to his private affairs and return the subsequent day or the day after
that? That is simply out of consideration for Mr. Aldrich/
Mr. ALDRICH. That is very kind of you, Senator. I think as a
aaatter of fact, now that I have this in the record, it might be more
helpful to you to have some of the men who are actually in those
securities companies testify, when you go over it.
418
:
SALE OF FOREIGN, BONDS OB SECURITIES
Senator JOHNSON. I want anybody who can respond to questionsconcerning it.
Mr. ALDRICH. I have no personal knowledge of this situation at all..
The CHAIRMAN. I can not hear what you are saying.
Senator JOHNSON. He was saying that he had no personal knowledge of this situation, and that he would send somebody else, some
appropriate individual from Harris, Forbes & Co. and the Chase
Securities Co. who could testify from personal knowledge of thesituation.
Mr. ALDRICH. I would be very glad to come back myself, Senator,,
but the fact is that all these German issues of Harris, Forbes & Cowere issued before they were bought by the Chase Securities Co., and.
all the issues by Chase Securities Co. were prior to any connection
of mine with the bank. While I would be very glad to come and.
testify, and it may be that you will prefer to have ine, the information that I could give you would be only information that we havefrom the records, or information that was given to me by the officers
of those organizations who were connected with the actual transactions.
The CHAIRMAN. Would you suggest, then, who should come hereto answer those questions?"
Mr. ALDRICH. Either Mr. Granberry or Mr. Addinsell of the
Chase-Harris-Forbes organization.
I will either be here myself, Senator, or I will liave some one here
who can testify from personal knowledge of all these transactions.
The CHAIRMAN. By to-morrow or the next day?
Mr. ALDRICH. I am perfectly willing to stay on.
The CHAIRMAN. You can suit yourself about that. If you desire
to go we will excuse you now.
Mr. ALDRICH. That is very kind of you.
The CHAIRMAN. And we may expect somebody to be here tomorrow ?
Mr. ALDRICH. I will be here myself if I can not get some one else.
The CHAIRMAN. With that understanding, that is satisfactory.
Senator JOHNSON. Mr. Chairman, before we adjourn I would like
to say this.
Mr. Kahn. may I hand you the Congressional Record, .where you
will observe Congressman LaGuardia put various tables in the Record. You were going to look at that for me and see whether or not
you could check up on it and say whether it was accurate.
Mr. K A H N . Y O U would like to have me write you on the subject?
Senator JOHNSON. At your convenience, as soon as possible, so
that it may go into the record as quickly as it can. I am interested
in the statement of quotations this vear^ as well as in the statementof sales, and the like.
Mr. K A H N . I will be glad to do that.
The CHAIRMAN. The committee will stand adjourned until 10
o'clock to-morrow morning.
(Whereupon, at 5 o'clock p. m., the committee adjourned until tomorrow, Tuesday, January 5,1932, at 10 o'clock a. m.)
FOREIGN
B O N D ISSUES OF C H A S E SECURITIES CORPORATION,
EQUITABLE TRUST C O . , AND H A R R I S , FORBES & C o .
THE
(NOTE.—All profits given in the following pages are gross profits.)
Summary of foreign bond issues in which Chase Securities Corporation, Equitable Trust Co., and Harris, Forbes & Co. participated in th&
origination and!or management and participated under management of others
O r i g i n a t e d a n d / o r m a n a g e d (1021-1030)
Principal
amount
Germany
Other E u r o p e a n . . . * . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous,............
...
Total
H a r r i s , F o r b e s <fc C o . :
Canada.......
.........
Latin America
Germany
Other European...
Miscellaneous
Total
_ _
.....
. ..
$162,400; 000
245,000,100
13,520,000
146,500
1,022,832,000
421,066,600
2,429,000
376,200,000
3,000,000
60,000,000
162,400,000
3,000,000
25,500,000
270,000
120,000
295,000
Gross
profit
$130,122,500
138,250,000
405,900,000
200,000,000
$26,014,582
16,871,250
84,971,458
18,687,500
$470,823
258.977
1,203.383
105,848
$526,200,000
582,854,600
177,650,000
410,400,000
200,000,000
$727,000
1,983,823
439,977
1,220,383
195,848
874,272,500
146,574,790
2,138,031
1,897,104,600
4,567,031
431,472,"606
169,500,000
57,000,000
56,351,031
25,430,428
8,360,666
1,071,528
327,887
128,167
376.200.000
434,472,000
219.500,000
57,000,000
60,000,000
270,000
1,101,528
622,887
128,157
149,000
50,000,000
2,283,500
149,000
479,200,000
193,189,500
834,000
657,072,000
90,148,125
1,527,572
1,137,172,000
2,361,672
5,943,666
150,700,000
1,506,500
24,260,000
97,000
1,379,000
27,184,054
65,210,000
60,074,200
49,801,500
680,968
1,152,904
1,443,786
940,077
411,054,500
651,450,000
1,520,000,000
780,390,000
777,968
2,531,994
1,443,786
1,202,077
3,362,894,500
1 6,084,749,000
5,955,825
12,884,428
9,006,666
720,000
262,000
....
174,643,000
26,486,500
1,738,000
3,188,251,500
202,269,754
4,217,825
_
_ . _
- _ ......................
..
526,200,000
461,675,000
249,100,000
4,500,000
59,000,000
162,400,000
246,506, BOO
40,780,000
146,500
3,003,500
997,000
1,721,000
1,855,000
17,000
411,000
712,234,666
531,750,000
1,818,900,000
721,390,000
109,579,667
107,511,678
153,412,324
68,489,000
2,232,310
1,739,858
2,775,326
1,135,925
U,300,475,000
478,342,600
5,001,000
t 3,784,274,000
438,992,669
7,883,428
— -
Total principal
amount our
T o t a l cross
originations
profits
a n d participations w i t h
others
Participations
Principal
amount
405,111,500
491,750,000
1 , 5 2 a 000,000
771,390,000
-
Total....
f!annr1n
1 , n H n AmArlnft
Germany
- .....
..........
$526,200,000
452,732.000
39,400,000
4,500,000
§ll§
A —
Total
Equitable Trust Co.:
Canada
Gross
profit
gw
Chase Securities Corporation:
C&oada
Latin America
Germany
Other European
Miscellaneous
Retired
P a r t i c i p a t i o n s w i t h o t h e r s (1017-1031)
I
O
*
o
w
w
t-H
Q
S*
W
o
s*
o
</*
o
w
s
o
d
w
M
H
H
w
l After elimination of duplications.
H-1
CO
Number of issues
to
o
Originated
Chase Securities Corporation . . . . . . . . . .
Equitable Trust Co
Harris, Forbes <fc Co
...........
...
Participated
38
14
20
54
36
91
72
181
Canadian Government and Canadian National Railway issues in which Chase Securities Corporation-Equitable Trust Co. participated in the o
origination and/or management
o
w
Amount outM
Our
particiOffering
Gross
Purchase
Filnclpal
Interest in original group
hH
Profit
Purpoao of issue
Doc,
Issue
pation
prlco
prico
spread
amount standing
Q
15,1031
VA
W
Per cent
o
$21,108,000
100
Chaso Securities Corporation,
$38,000
H
mi
§
23.52 per cent.
Retirement of maturing Blair & Co.,"23.52 per cent
$00,000,000
Dominion of Canada 1-year 4
0)
treasury
bills.
per cent notes, Sept. 15, 10J4Equitable Trust Co., 23.52 per 'liji&OOO
"38,066 03
Sopt. 15, 1925.
cent.
o
Others, 29.45 per cent
w
Chaso Securities Corporation, "lfi,"446*600" 99.52
.235
"io,"660
m
W
22.07 per cent.
w
Blair & Co. (Inc.), 22.07 per cent.
449,666
"lO,"660 o
Payment, in part, of i-year Equitable Trust Co., 22.07 per
70,000,000
Dominion of Canada 1-year 4
(l)
notes, maturing Sopt. 15.
1925.
i w cent notes, Sept. 1, 1925-
Bept. if i m
Dominion of Canada 4H per
cent bonds, Feb. 1, 192&Feb. 1, 1030.
i lletlrcd.
40,000,000
$40,000,000
Refunding of 1-year notes,
maturing Sept. 1,1920.
cent.
Cassatt & Co, 7.30 per cent
First National Corporation,
Boston, 3 per cent.
Others, 23.43 per cent
Chaso Securities Corporation,
21 per ccnt.
Btalr <fc Co. (Inc.), 21 per cent
Equitablo Trust Co., 21 per cent.
Cassatt & Co., 7 per ccnt
First National Corporation,
Boston, 3 per ccnt.
Others, 27 per cent
8,407, GOO
"8,"407*500
197.354
98 x
1.90
72,000
"72,'666
aUi
Canadian Government and Canadian National Railway issues in which Chase Securities Corporation-Equitable Trust Co. participated in the
origination and/or management—Continued
Issue
Dominion of Canada, 4 per
cent bonds, Oct. 1, 1030~0ct,
Principal
amount
$100,000,000
1,1060.
Canadian National Railways
4H per cent bonds, July 1,
Itt27-July 1,1957.
Canadian National Railways,
4H per cent bonds, Dec. 1,
1928-Dec. 1,1068.
Canadian National Railways]
6 per cont serial trust certifl-l
catcs, series " K " , May,[
1929*May 1,1930-1M4.
J
65,000,000
35,000,000
18,000,000
Amount out
standing Dec.
15,1931
Purpose of fssue
$100,000,000 Refunding of retiring loans
and for general purposes
of tho Dominion.
66*000,000
35,000,000
To meet capita] and other
expenditures; refunding of
notes maturing July 1,
1037, and for branch lino
and terminal construction.
For branch tine construction, additions, betterments and other corporate purposes.
of railway equip15,600,000 (Purchase
V xnent.
Interest In original group
fChaso Securities Corporation,
46.67 per cent.
'Bancomcrlca-Blolr Corporation,
30.83 per cent.
First National Old Colony Corporation, 10 per cent.
Cassatt & Co., 7.50 per cent
Harris, Forbes & Co., 6 per cent.
Chase Securities Corporation,
11.35 per cent.
Blair & Co. (Inc.), 11.40 per cent.
Equltablo Trust Co., 11.35 per
cent.
First National Corporation,
Boston, 1.10 per cent.
Others, 04.80 per cent.
Choso Securities Corporation,
12.7 per cent.
Blair & Co. (Inc.), 12.7 per cent.
Equitable Trust:Co., 12.7 per
ccnt.
First National Corporation,
Boston, 4.2 per cent.
Others, 67.7Chase Securities Corporation,
15.95 per cent.
Blair & Co. (Inc.), 15.05 per cent.
Equitable Trust Co., 15.05 per
cent.
Wood, Grundy A Co., 15.05 per
cont.
First National Corporation,
Boston, 10.0 per ccnt.
pfjier, 26,2 per pent
Our partici- Purchase Offering Cross
spread
price
price
pation
$46,666,667
'03.646
95tf
Per cent
1.60
Profit
$376,000
g
O
7,403,000
07.02
m
1.48
31,000
7,403,000
35,000
4,438,800
26,000
N
O
W
M
a?
to
94. 15
06
1.85
32,000
4,438,800
2,875,000
2,875,000
97.06
98.35
1.29
18,000
o
%
t>
CP
o
*
Ul
M
16,000
a
to
Canadian Government and Canadian National Railway issues in which Qhase /Securities Corporation-Equitable Trust Co participated in the
origination and/or management—Continued
to
Ifisue
Canadian National Railways]
5 per cent bonds, Oct. 1,
1929-Oct. 1,1009.
Canadian National Railways)
5 per cent bonds, Oct. 1,1
10&-0ct. 1, 1069 (additional f
Issue of above).
Canadian National Railways]
4H per cent bonds, June 15,
1930-Juue lfi, 1055.
Principal
amount
$55,000,000
3,200,000
50,000,000
Amount outstanding Deo.
15,1031
$55,000,000
3,200,000
£>0,00^ 000
Purpose of Issue
Interest in original group
Our partici- Purchase Offering Gross
spread
price
pation
price
Chase Securities Corporation,
15.20 per cent.
Bancamerion-Blalr,
15.20 per
Additions and betterments,
cent.
acquisition ol new lines, Equitable Trust Co., 15.20 per
ana refunding of temporcent.
ary loans.
First National Corporation,
Boston, 5.08 per cent.
.Others, 40.32 per cent
Chase Securities Corporation,
23.46 per cont.
Bancamerlca-Blalr Corporation,
23.40 per cent.
(As above.).
Equitable Trust Co., 23.46 per
cent.
First National Corporation,
Boston, 7.82 per cont.
Others, 23 per cent
Chase
Securities Corporation,
Retirement of maturing ob23.30 per cent.
ligations and temporal y Dancamerica-Rlalr
Corporation,
loans, and for construction
15.47 per cent.
and general betterments.
Others, 01.17 per cont
$8,301,833
00.53
«0GH
<ooM
Per cent
1.07
09.17
100
.83
750,720
11,080,000
$71,000
55,000
8,301,833
750,720
Profit
7,000
7,000
07.31
00
1.09
72,000
Totft\
* "United States.
§
to
o
o
02
§
2
Principal
amount
.............
NJ
O
in
M
G
cj
Summary
Dominion of Canadii
...
Canadian National r a i l w a y s . . . . . . . . . . . . . . . . . . . . . - . . . . - - . ' .
O
Amount
outstanding
S
Ul
Profits
Amount retired
Chase securities Equitable trust
corporation
$300,000,000
220,200,000
$140,000,000
223,800,000
$100,000,000
2,400,000
$502,000
225,000
$120,000
144,000
526,200,000
303,800,000
162,400,000
727,000
270,000
^
J;.
Foreign bond issues in which Chase Securities Corporation had a participation in the origination and/or management—Continued
Isauo
Principal
amount
Amount outstanding Deo.
is, mi
Purpose of issue
Latin America
\
Argentine Government 3-year
7 percent notes, Oct. 1,1921*
Oct. 1,1923.
$50; 000,000
(>)
To pay Bank of Argentine
Nation for advances made
to the Government.
Argentine Government 5-year
7 per cent bonds, Feb. 1,1922Feb. 1,1927.
Argentine Government 6month 6 per cant notes,
Sept. 1,1923~Mar. 1,1924.
27,000,000
0)
For repayment of floating
debt.
55,000,000
(»)
Applied to payment of maturing 2-ycar notes, due
Oct. 1, 1923, and for other
purposes.
Argentine Government 6 per
cent sinking fund gold bonds
" A , " Sept. 1, 1923-Sept. 1,
.1957.
40,000,000
Argentine Government 6month, 5H per cent notes,
Feb. 25, 1924-Aug. 25,1924.
20,000,000
Argentine Government
per cent treasury notes, June
16, 1924-June 10,1925.
10,000,000
Argentine Government' 6month notes, Aug. 25, 19241 Fob. 25,1925.
Argentine > Government 6month 4 per cent notes,
Sept. 1,1924-Mar, 1,1925.
20,000,000
Argentine Government 6 per
cont sinking fund bonds
U B , " Deo. 1, 1924-Dec. 1,
1958.
'Retired.
5,000,000
30,000,000
Interest in original group
Our partici- Purchase Offering Gross
pilco
spread
prico
pation
Chase Securities Corporation, 30 $15,000,000
per cont.
Co. (Inc.), 30 per cent.,
Blair & C
Dillon, Read & Co., 20 per cont.
Kuhn, Loeb <& Co., 10 per cent..
White, Weld & Co., 10 pcrcent.
Chase Sccurltlcs Corporation, 50
13,500,000
fwr ccnt.
Jair & Co. (Inc.), 50 per ccnt...
Chaso Sccurltlcs Corporation, 30
per ccnt.
Blair dc Co. (Inc.), 30 per cent...
Kuhn, Loeb & Co., 30 per cent..
Others, 10 per ccnt
Securities Corporation, 30
per cent.
$35,759,500 Applied toward payment of Chaso
Blair & C
Co. (Inc.), 30 per cent.
short-term notes.
Kuhn, Loeb & Co., 30 per cent.
Others, 10 per cent
Chase Securities Corporation, 30
per cent.
(>)
Repayment of maturing Blair
& Co. (Inc.), 30 per cont...
notes issues.
Kuhn, Loeb & Co., 30 per cent..
Others, 10 per cent
Chase Securities Corporation,
General purposes of the Gov*2H per cent.
(>)
ernment.
Blair & Co. (Inc.), 42H per cent.
Otbers, 15 per cent
Chase Securities Corporation,
Payment of treasury notes
42^ per ccnt.
0)
maturing Aug. 25,1924.
Blair & Co. (Inc.), 42H per ccnt.
Others, 15 per cent
To reimburse Government Chase Securities Corporation, 40
(l)
per ccnt.
for purchases of agricultural materials made in Blair & Co. (Inc.), 40 percent..
United States of America. Others, 20 per cent
Chase Securities Corporation,
2AH per cent/
27,590,000 Payment of floating d e b t — Blair & Co. (Ino.), 20H per cent.
Others, 47 per cent
"its6o,"666*
Profit
Per cent
2.625 $165,000
97
WK
95
99
4.00
58,000
97.825
WM
1.675
87,000
90H
4.50
163,000
12,000,000
6,000,000
mi
100
.25
11,000
4,250,000
99H
lOOtf
.75
14,000
8,500,000
«9H
100.49
.865
52,000
2,000,000
99H
100
.50
4,000
7,~96(\66o"
...
"95"
8.00
GO
J;.
Foreign bond issues in which Chase Securities Corporation had a participation in the origination and/or management—Continued
Issue
Principal
amount
Amdnnt outstanding Deo.
15,1031
Purpose of issue
Interest in original group
Our partici- Purchase Offering
spread
price
pation
price
Latin .America—Continued
Argentlno Government AH per .
cent notes, Feb, 25, 1025- I $20,000,000
Aug. 25, 1925, Mar. 1,'1925- f 5,000,000
Sept. 1,1925.
ft
/Repayment of
\ note issues
maturing
Argentine Government 0 per
cent sinking fund : bonds,
Sept. 1, 1027-Sept. 1, 1900.
40,000,000
$38,065,500
Funding of floating debt of
Argentine State railways.
Argentine Government
per
cent sinking fund bonds,
Feb. 1,1928-Aug. 1002.
20,000,000
19,141,500
Funding of floating debt
maturing in 1928. 1
AntJHa Sugar Co. first raortgage 7H per cent sinking fund
bonds " A " Jan. I, 1924Jan. 1, 1939,
6,000,000
4,650,000
To provide for acquisition
of Central Tacajo properties and for additional
working capital.
Buenos Aires, Province of 5H
per cent Treasury notes,
Oct; 1, 1024-Apr. 1, 1025.
2,000,000
0)
Buenos Aires, Province of
per ccnt Treasury notes,
Sept. 1, 1925-Mar, 1, 1020.
Buenos Aires, Province of 6H
per cent Treasury notes,
Nov. 1, 1925-May 1, 1926.
2,000,000
0)
3,600,000
0>
nuenos Aires, Province of 7H
per cent sinking fund gold I
bonds, Nov. 1, 1925-Nov. 1,
1947.
14,472,000
Tax anticipation notes.
To finance railroad construction.
Refunding of maturing
T r e a s u r y obligations
Issued for railroad construction.
Chase Securities Corporation,
26J^ per cent.
Blair A Co. (Inc.), 26H per cent.
Others, 47 per cent—
Chase Securities Corporation,
45 per cent.
Blair A Co. (Inc.), 45 per cent..
Tornqulst, 10 per cent
V
Chase Securities Corporation,
45 per cent.
Blair A Co. (Inc.), 45 per cent..
Tornquist, 10 per cent
..
Chase Securities Corporation,
33H per cent.
Blair A Co. (Inc.), 33H per cent.
Field, Olore A Co., 16&percent
Poabody, Iloughteling, 10% per
, cent.
Chase Securities Corporation, 45
per ccnt.
Blair A Co. (inc.), 45 per cent...
Ilalsey, Stuart A Co., 5 per cent.
Illinois merchants, 5 i>er,ccnt
Cliaso Securities Corporation,
45 per cent.
Blair A Co. (Inc.), 45 percont...
Ilalsey Stuart A Co., 5 per cent.
Illinois merchants, 5 per ccnt
Chase Securities Corporation, 45
per cent.
Blair A Co. (Inc.). 45 per cent...
Halsey, Stuart A Co., 5 per cent
Illinois merchants, 5 per cent
12,10S, 100 To refund $5,GOO,000 of externa '. Treasury obliga- Chase Securities Corporation, 45
tions and to reimburse
per ccnt.
Province for expendi- Blair A Co. (Inc.), 45 per cent...
tures on construction and Ilalsey, Stuart A Co., 5 per cent.
Acquisition of railroad Illinois merchants, fi per cent.
properties.
Profit
Percent
0.625
$6,625,000
99H
18,000,000
05M
09H
4.00
$80,000
9,000,000
94.40
07
2.60
56,000
2,000,000
00
8.00
l7,"066
1.73
4,000
900,000
98^
900,000
99K
1,620,000
WH
6,512,400
01.464
100
100.48
.75
100
6,000
09
109,000
J;.
Foreign bond issues in which Chase Securities Corporation had a participation in the origination and/or management—Continued
Isaac
Zetin America—Continued
Buenos Aires, Province of:
(а) 10-year 7 per cent sinking fund gold notes, /an.
I,1926-Jan. 1,1936.
(б) 26-year 7 per cont sinking fund gold bonds,
Apr. 1,102ChApr. 1,1952.
Cuba, republic of, 5K per cent
serial certificates, July 1,
1928-December, 1931-June,
1932; Jan. l f 1929-June, 1932,
December, 1932, June, 1933.
Cuba, Republic of, 5H per cent
bonds, Jan. 1. 1930-Jan. 1,
1945.
Parana, State of, 7 per cent
slnki , fund gold bonds
*ar. 15,1928-Mar. 15,
1058.
Santa Fo, Province of, I-year
6 per cent treasury notes.
May 1,1027-May 1,1028.
Santa Fe,-Province of, 1-year
fl per cent Treasury notes.
Apr. 1, 1928-Apr. 1,1929.
Prlnrlnnl Amount outS S S ? ''"Ytim 00 -
$4,200,000
10,600,000
20,000,000
40,000.000
4,860,000
1,500,000
lt 600,000
(«)
Purposo of issue
Interest In original group
To retire floating debt of
Province.
Chose Securities Corporation, >$1,890,000 *90
! 45 per cent.
i To finance development of tfllair & Co. (Inc.), 45 per cent-- <4,770,000
waterworks and sanita- I Illinois merchants. 5 per cont..tion systems of the Prov- llalsey Stuart & Co., G per cent
$9,485,300
85
. fnce.
[To refund indebtedness in- 'Chose Securities Corporation,
5,333,333 98.20
curred for work com2C?4 per cont.
,
ptctcd In accordance with Blair & Co. (Inc.). 26H per cent.|
public works law.
Equitable Trust Co., 26% per
16,290,000
cent.
Continental Bank & Trust, 20
l per ccnt,
Completion of Central High, 'Chase Securities Corporation,
10,666,666
05
way, and public works
26% per cent.
construction In accord- Blair «£ Co. (Inc.), 26%per cent.
ance, with the public Equitable Trust Co., 26% per
40,000,000
works law.
, cent.
Continental Bank & Trust, 20
L perccnt.
[Redemption of outstanding iChaso Securities Corporation,
2,430,000 >03K
French franc loans and for I 50 per cent.
4,642,000
construction of public Blair & Co. (Inc.), 50 per cent— , works.
'General purposes of tho Chase Securities Corporation,
675,000 mi
Province.
(0
45 per cent.
.Blair & Co. (Inc.), 45 pcrccnt—
[E. Tornquist & Co., 10 per cent.
/Refunding of above notes. 'Chase Securities Corporation,
562,500 m
I maturing May 1,1928.
i 37V£ per cent.
1
Blair <fe Co. (Inc.), 37^ per cent.
Chatham-Phenix Corporation,
15 per cent.
E. Tornquist
Co, (Ltd.), 10
«Retired.
'
" PCrCCBt'
" Flat.
J Defaulted on interest payments, due Jan. 1,1931; sinking fundrequirementsnot met Jan. 1.1930.
4 Interest due Sept. 15,1031, paid from reserve fund; sinking fund deferred,
'
Our partici- iPurchasoj Offering Gross
pation
price
price
spread
\Per cent
9.00
11.50
mi
1.55
100
1.80
08
3.00
4. GO
100
.75
100
.75
Foreign bond issusi in which Qhaie Securities Corporation had a participation in the Origination and/or management—Continued
o>
Issue
Principal
amount
Amount outstanding Doc.
15,1031
Purpose of Issue
Interest in original group
0)
{Additions and ImproveI mcnts to lncome-produclng properties owned by
the city.
lElcctria light and power
plants* and other public
works development.
Chase Securities Corporation,
42M per cent.
Blair A Co. (Inc.). 42V$ per cent.
Darmstadter Uank (Berlin), 15
. pei
>er cent.
Cha!
ase Securities Corporation,
30 per cent.
Blair & Co. (Inc.), 39 per cent-Ualsey Stuart & Co. (Inc.),
10.5 per cent.
Bankers Trust Co., 2.6 per cent.
Cbaso Securities Corporation,
48.2
Blair & Co. (Inc.). 48.2.
Deutsche Bank, Berlin, 3.0 per
cent.
Chase Securities Corporation,
37M per cent.
Blair A Co. (Inc.), 37M per cent..
Darmstadter-llanover, 25 per
cent.
IChase Securities Corporation,
£0 per cent.
Blair & Co. (Inc.), 50 percent.
Enlarging harbor and construction of additions and
improvements; refunding
o( an outstanding debt of
. city of Danzig.
Chase Securities Corporation,
44.44.
Blair & Co. (Inc.), 44.44
Bankers Trust, 11.12
Our partici- Purchase Offering Gross
spread
price
price
pation
Germany
Chemnlts, City of, 1-year 5K
per cent Treasury notes,
Nov. 1,1926-Nov. 1,1027.
Commerz-und Prlvat 5M per
cent bonds, Nov. 1, 1027Nov. 1( 1037.
$2,000,000
20,000,000
J
$20,000,000 /Financing of exporting Indus trial corporations.
(*>
East Prussian Landowners,
Bank or, 6 per cent notes,
Apr. 1,1927-Apr. 1,1930.
7,000,000
Hanover, City or, 6\i per cent
notes, Oct. 1, 1020-0ct. 1,
1927.
2,000,000
Wurttemberg Consolidated
Municipal, 7 per cent serial
bonds, Nov. 1, 192fr-Nov. 1,
1926,1945.
Miscellaneous:
Danzig Port and Waterways, 6V£ per cent bonds, |
July 1, 1927-July 1,1952.
t Retired.
8,400.000
4,500,000
Granting the Landowners
Association a 3-year 6 per
gold mark loan, to be usod
for refunding purposes.
<*)
5,880,000
4,353,500
Additions and Improvements to Income producing properties owned by
city.
[
08H
9W
7,800,000
91H
94H
3,375,000
m
$850,000
99K
Per cent
Profit
1.00
$2,000
3.00
44,000
3.50
36,000
750,000
08 H
4,200,000
89K
96.15
6.90
99,000
2,000,000
84M
90
5.60
17,000
.76
Summary
Principal
amount
Latin America.........
Germany.
.......
Miscellaneous
Now outstanding
Retired
Profit
. . . . . . . . . . . . . . . 1452,732,000 $207,731,900 $245,000,100
.................
39,400.000
25,880.000
13,520,000
4,500,000
4,353,500
146,500
Total
Defaulted i s s u e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
496,632,00
237.965,400
258,666,600
10,860,000
9,292,000
1,568,000
$1,504,000
181,000
17,000
1,702,000
§
Foreign bond issues in which Equitable Trust Co. had a participation in the origination and/or management
Issue
Principal
amount
German:
Bavaria Free State of 6H
per cent serial bonds
$15,000,000
Aug. 1, 1925-Aug. 1,
1926-1945.
Bavaria Free State of 6M
per cent sinking fund
10,000,000
gold bonds Aug. 1, 1925Aug. 1,1945.
Bavaria, Freo State of 1
year treasury notes Juno > 20,000,000
10,1927-June 10,1928.
Nuremberg, city of, 6 per
5, 000,000
ccnt bonds Aug. 1, 1927Aug. 1, 1952.
Latin America: Medellin, city
of, 8 per cent sinking fund
3,000,000
gold bonds Oct. 1, 1923-Oct.
1, 1945.
1 Flat.
* Average.
• Retired,
Amount outstanding Dec.
15,1931
Purpose of issue
Interest In original group
hj
O
Our partici- Purchase Offering Gross
pation
prico
spread
price
Profit
§
W
o
Per cent
3.95
>92.95625
$143,000
/Public Improvements and /Equitable Trust Co., 50 per cent.
$10,600,000 \
\Har ris, Forbes & Co., 50 per cent.
capital acquisitions.
$7,500,000
189
9,511,000 /Extension of hydroelectric /Equitable Trust Co., 50per cent.
\IIarris, Forbes de Co., 50 per cent.
\ properties.
5,000,000
m
92.75
(*>
/Refunding floating Indebt- /Equitable Trust Co., 50 per ccnt.
\Harris, Forbes & Co., 50 per ccnt.
\ edness of State.
10,000,000
94.15
94.9664
4,483,000
/Improving and enlarging }EquItablo Trust Co., 100 por cent
\ city-owned public works.
5,000,000
WW
94
3.50
32,000
3,000,000
90
98
8.00
120,000
(«)
(Repayment of maturing
J notes and public-utility
11 improvements.
1
5.00
99,000
21,000
903
o
w
to
M
o
0
0U1
Foreign bond issue in which Equitable Trust Co. had'a participation in the origination and/or management—Continued
Issue
Principal
amount
Miscellaneous:
New South Wales, S tate of,
. fi per cent bonds Feb. 1, | $25,000,000
1027-Feb. 1,1057.
New South Wales, State of,
5 percent bonds, Apr. 1, J 25,000,000
1927-Apr. 1, 1058.
Amount outstanding Deo.
15,1031
$23,808,500
23,8*8,000
Our partici- Purchase Offering Gross
spread
price
price
pation
Interest in original group
Purpose of Issue
Equitable Trust Co., 33K per
cent.
Harris, Forbes <fe Co., 33H per
cent.
Public-works construction.,.
First National Corporation,
Boston, 20 per cent.
Estabrook & Co.,
per cent...
'Equitable Trust Co., 33}tf per
cent.
Harris, Forbes <fe Co., 33X per
cent.
do.
First National Corporation,
Boston, 20 per cont.
Estabrook A Co., 13}^percent...
$8,333,333
Latin America
New South Wales
—
Per cent
2.97
$94,000
m
03^
2.75
55,000
§
w
0
%
Amount outstanding
8
Retired
Profit
$50,000,000 $24,494,000 $25,506,000
3,000,000
3,000,000
2,283,500
50,000,000 " " 4?r 71 oTioo"
$205,000
120,000
140,000
30,789,600
564,000
103,000,000
m
o
8,333,333
Summary
Principal
amount
03.277
Profit
72,210,500
§
W
w
1
Foreign bond issues in which Harris, Forbes<fcCo.had a participation in the origination and/or management—Continued
Issue
Germany:
Dulsburg, City of 7 per
cent serial bonds, Nov.
], 1025-Nov. 1,1028-1015.
East Prussian Power 6 per
cent bonds, June l f 1928June l f 1053.
Electric Power Corporation 6J£ per cent bonds,
Mar. 1.1925-Mar. l f 1050,
(additional issue, September, 1925).
Electric Power Corporation 6H per cent bonds,
'• Apr, 1,1928-Apr. 1, 1953.
f, • •
• German
consolidated
municipal 7 per cent
t
loan, Feb. 1,1026-Fcb. 1;
1917, (additional issue,
August, 1020).
German consolidated municipal 6 per cent loan,
June 1,1928-June 1,1917.
"Gesfurel" fl per cont debcnturcs, Juno 1, 1923June 1, 1953.
Munich, City of, 7 por cent
serial bonds Aug, 1,1925Aug. 1,1926-1945.
Pomernnla Electric 0 per cent
bonds, May 1, 1028-May 1,
1953.
f
Principal
amount
Amount outstanding Deo.
$3,000,000
$2,100,000
3,500,000
3,420,000
Our partici- Purchase Offering Gross
spread
price
prico
pation
Purpose of Issue
Interest In original group
Public works Improvements
Harris, Forbes A Co., lOOperccnt.
$3,000,000
ITarrffl, Forbes A Co., 75 per cent.
International Acccptanco Hank,
25 per cent.
Forbes A Co., 100 percent.
Development and enlarge- Harris.
(Ceded at step-up:
ment of company's propLeo
Higglnson, 25 per cent..
. crttcs.
Brown Bros., 20 per cent)—
Harris, Forties A Co., 100 per cent.
.do..
(Same participants on stepup basis as above.)
Harris, Forbes A Co., 46% per
cent.
Construction arid Improve- Lee Higglnson, 23H per cent....
ment of public works.
Guaranty Co., 13H per cent
Rollins.
per cent
....
Equitable Trust Co;, 8J$ per cent.
Harris, Forbes A Co., 100 per centSame purchase group as above
.do• at 0.125 step-up.
Harris, Forbes A Co., 80 per cent.
(Development of existing ~ per cent ceded to Disconto
properties and for investIlank, Berlin; Dresdner Bank,
ment In other clectric enBerlin; Credit Sulsso Harris
terprises.
Forbes (Ltd.), London.
2,525,000
is. mi
Retirement of current debt
and for additions and improvements.
89M
2,500,000
5,000,000
15.000,000
7,125,000
5,000,000
8,000,000
19,772,000
17,500,000
15,850,000
5,000,000
4,700,000
8,700,000
6,090,000
$3,500,000
/Extension and Improvement jnarrls, Forbes A Co., 100per cent.
\ of public works.
Forbes A Co., 100 per
Retire floating debt and for Harris,
tent.
additions and Improve- (Redmond
3,314,000
and I. A. B. ceded
ments.
500M at 1 per cent step-up.)
{
1
Flat.
Per cent
>6. 45
91
3.00
70>*
87
7.50
82
87
5.00
05H
00,4
4.00
80.4167
94K
5.33
mi
90
5.875
.17,500,000
m
MX
3.00
4,000,000
96
8,700,000
*88K
L
5,000,000
>95.95
7,500,000
5,000,000
10,733,333
3,500,000
100
4.00
i 96. H25 »7.8625
4.50
02)4
* Average.1
to
Foreign bond issues in which Harris, Forbes <fc Co. had a participation in the origination and/or management—Continued
Issue
Prussian Electric Co. 0 per
cent debentures, Feb. 1,192ftFeb, 1, 1054.
Prussia. Free State of, 8H per
oent bonds, Sept. 15, 1920Sept. 15,1001.
Prussia, Free State of, participation certificates. May 24,
1937-Aug. 24, 1927.
(Renewal) Aug. 24, 1927-Nov.
23, 1927.
Prussia, Free State of, 6 per
cent bonds, Oct. 15, 1927Oct. 15, 1952.
B llealft Electric C orporation OH
per cent bonds, Feb. 1,1026- |
Feb. 1,1946,
Stettin Public -Utilities Co. 7
per cent bonds, Apr. 1,1020Apr. 1,1940.
Principal
amount
Amount outstanding Deo.
15,1031
Purpose of issuo
$4,000,000
$3,915,000
Construction and enlargement of company's plant
and other corporate purposes.
20,000,000
20,000,000
TEIectrio enterprises and harbor development.
5,000,000
5,000,000
30,000; 000
4,000,0Q0
000,000
(
(>)
Interest in original group
Harris, Forbes & Co., 14*4 per
cent.
Brown Bros., 14*4 per cent
Equitable Trust Co., 14*4 per
cent.
New York Trust Co., 14*4 per
cent.
Mendellsohn (Berlin), 1494 per
cent.
Internationa] Acceptance Bank,
14*4 per cont.
Equitable Trust to. 20 per cent.
New York Trust, 20 per cent.
Mendellsohn, 20 per cent
/Harris,
Forbes A Co., 20 per cent.
Tax anticipation certificates. Same purchase
group as above.
20 percent
Harris, Forbes & Co., 14*4 per
cent.
Brown Bros., 14?4 per cent
Equitable Trust Co., 1454 per
cent.
York Trust Co., 14*4 per
Improvement of agriculture Now
cent.
27,608,000
and enlargement of har- Mendellsohn & Co., 14*4 per
bors and waterways.
cent.
International Acceptance Bank,
14*4 per cent.
J. Henry Schroder, 14*4 per cent.
(After cession of 500M to Rclchs
k Kredlt.)
\ Reimburse company for exl
pendltures
on
property
Forbes & Co., 100 per
3,400,000 f additions and lmprove- Harris,
cent.
) meats.
I Reimburse company for exForbes & Co., 7G per cent.
2,400,000 { pendltures made on ad di- Inorrls,
Redmond, 25 per cent
ll lions and improvements.
To renew above
Our partici- Purchase Offering Oross
price
spread
price
pation
Per cent
2.50
Profit
$2,000
$571,428
88H
91
4,000,000
WH
05
2,000,000
08.6125
2,000,000
98.627
03H
08.778
96>*
.151
3.00
80,000
4,000,000
81
87*i
6.375
08,000
2,250,000
89*4
94X
I 4.75
45,000
4,210,000
100
4.25
1.3875
00
o
02,000
2,000
m
Foreign bond issues in which Harrisf Forbes
Issue'
United Industrial Corporation
6 per cont debentures, Dec.
1,1925-Dec. 1, IMS.
United Industrial Corporation
6>$ per cent debentures, Nov*
U I M - N o v . 3,1911.
Principal
amount
6,000,000
6,000,000
Latin America: Cordoba. Province of, 7 per cent bonds,
Jan. 1,1925-Jan. 1,1042.
^043,000
Miscellaneous: Nippon Electric Power Co. OH per cent
bonds, Jan. 1, 1928-Jan. 1,
1963.
9,000,000
I Amount outstanding Dec.
15,1931
Interest in original group
Purpose of issue
Our partici- Purchase Offering Gross
prlco
spread
pation
price
Harris, Forbes & Co.. 80 per cent, .
ileiebs Krodit Gesellschaft, 20
per cent.
Repayment of indebtedness Harris, Forbes & Co., 70.8 per
5, W0,000
ccnt.
and capital improvements.
Leo Higglnson, 16.7 per cent
Brown Bros., 12.5 per cent
Construction of public works Harris, Forbes & Co., 33)1 per
4,436,600
cent.
and buildings.
First National Old Colony, 33tf
per cent.
Kissel, Klnnlcutt, 33tf per cent.
8,280,000 Capital Improvements and Harris, Forbes A* Co., 100 per
additions.
cont.
5*100,000
I Retired.
Co. had a participation in the organization and/or management—Continued
Enlargement and extension
of properties.
4,800,000
79.70
MM
4,250,000
93
97X
4.50
74,000
1,961,000
87
95
a 00
97,000
Total -
...i
Outstanding
Retired
72,000
O
o
9,000,000
86.70
W
7.30
262,000
Q
S
W
O
«
d
CP
§
Summary
Principal
amount
Per cent
4.80
Profit
Profit
$159,700,000
5,913,000
9,000,000
$135,440,000
4,436,500
8,280,000
$24,200,000
1,500,500
720,000
$1,379,000
97,000
262,000
174,643,000
148,156,500
26,486,500
1,738,000
CQ
W
o
00
Foreign bond issues—Major participations taken by Chase Securities Corporation in issues originated or managed by others—Continued
CO
to
Issue
Latin Amorfca:
Antloqula, Department of, 7 per
cent 1025, duo m i series A 1025
Series A 1920
Series B 1020
Series C 1927
Series D 1923
- Series D 1929
Brazil, United States of, 7 per cent
1922, duo 1952.
Brazil, United Statos of, 8 per cent
1921, due 1941.
Caldas, Department of, 7H per cent
1920, due 1940.
Chile, Republic of, 8 per cent 1921,
due 1920.
Chile, Republic of, 8 per cent 1922,
duo 1947.
Chile, Republic of, 6 months 5 per
cent treasury gold notes, due Feb.
25,1927.
Colombia, Republic of,
per cent
notes 1922, duo 1027.
Rio de Janeiro, city of, 0 per cent
1022, due 1947.
Santa Fe, city of, 7 per cent 1927,
due 1945.
Germany:
Berlin, city of, 6H per cent 1025, duo
1930.
Cologne, city of, 6M per cent 1025,
due 1050.
Dresden, city of, 7 per cent 1025, due
' 1045.
German Government, 6H per cent
1930, due 1965.
Hanover State Credit Institute 3K
ear 6 per cent gold notes, due
uly 16,1931.
BttesVan Landowners Association,
Bank of, G per cent 1027, due 1947.
J
Principal
amount
Managers
$3,000,000
3,000,000
6,000,000
.2,500,000
3, 750,000
1,750,000
25,000,000
25,000,000
Blair A Co. (Inc.).
Dillon, Road A Co..
do
4,000,000
Blyth Witter A Co..
0,500,000
Blair A Co. (Inc.)...
6,000,000
Our participation
Amount of Offering
participaprice
tion
f$l,000,000
1,000,000
2,000,000
833,333
1,250,000
583,333
4 per cent In purchase group. 1,000,000
33Kper cent in original purchase.
90
93
91H
ml
Remarks
Profit
$62,281
29,826
49,450
9&H
.....do.
1,000,000
""34,722"
25,179
5,000 In default. Interest payable
In scrip.
Do.
15,168
98H
18.I6M per cent in original
purchase.
50 per cent In original pur*
chase.
do
726,666
1,090,000
4,750,000
98
95M
99
7,815
17,670
30,848
5,250; 000
99H
183,246
Do.
93
96J4
Retired.
10,500; 000
....do
10,000,000
do
27yi per cent in original purchase.
2,750,000
m
1,391
Do.
5,000,000
..do.
1,250,000
08
13,017
Do.
13,000,000
,do.
500; 000
103
2,500
Do.
2,122,500
,do_
25 per cent In original purchase.
3.846 per cent In special pur*
chase group.
50 per cent fn original purchase.
1,061,250
MM
25 per cent in original pur
chose.
35 per cent in purchase group.
3,750,000
89
60,632
3,500,000
87H
48,443
4 per cent In original purchase.
4H per cent In original p u r
chase.
50 per cent In original purchase.
200,000
94
2,846
4,421,250
90
80,579
2,000,000
98
303
3,000,000
92H
15,000,000
Speyer & Co
10,000,000
Blair A Co
5,000,000
Speyer A Co
98,250,000
J. P. Morgan A Co..
4,000,000
Blair A Co. (Inc.)...
6,000,000 I.....do..
SO per cent In purchase group
1,710
66,176
O
O
a
%
w
i
8
o
H
H
ZD
Do.
Foreign bond issues—Major participations taken by Chase Securities Corporation in issues originated or managed by others—Continued
Issue
Other European:
Adriatic Electric Co. 6K per cent
notes 1920, due Dec. 15,1928.
Adriatic Electric Co. 7 per cent 1927,
due 1922.
Austrian Government, 7 per cent
1930, due 1957,
Belgrade, city of, 0 months, 6 per
cent gold notes, due May 1,1928.
Bergen, city of, 6 per cent 1924, due
1949.
Bulgarian Government, 7 per cont
1927, due 1907.
Burmeister & Wain (Ltd.), 6 per
cent 1925, duo 1940.
Christiana Tramways Corporation
2-year 5 per cent gold notes, due
Oct. 1, 1926.
Denmark, Mortgage Bank of, Kingdom of, 6 per cent 1927, due 1972.
Hungarian Consolidated Cities, 7)4
per cent 1925, due 1945.
Hungarian Consolidated Cities, 7
per cent 1920; duo 1946.
Hungary, Kingdom or, 7H per cent
1924, due 1M4.
Italian Public Utility Credit Institute, 7 per ccnt 1926, due 1952.
Lombard Electric Co. 7 per cent
1926, due 1952.
Principal
amount
$2,000,000
5,000,000
Managers
Blair & Co. (Inc.)..
-...do
25,000,000 J. P. Morgan & Co..
3,000,000
Blair & Co. (Inc.)...
2,000,000
Brown Bros
4,500,000
Speyer & Co
2,000,000
Brown Bros
1,400,000
White, Weld & Co..
5,300,000
Brown Bros...
10,000,000
Speyer & Co..
6,000,000
do
7,600,000 f — . do
1,600,000
20,000,000 Blair <St Co. (Inc.).
6,000,000 L..?io
4,000,000
Meridlonale Electric Co. 7 per cent
1027, due 1957.
10,754000
Marshall Field, Gloro Ward
& Co.
Norway, Kingdom of, bH per cent
1925, due 1965.
Piedmont Hydro-Electric Co. 5H
per cent gold notes June 15,1928,
duo June 15,1929.
Piedmont Hydro-Electric Co. 6 ^
per cent 1930, duo 1960.
Poland, Republic of. 7 per cent 1927,
, due 1947,
30,000,000
Blair & Co. (Inc.)--
4,000,000 .....do
15,000,000
Bancamerica Blair Corporation.
62,000,000 Bankers Trust Cp..,
Our participation
Amount of Offering
participaprice
tion
$700,000
35 per cent in original purchase.
25 per cent In original purchase.
4H per cent In original purchase.
£0 per cent in original purchase.
22U per cent in original purchase.
18U per cent in original purchase.
20 per cent in original purchase.
22M per cent in original purchase.
/13H per cent In original pur\ chase.
45 per cent in original purchase.
/50 per cent in original purI chase.
r
$12,912
Retired.
00
8,069
1,125,000
05
21,110
1,600,000
100
5,203
Do.
Do.
1,250,000
1GH per cont in original purchase.
20 per cent in original purchase.
do
WH
Remarks
Profit
450,000
m
4,457
843,750
02
21,028
400,000
m
1,888
315,000
100K
734
883,333
00H
4,994
80
1,200,000
03M
1,080
1,000,000
200,000
9,000,000
87 H
88
03
28,092
3,475
89,474
3,000,000
2,000,000
04
00
74,655
49,705
23.1264 per cent In purchase
group after withdrawal of
$5,412,500 for sale abroad.
18 per cent in original purchase.
£0 per cent in original purchase.
1,234,375
05M
20,723
5,400,000
mi
m
25,192
33H per cent In original purchase.
20 per cent in original purchase after $15,OQOrOOO taken abroad,
5,000,000
91H
9,400,000
92
2,000,000
10,015
o
o
Q
Do
36,082
2,000,000
w
W
o
52S
a
U1
s
Ui
H
a
HI
S
in
Do.
58,273
189,412
CO
CO
Foreign bond issues—Major participations taken by Chase Securities Corporation in issues originated or Managed by others—Continued
OO
Issue
Other European—Continued.
Iloyal Dutch Co. 4 per cent 1030,
due 1045.
Houmanla Monopolies Institute,
Kingdom of, 7 per cent 1020, due
1950.
Sanda Falls Co. (Ltd.) fi per cent
1925, due 1955.
Serbs, Croats, and Slovenes, Kingdom of, 8 per cent 1922, due 1062.
Serbs, Croats, and Slovenes, Kingdom of, 6 per cent gold notes Sept.
1,1924, due Mar. 31,1925.
Serbs, Croats, and Slovenes, Kingdom of, G per cent gold notes Mar.
31, 1925, due Sept 30, 1025.
Serbs, Croats, and Slovenes, Kingdom of, Gper cent gold notes Sept.
30,1925, due Mar. 31,1020.
Serbs, Croats, and Slovenes, Kingdom of, 6 per cent gold notes Mar.
31,1920, due Sept. 30,1920.
Serbs, Croats, and Slovenes, Kingdom of, 6 per cent gold notes Sept.
30,1020, clue Mar. 31,1927.
Serbs, Croats, and Slovenes, Kingdom of, 7 per cent 1927, due 1962.
Switzerland, Government of, 3-year
5 per cent 1923, due Aug. 1,1920.
Switzerland, Government of, syi
per cent 1944, duo 1946.
Trondjehm, city of, 5H per cent
1927t due 1957.
Warsaw, city of, 7 per cent 1928, due
1958.
Principal
amount
$40,000,000
12,000,000
Managers
Dillon Bead & Co..
Blair <fe Co. (Inc.)..
4,000,000 .—.do
15,200, GOO
do
3,000,000 .....do
Our participation
Amount of Offering
participaprice
tion
12^ per cent in purchase $5,000,000
group.
33H per cent in original pur- 4,000,000
chase.
15 per cent In purchase group.
600,000
Remorks
Profit
80^
$56,519
88
223,035
08
6,333
O
10 per cent In original purchase.
45 per cent in original purchase.
1,520,000
1,350,000
100
12,156
Retired.
MM
8
W
3,000,000
..do.,
50 per cent In original purchase^
1,500,000
100
11,215
Do,
3,000,000
..do..
In original pur45 per cent
c
chase.
1,350,000
100
9,556
Do.
w
3,000,000
..do..
.....do.
1,350,000
100
9,851
Do.
3,000,000
.do..
,.do...
1,350,000
100
9,805
B
w
Do.
-do..
30,000,000 Blair & Co
20,000,000 J. P. Morgan & Co..
30,000,000 —.do.
2,750,000
10,000,000
White Weld & Co...
Stone & Webster and Blodget, (Inc.).
13,500,000
02X
133,452
5 per cent In purchase group, 1,000,000
97.20
7,004
1,500,000
07H
12,422
550,000
07 M
16,663
89
20,099
—.do
I pei
ir cent In original purchose,
cent In original pur-
1,500,000
Do.
§
o
§
O
H
s
w
Foreign bond issues—Major participations taken by Chase Securities Corporation in issues originated or managed by others—Continued
Principal
amount
Issue
Miscellaneous:
Catch East Indies, 6 per cent 1022,
due 1W7.
Dutch East Indies, 6 per cent 1922,
due 1962.
140,000,000
Guaranty Co..
40,000,000
20,000,000
....do
25,000,000
—do—............
Dutch East Indies, 5H per cent
1923, due March, 1063.
Dutch East Indies, 5H per cent
1923, duo November, 1953.
25,000,000
Japanese Government, AH per cent
1930, due 1965.
50,000,000
Managers
-do
J. P, Morgan & Co..
Our participation
Amount of Offering
participaprioo
tion
11.4375 per cent In original $4,575,000
purchase.
4,575,000
do
11.4375 per cent in original
2,287,500
group.
11.96 percent in original pur- 2,990,625
chase.
12 per cent in original pur- 2,759,375
chase after withdrawal of
$2,000,000.
3 per cent in intermediate 1,500,000
group.
Profit
WH
$35,792
mi
96 Vj
32,322
49,246
88
23,737
90
23,501
90
31,250
Defaulted Issues
£
O
o
6
1-4
a
szj
w
Summary
Latin America...
Germany
Other European.
Miscellaneous...
Remarks
o
Principal
amount
Participation
$130,122,500
138,250,000
405,900,000
200,000,000
$26,044,582
16,871,250
84,971,458
18,687,500
$479,823
258,977
1,203,383
105,848
874,272,500
146,574,790
2,138,031
50,000,000
2,000,000
Profit
t>
CP
o
w
o
0
CO
00
cn
Foreign bond issues, major participations taken by Equitable Trust Co. in issues originated or managed by others
Issue
Latin America:
Argentine Government. 6 months
6 per cent gold notes auo Mar. 1,
1024.
Argentine Government, 6 per cent,
1024, due 1058.
Argentine Government, 4H per
cent gold notes—
Feb. 25, 1025, due Aug. 25,1025.
Mar. 1, 1025, due Sept. 1, 1025..
Argentine Government, 0 per cent,
1027, due September, lOGO.
Argentine Oovernmcnt, 5}4 per
cent. 1028, due 1002.
Argentine Government, 5 per cent
gold notes, Apr. 1,1030, due Oct.
1.1030,
Bolivia, Republic of, 8 per cent,
1022, due 1047.
Principal
amount
$65,000,000
30,000,000
20.000,000
5,000,000
40,000,000
20,000,000
Our participation
Chase Securities Corpora- Special group.
tion.
do
""Ido.V.IIIIII""""!""!
.do.
.do.
50,000,000
Chatham Phentx Corporation.
24,000,000
Spencer Trask it Co
Buenos Aire®. Province of,
per
14,472,000
cent, 1025, due 1047.
Chile. Republic of, 6 months 5 per
10,000,000
cent gold notes, due Feb. 25,1927.
Colombia Agricultural Mortgage
5,000,000
Bank of, 6 per cent, 1927, due 1947.
Colombia, Agricultural Mortgage
5,000,000
Bank of,flper cent, 1928, duo 1948.
Cuba, Republic of, 5H per cent
aerial certificatesJuly 1, 1928, due Deo. 31, 1931,
10,000,000
and Juno 30,1932,
Jan. 1, 1929, due June 30,1932,
10,000,000
to June 30,1933.
Cuba, Republic of, &H per cent 1930,
40,000,000
duo 1945.
Rio de Janeiro, city of, 0 per cent 1 10,000,000
serials 1919, due May 1,1922-May \
Managers
Chase Securities Corporation.
Blair & Co. (Inc.)
W. A. Harriman & Co.
(Inc.).
do
Chaso Securities Corporation.
Chase Securities Corporation.
, Imbrle & Co
5 per cent in original purchase.
5 per cent In purchoso group
(after $4,000,000 ceded).
5 per cent In purchaso group
(after $2,000,000 ceded).
Selling group
33H per cent In original purchase.
Amount of Offering
participaprice
tion
Profit
$2,000,000
$12,665 Retired.
00.50
1,500,000
95
11,310
1,250,000
100
1,562
26;iU per cent In original purchase.
.do..
50 per cent In purchase group.
Remarks
O
1,800,000
09.50
15,893
900,000
97
8,625
2,203,000
100
4,131
8,000,000
101
10 per cent In banking group. 1,447,200
10 per cent in original purchase.
42Ji per cent in original purchase.
...do
CO
o
Nl
Do.
§
285,972 Additional bonds purchased
from contractors at varying
prices and sold at varying
prices, bringing total principal amount Issued to
$29,000,000. In default.
23,187
1,000,000
99.875
2,125,000
92
57,900
2,125,000
93.50
38,865
2,666,666
2,666,666
10,666,666
09.75
10,216
506
100
18,105
98
197,309
5,000,000 i 97.1625
Do.
Do.
151,143
Retired.
o
w
at
o
8
8
a
0
01
Retired.
Foreign bnod issues, major participations taken by Equitable Trust Co. in issues originated or managed by others—Continued
Issue
Latin America—Continued.
It to Grande do Sul, Consolidated
municipalities State oft 7 per cent
1027, due 1967.
Rio Grande do Sul. State of, 6 per
cent 1928, due 1968.
Sao Paulo, city of, 6 per cent 1919,
due 1913.
Sao Paulo, State of, 6 per cent 1921,
due 1936.
Sao Paulo, State of, 8 per cent 1925,
duo 1950.
Sao Paulo, State of, 7 per cent 1026,
due 1056.
Sao Paulo, State of, 6 per cent 1928,
due 1968.
Germany:
Berlin, City of, 6H per cent 1925,
due 1050.
Berlin Electric Elevated and Underground
per cent 1924, due 1953.
Brandenburg Electric Power Co. 6
per cent 1928, due 1953.
Deutsche Bank 6 per cent notes 1929,
due 1932.
Dresden, city of, 7 per cent 1925, due
1945.
German Consolidated Municipal
Loan of German Savings Banks
and Clearing Association 7 per
cent 1926, due 1947.
German Consolidated Municipal
Loan of Gorman Savings Banks
and Clearing Association 6 per
cent 1928, duo 1947.
Prussian Electric Co. 0 per cent
1929. due 1054.
Prussia, Free State of, 6H per cent
1926, due 1951.
i Average.
Principal
amount
$4,000,000
Managers
Our participation
33tf per cent In original purchase.
S. G. White 6 Co.
Amount of Offering
participaprice
tion
$1,333,333
97
$20,503
In default.
Do.
White Weld & Co..
Special group
1,0001000
01.25
11,781
8,500,000
Tmbrle it Co
50 per cent in purchase group.
4,250,000
95.50
41,694
10,000,000
Speyer A Co
1,930,500
97.50
88,603
15,000,000
....do
19.305 per cent In original
purchase.
M per cent In original purchase.
0.4914 per cent In original
purchase.
6H per cent In original purchase.
1,000,000
99.50
487,000
96.50
1,000,000
94.50
25 per cent In original purchase.
23U per cent In original purchase (nfter sale of $3,000,000 abroad.)
50 per cent in original purchase.
8 per cent In banking group..
3,750,000
89
67,667
2,820,000
94.50
37,230
2,500,000
93.50
17,601
2,000,000
99.50
18,732
23,000,000
7,500,000
....do...............
15,000,000
do
15,000,000
...do
15,000,000
...do
5,000,000
25,000,000
5,000,000
15,000,000
-
E. H . Rollins & Sons...
Dillon Read & Co
Speyer & Co.
Harris, Forbes A C o . . .
8,000,000
17,500,000
Harris, Forbes & Co.
4,000,000
..do..
20,000,000
,.do..
4 per oent in original purchase.
8Jf per cent In purchase
group.
—..do
4
8H per cent in purchase
group.
14# per cent In original purchase.
20 per cent in original purchase.
200,000
94
Remarks
Profit
Jan. 1, 1932, sinking fund
partially paid.
36,083 Nov. 15, 1931, sinking fund
partially paid.
i n i , service
k i viu) paid
fjttltl
opt. 1. 1931,
18,295 Sept.
partially from reserve fund.
17,180 Juliy 1,1931, service paid from
reserve fund.
tti
©
O
M
ft
H
O
52S
W
O
u
IP
o
»
3,745
0
1
1,250,000
94.75
34,389
606,666
1,458,333
98
94.50
15,001
11,307
571,429
91
2,250
4,000,000
95
79,057
CO
Foreign bond issuest major participations taken by Equitable Trust Co. in issues originated or managed by others—Continued
Principal
amount
Issue
Germany—Continued.
Prussia, Froe State of, participation
certificatesMay 24,1027 due, Aug. 24, 1027.
Aug. 24,1927 due, Nov. 23, 1927.
Prussia, Free State of, 0 per cent,
1927, due 1952.
Other European:
Helsingfors, city of, 6H por cent
1930, duo 1900.
Hungary, Kingdom of, 7H per cont
1924, due 1944,
Royal Dutch Co., 4 per cent 1930,
due 1945.
Our participation
Managers
Amount of
tpartlcipa- OfTering
price
tlon
$s,ooaooo ^Harris, Forbes & C o . . — — 20 per cent in original pur- r$i, ooaooo
\ 1,000,000
5,000,000
chase.
14?4 per cont In original pur- 4,214,000
30,000,000
chase (after ccdlng $500,000
abroad}.
8,000,000
33W per cent in original pur- 2,660,600
chase.
30 percent in original purchase /\ 2,254000
450,000
3,000,000
7H per ccnt in purchase
group.
Brown Bros. & Co
7,500,000 JSpayor & Co.
1,500,000
40,000,000 Dillon Road & Co
Profit
100
98.778
96.50
Retired.
Do.
$38,934
95
25,930
87.50
88
89.50
66,347
11,668
24,212
SUMMARY
Principal
amount
Latin America
Germany......
Other E u r o p e a n . . . . . . * . . . . . . . . . . . . . . . . . . . . .
Total
Defaulted issues
* Docs not Include $5,000,000 additional Bolivian bonds.
.....
.....
$431,472,000
169,500.000
57,000,000
657,972,000
51,000,000
Participation
$56,351,031
25,430,428
8,3G6,666
9a 148.125
10^ 333,333
Remarks
Profit
$1,071,528
327,887
128,157
1,527,572
Major participations taken by Harris, Forbes <fr Co., in issues originated or managed by others
Bavaria, Free State of:
OH per cent serial bonds 1925-1015.....
OH Per cent bonds 1925-1045
Treasury notes. June 10,1927-Juno 10,1928.
Berlin City Electric Co.:
6H per cent bonds 1920-195!
6H per cent bonds 1029-1059
6 per cent bonds 1930-1955
Dortmund Municipal Utilities, OH per cent
bonds 1928-1048.
German External, 7 per cent loan 1924-1949...
German Government, 5H per cent loan 19301905.
German Provincial and Communal Bank,
OH Per cent bonds 1928-1058.
Rentenbank:
7 per cent bonds 1925-1950
0 per cent bonds 1927-1900
0 per cent bonds Oct. 15,1927-Oct. 15,1900.
0 per cent bonds, series A 192&-1938
Westphalia United Electric Power Corporation:
OH per cent bonds 1925-1950
0 per cent bonds 1928-1953-...
Westphalia, Provincial Bank of, 0 per cent
notes 1928-1933.
Principal
amount
Managers
Our participation
Amount of
participations
Offering
price
Profit
10,000,000
Equitable Trust C o . .
....do
.....
....do
33H per cent in original purchaso..
20,000,000
....do
m
§§§
Issue
20,000,000
15,000,000
15,000,000
3,000,000
Dillon Read.
....do
....do
Field Glore..
5 per cent In purchaso g r o u p . . . .
do
do
27.7 per cent in purchaso group..
1,000,000
750.000
750,000
833,000
96
03M
90H
91H
J. P. Morgan & C o .
.do
3H per cent in banking group
do
3,667,000
3,000.000
92
90
Lee Hfgginson.
20.83 per cent in purchase group..
5,209,000
97M
20 per cent in purchaso group.
.....do............................
.....do............................
10.07 per cent in purchase group..
5,000,000
0,000,000
10,000.000
4,107,000
8*
87K
92 H
97 X
81,973
130,180
25,235
95
20,523
m
95X
52,087
13,290
43,012
28,057
48,167
40,092
40,144
$15,000,000
110,000,000
98,250,000
25,000,000
25,000,000 National City Co
30,000,000
50,000,000 *
do
25,000,000 . . . . d o
clo
7,600,000
20,000.000
3,000,000
Speyer & Co
33Hj>er cent In purchase group.
do..
International Account Bank. 22*6 per cent In purchase group .
2,600,000
6,067,000
007,000
25,000,000
J. P. Morgan & C o .
3.15 per cent in purchase group..
787,500
• 02.96875 $144,234
02?f
87,940
95.7234
17,635
03
95
Remarks
Retired.
10,309
13,410
14,360
30,590
144,460
80,697
44,205
128,054
60,318
87,489
36,903
50,000,000
do
25,000,000 . . . . d o
............
30,000,000 . . . . . d o . . . . . . . . . . . . . .
30,000,000
50,000,000
.do..—.........
50,000,000
50,000,000 " i i d S : : : : : : : : : : : : : :
m per cent in purchase group
5.76 per cont in distributing group
3\i per cent in purchase group
do
4 per cent in purchase group
§iiii§§
OTBftft EUROPEAN
Austrian Government, 7 per cent loan 10301957.
Belgium, Kingdom of;
7H percent bonds 1920-1015
6 per cent notes 1920-1925
8 per cent bonds 1921-1941
OH per cent bonds 1924-1949
0 per cent bonds 1925-1955
7 per cent bonds 1925-1955
7 per cent bonds 1920-1950
....
i Average.
100
94
87H
98
94
Do.
Do.
Do.
CO
Major participations taken by Harris, Forbes & Co., in issues originated or managed by others—Continued
i
i
Issue
Principal
amount
Managers
Our participation
Amount of
participations
OfTering
price
Profit
Remarks
OTHER EUROPEAN—continued
1028-1053.
$45,000,000
Kuhn Loeb & C o .
Z}i per cent In original group
15,000,000
National City C o .
OH per cent In distributing group.
$1,500,000
92H
$23,204
1,000,000
97 H
16,013
Retired.
833,000
833,000
100
94H
30,955
21,288
Do.
2.3 per cent in distributing group
2.8 per cent in distributing group.
5,807,000
2,607,000
99M
101
79,871
27, OM
Do.
4.00 per cent in original group..
4 per ccnt in original group
do
12H per cent in original group..
4,667,000
4,000,000
4,000,000
1,250,000
100
95
94
99
151,058
101,081
118,887
33,128
Do.
do
Kuhn, Loeb <fc Co...
2.0 per cent in oiler in group
2.1 per cent in distributing group..
2,666,700
85Q.OOO
National City Co
do
J. P. Morgan & Co
Goldman Sachs & Co.
per cent in original g r o u p —
10 per cent in purchase group...
SH per cent in purchase group
0 per cent in purchase croup
3J$ per cent in purchase group...
2H per cent in distributing group
mm
Bordeaux, Lyons, and Marseille, cities of,
6 per cent bonds 1619-1031.
Danish Consolidated Municipalities, 8 per
cent loan 1021-1040.
Denmark, Kingdom of:
8 per cent loan 1020-1045
6 per cent loan 1022-19*2...
Great Britain and Ireland, United Kingdom
of:
534 per cent notes, 1917-1929
5H per cent bonds 1919-1937.-*
...
Prance, Republic of:
8 per cent loan 1920-1945
1M per cent loair 1921-1941.....
7 per cent bonds 1924-1919
Francamerlcan Industrial Development Co.,
7H per cent bonds 1922-1W2.
Italy, Kingdom of, 7 per cent bonds 1025-1951.
Netherlands, Kingdom of, 0 per ccnt bonds
1924- 19M.
Norway, Kingdom of:
8 per cent bonds 1920-1940
0 per cent bonds 1922-1952
.
0 per cent bonds 1023-1943
6 per cent loan 1924-1914
_
Nord Railway Co., OH per cent loan 1924-1950.
Paris. Lyon, and Mediterranean Railroad., 6
per cent bonds 1921-1958.
Royal Dutch Co.. 4 tier cent bonds 1930-1915.
Rowe, city of, OH per cent bonds 1027-1052—
Seine, department ot, 7 per cent bonds 1G221912.
Switzerland, Government of:
8 per cent bonds 192O-1W0
5 per cent bonds 1923-1926
B&per ccnt bonds 1924-1046-_
Term ltydro Electrlo Co., OH per cent bonds
40,000,000
30,000,000
25,000,000
Dillon, Read & Co..
J. P. Morgan & Co..
Kuhn, Loeb & Co
3K per cent In distributing group
2.2 per cent In distributing group
3 per cent in issuing group
25,000,000
ijco Higginson & C o .
J. P. Morgan & Co...
do
Karriman
5.3 per cent In original group.
25,000,000
30,000,000
250,000,000
95,000,000
100,000,000
100,000,000
100,000,000
10,000,000
100,000,000
40,000,000
20,000,000
18,000,000
20,000,000
25,000,000
15,000,000
20,000,000
20,000.000
30,000,000
12,000,000
doi_. "."rii.inr.i.i
J. P. Morgan & Co
do
..do.
..do.do.
.do..
3H P°r cent in distributing group..
2.77 per cent in distributing group..
..do.
35 H per cent in purchase group..
SH
89,010
25,430
100
100
96H
97W
88H
mi
31.460
21,329
32.138
41,406
18.100
16,373
1,400,000
667,000
750,000
89H
91
oom
19,253
17,528
19,080
1,333,000
933,000
1,400,000
4.260,000
100
97W
35,512
11,010
19,481
149,496
S8
Do.
Do.
Do.
Do.
Major participations taken by Harrist Forbes & Co., in issues originated or managed by others—Continued
Issue
Principal
amount
Managers
Our participation
Amount of
partlcipalions
Offering
price
Profit
Remarks
LATIN AMERICA
Argentine Government;
0 per cent loan 1925-June, 1050
6 per cent loan 1925-Oct., 1959
6 per cent loan 1927-Feb., 1061
6 per cent loan 1927-May, 1961
Buenos Aires, City of, 6K Per cent loan 19241955.
Buenos Aires, Province of:
7 per cent loon 1925-1957
7 per cent loan 1927-1953...
6H per cent loon 1930-1961.
6H per cent 0 month notes Jan. 1-June
30,1030.
Baragua Sugar Co., 7H per cent loan 1922-1937.
Chile, Republic of:
8 per cent loan 1921-1941
7 per cent loan 1922-1942
6 per ccnt loan 1928-January, 1961
6 per cent loan 1928-September, 1961
6 per cent loan 1929-1962
6 per cent loan 1930-1963
Cuba, Republic of:
5H per cent loan 1923-1953
5H per cent serial 1927-1931-37
Cuban American Sugar Co., 8 per cent loan
1921-1631.
Francisco Sugar Co., 7H per cent loan 19221912.
Sao Paulo, city of, 6H per cent 1927-1957...
45,000,000
29,700,000
27,000,000
21,200,000
8,490,000
24,121.000
First National Corporation,
Boston.
10,613.000 Hallgarten & Co
11,675*000 First National Old Colony
Corporation.
4,000,000 . . . . d o . . . . .
4,500,000
Hayden Stone & Co..
1,333,000
667,000
833,000
500.000
1,330,555
96
»
99
96H
41,691
11,441
12,529
8,574
78,203
5.5 per cent In distributing group..
1,330,000
WH
43,467
Retired.
9.4 in distributing group
667,000
2,721,166
95
16,411
65*914
Do.
1,886
Do.
23K per cent I n purchase group
17.08 per cent In distributing group
100
62,771
In default.
2,016,000
99
51,591
32,901
34,578
10,830
10,120
17,565
Rotired.
In default
Do.
Do.
Do.
Do.
50,000,000 J. P. Morgan & Co..
9.000,000
do
10k 000,000 National City C o . . .
8.3 per cent In purchase group
6% per cent in distributing group.
10 per cent in distributing group..
4,167,000
600,000
35H per cent in original group
5,900,000
First National Corporation,
Boston.
75,000.000 J. P. Morgan & Co..
40,000,000
do
50,000,000
..do
40,000,000
40.000,000
20,000,000
Guaranty Co.
.do
O
1,350,000
25,000,000
Bankers Trust Co..
W
683,333
21,000.000 J. P. Morgan & Co
18,000,000 National City Co
45,912,000
do
16,000.000
do
10.000,000
5.000.000
01
3 per cent in distributing group
2.2 In distributing group
3.1 por ccnt in distributing group
2.4 per ccnt In distributing group
15.6 per cent In original group
20 per cent In original group
12.6 per cent In original group
8.33 per cent In orlgnal group
2.8 per cent in distributing group...
3.1 per ccnt In distributing group...
5.25 per cent in distributing group..
3.5 per cent In distributing group...
MISCELLANEOUS
Australia, Commonwealth of:
5 per ccnt 1025-1955
5 per ccnt 1927-1957
4H per cont 1928-1956
Dutch East Indies:
6 per cent 1922-1947
6 per cent 1922-1962
6 per ccnt 1922-1962
J. P. Morgan A Co..
do
do.
—do
Dillon Read
1,500,000
1,333,000
500,000
525,000
875,000
394f
m
1,000,000
101.122
100
22,851
2,408
14,470
1,775,000
100
88,345
25 per cent in original purchase..
1,475,000
98
52,332 In default.
4.4 per ccnt in purchase group
3.75 per cent In banking group
3.35 per cent In distributing group..
3,333,000
1,500,000
1,667,000
99H
98
92H
41,546
20,184
26,602
2,750,000
2,917,000
1,458,500
96
70,018
59,644
40,495
6.8 per cent In purchaso group.:
7.2 per cont in purchase group..
. . 7.2 per cent in distributing group..
hi
O
O
W
o
Sw
0
w
£
1
Q
Retired.
g
Major participations taken by Harris, Forbes & Co., in issues originated or managed by others—Continued
Principal
amount
Issue
Managers
Our participation
Amount of
participations
Offering
price
Profit
to
Remarks
MISCELLANEOUS—continued
Dutch East Indies—Continued.
5M per cent 1023-1053
6\i per cent 1023-November, 1953
Great Consolidated Electric Power:
7 per cent 1924-1944
6H per cent 1925-1950
Japanese Government:
6H per cent 1024-1054
m per cent 1930-1065
New South Wales:
5 per cent, 1027-Apr. 1,1958
5 per cent, 1927-Feb. 1, 1957
Tntwain Electric Power,
per cent 1931-1971,
Toho Electric Power:
7 per cent 1025-1055
6 per cent notes, 1020-1932
Tokyo, City of, 5H per cent 1027-1061
Tokyo Electric Power Co.:
6 per cent 1025-1928
6 per cent, 1028-1953
UJlgawa Electric Power, 7 per cent, 192&-1945.
$25,000,000
25,000,000
Guaranty Co—
do..
7.7 per cent In purchase group..
7 per cent in purchase group....
15,000,000 Dillon Read.
13,500,000 ....do
3H per cent In banking group.
6.4 per cent in banking group..
3.5 per cent in original group
150,000,000 J. P. Morgan & Co..,
do
50,000,000
4.2 per cent in intermediate group..
25,000,000 Equitable Trust Co..
25,000,000
do
22,800,000 J. P. Morgan b Co...
22.2 j>er cent In original group
15,000,000 Guaranty Co
do
11,450,000
20,640,000 J. P. Morgan & Co...
5.4 per cent in intermediate group..
4.4 per cent In banking group
10.5 per cent In banking group
3.5 per cent in distributing group..
24,000,000
70,000,000
14,000,000
5.2 per cent in distributing group..
8 per cent in purchase group
13.4 per cent In purchase group—
Guaranty Co
do.
Leo Higglnson.
$1,927,000
1,773,000
131,410
27,876
500,000
876,000
24,570
24,989
5,333,000
2,100,000
132,452
30,842
5,555,000
5,555,000
1,234 000
57,875
78,993
12,007
667,000
1,202,000
73-1,000
31,592
19,067
10,938
1,250,000
5,600,000
1,875,000
31,447
83,638
73,902
Principal
amount
Total
Defaulted issues
.
6
O
hj
M
O
W
M
M
s
Retired.
w
o
fej
u
CP
.8
SUMMARY
Other European...
Latin Amorlca
Miscellaneous..
cn
>
Participation
Profit
$491,750,000
1,520,000,000
...
. . . . . . . . . . . . . . . . . . . . . . . 405,111,500
771,390,000
- .....
$65,210,000
6a 074,200
27,184,054
49,801,500
$1,152, m
1,443,780
680,968
040,077
3,188,251,500
178,412,000
202,269,754
7,558,000
4,217,825
*
w
0
d
w
i—i
1CO
SALE OF FOREIGN* BONDS OR SECURITIES
Supplemental
Statement
of
Thomas
W.
Lamont,
of
J. P.
443
Morgan
&
Co.
United States
Senate,
Committee on
Finance,
Washington, January 6, 1932.
Mr. I s a a c
M.
Stewart,
Clerk Committee on Finance,
United Stales Senate.
D e a r M r . S t e w a r t : I have received the inclosed statement from Mr. Lamont
wftich should accompany his testimony on Friday, December 18. It is in reply
to a question I asked him about the retirement of the Chile bonds.
Sincerely yours,
Hiram
Bingham.
Memorandum.
$24,000,000 Republic of Chile 8 per cent bonds dated February 1, 1921, and
due February 1, 1941.
The above bonds were publicly offered by a group headed by J. P. Morgan & Co.
on February 15,1921, at a public offering price of 99 per cent and accrued interest.
The Guaranty Trust Co., Trustee, advises that $8,112,000 principal amount of
the issue was retired by operation of the sinking fund on or prior to August 1,
1928, on which date the remaining $15,888,000 imncipal amount of bonds outstanding were redeemed at 110 per cent of the principal amount ot the offices of
Guaranty Trust Co. of New York.
On January 24, 1928, an issue of $45,912,000 principal amount of Republic
of Chile Railway refunding sinking fund 6 per cent gold external bonds due
January 1, 1961, was offered for public subscription at 93J4 per cent and accrued
interest by a group headed by the National City Co.
The circular descriptive of the issue states tbe proceeds from such issue would
be applied to the extent of $16,830,000 to the redemption on August 1, 1928, of
the outstanding Republic of Chile external loan 20-year sinking fund 8 per cent
gold bonds dated February 1,1921, and to the extent of $8,662,500 to the redemption on May 1, 1928, of the outstanding Republic of Chile external loan 25-year
8 per cent sinking fund bonds dated November 1, 1921, and for other purposes.
SALE OF FOBEIGN BONDS OB SECUBITIES IN THE
UNITED STATES
T U E S D A Y , JANTJABY 6, 1 9 3 2
UNITED STATES SENATE,
COMMITTEE ON FINANCE,
Washington, D. C.
The committee met at 10 o'clock a. m., pursuant to adjournment
on yesterday, in the committee hearing room in the Senate Office
Building, Senator Reed Smoot presiding.
Present: Senators Smoot (chairman), Watson, Shortridge, Couzens,
Jones, Metcalf, Harrison, King, George, Connally, Gore, and Hull.
Present also: Senator Johnson.
The CHAIRMAN. The committee will come to order. Mr. Dillon,
if you will come forward and hold up your right hand. You do
solemnly swear that the evidence you will give before this committee
in the hearing under investigation will be the truth, the whole truth,
and nothing but the truth, so help you God.
M r . DILLON. I d o .
T E S T I M O N Y
O F
O F
C L A R E N C E
D I L L O N ,
R E A D
D I L L O N ,
&
CO.,
A
M E M B E R
N E W
Y O R K
O F
T H E
F I R M
C I T Y
(The witness was duly sworn by the chairman of the committee.)
Senator JOHNSON. Mr. Chairman, just before Mr. Dillon begins
his testimony may I ask, please, of the chairman and members of
the committee, that the house of Morgan be requested to furnish us
with the gross profits in dollars and cents derived from each particular issue, and then if they desire to state their net profits as well,
all right. The statement furnished to us last night by Mr. Aldrich
I spent some time upon later on in the evening, and I find that it is
a veiy complete statement. I see no reason why if the Chase National
Bank and its conferees can submit a statement of that sort we should
not have a similar statement from the house of Morgan. But I am
not asking for it in that detail. What I do ask is the house of Morgan
be requested to send to us the exact data upon the gross profits received by that house upon each loan made by it as designated in the
statement it did file. May I ask that?
The CHAIRMAN. Together with their net profits?
Senator JOHNSON. If they desire to state their net profits or any
other information it will be all right.
The CHAIRMAN. I think that-would be necessary in order to show
the profits made.
Senator JOHNSON. It is immaterial to me. Let it be both gross
and net. Also, if you will pardon me a moment, also in the same
fashion that the statement furnished us last night shows, the originating or first syndicate in relation to the loan made* I do not know
*
445
446
SALTE OF FOREIGN BONDS OR SECURITIES
whether the members of the committee have read the statement furnished by Mr. Aldrich last night, but in each instance, the Chase
establishment gives us the original group, and the percentage of each
group; For instance, in order that I may illustrate and make plain:
On the very first page of the statement, the first issue, Dominion of
Canada 1-year 4 per cent note, September 15, 1924, and then the
amount of that, the amount outstanding, the purpose of the issue,
the interest then of the original group, the interest being the Chase
Securities Corporation, Blair~& Co., Equitable Trust Co., and others,
with their percentages given, and then a statement of "Our participation" in it, stating the amount of their participation, with the purchase price, the offering price, the gross spread, and the profit. Now,
if the Chase organization can furnish us a statement of that sort I
think it is not inappropriate that the house of Morgan should be
requested to furnish us a similar statement. Would you like to see
Mr. Aldrich's statement, Senator George?
Senator GEORGE. I have looked at it.
Senator JOHNSON. You understand what I am driving at then?
Senator GEORGE. Yes.
Senator JONES. I should like to say that I would be more interested
in the net profit.
Senator JOHNSON. Veiy well.
Senator JONES. It seems to me they would be glad to furnish that.
We could draw all sorts of conclusions as to gross profit.
The CHAIRMAN. It won't hurt to have them both.
Senator JONES. I think we should have them both.
Senator JOHNSON. I thank you very much. Now, Mr. Dillon,
I hope you have a statement for us like that.
Mr. DILLON. I think we have eveiything you will want. My
associate here, who will follow me, will give all of the details.
Senator JOHNSON. All right.
Senator HARRISON. Before Mr. Dillon proceeds with his testimony
I should like to say I am interested in a copy of a letter that was
written by the Chemical Foundation to the chairman of this committee, which I think ought to go into the record. I move that it
be incorporated in the record.
The CHAIRMAN. T O follow the testimony given by Mr. Dillon
to-day.
Senator HARRISON. All right.
Senator JOHNSON. Senator Harrison, might I inquire what is the
nature of the letter?
Senator HARRISON. I do not think that Senator Johnson will raise
any objection to it.
Senator JOHNSON. Oh, no, my inquiry was not with that idea. I
would not have any objection anyway.
Senator HARRISON. It is in reference to foreign loans, and how
they diminish the credit to Americans in this country, and how they
increase the credit in foreign countries of foreign governments and
their nationals.
The CHAIRMAN. It will be made a part of the record following the
testimony given by Mr. Dillon to-day.
(A letter from the Chemical Foundation (Inc.), under date of
December 31, 1931, addressed to Hon. Reed Smoot, chairman,
Senate Finance Committee, will be found at the end of to-day's
proceedings.)
SALE OF FOREIGN* BONDS OR SECURITIES
447
The CHAIRMAN. Mr. Dillon, what company do you represent?
Mr. DILLON. I represent Dillon, Read & Co.
Senator GEORGE. At what location?
Mr. DILLON. New York.
The CHAIRMAN. Mr. Dillon, have you any statement you desire to
make at this time?
Mr. DILLON. I have read the resolution authorizing the committee's investigation, and have prepared a brief statement and some
figures which I think conform to what you want from me.
The CHAIRMAN. T O begin with, we would like to have you read
that statement if it is short.
Mr. DILLON. Very well. In considering this entire question of
foreign loans I think we must realize that our transition from a
debtor to a creditor nation came veiy suddenly as the result of the
war, and the change in our mental outlook has taken time and requires more time for a corresponding adjustment. Over our history
our needs have been such that all our surplus wealth has been needed
to develop our own resources and pay interest and principal on our
debts. Consequently we have had ingrained in us the attitude of a
debtor nation but now we suddenly find ourselves a creditor nation,
with our own resources—both agricultural and manufacturing—overdeveloped, producing far in excess of our own power of consumption.
And as a creditor nation we are developing capital very quickly.
In the past we could ship our surplus production to pay our debts.
That we can no longer do. Also bemg a creditor nation, other nations
are not taking our goods, but, in paying us, will be pressmg us to accept
their goods. So we must determine what we are going to do with
capital—certainly not at the moment to further develop our own
resources, now largely overdeveloped, but rather to get rid of our surplus production, agricultural, mineral, and manufactured. In order
to do this we must take in exchange the products of other countries
or make loans, or both. Otherwise we shall be forced to a curtailment
of our own production with the corresponding lowering of our standard
of living.
When we make a foreign loan, it very seldom results in the export
of United States currency but is the means of payment of a debt to us
or the transfer of goods somewhere. Again, we must determine what
is the most advantageous use the United States can make of her surplus capital in her own (not anybody else's) interest, certainly not
in further overbuilding and not in making bad loans but in making
good loans to countries who are potential buyers. This means to
Europe, who are potential buyers of our surplus in agriculture and
minerals and to South American countries, who are potential buyers of
our manufactured products, and to the extent that we make loans
to South America we are going to be exporters of goods.
In considering foreign debts, I think they should be put into three
distinct categories:
1. Those owed to institutions or individuals of one country by
natitutions or individuals of another country. t
2. Those owed by governments or subdivisions of governments,
such as municipalities, to institutions or individuals of another
country.
3. Those owed by one government to another government.
448
SALTE OF FOREIGN BONDS OR SECURITIES
As to the first category, I am certain the private debtors are going
to pay unless extraordinary political or economic forces make itimpossible. In every country the integrity of the individual still remains. The larger private corporations to whom we have loaned
money are to-day solvent, and wherever there is any difficulty in
meeting their foreign obligations as in the short-term credits to this
country, it is a question of transfer, that is, their ability to get:dollars
rather than their solvency.
As to the second category, of course, these are more susceptible to
political influences, but as to them I believe they will be paid. If
you can not assuifle that, then there is no basis left for the continuation of our civilization.
As to the third, the debts between governments, these have always
been in a different class. Nations have not paid nations so much
from the sanctity of the obligation as from the expediency of the
moment. Whether these debts are paid or not paid is largely a
political question, primarily, in every country. If they are large
enough they naturally have a reflex on other debts, and each country
must consider what repercussions its handling of these debts will
have on its own situation.
I have prepared a summary of the foreign financing that our house
has done. In the period since the war the total amount of those
issues that we have handled, that is, where we have handled the
account, and I have not included issues where other banking houses
or banks have handled the account and where we may have participated for small amounts; but I am giving you Senators the figures
where we have handled the account.
The total of such issues amounts to $1,491,228,543.
Senator WATSON. Over what length of time?
Mr. DILLON. Since Januaiy 1, 1919.
Senator JOHNSON. Could you state, now, approximately how much
you participated in in addition to that?
Mr. DILLON. Senator Johnson, I think if you would let me finish,
if I may be allowed to?
Senator JOHNSON. Surely. Take your own way if you are going
to reach that point.
Mr. DILLON. Thank you. Of . that § 1 , 4 9 1 , 2 2 8 , 5 4 3 we originally
sold abroad, at the time of the offering of these securities in this
country, $270,918,000. Since the offering of these securities there
has been retired by sinking funds and calls $301,575,000. So that
on January 1, 1931, and I have no more recent figure, there was
outstanding less than $1,000,000,000; in fact, the figure would be
about $900,000,000 of the total amount of $1,491,228,543. Of that
amount it is difficult to say just how much is left in this country
because very large amounts of these foreign loans have b e e n bought
back by the nationals of the issuing countries. For instance, the
Dutch loan has been largely bought back, and many G e r m a n obligations have been bought back by German nationals and Germap
banks. The Dutch Government has called $ 3 5 , 0 0 0 , 0 0 0 of their
loans now outstanding, for payment in April. The loans that we
have made have been divided as follows:
The amount outstanding on Januaiy 1, 1931
Senator JOHNSON (interposing). Do you mean 1931 or 1930?
Mr. DILLON. I mean 1931.
SALE OF FOREIGN* BONDS OR SECURITIES
449
Senator JOHNSON. All right.
Mr. DILLON. There yon have a total outstanding in round numbers 81,100,000,000 as against the original amount of 81,491,228,543.
Canada has 8499,000,000. And you gentlemen will understand that
I am not now reading the odd hundreds of thousands of dollars.
Germany, 8252,000,000; Holland, 8115,000,000; France, 822,000,000;
Italy, 832,000,000; Poland, 827,000,000: South America, 8209,000,000;
and Japan, 830,000,000, making a total of 81,189,000,000, which was
the amount outstanding on January 1, 1931.
Senator GORE. Were there any Cuban bonds?
Mr. DILLON. N O Cuban bonds at all. We have not issued any
Cuban bonds. Senator Gore, my associate tells me that there was a
small issue of two million odd dollars for a sugar company, which is
an American company, but which has properties in Cuba.
Senator WATSON. Of the 8 4 9 9 , 0 0 0 , 0 0 0 in Canada, does that mean
in all the three categories that you have mentioned?
Mr. DILLON. Those are the totals of our loans.
Senator WATSON. Of all three categories in the way of loans to
Canada?
M r . DILLON. Y e s , sir.
Senator WATSON. Could
you segregate those or separate those so
that we might have the information?
Mr. DILLON. My associate will have a complete list and will give
you, as you will see when that is turned in, the details of every one
of those, and just which were to municipalities, and which were to
corporations. The majority of that amount was to corporations,
but whose obligations were guaranteed unconditionally by the
Canadian Government, both as to principal and interest.
Senator WATSON. Have there been any defaults whatever in the
payment at the proper time of any of these loans in any of these
countries?
Mr. DILLON. There have been no defaults whatever in the 8499,000,000 to Canada; no defaults whatever in the 8252,000,000 to
Germany, no defaults whatever in the 8115,000,000 to Holland; no
defaults whatsoever in the 822,000,000 to France, no defaults whatever in the 832,000,000 to Italy; no defaults whatever in the 827,000,000 to Poland; no defaults whatever in the 830,000,000 to Japan.
But in the South American loans of 8209,000,000 there was as of
January 1,1932, 837,000,000 to Bolivia in default. As to 852,000,000
m the two Brazilian issues, the Brazilian Government has announced
that it will fund them over a period o f - —
Senator WATSON (interposing). Were those Government loans?
Mr. DILLON. Those were Government loans. And they have
announced that they will fund over a period not exceeding three years
ttie interest on those bonds which they can not pay in dollars. This
Brazil has done in the past. She did it in 1898 for a 3-year period,
and she did it again in 1914 for a 3-year period. In both cases they
resumed their payments at the end of the period, and the funding
obligations which they gave over that-period were good.
Senator K I N G . Was any part of the sinking fund in default ?
Mr. DILLON. Interest and sinking fund were both funded,,
. Senator K I N G . A S to this large sum you have given, did any banks
to the United States or elsewhere participate, or were the loans floated
entirely by you?
r:
450
SAU3 OF FOREIGN" BONDS OB SECURITIES
i
Mr. DILLON. In the syndicates which we formed I should say that
banks both in this country and possibly bankers abroad had interests
in some of these totals.
Senator K I N G . Did the National City or the Chase or any of our
larger banks in New York participate with you in these transactions?
Mr. DILLON. Yes; in some of these transactions they did.
Senator K I N G . But your company was the principal force or the
paramount force in the taking of these loans and in allocating them
and disposing of them, I mean of these securities.
Mr. DILLON. I did not hear the early part of your question.
Senator K I N G . Was your company the manager of these securities
or of these loans that you have just indicated, amounting to, in round
numbers, $1,400,000,000?
Mr. DILLON. We, in conjunction with our associates, took the
accounts.
Senator KING. Who took the lead in them?
M r . DILLON. W e d i d .
Senator HARRISON. Mr. Dillon, you share the opinion, do you not,
that one of our troubles to-day, is lack of credit in this country?
Mr. DILLON. Yes. that is one of our troubles.
Senator HARRISON. A great many banks have contracted their
credits and it is difficult for persons or corporations to borrow even
though they may have what appears to be good security, and that
has rather slowed up industry in the United States. That is true,
is it not?
Senator GORE. Senator Harrison, I did not understand the last
part of your question.
Senator HARRISON. I asked Mr. Dillon if it were not true that
because of the frame of the public mind or whatnot, there was a contraction of credit, and that it had had its influence in the slowing of
the activities of industry* commerce or whatnot. That is true
generally, is it not, Mr. Dillon?
Mr. DILLON. I do not know at the moment of any demand for
money by borrowers for the development of industry, for the sale of
their goods, that is not being met.
Senator HARRISON. It is your opinion then that in the various
communities throughout the United States it is pretty easy for a
fellow to go to a bank and borrow now if he has adequate security.
Mr. DILLON. That is not what I said.
Senator HARBISON. Well, I just wanted to put it the other way
round, because I thought my question answered your answer, and
veiy much so. There is a contraction of credit upon the part of
banking institutions to-day, isn't there?
Mr. DILLON. My own institution, Senator Harrison, is not engaged
in commercial banking, and I should rather not express an opinion
on whether national banks or commercial banks are properly handling
their business.
Senator HARRISON. I am not asking you about a n y particular
bank but just generally speaking. I did not think that was a controverted question. I thought everybody was agreed that there was
a little contraction of credit on the part of banks in the making of
loans.
Mr. DILLON. It is difficult to sell securities to-day.
Senator HARRISON. And it is difficult to borrow money.
SALE OF FOREIGN* BONDS OR SECURITIES
451
Mr. DILLON. On those securities do you mean?
Senator HARRISON. Well, what not. It may be that some witness
has testified to this and I have not been able to be present all the time
during these hearings, but when you make a loan in a foreign country,
that forms a basis of credit, do not economists say, of about five times
the amount of the loan?
Mr. DILLON. Are you asking me that question?
Senator HARRISON. I do not know. One economist might say
five times and another a greater or lesser amount, and I do not know.
Senator HARRISON. What would you say as to a loan to Germany
of a million dollars? Would that furnish a credit of several times a
million dollars, or I mean a basis of credit of that amount for the
people?
Mr. DILLON. I do not know that. I should not think so. If
you loaned Germany a million dollars, then Germany has a credit
of a million dollars in this country.
Senator HARRISON. Then do I understand you to say that economists so far as you know do not agree on a basis of the extent of
credit resulting from a loan, that it is several times the amount of
the actual loan?
Mr. DILLON. I do not understand that to be the case.
Senator HARRISON. But if that were true it would deprive us here
in tills country of American money of that amount and of a like
credit, would it not?
Mr. DILLON. Senator Harrison, I should think if the credit were
demanded and needed in this country it would be used in this country. The only credit that is available for foreign loans is the surplus
credit in this country.
Senator HARRISON. Well, I will put it this way: In other words, if
there was a demand for credit in the United States, a need for money,
and we had loaned, say, in foreign countries a fixed amount, and
economists generally thought that the credit augmented very greatly
or was enlarged over the basis of the loan, that when we had loaned
that money in foreign countries we had thus deprived to that extent
American citizens of such basis of credit, do we not?
Mr. DILLON. No, I should not say so.
The CHAIRMAN. Mr. Dillon, while those foreign loans were being
made do you know of any American who asked for credit and who
had a proper standing for getting credit, who did not get that credit?
Mr. DILLON. NO. The only loans made abroad were surplus
credits in this country.
Senator HARRISON. Well, that was in normal times. That was,
we will say, when we had prosperity.
Mr. DILLON. NO; that is at any time a foreign loan is made.
Senator HARRISON. So you would say now, in these times, while
we may differ as to contraction of credit upon the part of banking
institutions, and the plentiful amount of credit that one can get
Senator SHORTRIDGE (interposing). If he has securities to put up.
Senator HARRISON. Yes. The fact that we may have loaned
$650,000,000 to Germany, and billions of dollars elsewhere, in prior
years, when there was surplus credit, and now with this money being
out, outside of the United States, would you say it was not having
any effect or influence upon the ability of Americans to borrow money
at this time?'
452
SALTE OF FOREIGN BONDS OR SECURITIES
Mr. DILLON. D O you say at this time?
Senator HARRISON. Yes.
Mr. DILLON. Senator Harrison, when that money was being loaned
abroad, when you say that six billions of dollars
Senator HARRISON (interposing). No; I said § 6 5 0 , 0 0 0 , 0 0 0 to Germany.
Mr. DILLON. Oh, to Germany alone.
Senator HARRISON. Yes.
Mr. DILLON. But during the period when we were making foreign
loans, over that period, foreign governments paid this Government
something over two and a hdf billion dollars. They bought many
billions of dollars worth of our goods. Whether they could have done
any or all of that had we not been making those credits to my mind
is very clearly answered; they could not. So if you want to go and
unwind all this I do not know at what point you should start, or
when the sale of our goods would have stopped, or when payments
by foreign governments to us would have stopped.
Senator HARRISON. Mr. Dillon, let me get your views on this,
because you have a great nations! reputation as an economist and
financier.
Mr. DILLON. A S an economist, sir?
Senator COUZENS. I hope not.
M r . DILLON. O h , n o .
Senator WATSON. Senator Harrison, don't run
Senator HARRISON. Suppose American money
him down that way.
is loaned in foreign
countries, be it in Canada or elsewhere, and this money is put into
factories to make goods and to give employment to foreign labor in
competition with our own, do you believe that is good business
policy? Do you think that is helpful to the United States?
Mr. DILLON. I do not think your statement is a correct statement,
sir, of the facts. I think the lending of money abroad for the developing of the resources of our potential customers, who are going to buy
our goods, is veiy good business, not only good business but essential
business if we are going to sell out surplus products.
Senator HARRISON. Then would you carry that out by putting
a tariff wall so high that they could not sell us their goods?
Senator WATSON. I did not know that we had a tariff bill before us.
Senator SHORTRIDGE. That subject is not before this committee.
Senator HARRISON. That is true to some extent, but, Mr. Dillon,
you do not want to qualify your statement with reference to the
tariff at all, do you?
Senator COUZENS. I had not heard Mr. Dillon make any statement
about the tariff.
Senator SHORTRIDGE. NO, and I wonder if the gentleman from Mississippi wants cotton to come in free.
The CHAIRMAN. Senator Harrison, is your theory as follows:
That when they had these billions of dollars more than they could
possibly have loaned in the United States, with no demand for it in
the United States, the banks ought to have kept all that money ia
their vaults thinking that perhaps some day in the future there might
be a demand for it?
Senator HARRISON. I do not know that that is particularly my
theory.
The CHAIRMAN. That is substantially your question.
SAJJE OF FOREIGN BONDS OB SECURITIES
453
Senator COUZENS. May I ask the chairman if Senator Harrison is a
witness?
The CHAIRMAN. I do not know, but he has made certain statements.
Senator HARRISON. The chairman has asked me a question and
I think I ought to be able to answer him on the proposition. I think
the more money we are loaning in foreign countries the more money
we take away from the credit in this country. And I think further
if we did not have so much money loaned in foreign countries at this
time we would have a little more money to loan to American citizens.
The CHAIRMAN. Yes, and hindsights are better than foresights.
Senator HARRISON. That is true. I think that is all I wish to ask.
Senator K I N G . Without desiring to controvert the position of our
colleague I should like to ask Mr. Dillon: Assuming that we do loan
a considerable amount of money abroad and that we get securities
for those loans, and that those securities are gilt-edge, would they
not be the basis for credit in the United States extended to Americans
who may desire to borrow money? That is to say, supposing that I
had purchased $50,000 of French bonds, or of German bonds, and
now desired credit in the United States, could I use those bonds as
a basis for credit at the banks?
Mr. DILLON. Yes. Those bonds are the same as any other collateral at the banks.
Senator KING. I could use those as collateral the same as I would
use American bonds which I might have purchased, by way of getting
money out of a bank, in place of using American securities.
Mr. DILLON. The question that you have asked is, could you use
these bonds better than American bonds. It so happens that French
bonds to-day are selling nearer the price you paid for them than some
American bonds sell for.
Senator SHORTRIDGE. D O you mean Government bonds? Do you
say that French Government bonds are better than American Government bonds?
Mr. DILLON. Oh, no, I did not say better, I said that on the
French bond to-day Senator King, you could borrow probably better
that you could on certain American security that you may have
purchased. I supposed in my answer that you meant any sort of
American bond, but not an American Government bond.
Senator WATSON. And they are not eligible for rediscount at the
Federal reserve banks.
Mr. DILLON. And neither are our public utility bonds so eligible
for rediscount.
Senator WATSON. You spoke of German loans. Of what did the
loans consist? I believe you referred to $250,000,000.
Mr. DILLON. Will you let mefinishmy answer to the other question?
Senator WATSON. Certainly.
Mr. DILLON. The French bonds which you asked about using as
collateral, my associate here calls my attention to the fact that they
recently sold for 112.
Senator K I N G . The French bonds?
M r . DILLON. Y e s , sir.
Senator K I N G . What do our Government bonds sell for?
Mr. DILLON. Well, it is a question of the coupon. Our 3's were
selling at 87 or 88, but the French bond calls for 7 per cent. ,You
454
SALTE OF FOREIGN BONDS OR SECURITIES
can not compare them. And I want to say that you can not compare
the credit of any other countiy with the credit of the United States
Government. The credit of the United States Government is preeminently in a class by itself. But unfortunately for the investor
the United States is not in the market to use all the funds that are
to be invested. Therefore, you must put funds into something else,
and you must decide what is the next best thing to put your funds
into when you can not loan them to the United States Government.
Senator K I N G . Perhaps this is not quite germane to the question,
but was it dangerous to the United States a number of years ago
when we were building our railroads and extending our industries
to borrow, as we did, hundreds of millions of dollars from France
and Germany and other countries to invest in the United States?
Was it dangerous to us as well as to the lending countries?
Mr. DILLON. I should not think so, sir.
Senator K I N G . YOU know that many of our railroads were built
with foreign money.
M r . DILLON. Y e s , sir.
Senator KING. And that
with foreign money.
many of our industries were built up
M r . DILLON. Y e s , sir.
Senator KING. And we
profited and they profited. So generally
speaking, without reference to any contention as to depriving solvent
corporations of loans, the proper loaning of money to countries or
corporations is advantageous. It brings nations closer together, and
tends to promote trade and commerce, does it not?
M r . DILLON. Y e s .
Senator GORE. Mr. Dillon, several of these foreign issues floated
in the last few years bear 7 per cent interest the same as the French
issue.
Mr. DILLON. Over the period of the last 9 or 10 years we are
talking about?
Senator GORE. Yes.
Mr. DILLON. Yes, I think probably there were a number of them.
Senator GORE. Did that rate of interest have anything to do with
our money going abroad, regardless of whether there was a surplus
of credits in this country or not?
Mr. DILLON. I should say not.
Senator GORE. And if you were offered a 5 per cent loan in this
country and a 7 per cent loan abroad you accept the lower rate of
interest unless there is a surplus to respond to the 7 per c e n t rate?
Mr. DILLON. If there is a demand for money in this country and
you can get equally good security abroad at a higher rate, why/ the
demand in this country would probably have to meet that rate.
Senator GORE. SO it is not always a question of surplus. It is somewhat a question of the rate.
Mr. DILLON. No, it is a question of surplus, because this countiy
would use its own money.
Senator GORE. If you call any creadit that goes abroad, regardless
of circumstances or as to surplus, then of course that ends it. That
is a mere matter of definition.
^
Mr. DILLON. I think it is, quite.
SAXJE OF FOREIGN .BONDS OB ^SECURITIES
455
•• Senator GORE. That when it goes abroad in response to ;a higher
rate than the local rate, it still reflects the surplus and bears the
character of surplus.
Mr. DILLON. Or else we should keep it here. v'
-Senator GORE. YOU would keep it here and lend it at a lower rate
of interest unless it entered some sort of definition of surplus.
Mr. DILLON. I do not think you could get it here at a lower rate.
I do not know how you would control that.
Senator GORE. That is the point.
Senator COUZENS. It would automatically raise the rate in this
country.
. >
Mr. DILLON. I think you will find that, the .money rates in the
world are reflected from one market to another, because capital is
mobile. A good deal of the capital invested in this country is from
foreign countries.
*
Senator GORE. And money responds to the rate; of interest.
=: i
. .Senator K I N G . Mr. Dillon, I want to ask you whether or not in
1926, 1927, .1928, and 1929, but more particularly in 1928 and 1929,
during this gambling era, there were large sums of money, or any
sums of money, from European or other nations lying here in America
for call and used on call in the New York market. 4
:vi
Mr. DILLON. I should think that is a question to ask the conv
mercial banks who handle that sort of business. They could giyjs
you the facts much better than I could.
} ;
Senator K I N G . Don't you know as a matter of common knowledge
being engaged in this business and selling securities during the yeara
to which I have referred, that money was here from France and
Germany and other countries abroad,.and wa$ invested through -the
banks and through brokers in New York?
o
, Mr. DILLON. Certainly some money was, but T thought you wantep
jie to tell you the .amounts, which I would not know.
. .
Senator KIN&. Didn't your firm. use, some: foreign^money
purchase of securities or lend some foreign money? •
. Air. DiLLON. JFor foreign account?
- ••
•" ?
;. :,. r, v <
Senator KINO'. "Yes.,
.
Mr. DILLON. Only very small balances that we were carrying for
foreign account were loaned on call.
. i
j
t>;
Senator K I N G . Do you know whether Germany loaned on call in
New York, or in the United States during the period to which I have
•referred?'"..'-','.'.'
T Mr. DILLON. They did not through.my house,, I do not know
whether they did. through other institutions or not*.;..
v< Senator K I N G . You stated a moment $ago. tliat German nationals
had purchased a considerable amount of. bonds of their own issue. ;j
Mr. DILLON. Yes, sir.
. . .... .;*/:.•
Senator K I N G . Where did they get the money with which- to purchase? ..ft Germany is hard up where did thosp nationals get the
money with which to. purchase their own bonds?.TiV n
= ! ni l
•Mr. DILLON. I .did not follow,fcliroughand ask them. They paid
Vsfor the bonds they bought. *
vm ;
.JIUI)
Vt;
^ Senator; K I N G . .Do you know the amount of bonds that Germany
flas purchased in the .United States during the past two years?> ,.t\
? ,Mr< iDiLLON^ No; I do notv!i The:amount thatwe,havesbought
%iGeman^cwuntj^tfiejr.o^^
you, butitisaii
9292S—32—pt2
11
456
SALE OF FOREIGN BONDS OR SECURITIES
immaterial amount, as I state here, $270,000,000 were sold abroad
at the time of our offering.
Senator K I N G . Of German bonds.
Mr. DILLON. N O ; that is our foreign bonds. That would include
the Germans and the Dutch and so on, at the time of our offerings.
I do not know the percentage, but $270,000,000 were bought by
.foreigners.
Senator COUZENS. And not by Germany alone?
M r . DILLON. NO.
Senator COUZENS. YOU
have not segregated the amount bought by
German citizens?
Mr. DILLON. NO. But we have been selling since then to foreign
accounts.
Senator KING. Have you any way of determining whether the
German bonds that were bought in Germany were acquired by
individuals or by investment companies or by banks?
Mr. DILLON. They were acquired, I should think, by banking
•institutions and by the borrower buying back his own obligations
to a certain extent.
Senator K I N G . D O you mean corporations?
Mr. DILLON. Yes. You see, Senator King, our loans to Germany
-have been largely, or entirely with the exception of possibly an item
of $3,000,000, our whole $252,000,000 has been to corporations. We
have made no long-term loans to the German Government as such
or to municipalities or to subdivisions of the government. Our loans
have been made to corporations and business organizations in Germany.
Senator K I N G . In view of a question answered yesterday by one
of the witnesses I want to ask you, if you care to express an opinion
about it: Did your company make an investigation in Germany as
to the solvency, resources, potentialities, of the corporations whose
bonds youfloatedin the United States?
Mr. DILLON. There are two sorts of investigations that we make:
The legality of your issue, which was, I think, one of the questions you
asked on yesterday; and the potential ability of the borrower to pay.
These two investigations are made in a veiy thorough and exhaustive
fashion. As to legality, we have that matter examined by foreign
counsel, the authorization of the corporation to borrow. W e have
examined the statute under which the corpotation enjoys its corporate
entity. We examine the laws of the land that govern that. Then we
have American counsel check through t h e opinion of foreign counsel,
and give us a joint opinion on all that;firstas to the legality as far as
the authorization of the company itself is concerned, and then as to
by-laws and the incorporation of the corporation; then as to the law
of the land under whicn it was incorporated. That is a m o s t exhaustive examination.
Senator K I N G . These are always matters that are inquired into,
but I am more concerned about the matter of economic condition.
Mr. DILLON. Then economic condition is inquired into quite carefully, the history of the company is gone into from its inception.
Their accounts, bv their own accountants, are e x a m i n e d for years
back. Then in addition to that, firms in A m e r i c a , firms other than
Germanfirms,are put on the books by us, and check their audits, and
make their own independent audits, and report back over a period
SALE OF FOREIGN* BONDS OR SECURITIES
457
of years the operations of the corporation or company. We go further
into the question of where their products are sold, particularly with the
idea of, their being able to pay in foreign exchange, in dollars. We
check up the company and see what proportion of its product is sold
abroad for which they are paid in foreign currency, and what part is
sold in the countiy itself; the debts, if any, of the company, the record
of dividends, ana a complete and most thorough investigation is
made from the inception of the company.
Senator KING. Tnen, you were convinced, from the examinations
-you made, as to the soundness of the economic condition of Germany?
Mr. DILLON. We are convinced, before we make a loan to any
company, as to the soundness of that company and its ability to
repay that loan.
Senator K I N G . That company; but, of course, being an integral
part of the nation and of its economic structure, that bore some
relation to it. Was it your opinion, then, that the loans which you
made, or the securities which you sold here, were of companies which
not only were sound, but that the economic structure with which
they were connected was sound?
Mr. DILLON. The loans that were made at that time we felt were
good. We thought that they would be repaid. To-day we are
equally certain that they are good and will be repaid, unless some
political or economic catastrophe which no man can foresee happens to
prevent those individuals paying.
Senator SHORTRIDGE. There has been no default in the payment
of interest?
Mr. DILLON. We have had no defaults in the payment of interest
or sinking fund in the case of any loans in Europe.
Senator JOHNSON. In order to make it perfectly plain as to the
investigations you made with reference to the particular loans which
frou have described as to Germany, such investigation as was. absolutely essential to convince you of the validity of the loan and as to
its appropriateness, and as to the ability of the debtor to pay, was
made every instance by you where loans were managed by you?
Mr. DILLON. In every instance.
Senator JOHNSON. That applies to South America as well as to
Europe?
M r . DILLON.
Yes.
Senator SHORTRIDGE. There have been no defaults in the payment
of interest. You believe that the interest and the principal, to become
due will be paid in due course?
Mr. DILLON. Barring only, as I say, some extraordinary economic
or political upheaval ; I do, sir.
—
. Senator SHORTRIDGE. Assuming that to be so, may I ask you what
is the market value of these several securities which were acquired
by you and distributed in the manner you have described? What is
their present market value here in America?
Mr. DILLON. That would be a rather lengthy answer, going over
them in detail, but I think,, to satisfy your question, I can say the
market value is low.
* ,Senator SHORTRIDGE. Why is that?: That seems a simple question,
'but it has been many times propounded, and I venture to propound
*t. If a stock is good, if a bond is good, .if there has been no default
458
SAIJE OF FOREIGN BONDS OB SEOUBITIES
iir the payment, the company is solvent and going, how comes it that
that bona, then, is selling way below par? What is the reason?
; Mr. D i l l o n . I wish I could answer that; but the same thing that
applies to these foreign bonds, whatever that influence may be, applies
.to our own local securities.
Senator SHORTBIDGE. Precisely. Why is it?
Mr. DILLON. I can'not answer that.
Senator WATSON. That is what we call psychology, is it, or mental
attitude?
Mr. DILLON. Possibly. I would really like to know that answer
myself.
Senator WATSON. It is the mental attitude.
Mr. DILLON. That is it; but what brings about the mental attitude?
Senator SHORTKIDGE. Some economist might tell us. Perhaps
Senator Harrison can explain it. I do not know.
Senator JOHNSON. Have youfinishedthe statement you desire to
make, Mr. Dillon? Had you concluded your preliminary statement
entirely?
M r . DILLON. Y e s .
Senator GORE. Let me ask a question here, because it is appropriate
at this point. I was not here when you began. Were you requested
to place in the record a copy of a typical contract which your house
enters into with a foreign government in preparing to float a loan?
M r . DILLON. N O , sir.
Senator GORE; Would you object to placing that in the record?
M r . DILLON. N o , sir.
Senator GORE. Would you also place in the record a typical contract between your house, as the managing house, and the underwriting syndicate?
Mr. DILLON. I shall be glad to.
Senator GORE. Does England have a law, order, or regulation
requiring a managing liouse preparing to float a foreign loan to
-publish the contract with the managingliouse, or between the managing house and the borrower on the foreign loan?
Mr. DILLON. I am not familiar with the British laws.
Senator GORE. France does. ; The Minister of Finance in France
has to visa any foreign security before it can be listed on their Bourse,
.or stock exchange.
T
Mr.r DILLON. I do not know that.
- Senator GORE. All right. Thank you.
*
Senator JOHNSON. D O you recall whether or not, in the latter part
of 1927, the State Department addressed a letter to the houses that
were engaged in dealing with foreign securities, suggesting that no
further foreign loans should" be inade? h
Mr. ;DiLLON. I doriot;recall.
,
Senator JOHNSON. YOU do not recall1 any such letter?
Mr. DILLON. N O , I doriot:;
i
Senator JOHNSON. Do you recall the time that the State of Prussia
wknted to borrow $30,000,000/or float a $30,000,000 loan in the
r
United States?
„,
"
Mr; D i l l o n They didriotnegotiate with us. I do not recall.
Senator JOHNSON. Did you participate in that loan at all? ?
M r . DILLON. N o ^ w e d i d h o t ; -
vl
A
'
-
-
4 1
1
SALE OF FOREIGN* BONDS OR SECURITIES
459
Senator JOHNSON. D O you recall whether or not Secretary Kellogg
at that time had anything to say in respect to that particular loan?
' Mr. DILLON. I d o n o t , sir.
Senator JOHNSON. D O you
remember the statement that was made
by S. Parker Gilbert in the latter part of 1927 regarding Germany
being overbon owed?
Mr. DILLON. I heard you talk of it yesterday, sir.
Senator JOHNSON. I mean beyond that—not simply what I said
yesterday, but are you familiar with the fact?
Mr. DILLON. I understand that ho made some such statement;yes.
Senator JOHNSON. D O you recall having read it at the time that
statement was made by Mr. Gilbert?
,
Mr. DILLON. I undoubtedly read it; yes.
: Senator JOHNSON. Was it accurate?
,
.^Mr. DILLON. I do not know. I do , not like to pass upon the,
accuracy of Mr. Gilbert's statement.
Senator JOHNSON. A S to Germany being over borrowed in the latter
part of 1927, do you know whether or not that was accurate?.
Mr. DILLON. You mean the German Government?
Senator JOHNSON. Yes; and also German industrials.
Mr. DILLON. I do not think that any of the German industrials to
whom we loaned money, were overborrowed.
r Senator JOHNSON. I am not speaking of those-?—
Senator WATSON. Let me ask a question right there. Have you:
loaned any money there since 1927?
Mr. DILLON. In Germany?
Senator WATSON. Yes.
Mr. DILLON. I can give you that exactly, sir.
Senator WATSON. You will pardon me, Senator,
i Senator JOHNSON. Surely.
Mr. DILLON. In 1928 we loaned about thirty-odd million dollars
to different German industrials.
Senator JOHNSON. D O you know when the last German governmental loan was floated?
Mr. DILLON. The Young bonds, I suppose you refer to?
Senator JOHNSON. $300,000,000, was it not?
Mr. DILLON. I do not remember the year.
Senator JOHNSON. Did you participate in that loan?
Mr. DILLON. Not as a principal.
. Senator JOHNSON. I know; not as a principal, but did not all of you
take part of the loan?
Mr. DILLON. I think probably we bought some of those bonds.
I can let you know by looking that up.
Senator JOHNSON. YOU have before you, have you not, a statement
of all the foreign loans that have been made by you?
#
Mr. DILLON. Y e s .
Senator JOHNSON.
time, is it not?
That statement is in front of you at the present
M r . DILLON. Y e s .
Senator JOHNSON. Do you recall the Bolivian loans?
Mr. DILLON. Yes. There was a Bolivian loan in 1927.
Senator JOHNSON. H O W much was that?
Mr. DILLON. $ 1 4 , 0 0 0 , 0 0 0 .
460
SA3JE OF FOREIGN: BONDS OR SECURITIES
Senator JOHNSON. Were you* the principal in that loan?
Mr. DILLON. We were.
Senator JOHNSON. D O you recall the subsequent loans to Bolivia?
Mr. DILLON. There was one in 1928?
Senator JOHNSON. How much?
M r . DILLON. $ 2 3 , 0 0 0 , 0 0 0 .
Senator JOHNSON. Were you the principal in that?
Mr. DILLON. We were.
Senator JOHNSON. What was the profit that you made
out of that
loan?
Mr. DILLON. The gross receipt was $ 2 5 5 , 0 0 0 .
Senator JOHNSON^ And of the first Mr. DILLON. When you say "profit," Senator, that is our gross
receipt, before deducting any of our operating expenses.
Senator JOHNSOK. Yes. We will consider that in reference to all
those, that you speak of gross receipts, before deducting your operating expenses.
Mr. DILLON. That is correct.
Senator JOHNSON. All right. What was the profit in the first
Bolivian loan, if you please?
Mr. DILLON. Not profit. Again, may I correct you, Senator.
Senator JOHNSON. Very well.
Mr. DILLON. Our gross receipt, before we deduct any of our
expenses, which were .veiy*. large, on the-first Bolivian loan; was
$500,000.
Senator JOHNSON. Was there a third Bolivian loan?
Mr. DILLON. NO; that is all.
Senator JOHNSON. Just two?
Mr. DILLON. Just two.
Senator JOHNSON. What has become of those loans?
Mr. DILLON. They are both in default as to the payment of
interest.
Senator JOHNSON. D O you know why?
Mr. DILLON. And sinking fund.
Senator JOHNSON. D O you know why?
Mr. DILLON. The resources of the country, its inability to collect
taxes, which is largely dependent on the tin market.
Senator JOHNSON. Were all you gentlemen who were engaged M
floating loans in South America competing in the South American
capitals for the management of those loans?
Mr. DILLON. I think it is accurate when I say that in no instance
did we compete for business. I mean, we negotiated with the
Government direct, not at the same time as others.
Senator JOHNSON. D O you recall
.. .
M r . DILLON. We have declined to make bids for securities IN
competition with other people.
,
Senator JOHNSON. D O you recall whether you had any local
representative in Bolivia at the time of the negotiations, or at any time
during the negotiations in respect to those loans?
.Mr. DILLON, The Bolivians came to New York in both those cases.
Senator WATSON. Senator, was that a governmental loan, or a
loan to a corporation?
\
Mr. DILLON. A governmental loan.
Senator WATSON. In both instances to Bolivia?
SALE OF FOREIGN* BONDS OR SECURITIES
461
Mr. DILLON. Both instances; and this is the first time, Senator, I
might add, in that connection, that Bolivia has ever defaulted in
recent history. I think, when you consider the repercussions on the
revenue of a^ government due to the economic changes that have
taken place, it is not surprising that a country like Bolivia, under
these present conditions, is forced to suspend its interest payments,
when you think of our own Government's revenues, in 1929 and 1930
we had a surplus, I think, of five hundred to eight hundred million
dollars. One year later we have a deficit of two thousand million
dollars, roughly. The revenue of a government is very sensitive to
the economic structure of its country.
Senator JOHNSON. D O you recall, in conjunction with the Bolivian
loan, that the Minister of Finance got into any difficulties?
Mr. DILLON. N O , s i r .
YOU
M r . DILLON. N O .
Senator JOHNSON. Y O U
Senator JOHNSON.
have no knowledge on that subject at all?
do not know that he was accused of having
accepted a bribe of $40,000 in respect to that governmental loan?
Mr. DILLON. N O , s i r .
Senator JOHNSON. D O you recall making a loan to Milan, Italy?
Mr. DILLON. Yes: we aid make a loan to Milan, Italy, in 1927.
Senator JOHNSON. What was the amount of that loan, please?
Mr. DILLON- $30,000,000. Our profit, as you call it, that is, our
gross receipt, was $78,000.
Senator JOHNSON. D O you recall whether or not there were any
court proceedings in Cremona with respect to that particular loan?
Mr. DILLON. My associate says there were.
Senator JOHNSON. D O you remember— if you do not recall it is not
necessary for you to state—as to whether or not any particular official,
was charged, in regard to that loan, with having received some
portion of it, or having received some money in respect to it?
Mr. DILLON. I do not know.
Mr. HAYWARD. I am not sworn, Senator. Perhaps I had better
not say any thing.
Senator JOHNSON. YOU may state it, if you know.
Mr. HAYWARD. I understand he was so chained, and that he was
exonerated. We made no payment, of course. We had nothing to
do with it.
Senator SHORTRIDGE. What was the charge?
Senator JOHNSON. D O you remember a loan of $ 2 5 , 0 0 0 , 0 0 0 to the;
Central Railroad of Brazil?
Mr. DILLON. There was a loan in 1922, Seniator, to the Brazilian
Government of $25,000,000. I think that may be the loan you refer to.:
Senator JOHNSON. That is the loan, yes—$25,000,000.
Mr. DILLON. $25,000,000.
Senator JOHNSON. What was the amount that you received on
that loan?
Mr. DILLON. Our gross receipts on that were $ 3 2 1 , 0 0 0 .
Senator JOHNSON. Can you produce, please, the prospectus in
relation to that loan that was sent out by your house?
M r . DILLON. Y e s ,
Senator JOHNSON* Will you kindly do it at your convenience?
Mr. DILLON. Y e s .
* >
!
-
462.
SATiB OE FOREIGN 7BONDS ;OB SECURITIES
J Senator JOHNSON. D O ' y o u recall that the prospectus there stated
that it was for electrification?
' M R ; DILLON; • AS I recall,lit stated that part of it was for'electric
fication.
r Senator JOHNSON: That is now practically eight years ago. Do :
you ^know whether or not there has ever been any electrification of;
the raiboad, for which the loan was made?
'
.
r/Mr. DiLLON. I understand there has been no electrification done
yet,: but the Government has recently asked for tenders and pro-posals on the electrification.
;.
Senator JOHNSON. Is that loan defaulted?
nMrli D i l l o n s ) Yes; that loan is now defaulted. They have funded,
or announced*their intention of funding, which improbably a technical!
difference.
n
Senator R JOHNS ON. That is a, technical word f o r d e f a u l t i n g for the
moment?
} :>:<'
^Mr: Dii^K/> No. ' The difference is this. T h e j r p a y you the
interest/ but they pay it in their own obligations, which are interest;
bearing, rather than do nothing, you see, which is a default. • i Brazil
hasVdone that in the past on two different occasions, as I have said,
and both itimes they have made good.
-v.
u^
Senator JoHNsoN. iln this instance is .there any interest i n default?
ISME/DILLONI' The 1st of December interest W*s not paid. *A .
Senator JOHNSON. D O you know whether or not the sinking fund"
has been-provided for?
• .<: :
>.
;• oi. Mr. DILLON. Again; on the 1st of December, it wasriotprovided)
for.
*
.v .
I Senator JOHNSON. So that, in relation to the electrification of that
particular railroad in Brazil, that was to be electrified eight years;
ago, on a loan of $25,000,000, thus far there has been no electrifica-.'
tion, and in December of last year, neither the interest was paid norj
was the sinking fund provided for.
i Mr. D I L L O N / Of that $25,000,000 loan, to the Brazilian G o v e r n m e n t
at that time, only $8,000,000 was to be used for electrification, and!
they are now aslang for tenders on that, and it is $8,000,000 of the
$25,000,000 you are talking about, not the $25,000,000, when you
speak of the electrification.
Senator JOHNSON. My interest in it arose from the fact of the investigation that was made originally in regard to these particular
loans that you said had been made by you in each instance.'
Mr. DILLON. That is correct, sir.
Senator JOHNSON. All right. In December both the interest was
passed and the sinking fund was not attended to, either, is that correct I
Mr. DILLON. That is correct.
Senator JOHNSON. That is accurate?
.
Mr. DILLON. They were not paid or attended to because they had
decided on a funding.
Senator SHORTRIDOE. Is it a Government-owned railroad?
Mr. DILLON. It is a Government loan, to the Brazilian G o v e r n ment. It is not to the railroad. There was no loan made to any
railroad. The loan was made to the Government.
Senator JOHNSON. Were you interested in the loan to Peru?
M r . DILLON. N O , sir.
•*
SALE OF FOREIGN* BONDS OR SECURITIES
463
Senator JOHNSON. That is, you had no portion at all of the interest?
Mr. DILLON. NO.
Senator JOHNSON. That was J. & W, Seligmann & Co.?
Mr. DILLON. I do not recall.
Senator WATSON. Does the Government own the railroad in Brazil?
Mr. DILLON. It does.
Air. HAYWARD. It owns it 100 per cent. It is operated by the
Ministry of Railroads. It is not even a corporation.
Senator SHORTRIDGE. But the loan is for the railroad?
Mr. HAYWARD. Y e s .
Mr. DILLON. It is just a department of the Government.
Senator JOHNSON. I do not know whether the Senator from Indiana
was asking the question to demonstrate how poor the railroad was,
or how ready our financiers were to lend to a government-owned
enterprise outside the United States. I am not clear as to which
was in his mind.
Mr. DILLON. Senator, wo did not loan to a government-owned
enterprise. We loaned to the government.
Senator JOHNSON. Yes.
Mr. DILLON. That enterprise is in the same relation to the government as our post office is to ours. That enterprise is not a separate
corporation. It is operated as a department of the government.
Senator JOHNSON., But your loan related to the railroad.
Mr. DILLON.. Eight million of the twenty-five million was to be
used for the electrification, so they told us.
Senator JOHNSON. " S O they told us," you say.
Mr. DILLON. Yes. That was at the time they made the loan,
explaining what they were using it for.
Senator JOHNSON. You will furnish that prospectus, and that will
enable us to see.
Mr. DILLON. Yes.
Dillon, Head &
Co.,
New York, January 7, 1932.
The Hon. R e e d
Shoot,
United States Senate Office Building,
Washington, D. C.
Mr D e a r S e n a t o r : During the course of Mr. Dillon's testimony before your
committee on Tuesday, wo were asked to submit three documents which I take
pleasure in inclosing herewith: (a) A typical syndicate letter used in our office,
W The original prospectus covering the United States of Brazil 7 per cent loan
of 1922. (c) A typical foreign loan contract.
I trust the above will meet your requirements.Very truly yours,
R o b t . O.
Hayward.
$25,000,000 U n i t e d S t a t e s ' o r B r a z i l ( C e n t r a l R a i l w a y
Electrification
Loan o r 1922) 3 0 - Y e a r 7 P e r C e n t G o l d
Bonds
Dated June 1, 1922. Interest pavable .Tunc 1 and December 1. Due June
V 1952. Principal, interest, and sinking fund payable in New York City in
United States gold coin at the office of Dillon, Read & Co., fiscal agents of Brazil
in the United States. Coupon bonds of $1,000 and $500 denominations, with
Provision for registration of principal. Exempt from all Brazilian taxes present
w future. Application will be made in due course to list these bonds on the New
*ork Stock Exchange. Noncallable for 15 years. Callable thereafter only for
ranking fund at 102 and interest. .
.
w ine Brazilian Government covenants to make semiannual sinking fund payr
sufficient to retire the loan by maturity at 102 and interest.
j
464
SALTE OF FOREIGN BONDS OR SECURITIES
The bonds are to be the direct obligation of the Government of the United
States of Brazil and specifically secured by a first charge on the gross operating
revenues of the Central Railway of Brazil.
purpose
op
issue
The proceeds of the loan are to be used in part, to provide for the electrification
of the suburban division of the railway which is owned by the Government of
Brazil and is without bonded debt.
central
railway
op
brazil
The Central Railway is the principal railway system of Brazil, operating approximately 1,563 miles of line, serving the important States of Rio de Janeiro,
Sao Paulo and Minas Geraes.
sinking
fund
The sinking fund payments during the first fifteen years of the life of the loan
are to be sufficient to purchase each six months, one-sixtieth of the total authorized
loan if bonds are obtainable in the open market at or below par. If not so
; obtainable any balance unexpended at the end of six months reverts to the
Government. Thereafter sinking fund payments are to be sufficient to retire
the entire outstanding issue, in equal semiannual installments, either by purchase
in the market up to 102 and interest or by call by lot at that price, thus assuring
holders who retain their bonds payment at 102 and accrued interest.
'
'
:If:
natural
wealth
The area of Brazil is 3,300,000 square miles, covering nearly half of South
America. It is, approximately equal to the combined area of continental United
States, the United Kingdom, and France. Its population of approximately
30,000,000 represents half the total population of the South American continent.
Brazil has vast natural wealth, and the increasing investment of foreign and
local capital;is rapidly bringing out the nation's resources. Brazil is said to
contain the world's greatest reserves of timber , and iron ore, and has large
.deposits of other essential minerals. It produces 70 per cent of the world's
coffee, and supplies some of the finest grades of rubber which can not be grown
in the East.
We offer the above bonds for delivery when, as, and if issued and received by
us, subject to the approval of legal proceedings by counsel. It is expected that
interim receipts of Dillon, Read & Co., or temporary bonds of the United States
of Brazil will be ready for delivery on or about June 22, 1922. Price, 96# and
interest. To net about 7.30 per cent.
Dillon, Read & Co.; Lee, Higginson & Co.; Blair & Co. (Inc.);
White, Weld
Co.; Continental <fc Commercial Trust <fe Savings Bank; Halsev, Stuart <fc Co. (Inc.): Bonbright & Co. (Inc.);
Illinois Trust & Savings Bank: The Union Trust Co. of Pittsburgh; The Union Trust Co., Cleveland.
The information contained in this circular has been obtained partly from cable
and other official sources. While not guaranteed, it is accepted by us as accurate.
June,
1922.
$40,000,000
Royal
Dutch
Co.
t b e
por t h e Working of
Nbtherland-Indies
Petroleum
Wells
in
Four per cent debentures, Series A (with share purchase warrants). To be
dated April 1 , 1 9 3 0 . To mature April 1 , 1 9 4 5 .
N e w Y o r k , March 21, 1930.
We and our associates are forming a selling group, of which w e
are to be the managers and in which we may participate, to offer the abovementioned debentures (with share purchase warrants) on the terms herein stated,
if, when and as issued and accepted by us subject to approval of legal proceedings
by counsel. The term "debentures" as used herein shall include temporary
or definitive debentures with warrants attached, or interim receipts in respect
of such debentures with warrants. We and our associates shall profit by this
transaction.
D e a r Sirs:
SALE OF FOREIGN* BONDS OR SECURITIES
465
We invite you to bccomc a member of such selling group, on the terms and
conditions set forth herein.
The offering price of the debentures is to be S9>4 and accrued interest from
April 1,1030.
From this price you will be allowed & selling commission of 2 per cent on all
debentures the sale of which is confirmed by us to you, out of which you may
reallow one-fourth, of 1 to dealers, banking institutions and insurance companies.
The managers may charge the selling group with expenses in connection with the
purchase and/or sale of this issue, which they in their discretion may deem fair.
Selling commissions, less expenses, will be payable, except as provided below,
after the termination of the selling group, if the debentures shall have been
issued and accepted by us as above. The managers, in their discretion, and
without notice to members, may change the offering price, and in general, or in
such special eases as they may determine, the selling commission and the reallowance on sales. AD sales must be made for delivery if, when and as the debentures are issued and accepted by us subject to approval of legal proceedings by
counsel.
During the life of the selling group no offerings or sales of the debentures shall
be made by members, directly or indirectly, in Great Britain or continental
Europe except with the consent of the managers.
, The offering price must be maintained on all sales, exceptjas otherwise permitted
by the managers. Members will be responsible during the life of the selling group
and for a period of seven days thereafter for debentures sold by them. The
managers, during the life of the selling groun may repurchase any debentures
purchased by any member and offered at or below the offering price, and shall
have the right either to withhold from such member the selling commission on
such debentures or to require such member to repurchase such debentures at a
price equal to the cost thereof to the managers, including brokerage, but not exceeding the offering price, even though debentures delivered to such member
against such repurchases may not be the Identical debentures repurchased by
the managers or may not be delivered until after the expiration of the selling group.
The selling group will expire on May 19, 1930. The managers, however, on
notice to the members, may extend the agreement,and the duration of the selling
group for not exceeding an aggregate of 60 days thereafter. ISuch agreement may
be terminated and the selling group dissolved by the managers at any time at
their discretion, whether or not extended, by notice to the members.
Nothing herein contained shall constitute the members partners with us or
with our associates or with one another, nor shall we or our associates be liable
for the obligations of members. Neither we nor our associates, shall be deemed
to warrant, or be subject to any liability with respcct to, the issue, form, genuineness/validity, enforceability or value of the debentures, or the validity or the provisions of any instrument under or pursuant to which the same may be issued, or
anyrepresentationsmade herein or in any circular or advertisement descriptive of
the debentures, or otherwise, nor shall we or our associates be liable for anything
whatsoever except want of good faith or be under any obligation, either expressed
or implied, which is not herein expressly assumed.
Payment is to be made at the office of Dillon, Head & Co., 28 Nassau Street,
New York City, at 89H and accrued interest, in funds payable through the New
York Clearing House, against delivery of temporary debentures of the company
or interim receipts of Dillon, Head 4: Co. It is expected that delivery will be made
on or about April 4, 1930, but as to the exact date we shall advise you definitely
later.
In accordance with the terms above, we are pleased to confirm to you the sale
of §
principal amount of debentures at 89# and accrued interest from April 1,
1930, less Belling commission as set forth above. This amount covers the
debentures we reserved for purchase by you in accordance with our telegrams of
March 20, 1930, no debentures having been allotted upon subscriptions.
In confirmation of the purchase of the above-mentioned debentures, and your
acceptance of the terms and conditions hereof, kindly sign the attached duplicate
of this letter and transmit the same to the managers.
A circular descriptive of the debentures is enclosed.
Yours very truly,
Selling Group Managers.
466
U n i t e d
SA3JE OF FOREIGN: BONDS OR SECURITIES
S t a t e s
of
B r a z i l
with
D i l l o n , R e a d & C o . — C o n t r a c t
A p r i l 1, 1 9 2 6
D a t e d a s op
Contract, dated as of April 1, 1926, (but actually executed on May 21, 1926),
made by United States of Brazil, hereinafter termed the "obligor, acting by
His Excellency Dr. S. Gurgel do Amaral, its ambassador to the United States of
America, thereunto duly empowered, and Dillon, Read & Co., of the City of
New York, State of New York, United States of America, hereinafter sometimes
termed the "bankers."
a r t i c l e
i
The obligor covenants with the bankers for the benefit of the holders, severally
iand respectiveh", of the bonds, as follows:
SfccTrosr 1'. The obligor may issue hereunder its 6H per cent external sinkingfund gold bonds of 1926 (hereinafter termed "bonds'^, bearing interest at the
rate of 6H per cent per annum, for the aggregate principal amount of $60,000,000;
all dated April 1, 1926, and maturing on October 1, 1957, in which the obligor
will covenant to pay the principal of the bonds at the office of Dillon, Read & Co,
(hereinafter sometimes called the "American fiscal agent"), in the borough of
Manhattan, City and State of New York, United States of America, in United
States gold coin, or, at the option of the respective holders of the bonds, at the
office of N. M. Rothschild & Sons, the agency for such purpose of the obligor,
in the city of London, England, (hereinafter sometimes called the "British paying
agent"), the equivalent thereof in sterling monev of the United Kingdom of
Great Britain and Ireland at the fixed rate of exchange of S4.S665 to the pound
sterling, and to pay interest on the bonds at the rate aforesaid, upon presentation
and surrender of the interest coupons appertaining thereto as they severally
mature, at the office of the American fiscal agent in like United States gold coin,
or, at the option of the respective holders of the coupons, at the office of the British
paying agent in said sterling money at said fixed rate of exchange. Any successor
to said N. M. Rorhschild & Sons, as said agency of the obligor, shall be designated
from time to time by the American fiscal agent.
The obligor covenants and agrees that the bonds are issuable under the
authority of Law No. 4625 of December, 31, 1922 and Law No. 4984 of December
31, 1925.
. The bonds and coupons shall be substantially in the form set forth in Schedule
A hereto attached and by reference made a part hereof and the bonds shall be
signed on behalf of the obligar by such diplomatic representative as may be
authorized for the purpose by the obligor and be countersigned, as indicated in
Schedule A, by the registrar of the bonds hereinafter provided for, or its successor
from time to.time designated by the bankers. The coupons to be attached to
the bonds shall bear the fascimile signature of J. C. Muniz, Acting Consul General
for Brazil in (the city of) New York, United States of America.
In case the bankers so elect in writing, the princiapl of and interest on all or
any part of said $60 000,000 principal amount of bonds, in excess of the $35,000,000
principal amount of bonds to be purchased by the bankers as provided in section 1
of Article III, may be made payable in the city of London, England, in said sterling
money at the office of a British fiscal agent to be designated by the obligor with
the written apiproval of the bankers, or, at the respective options of the holders of
the bonds and coupons at the office of Dillon, Read & Co., in the borough of
Manhattan, city of New York, United States of America in United States goia
coin at said fixed rate of exchange, and in case the bankers shall make such election
an appropriate agreement supplemental hereto shall be entered into between the
obligor and the bankers and such British fiscal agent, whereby, in respect of any
bonds made payable as provided in this paragraph of this section 1 of Article h
such British fiscal agent so designated shall exercise similar functions as fiscal
Agent and as sinking-fund trustee as hereinafter, provided for the American fiscal
agent and sinking-fund trustee, and whereby, in respect of such bonds, appropriate
provision shall be made for the form of such bonds and of the coupons to be
attached thereto, the denominations thereof, and for the payment of the principal
and interest of such bonds in the city of London, England, and in the b o r o u g h ot
Manhattan, city of New York, as aforesaid, and for the payment in said sterling
money of the sinking fund, provided for in Article II, in respect of such bonds,
and for the registration and transfer and countersignature of such bonds by *
registrar in the city of London, England, and also in respect of such other matters
incidental to the issue of any bonds made payable as provided in this paragraph
of this section 1 of Article I, as the bankers in their discretion may deem advisable.
SALE OF F O R E I G N B O N D S O B S E C U B T T I E S
467
In case the entire principal amount of bonds which may be issued hereunder
in excess of said $35,000,000 principal amount of bonds to be purchased by the
bankers as provided in section 1 of Article III (such excess being hereinafter in
this paragraph of section 1 of Article I called additional bonds) shall not have
been issued prior to August 15, 1026, the principal amount of additional bonds,
which (except for the provisions of this paragraph of this section 1 of Article 1)
would at any time liave been issuable hereunder, shall be reduced on August 15,
1926, and on each February 15 and August 15 thereafter by an amount, which,
together with reductions theretofore made, will be equivalent to that aggregate
principal amount of additional bonds which would have become redeemable
through the operation of-the sinking fund, provided for in Article II, had all the
additional bonds been issued prior to August 15, 1926, after deducting from such
aggregate principal amount an amount equivalent to such principal amount of
bonds as may have been redeemed or become redeemable through the operation
of the sinking fuud by reason of the issue of any such additional bonds.
Whenever in the bonds or coupons or in this contract the term "United States
gold coin1' is used, it sliall mean gold coin of the United States of America of,
or equal to, the standard of weight and fineness existing at the date of the bonds.
Whenever in the bonds or coupons or in this contract the term "sterling money
of the United Kingdom of Great Britain and Ireland " or the term sterling money
is used, it sliall mean such gold coin of the United Kingdom of Great Britain
and Ireland as is, or may be, equivalent in value to United States gold coin, at
said fixed rate of exchange of $4.8665 in United States gold coin.
SEC. 2. The bonds shall be in the denominations of SI,000 and $500 each and
the text thereof shall be in the English langauge and printed from engraved
plates in conformity with the requirements of the New York Stock Exchange;
but until such time as bonds in such definitive form shall have been prepared
for delivery, one or more printed or lithographed temporary bonds, substantially
in the form set forth in Schedule A, with appropriate omissions, insertions and
variations, as may be required, with or without coupons, shall be issued. The
bonds, temporary and definitive, shall be prepared in the city of New York and
the obligor authorizes the bankers for the obligor's account, to have such preparation commenced forthwith.
The bonds shall bo payable to bearer, unless registered as to principal as
herein and in the bonds provided. The obligor hereby designates the National
City Bank of New York, in the borough of Manhattan, city of New York, as
countersigning agent and registrar of the bonds, and the obligor hereby authorizes
the bankers on behalf of the obligor to make all additional arrangements for
countersignature and registration of the bonds in the borough of Manhattan,
city of New York, including the appointment, from time to time, of a successor
to said countersigning agent and registrar.
. The bonds of the several denominations shall be interchangeable as herein
and in the bonds provided. In case of any such exchange of bonds, the obligor
may, with the written approval of the bankers, make a reasonable charge for the
bonds issued in exchange. No charge, however, shall be made for any exchange
of temporary.bonds for definitive bonds.
# All payments of principal, interest, and sinking fund shall be payable as well
in time of war as in time of peace, irrespective of the nationality of the holders of
the bonds and coupons, and the bonds and coupons shall be exempt from, and
payable without deduction for, any and all taxes, imposts, stamp dues, assessments and other charges, now or at any time hereafter, imposed or levied by the
obligor or by any taxing authority thereof or therein.
In case of loss, mutilation or destruction of any bond or coupon, a duplicate
shall be issued by the obligor and countersigned by the registrar, upon proof of
such loss, mutilation or destruction and upon receipt by the obligor of proper
indemnity. Any such duplicate bond or coupon shall constitute additional
contractual obligations on the part of the obligor and shall be entitled to the
same rights as other bonds and coupons issued pursuant to this contract.
SEC. 3. Without intending to limit or lessen the obligations of the obligor
under the bonds or under this contract, the obligor covenants and agrees that its
obligations hereunder and under the bonds shall at all times be and constitute
a special and first charge upon all the revenues received bv the obligor from all
income taxes and taxes on invoices (contas assignadas duplicatas), levied by the
obligor or with its authority, as said income taxes and taxes on invoices (contas
^signadas duplicatas) may now exist, or as in the future the same may exist,
and the obligor covenants and agrees that all the proceeds of said income taxes
and-taxes on invoices (eontas assignadas duplicatas), and all taxes, and exactions
468
SALE OP TOBEIGN BONDS OB SECUHITIES
levied in substitution therefor or amendment thereof, shall, in case, and so long
as, the obligor shall not have fulfilled all its obligations then due hereunder
and under the bonds, be specially set apart and used for the fulfillment of the
obligations of the obligor then due hereunder and under the bonds, and shall
not be used for or devoted to any other purpose; and the obligor further
covenants and agrees that in like manner its obligations hereunder and under
the bonds shall at all times be and constitute a special and second charge, subject
only to the prior charge of the obligor's 8 per cent loan of 1921, upon all the
revenues received by the obligor from all consumption taxes (imposto do conBumo), levied by the obligor or with its authority, as said consumption taxes
(imposto do consumo) may now exist, or as in the future the same may exist,
and a special and fourth charge, subject only to the prior charges of the obligor's
5 per cent sterling loans of 1898 and 1914 and the obligor's said 8 per cent loan
of 1921, on all revenues received by the obligor from all import duties and import
taxes, levied by the obligor or with its authority, as said import duties and import
taxes may now exist, or as in the future the same may exist. The obligor further
covenants and agrees that, subject as aforesaid, all the proceeds of said consumption taxes, import duties and import taxes, and all taxes and exactions
levied in substitution therefor or amendment thereof, shall, in case, and so long
a3, the obligor shall not have fulfilled all its obligations then due hereunder and
under the bonds, be specially set apart and used for the fulfillment of the obligations of the obligor then due hereunder and under the bonds, and shall not be
used for or devoted to any other purpose.
The obligor further covenants that while any of the bonds shall be outstanding
the income taxes, the taxes on invoices, the consumption taxes, the import
duties and import taxes, above mentioned and now existing, shall not be repealed
or diminished unless there shall first have been pledged hereunder in substitution
therefor other revenues approved by the bankers. In giving or refusing such
approval the bankers shall not incur any liability or responsibility whatsoever
to the obligor and/or to the holders of the bonds or coupons.
So long as any of the bonds shall be outstanding, the obligor covenent3 that
it will not issue any other bonds or incur any other obligations ranking prior to
or equally with the bonds in respect of the security for the bonds provided for
by this contract.
'
Sec. ' 4. The obligor wiU pay to the bankers, as American fiscal agent, at their
office in the borough of Manhattan, city of New York, on or before the 15th day
of August, 1926, and on or before the 15th day of February and on or before the
15th day of August in each year thereafter, to and including the 15th day of
August, 1957, funds sufficient to pay in United States gold coin the interest
payable on the bonds on the next ensuing April 1 or October 1, as the case may
be, as provided herein and in the bonds and coupons appertaining thereto. In
case in any year or years any additional bonds (as defined in sec. 1 of Art.
I) shall be issued between February 15 and April 1 or between August 15 and
October 1, as the case may be, the obligor covenants to pay to the bankers
simultaneously with such issue of additional bonds an amount equal to 3% per
cent of the principal amount of the additional bonds so issued, which amount
shall be applied by the banker?, as American fiscal agent, to the payment of the
interest due on such additional bonds on the next ensuing April 1 or October 1,
as the case may be. If the bearer of any coupon, or the holder of any bond at
the maturity or redemption thereof shall elect to have such coupon or bond, as
the case may be, paid in the city of London, England, in said s t e r l i n g money of
the United Kingdom of Great Britain and Ireland, the American fiscal agent shall
convert funds held for the payment of such coupon or bond, as the case may be.
into said sterling money and shall transmit the same to the British paying agent
for payment of such coupon or bond, as the case may be. The American fiscal
agent in advance of anv such election is hereby specifically authorized to transmit
such funds to the British paying agent in such amounts as from time to time the
American paying agent in it3 di3cretion may determine to be advisable. In
case such funds held by the American fiscal agent for the payment of such coupon
or bond, as the case may be, shall be insufficient at the t h e n c u r r e n t r a t e of exchange to purchase said sterling money sufficient for the purpose aforesaid, the
obligor shall forthwith, upon request of the American fiscal agent, pay to the
American fiscal agent such additional funds as may be necessary for such purpose.
• ;i
"
The bankers shall in no event be under any obligation under the bonds or
hereunder to make any payment:of ; or on account of the principal of and/or
interest on the bonds, or any part thereof^ and/or to put the British paying
SALE O F FOREIGN* B O N D S OR S E C U R I T I E S
469
agent in funds for the purpose of making any such payment in the city of London,
England, unless and until the bankers, as the American fiscal agent and sinking
fund trustee, as the case may be, shall have been put in funds sufficient for such
purposes bv the obligor.
SEC. 5. The obligor covenants with the bankers for the benefit of the holders,
severally and respectively, of the bonds, to apply the proceeds of the bonds
received by the obligor in liquidation of Treasury obligations of the obligor includingfloatingdebt of the obligor.
abtxcle
n
The obligor further covenants with the bankers for the benefit of the holders,
severally and respectively, of the bonds, as follows:
SECTION 1. The bonds may be called by lot for redemption through operation of
the sinking fund, provided for in this Article II, at 100 per cent of the principal
amount thereof plus accrued interest to the redemption date, as hereinafter
provided, but the bonds shall not be subject to call for redemption prior to
maturity except through operation of the sinking fund.
SEC. 2. So long as any .of the bonds shall be outstanding, the obligor will pay
to the bankers, as sinking fund trustee, at their office in the borough of Manhattan, city of New York, on or before the 15th day of August, 1926, and on or before
the 15th day of February and on or before the 15th day of August in each
year thereafter, to and including the 15th day of February, 1957, as a semiannual sinking fund for the redemption of bonds, an amount equal to onehalf of 1 per ccnt of the maximum principal amount of bonds theretofore
issued hereunder, plus an amount equal to 3J4 per cent of the principal
amount of the bonds previously redeemed through the operation of the sinking fund. Interest moneys received by the bankers, as the American fiscal
agent, in respect of coupons appertaining to bonds redeemed through the sinking
fund on the next ensuing April 1 or October 1, as the case may be, following the
receipt of such moneys, shall be added to and deemed a part of the sinking fund.
The payments provided for in this section 2 of Article II shall constitute a sinking fund to be held and applied by the sinking fund trustee in the redemption
of bonds as in this Article II provided. No expenses in connection with the i
operation of the sinking fund shall be charged against any sinking fund pay-'
inent, but shall be borne by the obligor and paid out of funds other than the
sinking fund and in addition thereto.
In case on or after August 15, 1920, any additional bonds (as defined in section
1 of Article I) shall be issued, from time to time, then thereafter, in respect of
each such issue, each semiannual sinking fund payment provided tor in this section 2 of Article II shall be increased by an amount equal to 3J4 per cent of the
difference between (a) the principal amount of additional bonds then being issued
and (6) such principal amount of additional bonds, which, had they been issued
prior to August 15, 1926, would have been reduced, at the time of the issue of
such additional bonds, to an amount equivalent to the principal amount of the
additional bonds so issued, through the operation of the sinking fund or through
the application of moneys therein. Before each such issue of any additional
bonds the obligor shall enter into an agreement supplemental hereto with Dillon,
IJead & Co. wherein shall be stated the amount by which each semiannual sinking fund payment shall be increased in respect of each such issue of additional
bonds; the intent hereof being that if and when any additional bonds shall be
issued on or after August 15, 1926, such semiannual sinking fund.payments shall
be so increased as to effect the retirement through the operation of the sinking
fund of all the bonds before the maturity thereof, except only such principal
amount of bonds remaining outstanding hereunder on October 1, 1957, which
would have been redeemable on said date had a semiannual sinking fund payment
been required to be made hereunder on August 15, 1957.
So long as any of the bonds shall be outstanding, the obligor will pay to the
bankers the amounts, by which any sinking fund payment or payments Bhall be
increased as above provided, as part of any such sinking fund payment or payments.
SEC. 3. All moneys received by such sinking fund trustee shall be applied, as
nearly as may be, by the sinking fund trustee on the next ensuing April 1 or
October I, as the case may be, foUowing the receipt of such moneys, in the redemption of bonds, selected by the sinking fund trustee by lot, at 100 pet centv
w the principal amount thereof and accrued interest to the redemption date
therein called the "redemption price"), after notice published twice by said
S A I A TOE EOKEIGN ^BONDS O B
SECURITIES
trustee on? behalf of the'obligor in a daily newspaper of general circulation, pub*
lished in the English language, in the borough of Manhattant city of New York,
the first publication to be at least 30 days before the redemption date specified
in such notice and the second publication to be not less than seven days after
the first publication, and, in case said trustee shall so elect, such notice in*respect
of any redemption shall be similarly published in a daily newspaper of general
circulation, published in the city of London, England.
The sinking fund trustee shall also, at least 30 days prior to such redemption
date, mail or cause to be mailed a notice of such redemption to the registered
holders of registered bonds called for redemption, at their respective addresses
appearing on the transfer books of the registrar. Failure to give such notice
by mail, or any irregularity therein, shall not, however, affect the validity of
any redemption proceedings.
/Drawings to determine the particular bonds so to be redeemed may be made
in any manner deemed fair by the sinking; fund trustee in its sole discretion, in
the Borough of Manhattan, city of New ^ ork, and, if the obligor shall so request
arepresentative reasonably and timely designated by the obligor may be present
at such drawing.
All bonds, together with the unmatured coupons thereto appertaining, which
Bhall be redeemed through the operation of the sinking fund, shall be canccled
by the sinking fund trustee, and after such cancellation shall be delivered to the
registrar, which shall make notation on its records of such redemption and cancellation, and no such bonds shall be reissued, nor shall any bonds be issued in
exchange therefor or in lieu thereof, and thereupon such canceled bonds and
coupons shall be delivered to the obligor, or, at the option of the obligor, shall
be cremated in the presence of a representative of the obligor.
Bonds duly called for redemption shall cease to bear interest from the redemption date and the holders thereof shall, after the redemption date, cease to have
any rights as holders of bonds, except to obtain the redemption price, provided
there, shall have been deposited with the sinking fund trustee and set aside for
the redemption of all bonds so called for redemption an amount at least equal
to the redemption price.
• Sec. 4. In case the obligor shall fail to make any sinking fund payment (in*
eluding any increase thereof) when and as provided in this Article II or any
interest payment when and as provided in Article I, and such default shall continue for a period of 60 days, the bankers, as representative of the holders of
the bonds, may declare to be forthwith due and payable by the obligor the
principal of all the bonds then outstanding and the interest accrued thereon to
the date of such declaration, and thereupon such sums shall become and be
forthwith due and payable by the obligor, and the obligor covenants to pay the
same as provided in the bonds, together with interest on the overdue principal
and interest on the bonds at the rate of 6H per cent per annum.
Sec. 5. The bankers may act as representative of the holders of the bonds
in all matters arising under this contract. For this service the bankers shall
not be entitled to receive compensation from the obligor.
article III
1. The obligor agrees to sell to the bankers and, subject to the conditions herein specified, the bankers agree to purchase from the obligor $35,000,000
principal amount of bonds at the price of
per cent of the principal amount
thereof, plus accrued interest thereon from the date of the bonds to the date of
payment therefor as hereinafter provided.
Sec. 2. On such date, not later than June 4, 1926, as the bankers shall designate, the obligor will deliver to the bankers in the Borough of Manhattan, city
of New York temporary bonds, in such denominations as the bankers shall
request, for the aggregate principal amount of $35,000,000 and thereupon the
bankers will make payment therefor-by crediting to the account of the obligor
in the city of New York - — per- cent of said $35,000,000 principal amount of
bonds plus accrued interest thereon from the date of the bonds* to the date of
such credit. The obligor will deliver in the Borough of Manhattan, city of Neir
York, on or before September 15, 1926, or on or before such later date as may
be approved in writing by the bankers, definitive bonds in exchange for such
temporary bonds without charge or expense to the bankers or other persons
entitled to receive the definitive bonds.
.
Sec. 3. The bankere are hereby authorized to offer the bonds for public
subscription at such times and in such amounts and at such prices as the bankers.
Section
S A L E OF F O R E I G N * B O N D S
OR
SECURITIES
4 7 1
shall determine, either before or after the signing of this contract, except that
such prices shall be at least
per cent of the principal amount of the bonds
and accrued interest. In case the bankers shall offer the bonds at prices in
excess of
per cent of the principal amount thereof and accrued interest,
the obligor shall have no interest or right to participate in such excess.
SEC. 4. The bankers shall have exclusive authority to distribute said
$35,000,000 principal amount of bonds through a syndicate or syndicates which
they have formed or caused to be formed or may form or cause to be formed
for such purpose in the United States or England or elsewhere. The obligor
hereby ratifies and approves any syndication and disposal of the bonds heretofore accomplished by the bankers.
SEC. 5. Pending the delivery of the definitive bonds the bankers may deliver
to subscribers for or purchasers of said $35,000,000 principal amount of bonds
a receipt or other writing in their name evidencing the right of the holder to
receive an amount of the bonds specified in such receipt or writing.
SEC. 6. Without intending to limit or lessen any of the obligations of the
obligor hereunder, the obligor hereby irrevocably authorizes the bankers to
retain and apply, out of the payment to be made by them under section 2 of
this Article III, and out of any other moneys which may be from time to time
on deposit with the bankers to the credit of "the obligor, an amount or amounts,
not exceeding from tircc to time 81,000,000, sufficient to fulfill any and all of
the obligations of the obligor with regard to the bonds and sinking fund payments, and, in general, with regard to commissions, expenses, and all other
charges, which may be or become payable by the obligor to the bankers, when
and as such obligations mature.
SEC. 7. Moneys on deposit with the bankers, which' the obligor is entitled to
withdraw, shall he subject to drafts payable ac sight. Such moneys shall from time
to litre bear interest at a rate which shall not be less than the average current
rate then generally allowed by responsible banks and trust companies in the
Borough of Manhattan, city of New York, on similar deposits.
SEC. 8. The bankers shall have an option to purchase from the obligor the
balance of said $00,000,000 principal amount of bonds, issuable hereunder and
not purchased by the bankers under section 1 of this Article III, on the same
terms (including price) as in the case of the bonds purchased under section 1 of
this Article III. Such option shall cover all or any part of the bonds the principal
of and interest on which may be made payable in said sterling money upon the
written election of the bankere as provided "in section 1 of Article I. Such option
shall extend to and including September 15, 1926, and may on or before said date
be exercised by notice given to the obligor by cable or by writing. Until the
expiration of such option the bankers shall have exclusive authority to aitempc
to form or cause to be formed a svndieate or syndicates to issue and to market
Jj»d balance of the bonds in the'United States or England or elsewhere, and
the obligor shall not, until the expiration of such option, issue or sell, or offer for
or market any issue of its bonds or obligations in the United States of
America or in any other country outside of the United States of Brazil.
a r t i c l e
iv
1. The obligor hereby authorizes the American fiscal agent on behalf
the obligor from time to time to designate the British paying agent and to
jaake arrangements for the payment of the principal and interest on the bonds at
the places where such sums are payable. Accounts between the obligor and the
Bankers concerning such pavments, and concerning the administration of the
Jinking fund and all other expenses and charges, will be kept by the bankers in
2?- ? t y o f N c w Y o r k i n terms of United States money; and such accounts, of
Jtfuch transcripts shall be sent to the obligor from time to time, may at any time
J* inspected by duly authorized representatives of the obligor. The obligor will
W the cost and expense of engraving, printing, and delivering the bonds, both
J^porary and definitive, and the cost and expense of the preparation, execution,
transmission, bv cable or otherwise* of this contract, and the costs and ex-.
P^ses of the execution of the bonds and of the issue thereof, including the reasonable charges for countersignature of the bonds and the fees of legal counsel for the
"ankers in connection with this contract, and the performance hereof and the
"®ue and sale of bonds hereunder in the United States and elsewhere. The
"°ugor covenants that it will pay all costs in connection with the listing of tempojjjy and definitive bonds on the New York Stock Exchange. The obligor further
tenants that it will reimburse the bankers for any and all expenses incurred
•SECTION
82928—32—pt2
12
472
SA3JE OF FOREIGN: BONDS OR SECURITIES
by them in the course of their proceedings as American fiscal agent and sinking
fund trustee (including without limitation of the foregoing all expenses in connection with the transmission of funds to the British paying agent and all expenses
and publication charges in connection with the redemption of bonds through
the operation of the sinking fund), and the obligor will pay the bankers for their
services as such American fiscal agent and sinking fund trustee a commission of
per cent of the amount of all moneys disbursed by the bankers, whether
as American fiscal agent or sinking fund trustee or through the British paying
agent, for the account of the obligor in connection with the payment of interest
on the bonds, the payment of the principal of the bonds, and the redemption of
bonds through the operation of the sinking fund. The obligor will also pay any
and all expenses incurred by the British paying agent, including without limitation of the foregoing, all expenses in connection with the transmission of bonds
and/or coupons to the American fiscal agent upon payment thereof by the British
paying agent and any retransmission of funds to the American paying agent.
The obligor will also pay the compensation and expenses of the registrar both for
registering and countersigning the bonds. All expenses in connection with the
sale and distribution of the bonds by the bankers or by an syndicate or syndicates
formed by the bankers shall be borne by the bankers or such syndicate or syndicates and the obligor will not be responsible therefor.
Sec. 2. The obligor will indemnify and save harmless the bankers against and
from any loss, cost, or expense which they may sustain by reason of any delay or
default in the performance by the obligor of any of the agreements of the obligor
herein set forth or which the bankers may sustain by reason of their acting as
agents or depositaries of the obligor in accordance with the terms of any agency
or by reason of their acting in accordance with instructions of the obligor.
Sec. 3. The bankers in their several capacities hereunder, the British paying
agent, and the registrar shall not be answerable for the default or misconduct of
any agent or attorney appointed by them or any of them to carry out any of the
provisions of this contract, if such agent or attorney shall have been selected with
reasonable care and with the consent of the obligor. The bankers shall not be in
anywise responsible for the disposition by the obligor of the proceeds of the
bonds. If the bankers shall be in doubt in any instance as to their rights or obligations in any capacity or the rights of the holders of bonds under this contract,
they may advise with legal counsel selected by them, and anything done or suffered
to be done in good faith by the bankers in accordance with the opinion of such
counsel shall be conclusive in their favor as against any claim or demand by the
obligor in the premises.
Sec. 4. The obligor, the bankers in their several capacities hereunder, the
British paying agent and the registrar may deem and treat the bearer of any
bond which shall not at the time be registered as to principal as herein provided,
and the bearer of any coupon for interest on any bond whether or not such bond
shall be so registered, as the absolute owner of such bond or coupon, as the case
may be, for the purpose of receiving payment thereof, and for all other purposes,
and the obligor, the bankers in their several capacities hereunder, the British
paying agent and the registrar shall not be affected by any notice to the contrary.
The obligor, the bankers in their several capacities hereunder, the British paying
agent and the registrar may deem and treat the person in whose name any bond
shall be registered as to principal as aforesaid as the absolute owner thereof for
the purpose of receiving payment of or on account of the principal thereof, and
for all other purposes, except to receive payment of interest represented by outstanding coupons, and shall not be affected by any notice to the contrary.
Sec. 5., The bankers may become the owners of any or all of the bonds, with
the same rights as any other holders of bonds. All notices from the bankers to
the obligor in connection with this contract, including the declaration under
section 4 of Article II, may be given by written communication, or by cable,
addressed to the Minister of Finance, Rio de Janeiro, Brazil. All notices from
the obligor to the bankers may similarly be given, addressed to Dillon, Read &
Co., city of New York, United States of America.
Sec. 6. The obligor will comply with the reasonable requests of the bankers
for such information concerning the United States of Frazil, its law, revenues,
etc., as reasonably may be deemed useful both in aid of the sale and distribution
of the bonds in the United States, or elsewhere, and so that the bankers may continue to be informed as to such matters and as to the security pledged hereunder
for the bonds; and the obligor authorizes and instructs its representatives to sign
in its name appropriate circulars in connection with the issue, Bale and distribution of the bonds. In connection with the sale and distribution to the public of
SALE
OF FOREIGN* BONDS
OR
SECURITIES
4 7 3
the bonds, the obligor irrevocably authorizes the bankers to include in any
circular, and in any and allothcr statements which may be used in connection
with such sale, a statement that payment of all sinking fund and/or amortization charges on the sterling loans of the obligor now outstanding and covered by
the so-called funding a g r e e m e n t c f 1914 will b e resumed in 1927. The obligor
will indemnify and hold harmless the bankers and any syndicate or syndicates
formed pursuant hereto against all liabilities, claims, and demands arising from
any incorrect or improper statements contained in any such circular or circulars.
The obligor will upon request of the bankers at any time promptly make
proper application to list the bonds on the New York Stock Exchange, and the
obligor will endeavor in every way, by furnishing such information, executing
such documents and doing such acts and things as may be nccessary, to obtain
the listing of the bonds on said New York Stock Exchange.
Sec. 7. The bankers agree to use their best efforts to form a syndicate or syndicates to purchase the bonds to be purchased by the bankers as provided in
section 1 of Articlc III, but anything herein to the contrary notwithstanding, the
bankers shall not be obligated to take up and pay for the bonds unless the bankers
shall have succecded in their endeavor to form a syndicate or syndicates for the
purchase of the bonds, and neither the bankers nor any syndicate or syndicates
formed by the bankers shall be obligated to take up and pay for the bonds if,
in the sole judgment of the bankers, financial conditions existing in the United
States or elsewhere shall at the time be such as in the judgment of the bankers
to make it undesirable or inadvisable to complete the purchase and distribution
of the bonds as contemplated by this contract.
Sec. 8. This contract shall bind and shall enure to the benefit of the joint stock
association of Dillon, Read & Co., as now or hereafter organized, and also any
successor of said joint stock association. The English text of this contract shall
govern its interpretation.
Executed in duplicate.
Witness:
R.
R.
Schedule
6}4 P e r
A.
Form
C e n t
M e n d e s
M e n d e s
o f
G o n ^ a l v e s
G o n $ a l v e s
$1,000
E x t e r n a l
As
As
Definitive
Sinking
F u n d
to
to
S. G a r o e l n o
Dillon, Read
United States of,Brazil.
Bond—United
Gold
Amaral,
& Co,
Bond
o f
S t a t e s
1926,
or
Due
Brazil
October
1,1957
United States of Brazil, hereinafter termed the "obligor," for value received,
promises to pay to the bearer, or if this bond be registered, to the registered
owner hereof, on the 1st day of October, 1957 (unless before said date this bond
shall have been duly called for redemption, and payment of the redemption-price
made in accordance with the provisions hereof), the principal sum of SI ,000 in gold
coin of the United States of America of, or equal to, the standard of weight and
fineness existing on April 1, 1926, at the principal office of Dillon, Read & Co.,
in the borough of Manhattan, city and State of New York, United States of
America, or, at the option of the bear or the registered owner hereof, the equivalent
of said principal sum in sterling money of the United Kingdom of Great Britain
and Ireland, as defined in the contract hereinafter mentioned, at the fixed rate of
exchange of $4.8665 in said gold coin of the United States of America to the pound
sterling, at the office of N. Si. Rothschild <fc Sons, the agency ;for such purpose of
the obligor, in the citv of London, England, and to pay interest on said principal
sum, at the rate of 6H per cent per annum in like gold coin at said office of Dillon,
Head & Co., or, at the option of the respective bearers of the attached interest
coupons, in said sterling money at said fixed rate of exchange, at said agency in the
city of London, England, semiannually, on the 1st day of October and the 1st day
of April in each year, until said principal sum shall be paid, but only upon presentation and surrender of the attached interest coupons as they sevcraUy mature.
Said principal sum and said interest coupons and the sinking fund payments
hereinafter mentioned shall be paid as well in time of war as in time of peace,
irrespective of the nationality of the bearer or registered owner hereof, or of the
fearer of said interest coupons, without deduction for any taxes now or at any
time hereafter imposed by United States o f ; Brazil or by any taxing authority
thereof or therein.
This bond is one of a duly authorized issue of bonds (herein called the bonds)
of the obligor known as its 8)4 per cent external sinking fund gold bonds of 1926,
limited to an aggregate principal amount of $60,000,000 or an equivalent principal
474
SALTE OF FOREIGN BONDS OR SECURITIES
amount in said sterling money, issued or to be issued pursuant and subject to a
certain contract, dated as of April 1, 1926, between the obligor and Dillon, Read
& Co., as bankers, and any agreement supplemental thereto entered into as
provided in said contract.
For a statement of the nature and extent of the security, the rights of the holders
of the bonds in respect thereof, and the terms and conditions upon which the
bonds are issued and secured, to all of which the holder hereof assents by acceptance of this bond, reference is hereby made to said contract and to any agreement supplemental thereto entered into as provided in said contract.
The bonds are issuable under the authority of Law No. 4625 of December 31,
1922 and Law No. 4984 of December 31, 1925.
~ The bonds may be issued in denominations of $1,000 and $500 each and, as
provided in said contract, bonds of either denomination at any time outstanding
when surrendered with all unmatured coupons attached at the office of the registrar of the bonds in the borough of Manhattan, city of New York, may be
exchanged for an equal aggregate principal amount of bonds of the other denomination, of numbers not contemporaneously outstanding, with all unmatured
coupons attached. As provided in said contract the bonds may also be issued in
appropriate denominations of said sterling money.
In accordance with, and subject to the provisions of, said contract, the obligor
will, on or before the 15th day of August, 1926, and on or before the 15th days of
February and August in each jrear thereafter, to and including the 15th day of
February, 1957, pay to the sinking fund trustee as a sinking fund for the redemption of the bonds, an amount equal to H of one per cent of the maximum principal
amount of the bonds theretofore issued, plus an amount equal to 3Y* per cent of
the principal amount of the bonds previously redeemed through the operation of
said sinking fund, plus such additional amount, if any, which may become payable
as provided in said contract. Interest moneys, in respect of coupons appertaining
to bonds to be redeemed through said sinking fund on the next April 1 and October 1, as the case may be, following the receipt of such moneys, shall be added to
and deemed a part of said sinking fund. As provided in said contract, said
sinking fund shall be applied, as nearly as may be, by said sinking fund trustee,
on the next April 1 or October 1, as the case may be, following the receipt of each
such sinking fund payment, in redemption of bonds, selected by lot, at 100 per
cent of the principal amount thereof plus accrued interest to the redemption
date, after notice published twice in a daily newspaper of general circulation
published in the English language, in the borough of Manhattan, city and State
of New York, the first publication to be at least 30 days before the redemption
date specified in such notice and the second publication to be not less than seven
days after thefirstpublication. The bonds are not subjcct to call for redemption
prior to maturity except through the operation of said sinking fund.
In the manner, and to the extent provided in said contract, the obligor has
pledged thereunder certain taxes, including income taxes, taxes on invoices (contas assignadas duplicatas), consumption taxes (imposto do consumo), and import
duties and import taxes for the pro rata, benefit of the bonds issued or to be issued
under and pursuant to said contract and any agrement supplimental thereto
entered into as provided in said contract.
Dillon, Read k Co. may act as the representative of the holder of this bond in
all maters arising under said contract.
In accordance with, and subject to the provisions of, said contract, in case the
obligor shall fail to make any interest or sinking fund payment when and as provided in said contract, and such default shall continue for a period of 60 days,
Dillon, Read & Co., as representative of the holders of the bonds, may declare^
to be forthwith due and payable the principal of all the bonds and the interest
accrued to the date of such declaration.
,
This bond shall pass by delivery, unless registered as to principal, in the owner s
name at the office of the National City Bank of New York, in the Borough of
Manhattan, city of New York, registrar of the bonds (or at the office of its successor from time to time duly appointed by Dillon, Read & Co., for such purpose),
and such registration noted hereon by such registrar. After such registration no :
transfer hereof shall be valid unless made by the registered owner in person or by
duly authorized attorney, and similarly noted hereon by such registrar; but this
bond may be discharged from registry and its transferability by delivery be restored by like transfer to bearer noted hereon, after which this bond may again from time to time be registered or made transferable to bearer as before. Such,
registration, however, shall not affect the negotiability of the interest coupons-
SALE OF FOREIGN* BONDS OR SECURITIES
475
which shall continue to be transferable by delivery and shall remain payable to
bearer.
This bond shall not be valid for any purpose until countersigned by the National
•City Bank of New York, or its successor from time to time duly appointed by
Billon, Read & Co. for such purpose.
Dated, April 1, 1026.
United
By
Countersigned:
By
(forlt
o f
T h e
N a t i o n a l
coupon
f o r
Crrr
$1,000
States
B a k e
o f
—
o f
Brazil,'.
N e w
York,
„..
bond)
On the
day of
19__, unless the bond hereinafter mentioned
•shall have been called for prior redemption. United States of Brazil promises to
pay to bearer $32.50, in gold coin of the United States of America, at the office
of Dillon, Read <fc Co., in the borough of Manhattan, city and State of New
York, United States of America, or, at the option of the bearer, the equivalent
thereof in sterling money of the United Kingdom of Great Britain and Ireland
At thefixedrate of exchange of $4.8665 in said gold coin of the United States of
America to the pound sterling, at the officc of N. M. Rothschild & Sons, the
Agency for such purpose of United States of Brazil, in the city of London, England, as well in time of war as in time of peace irrespective of the nationality of
the bearer, without deduction for Brazilian taxes present or future, being six
months interest then due on United States of Brazil 6H per cent external sinking
fund gold bond of 1026, Number
United
By -
States
-
of
Brazil,
-
Senator JOHNSON. YOU said, I think, that you had: nothing to do
"with the Polish loan.
Mr. DILLON. The Polish? No. I understood you to say Peru.
Senator JOHNSON. YOU had nothing to do with the Peru loan?
Mr. DILLON. NO.
Senator JOHNSON. Have you there the statement of the
Mr. DILLON. Yes; I have, Senator, There was a
Polish loan?
Polish loan
made in 1925, of $35,000,000.
Senator JOHNSON. That is right. Will you state its terms, as you
lave them expressed in your statement there?
Mr. DILLON. Of that* loan, when we offered it, there was $35,000,000; $285,000, of it was sold abroad at the time of the offering.
The retail price was 95. Tho syndicate price was 91. The banking
group was 88. The Government received 86JJ# .
Senator JOHNSON. Do I understand you to say that the Polish
Government received, of that loan, 86
Mr. DILLON. That is correct.
Senator JOHNSON. What was the profit, or rather, the gross
receipt?
Mr. DILLON. The gross receipt to Dillon, Head & Co. in that loan
vas $828,000.
Senator JONES.
Would you have any objection, Mr. Dillon, to
stating what your net profits were on that particular loan?
;
. Mr. DILLON. Senator, it is impossible to do that. Would you like
me to explain why?
Senator JONES. Yes.
Mr. DILLON, We operate a very expensive organizations, made up
of statisticians, accountants, legal talent, engineering talent, and so
.forth. The expense of our organization, and our syndicating and
selling department is very large. When we make a loan, when we buy
476
SALTE
OF FOREIGN BONDS OR SECURITIES
bonds and sell those bonds, we do not try to allocate to that particular
issue any pro rata of that very large expense, because it would be
purely arbitrary. It would be very difficult to say what you should
charge to each issue for each man's time or each department's time, so
that all we can give you is the gross receipt that is left from that
operation, out of whicn total gross receipts we must pay our expenses
of organization and operation. I would gladly give you the net if
there was any way of arriving at such a figure.
- Senator JONES. I might ask this, then. Have you any objection to
giving us the net income of your organization at the end of the year?
Mr. DILLON. That is reported to the Treasury Department in our
income-tax return,'Senator.
Senator JONES. Would you object to giving that to the committee
here?
Mr. DILLON. Yes. I see no occasion for making that public. I
hope you will not press such a question.
Senator CONNALLY. Would you mind saying what percentage of
your gross, over the year's business, is profit?
Mr. DILLON. Our total?
Senator CONNALLY. Yes.
Mr. DILLON. I do not think I would want to say that, either. 1
do not know it, but that I could ascertain.
Senator CONNALLY. I was thinking that certainly you could tell
that if you cared to.
Mr. DILLON. I could ascertain that, but I would rather not state it.
Senator CONNALLY. If you did ascertain it, you would not care
to tell us, so there is no use in ascertaining it.
M r . DILLON. N O .
Senator JOHNSON.
\
Will you give the total gross amount, as yon
have designated it, please, in reference to those loans?
; Mr. DILLON. I have not added that up. Senator, but you can get
it, because our total gross receipts from these loans amounted to in
the neighborhood of three-quarters of 1 per cent. I think the exact
figure would be about 0.84 of 1 per cent. We can apply that to this
total, if you like.
Senator CONNALLY. YOU would not mind saying that your percentage of net over gross was larger than that of those who bought the
bonds?
Mr. DILLON. You mean the houses to whom we distribute?
Senator CONNALLY. NO. I mean the ultimate consumer of the
bonds.
Mr. DILLON. I would not want to say, because to follow that
through
Senator CONNALLY. What are these Brazilian bonds that you were
talking about awhile ago selling for now?
Mr. DILLON. I do not know} a low price.
Senator CONNALLY. About nine?
Mr. DILLON. I do not know the market.
Mr. HAYWABD. One issue is selling at about 5 0 . The other is
between 10 and 20.
Mr. DILLON. One is about 5 0 and the other is between. 10 and 20.
Senator CONNALLY, What did you sell that one for that is now
selling between 10 and 20. Can you tell what you sold it to the
retail purchaser for?
SALE OF FOREIGN* BONDS OR SECURITIES
477
Mr. HAYWARD. Ninety.
Senator CONNALLY. YOU got 9 0 for it, and it is now worth from
10 to 20.
Mr. DILLON. No; it is selling between 10 and 20. That is the
quotation.
Senator CONNALLY. That is the market.
Mr. DILLON.
Yes.
Senator GORE. You do not make any distinction between the price
of a bond and what it is worth, do you?
Mr. DILLON. I do; yes, sir. I trust everyone does.
Senator GORE. You are not buying any of these bonds at 10, that
formerly sold at 90. What is the difference between the price of anything and what it is worth?
Mr. DILLON. That varies in each instance.
Senator JOHNSON. Have you floated any loans for the Royal
Dutch Co.?
Mr. DILLON. Yes; we have.
Senator GORE. The price of a bond, like the price of any - other
commodity,-reflects the ratio between the market supply and the
market demand at the moment, docs it not?
Mr. DILLON. What is that? I beg your pardon?
Senator GORE. I say, the price of a bond, like the price of a commodity, reflects the ratio between the market demand and the market
supply at the time.
Mr. DILLON. I should say that is correct, sir.
-v
Senator GORE. And yet you think a bond or a commodity is. worth
more than you can get for it?
Mr. DILLON. Yes. I think there are times when both commodities
?
and bonds are worth more than you can get for them.
Senator CONNALLY. Or less?
Mr. DILLON. Yes. I think there are times when they are worth
less.
:
Senator GORE. Then you do not think price expresses value.
Mr. DILLON. Not necessarily, at all times.
Senator GORE. I do not want to go too far into economics, but I
would like to have your definition of value. If a thing is worth more
than you can get for it at the moment, I would be interested to know
how much more.
Mr. DILLON. You might be forced at the moment to sell something
under pressure when there was no demand in the market for it. That
would sell for less than I should consider it worth.
Senator CONNALLY. Mr. Dillon, have you any of these Brazilian
bonds? Does your house now own any of these Brazilian bonds that
are selling from 10 to 20, which you sold to the public for 90? Did
you get stuck on any of those?
Mr. DILLON. Senator, I would not like to go into a discussion of
what my house now owns in the way of securities.
Senator CONNALLY. Some of these other gentlemen from the other
houses testified on that. That is the reason I asked you. If you do
do not want to answer I will not press you.
Mr. DILLON. The last Brazilian loan was made in 1927. Since
than Brazil has not borrowed any money, and she has paid off $58,000,000 toward the retirement of the principal of her bonds.
Senator SHORTRIDGE. What is the par value of the bond—$100?
478
SALE 0 ? S0BEIGN BONDS OB SECURITIES
Mr. DILLON. $1,000, or $500.
Senator SHORTRIDGE. They are now selling at what?
Mr. DILLON. From 1 0 to 5 0 per cent of par.
Senator SHORTRIDGE. Wouldn't it be a good proposition to buy
some of them at that figure?
P Mr. DILLON. D O you want me to give you investment advice,
Senator?
Senator SHORTRIDGE. Yes; if you do not charge me anything for it.
[Laughter.]
Senator JOHNSON. Follow through your Brazilian bond issue of
^1927, please, of which you were the principal manager.
Mr. DILLON. Senator, I did not answer you on the Royal Dutch
matter.
Senator JOHNSON. I am going into that in a minute. I am taking
up the other; because it was asked by Senator Connally. The amount
was $25,000,000?
M r . DILLON. T h e o n e i n 1 9 2 7 ; y e s .
Senator JOHNSON. Yes. That is the last one, is it not?
Mr. DILLON. That is the last; yes.
Mr. HAYWARD. You were asking about the so-called railroad loan.
Senator JOHNSON. All right. Take the Brazilian railroad.
Mr. DILLON. That is 1 9 2 2 .
Senator JOHNSON. The last one to Brazil was 1 9 2 7 ?
M r . DILLON. Y e s .
Senator JOHNSON. Take that.
Mr. DILLON. Yes; United States of Brazil, 1927. That was
$41,500,000.
Senator JOHNSON. That came to you for disposition by you as
manager.
M r . DILLON. Y e s .
Senator JOHNSON. H O W many were in the original syndicate?
Mr. DILLON. I do not know. I can get you that information. #
Senator JOHNSON. D O you know whether or not you disposed of it
to the syndicate at a particular price greater than that at which you
received it?
; Mr. DILLON. There was a banking group formed, and there was a
syndicate price after that, and an offering price; so I assume from
this that we did sell the bonds to a banking group. I can get you
the facts.
Senator JOHNSON. If you can state from memory, state, please,
what was the sum at which you received, and the sum at which you
sold to the banking group.
Mr. DILLON. If you would like, again, our gross receipt on that
issue—is that thefigureyou would like, for Dillon, Read & Co.?
Senator JOHNSON. Give usfirstyour gross receipts.
Mr, DILLON. $539,000.
Senator JOHNSON. You received it at what price?
Mr. DILLON. The Government received 8 8 .
Senator JOHNSON. What did you take it at?
Mr. DILLON. Our group? There were others with us in that purchase, apparently.
Senator JOHNSON. Yes.
v
Mr. DILLON. Then we put it into a banking group at 90. I thin*
probably we participated in the banking group also.
SALE OF FOREIGN* BONDS OR SECURITIES
479
Senator JOHNSON. What did you receive it at originally?
Mr. DILLON. Eighty-eight.
• Senator JOHNSON. Then you put it into the banking group at 9 0 .
Mr. DILLON. The banking group was formed at 90.
Senator JOHNSON. What becomes of the 2 per cent between 8 8
and 90?
Mr. DILLON. That was divided prorata among those who took the
original commitment and responsibility at 88, to buy the bonds ff-om
the Government.
Senator JOHNSON. Then the Government received 8 6 ?
Mr. DILLON. Eighty-eight.
» Senator JOHNSON. What became of that 2 per cent?
Mr. DILLON. The 2 per ccnt is what I have told you, between 88
and 90. That 2 per ccnt was paid as compensation to the group who
took the committment to give the Brazilian Government $41,500,000.
Senator JOHNSON. Was there any difference in prices among the
groups that were formed?
. :
Mr. DILLON. After that banking group, they' sold it into a syndicate
which did the distributing of that at 90& There was a half of 1 per
cent commission to the banking group.
• <\\y\>
Senator JOHNSON. What was the retail price of those Brazilian
bonds?
Mr. DILLON. The Brazilian issue was 92& There was a total of
four and half points gross spread between the price the Government
got and the retail price.
;r ' y
Senator JOHNSON. That was on how much?
Mr. DILLON. 541,500,000.
Senator JOHNSON. A spread of four and a half per cent?
j •
Mr. DILLON. Total.
Senator JOHNSON. All right. Turn to the Royal Dutch Co.,
please.
Mr. DILLON. The Royal Dutch was in 1930. There was $40,000,-
000.
Senator JOHNSON.
Mr. DILLON. Y e s .
Senator JOHNSON.
Forty millions in
1930?
The Royal Dutch Co. is a company with which
we are familiar, that is engaged in the development of petroleum
Wells in the Netherlands, the Indies, and the like.
Mr. DILLON. Y e s .
Senator JOHNSON. Y O U were the manager of that particular loan?
Mr. DILLON. We were.
Senator JOHNSON. Will you state what was your gross receipt?
Mr. DILLON. Our gross receipt on the $ 4 0 , 0 0 0 , 0 0 0 was $ 2 5 3 , 0 0 0 .
The company received 86. The banking group paid 86#. The
distributing syndicate 87#. They were sold to the public at 89& a
total spread of
per cent between the price the company received
and the retail price that the public paid. There was a total spread
per cent on the $ 4 0 , 0 0 0 , 0 0 0 .
Senator JOHNSON. Did you investigate where that particular sum
to be expended?
Mr. DILLON. Senator, I can probably find you that, but I do not
know offhand. We had a statement from the company—probably
for general worldng capital, or for some specific purpose. If you
*ould like that I can get it for you.
480
SAIIE OF- FOREIGN BONDS OB SECUBITIES
Senator J O H N S O N . I am handing you photostats of the statement
respecting the Royal Dutch loan, as to. the purposes and the like—
the second document [handing papers to the witness]. Would you
state whether or not they are correct?
Mr. D I L L O N . I am sorry, Senator. I can not read that.
Senator JOHNSON. I can sympathize with you if your eyes are
troubling you. Suppose your associate looks over those and sees if
they are accurate.
Mr. I I A Y W A B D . IT is a photograph of our own circular?
Senator JOHNSON. It is a photostat of your own statements, I
think. I offer them for the record, Mr. Chairman. These are
photostats of the statements made with respect to the loan to the
Royal Dutch Co. by Dillon, Read & Co. and their associates.
The C H A I R M A N . Are they different, Senator, from those that are
in the report that he makes as a. whole?
Senator JOHNSON. I do not know whether they are not, to tell you
the fact.
The C H A I B M A N . If there is no objection they may be introduced at
this time.
(The statements referred to are as follows:)
[Financial Chronicle, March 22,1030]
$40,000,000, R o y a l D u t c h Co., f o e t h e W o h k i n q o f P e t r o l e u m W e l l s in
the
Netherlands-Indies
(N. V. Koninklijke Nederlandsche Maatschappij tot Exploitatie van Petroleumbronnen in Nederlandsch-Indie)
Four per cent debentures, series A (with share purchase warrants) to be dated
April 1, 1930; to mature April 1, 1946.
Each debenture now offered is to carry a nondetachable warrant entitling the
holder thereof to purchase, on or before April 1, 1930 (or in event of redemption
of.such debenture prior thereto, on or before the redemption date), 15 New York
shares representing common stock of the Roval Dutch Co., at S66H per New
York share on or before April 1, 1933, and thereafter, on or before April 1,1936,
at $70 per New York share.
T h e following information is contained in a letter, dated T h e Hague, March
13, 1930, from Sir Henri W. A. Deterding, K. B. E., General Manaeing Director
o f R o y a l D u t c h C o . f o r the working of petroleum wells in t h e Netherlands-
Indies:
business
Royal Dutch Co. for the working of petroleum wells in the NetherlandsIndies, through its controlled companies constitutes the world's leading enterprise engaged in the production and distribution of petroleum and its products.
The Royal Dutch Co., incorporated in the Netherlands in 1890, owns 60 per
cent of the outstanding common stocks of the Batavian Petroleum Co., the
Anglo-Saxon Petroleum Co. (Ltd.), and the Asiatic Petroleum Co. (Ltd.), the
remaining 40 per cent in each case being owned by the "Shell" Transport «
Trading Co. (Ltd.). The Batavian Petroleum Co. owns approximately 64 per
cent of the outstanding common stock of the Shell Union Oil Corporation, a ne
gross production of the group of companies controlled, directly or indirectly, oy
the Roval Dutch Co. amounted in 1929 to an aggregate of approximately
163,000,000 barrels of crude oil, constituting more than one-tenth of the estimated world production for that year. Production of the group in 1929 was
principally from oil lands in Venezuela, United States, and Netherlands-Indies.
Physical properties of the group include 30 oil refineries with an aggregate dauy
S A L E O F FOREIGN* B O N D S
Or
SECURITIES
481
capacity of approximately 635,000 barrels, storage facilities with a capacity
totaling approximately 70,000,000 barrels, and a fleet of tankers, including
chartered. vessels, with an aggregate dead-weight tonnage of approximately
1,600,000 tons. The marketing organizations of the group distribute its prod'
ucts in nearly every country in the world.
CAPITALIZATION
The capitalization of the Royal Dutch Co., adjusted to give effect to the
issuance of these series A debentures, and to the issuance of 5 per cent guilder
debentures in exchange for 4}i per cent priority stock as set forth below, is as
follows:
Authorized
Dollar debentures: 4 per oent, series A (this issue)
50-year 6 per cent guilder debentures
Preferred stocks—Cumulative:
Ah per cent priority stock
4 per cent preference stock
Common stock.
$11,457,000
11,457,000
603,000
' m m ooo
Outstanding
$40,000*000
111,457,000
«
603.000
202,450,84$
i The indenture under which the series A debentures an to be issuedtoto provide for the issuance of
$50,000,000 of additional dollar debentures of other series with such terms and provisions as the company
may determine. The indenture further is to provide that the company shall not create any secured indebtedness maturing more than 1 year from the date thereof (except purchase-money mortgages on an
assumed indebtedness secured by property hereafter acquired, and renewals thereoQ without securing the
series A debentures equally and ratably therewith.
. . . .
* $11,457,000 principal amount of SO-year 5 per ocnt guilder debentures are presenUy to be offered in ex*
change for $11,457,000 par value of priority stock now outstanding*
. . .
1 $8,040,000 par value of common stock b to bereservedfor issuance upon exercise of share-purchase warrants carried by these aeries A debentures. The agreement under which such warrants are tqbe.issued is
tp contain provisions designed to protect the purchase privilege againat the effects of dilution.
INCOME
Income of the Royal Dutch Co. is derived largely from dividends from investments in controlled companies. Such dividends are taken up in the company's
accounts in the year with respect to which the same were paid, that is, for the
most part, in the year prior to the year in which received. Net income of the
company after all charges, including taxes and payments to managers and directors, for the period of five years ended December 31f 1928, was as follows:
$39,995,518
1924
$34,531,296 192 7
192 5
37,066,359 1928
— r - r - 40, 537,200
192 6
39, 837, 246
Although final figures for the year 1929 will not be available for several months;
the management believes that net earnings of controlled companies for 1929 were
at least as satisfactory as for 192S.
The annual interest requirement on the $51,457,000 principal amount of debentures shown above as outstanding is $2,172,850.
NEW YORK SHARKS
The New York shares issuable upon ihe exercise of the share-purchase warrants
described above are to represent common stock of the Royal Dutch Co. in the
ratio of 3 such New York shares for each 100 guilders ($40.20) par value of
such common stock, and are to be issued by the Equitable Trust Co. of New
York under an agreement dated September 10,1918. The outstanding New York
shares (approximately 955,000 outstanding as at March 13,1930) are listed on the
New York Stock Exchange and arc currently quoted at approximately $50 per
share.
DIVIDENDS
Dividends have been paid on the common stock of the Royal Dutch Co. with
Aspect to each year since 1902, such dividends in recent years having been paid
in the form of an interim dividend in January and a final dividend in July. The
482.
SATIB
OE
F O R E I G N 7 B O N D S ;OB S E C U R I T I E S
amount of such dividends paid in 1929 (with respect to the year 1928) totaled 24
per cent of par value, equivalent to approximately $3.20 per New York share.
An interim dividend of 10 per cent was paid in January, 1930, and the management expects that a final dividend of 14 per cent will be paid in July, 1930.
MARKET EQUITY
The indicated aggregate market value of the outstanding common stock of the
Royal Dutch Co., based on current market quotations, is approximately $750,000,000. The company's common stock, or certificates representing such common
stock, are listed on the New York, London, Paris, Amsterdam, Brussels, Zurich,
and Batavia (Netherlands-Indies) stock exchanges.
Interest payable April* 1 and October 1. Principal and interest payable in .
New."York"'City"in United States gold coin at the principal office of Dillon, Read
Co;,'without deduction for any Netherlands taxes, present or future. Holders
may^at their option, collect principal and interest in Amsterdam at the offices of
Mendelssohn & Co., Amsterdam, and Nederlandsche Handel-Maatschappij in
guilders; in London at the office of N. M. Rothschild & Sons in pounds sterling;
in Ba§le and Zurich at the offices of Credit Suisse in Swiss francs; or in Stockholm
at the office of Stockholms Enskilda Bank in Swedish kroner; in each case at the
buying-rate for sight-exchange on New York on the date of presentation for collection,- Coupon debentures in denomination of $1,000, rcgisterable as to principal only. • Redeemable as a whole, or in part, by lot at any time on 60 days'
published notice, at 100 per cent plus accrued interest. Irving Trust Co., New
York, debenture trustee; the Equitable Trust Co. of New York, warrant trustee.
: -AH conversions of-Netherlands into United States currency have been made at.
par of exchange (one guilder equals $0,402).
" It'is expected that the company will make application in due counse to list the
series A debentures on the New York Stock Exchange.
1 A substantial amount of these debentures has been withdrawn for offering in
Europe, including an amount to be offered in Holland by Mendelssohn & Co.,*
Amsterdam, and Nederlandsche Handel-Maatschappij.
Information herein contained has been received in part by cable.
.: We offer these debentures, with share-purchase warrants attached, for delivery
ifi when, and as issued and accepted by us, subject to approval of legal proceedings by counsel. It is expected that delivery will be made on or about April 4,
1930, in the form of temporary debentures of the company or interim receipts of
Dillon, Read <fc Co. Price S9& and interest. Yield 5 per cent.
Dillon,. Read & Co.; Chase Securities Corporation; Guaranty Co. of
New York; Bancamerica-Blair Corporation; the Equitable Corporation of New York; Bankers Co. of New York; Harris, Forbes
& Co.; First Union Trust <fc Savings Bank.
ROYAL DUTCH C o . — F O B THE WORKING OP PETEOLEUM W E L L S IN THE NETHEBLANDS-INDIES
N. V. Koninklijke Nederlandsche Maatschappij tot Exploitatie van Petroleumbronnen in Nederlandsch-Indie, a holding company organized June 16, 1890,
under the laws of the Kingdom of The Netherlands.
Definitive 4 per cent debentures, series A (with attached share purchase warrants), to mature April 1,1945, and Dillon, Read & Co. interim receipts therefor.
Original listing: Total authorized principal amount which may be issued in
one or more series. $90,000,000; authorized issue, scries A, $40,000,000; listing
applied for, series A, $40,000,000; authorized by holders of prioritv shares March
14, 1930; authorized by board of directors March 21, 1930, and" April 4, 1930;
no other authority required.
SALE
OP FOREIGN
B O N D S OB SECURITIES
4 8 3
CAPITALIZATION i
(1 guilder-$0,402)
Par value
Capital stock
Preferred stocks (cumulative):
per cent priority
4 per cent preference
Common stock, ordinary stock
Far
value
*
$402
402
402
Authorized
by charter
$11*457,000 $11,457,000
€03,000
COX 000
399,940,000 1389,940,000
Interest
rate
Authoriied
(per
cent)
Ponded debt:
4 per cent debentures, se:le* A »
SO-year 6 per cent guilder debentures..
4
5
Authorized
for issuance
$40,000,000
11,457,000
Issued
$40,000,000
11457,000
Previously
listed
Outstanding
0)
None.
$603,000
None. 202,456,848
(»)
Principal
amount
previously
listed
None.
None.
Outstanding
$40,000,000
11,457,000
1 Tbe above capitalisation jtfvt* ©fleet to the issuance of the 4 per cent debentures, series A and to the
issuance of the $11,457,000 principal amount of £0*y€&r 5 per cent guilder debentures (to be offered presently)
in exchange for $11,457,000 par value of 4 Ji perrentpriority stock now outstanding.
' Tbe indenture under which the 4 per cent debentures, series A are to be issued provides for the issuance
of $£0,000,000 of additional dollar debentures of other series with such terms and provisions as tbe company
may determine.
1 Approximately 955,000 New York shares, each representing one-third of 100 guilders par value of the common stock of the company had been issued by The Equitable Trust Co., of New York under an agreement
dated Sept. 10, 1918 and were outstanding as at Mar. 13,1930. Such New York shares are listed on the
New York Stock Exchange (see application No. A-51S2).
4 Including a sufficient number of shares reserved against tbe issuance of New York shares upon the
exercise of the share purchase warrants to be attached to the 4 per cent debentures, series A.
Application to list Dillon, Read <fc Co. interim receipts for 4 per cent debentures,
series A (with attached share purchase warrants) to mature April 1, 1945, and
definitive debentures to be issued in exchange therefor.
N E W Y O R K , N . Y., April 15,1930.
Referring to application A-5182 of The Equitable Trust Co. of New York,
dated December 20, 1919, Roval Dutch Co. for the working of petroleum wells in
the Netherlands-Indies (N. V. Koninklijke Nederlandsche Maatschappij tot
Exploitatie van Pctroleumbronnen in Nederlandsch-Indie) (hereinafter referred
to as the companv) hereby makes application to have listed on the New York
Stock Exchange, billon, ftead & Co. interim receipts for $40,000,000 principal
amount of 4 per ccnt debentures, series A, with attached share-purchase warrants, to mature April 1, 1945, with authority to add to the list definitive debentures included in Nos. M - l to M-40,000, upon official notice of issuance in exchange for issued and outstanding interim receipts.
Authority for issue.—The definitive 4 per cent debentures, series A, (hereinafter sometimes called the debentures) are to be issued under and subject to thie
provisions of an indenture dated as of April 1,-1930 (hereinafter sometimes called
the indenture), between the company and Irving Trust Co., New York, as trustee
(hereinafter referred to as the trustee).
The share-purchase warrants (hereinafter sometimes called the warrants)
which are to be attached to the debentures, are to be issued under and subject
to the provisions of an agreement dated as of April 1,1930 (hereinafter sometimes
called the warrant agreement), between the company and The Equitable Trust
Co. of New York, as trustee and as depositary under the agreement hereinafter
mentioned, dated September 10, 1918, providing for the issuance of New York
shares, hereinafter described.
.
In accordance with the amended articles of association of the company (article
19, section 1) the holders of priority stock of the company approved the raising
of debenture loans to a maximum amount of 50 per cent of the issued capital of
the company at the special meeting of such holders held on March 14,1930. ;
484
SAIIE OF FOREIGN BONDS OB SECUBITIES
The board of directors of the company authorized the execution of the indenture and warrant agreement, and the issuance of the debentures and warrants,
at special meetings of the board held on March 21, 1930, and April 4, 1930.
The interim receipts of Dillon, Read & Co. are now outstanding and will be
exchangeable at the office of Central Hanover Bank <fe Trust Co., Borough of
Manhattan, the city, and State of New York, for the debentures, when issued in.
definitive form and ready for delivery.
Purpose of issue.—The debentures are to be issued for general corporate purposes. The debentures have been offered to the public at 89H and interest.
Opinion of counsel.—The validity of the interim receipts, the debentures and
the warrants, for which application to list is hereby made, has been passed upon
and approved by Messrs. Root, Clark, Buckner & Ballantine, who have relied,
as to matters pertaining to the laws of The Netherlands, upon the opinion of
Messrs. R. V. Bakker, J. Van Kuyk and Jhr. Mr. H. De Ranitz, The Hague,
The Netherlands, foreign counsel.
Description of debentures.—The debentures are to be in coupon from, in denominations of $1,000; they are to be dated April 1, 1930, arc to mature April 1,.
1945, and to bear interest at the rate of 4 per ccnt per annum payable semiannually in each year on April 1 and October 1 until payment of the principal
amount thereof. Coupon debentures may be registered as to principal at Irving
Trust Co., 60 Broadway, New York, N. Y. Principal and interest are to be:
payable in gold coin of the United States of America of or equal to the standard
of weight and fineness as it existed on April 1, 1930, at the principal office of
Dillon, Read & Co., New York, N. Y. (hereinafter referred to as thefiscalagent),,
without deduction for any Netherlands taxes, present or future. Holders may,
at their option, collect principal and interest at any one of the following optional
places of collection: In the city of Amsterdam, The Netherlands, at the offices,
of Mendelssohn & Co., Amsterdam, or Nedcrlandsche Handel-Maatschappij, or
their respective successors, in Dutch guilders; in the city of London, England,
"at the principal office of N. M. Rothschild & Sons, or their successors, in pounds
sterling; in the cities of Basle or Zurich, Switzerland, at the principal office, in
either of said cities, of Credit suisse, or its successor, in Swiss francs; or in the5
city of Stockholm, Sweden, at the principal office of Stockholms Enskilda Bank,.
or its successor, in Swedish kronor; in each case at the buying rate, in such,
optional place of collection, for sight exchange on New York City on the date
of presentation of the debenture and coupons for collection.
The debentures and the coupons appertaining thereto and the certificate of
authentication of the trustee indorsed thereon shall be in the English language
only. Debentures of any series issued under the indenture, other than 4 per cent
debentures, series A, if any, and the coupons appertaining thereto, and the certificate of authentication of the trustee indorsed thereon shall be in the English,
language, but they, or any of them, may also be in one or more foreign languages,
and in every such case the English text shall govern in the construction thereof,,
and both or all texts shall constitute but a single obligation.
History% business, and property.—The company was organized under the laws of the Netherlands on June 16, 1890, to develop petroleum-bearing lands and
to produce- and > distribute petroleum and its products. Originally its activities
were confined to the Dutch East Indies, but it since has extended its activities
throughout the world by associating itself with leading international oil interests. 'The coinpany owns 60;per cent of the outstanding common stocks of The
Batavian Petroleum Co., The Anglo-Saxon Petroleum Co. (Ltd.), and The Asiatic Petroleum Co. (Ltd.), the remaining 40 per cent being owned by The Shell
Transport and Trading Co. (Ltd.). The Batavian Petroleum Co. owns approximately 64 per cent of the outstanding common stock of Shell Union Oil Corporation.
Products of the company.—The gross production of the group of companies
controlled directly or indirectly by the company amounted in 1929 to an aggregate of approximately 163,000,000 barrels of crude oil, constituting more than
one-tenth of the estimated world production for that year. Production of the
group in 1929 was principally from oil lands in, Venezuela, the United States
of America, and the Netherlands-Indies. Physical properties of the group
include 30 oil refineries with an aggregate daily capacity of approximately 635.000
barrels, storage facilities with*a capacity totaling approximately 70,000,000 barels^ and a "fleet of tankers, including chartered vessels, with an aggregate dead}
weight tonnage of approximately 1,600,000 tons. The marketing organizations
of the group distribute its products in nearly every country in the world.
SALE OF FOREIGN* BONDS Or SECURITIES
485
The following summary shows the production of the company and its affiliated
companies in the years 1927 and 1928:
1928, metric 1927, metric
tons
tons
Dutch East Indies
Egypt
Mexico (Corona)...................
Meiico (Aguila)
3,971,045
751,092
268,461
705,854
628.979
893,651
7,125,339
65,187
Trinidad.
United States: (Shell Petroleum Corporation, formerly Roxana Petroleum Cor3,890,767
poration)...
...
3,812,233
United States: (Shell Oil Co., formerly Shell Co. of California)
50,773
22,063,411
3,448* lii
711,756
I S3,284
fiP3; 828
594,753
987,528
4t 497,713
65,841
2,694,312
3,203,719
17,701
16.998,551
REDEMPTION AND PUBLICATION OF NOTICE
The provisions with respect to redemption of the debentures, and the notice
required in connection therewith, are set forth fully in Articles I and IV of the
indenture. Certain of such provisions may be briefly summarized as follows:
"The debentures arc to be redeemable as a whole, or in part by lot, at the option
of the company, at any time prior to maturity, at the principal amount thereof
and accrued interest. "Notice of such redemption shall be given by publication at
least once a week for four consecutive calendar weeks in a daily newspaper printed
in the English language and published and of general circulation in the borough of
Manhattan, the city of New York, and in a daily newspaper printed in the Dutch
language and published and of general circulation in Amsterdam, the Netherlands,
thefirstpublication in each such city to be not less than 60 days nor more than 90
days prior to the date fixed for redemption. Upon written notice to the trustee of
the company's election to redeem the debentures in whole or in part, the trustee,
if partial redemption is to be made, is to designate by lot the debentures so to be
redeemed, and forthwith give written notice to the company and thefiscalagent
specifying the debentures so designated. The notice of redemption, to be published by the fiscal agent, shall state the election on the part of the company to
redeem debentures; the redemption date; in case less than all of the debentures are
to be redeemed, the scries and the numbers of the debentures to be redeemed;
the redemption price; that interest accrued on the debentures so designated will
he payable if coupons representing such interest accompany the debentures when
presented; that the interest on such debentures will cease on the redemption date;
and that on said date such debentures should be presented in negotiable form for
for redemption at the office of the fiscal agent. A copy of such notice shall be
mailed by the trustee on behalf of the company not less than 60 days nor more than
90 days prior to the redemption date to each registered holder of debentures so
so designated for redemption whose address shall appear on the registry-books.
Failure to mail any such notice or notices, or any irregularity therein, shall not
debeV*16 ®JJfficiency o r v a , * d i t y
the proceedings for the redemption of the
COVENANTS OF THE COMPANY
Certain particular covenants of the company, which are set forth fully in
Article V of the indenture may be briefly summarised as follows:
u\"
Punctually the principal of, and interest on, the debentures.
2. To make such payment without deduction therefrom for any taxes, assessments or charges, present or future, which the company or any of the banks or
banking houses mentioned above, as offices where principal and interest may at.the
SPtion of the holders be collected, mav be required or permitted to pay thereon or
deduct or retain therefrom by the Kingdom of the Netherlands or any taxing
&^hority thereof.
3. To maintain an office at the principal office of theTTrustee where the debentures may be registered as to principal and transferred.
486
SAIIE
OF FOREIGN BONDS OB SECUBITIES
• "4. tJntil 'all of the debentures shall have been paid, that the company will, and
will cause each of its subsidiaries to—
" (a) Diligently preserve its corporate existence and other franchises and rights
(except as otherwise permitted by the indenture) in so far as, in the opinion of the
managers of the company, or any of them, the preservation of such independent
corporate existence of any subsidiary of such franchises or rights continues to be
advantageous to the company or to such subsidiary;
" (b) Promptly pay and discharge all taxes upon it and lawful claims against it,
provided that it shall have the right to contest any tax or claim; and
u (c) In so far as in the opinion of the managers of the company, or any of them,
it shall be advantageous, to maintain its plant and properties in good condition
and repair.
" 5 . T o keep its property and that of its subsidiaries properly insured.
" 6 . Until all of the debentures shall have been paid, not to create any mortgage,
pledge or other lien upon any of its property, whether now or hereafter acquired,
.without effectively pro\ iding that the debentures shall be secured equally and
ratably with the Indebtedness secured by such mortgage, pledge or other lien;
provided that the company may acquire'propcrty subject to mortgages or liens
or execute purchase money mortgages or liens, and may execute mortgages to
renew or refund any such mortgages or liens and may execute pledges to secure
loans maturing within one year.
"7. Until all of the debentures shall .have been paid, not to sell, lease or transfer
all or substantially all of its properties, or consolidate or merge with any other
corporation, unless upon such terms that the purchaser, lessee or transferee of the
company or the corporation resulting from such consolidation or merger, shall
assume and agree to pay the debentures and coupons according to the terms
thereof and of the indenture. No such sale, lease, transfer, consolidation, or
merger shall be effected to or with any corporation which has outstanding any
obligations secured by mortgage which will be come a lien on the property of the
company; unless effective provision is made whereby the debentures shall be
secured equally and ratably with said obligations, or by lien upon the property of
the company owned by it immediately prior to such sale, lease, transfer, consolidation or merger, subject to mortgages, pledges, and liens permitted by the
indenture.
"8. Until all of the debentures shall have been paid, not to allow any sub*
sidiary to dispose of all or substantially all of its property except to the company
or to another, subsidiary, or to consolidate with any corporation, other than the
company or a subsidiary, unless its successor in interest to such property or the
corporation resulting from such consolidation shall thereby become a subsidiary
of the company; provided that these provisions shall not apply to the sale of
any such property which, in the opinion of the managers of the company, or any
of them, is no longer advantageous to the company or such subsidiary.
. "9. Not to extend the time for the payment of any coupon appertaining to or
claim for interest on any of the debentures.
"10. That it has power and is duly authorized, under the laws of the Kingdom
of the Netherlands, to create and issue the debentures, and that the issue of the
debentures and the execution of the indenture have been duly authorized.
. "11. That it will take all such further action as, in the opinion of the trustee,
.may be necessary or proper to facilitate the performance of the terms of the
indenture or to protect the rights and remedies of the holders of the debentures.
"12. That it will not issue any debenture under the indenture otherwise than
in accordance with its provisions.
"13. That it will not seek to avoid, by dissolution, anv of its covenants in the
indenture.'1
EVENTS OP DEFAUI/r
-Certain events are defined as defaults tinder the indenture. The provisions
defining such events are set forth fullv in Article VI of the indenture, and may
be brief!v summarized as follows
X (a) - Default in the payment of principal when due and payable;
, ;
:>; "(&) Default in the payment of interest continued for a period of 30 days; "
" (c) Default in the due observance or performance of any other covenant or
stipulation on the part of the company provided for in the'indenture or in any
supplemental indenture which shall have continued for a period of 60 days after
written notice to the company by the trustee, whose duty it shaU be to give such
notice at the written request of the holders of not less than 25 per cent in principal amount of the debentures then outstanding.
SALE OP FOREIGN BONDS OB SEOXTRITIES
487
"(ef) Involuntary bankruptcy of the company, or appointment of a receiver or
receivers, which shall have continued unstayed on appeal or otherwise and in
effect for a period of 90 days.
"(e) Dissolution, voluntary bankruptcy, assignment for the benefit of creditors
or consent to the appointment of a receiver or receivers of all or a major part of
its property.
" (f) Final judgment for the payment of money which shall be rendered against
the company and which shall create or become a lien on all or a major part of
the property of the companv, not discharged within 90 days from the entry
thereof, or appealed from with a stay of execution pending such appeal."
The following provision is contained in section 2 of Article VII of the indenture:
"If any one or more of the events of default shall occur, then and in every such
'case during the continuance of such event of default the trustee, by notice in
writing to the company, may, and, upon the written request of the holders of not
less than 25 per cent 'in principal amount of the debentures then outstanding,
shall, declare the principal of all the debentures then outstanding, if not already
due, to be due and payable immediately and, upon any such declaration such
principal shall become and be immediately due and payable, anything in this
indenture or in the debentures contained to the contrary notwithstanding."
DESCRIPTION OF SHARE PURCHASE WARRANTS AND NEW TORE SHARES
There will be attached to each debenture a share purchase warrant to be issued
under the warrant agreement dated as of April 1, 1930, between the company and
the Equitable Trust Co. of New York as trustee and as depositary under the
agreement dated September 10, 1918 (hereinafter called the New York shares
Agreement), providing for the issuance of New York shares (hereinafter described).
Each warrant will expressly entitle the holder thereof, upon surrender thereof at
the principal office of the Trustee accompanied by the debenture bearing the same
serial number as the warrant so surrendered, or by a certificate, dated within
20 days prior to such surrender, of any one of certain specified bank or banking
houses to the effect that the bearer of such warrant was on the date of such certificate the holder of such debenture, to purchase at any time on or before April
1,1936 (but in case the debenture bearing the same serial number shall be called
for redemption and the date fixed for the redemption thereof shall be a date prior
to April 1, 1936, then onlv on or before the date so fixed for the redemption of
such debenture) 15 New York shares at the following prices: $66.66% per New
York share if purchase and payment are duly made on or before April 1, 1933,
and $70 per New York share if purchase and payment are duly made after April
1, 1933. and on or before April 1, 1936.
The New York shares arc to be issued upon the exercise of warrants from time
to time, by the Equitable Trust Co. of New York as depositary under the New
York shares agreement. Each New York share represents H of one subshare
of the par value of 100 guilders (each subshare being one-tenth of a share of ordinary stock, of the par value of 1,000 guilders) of the ordinary stock of the company
New York shares arc now listed on the New York Stock Exchange (see application
No. A-5182).
The warrants will evidence in the aggregate the right to purchase 600,000 New
York shares which the company, under the warrant agreement, has agreed to
cause to be issued from time to time upon the exercise of the rights evidenced by
the warrants, and the company has agreed to deposit against such exercise not
later than three months after April 7, 1930, with the Amsterdam correspondent
of the Equitable Trust Co. of New York, trustee, 20,000,000 guilders par value of
ordinary stock of the company.
The warrant agreement contains provisions designed to protect the right
evidenced by the warrants against the effect of dilution.
FUTURE ISSUES
The indenture provides for the issuance of debentures from time to time up to a
total of $90,000,000 principal amount, suh debentures to be issued in series,
maturing at such dates and bearing interest at such rates, respectively, as the
company shall determine prior to the issue thereof in accordance with the provisions of the indenture, such debentures to be coupon debentures in bearer form,
JJ-jpstmble as to principal only and/or registered debentures without coupons.
£he series of debentures for the listing of which application is hereby made is the
hrst of such series (4 per cent debentures, series A).
92828—-32—*T 2
38
SAIIE OF FOREIGN BONDS OB SECUBITIES
488
DIVIDENDS
Dividends on the
per cent priority shares and the 4 per cent preference shares
have been regularly paid since their issuance from time to time since 1890.
Dividends on the common stock of the company have been paid as follows:
(In percentage of par value): 1925, 23 per cent; 1926, 23% per cent; 1927 and
1928, 24 per cent.
FINANCIAL STATEMENTS
The followingfinancialstatements have been compiled from the annual reports
submitted to the shareholders of the company; the annual report for 1928 was
signed by H. London, chairman, and G. C. B. Dunlop, secretary:
"(1) Profit and loss account for each of the five years from 1924 to 1928, inclusive.
f '(2) Balance sheets as at December 31, 1927, and December 31, 1928."
All conversions of Netherlands into United States currency have been made at
par of exchange (to the nearest dollar, 1 guilder equals $0,402).
Profit and loss account
1028
1927
1926
1925
1924
French tax on priority
$2% 442.00
shares
$19,349.00
$26,209.00
$25,562.00
$21,912.00
Administration and
155,684.00
- other expenses
136,014.00
140,216.00
124,927.00
149,184.00
I Reserve for tax on divi120,600.00
dends
321,600.00
221,100.00
315,734.00
Contracture! obligations.
84,644.00
70,921.00
38,293.00
Balance of profit..
41,553,847.00 40,995,412.00 40,841,570.00 37,989,078.00 35,369,394.00
1
Total
41,709,210.00 41,200,130.00 41,297,803.00 38,552,695.00 35,983,854.00
' Profit:
: Dividends on shares in
• various companies,—. 38,964,153.00 39,146,224.00 39,273,264.00 35,568,975.00 34,269,252.00
-; ' Interest, less differences
in exchange
2,609,32a 00 2,051,287.00 2,020,035.00 2,981,350.00 1,707,847.00
Contractual obligations.
132,053.00
- < Dividends lost by limi885.00
. tation
3,676.00
2,619.00
4,504.00
2,370.00
5,87a 00
•'' •• Accidental profits
Total..
41,709,210.00 41,200,130.00
41r 297,803,00 38,552,695.00 35,983,851 00
Balance sheet
1928
1927
$62,429,394.00
$63,474,594.00
129,303,723.00
31,701,959.00
85,697,311.00
257,782.00
142,085,953.00
Z7t 684 477.00
63 037,229.00
257! 782.00
309,390,169.00
306,540,035^00
229,140,000.00
603,000.00
11,457,000.00
646,348.00
36,809.00
392,096.00
170,222.00
25^390,847.00
41,553,847.00
229,140,00a 00
'603,00a00
llf457,00a00
'892,131.00
Z7t 182.00
135,926.00
474,086.00
22,805,298.00
40^995,412.00
309,390^169.00
306,540,035.00
ASSETS
Unissued shares
Shares in the Bataafsche Petroleum MiJ., nominal Fl. 180,000,000.
Shares in the Anglo-Saxon Petroleum Co., Ltd., nominal £14,100,000.
Shares in Asiatic Petroleum Co., Ltd., nominal £2,100,000.
And participation in various other companies
Cash in hand and at bankers
..
Debtors
Interim dividend priority shares.
LIABILITIES
Share capital
.
Preference share capital.
..
Priority shares
'Unclaimed dividend..
Unclaimed dividends on priority shares
i—-—
Creditors...
*
Undistributed dividend
;
Reserve as per Article 4 of the articles of association
Profit and loss account
;
L—
;
...
...
SALE OF FOHEIGJS' BONOS OB SECURITIES
489
AGREEMENTS
The company agrees with the New York Stock Exchange as follows:
Not to dispose, except to a constituent, subsidiary, owned or controlled company, of an integral asset or its stock interest in any such company, nor to allow
any'such company, except to another such company, to dispose of an integralasset or its stock interest in any other company, unless for retirement and cancellation, without notice to the stock exchange.
To make annualfinancialstatements available to holders of debentures through
the trustee.
To maintain, in accordance with the rules of the stock exchange, an agency
in the borough of Manhattan, city of New York, where the principal of the
debentures listed, with interest thereon, shall be payable.
Not to make any change in listed securities, or of a trustee of its listed securities,
without the approval of the committee on stock list, and not to select as a trustee
of its listed securities an officer or director of the company.
To publish promptly to holders of debentures any action with respect to interest
on debentures.
The indenture does not provide that notice of redemption shall be published
simultaneously in New York, N. Y., and in Amsterdam, Kingdom of the Netherlands.
GENERAL
Thefiscalyear ends December 31.
The registered office of the company is located at The Hague, the Netherlands*
The annual meeting of the company is held not later than the month of June,
The debentures are payable, both as to principal and interest, at the principal
office of Dillon, Read & Co., fiscal agent; holders may at their option collect
principal and interest in Amsterdam, in London, in Basle, in Zurich, or in Stockholm, as hereinabove set forth.
The management is as follows:
Officers,—Sir Henri W. A. Deterding, general managing director; J. E. F.
deKok, J. B. Aug. Kessler, managing directors.
Board of directors.—Jhr. H. Loudon, chairman, G. C. B. Dunlop, secretary,
Dr. J. W. Ijzerman, Dr. C. J. K. Van Aalst, Dr. J. Luden, Jhr. Dr. B. C.deJonge,
Dr. Aug. Philips, Dr. J. Th. Erb.
Share purchase warrants may be exercised at the office of the Equitable Trust
Co. of New York, trustee, 11 Broad Street, New York, N. Y.
The transfer agent for New York shares is the Equitable Trust Co. of New
York, New York, N. Y,
^The registrar for New York shares is Chemical Bank & Trust Co., New York,
R O Y A L DUTCH C O .
(For the Working of Petroleum Wells in the Netherland-Indies.)
(N. V. Koninklijke Nederlandsche Maatschappij tot
Exploitatie van Petroleumbronnen in Nederlandsch-Indie.)
B y A V E R Y D . ANDREWS,
Attorney-in-Fact.
This committee recommcnds that the above-described interim receipts for
$40,000,000 4 per cent debentures, scries A (with attached shares purchase
warrants), due April 1, 1945, be admitted to the list, with authority to admit
permanent engraved debentures numbers M - l to M-40000, for SI,000 each, on
official notice of issuance in exchange for outstanding interim receipts, in
Accordance with the terms of this application.
ROBERT GIBSON, Chairman.
ASHBEL GREEN, Secretary.
Adopted by ths governing committee, April 23, 1930.
Senator JOHNSON* Have you any short-time loans of Germany at
present time?
Mr. DILLON. Nothing under the Stillhaltung agreement at all.
Senator JOHNSON. Y O U have no short-term credits, then, of
Germany?
Mr. DILLON. We have nothing under the Stillhaltung agreement.
1 am not fencing. I do not know whether we have anything else.
No; we have no short-term loans.
490
SAIIE OF FOREIGN BONDS OB SECUBITIES
Senator JOHNSON. Turn, now, to your German loans, please.
Mr. D I L L O N . They are listed by years.
Senator JOHNSON. All right. Start first with the first one you
have there.
Mr. D I L L O N . It might be of interest to you, Senators, in connection with the Brazilian financing that you have dwelt on, to say this.
We have done all the Brazilian Government financing in conjunction
with British firms who have been the bankers of Brazil for generations. The general understanding there is that Brazilianfinancingis
done jointly, the British market taking half of the loan and the American market taking half of the loan. The British did not want to lose
their position in Brazilian financing, so we have gotten together two
groups, American and British, ana the last Brazilian loan was sold
half in England and half in the United States. Previous to that there
was a total of £9,000,000 £7,000,000 of that was sold in the British
market and £2,000,000 in this market. I thought that might be of
interest to you.
Senator JOHNSON. That reminds me of another question as well.
You have many branch houses, have you not?
Mr. D I L L O N . We have no branch houses.
Senator JOHNSON. Offices?
Mr. D I L L O N . Offices; yes.
Senator JOHNSON. Y O U have many offices, then?
Mr. D I L L O N . We have a number of offices; yes.
Senator JOHNSON. I did not know whether you were making a
distinction between your branch houses and offices or not.
Mr. D I L L O N . Some houses operate with different houses. We do
not do that.
Senator JOHNSON. In the South American capitals you have
offices, have you not?
M r . DILLON. NO.
Senator JOHNSON.
Mr. D I L L O N . N O .
Senator JOHNSON.
In none of them?
We have no offices.
What were you speaking of?
[Addressing Mr.
Hayward.]
Mr. D I L L O N . He just said that in some countries we have some
local man who looks after it and sends us information and keeps us
informed about things, because, you see, Senator, after we have once
made a loan we follow in detail the condition of the borrower over the
whole life of that loan, for years, and we keep that contact by having
a local man in that capital.
Senator JOHNSON. That is exactly what I am asking about. I do
not want to make any distinctions between his being a partner in
your house, or, if you object to the terminology as being a representative—-there is somebody who represents you in each of these South
American capitals, is there not?
Mr. D I L L O N . N O ; I do not think they represent us. We have in
those South American capitals a man who keeps us informed and
gets information we ask him to get, but probably in your own mind
I think you would make a distinction between that sort of
Senator JOHNSON.^ Is he an employee?
M H D I L L O N . He is paid by us, but he probably , does; his own business down there.
;
SALE OF FOREIGN* BONDS Or SECURITIES
491
Senator JOHNSON. All right. ^ There is somebody down there in the
South American capitals who is probably paid by you and does his
own business, but who is not a representative of yours, and not your
agent, but who does keep you advised constantly concerning affairs
in the South American capitals.
Mr. DILLON. That is correct, sir.
Senator JOHNSON. I have tried to put in all your qualifications
there. Have you any such employees, representatives, agents, gentlemen who have other businesses, and yet advise you, in the European
capitals?
Mr. DILLON. In London, Berlin, and Paris.
Senator JOHNSON. London, Berlin, and Paris. Have you turned to
your German loans there?
M r . DILLON. Y e s , s i r .
Senator JOHNSON. We go veir hastily over them so as not to take
an undue amount of time. Will you call the first one?
Mr. DILLON. 1 9 2 5 is the first one, to Siemens & Halske Electric Co.
Senator JOHNSON. Where?
Mr. DILLON. In Germany.
Senator JOHNSON. I know, but where?
Mr. D I L L O N . Berlin.
Senator JOHNSON. IS that 6 per cent or 6 K ?
Mr. D I L L O N . Seven per cent.
Senator JOHNSON. Better still. How much?
M r . DILLON. $ 1 0 , 0 0 0 , 0 0 0 .
Senator JOHNSON. Out of that you received what?
Mr. D I L L O N . The gross receipts were $ 4 9 , 0 0 0 .
Senator JOHNSON. What is the next one?
Mr. D I L L O N . August Thyssen Iron & Steel Works.
Senator JOHNSON. How much?
Mr. D I L L O N . $12,000,000.
Senator JOHNSON. Out of which you received how much?
Mr. DILLON. $ 6 5 , 0 0 0 .
Senator JOHNSON. What is the next one?
Mr. D I L L O N . And that loan has all matured and been paid off.
The CHAIRMAN. IS that $ 6 5 , 0 0 0 gross or net?
Mr. D I L L O N . Gross, Senator. The figure I give is always the gross
receipt of our house, from which we have to pay our expenses^ and so
forth—$12,000,000 to the Thyssen Iron & Steel Works, made in 1925,
has all matured and been repaid.
Senator JOHNSON. What is your next one?
Mr. D I L L O N . The German steel works group, 1-year note, $ 6 , 0 0 0 , 000, which has matured and been repaid.
Senator JOHNSON. Y O U have certain other steel corporations, have
you not?
Mr. D I L L O N . As I come to them, sir, I will read them in order.
Senator JOHNSON. All right. Go ahead and take them in order,.
&en. Take them in order as you have them.
Mr. D I L L O N . Rheinelbe Union Steel Works, 1 9 2 9 , $ 2 5 , 0 0 0 , 0 0 0 .
Senator JOHNSON. Your gross receipts from that were what?
M r . DILLON*
$148,000.
Senator JOHNSON. What is the next one?
Mr. D I L L O N . United Steel Works, Germany, $ 3 0 , 0 0 0 , 0 0 0 .
Senator JOHNSON. What were the gross receipts?
492
SALE:
OF
FOREIGN BONDS OB SECURITIES
Mr. "DILLON. $551,000.
Senator JOHNSON. Six and a half per cent?
Mr. D I L L O N . Six and a half per cent, of which $ 3 , 0 0 0 , 0 0 0 have
been repaid by sinking fund.
Senator JOHNSON. That leaves $ 2 7 , 3 5 0 , 0 0 0 due now?
Mr. D I L L O N . That is right.
Senator JOHNSON. What is the next one?
Mr. D I L L O N . August Thyssen Iron & Steel Works, $5,000,000,
which has matured and been repaid.
Senator JOHNSON. Out of which your gross receipts were how
much?
M r . DILLON. $ 4 , 0 0 0 .
Senator JOHNSON. All right. The next one?
Mr. D I L L O N . Siemens & Halske again, $ 2 4 , 0 0 0 , 0 0 0 , from which
our gross receipts were $ 3 1 9 , 0 0 0 .
Senator JOHNSON. That was what date?
Mr. D I L L O N . That was in August, 1926.
Senator JOHNSON. Was that 6K or 7 per cent?
Mr. D I L L O N . Six and a half per cent due in 1 9 5 1 .
Senator JOHNSON. The next one?
Mr. D I L L O N . Berlin City Electric, $20,000,000. Our gross receipts
were $122,000.
Senator JOHNSON. Six or six and a half per cent?
^;
Mr. D I L L O N . Six and a half; due in 1951, of which one and a half
millions have been retired by sinking fund. $3,500,000 of that
issue was sold abroad at the time it was brought out, so there were
only $17,000,000 sold here.
Senator JOHNSON. The next one, please?
Mr. D I L L O N . United Steel Works, in 1 9 2 7 , $ 4 , 2 0 0 , 0 0 0 ,
per cent.
Senator JOHNSON. Your gross receipts were what?
M r . DILLON. $ 2 0 , 0 0 0 .
Senator JOHNSON. The next one?
Mr. D I L L O N . United Steel Works,
6 K per cent, $30,000,000, of
which $15,000,000 were sold abroad, and of which $3,000,000 have
been repaid by sinking fund.
Senator JOHNSON. Your gross receipts?
M r . DILLON.
$268,000.
Senator JOHNSON. Six and a half per cent.
Mr. D I L L O N . Six and a half per cent?
Senator JOHNSON. The next one?
Mr. D I L L O N . I think it is worth emphasizing that that loan is
$30,000,000. Over $15,000,000 of it was bought abroad.
Senator COUZENS. Y O U do not know how much went into GermanyR
Mr. D I L L O N . N O ; I do not know that we could get that the way
they buy over there.
Senator COUZENS. Where do you deliver them to?
M r . DILLON. W e deliver them to the purchaser, wherever he may
be, in France, Holland, Germany, or wherever he is.
'
Senator COUZENS. D o you resell in Germany many of the bonds
that you issue on German corporations?
'
,
Mr. D I L L O N . Yes, sir; we do. The corporations buy back a good
many, then the bankers over there also buy them.
,
Senator COUZENS^ You mean the corporation you l e n d to buys
back its own securities? ? i
SALE OF FOREIGN* BONDS Or SECURITIES
493
Mr. DILLON. I d o , sir.
Senator COUZENS. H O W
soon after the sale?
Mr. DILLON. I do not imagine soon. Recently they have been
buying some amounts of them.
Senator JOHNSON. Y O U say recently.
Mr. DILLON.
Yes.
Mr. DILLON.
Yes.
Senator JOHNSON. H O W recently?
Mr. DILLON. I suppose yesteraay. I do not know. When I say
recently I mean currently. Small amounts may have been bought
by the corporations.
Senator JOHNSON. Don't you realize that that would be an impossibility, because we had to grant them a moratorium? You need not
answer that.
Mr. DILLON. Senator, there has been no moratorium granted to
any of these corporations to which we have loaned money, and they
all have foreign exchange. We have largely loaned the corporations
which do foreign business and create foreign exchange by their shipments. Of course, it is veiy profitable for them to buy their obligations now, because their obligations are selling cheap, and they are
very glad to buy them back.
Senator JOHNSON. Let me understand that. Do I understand you
to say that the Germans are very glad to buy the obligations of their
various industrial plants—of their steel corporations, of their electric
railways, and the like—because it is cheap to buy them now, and that
they have the money to buy them?
Mr. DILLON. I did not say that about the Germans. I said the
companies themselves, that were the borrowers.
Senator JOHNSON. Are they German?
Senator JOHNSON. All right, then. They are Germans, are they
not?
]Vlr. DILLON. The borrower, where he has available funds, I should
think would be very glad to buy his own obligations.
Senator JOHNSON. And he is doing it right along?
# Mr. DILLON. They are doing it to a certain extent, a limited extent,
right along—some of them; not all.
Senator JOHNSON. Have they been doing it in the last six months?
Mr. DILLON. I should think some have to a limited extent.
Senator JOHNSON. Constantly in the last six months?
M
Mr. DILLON. To a limited extent.
Senator COUZENS. At what price?
Mr. DILLON. Whatever the current market is. I can get you the
current markets of them. I do not know.
Senator COUZENS. I S it very far below the selling price at the time
of the issue?
Mr. DILLON. I should say, materially below. Bonds have gone
down, both American and foreign.
Senator. COUZENS. They have gone down as far as the South
American bonds?
Mr. HAYWARD. Yes, sir. These steel bonds were selling at 21.
Senator COUZENS. In other words, this industrial in Germany got
86,89, and 90 cents on the dollar and now can pay back and liquidate
his indebtedness at 21?
494
SAIIE OF FOREIGN BONDS OB SECUBITIES
Mr. D I L L O N . In the same.way that the American industrials sold
their bonds. American public utility holding companies are to-day
buying them back on practically the same basis.
Senator COUZENS. Are they as low in America?
M r . DILLON. Y e s .
Senator COUZENS. The railroads?
Mr. D I L L O N . Railroads, I should
think, would be lower. Frisco
4%'s are selling at 13; so that they are lower, I should say.
Senator COUZENS. This is the same cost of inflation that happened in Germany?
Mr. D I L L O N . Over here?
. Senator COUZENS. I mean, it is enabling debtors to liquidate on
the same basis as they liquidated in the markets over there. There
is an opportunity for them to liquidate; is not that true?
. Mr. D I L L O N . That companies who have cash to pay can buy their,
own obligations?
Senator COUZENS. Yes.
-i Mr. D I L L O N . Very advantageously.
Senator COUZENS. It is an opportunity to liquidate their indebtedness?
Mr. D I L L O N . If they have available funds.
•T : Senator G O B E . Is that going on to any considerable extent?
Mr. D I L L O N . I do not know, sir.
J Senator JOHNSON. What is your next one?
Mr. D I L L O N . Deutsche Bank, Berlin.
Senator JOHNSON. Six per cent?
Mr. D I L L O N . Six per cent. Twenty-five millions, of which we
sold abroad at the time of offering $8,400,000. Our gross receipt was
$129,000.
/ Senator JOHNSON. Your next one?
Mr. D I L L O N . I will give you round figures on these, Senator.
Senator JOHNSON. Ail right.
Mr. D I L L O N . The Gelsenkirchen Coal Mining Co., $15,000,000,
of which $7,000,000 were bought abroad. Our gross receipts were
$50,000 on that $15,000,00.
Senator COUZENS. Why do they make loans in America? Why;
do they do their borrowing here when half of it goes back to foreign
countries?
Mr. D I L L O N . Why, do they do that? I suppose those investors
like the bonds. The investors buy them over there.
Senator COUZENS. What I am tiying to find out is why they will
borrow $15,000,000 and then sell half of it back in Europe again.
Mr. D I L L O N . Why do they do that?
"
Senator COUZENS. Why do they not borrow over there?
Mr. D I L L O N . Probably they do; I do not know. They borrow;
from us. We have a demand at once from abroad for those bonds, and
we have sold them abroad.
Senator COUZENS. D O you solicit their business?
Mr. D I L L O N . N O . I do not quite understand your question.
Senator COUZENS. I say, do you solicit their business? Do you
inquire whether they are in the market to borrow?
Mr. D I L L O N . No; I think they come to us first.
495
SAIIE OF FOREIGN BONDS OB SECUBITIES
Senator COUZENS. And after they come to America and get their
money, they buy some of those bonds back in their own country
again?
Mr. DILLON, When I say they were sold abroad, I mean they were
sold in Germany or Holland or France
Senator COUZENS. Has your experience been that many of them
get back to France?
Mr. D I L L O N . Many of them go back to Europe. I would have to
make a long inquiry to see just which country they get to.
Senator COUZENS. You would not know whether any would, be
sent to France or not?
Mr. DILLON. Very few to France. I t is mostly Holland, Switzerland, and the Scandinavian countries and the like.
Senator JOHNSON. The last one you mentioned was the GelsenMrchen Mining Corporation. That is a coal company, is it not?
Mr. DILLON. Yes; 515,000,000, of which $7,360,000 were sold
abroad. Our gross receipt was 850,000.
Senator JOHNSON. The next one?
w
Mr. D I L L O N . The Ruhr Chemical Co.
Senator JOHNSON. What is that company?
i'j
b
Mr. DILLON. A chemical company located in the Ruhr, in Germany.
Senator JOHNSON. I know; but what does it manufacture particularly?
Mr. DILLON. Artificial nitrate. That was $ 4 , 0 0 0 , 0 0 0 of which
$1,500,000 was sold abroad. Our gross receipt on that was $ 5 6 , 0 0 0 .
Senator JOHNSON. The next one?
Mr. DILLON. The Ruhr Gas Corporation.;
Senator JOHNSON. Six and a half per cent?
Mr. DILLON. Six and a half per cent; $ 1 2 , 0 0 0 , 0 0 0 , of which
$3,136,000 was sold abroad.
Our gross receipts was $ 2 7 , 0 0 0 .
Senator JOHNSON. What is the Ruhr Gas Co.? Can we say that
it is a manufacturer of gas?
Mr. DILLON. N O ; it collects the gas from the by-product coke
ovens in that region and sells it to the various cities.
Senator JOHNSON. Then it is a gas company.
What is the next one?
Mr. DILLON. The Ruhr Housing Corporation.
Senator JOHNSON. What is the Ruhr Housing Corporation?
Mr. DILLON. That is a subsidiary company of the steel works over
there that builds workmen's houses.
Senator JOHNSON. Six and a half per cent?
Mr. DILLON. Six per cent; $ 4 , 6 0 0 , 0 0 0 , of which $ 8 5 0 , 0 0 0 was
bought abroad. Our gross receipt was nothing.
Senator SHORTRIDGE. Were they $100 bonds?
Mr. DILLON. They are usually $ 5 0 0 and $ 1 , 0 0 0 , Senator.
Senator JOHNSON. What is the next one, please?
Mr. D I L L O N . Rudolph Karstadt.
Senator JOHNSON. What is that?
^
Mr. DILLON. A department store.
They liave branches in
Germany.
"
Senator JOHNSON. Six per cent interest?
. • i<
Mr. DILLON. Yes; $ 1 5 , 0 0 0 , 0 0 0 of which a million and a half was
sold abroad and of which $700,000 have been retired by sinking
fund. Our gross receipts were $111,000.
496
SALE:
OF
FOREIGN BONDS OB SECURITIES
Senator JOHNSON. And the next one, please?
Mr; D I L L O N . Berlin City Electric, $15,000,000, of which $5,042,000
was sold abroad. Our gross receipts were $18,000.
Senator JOHNSON. Six per cent?
Mr. D I L L O N . Six and a half per cent.
. Senator JOHNSON. The next one?
Mr. D I L L O N . Siemens & Halske, $14,000,000, of which $3,740,000
were sold abroad. Our gross receipts were $430,000.
Senator JOHNSON. What is Siemens & Halske?
Mr. D I L L O N . A manufacturing electric company, also manufacturing telephone equipment.
Senator JOHNSON. Simply a manufacturing company?
M r . D I L L O N . Y e s , sir.
Senator JOHNSON. The next
Mr. D I L L O N . Berlin City
one?
Electric Co., $15,000,000, of which
$3,400,000 were sold abroad. Our gross receipts were $101,000.
Senator CONNALLY. Is that a municipally owned plant or a private
plant, the Berlin City Electric Co.?
Mr. D I L L O N . The Berlin City Electric belonged formerly to the
city of Berlin, but it is now an independent corporation.
That is all, Senator Johnson.
Senator G O R E . In each of those cases the major part of the loan
remained in this country and the minor part went back to Germany?
Mr. D I L L O N . A considerable part went back. I do not know
.whether it went to Germany. It was sold abroad.
Senator G O R E . I was just wondering if that did not tend to prove
that while there are more reichmarks in Germany than there are in
this country, there are more easy marks in this country than there are
in Germany.
Senator SHORTRIDGE. As to all of those issues, are they now selling
far below par?,
Mr. D I L L O N . Yes; that is correct, Senator. They are all paying
interest. None have defaulted on interest or sinking fund.
Senator SHORTRIDGE. Nevertheless, they are on the market at
away below what the purchasers paid for them?
Mr. DILLON. Yes; just as are the securities of our own and all
other countries.
Senator SHORTRIDGE. But you can not explain why it is?
1 Mr. D I L L O N . No, I can not. I can say that these foreign loans are
behaving no differently than our own domestic loans, and I think
they are just as good.
Senator SHORTRIDGE. Y O U do not think that anybody in the neighborhood of Wall Street has anything to do with fixing the market
price of those bonds, do you?
Mr. D I L L O N . I never found such a person, Senator, because when
you realize the great volume of these bonds, it would be practically
impossible for any one to do that. I do not think any one is strong
enough to do that.
j. Senator SHORTRIDGE. Yet the companies issuing the bonds are
now buying them back?
Mr. DILLON. A few.
Do not misunderstand that.
That is in
no great volume; Where they have the money they are buying a few
of them back. <hs
>
o V
SALE OF FOREIGN* BONDS Or SECURITIES
497
< Senator SHORTRIDGE. And in that way are discharging their obligation?
Mr. DILLON. Yes; just as American companies are doing.
Senator C O U Z E N S . D O they sell bonds short the same as they do
stock?
Mr. DILLON. Does who?
1 Senator COUZENS. Whoever sells short, of course.
Mr. DILLON. We handle no such accounts in our office.
Senator C O U Z E N S . I am asking you the practice of Wall Street and
of the New York bankers, from your observations. Do they sell
bonds short the same as they sell stocks?
Mr. DILLON. Not to my knowledge. But we do not deal in
either stocks or bonds on the exchange. We are not members of it.
Senator C O U Z E N S . D O you know whether or not they sell bonds
short?
Mr. D I L L O N . I should think it would be a difficult thing to do in
any volume, because I do not know where you would get the bonds.
I do not think there is- as free lending of bonds as there is stock.
Senator C O U Z E N S . SO that the snort selling of bonds has not
existed to the same extent as the short selling of stocks?
. Mr. D I L L O N . I would not hesitate to say that that is true, although
I am not familiar with the short selling of stocks.
Senator COUZENS. When you add up all of the loans that have been
made by the so-called international bankers to Europe and say that
that much American money has been loaned to Eurpoe that is an,
incorrect statement?
Mr. DILLON. Yes; because a number of those loans were bought
abroad.
Senator C O U Z E N S . Y O U have no idea of the percentage, have you?
• \ Mr. DILLON. And a great deal of that has gone back since; I mean
since these loans were made. The figure that I have given you of
what was sold abroad, which is a very largefigure,was at the time of
issue. I have no way of telling the amount that has been bought
back since, although in the case of the Dutch loan I think it is safe to
say that a great majority of those loans have been bought back by
the Dutch. The vast majority of that loan has now gone back to
Holland.
Senator C O U Z E N S . SO that there is a general misconception in thecountry as to the amount of American money that has been loaned
abroad, because they take the aggregate that has been loaned by all thebankers and say that that is the amount of American money that
has gone abroad. But that is not correct?
^ Mr. DILLON. That is not correct.
r Senator C O U Z E N S . SO the public has been going along on a misunderstanding as to the volume of money loaned by Americans to
Europe?
A Mr. DILLON. I do not know just what the public feeling is.
p Senator COUZENS. That is the feeling represented in the newspapers,
Mr. DILLON. If that is the feeling, it is not correct. Our issues
being to industrial companies may be in a different category from these
loans to municipalities. I have nofigureson that.
^ Senator CONNALLY. Mr. Dillon, to what extent has your company
Participated in making loans abroad to American industries established in foreign countries, American corporations? Since the war
498
SALE OF FOREIGN- BONDS OH:' SECURITIES
a great many of them have been established in foreign countries,
have they not?
Mr. D I L L O N . Y O U mean, our loans in America-1—Senator C O N N A L L Y . I mean, to what extent have you financed the
establishment of American-owned factories and industries in foreign
countries?
Mr. DILLON. We have furnished money to American industries
doing business aboard. That has been done in a number of instances.
Senator CONNALLY. Can you give an approximation of about how
much money you have furnished to them?
M r . DILLON. W e ourselves?
Senator CONNALLY. Through your syndicates. Probably you can
cite some of the instances if you have them there.
Mr. DILLON. There was one instance where the issue was bought by
an American company doing business abroad to get an interest in a
foreign company. Is that what you mean?
Senator CONNALLY. If an American concern here wants to establish
a factory in Europe, does it not usually issue bonds?
Mr. D I L L O N . N O ; not necessarily. They may do it out fit .their
surplus.
'
Senator CONNALLY. Do you finance any of those companies?
Mr. DILLON. One instance I happen to recall, that of the National
Cash Register Co., which is an American company out in Ohio. They
built a large plant in Germany.
Senator CONNALLY. Did you help to finance that?
M r . DILLON. Y e s .
Senator C O N N A L L Y . Y O U
say you helped to finance their bond
issues that have been used by American companies to buy interests
in foreign corporations?
Mr. D I L L O N . N O ; I say some of those securities which we-have
sold
Senator CONNALLY. That is what I am talking about. Some of
that has been so used?
M r . DILLON. Y e s .
Senator C O N N A L L Y . Y O U
spoke of becoming a creditor nation
instead of a debtor nation, and you referred to the agricultural and
manufacturing interests being overdeveloped. Do you attribute
that to the fact that we have become a creditor rather'than a debtor
nation?
Mr. DILLON. I think it is due to a natural development from increasing wealth and growth; and we were doing export business to a
large extent. If you are going to cut that export business off, we
ourselves at home have not to-day the consumptive capacity to take
care of all of our agricultural products or all of our manufactured
products.
Senator CONNALLY. Does not the business of American corporations in foreign countries competing with our own industries tend to
reduce our exports and produce this very condition that you are talking about, of a domestic surplus?
Mr. DILLON* You mean, that foreign countries would produce as
much as we?
Senator CONNALLY, If a man goes over to Germany and establishes
jan American factory, does not that cut. off a large amount of our
SALE OF FOREIGN* BONDS Or SECURITIES
499
exports by reason of that company in Germany using German labor,
and facilities?
- Mr. D I L L O N . I do not think so, because I do not think they would"
build a factory over there if that were the case. I think it is becauseof the tariff of that country which does not allow our products to getin on a competitive basis with the native stuff. ^ I think you will
find that that is the reason for our building factories where we have
built them.
Senator SHORTRIDGE. Of course all those countries have tariff
duties?
Mr. DILLON. Many of them have; yes.
Senator SHORTRIDGE. And they are about twice as high as the duties
of the United States.
Mr. DILLON. Are they as high as that?
Senator SHORTRIDGE. On an average.
Senator CONNALLY. In making your foreign loans do you submit
the matter to the State Department before issuing the securities?
Mr. DILLON. Always.
Senator CONNALLY. How do you do thatr—by letter or by personal
contact?
Mr. DILLON. We either telephone to one of the officials in the
department and then follow that by letter, or simply send a letter.
Senator C O N N A L L Y . D O you have some particular branch of the
State Department that you take that up with, and would you mind
stating whom?
Mr. D I L L O N . I do not think there is any particular branch. I
think it is either with the Secretary or one of the undersecretaries.
My associate tells me that a letter is simply addressed to the Secretary of State.
Senator CONNALLY. Do you submit any reports as to your examinations regarding the legality and economic backing, or just a general
statement?
Mr. DILLON. We inclose a circular which is descriptive of the loan.
Senator CONNALLY. The circular that you advertise to the purchaser. Have you ever had any bond issues refused by the department?
Mr. D I L L O N . N O ; we have not.
Senator C O N N A L L Y . D O you ever put that into your circular, that
the State Department has not objected?
Mr. DILLON.
No.
Senator JOHNSON. Are you representing here at the present time
^any of the houses for whom you have made loans or any of the
governments for which you have made loans?
Mr. D I L L O N . N O ; we are not, Senator.
Senator JOHNSON. Are any of the sinking funds being paid at your
office?
Mr. DILLON. They are.
. Senator JOHNSON. Many?
Mr. DILLON. Quite a number of them, lyrould say.
Senator JOHNSON. Generally speaking, where you are the manager
of the loan, is not that the fact?
i
Mr. DILLON. Generally speaking, they want us to act as siiikingffund agents.
500
SALE:
OF FOREIGN BONDS OB SECURITIES
Senator JOHNSON. Is there any compensation or profit derived
from that activity?
Mr. D I L L O N . There is compensation, "small compensation, figuring
very little more than enough to pay the clerical work.
The CHAIRMAN. Your company does not require that you shall
act as agents?
Mr. D I L L O N . No. That is optional with the borrower. They
generally want you to do that because they must have some one to
act as their agent, and probably they feel that you are best qualified,
which I think you are.
Senator SHORTRIDGE. In view of a remark that I made just now
I would like to add this, that as to 25 comparable products the rates
of duty of 15 of the principal European countries are a little over
twice the rates under our American tariff law. As to 25 comparable
articles competing one with the other,, as to 15 of the European
countries their rates are a little over twice the American tariff rates
on those comparable articles.
Senator G O R E . Y O U do not have the data to show whether wages
are twice as high in those countries as they are here?
Senator SHORTRIDGE. NO, indeed, I do not. That is why everybody wants to come to America.
Senator JOHNSON. Did you participate in any of the loans to sugar
companies in Cuba?
Mr. D I L L O N . None.
Senator JOHNSON. Y O U had no participation?
Mr. D I L L O N . None, except that small loan I mentioned, of
$3,000,000, which we made. We have loaned nothing and have not
been interested in any of the loans that others have made in Cuba.
Senator JOHNSON. My recollection is that the National City was
the managing agent of those sugar loans.
Mr. D I L L O N . I do not know, sir. We were not in those.
Senator JOHNSON. Y O U have a statement there of all of your loans
and the amounts?
Mr. D I L L O N . I have.
Senator JOHNSON. May we have it to put into this record, please?
I wanted to examine the statement to see whether there was anything
else that I might have you furnish subsequently. I will take a glance
at it, Mr. Chairman, and see its form.
The CHAIRMAN. I thought I asked him to put it into the record at
the beginning. But if I did not, you can put it in at this point.
Senator SHORTRIDGE. While the Senator is looking at that statement, let me ask you this: what was the issue of the Royal Shell,
or the Dutch company mentioned?
Senator JOHNSON. Forty millions.
Senator SHORTRIDGE. Forty millions?
Senator JOHNSON. I think so.
Mr. D I L L O N . That is correct.
Senator SHORTRIDGE. And it was sold to the public at what?
Mr. D I L L O N . Eighty-nine and a half. The company jeceived
S6, or a gross spread of
per cent.
Senator SHORTRIDGE. Can you advise us as to the present market
value of those bonds? -
SALE OF FOREIGN* BONDS Or SECURITIES
501
Mr. D I L L O N . They are listed on the stock exchange and in the
newspapers. We have a copy just torn out of a newspaper here, and
we might find it for you.
Senator SHORTRIDGE. There has been no default?
Mr. D I L L O N . None whatsoever, sir. There has been no default in
any of our Holland loans whatsoever, either interest or sinking fund.
Senator SHORTRIDGE. And some have been retired?
M r . DILLON. Y e s , sir.
Senator JOHNSON. In
conclusion, with relation to the amount of
issues in which you have participated, you gave those of which you
were manager as $1,491,228,543?
Mr. D I L L O N . That is correct, Senator.
Senator JOHNSON. And in addition to that, you participated in
various transactions in which you were not manager?
Mr. D I L L I O N . I should think that would be very limited in amount.
Senator JOHNSON. Y O U cannot approximate the amount?
Mr. D I L L O N . N O ; but I should be glad to let you have it.
Senator JOHNSON. Would you have one of your assistants do me
the kindness to add up so that it will show the total of what you term
the gross receipts from the loans that your house had?
Mr. D I L L O N . Yes, sir. It is on the sheet that we are giving you,
Senator. It is not added.
Senator JOHNSON. Will you add it when it is put into the record
now, before your departure?
Mr. D I L L O N . Yes, sir; certainly.
(The statement referred to and submitted by the witness is here
printed in full as follows:)
Summary of Dillon, Read & Co. foreign issues
Total Issued
Total outstanding Jan. 1, 1931-—.
Retired by sinking fund and caUAmount originally placed abroad..
Segregation
of issues outstanding:
egi
,C*
Canadian,
Germany.
Holland
France
Italy
Poland
South America
Japan—
$1,491,228, 542
1,189, 653,300
301, 575,242
270, 918,000
499, 376,300
252, 701,000
115, 000, 000
22, 779, 300
32,304,200
27, 300, 000
209, 359, 000
30, 833, 500
1,189, 653,300
CJi
Foreign issues by, Dillon, Read & Co„ 1919-1981.
Issued
1010
January-
Canadian Northern Railway, equipment trustfl's(series
B), due 1919-1929
Canadian Northern Railway, equipment trust G's (scries
C), due 1919-1929
July
Toronto Electric Light Co., 6's, duo 1922
August
Canadian Northern Hallway, 6's, duo 1022 and 1024...
November, Brazilian Traction Light <fc Power Co., 6's, due 1922
December.. Canadian Northern Railway, equipment trust G's (series
D), duo 1019-1029
;
Canadian Northern Railway, 6H% duo 1022-1924.
Do-..May..
Total.
1020
May
October....
Do
November.
December..
Canadian Northern Railway, 7's. duo 1935
The Massoy-Harrla Co. (Ltd.), 8*s, duo 1030
Grand Trunk Railway of Canada, 7's, duo 1040..
Province of Novn Scotia, G's, due 1930
Canadian Northern Railway, 7's, due 1040
Total..
Outstanding,
1031
Sold abroad
Retail
ottering
price
$7,600,000,00
Matured.
7,500,000.00
1,000.000.00
10,000.000.00
7, GOO, 000.00
Matured.
Matured.
Matured.
Matured.
134,000.00
7,500.000.00
12,000,000.00
Matured.
Matured.
99.60.
100.00
97.50
(»)
.100,000.00
90.64
04.50
53,000,000.00
None.
944,000.00
15,000,000.00
4,000,000.00
25,000.000.00
2,000,000.00
25,000,000.00
$14,000,000.00
Matured.
24,743,000.00
2,000,000.00
24,703,000.00
71,000,000.00
65,536,000.00
12,000,000.00
$600,000.00
11 otooo. oo:
96.96
(')
Syndicate
price
Gross
orlgiBanking Purchase nating "
group,
receipts
prico
price
beforeexponsos
93.09
98.25
94.50
$28,125.00
31,500.00
20,357.00
25,000.00
75,000.00
94.00
.92.89
90.75
95.00
93.64
91.50
37,500.00
45,"000." 00
95.00
93.50
94.50
91.70
96.20
65,000.00
40,000.00
62,500.00
3,591.00
29,605.00
93.40
• 92.00
86,261.00
95.00
91.50
92.50
91.50
03.50
94.50
92. 75
88.964
91.00
90.00
U3.50
92.50
93.00
92.00
90.00
93.00
* 101.65
97.50
97.50
01.00
00.00
81.50
67,500.00
38,014.00
467,125.00
22-1,016.00
202,375.00
879,843.00
None.
None,
None.
369,605.00
222,572.00
99.00
100.00
100.00
93.50
100.00
90.00
95.50
96.50
95.50
98.00
97.20
11,230,000.00.
95.25
2,200,000.00
99.00
935/8
97.50
96.50
05.25
98.50
98.75
99.54
'99.54
07.75
86.50
18,000.00
96.21
97.25
95.00
97.75'
92.50
18,000.00
1021
February.. Grand Trunk Railway of Canada (Ltd.), equipment
trustflip's,due 193(5
United Railways of Habana, equipment trust 7H% duo
March
1036
Qovornment of Newfoundland, W s , due 1930
United States of Brazil, 8's, due 1941
Canadian Northern Railway,flj^s.duo 1946
Grand Trunk Railway of Canada (Ltd.), 6's, duo 1936....
United States of Brazil, 8*s, due 1041
Province of British Columbia, 6's, due 1041
Province of Manitoba, G's, due 1040
Province of Manitoba, G's, duo 1946 (second tranche)..
City of Rio do Janeiro, 8's, duo 1046
French cities (Bordeaux, Marseilles, Lyon), G's, due 1034
Total..
6,000,000.00
6,000,000.00
25,000,000.00
25,000,000.00
25,000,000.00
25,000,000.00
2,000.000.00
2,000,000.00
2,750,000.00
12,000,000.00
22,779,300.00
165,529,300.00 |
6,000,000.00
10,926,250.00
25,000,000.00
25,000,000.00
16,926,250.00
2,000,000.00
2,000,000.00
2,750,000.00
8,535,000.00
22,779,300.00
93.75
83.50
S
O
p
«
O
W
O
§
w
8
1022
Province of Alberta, 5Us,due 1947.
f
$3,846,000.00
3,846,000.00
Kingdom of the Netherlands 0 per cent guilder bonds, dud 75,000,000.00
75,000,000.00
J072. scries A guildres_._...r.
;
March.
Canadian National Hallways, 5s, due 1925
Matured.
11,000,000.00
Government of Newfoundland, 5Hs, due 1942.
6, 000,000.00
6,000,000.00
Province of Alberta. SJ^s, due 1952
3,000,000.00
3,000,000.00
May—
Province of Manitoba, 5's, due 1925.
3,934,000.00
3,934,000.00
Do..
Province of New Brunswick, 6M's» due 1939_
1,500,000.00
1,500,000.00
Do..
Provinco of New Brunswick, serial 5's, 192... j.
640,000.00
800,000.00
Juno—
18,336,000.00
25,000,000.00
United States of Brazil. 7's, due 1952
Do..
£2,000,000.00 To be called 1932.
United States of Brazil, 7H Per cent coJTce security loan
due 1952.
Provinco of Alberta, 5M'sf due 1927
July..
$3,500,000.00
• Matured.
City of Montevideo, 7's, duo 1952.
Do
6,000,000.00
5,684,000.00
Kingdom of the Netherlands, 6 per ccnt guilder loan, due
Do
50,000,000.00
50,000,000.00
1972, series B guilders
2,000,000.00
Province of Alberta. 5M's, due 1927
August
2.000,000.00
2,638,000.00
September. Province of Saskatchewan, 5's, duo 1942
2,638,000.00
2,554,000.00
November. City of Ottawa, 5M's, due 1923-1952
1,786,000.00
1,000,000.00
December.. Lethbridge Northern Irrigation District, 6's, duo 1951.....
1,000,000.00
January...
February-
Total..
1023
January....
Do
April
May
Juno
Do.....
November.
December.
Province of Alberta, 5's, due 1948
Provinco of British Columbia, 5's, due 1948.......
Province of Alberta, 5's, due 1943
Province of Ontario, 5's, due 1923
Greater Winnipeg Water District, 5's, duo 1924...
Province of British Columbia, 5's, due 1913-1940..
Provinco of Alberta, M a , due 1920-1933
Province of Ontario, 5's, due 1924
Total..
1924
January....
Do....
July.....
Do.—
Do...
Do....
Province of Alberta 5's, due 1939
Government of Newfoundland 5V$'st duo 1944.:.-—
Province of British Columbia 4l£'g, due 1927 :
Province of British Columbia 6's, duo 1939
Province of British Columbia 5's, due 1939
Great Consolidated Electric Power Co. of Japan 7H%
duo 1939
Canadian National Rys., equipment trust 4^'s duo 1925August
1939
I Rys. 4 .
Do....
Cespcdes Sugar Co. 7fi% due 1939..
Do...
September. Canadian National Rys. 4H's, due 1954..
* 554 to 6 per cent basis.
* OK to <JH per ccnt basis.
* Canadian funds.
132,772,000.00
100,364,000.00
100.00
< 940.00
Mtt
108,000.00
50,000.00
4,800,000.00
2,000,000.00
3,000,000.00
Matured.
Matured *
2,000,000.00
3,000,000.00
Matured.
1,338,000.00
723,000.00
851,000.00
30,810,000.00
14,800,000.00
5,612,000.00
2,500,000.00
3,500,000.00
3,000,000.00
2,000,000.00
3,042,300.00
2,500,000.00
3,500,000.00
Matured.
2,000,000.00
3,042,300.00
075,000.00
179,000.00
15,000,000.00
11,800,000.00
5,000,000.00
Matured.
1,991,000.00
26,000,000.00
915.00
mi
101.00
103.00
99.00
104.00
100.00
96.50
97.00
99.75
101.75
98.50
103.00
94.00
96.00
93.50
95.00
1960.00
100.00
97.00
98.875
95.00
945.00
94.50
100.00
99**
103.42
100.00
99.125
98H
102.50
104.00
98.27
905.00
8,582.00
124,039.00
99.03
98.763
100.25
97.986
102.11
• 5,556.00
10,662.00
3,848.00
4,901.00
1,753,00
None.
321,125.00
82,450.00
98.27
91.50
936.00
5,835.00
107,750.00
7,862.00
99.255
91.00
94.50
98.27
97.652
101.87
103J4
3,582,00
7,535.00
1,358.00
6,380.00
158,000.00
4,800,000.00
2,000,000.00
3,000,000.00
5,000,000.00
1,010,000.00
2,000,000.00
9,000,000.00
10,000,000.00
9,375,000.00
20,000,000.00
3,000,000.00
20,000,000.00
09.125
920.00
2,700,000.00
O
4
htj
o
o
%
97.25
97.50
96.25
99.85
99.408
97
100.00
99.55
95.04
95.24
94.273
98.944
99.408
>97.03
97.50
99.375
95.75
96.25
95.00
98.50
3,070.00
1,312.00
4,782.00
20,355.00
Nono.
Nono.
19,059,00
6,977.00
w
0
£25
8
8
01
m
Q
94.42
98.50
11,000.00
1,688,000.00
95.92
100.00
99.75
100.00
99.25
445,000.00
91.50
87.00
<«>;,
98
99.00
12,054,000.00
96.00
4 Per 2,500 guilders.
4 Loss.
'Jr^H per cent basis.
98.25
98.10
98.50
94.50
94.50
83.00
93.42
96H
99.254
98.15
97.93
5,311.00
11,701.00
3,471.00
None.
10,063.00
80.00
870,509.00
97.35
98.25
90.00
94.00
7,338.00
7,489.00
68,320.00
14,386.00
i
s
co
Cn
O
CO
Foreign issues by Dillont Read & Co., 1919—1981—Continued
Issued
1024
October—.
Decorabcr.
City of Bogota, Colombia, 8's, due 1045.
French National Moil Stoamshlp Lines 7's, due 1040..
Total..
1025
January.... Siemens & Halske A. G. 7's, duo 1028-1035
Outstanding.
1931
Sold abroad
6,000,000.00
10,000,000.00
$4,749,000.00
Called.
$185,000.00
103,417,300.00
00,582,300.00
15,237,000.00
Retail
offering
price
03.00
80.50
80.00
84.50
$217,010.00
82,504.00
00.00
90.50
08.50
00J*
97 H
87.50
95.00
99.00
00.25
04.00
90.50
93.00
05.50
00.75
005$
84.50
01.00
00.00
02.00
04.50
05.00
01.00
03.25
09 H
00.25
82.50
80.25
08.00
04.00
04.00
40,337.00
05,102.00
•4,800.00
6,070.00
110,380.00
828,550.00
None.
1235.00
Nono.
80.00
07.00
05.03
99.05
'150.00
83.00
94.00
02.44
90.15
147.00
82.00
80.00
88.00
88.50
08.77
137.85
172,100.00
102,108.00
100,080.00
3,040.00
74,203.00
04.00
04.00
00.00
«
00.00
OQ.OO
80.60
88.00
87.00
85.00
84.00
148,708.00
71,182.00
451,355.00
None.
03.00
04.00
02.50
87.50
87.00
90.00
03.25
00.00
100.07
84.00
551,872.00
2,870.00
4,807.00
None.
521,335.00
3,544,500.00
1,550,000.00
Matured.
Matured.
17,000,000.00
Called.
27,300,000.00
Matured.
2,250.000.00
1,000,000.00
1,300,000.00
11,883,500.00
Matured.
2,700,000.00
Matured.
7,500,000.00
380,000.00
145,500,000.00
07,553,000.00
15,711,000.00
25,000,000.00
3,000,000.00
35,000,000.00
072,000.00
22,188,000.00
30,000,000.00
1,900,000.00
5,000,000.00
702,942.00
25,000,000.00
27,300,000.00
1,000,000.00
Matured.
520,500.00
50,921,000.00
" 0^775^666'oo"
00.00
05.00
00.50
100.07
90.50
5,370,000.00
23,085,000.00
3,340,000.00
7,745,000.00
07.17
47.50
Total..
1026
January...
Juno
Do.....
i Do.
Do
^ ' Do
Do
Do™
: August..
Rhelnelbe Union Steel Works, 7's, due 1040
Agricultural Mortgage Bank of Colombia, 7% due 1040...
United States of Brazil,
due 1057. (See below)
City of Ottawa, 5'st due 1027-1056
United Steel Works Corporation (Germany), 6H% due
1051, series A
Toronto Harbor Commission, 4H% due 1053....
Aug. Thyssen Iron & Steel Co., 6 per cent notes, due 1020.
City of Ottawa, 5's, due 1927-1056.
United States ol Brazil, 6Ws, due 1957
1 Province ot British Columbia, 4H's, due 1027-1956. (See
| Siemens& Hfdako" A . Q a , duo 195l"
6,000, OOO. 00
24,000,000.00
2,300,600.00
520,500.00
55,000.00
7,175.000.00
"7^752,"000," 00*
2,000,000.00
479,000.00
1,000,000.00
Oross
originating
receipts
before
expenses
94.00
87.00
10,000,000.00
7,000,000.00
1,330.000.00
285,000.00
1,500,000.00
1,511,000.00
800,000.00
Banking Purchase
group,
price
price
98.00
91.00
12,000,000.00
August Thyssen Iron & Steel Works 7's, duo 1030..
18,000,000.00
Canadian National Rys. iH's, due 1030..
17,000,000.00
Canadian National Rys. 4M's, due 1035..
20,000,000.00
Est Ry. Co. (Franco) 7's, duo 1054
Republic of Poland 8's, due 1050..
35,000,000.00
0,000,000.00
German Steel work* group 1-year 7 per cent notes
2,250,000.00
Province of Saskatchewan 4H's. duo 1045
1,000,000.00
Province of British Columbia 4H% due 1050
Great Consolidated Electric Power Co. of Japan
13,500,000.00
due 1050
3,000,000.00
Rudolph Karstadt (Inc.) (Oormany) 7's, duo 1030
October
3,000,000.00
November, Municipal Bank of Hessen (Germany) 7's, due 1020-1045—
2.275.000.00
Do
. Province of Now Brunswick 4H's, duo 1028
December., Disconto Gcsellschaft Bank, Berlin, common shares... R.M.7,500,000.00
Do.
February..
Do
.
Do
Do
April
Juno.......
July
Do
,
Syndicate
price
88.00
05.25
"47?00
93.00
01.94
80.00
00.043
43.50
* 8,274.00
319,570.00
Do
1 Dfsconto Gesellschaft Bank, Berlin, trust certificates for
common shares
R. M. 10,000,000.00 R.M. 10,000,000.00,R.M.400,000.00 >$147.50
November, Province of Saskatchewan, 4M% due 1950
2,500,000.00
2, £00,000.00
mi
2,500,000 (VI
December..Berlin City Electric Co., 6H's, duo 1951
20,000,000.00
18,579,000.00
98.00
3,515,000.00
Total..
1027
January.... Data via Petroleum Corporation (Holland), 4H's, due 1967.
Vo
Province of Saskatchewan, 4M'st due 1957.
February.. Republic of Bolivia, 7's. due 1958.
Province of Alberta^ 4H's, duo 1907....
April
Canadian National Railways, equipment trust \\b% due
Do.
1928-IQ42 „ „ . . . . . . . .
City of MHon (Italy),"
ftH's"
dioviS"llll'"1
Do
Province of Quebec, 4M's, due 1957
Do
July........ United Steel Works Corporation (Oermany) QH% due
1951, scries C
Do..
United Steel Works Corporation 0J4 per cent debentures.
due 1947
September. Province of Nova Scotia, 4H's, due 1952
Do
Montreal Metropolitan Commission, 4M% due serial.
Do
Deutsche Bank, Berlin, 6's, due 1932
October
United States of Brazil, 6H's, due 1957
November. City of Vancouver, W*> due 1942-1967.
December.. Shlnyetsu Etcctrtc Power Co. (Japan).
due 1952
Do
National Transcontinental Branch Line Railway (Canada), 4H'a, due 1955
Do..
Niagara Power Commission, 4's, due 1942 »
181,334,942.00
164,344,500.00
43,381,000. CO
25,000,000.00
1,468,500.00
14,000,000.00
3,785,000.00
25,000,000.00
1,468,500.00
14,000,000.00
3,875,000.00
1,695,000.00
1,331,000.00
96.25
95.00
98.50
98.17
15,000,000.00
30,000.000.00
4,000,000.00
11,000,000.00
27,400,200.00
4,000,000.00
1,065,000.00
5,010,000.00
1,670,000.00
98.831
92.00
100.00
4,225,000.00
4,225,000.00
1,352,000.00
30,000.000.00
12,370.000.00
0,037,000.00
25,000,000.00
41,500,000.00
1,135,000.00
7,050,000.00
27,795,50a 00
12,370,000.00
$143.60
96.00
95.50
$138.10
93,00
94.00
96,962.00
9,119.00
122,023.00
95.25
95.00
"96.00
97.17
93.60
94.25
94.28
90.05
96.55
52.201.00
4,370.00
503,219.00
4,709.00
98.206
90.00
99.75
89.50
98.00
88.50
99.19
2,984.00
78,276.00
4,180.00
97.50
95.50
95.00
94.00
20,442.00
98.60
99.25
97.75
99.50
92.50
98.61
93.25
96.00
98.00
97.00
08.00
00.50
97.77
91.25
95.50
"25,~666"66a66'
39,990.000.00
1,135,000.00
7,150,000.00
15,590,000.00
3,494,000.00
2,433,000.00
8,400,000.00
£.420,000.00
829.000.00
676,000.00
04.00
97.417
96.20
88.00
97.27
89.00
268,571.00
25,479,00
8,242.00
129,810.00
539,308.00
3,865.00
100,376.00
4,000,000.00
15,000,000.00
11,140,000.00
4,000,000.00
15,000,000.00
11,140,000.00
1,150,000.00
7,360,000.00
64,500.00
100.00
97.00
7a oo
99J*
94.50
75.00
99.817
93.00
69.00
701.00
50,314.00
390,810.00
4,000,000.00
23,000,000.00
12,000,000.00
4,600,000.00
15,000,000.00
3,683,000.00
23,000,000. CO
12,000,000.00
4,544,000.00
14,341,000.00
1,536,000.00
3,325,000.00
3,136,000.00
850,000.00
1,465,000.00
92.25
97.50
94.00
92.00
98.00
89.75
95.00
91.00
89.00
95.00
87.25
93.00
90.00
89.00
93.08
56,140.00
255,565.00
27,413.00
None.
111,249.00
88,740,000.00
87,708,000.00
18,886,500.00
650,000.00
97.50
90.00
3,399,000.00
2,000,000.00
Do
September.
November.
December..
Do......
Province of British Columbia, 4's, due 1928
Gelsenkirchen Coal Mining Co. (Germany), 6's, due 1934.
St. Lawrence Paper Co. (Canada), 6 per cent preferred
and common stock.
Ruhr Chemical Co. (Germany), 6's, due 1948
Republic of Bolivia, 7's, due 1969
Ruhr Gas Corporation (Germany), Cj^'s, due 1953
Ruhr Housing Corporation (Germany),fl's,due 1958
Rudolph Karstadt Corporation (Germany), 6's, due 1943.
Total..
>Loss.
* Per R.M.600.
• Sold at cost.
O
3
S*
w
o
§
Total1928
JanuaryMarch
May
§
**
93.75
73.00
89.25
94.00
93.75
Q
• Per R. M. 2,500.
All sold in Canada.
Cn
S
Or
O
Ci
Foreign issues by Dillon, Read & Co., 1919-1931—Continued
Issued
• 1929
January...
Do.!...
February.,
' March
June
September.
November.
Do
Province of British Columbia, 4H's, due 1909
Montreal Metropolitan Commission, 5's, due 1966
Berlin City Electric Co., 6h'sf due 1959
Ernesto Breda Co. (Italy), 7's, due 1954.
Canadian National Hallways, 5's, duo 1969
Province of British Columbia, 5's, due 1959
Province of British Columbia, 5^'s. due 1930
Province of British Columbia, 5's, duo 1931
Total
:
February.. Canadian National Hallways, 5's, due 1970-.Do...,. Siemens <& Ilalske Co. (Germany), participating debentures, due 1930.
March..'... Royal Dutch Co. (Ilolland), 4's, duo 1045
Do...... Canadian National Steamship Co., 5's, duo 1955
April
Berlin City Electric Co., 6's, due 1955
Government of Newfoundland, 5's, due 1955
July.:.
August—; Province of British Columbia, 3H's, due 1931
December., Province of British Columbia, 4's, due 1932.
Total..
1931
January.... Canadian National Hallways, 4H's, due 1956..
February.. Province of British Columbia, 4H% duo 1936..
Province of Quebec, 4H's. due 1961
May
Total
Outstanding.
1931
Sold abroad
$6,417,000.00
3,100, (XXX 00
15,000,000.00
5,000,000.00
60,000,000.00
3,036,500.00
3,000,000.00
3,000,000.00
$6,417,000.00
3,100,000.00
14,741,000.00
4,895,000.00
60,000,000.00
3,036,500.00
Matured.
Matured.
$4,343,000.00
1,048,000.00
5,423.000.00
890,000.00
34,640,000.00
2,136,500.00
98,553,500.00
92,189,500.00
48,480,500.00
18,000,000.00
14,000,000.00
18,000,000.00
14, oco, oca oo
40,000,000.00
9,400,000.00
15,000,000.00
2,500,000.00
2,500,000.00
4toi5,ooaoo
Hotail
offering
price
Syndicate
price
94.69
99.75
93.50
96.25
99.75
100.00
100.00
100.00
03.69
98.75
91.00
93.75
98.50
98.75
99.75
99.75
4,000,000.00
3,740,000.00
99.50
933.00
98.75
003.00
40,000,000.00
9,400,000.00
15,000,000.00
2,500,000.00
Matured.
4,015,000.00
9,100,000.00
4,700,000.00
3,698,000.00
1,158,000.00
89.50
100.00
90.50
100.75
100.00
87.50
99.50
88.50
100.00
99?i
105,415,000.00
102,915,000.00
26,396,000.00
70,000,000.00
5,000,000.00
7,500,000.00
70,000,000.00
5,000,000.00
7,500,000.00
42,686,000.00
1,450,000.00
1,885,000.00
98.25
99.33
99.16
97.25
9a 95
98.66
82,500,000.00
46,021,000.00
„=
82,500,000.00
Grand total..
1,491,228,542.00
99.62
1,189,653,300.00 270,918,000.00
Banking Purchase
group,
price
price
$90.50
911M®
98.456
90.00
WU
98.1597
98.80
99.25
99.25
887.50 882.50
86.75
"saoo"
Gross
originating
receipts
before
$11,349.00
4,097.00
18,504.00
65,607.00
41,918.00
1,82a 00
2,626.00
2,561.00
11,664.00
430,990.00
86.00
99.177
86.75
99.318
99.65
99.50
253,449.00
96.4077
98.49
98.06
30,671.00
4,262.00
5,274.00
6,810.00
101,496.00
2,577.00
848.00
687.00
SALE OF FOREIGN* BONDS Or SECURITIES
507
The CHAIRMAN. The committee will stand in recess until 2 o'clock
this afternoon.
(Whereupon, at 11.55 o'clock a. m.> a recess was taken until 2
o'clock p. m.)
AFTER RECESS
The committee resumed at 2 o'clock p. m., at the expiration of the
recess.
The C H A I R M A N . The committee will come to order. I will swear
both Mr. Anderson and Mr. Granbeiy if they will come forward
and each will hold up his right hand. You, Mr. Anderson and Mr.
Granbery, and each of you, do solemnly swear that the testimony
you are about to give in the hearing now being held by this committee will be the truth, the whole truth, and nothing but the truth,
so help you God.
M r . ANDERSON. I d o .
M r . GRANBERY. I d o .
TESTIMONY OP C. P. A N D E R S O N , JR., V I C E P R E S I D E N T THE
C H A S E , H A R R I S , F O R B E S C O R P O R A T I O N ; E. C . G R A N B E R Y ,
VICE C H A I R M A N
OF T H E B O A R D OF DIRECTORS,
CHASE,
HARRIS, FORBES CORPORATION, NEW YORK CITY
(The witnesses were duly sworn by the chairman of the committee.)
The CHAIRMAN. You may proceed.
Senator JOHNSON. Mr. Chairman, shall I go right ahead?
T h e CHAIRMAN.
Yes.
Senator JOHNSON. As I understand it, gentlemen, one of you
represents the Chase Securities Corporation and the other Harris*
Forbes & Co.
Mr. G R A N B E R Y . Might I explain that?
Senator JOHNSON. Surely.
Mr. G R A N B E R Y . We are both officers of Chase, Harris, Forbes
Corporation, which as now constituted is a consolidation of the
bond business formerly done by Equitable Trust Co., Chase Securities Corporation, and Harris, Forbes & Co. At the time when this
foreign business was done it was transacted by these separate firms or
corporations, the issue business of which is now merged into one.
Mr. Anderson was with the Chase^ Securities Corporation and he is
better qualified to answer questions regarding Chase Securities
Corporation or the Equitable Trust Co. business, and I hope I am
Justified, or at least I will do my best, to answer regarding Harris,
'orbes & Co.
The C H A I R M A N . As I understand it, Mr. Anderson is a vice presicent of Chase, Harris, Forbes Corporation, and Mr. Granbery is*
chairman of the board of directors of Chase, Harris, Forbes Corporation.
Mr. G R A N B E R Y . I am vice chairman of the board of directors of
Chase, Harris, Forbes Corporation.
The C H A I R M A N . Y O U are vice chairman of the board of directors of
Chase, Harris, Forbes Corporation?
Mr. G R A N B E R Y , Yes; the same company.
The C H A I R M A N . All right.
508
SALE:
OF FOREIGN BONDS OB SECURITIES
Senator JOHNSON. N O W , first, I want to compute with you something in relation to the profits in order to determine the manner in
which you have figured out these profits. I take therefore a rather
simple loan, and there were in the original group the Equitable Trust
Co. and Harris, Forbes & Co., a German issue, the Bavaria Free
State of Q% per cent serial bonds, August 1, 1925-August 1, 19261945. Have you that before you?
M r . GRANBERY. Y e s , sir.
Senator JOHNSON. N O W ,
$15,000,000; is that correct?
I observe that that was an issue of
M r . GRANBERY. Y e s , sir.
Senator JOHNSON. The purpose
of which was public improvements
and capital acquisitions. The interests in the original group were
Equitable Trust Co. and Harris, Forbes & Co., each 50 per cent; is that
correct?
M r . GRANBERY. Y e s , s i r .
Senator JOHNSON. The purchase
price of those bonds was 8 9 flat.
The offering price was 92.95 and a fraction. Have you that issue
before you?
M r . GRANBERY. Y e s , s i r .
Senator JOHNSON. And the gross spread was 3 . 9 5 .
M r . GRANBERY. Y e s , s i r .
Senator JOHNSON. And the profit is shown as $ 1 4 3 , 0 0 0 .
Mr. ANDERSON. The gross profit.
Senator JOHNSON. All right.
Mr. GRANBERY. I believe some witness here called it gross receipts.
Senator JOHNSON. All right. Now, the next one that we have here
is even plainer: Bavaria Free State of 6}£ per cent sinking fund gold
bond, August 1, 1925-August 1, 1945, $10,000,000, the purpose of
issue being extension of hydroelectric properties. The interests in the
original group were the Equitable Trust Co. and Harris, Forbes &
Co., 50 per cent each. The purchase price was 87%, and the offering
was 92.75. The gross spread was 5. That is correct, is it not?
M r . GRANBERY. Y e s , s i r .
Senator JOHNSON. N O W , the
profit stated there to have been derived
by Harris, Forbes & Co. because of its participation being 50 per cent,
that is, in $5,000,000 of the loan, was $99,000.
Mr. GRANBERY, This is the Equitable Trust Co.
Mr. ANDERSON. That profit refers to the Equitable Trust Co., and
the profit of Harris, Forbes & Co. would be presumably the same.
Senator JOHNSON. Will you now explain to me that gross spread of
5, your participation being in $5,000,000 of the $10,000,000 loan,
and the profit for the Equitable Trust Co. is shown as $99,000.
Mr. ANDERSON. A S regards the $ 9 9 , 0 0 0 indicated here, that is the
.gross profit to the Equitable Trust Co. and not to H a r r i s , Forbes
& Co.
Senator JOHNSON. Correct.
Mr. ANDERSON. That represents the overall participation in whatever groups there may have been in that issue in which the Equitable
Trust Co. had participation.
.
,
Senator JOHNSON. The Equitable Trust Co. had a participation of
50 per cent in that loan.
Mr. ANDERSON. Yes, but they sold of course on step-up terms to
other dealers in forming their syndicates of a banking group and their
selling group.
SALE OF FOREIGN* BONDS Or SECURITIES
JOHNSON. All right. They sold on step-up terms.
M r . ANDERSON. Y e s , s i r .
Senator JOHNSON. What were the step-up terms?
Mr. ANDERSON. I am afraid the actual terms of that issue
509
Senator
I have
not got here.
Senator JOHNSON. IS there any way in which you can tell me how
you reached such figures as are shown here, with the gross spread of
the character I have indicated?
Mr. ANDERSON. The bonds in the first instance were sold possibly
to other dealers in the selling group less a commmission of 2 points,
as an example.
Senator JOHNSON. Suppose you had a commission^ of 2 points.
You have a 50 per cent interest, then, on a $5,000,000 interest.
Mr. ANDERSON. In the original group. But we might not have
carried that participation through all the ^ groups. Our originating
participation would be less than 5 points; it would be the difference
between what we paid or purchased the bonds for originally and
what we turned them over to the next group at.
Senator JOHNSON. Will you take any one of these instances reported
in this statement and indicate to me the manner in which you figure
the profits?
Mr. ANDERSON. I shall be glad to do that.
Senator JOHNSON. If you will do that, I will appreciate it.
Mr. ANDERSON. It might be better for the sake of this example to
take an issue in which the Equitable Trust Co. were again the originating house, and that would be an issue of $25,000,000, State of
New South Wales bonds, which are on that same page that you have
reference to.
Senator JOHNSON. All right.
Mr. A N D E R S O N . First you will note the Equitable Trust Co.'s
interest in that business was 33}£ per cent, not their participation in
the entire deal but in the $25,000,000 original amount, which was
$8,333,333. The purchase price was 93.277. The offering price to
the public was 96#. There was a gross spread of 2.97. And the
gross receipts were $94,000 to the Equitable Trust Co. The 2%
gross spread and the Equitable Trust Co.'s profit in this financing is
made up in this way: The purchase group was formed consisting of
four members, of which the Equitable Trust Corporation were the
managers and having a 33 H per cent interest. That is, this original
group consisted of the Equitable Trust Co., Harris, Forbes & Co.,
First National Corporation of Boston, and Estabrook & Co. This
originating group purchased the issue from the State of New South
Wales at 93J£. The gross profit to this group was three-fourths of a
point, from which the expenses were deducted. The profit there was
$45,625.01.
Senator K I N G . D O you mean gross?
Mr. A N D E R S O N . The gross profit to the Equitable Trust Co.
Senator K I N G . D O you mean to the group?
Mr. A N D E R S O N . N O ; to the Equitable Trust Co. A selling group
was then formed consisting of approximately 697 dealers,- who
disposed of the bonds at 96# arid received 2 per cent on their sales
made.
Senator K I N G . Who were the members of that selling organization?
Mr. ANDERSON. The selling group?
510
SALE: OF FOREIGN BONDS OB SECURITIES
Senator K I N G . Yes.
Mr. A N D E R S O N . Well, as I just stated,. there were 6 9 7 dealers,
which is the term used in respect to the houses to whom you offer
the bonds for ultimate distribution.
Senator K I N G . I suppose you pursued a course which is common
in putting out these issues. You call up by phone or wire or write
a letter to some of your correspondents throughout the United
States, and say, " W e allocate to you so many million dollars of bonds
for sale"?
Mr. ANDERSON. No; we would not say that we allocate them:
There are various ways of handling syndicates. ^ It very often de?
pends upon the amount of time between the signing of the contract
and the time you. are going to offer bonds as to, whether yon telephone
or wire. You usually send a wire if you have time to do it, and follow
it up after having received an acceptance from those to whom you
sent the. wire, with a confirmatory letter, which is called a selling
group letter, which indicates the amount of bonds allotted to that
house in response to their request for the number of bonds they wish.
1 its employed except the
^
"""
™
"
rers more than banks. It
covers bond houses all over the country who are doing a busmess of
buying and selling bonds,. In addition to that some organizations
who are associated in this business with the Equitable Trust Co. probably ^took down some of the bonds for their own account for retail
distribution themselves^ By and large, these are the two particular
conduits that are used.
Senator JOHNSON. Y O U may go ahead.
Mr. ANDERSON. The Equitable Trust Co. received a net selling
commission on their sales of $9,375. Of this issue $1,800,000 of bonds
were sold in Europe. May I make an explanation right here, that
there are two New South Wales issues. I read the first one, and I
should be referring in this operation to the second one, where the
gross receipts were $55,000 and not $94,000. The issues were identical as regards interest and amounts. That is the last one on your
page there, Senator Johnson.
Senator JOHNSON. I have them before me.
Mr. ANDERSON. Therefore, the Equitable Trust Go's, profit in the
purchase group was $45,625.01. And the selling commission on the
bonds in the selling group, for the bonds for which they took, was
$9,375, giving them a gross profit on that transaction of $55,000,
which is the figure anived at m the last column on the page.
Senator JOHNSON. N O W let4 US take two that are even plainer than
that. The city of Nuremberg, $5,000,000, for improving and enlarging city-owned public works. The Equitable Trust Co. has a
100 per cent interest in that loan. Its participation was in relation
to the amount of $5,000,000. Its purchase price was 90^, and its
offering price was 94, and your profit is stated as $32,000, How can
you arrive at that figure if you had a 100 per cent interest in the loan?
Mr. G R A N B E R Y . In the original group.
Senator JOHNSON. But the original group given here is the Equitable Trust Co.
SALE OF FOREIGN* BONDS Or SECURITIES
511
Mr. A N D E R S O N . There the original group means the organization
which purchased those bonds, in this case from the city of Nuremberg.
The Equitable Trust Co. signed that contract themselves, taking a
100 per cent commitment on them, whereas in the issue I have just
indicated to you the original commitment was divided as among four
houses.
Senator JOHNSON. Let us take this one where the Equitable Trust
Co. had a 100 per cent interest in the original group.
Mr. A N D E R S O N . Their disposition of those bonds would be similar
as regards the city of Nuremberg issue as in the issue I have just read.
They would form a selling group to whom they would allow perhaps a
2-point commission on sales.
Senator JOHNSON. What is the fact? Was there a step-up price
to the group which was formed?
Mr. A N D E R S O N . I have not followed through that particular deal,
but it was no doubt carried through in the same manner as the New
South Wales issue. There was no purchase group formed because
the Equitable Trust Co. took the issue 100 per cent themselves on
the original terms, and then they formed in this case a selling group
and gave away a part of this spread of
points, the gross spread.
So that the amount left to the Equitable Trust Co. as their originating
group profit would be the difference between what they bought the
bonds at and what they gave them to the selling group at.
Senator JOHNSON. Could you tell us what they gave them to the
selling group at? I see they were bought at 90K and that the offering
price was 94, and the spread stated in the statement here is 3%, and
the profit stated is $32,000.
Mr. A N D E R S O N . It would be slightly over one-half per cent in the
original group on the basis of profit, but I would hesitate to give that
as an accurate figure because they would have some profit for taking
bonds themselves for disposition themselves.
Senator JOHNSON. That would make your profit larger, then.
Mr. A N D E R S O N . NO, you would perhaps have 1 pomt, or half a
point perhaps
Senator SHORTRIDOE (interposing). Well, how much did you pay
for the bonds?
Mr. A N D E R S O N . Ninety and one-half.
Senator SHORTRIDGE. H O W much did you get for them when
you disposed of them?
Mr. A N D E R S O N . They were offered to the public at 94.
Senator SHORTRIDOE. That is not an answer to M Y question.
What did your house get for the bonds for which it paid a certain
sum?
Mr. A N D E R S O N . Well, we received a price probably varying between
half a point and 1 point below the selling group.
Senator JOHNSON. If you had 1 point m the step-up it would have
netted you $50,000?
Mr. A N D E R S O N . If we had 1 point, yes.
Senator JOHNSON. And if you had half of one point it would have
been $25,000?
M r . ANDERSON.
Yes.
Senator J O H N S O N . And then the profit that was made on the sale
on a
point spread, you would have participated in that, wouldn't
you?
512
SALE:
OF FOREIGN BONDS OB SECURITIES
Mr. ANDERSON. In the wholesaling, yes.
Senator JOHNSON. And yet your profit is stated here as $ 3 2 , 0 0 0 .
Mr. ANDERSON. The profit which we made on selling the bonds in
the selling group is veiy likely the difference between half a point,
which you mentioned as $ 2 5 , 0 0 0 , and the $ 3 2 , 0 0 0 , which is $ 7 , 0 0 0 .
Senator JOHNSON. It was a rather small enterprise for you.
Mr. A N D E R S O N . It was a small issue, but I think a highly satisfactory one. May I explain again, Senator Johnson, that this was an
issue handled by the Equitable Trust Co., and while I am somewhat
familiar with the details yet I was not with the Equitable Trust Co.
when the issue was made.
Senator JOHNSON. Then would you rather I should take one of the
Chase Securities Corporation?
Mr. ANDERSON. Yes, as you like. Wherever I can I will answer
as to any Equitable Trust Co., matter as well.
Senator 4<>HNSON. I may be veiy stupid, but you will pardon me
for it, if you please. I am utterly unable to figure out the situations
as to the amounts in the fashion that you indicate. You will see that
there is another one immediately under the one I asked about, where
the Equitable Trust Co. had a 100 per cent interest.
Mr. ANDERSON. The city of Medellin?
Senator JOHNSON. Where the profit is very small.
Mr. ANDERSON. Y O U are referring now to the city of Medellin
issue?
Senator JOHNSON. Yes.
Mr. ANDERSON. The gross profit there was $ 1 2 0 , 0 0 0 .
The CHAIRMAN. Is that gross profit?
Mr. ANDERSON. That is the gross profit, Mr. Chairman, in the
same sense as has been explained to the Committee before.
Senator JOHNSON. The one I referred to was in Latin America, the
city of Medellin, 8 per cent sinking fund gold bond, October 1, 1923October 1, 1945, which is shown as having been retired, and the
Equitable Trust Co. had a 100 per cent interest in that whole issue
of $3,000,000. The purchase price was 90, and the offering price was
98, there being a spread of 8. If there were no other institutions
interested in the subject matter, then that spread of 8, or gross profit,
would be 8 per cent upon $3,000,000, wouldn't it?
M r . ANDERSON. N O , s i r .
Senator JOHNSON. I say, if there were
Mr. ANDERSON. Well, if the Equitable
no other parties interested.
Trust Co. had bought.those
$3,000,000 of bonds for their own account at the price of 90 and had
sold them entirely themselves, using their own retail organization or
such as they had at that time, which I believe was not large in 1923,
and if they had carried the transaction through entirely themselves,
their profit would then have been 8 points gross on the transaction.
Senator JOHNSON. Well, that is perfectly obvious, of course, and
the profit would have been $ 2 4 0 , 0 0 0 , but you have here $120,000 on
that particular deal. Do you know how the difference comes in?
Mr. ANDERSON.;They purchased those bonds at 90 and turned
them over to a selling syndicate at 93K, leaving a gross, spread of 3K
points in the purchase account. The 3J£ points were their originating
commission, and——• ; ;
Senator JOHNSON (interposing). Who got that 3 K points?
SALE OF FOREIGN* BONDS Or SECURITIES
513
Mr. A N D E R S O N . The Equitable Trust Co.
Senator JOHNSON. Now we are getting some place where we can
understand this matter. Where there is a step-up price made by the
original group the original group gets the step-up, doesn't it?
Mr. A N D E R S O N . That is right.
Senator JOHNSON. That is correct, is it not?
Mr. A N D E R S O N : That is right.
Senator JOHNSON. So that if J . P . Morgan & Co., and I am taking
them now just as an example, start with a particular bond issue which
they have themselves purchased, then they form a syndicate of 4
and sell them to the syndicate for one point more, that one point goes
to J. P. Morgan & Co.?
Mr. A N D E R S O N . I should suppose that would be the way, but there
are different ways of handling these matters.
Senator JOHNSON. Oh, yes; there are different ways of doing
everything, so far as that is concerned.
Mr. A N D E R S O N . I do not know how J. P- Morgan & Co. would do it.
Senator JOHNSON. That is the way it would be done by any of these
houses. Then if the four thus formed at 94 step-up the price one
point to a larger syndicate, the four take the one point.
Mr. A N D E R S O N . That is correct.
Senator JOHNSON. And J . P . Morgan & Co., being the original
purchaser, participate in the first one point that they obtain in
transferring to the four, and then they have a fourth in the one
point transferring to the larger syndicate?
Mr. A N D E R S O N . If they are members of that syndicate.
Senator JOHNSON. I am saying, if they are members of that
syndicate.
Mr. A N D E R S O N . If they are members of that intermediate syndicate, yes.
Senator JOHNSON. And when that shall have been accomplished,
and if a larger syndicate be formed and the bonds be sold to them at,
say, 98, then the difference between what would be the amount of the
step-up to the syndicate formed as indicated, and the 98, would go
to all of those participating, I presume proratably in that step-up?
M r . ANDERSON.
Yes.
Senator JOHNSON. SO that the international banker has this plan
if he buys an issue himself; or I will put it the other way: If he buys
an issue himself then he lets in three or four companions with a
1-point or 2-point step-up.
Mr. A N D E R S O N . He may let them in on the original terms, in
other words, on the ground
floor,
>
Senator JOHNSON. Yes, ho may let them in on the ground floor,
but if he charges them 1 point or 2 points more the banker gets that
1 point or 2 points. Then he has three or four men engaged in the
transaction, who have then become partners. They form another
syndicate and step it up a couple of points more, and then they all
participate in that step-up. The men who have been taken in after
the original purchase do not participate in the first step-up of, we
will say, 1 point. Then when they get this second step-up, in which
they do participate, they allocate to bankers all over the country, or
to what was described on yesterday as dealers, was it?
t
Mr. ANDERSON* Dealers.
514
SALE:
OF FOREIGN BONDS OB SECURITIES
Senator JOHNSON. Dealers who were said to be very anxious indeed
for the sales, and none too good; they allocate to those dealers all
over the country, and those dealers sell at par the issue, or at whatever price may be fixed, and they then get their percentage in the
sum which they obtain over the various step-up prices that have
been made upon the bonds. Is that correct?
Mr. ANDERSON. Yes. But might I put a word in there?
Senator JOHNSON. Yes; but let me follow that out and conclude
the proposition. And in each succeeding step up the original purchaser or sponsor, or whatever you may wish to term him, participates.
Mr. ANDERSON. He may participate, but he does not necessarily
participate in all the groups.
Senator JOHNSON. Well, if he has a good thing, it is pretty certain
that he does.
Mr. ANDERSON. He would not participate in the last group unless
he himself had a selling organization.
Senator JOHNSON. ..Do you mean to say that when he allocates to
his correspondents he does not participate in any profit that is made?
Mr. ANDERSON. If he takes down bonds for his own account to
sell at retail, he then participates all the way through.
Senator JOHNSON. Why, of course.
Mr. ANDERSON. But if he does not sell at retail he does not necessarily participate in all those commissions.
Senator JOHNSON. Oh, these larger institutions have their card
index of correspondents with whom they deal whenever they take a
large bond issue; correspondents all over the country.
Mr. ANDERSON. That is largely true, that you have a list of institutions you do business with.
Senator JOHNSON. And they allocate to those institutions so many
bonds.
Mr. ANDERSON. Not necessarily that. They offer them a participation.
Senator JOHNSON. Oh yes; arid we will change the phraseology if
you wish. They offer them so much.
Mr. ANDERSON. I am speaking from our own experience.
Senator JOHNSON. They offer them so much. And if they take
it, why, of course, the original house participates in the profits that
are made. That is true, is it not?
M r . ANDERSON.
Yes.
Senator JOHNSON. Why, of course. Now, we have the system
down very clearly, I think.
Mr. ANDERSON. There is one thing I want to say: You referred to
international bankers. It is more or less the practice in all investment banking.
Senator JOHNSON. Do you object to the term "international
banking"?
Mr. ANDERSON. That would apply only to foreign loans.
Senator JOHNSON. Any term you care to use in that regard I will
not object to. What I am driving at is not any terminology concerning any particular individuals who are particularly employed to
do either land of business. But we have that down accurately now.
Let us see if we can figure out from some of these things how you
reach these figures.
SALE OF FOREIGN* BONDS Or SECURITIES
515
The C H A I R M A N . Just one question right there, Senator Johnson.
Senator JOHNSON. Certainly, Mr. Chairman.
The CHAIRMAN. Supposing there is a spread between the original
purchase price of bonds of 5 per cent, that is, between the original
purchase price and the sale price of those bonds to the individual;
and in that spread there have been five different institutions handling
the sale of the bonds. Do I inderstand you to say that the original
purchaser, or the concern that makes the contract for the purchase
of the bonds with the foreign country—and in the first sale I understand that he gets all or a part of the spread between the original
price and the price to the parties that take the bond; but then does
the original purchasers when the first one, make the purchase price
to another group of people, who purchase at an advance, does the
original purchaser then participate in the spread between the first
purchase and the second purchase?
^ Mr. ANDERSON. If he is a member of that second group he participates pro rata according to the number of participants in it.
The C H A I R M A N . In other words, he has to be a member of it in
order to participate?
M r . ANDERSON. Y e s .
The C H A I R M A N . And
Mr. ANDERSON. Yes;
in the third group it would be the same way?
but the more the groups, the smaller the
participation.
The C H A I R M A N . I know that the participation then is less but I
wanted to know the theoryr of it. In other words, the original
purchaser may be interested in the first sale, and in the second sale,
and in the third sale, or in a fourth sale.
Mr. A N D E R S O N . That is right.
The C H A I R M A N . According to percentage of responsibility he takes
in each of those sales.
M r . ANDERSON.
Yes.
Senator KING. Is it the rule that he does participate in all these
various groups?
Mr. ANDERSON. It depends upon the organization I should think.
The originating house would probably not participate in the last
group, would not take down bonds in the last group unless it had a
retail organization itself to sell bonds.
Senator K I N G . D O the most of these investment banks have selling
organizations, or are there some banks that are interested only in
making the first deal, between the company or nation or municipal
government issuing the bonds and then transmitting them to some
other organization?
Mr. ANDERSON. I think I can answer that by referring specifically
to Chase Securities Corporation founded in 1917, and from 1917 to
1927 it had no retail organization whatsoever.
Senator KING. It was satisfied, then, with one commission?
Mr. ANDERSON. Just the underwriting operations.
Senator KING. All right.
Senator SHORTRIDOE. Who fixes the/price at which the bonds are
sold to the public?
Mr. ANDERSON. There are various factors which go into determining that price., If you have other organizations interested with you
on the original terms you usually confer with them as to the marketability of the bonds, what price they feel the bonds can be sold at
516
SALE:
OF FOREIGN BONDS OB SECURITIES
in the market. And the other factors are, the prices which other
bonds of a similar nature and already issued and outstanding in the
market are selling at. It is all relative to the other securities of a
similar nature winch are already outstanding. You would not sell a
new issue of bonds higher than an issue already outstanding. You
could not sell them then, for people would not want to buy those
bonds but would buy other bonds already outstanding.
Senator SHORTRIDGE. Speaking generally, are they sold at the same
figure throughout the United States?
Mr. ANDERSON. Oh, yes; the retail price is fixed throughout the
country, the final price.
The CHAIRMAN. Take J. P. Morgan & Co., do they consistently
follow the course of taking an interest in all of the different stages of
sales?
Mr. ANDERSON. I could not tell you that. I do not know what
their actual practice is.
The CHAIRMAN. And you would not say as to any other bond house?
Mr. ANDERSON. I should rather not make a statement on that. I
do not know.
The CHAIRMAN. Y O U do not know about that?
M r . ANDERSON. N O .
Senator THOMAS of Idaho.
Just what steps are taken to list these
bonds on the stock exchange?
Mr. ANDERSON. Foreign bonds which are listed on the stock exchange comply in every respect with the requirements of the stock
exchange as regards listing.
Senator THOMAS of Idaho. You take an issue, say, of $100,000,000
of foreign bonds, then you make application immediately to have
those bonds listed on the stock exchange, before you offer them to
the public?
Mr. ANDERSON. N O ; after the offering has been made.
Senator THOMAS of Idaho. You do not have them listed on the
stock exchange until after they have been passed on to the public?
Mr. ANDERSON. Yes; that is it.
Senator THOMAS of Idaho. How do you establish a market on the
exchange for them?
Mr. ANDERSON. They very likely would be put on the curb market
first.
Senator THOMAS of Idaho. On the curb exchange?
Mr. ANDERSON. Yes; they would be put there very likely firsts
But that is not always true. It is a difficult question to answer as
a generality. On certain of these issues the market is definitely
made on the curb first, for the time being, pending their being put
on the big board.
• • i
Senator T H O M A S of Idaho. When they are put on what you call
the big board then they are dependent for a market upon the public.
M r . ANDERSON. Y e s ; a n d
Senator T H O M A S of Idaho (continuing). Are they dependent upon
the public for their market, or do you furnish some support for the
market?
Mr. A N D E R S O N . It is usually a free market after the expiration of
1
the selling group agreement, which is usually a period of 30 days.
Senator T H O M A S of Idaho. For instance, say I am out in the country. You offer me an allotment of these bonds. I buy the bonds at
SALE OF FOREIGN* BONDS Or SECURITIES
517
a certain price quoted by you, and then in a few days I find that they
are quoted on the market, at a certain price, maybe about the same
price at which I have purchased them, or more or less as market conditions might warrant. What I am getting at is this: What does your
house do in order to maintain that market? How long do you attempt to maintain a market for the bonds?
Mr. ANDERSON. Well, while the syndicate is in force, and the syndicate agreement usually provides that bonds can not be sold at a price
lower than the listing price.
Senator T H O M A S of Idaho. But I am one of the public that buys
the bonds. I am not in the syndicate, and you sell me some of these
bonds.
Mr. ANDERSON. After the syndicate has expired it is a free market.
It is a question of demand to buy the bonds that keeps them up.
Senator T H O M A S of Idaho. Is it your policy, and let us take some of
these smaller issues that do not have wide marketability, is it your
policy to support the market for them?
Mr. ANDERSON. There is some of that done in the formation of what
is called a trading account, to keep them stable.
Senator T H O M A S of Idaho. After they have been passed on to the
public.
Mr. ANDERSON. Yes; after they have been sold to the public.
Senator T H O M A S of Idaho. You do try to'support the market so
that they may not sell abnormally low?
Mr. ANDERSON. For a certain period of time; yes.
Senator T H O M A S of Idaho. For about how long a period of time?
Mr. ANDERSON. That would vaiy. If general market conditions
were good that would not be necessary at all. If there is a somewhat
unstable situation of the market right at the time, you might keep it
up for a month perhaps, just to keep the market firm for that period
of time.
Senator T H O M A S of Idaho. But it is the policy in the case of securities that you circulate for all of the different principals to support
the market, so that if one of your customers wants to sell a bond he
has purchased the market wiil be kept up so that he may dispose of
his bond.
Mr. ANDERSON. That is the idea.
Senator SHORTRIDGE. You try'to maintain a market, as I understand it, until you have disposed of the bonds, until you have recovered enough to pay for what they cost you.
Mr. ANDERSON. There is no market until the bonds have been
disposed of.
Senator SHORTRIDGE. Y O U dispose of them to . some immediate
syndicate, do you not?
Mr. ANDERSON. Until the bonds are sold there is no chance of having a market in them.
Senator KING. Until after they get out among the public.
Senator SHORTRIDGE. Pardon me for going oyer this well-trodden
path so many times, but you buy bonds, we will say, and you turn
them over to a syndicate made up of four or five houses, and then that
group turns them over to another and larger group, and that group
makes haste to dispose of them to the public, is that right?
Mr. ANDERSON. They dispose of them to the public; ves.
518
SALE: OF FOREIGN BONDS OB SECURITIES
Senator SHORTRIDGE. Your interest in those bonds ceases at what
point, or when does it cease?
Mr. ANDERSON. Well, it does not definitely cease at any particular
point, because a house that has originated an issue naturally feels
responsible for the issue.
Senator SHORTRIDGE. When does your moral or legal responsibility
or legal liability cease?
Mr. ANDERSON. The legal liability would cease when the purchase
price has been paid to the borrower. But we have a liability, or the
originating group has a liability until the corporation that is borrowing
the money, or the government, or whatever it is that is borrowing the
money has received that money.- After it has received that money
the bonds have been taken up in one way or another; they may have
been taken up by a sjTndicate or sold to the public.
Senator SHORTRIDGE. You say you sometimes take over a whole
issue. Do you immediately pay for them or do you defer payment
until you have disposed of them?
Mr. ANDERSON. You usually set a delivery and a payment date
in your selling group agreement, possibly five days or a week after the
date of offering. On that day everybody who has purchased bonds
in the syndicate must arrange to pay the originating group and take
delivery of bonds. In other words, arrange payment in New York
or they may arrange payment in Chicago.
Senator SHORTRIDGE. You do not pay for the bonds outright?
M r . ANDERSON.
NO.
Senator SHORTRIDGE. You do not buy the bonds and pay for them
outright and then undertake to dispose of them in the way you have
described.
Mr. ANDERSON. Your contract with a government or borrower
usually provides that within, say, two weeks after issue the government or borrower will be placed in funds.
Senator SHORTRIDGE. And in that period of time you have sold
the bonds and received the proceeds to pay for them?
M r . ANDERSON. Y e s , sir.
Senator THOMAS of Idaho.
Are the most of these bonds sold on the
reputation of the issuing house—I mean on the reputation of the investment merchant who sells the bond, like the Chase Securities Corporation, which has a good reputation with the public—or on the strength
of the bonds themselves? In other words, say I am in the country
and one of the public; when I buy one of these bonds do I buy it on
the merits of the bonds, or do I buy it on the reputation of your
house?
Mr. ANDERSON. Well, a house with a good reputation would
probably not sell a bond that was not good.
Senator THOMAS of Idaho. That is what I thought. Well, then,
the reputation of these bond merchants has been rather injured
because of the drop in these bonds, has it not?
^ Mr. ANDERSON. The drop has been so general in all foreign securities that I do not think their reputation has been seriously affected
simply by the drop in the price of bonds.
Senator -THOMAS of Idaho. The point I am making is, that the
investing public would now be a: little more careful in scrutinizing
bonds before making an • investment than was the case before this
crash.
SALE OF FOREIGN* BONDS Or SECURITIES
519
Mr. ANDERSON. I think that is true.
Senator T H O M A S of Idaho. The investing public is, generally
speaking, not in a position to carefully scrutinize foreign bonds, or
being able to tell whether a bond is good or not that is issued by a
foreign country, and they have to depend laregly upon the reputation
of the issuing house.
, Mr. ANDERSON. They of course have to depend upon the information that is printed in the prospectus or circular concerning the issue,
which gives the salient points of the issue and of the country by which
the issue is made. That prospectus is a document signed by the
borrower.
K
Senator T H O M A S of Idaho. I am quite familiar with prospectuses;
but what I am wondering about is, and I realize there is no legal
obligation upon the issuing house, but isn't there a moral obligation
on the issuing house for offering issues to ( the public that are now
worthless?
M r . ANDERSON. Y e s .
Senator T H O M A S of Idaho.
Senator K I N G . Let me see
Certainly, I think there is. ,
if I understand your thought,. Senator
Thomas. Suppose your bank in Idaho should be asked by an irrigation
company in your neighborhood to take over $10,000 of bonds that they
propose to issue in order to extend their ditch, and your bank would
assume that responsibility and you would sell those bonds to the
people out there. Would you feel that there was a legal or a moral
obligation, or either, on your bank?
t Senator T H O M A S of Idaho. I would feel that there would be no legal
liability, but in the handling of that kind of matter with country
customers where there is no chance for them to be properly informed;
I do feel that there is a moral obligation. And the institution I have
been connected with has always made that obligation good.; !
Mr. G R A N B E R Y . If I might interrupt right there, in case a bond is
in default quite naturally the original issumg house, or houses as the
case may be, use their best efforts, and both time and money, to try
to correct the default and make the bond good. And that has been
accomplished in many cases.
Senator T H O M A S of Idaho. D o you lose interest in the bonds or do
you keep on following them?
.
;
Mr. G R A N B E R Y . There is a continuing interest.
Senator JOHNSON. You do not mean to say that you put your
capital into defaulted interest or principal of bonds.
Mr. G R A N B E R Y . We put our money more or less into defaulted
situations to tiy to make them good.
Senator JOHNSON. As to such a defaulted issue you do what you
can to make the bonds good, but you do not actually take up the bonds
in order to make them good. I ao not want you to get that idea into
the record.
.^ ^ ! .
Mr. G R A N B E R Y . Oh, you could not tie your capital up. in those
bonds, or you could not do any more business.
,
, ,,
Senator JOHNSON. I thought your implication was of that sort.
Now to proceed: Take the city of Nuremberg 6 per cent bonds, where
the Equitable Trust Co. had a 100 per cent interest, and let us go
through it in detail and see why that three and a half spread you
received provided only $ 3 2 , 0 0 0 . It is obvious that on A $ 5 , 0 0 0 , 0 0 0
92928-82~*T2—-IS
**
R
520
SALE : OF FOREIGN BONDS OB SECURITIES
loan a 3% per cent spread would be a $175,000 profit if there were no
intervening interests. Can you go through that and tell us about it?
< Mr.1 ANDERSON. I have no details of that, but will be glad to furnish
them later if you would like them.
'' Senator JOHNSON. I should be glad to have one of them given to
us in order to explain this matter.
Mr. ANDERSON. I submitted one which is more or less the usual type
of operation. < !
Senator JOHNSON. N O W , the city of Medellin, $ 3 , 0 0 0 , 0 0 0 . Are there
any other bonds outstanding for the city of Medellin, or have you
sold any others than this particular issue of $3,000,000, said to have
been retired?
Mr. ANDERSON. This was the only issue originated by the Equitable Trust Co.
Senator JOHNSON. Well, is there any other issue?
Mr. ANDERSON. I believe there is an outstanding issue of bonds.
Senator JOHNSON. D O you know what has happened to them?
Mr. ANDERSON. I could not tell you offhand.
Senator JOHNSON. Y O U do not recall?
Mr. ANDERSON. I do not recall.
Senator JOHNSON. N O W , can you take that issue, where the
Equitable Trust Co. had a 100 per cent interest, the issue being for
$ 3 , 0 0 0 , 0 0 0 , and where the spread was eight, and where you have
shown a profit of $120,000, could you go through that in detail?
Mr. ANDERSON. I have a part of the details on that right here.
Senator JOHNSON. All right. Give them to us.
Mr. ANDERSON. The Equitable Trust Co. purchased these bonds at
90, and turned them over to a selling syndicate at 93& leaving a gross
spread of 3K points in the purchase account. The selling syndicate
offered the bonds to the public at 98, leaving a gross spread in the
selling syndicate of 4}£ points, of which 2 points represented selling
commission.
Senator JOHNSON. Who got the selling commission?
Mr. ANDERSON. The members of the selling syndicate.
Senator JOHNSON. Was it anybody associated with the Equitable
Trust Co. originally?
Mr. ANDERSON. Not in the original purchase.
Senator JOHNSON. All right. Then the Equitable Trust Co. purchased them for 90, is that correct?
Mr. ANDERSON. That is right.
Senator JOHNSON. And the first step-up price was what?
Mr. ANDERSON. Ninety-three and a half.
Senator JOHNSON. H O W many were in the second group?
Mr. ANDERSON. I have not got that figure here. There was a
selling syndicate which presumably would mean that there were some
one hundred or so dealers.
Senator JOHNSON. That is, in the second group?
Mr. ANDERSON. There were not two groups in this case. It was a
small issue.
Senator JOHNSON. First there would , be three and a half to the
Equitable Trust Co.
^ M n A N D E R S O N . Y e s , sir.
( Senator JOHNSON.
vV^
1 ° *
And that would be $ 1 0 5 , 0 0 0 : 4- n—W—
Mr. ANDERSON. That is right.
cr
SALE OF FOREIGN* BONDS Or SECURITIES
521
Senator JOHNSON. And on the first step-up the Equitable Trust Co,
made $105,000. All right. Then you have four and a half increase in
the sale, j, Out of that$15,000 only was made by the Equitable Trust
Co., is that correct?
Mr. ANDERSON. That is right. That would be their, pro rata
participation in the selling group. >
Senator JOHNSON. All right.
Senator KING. Let me ask right there: Is your technique in the
disposition of domestic bonds substantially the same as in the disposition of foreign bonds?
M r . ANDERSON. Y e s , sir.
Senator KING. And you charge about the same in the step-ups in
the matter of percentages and profits?
Mr. ANDERSON. Those are probably similar, depending of course on
who are the borrowers and the types of organizations.
Senator JOHNSON. When you speak of domestic bonds, what kind
of domestic bonds do you refer to?
.
#
. Mr. ANDERSON. T O municipal bonds, public utility bonds, corporate
bonds.
Senator JOHNSON. You do not mean governmental or municipal
bonds, do you?
Mr. ANDERSON. In the case of municipal bonds the spread is very
small.
Senator JOHNSON. Y O U are required under the laws of most municipalties to obtain a particular price, are vou not?
Mr. ANDERSON. I think they set a minimum price in the competitive bids.
Senator JOHNSON. And most municipalities require substantially
speaking par, do they not?
M r . ANDERSON, x e s .
Senator JOHNSON. N O W ,
if you will, please, let me take one issue
with you, Mr. Granbery. I want to get the profits, and the mode
of computation of them, accurately, if it be possible to do so. Take
the Pomeranian Electric 6 per cent bonds, May 1, 1928 to M a y 1,
1953, the principal amount being three and a half million dollars.
Harris, Forbes & Co. had 100 per cent in the original group, is that
correct?
M r . G R A N B E R Y . Y e s , sir.
Senator JOHNSON. The purchase price was 88, is that correct?
M r . G R A N B E R Y . Y e s , sir.
Senator JOHNSON. And the
M r . G R A N B E R Y . Y e s , sir.
offering price 92&?
Senator JOHNSON. Your gross spread was four and a half?
i M r . G R A N B E R Y . Y e s , sir.
* Senator JOHNSON. The gross
-R. M r . G R A N B E R Y . Y e s .
profit is stated as
$55,000?
/ Senator JOHNSON. Can you go through that and show me exactly
how you arrive at the $55,000?
i Mr. GRANBERY. i I think I can illustrate practically all the deals.
You will notice, Senator, that these deals which we have here are
principally electric * light company issues, land for much smaller
amounts than the Government loans, so they are handled in a somewhat;differentvway. t.As a;matter of fact, every deal is handled a
little differently from every other deal, which makes it very difficult
522
SALE OP FOREIGN BONDS OR SECURITIES
to make a general statement covering the way all deals are handled.
On this Pomeranian deal it was only three and a half million dollars.
Harris, Forbes & Co. bought the entire issue b y itself. It undoubtedly
ceded to the Harris Trust & Savings Bank of Chicago one-third of the
bonds, or, roughly, $1,100,000, at cost.
Senator JOHNSON. Why do you say they undoubtedly did so?
Did they?
Mr. G R A N B E R Y . Because we had, in Harris, Forbes & Co., an
arrangement between the two organizations b y which we gave each
other business. If we bought a deal, we offered them an interest in
it, and if they bought a deal they offered us an interest in it.
Senator JOHNSON. A S a matter of fact, do you know, in respect to
this particular deal, whether that was done?
Mr. G R A N B E R Y ; I am positive it was.
Senator JOHNSON. Veiy well; if you will proceed.
Mr. G R A N B E R Y . Then we also ceded to Redmond & Co. and the
International Acceptance Bank $500,000 at 1 per cent profit to ourselves, or $5,000. That would leave us with, roughly, approximately $2,000,000 bonds on hand which wo owned, at a cost of 88.
Then we offered those bonds ourselves at retail, and through these
dealer organizations throughout the country, at a list price of 92&
The dealers go out and sell them to their customers, ana they advise
us
Senator COUZENS. At what price?
Mr. G R A N B E R Y . They sold it at 92% to their customers.
Senator COUZENS. Y O U said you sold them to them at 9 2 ^ ?
Mr. G R A N B E R Y . We offered the bonds at retail at 92}£ and the
dealers were also offering at retail at 92%.
Senator COUZENS. At what price did you sell the dealer?
Mr. G R A N B E R Y . W e probably sold them to them at 90. That is
an assumption on my part. That is the usual way it is done. They
would say the next <lay " W e want $5,000, $10,000, or $25,000 of
bonds."
Senator COUZENS. D o most of these bond salesmen that go out to
sell them at retail work on a commission basis or a salary basis?
Mr. G R A N B E R Y . I would say that to my khowrledge most of them
work on what might be called a drawing account ana commission.
Senator COUZENS. What commission?
Mr. G R A N B E R Y . They would get a commission of anywhere from
$1 to $4 on a $1,000 bond. It is different with every house, but
anywhere from $1 to $4 on a $1,000 bond—something under onehalf of 1 per cent; a quarter of 1 per cent or something like that.
Did I answer your question, Senator Johnson?
Senator JOHNSON. I do not know whether you had concluded or not.
Mr. G R A N B E R Y . I wanted to distinguish. On small issues you do
not have to go through these various steps of getting various syndicates formed, because our original commitment there was only
$2,000,000, or approximately two million, and it was not necessary
to get other houses in to take part of that commitment, so we bought
the bonds ourselves, offered them at retail ourselves, and sold them
to other dealers at the list price less, I will assume, two and a half or
some such commission, but they were selling on commission rather
than being part of a svndicate. You will notice, if you look a little
SALE: OF -FOREIGN; BONDS OR ISECURITIES
523^
further down, that on the Prussian loan we had quite a large syndicate. That was because it was bigger business.
Senator JOHNSON. Free State of Prussia, 6 per cent bonds, October
15,1927.
Mr. G R A N B E R Y . The first issue of that was September 15, 1926.
Senator JOHNSON. That was a $20,000,000 issue.
Mr. G R A N B E R Y . That was a $20,000,000 issue, at 6K per cent.
Those bonds were issued for electric enterprises and harbor development. I might say in this connection right now, Senator Smoot, that
at various times I have heard these other witnesses testify, and requests have been made for circulars. If you want them,-we will be
very glad to put into the record all the circulars on these?different
issues.
/
..
Senator JOHNSON. I think you ought to put in two or three. I do
not care for all of them; two or three will be sufficient.
Senator G O R E . Mr. Chairman, may I ask a question at this time.
I have to go to another committee meeting?
Senator JOHNSON. Go ahead, sir.
Senator G O R E . Are you familiar with the! British companies act,
and the conditions which it imposes on underwriting houses, and the
safeguards which it undertakes to erect?
Mr. G R A N B E R Y . N O , sir; I could not tell you that.
Senator G O R E . Has your house ever sold bonds in Cuba?
Mr. G R A N B E R Y . Cuba?
Senator G O R E . Yes.
i
M r . GRANBERY. N o , sir.
Senator G O R E . The Chase National B a n k — ~
Mr. G R A N B E R Y . Wait a moment, Senator. I did not answer what
you had in mind. You were out of the room at the time I made the
statement. The Chase, Harris, Forbes Corporation, as it is constituted to-day, is a consolidation, so to speak, of the bond business
of the Equitable Trust, the bond business of Chase Securities, and
the bond business of Harris, Forbes & Co. At the time these foreign
loans were made they were three absolutely separate, distinct organizations.
Senator G O R E . Was it the Chase National Bank that handled a
loan in Cuba?
Mr. G R A N B E R Y . Mr. Anderson was formerly with the Chase Securities, and he can answer your question, sir.
Mr. ANDERSON. We did, Senator Gore.
Senator G O R E . What was the amount of that?
Mr. ANDERSON. We had two issues there, the first one being a serial
issue, serial certificates, $20,000,000, which mature a certain amount
each six months. The purpose of that issue was the construction of
the highway throughout the island.
Senator GORE. Y e s .
Mr. ANDERSON. Then there was an issue of 15-year bonds in an
amount of $40,000,000, 5% per cent bonds, for the same purpose.
t Senator G O R E . For the same purpose?
Mr. ANDERSON. For the same purpose; yes, sir.
Senator G O R E . Did Stone and Webster cooperate with you in that
sale?<i:[
?:-) .•<:
Mr. ANDERSON. I think not.
n v I- r^
524
SALE:
OF FOREIGN BONDS OB SECURITIES
Senator G O R E : ; What concern constructed the road, do you
remember? Was it Ullman?
Mr. ANDERSON: I believe Warren Brothers, of Boston:
Senator G O R E . Did you have any connection with them, as to the
construction of the road?
Mr. ANDERSON. Not in the actual financial transaction of the
issue with the Government; no, sir.
Senator G O R E . Was that concern affiliated with you at all in connection either with the flotation of the bonds or the construction of
the highway?
Mr. ANDERSON. We knew that Warren Brothers were constructing the highway.
Senator G O R E . But you had no interest in the construction end
of it? Your concern had no interest in that?
tc
Mr. ANDERSON. NO, not al all. There were local contractors too,
I believe.
Senator G O R E . That is all I wanted to ask. I wanted to clear
that up in my mind. You will have to excuse me.
The CHAIRMAN. All right, Senator.
Mr. G R A N B E R Y . Which loan did you want to discuss?
Senator JOHNSON. Any one that you can go right through. You
started on the Prussian Free State
per cent bonds,: September 15,
1926, $20,000,000.
Mr. G R A N B E R Y .
Senator, you have seen the way this is made up
in this table which I have given you. There are the various banking groups and distributing groups mentioned which you have heard
the other witnesses talk about. I have here one or two illustrations
illustrating the way a deal is handled by us.
Senator JOHNSON. Let me ask you concerning the one about which
we were first speaking. The interest in the original group was:
Harris, Forbes & Co., 20 per cent; Brown Brothers, 20 per cent;
Equitable Trust, 20 per cent; New York Trust, 20 per cent; and
Mendellsohn 20 per cent.
M r . GRANBERY. Y e s .
Senator JOHNSON. Mendellsohn is Berlin, is it not?
Mr. G R A N B E R Y . Amsterdam.
Senator JOHNSON. There were five, each with 2 0 per cent.
Mr. G R A N B E R Y . Each had a $ 4 , 0 0 0 , 0 0 0 interest.
Senator JOHNSON. Your gross profit was $ 9 2 , 0 0 0 .
M r . GRANBERY. Y e s .
Senator JOHNSON. Did each of the others make the same profit?
Mr. GRANBERY. Approximately the same.
It depends on whether
they sold any at retail or not;
Senator JOHNSON. But you would say approximately the same?
Mr. G R A N B E R Y . The New York Trust Co. does not distribute
bonds. They probably did not make nearly as much as $92,000.
Senator JOHNSON. Why would you make more?
..
Mr. G R A N B E R Y . Because we sold bonds at retail, getting the retail
selling commission.
,.
Senator JOHNSON. D O you know how many syndicates you had
there?
_
Mr. G R A N B E R Y . We probably had no syndicate there. I a m
;
speaking from memory now.
SALE OF FOREIGN* BONDS Or SECURITIES
525
Senator JOHNSON. Take the Prussian—R
,Mr. G R A N B E R Y . I have a typical example here. i :
« Senator JOHNSON. Of what?
• «T
Mr. G R A N B E R Y . * The German consolidated municipal loan. ;
M• .Senator JOHNSON. All right.
- Mr. G R A N B E R Y . That is on the page ahead. You skipped a page,
I believe. It is on the page before the one you were reading.
Senator JOHNSON. All right, sir.
Mr. G R A N B E R Y . I have an illustration here of a $17,500,000 German consolidated municipal 6 per cent loan, issued on-June 1, 1928,
in which there are now $15,850,000 outstanding.
Senator JOHNSON. Correct.
;
Mr. G R A N B E R Y . Harris, Forbes & Co. bought the entire issue.
We then formed the purchase group.
Senator JOHNSON. Of whom?
Mr. G R A N B E R Y . Composed of ourselves; Lee, Higginson & Co.;
the Guaranty Co.; E. H. Rollins & Sons; and the Equitable Trust
Co., with the percentages which are given above there. .
Senator JOHNSON. That is, 46% per cent to Harris, Forbes; 23)4
per cent to Lee, Higginson & Co.; 13)4 per cent to the Guaranty Co.;
8% per cent to Rollins; and 8% per cent to the Equitable Trust Co.
Mr. G R A N B E R Y . Yes; and we made one-eighth per cent on the
formation of that syndicate.
Senator JOHNSON. SO, first, you received one-eighth per .cent?
M r . GRANBERY. Y e s , sir:
Senator JOHNSON. Then what?
Mr. G R A N B E R Y . We bought the bonds at 9 1
We formed that
syndicate at 91%, that group that we just read.
Senator JOHNSON. Yes, sir.
.
Mr. G R A N B E R Y . SO, there were five principals. We then formed a
banking group at 92, or three-eighths per cent above that price.
Senator JOHNSON. H O W many were in that?
;
#
Mr. G R A N B E R Y , In that group there were five of the principals,
the five original principals, and 76 dealers, or a total of 81 participants. The five principals had an interest in that banking group of
$11,480,000, and the 76 dealers had an interest of $6,020,000. That
was at 92. The bonds were offered to the public at 94& .Any one
of this group that sold bonds at 94% -received a 2 per cent- selling
commission for making the sale. The five principals combined sold
$4,085,000 at retail. The 76 dealers sold $6,565,000. Other
dealers were offered the bonds with only a selling commission. They
did not have any liability. There were 679 of those dealers, and they
sold $6,325,000, and we made one foreign sale of $520,000, making the
total number of participants 761 selling the $17,500,000 bonds.
Senator JOHNSON. On that you made a profit of $ 8 2 , 0 0 0 ?
Mr. G R A N B E R Y . On that Harris, Forbes, & Co. made a profit of
$82,000.
Senator JOHNSON. I do not care to ask any further question of
these gentlemen.
' The C H A I R M A N . I have not any other witness here this afternoon
on account of the illness of Mr. Speyer, so we will adjourn until
to-morrow morning at 10 o'clock. _ *
* Mr. G R A N B E R Y . May I put one thing into the record?
T h e CHAIRMAN.
Yes.
526
SALE:
OF FOREIGN BONDS OB SECURITIES
Mr. G R A N B E R Y . I wanted to speak about the investigation which
we made before we purchased any of these issues. That point has
been raised. The question has been asked of other witnesses about the
investigation which was made, and I wish to state that we make a
very thorough investigation of the security and the legal details of
all these issues, both foreign and domestic, before we handle and
recommend the bonds to our customers.
I can divide the investigation into six different points.
First, we make a detailed study, through pur corporation buying
department; of the following:
(a) Nature and scope of the company's activity.
(b) Territoiy served.
(c) Property and business.
(d) Analysis of load and power sales by classes.
Practically all these are electric-light companies.
(e) Power and gas contracts.
'
- if) Kates.
(g) Franchises and competition.
(h) Public relations.
(i) Governmental and State regulation.
(j) Possibilities of future growth.
Second, a study of ownership and management of the company.
Third, a detailed study of an examination and appraisal , of properties by independent American engineers.
'
Fourth, a detailed study of examination and audit of earnings and
balance sheet position of the company, covering a period of years,
by American certified public accountants.
Fifth, a detailed study of various legal aspects of the situation
investigated by our counsel, covering:
(a) Organization and incorporation of the company.
(b) Titles to property.
(c) Franchises.
(d) Security.
(e) Mortgage or indenture with due care as to the provisions to be
included.
Sixth; the discussion of the favorable and u n f a v o r a b l e features
leading to conclusions as to the desirability of making the loan.
Senator JOHNSON. Were you interested in any of the Bolivian
loans?
M r . G R A N B E R Y . N O , sir.
Senator JOHNSON. Were you interested in the Brazilian loans?
M r . G R A N B E R Y . N o , sir.
Senator JOHNSON. Y O U had no participation with either one?
M r . G R A N B E R Y . N O , sir.
Mr. ANDERSON. The Equitable Trust Co. had p a r t i c i p a t i o n in
the
Bolivian 8 per cent loan in 1922. I think the Chase Securities Corporation or the Equitable had a very minor interest in the distributing group on the Brazilian loans.
Senator JOHNSON. I took it that the investigation t h a t w a s asserted
just now, that was read very well by your colleague here, applies to
you as well;
>
j
Mr. ANDERSON. I T applies equally to us. 1
?; : ;
i ai 4t
Senator JOHNSON. Did you make that investigation a b o u t the
;
Bolivian loan?
./ ^
SALE OF FOREIGN* BONDS Or SECURITIES
527
Mr. ANDERSON. As I say, the Equitable Trust Co. had participation with others.
Senator JOHNSON. D O you know whether they made any investigation?
Mr. ANDERSON. I am quite sure.
Senator JOHNSON. D O you know what the loan was used for?
Mr. ANDERSON. I could not tell you offhand.
Senator JOHNSON. Are you aware of the fact that there was
$ 5 , 0 0 0 , 0 0 0 used to pay Yickers for munitions of war?
M r . ANDERSON.
NO.
Senator JOHNSON. D O you recall the fact that at that time there
was difficulty between Bolivia and Paraguay, or Uruguay, and a war
almost resulted, in which our State Department took an interest?
Mr. ANDERSON. That was before the time I was in the security
business.
Senator JOHNSON. You do not know anything about that?
M r . ANDERSON. N o , sir.
Senator JOHNSON. D O you know anything about the Brazilian
loans, as to the activities of the then President of Brazil, in respect to
them?
Mr. ANDERSON. NO. We had nothing to do with the origination
of any of the Brazilian Government loans.
Senator JOHNSON. And no participation in them?
Mr. ANDERSON. Very minor participation in the distributing group,
I believe.
Senator JOHNSON. Did you make your investigation, as a member
of the distributing group, as to those Brazilian loans?
Mr. ANDERSON. As a member of the distributing group, or as a
member of the selling group> you base your taking or not taking on the.
prospectus.
*
Senator JOHNSON. You base it on the
Mr. ANDERSON. You rely on the originating house.
Senator JOHNSON. Upon the original purchaser or the original agent?
M r . ANDERSON. Y e s .
Senator JOHNSON. That
is all.
/ V....7'
Mr. GRANBERY. May I also say, Senator Smoot, that all the
German bonds—in fact, all the foreign bonds originated by Harris,
Forbes & Co., are promptly paying their interest and sinking fund; /
Senator JOHNSON. How much was the Bolivian loan you participated in?
Mr. ANDERSON. I think the authorized amount was $29,000,000.
Senator JOHNSON. $ 2 9 , 0 0 0 , 0 0 , 0 .
The CHAIRMAN. We will adjourn until 10 o'clock to-morrow morn7
ing.
(Whereupon, at 3.20 o'clock p. m., the committee adjourned until
to-morrow, Wednesday, January 6) 1932, at 10 o'clock a. m.). <
THE CHEMICAL FOUNDATION (INC.),
Hon REED SMOOT,
v
.
.
New York City, December 31, 1931.
,
Chairman, Senate Finance Committee, Washington, D, C.
MY DEAR SENATOR SMOOT: AS President of the Chemical Foundation, instituted by the United States Government to encourage chemical industry and
research for the protection of the people of the United States in their national
defense, in their public health, and in the improvement of their standard of livings
it becomes my duty in reference to the subject matter now before your committee
528
SALE OF FOREIGN- BONDS OH:' SECURITIES
to call your attention to certain foreign loans which have been made by, our bankers in direct hostility to those interests.
'
.
,t
In thefirstplace, the American chemical industry has been under the particular
protection of this committee Since'the days in 1914 when the war forced .upon us
all the realization that we were indeed ''dependent America"—dependent for our
dyes, for our drugs7 for our fertilizers, for our explosives, etc., etc. It is needless
to refer back, to Bernstorf's telegram to his home office, directing the shutting,off
of dyes and ihus throwing 4,000,000 men in America out of work; to refer back
to Hossenfelder's report that the cries of the hospitals Here were growing ever
louder and louder'and urging upon Germany to continue her policy of shutting
off drugs such as salvarsan, for our 10,000,000 svphilitics, luminal for our epileptics, etc., etc. Those days are past—one after another these powers of blackmail
by foreign nations have been removed by the persistent development of pur
chemical industries until to-day we can safely say that our chemists have successfully conquered fertilizers (nitrates from the air* potash, etc., drugs (100 per cent
independent), dyes<(94 per cent independent), iodine, artificial silk, plastics, and
now, at last, rubber, leaving only coffee and tin in the hands of any foreign nation
for the exertion of pressure upon the freedom of this Congress and this people.
When we state that this great national independence has been achieved by the
American chemical industry, we mean with the full cooperation of this committee
and of Congress, of all the administrations from President Wilson on, of all the
colleges and schools in the country, and of all the people in general with:the
single exception of these international bankers who have never cooperated with
American chemistry, but who, oh the contrary, have been persistently borrowing
the savings of the American people and, for the bribe of huge commissions, have
been loaning these savings to the international chemical cartel, or its constituent
companies or allies, the cartel whose Buccess is necessarily based upon the destruction of our industry and our independence. .
Irrespective of the present investigation, I earnestly request your committee
to make a careful investigation of tais great cartel, with its branches even in our
own country, which is being built up and nourished by American money, handed
to, them by so-called American bankers.
As your committee has so well understood in reference to these foreign loans in
general, the evil has been—
.
First. Tne loss forever of a great part of the $15,000,000,000 loaned abroad;
Second; The loss, during this period of great strain, of the oasis of credit which
this $15,000,000,000 would have constituted, bad it been kept at home. Economists estimate this as at least the loss of seventy-five billions of credit, or five
times the base, for which this country is now suffering;
Third. The loaning of the $15,000,000,000 to foreign competitors of our own
manufacturers;
Fourth. Providing the foreign competitor with credit equal to five times the
loans, based on the loans.
All these evils can be seen in their intensified form in the international bankers'
loans to foreign competing chemical industries. Our chemical industry is faced,
not only in our own country, but throughout the world, with competitors whose
pockets are filled with American savers' money, and with the ability to extend
long-time credit based thereon, competitors who either never intend to repay
their loans, or who intend to buy them up in a depreciated market at 10 or 20
cents on the dollar.
The only defense these bankers have been able to suggest for themselves is
that they were encouraging foreign trade. - Your Commerce Department will
expose this fallacy in detail to you, but the whole fallacy appears in the fact that
Germany's export trade to-day, with her natural resources and only sixty millions
of peoples, has been built up under these foreign loans until it equals our own
export trade, with our natural resources and our one hundred and twenty millions
of peoples—she, the borrower, and we, the lender! The truth is, the world borrows in our market and buys in the cheapest market, or in the case of a monopoIy»
in the only market.
The following is a list of a few of the loans which I have been able to learn
about with my meager facilities. I ask your committee to exert its full powers
of subpoena and cross-examination to expose this menace to our people. If not
exposed and checked, it threatens our national defense, our public health, and our
standard of living. In addition to these loans, full examination should be made
into short-term loans, direct loans upon their own securities, and every other form
of subterfuge under which our own money is being used to cut our own throats:
SALE OF FOREIGN* BONDS Or SECURITIES
NITRATE
529
COMPANIES COMPETING WITH AMERICAN MANUFACTURERS,
H A V E B E E N FINANCED BY AMERICAN M O N E Y
ANGLO-CHILEAN CONSOLIDATED NITRATE
WHICH.
CORPORATION
$16,500,000. Twenty-year 7 per cent sinking fund debenture bonds, issue
price, 100; present market price, 7. Issued November 1, 1925. Due November
1, 1945. Issued by Lehman Brothers, Blair & Co. (Inc.), and Goldman, Sachs
& Co.
THE LAUTARO NITRATE
CO. (LTD.)
$32,000,000. First mortgage 6 per cent convertible gold bonds, due 1954.
Issue price, 99: present market price, 9. Issued July 1, 1929, due July 1, 1954,
Issued by the National City Co., Bankers Co. of New York, Brown Bros. & Co.,
Lehman Bros., and Continental Illinois Co.
NORWEGIAN HYDRO-ELECTRIC NITROGEN CORPORATION
1
$20,000,000. Refunding and improvement gold bonds, series A
per cent.
Issue price, 95; present market price, 52#. Issued November 1, 1927, due
November 1, 1957. Issued by The National City Co.
RUHR CHEMICAL CORPORATION
(GERMANY)
$4,000,000. Sinking fund mortgage, 6 per cent, series A, due April 1, 1948.
Issue price, 92J4; present market price, 20 to 25. Issued April 1, 1928, due April
1, 1948. Issued by Dillon, Read & Co., International Acceptance Bank (Inc.),
and J. Henry Schroeder Banking Corporation.
Issued April 1, 1928, due April 1, 1948. Issued bv Dillon, Read & Co. International Acceptance Bank (Inc.), and J.' Henry Schroeder Banking Corporation.
Also a private loan of $34,000,000 issued by the National City Co. to the recently organized Chilean Nitrate Co., known as "Cosach," which is capitalized
at $375,000,000. $20,000,000 of this sum, according to newspaper statements
attached, were sold in this country.
The Ruhr Chemical Corporation is engaged in the manufacture of ammonia,
nitric acid, and fertilizer. The use of American capital to develop this company
is of interest at the present time in view of an agreement recently entered into
between France and Germany for the purchase of fertilizer of German manufacture. The Ruhr Chemical Corporation is a member of the German nitrogen
cartel.
Before the Great War we were entirely dependent upon Chile for the nitrogen
that went into our high explosives and a large part of the nitrogen which was
used for fertilizers. To-day, thanks to the efforts of our chemists, we are independent of Chile, or any other country, for the nitrogen so necessary in either
peace or war.
The effectiveness of our own production upon our imports of Chilean nitrate
is disclosed by the fact that in 1928 we imported 1,032,918 long tons of Chilean
nitrate of soda; in 1930 the importation had dropped to 567,894 long tons, with
the outlook for the year 1931 of an even greater diminution. The production
of synthetic nitrate of soda in this country has also had a tremendous effect on
the price of this fertilizer to the farmer. In December, 1928, the price per
100 pounds of sodium nitrate in this country was $2.07J4 per 100 pounds; now
the price is $1.67 per 100 pounds.
The fixation of atmospheric nitrogen in the United States grew slowly from
the close of the war until 1926, when private enterprise fixed about 13,000 tons
of nitrogen. Then production began to expand. By 1928 it had risen to 26,000
tons of nitrogen, in 1929 to 84,000 tons, and in 1930 to 140,000 tons.
The figures given above are production figures. The growth of capacity is even
more striking. In 1926 capacity had risen to 30,000 tons, in 1929 to 135,000 tons
and in 1930 to 175,000 tons. New plants and new units of existing plants, have
1 Since 1007 the company has been manufacturing nitrates and fertilizers by the electric arc process and
oas recently arranged with the I. G. Farbenindustrie for the adoption of the Haber-Bosch ammonia process, now in successful use in Germany, which will permit the company to increase its capacity to an equivalent of 635,000 tons of nitrate of lime a year, or over two and one-half times its present production capacity.
530
SALE OF - FOREIGN BONDS OR SECURITIES
given us a capacity in the year 1931 of approximately 300,000 tons of pure nitrogen. This is the equivalent of more than 1,800,000 tons of nitrate of soda.
If the United States should become involved in a war of major proportions, it
would require for military explosives a maximum of less than 140,000 tons of
nitrogen annually. The situation in event of war, therefore, is briefly as follows:
Tons
Needed for agriculture
Needed for military purposes
Needed for industry.
,
350,000
150,000
100,000
Total
600,000
To meet these needs we shall have the following capacities by the close of this
Tons
year:
By-product
Synthetic
Organic
-
:
200,000
300,000
50, 000
Total—
———
- 550, 000
In other words, there will be a shortage of only 50,000 tons which can readily
be covered by increasing the capacity of our synthetic and by-product plants.
As these are readily susceptible of a 10 to 20 per cent increase, our practical independence for peace and war needs combined is assured.
The United States also has been dependent upon Chile for its supply of iodine,
an indispensable antiseptic. American chemists have found a way of producing
iodine in this country, and in case of an emergency could produce the. amount
sufficient to meet the needs of our country.
AMERICAN I. G. CHEMICAL CORPORATION*
$30,000,000.
per cent convertible debentures guaranteed by German
I. G. Issue price, 95; present market price, 59. Issued May 1, 1929, due May
1/1949. Issued by the National City Co., International Manhattan Co., Lee,"
Higginson & Co., Harris, Forbes & Co;, Brown Bros. & Co., Bankers Co. of New
York, the equitable Trust Co. of New York, Continental Illinois Co.
The bonds of the American I. G. are convertible into common " A " stock.
Perhaps for the first time in the history of financial issues in America, the company is given the right to redeem these common " A " shares, in all or in part, in
cash, at a price to be fixed by its market value, irrespective of its actual value.
In other words, the German I. G. has it within its power to always take back the
100 per cent ownership of the common stock of this corporation upon terms which
can be manipulated by itself.
The international dye cartel until recently was composed, of Germany, France,
and Switzerland, but now includes England. Your committee will note that
England and France, our largest foreign debtors, have joined hands with Germany
in an agreement to divide the markets of the world for the sale of dyestuffs in
direct competition with our American manufacturers.
Reports of this international cartel say that the agreement for a world dye
cartel is designed primarily for an exchange of information and discoveries, as
well as the control of competition approximately within the lines of the present
division of world markets among the major companies. German chemical
trade circles believe that the reaching of this agreement is especially noteworthy
because the British interests adhered to it before the present government has
reached a decision on the future trade policy of Great Britain. The new world
agreement in synthetic dyestuffs does not include the American market. The
reason for this is obvious.
The inclusion of Great Britain in the international dye cartel 'is due to the
efforts of Dr. Carl Bosch, chairman of the executive committee of the I. A*.
Farbenindustrie, a great German chemical monopoly. Doctor B o s c h - is also
chairman of the board of directors of the American I. G. C h e m i c a l Corporation
which he caused to be formed in this country in 1929. This latter company is
owned and controlled by the German company. Soon after its organization, a
syndicate headed by the National City Co. floated the loan of $30,000,000 of
per cent convertible debentures guaranteed by the German I. G.
Vr y
SALE OF FOREIGN* BONDS Or SECURITIES
531
The full board of directors of the American I. G. is as follows:
Prof. Dr. Carl Bosch, chairman of the executive committee, I. G. Farben
industrie; Mr. Walter Teagle, president Standard Oil Co. of New Jersey; Mr.
Charles E. Mitchell, chairman the National City Bank of New York; Mr. Edsel
B. Ford, president Ford Motor Co.; Mr. Paul M. Warburg, chairman International Acceptance Bank (Inc.); Mr. Adolf Kuttroff; Mr. H. A. Metz, president General Aniline Works (Inc.); Mr. W. E. Weiss, vice president, Drug
(Inc.): Dr. Herman Schmitz, member executive committee, I. G. Farbenindustrie; Dr. Wilfrid Greif, member, executive committee, I. G. Farbenindustrie.
According to the book American Loans to Germany bv Robert R. Kuczvnski,
in conjunction with the Institute of Economics, of Washington, D. C., the
following private short term loans were made to German industries in direct
competition with American industries:
[Oil* Paint and Drag Reporter, December 29,1930]
[Journal of Commerce, January 15,1031]
[New York Times, March 19,1931]
Date
Creditor
country
Borrower
September, Elbenfeld Dye Work^ chem1924.
ical factory, Orieshefm.
December, Dye Industry I. Q
1926.
September, Potash Syndicate
1924.: •
-
Managing Nominal
, capital
banks
Maturity
Interest
rate
America. D i l l o n , $2,500,000 April; 1925 C
Read &
Co.
4,500,000
- ...do
d o . . : . . Chase Na- 6,000,000
tional
Bank.
10,000,000
...do.
WinterahaU (potash).-,....... ...do
January,
1925.
April, 1925. Potash Industry (Inc.) Cassel. ...do
2,000,000 Jan. 23,1926 >.
7H
9
1 Six months.
* Nine months.
Very truly yours,'
FRANCIS P . GARVAN.
>. [OU, Paint and Drag Reporter, December 29,1930]
CHILEAN INTBATE LIOAN" COMBATTED BY GARVAN— CHEMICAL' FOUNDATION
PRESIDENT CALLS ON. BANKS NOT TO JEOPARDIZE UNITED STATES
Financial institutions-in the United States are being urged by Francis P.
Garvan, president of the Chemical Foundation,.this city, to refuse to participate
in the proposed financing of the Chilean nitrate of soda combine.. Mr. Garvan
declares that the unification and development scheme: of the Chilean : nitrate
producers, by reason of. the understandings existing between them-and the
German producers of synthetic nitrogen fertilizers, is nothing other than a step
toward the strengthening of foreign-competition against the nitrogen industry
of the United States.
In a telegram sent December 22 to 5,000 banks in all parts of the United States,
Mr. Garvan said:
"Information reached United States banks of country about to be asked to
loan one hundred millions of money of their wards ana depositors to Chilean
Government and Chilean-German nitrate cartel. Request you not to foster this
attempt to send our funds,to aid German and Chilean interests in destroying
our nitrate industry which is backbone our national defense and agricultural
progress. It is question of banking morality and patriotism. Will send you
complete analysis of situation immediately offering is announced."
With a view of interesting Congress and administration officials in the national
welfare aspect—as he sees it—of the proposed Chilean financing,-Mr. Garvan
sent, December 23, to the Members of Congress and to a number of high Government officials the following telegram:
r ;" In this hour of national distress certain financiers are contemplating the loan
of $100,000,000 of the savings , of the American people to the German-Chilean
titrate cartel. Any examination of this loan, no matter what its disguise, wiU
quickly show it to be in the interest of the world-wide German-Anglo-Chilean
5 3 2
SALE:
OF F O R E I G N B O N D S
OB
SECURITIES
nitrogen combination and will also show that the success of that combination
will be measured by the extent of its destruction of our own chemical industries
which are now able to produce the present consumption and by the summer of
next year will be equal to the normal consumption of this country.. This means
that our agricultural independence and our national defense is threatened by this
combine, and to draw on our own people's savings to our national hurt, I maintain, calls for your resistance in every possible way at your command. All
essential facts are within the knowledge of the proper departments of the government, and you can seek governmental advice if my assertions are a question."
[Journal of Commerce, January 15, 1931]
C H I L E NITRATE AGREEMENT ON N E W BASIS N o w S E E N — F I N A N C E MINISTER
B U I Z EXPRESSES CONFIDENCE IN OUTCOME OF CONFERENCES H E R E — D E L E GATES REARRANGING CAPITAL STRUCTURE—ANNOUNCEMENT OF COMPLETE
PLANS I s EXPECTED IN THE N E A R FUTURE
Santiago, Chile, January 14.—Carlos Castro Ruiz, newly appointed finance
minister of Chile, said in his first public speech to-day that negotiations for the
financing of the Cosach, or National Nitrate Co. of Chile, were nearing completion
in New York and that an announcement of the revised plan could be expected
in the near future. He said he was extremely, confident of the success of the
negotiations, which only needed approval by all parties of certain minor changes
in the capital structure of the company.
The Cosach is the combine of 28 nitrate producing companies, which with the
Government as partners, is expected to return the Chilean industry to a stable
and paying basis and to strengthen its competitive position in the world markets.
FINANCIAL BASIS CHANGED
Changes are being effected in the financial arrangements underlying the
development of the Cosach, it was learned in informed quarters yesterday.
One of the matters receiving attention at the current conferences between
delegates of the Chilean Government and representatives of the companies and
the banking groups here is believed to be the reallocation of the stock of the
National company, to be distributed among the 28 nitrate producing units in the
Cosach, it was said.
The plan for the financing of the combine, as announced in July by Pablo
Ramirez, representative of the Chilean Government, placed the authorized
capital stock of the company at the equivalent of $375,000,000. This was to
be divided into two classes of equal size, one of which was to be assigned to the
Government and the other to be used in acquisition by the National company of
the individual producing corporations. Each class was to be of 15,000,000
shares of stock of the par value of 100 pesos. The Class B stock that to be used
by the company might be divided into 5,000,000 shares of 7 per cent preference
stock and 10,000,000 ordinary shares, the plan showed.
[New York Times, March 19,1931]
LOAN OF $34,000,000 FOR NITRATE DEAL—NATIONAL CO. OF CHILE VIRTUALLY
COMPLEXES PLAN FOR SALE OF BONDS—PART WILL ,GO EUROPE—LUMP SUM
PAYMENTS TO THE GOVERNMENT ARRANGED IN LIEU OF EXPORT TAX
The National Nitrate Co. of Chile has practically completed arrangements for
the sale of $34,000,000, 7 per cent bonds to an international banking syndicate; it
was learned yesterday. It is understood that $50,000,000 of these bonds will be
authorized, but that not all of them will be sold publicly. The proceeds of
$26,000,000 of the issue are to go to the Chilean Government as the installment
due it for 1931 in return for the cancelation of the export tax. The remainder
will probably be used for working capital and additional construction. _
It is believed that a substantial amount of the issue will find a market in Europe.
While present plans call for the sale of one-half the bonds here iand the other half ill
England, it is understood that if the participation of French and other continents
bankers is obtained the proportion allotted to the American market will be reduced
to about $10,000,000.
SALE OF FOREIGN* BONDS Or SECURITIES
533
Under the terms of the agreement with the Chilean Government through
which the National Nitrate Co. of Chile was formed, the Government will receive
$22,500,000 this year, $20,000,000 in 1932 and §17,500,000 in 1933 in lieu of the
export tax formerly levied on nitrate and iodine. These sums represent an approximation of the revenues the Government would have received from the export tax.
The bond issue will have a sinking-fund obligation, it is said. To take care of
this and other charges in connection with the issuance of the bonds, it is understood that the company wiU segregate a certain sum on-each ton of nitrate
exported.
NORWEGIAN . HYDROELECTRIC NITROGEN CORPORATION
Norsk Hydro-Elektrisk Kvaelstofaktieselskab, organized and existing under
the laws of the Kingdom of: Norway, December 2, 1905, holding and operating
company; The National City Co. interim certificates for refunding and improvement gold bonds, series A, 5J4 per cent due November 1, 1957 and definitive
coupon bonds, when issued in exchange therefor.
Original listing: Outstanding interim certificates and, in exchange therefor,
definitive bonds: Total authorized issue, $60,000,000; total amount outstanding,
interim certificates, $20,000,000. Listing applied for: Interim certificates and,
in exchange therefor, definitive bonds, $20,000,000; authorized by the board of
directors and board of representatives*
Capital securities
Number of shares
Par value
Stocks (classes):
Common...
Preferred
;
1180,1250
1180, >250
Interest
rate
Authorized Authorized Previously Outstanding
listed
by by-laws for issue
401,958
25,002
401,958
25,002
None.
None.
401,9o8
25,002
Amount Authorized Previously Outstandlisted
ing
authorized for issue
Bonds:
Percent
First mortgage of 1921, due Mar. 1* 1951.
7 . 150,000,000 150,000,000
Refunding and improvement series A,
due Nov. 1,1957
m $60,000,000 $20,000,000
i Kroner.
1
None.
148*000,000
None. $20,000,000
French francs.
Application to list: The National City Co. interim certificates for refunding
and improvement gold bonds, series A 5H per cent (signed by The National
City Co., as recited on page 11), and application to list: definitive bonds, when
issued in exchange therefor (signed by the Norwegian Hydro-Electric Nitrogen
Corporation.
NEW YORK CITT, April 1,1928.
The Norwegian Hydro-Electric Nitrogen Corporation (Norsk Hydro-Elektrisk Kvaelstofaktieselskab), hereinafter referred to as the "company," hereby
makes application for the listing on the New York Stock Exchange of $20,000,000,
aggregate principal amount, refunding and improvement gold bonds, series A
5% per cent, due November 1, 1957 (hereinafter called the "bonds")* included
ia Nos. M - l to M-20,000. of the denomination of $1,000 cach, and D - l to
D-2,200, of the denomination of $500 each, upon official notice of issuance in
exchange for outstanding interim certificates of The National City Co,
,,:
AUTHORITY FOR ISSUE
,
.
. The bonds are to be issued under a trust indenture, dated as of November
1927, executed by the company with The National City Bank of New York,
as?trustee. The execution of the said trust indenture and the issuance of the
5 3 4
SALE :
OF FOREIGN B O N D S
OB
SECURITIES
bonds thereunder were authorized by resolutions of the board of directors and
the board of representatives of the company, adopted on November 16 and
November 18, 1927, respectively.
PURPOSE OP ISSUE
The proceeds of the present issue of bonds will be used towards the construction and acquisition of additional facilities in connection with the adoption of
new manufacturing processes and the increase in production capacity of the
company's principal product, nitrateof-lime.
! SECURITY
The bonds will be secured by the pledge of (o) 16,889,000 Norwegian kroner,
aggregate principal amount, of 7 per cent first mortgage bonds of the company,
and (e) mortgages, payable in Norwegian kroner, on all the operating properties
of the company and of its principal wholly owned subsidiary company, Aktieselskabet Rjukanfos (hereinafter sometimes referred to as "Rjukanfos"), subject
only to the 7 per cent first mortgage bonds and certain charges of relative unimportance. Upon the payment of the 7 per cent first mortgage bonds, the pledged
mortgages will become first liens on the properties of the company.
DESCRIPTION OF THE BONDS
The bonds will be dated November 1, 1927, will mature November 1, 1957,
and will bear interest at the rate of 5% per cent per annum, payable semiannually
on May 1 and November 1, in each year. Principal, interest and premium (if
any) on the bonds will be payable at the head office of The National City Bank
of New York, in the borough of Manhattan, city and State of New York, in gold
coin of the United States of America, of or equal to the standard of weight and
fineness existing on November 1, 1927, or, at the option of the holders, both
principal, interest and premium (if any) may also be collected either at the city
office of The National City Bank of New York, in London, England, in pounds
sterling, or at the Stockholms Enskilda Bank, in Stockholdm, Sweden, in Swedish
kronor, in each case at the then current buying rate of the respective banks
for sight exchange on New York. Such payment shall be made in time of war
as well as in time of peace, whether the respective owners or holders are citizens
of friendly or hostile states, without requiring any declaration as to the citizenship or residence of such holders or as to the length of time they may have been
in possession of the bonds, and without deduction from either principal or interest
for or on account of any taxes, assessments or other charges or duties now or
hereafter levied or to be levied by the Kingdom of Norway or by or within any
* political subdivision or taxing authority thereof.
The bonds will be executed in the corporate name of the company, by ——
its representative thereto duly authorized, and will be imprinted with & facsimile
of its corporate seal. The interest coupons attached to the bonds will be executed
with thefacsimile signatures o f — — a n d
, two of the company's directors.
;The bonds will be authenticated by The National City Bank of New York, as
trustee.
Definitive bonds of the denomination of $500 will be exchangeable for like
aggregate principal amounts of definitive bonds of the denomination of $1,000,
upon payment of a sum sufficient to reimburse the company for any stamp tax
or other governmental charge, and a further sum, not exceeding two dollars, for
each bond issued upon such exchange. The bonds may be registered as to principal .only at the head office of the trustee, in the borough of Manhattan,.city and
State of New York.
>
ISSUE OP ADDITIONAL BONDS
The total amount of bonds outstanding under the trust indenture may not
exceed $60,000,000, and the company may issue bonds in addition to the present
issue for one or more of the following purposes:
(a) Up to $7,500,000, aggregate principal amount, may be issued for the purpose of acquiring by the company or for the purpose of paying, retiring, refunding
or discharging prior to or after maturity, any of its 7 per cent first mortgage bonds
outstanding November ;1, 1927.
(b) For the purchase, construction, installation or acquisition by the company
bf additional operating property in any amount not exceeding 60 per cent of the
then actual and reasonable expenditures made by the company after November 1,
SALE OF FOREIGN* BONDS Or SECURITIES
535
1927, in excess of $20,000,000; provided, that such additional property shall have
been subjected to the lien of the mortgages securing the bonds issued under
the trust indenture, and provided, that the net earnings of the company and
Rjukanfos, before depreciation, for a period of one year ending not more than
150 days prior to the issue of such bonds shall have been at least equal to twice
the maximum interest charges on all funded indebtedness of the company then
outstanding, together with annual interest charges on the bonds to be issued.
(c) To refund equal aggregate principal amounts of any bonds theretofore
issued under the trust indenture.
REDEMPTION
The bonds will be subject to redemption, in whole or in part, at the option of the
company, on any semiannual interest date prior to maturity, at a redemption
price equal to 102 H per cent of the principal amount thereof, if redeemed on or
before November 1, 1931, and at a redemption price equal to 100 per cent of the
principal amount thereof, if redeemed after November 1, 1931. The bonds will
also be subject to redemption through the operation of the sinking fund (hereinafter described) on May 1, 1931, and on any semiannual interest date thereafter
prior to maturity, at the principal amount thereof. If less than all the outstanding bonds is to be redeemed the serial numbers of the bonds to be redeemed shall
'be selected by lot by the trustee. Notice of redemption shall be given by publication in each of two daily newspapers, printed in the English language, published
and of general circulation in the borough of Manhattan, city and State of New
York, and in one newspaper, printed in the Swedish language, published and of
general circulation in the city of Stockholm, Sweden, once a week for four successive weeks, the first publication to be not less than 30 days prior to such redemption date. The notice shall state the intended redemption of the bonds, the redemption date, and, if less than all the bonds is then to be redeemed, the serial
numbers of the bonds so to be redeemed, the redemption price thereof, and shall
give notice, also, that interest on such bonds shall cease from and after the designated redemption date.
SINKING FUND
As and for a sinking fund for the retirement'of-the bonds, the company will
pay to the trustee, so long as any of the bonds remain outstanding and unpaid,
on March 21, 19,31, and semiannually thereafter on September 21 and March 21
in each year, to and including March 21, 1957, in each case, the sum of $370,000,
and on September 21, 1957, the sum of $390,000.
is .
In case at any time the company shall issue bonds in excess ,of $20,000,000,
aggregate principal amount, the company will pay .to the ,trustee on each sinking
fund date thereafter, in approximately equal semiannual installments, additional
sums sufficient to retire the entire issue of such additional bonds by maturity.
At the option of the company, any such payment may be:made either in cash
or in bonds or partly in cash and partly in bonds, which bonds shall be accepted
by the trustee at the principal amount thereof. ..
'"..f«
If, 40 days prior to any interest date.,there shall be on deposit with the trustee,
for account of the sinking fund, a sum in cash sufficient to redeem $10,000, aggregate principal amount, of bonds or more, the trustee shall select by lot;, in any
manner deemed by it to be fair, for redemption on such interest date, a number of
bonds sufficient to absorb the said.cash, as nearly as may be, and shall thereupon
cause notice of redemption of the bonds so selected to be given by publication in
substantially the manner hereinbefore provided.
All bonds redeemed or delivered to the trustee pursuant to any of the foregoing
provisions shall forthwith be cancelled by the trustee and delivered to or upon the
written order of the company, and no new bonds shall at any time be issued in lieu
thereof.
COVENANTS
In the;trust indenture the company covenants with the trustee and with the
respective holders of the bonds, among other things, substantially as follows:
Payment.—.That the company will duly and punctually pay both the principal
and interest from time to time on all the bonds at any time issued and outstanding
thereunder, according to the terms thereof; that, so long as any of the bonds
remain outstanding and unpaid* the company will not, directly or indirectly,
extend or assent to the extension of the time for the payment of any interest
coupon or claim for interest of or upon any bond.
92928—32—pt 2 — 1 6
536
SALE:
OF FOREIGN BONDS OB SECURITIES
Ownership of properties.—That the company and its principal wholly owned
subsidiary company, Rjukanfos, are, respectively, possessed of all the properties
mortgaged and pledged by the mortgages referred to in the granting clause of
the trust indenture, and have good right to mortgage and pledge the same for
the purposes therein expressed; that, so long as any of the bonds remain outstanding and unpaid, the said mortgages will at all times be maintained as a
lien on the operating property of the company and of Rjukanfos, subject only
to the lien of the mortgages in the aggregate principal amount of 50,000,000 kroner
given by the company and the said subsidiary company to secure the payment
of the 7 per cent first mortgage bonds of the company and to the existing perpetual rights therein referred to, and subject to the terms and conditions stipulated in concessions granted.
Preservation and repair of properties.—That, so long as any of the bonds remain
.outstanding and unpaid, the company will at all times maintain, preserve, and
keep all the buildings, machinery, and equipment of the company and of Rjukanfos
in thorough repair, working order, and condition; and that the company will
keep all the said- buildings, machinery, and equipment insured in good and
responsible insurance companies, or by means of adequate insurance reserves set
aside and maintained out of gross earnings, against loss or damage to the same
extent as has been usual in its business.
Dividends.—That, so long as any of the bonds remain outstanding and unpaid,
the company will not declare or pay any dividend, other than a stock dividend,
except out of earnings subsequent to June 30, 1927, after deducting all operating,
manufacturing, and selling expenses, rentals, royalties, insurance, reasonable and
adequate expenditures or charges for maintenance, replacements, renewals, de~
Jreciation, and all taxes and interest; provided, that, for the fiscal years ending
une 30, 1928, 1929, and 1930, respectively, no deduction for depreciation need
be made.
Control of subsidiaries.—That, so long as any of the bonds remain outstanding
and unpaid, the company will at all times retain ownership and control of at
least 95 per cent of the issued and outstanding capital stock of Rjukanfos.
Preservation of pledged security.—That, so long as any of the bonds remain
outstanding and unpaid, until such time as all of the 7 per cent first mortgage
bonds of the company shall have been redeemed and paid, and the mortgages
given by the company and its said subsidiary to secure the payment of the same
shall have been canceled and discharged of record, the company will maintain
the aggregate principal amount of its said 7 per cent first mortgage bonds,
pledged with the trustee hereunder, at an amount at least equal to 35 per cent
of the aggregate principal amount of such first mortgage bonds from time to
time outstanding and unpaid; and that, so long as any o f the bonds remain outstanding and unpaid, the company will keep and maintain the mortgages given
by the company and Rjukanfos as security for the bonds, registered and recorded
in an amount of Norwegian kroner, in the aggregate sufficient at aU times to
purchase gold dollars of the United States of America, of or equal to the standard
of weight and fineness existing on November 1, 1927, in an amount equal to
120 per cent of the principal amount of all bonds at any time outstanding under
the trust indenture; that the principal amount in which the mortgage given by
the company is from time to time registered and recorded shall be approximately
the same percentage of the aggregate principal amount in which the said two
mortgages are from time to time registered and recorded as the value of the property covered by the mortgage given by the company from time to time is of the
aggregate value of the property covered by both mortgages.
DEFAULT
In case of default in the payment of the principal of or the premium on any of
the bonds when due, or of any installment of interest, or of any sinking fund
installment, or in the performance or observance of any other convenant, condition or agreement on the part of the company in any of the bonds or in the said
trust indenture contained, and any such default shall continue for the period
specified in the said trust indenture regarding such default, or in case the company, shall be adjudicated a bankrupt by a court of competent jurisdiction, or
if, voluntarily or involuntarily, the company shall be placed by a court of competent jurisdiction under judicial supervision, then in each and every such case,
the trustee may declare the principal of all the bonds then outstanding to be due
and payable immediately, and upon such declaration, the same shall become due
and payable, anything in the said trust indenture or in the bonds to the contrary
notwithstanding. Provided, That if, at any time, either before or. after the
SALE OF FOREIGN* BONDS Or SECURITIES
537
principal of the bonds shall have been so declared due and payable, all arrears
of interest upon all the bonds, with interest on overdue installments of interest
at the coupon rates borne by the respective bonds, and all expenses and charges
of the trustee shall have been paid by the company and any and every other
default by reasonjof which the principal of the bonds may or might have been
declared due and payable shall have been remedied and made good, then, in each
and every such case,' the holders of a majority in aggregate principal amount of
the bonds then outstanding, by written notice to the company and to the trustee,
may waive such default and its consequences and rescind any such declaration
of maturity; Provided, That no such waiver shall extend to or affect any subsequent default or impair any right consequent thereon.
HISTORY
The company was organized for an unlimited term as a stock company under
the laws of the Kingdom of Norway on December 2, 1905, for the purpose of
exploiting the electrical process originated by Professor Birkeland and Doctor
Eyde for the synthetical production of nitrate from the atmosphere. The company is, in fact, the first enterprise to have successfully manufactured synthetic
nitrate, on a commercial basis. Its principal product, nitrate of lime, enjoys a
large demand by agriculture and industry and is known the world over as " Norgesalpeter"
BUSINESS AND PROPERTY
The basis of the enterprise is the cheap water power owned by the company,
-and its principal subsidiary, Rjukanfos, the perpetual rights to which were
obtained before the existing concession laws came into effect and, in the opinion
of counsel, are irrevocable. The sources of the water power are Lakes Moesvand,
Maarvand, and Tinnsjoe, situated in the mountains of Telemark, somewhat
over 100 miles west of the City of Oslo, in southern Norway. The most important
of the company's hydroelectric plants is situated at Rjukan and is supplied by
the waters of *Lake Moesvand. This lake is about 30 miles long, more than
3,000 feet above sea level, and in former years supplied the largest water fall in
Norway, the Rjukan Fails. This water power was developed in 1909 by the
company'8 wholly owned subsidiary, Rjukanfos, and approximately 330,000
horsepower are developed at this plant. Lake Moesvand is estimated to contain
some 768,000,000 cubic meters of water and the total drop is somewhat over
600 meters, a water power situation which is hardlv rivaled anywhere in the
world. Earlier, however (in 1905-1908), the Svaelg Falls were developed and a
plant owned directly by the company was built at Notodden. The Lien Falls
nearby were also developed and a total capacity of 68,000 horsepower operates
the Notodden plant.
Because of its cheapness, all this water power is eminently suited for industrial
uses and in conjunction with the Electric Arc Process has been devoted without
interruption since 1907 to the manufacture of nitrogen products (technical
nitrates and fertilizers). The company's production has been increased since
1912 from 4,940 tons of nitrogen, corresponding to 32,000 tons of nitrate of lime,
to approximately 30,000 tons of nitrogen, or the equivalent of 194,000 tons of
nitrate of lime, during the year ended June 30, 1927. However, the company
has recently made arrangements for the use of an improved process which has
been successfully used in Germany, which will increase annual production to
83,000 tons of nitrogen, corresponding to 535,000 tons of nitrate of lime. The
new equipment will be installed during the next two years in such a manner that
the company will at no time operate at less than present capacity and gradually
Increase its capacity by more than 150 per cent.
SUBSIDIARIES
Aktieselskabet Rjukanfos is the principal operating subsidiary. All of its
capital stock of Kr. 60,000,000, excepting two director's shares of a total nominal
.value of Kr. 2,000, is owned by the company.
The companv also owns all of the capital stock of the Aktieselskabet Svaelgfos,
amounting to Kr. 800,000, with the exception of two director's shares of a total
nominal value of Kr. 2,000. This subsidiary, owns and operates the Lien Waterfall and power station, which supplies power to the nitrogen factories owned by
.the parent company at Notodden.
The Norsk Transportaktieselskab (Norwegian Transport Company) operates a
railroad, a ferry service, and lighters in connection with the transportation of
538
SALE:
OF
FOREIGN BONDS OB SECURITIES
materials and supplies to and from the company's plants and the warehouses
located on the seacoast at Menstad, where the finished nitrogen products are
stored prior to ocean shipment. Of the Kr. 4,000,000 capital stock of the foregoing subsidiary, Kr. 3,997,800, aggregate amount, is owned by the company
while Kr. 2,000 is held by Rjukanfos. The minority shares are owned by officers
and directors for qualifying purposes, and as in the case of the other principal
constituent corporations described above, the company holds an option for their
purchase.
OTHER SUBSIOtARIES
In addition to the principal subsidiaries described above, the company, on
June 30, 1927, owned, with the exception noted, 100 per cent of the capital stock
of the following subsidiary sales corporations which had been organized to facilitate the distribution of its product:
Par value of capital
stock outstanding
Svenska Goedningsaemne Aktiebolaget, Stockholm, Sweden, Sw. Kr.
50, 000
Aktieselskabet Norgesalpeter, Copenhagen, Denmark 1
. Dan. Kr. 200,000
Norgesalpeter Verkaufs-Gesellschaft, m. b. H. Berlin, Germany
_
Emks.
50,000
Compania Espanola de Nitratos, Madrid, Spain
Pes.
550,000
Societe Commerciale de L'Azote, Paris, France
Fres.
250,000
With the exception of the French subsidiary, the Societe Commerciale de
1'Azote, at Paris, the remaining sales corporations mentioned above have been or
will shortly be dissolved and the distribution of the company's products in the
world markets outside of France and Norway will be handled by the I. G. Farbenindustrie, A. G., of Germany.
Other auxiliary operation subsidiary corporations, which are practically entirely
owned by the company and its affiliated corporations except for two or three qualifying shares on which the company holds an option of purchase, are as follows:
A/S Tyinfaldene: A non-operating property; which is in the construction and
development stage.
A/S Tyin-Byggeselskab: A corporation furnishing sand for building operations.
A/S Norske Tjaereprodukter: A plant for the manufacture of sacks and dye
products.
A/S Lillo Verk: Owner of the site on which the plant of the foregoing corporation
is located.
A/S Skiensfjordens Kalkbrud: A limestone quarry.
A/S Industriforsikring: Insurance company.
A/S Nybu: Owner of a site for a proposed athlctic field for employees.
From both the standpoint of operation and of earnings these subsidiaries are
negligible and form no part of the security pledged under the indenture.
MAINTENANCE, DEPRECIATION, AND DEPLETION
The company and Rjukanfos write down for depreciation in each year amounts
which are considered adequate to cover the decrease in the cost value of their
properties due to wear and tear. The rates which have been provided for this
purpose and applied during each of the five vears ended June 30, 1927, are as
follows:
" r
'
Percent
Buildings and building equipment
3-10
Water tunnels and roadbed of switch t r a c k s _ _ _ . — j _ . — - - - - - 1H
Water regulation works
•
l}fr4
Water dams
4
Water pipes
5
Machinery and equipment
5-10
Electric transmission lines
3-7
Factory
fixtures
10-25
At the end of the fiscal year June 30, 1927, the combined reserve for depreciation of the company and Rjukanfos, was $1,019,186. All of the company's
property is maintained in an excellent state of repair, and replacements and
renewals are charged directly to operating expenses.
i shares representing Danish kroner 3,000 held by offieets and directors, on which the parent company
has an option to purchase.
539 SAIIE OF F O R E I G N B O N D S OB S E C U B I T I E S
DIVIDENDS
Dividends have been declared b y t h e c o m p a n y since its inception on b o t h
classes of its stocks, as f o l l o w s :
Preferred
noncumu- Common
stock
lative stock
Date
Percent
5
8
s
8
8
8
8
8
8
10
12
12
15
15
8
9
11.1
17.2
8.6
6
Apr. 16,1909
July 1,1910—
July 1,1911—
Jan. 1,1912
Nov. 5,1912
Sept. 1,1913—
July 1,1915—
Jan. 6,1916
Nov. 1,1916
Nov. 20,1917
Nov. 28,1018—
Nov. 17,1919
Dec. 1,1920
Jan. 2,1922
Dec. 1,1922
Nov. 20, 1923
Nov. 20, 1924Nov. 20, 1925
Nov. 22, 1926
Nov. 3, 1927
Percent
5
5
5
5
6
6
7
8
10
12
12
15
15
8
9
1L1
17.2
8.6
6
FINANCIAL STATEMENTS
There are given below:
Exhibit 1: Consolidated statement of income and profit and loss for the years
ended June 30, 1923, 1924, 1925, 1926, and 1927.
Exhibit 2: Consolidated balance sheet, June 30, 1927.
AKTIESELSKABET RJUKANFOS
Exhibit 3: Balance sheet, June 30, 1927.
NORSK HTDRO-ELEKTRISK
KVAELBTOFAKTIESELSKAB
Exhibit 4: Balance sheet, June 30, 1927.
EXHIBIT 1
NORSK HTDRO-ELEKTRISK
KVAELSTOFAKTIESELSKAB,
SIDIARIES
AND
ITS
PRINCIPAL
SUB-
Aktieselskabet Rjukanfos, Norsk Transport Aktieselskab and Aktieselskabet
Svaelgfos, the latter two subsidiaries being included, although they form no
part of the security pledged under the mortgage, because Norsk Transport A/S
transports the finished products from the plants to the warehouses on the seacoast and A/S Svaelgfos furnishes power to Norsk Hydro.
Consolidated statement of income and profit and loss for the years ended June 30, 1928, 1924, 1925, 1926, and 1927
[Losses indicated by figures shown In italics)
1924
1923
1925
1027
1926
State
dollars
Norwegian
kroner
United
States
dollars
Norwogian
kroner
7,055,861
3,392,586
63,346,897
25,252,446
11,307,421
4,507,562
52,482,790
31,402,981
27,419,724
6,701,583
3,663,275
895,331
38,094,451
8,554,349
6,799,850 2r, 079,809
1,526,951 6,359,506
4,627,018
1,395,911
14,932,232
5,578,060
3,867,448
1,444,718
3,461,147
20,718,143
2,767,944
29,540,102
5> 272,908 14,720,300
3,231,107
9,354,172
2,422,730
26,089
237,990
31, 790
338,902
60,494
493,226
108,262
345,697
80,536
Total operating profits (before charging depreciation ,
and taxes)
. . . J 21,289,599
605,183
Other income (net)..
3,487,236
99,129
20,956,139
1,515,089
2,799,740 29,879,001
202,416 2,281,716
5,333,402
407,286
15,213,529
% 142,840
3,339,360
470,354
9,699,869
463,767
2,612,266
120,115
21,894,782
807,312
3,586,305
132,238
22,471,228
459,911
2,632,381
3,002; 156 32,160,720 5,740.688 17,356,369
3,809,723 10,163,630
61,444 4,077,750 727,878 £t 564,949 669,006 11040J45 570,951
Net Income (before charging Interest on funded debt,
22,702,094
income taxes, and depreciation}....
3,718,003
22,931,139
3,063,600 28,082,970
Interest, Income taxes, depreciation, etc.:
Interest on funded debt
Income taxes
Depreciation
Discount on bonds
612,068
669,634
1,029,587
34,576
3,615,707
3,838,606
6,113,011
211,084
483,050
512,838
816,60S
28,201
2,345,865 13,778,408
8,380,574
1,372,738
35,193
6,765
Norwegian
kroner
Net sales
Cost of sales
52,607,083
25,374,179
sErtS?
fiSSS
Gross income (before charging depreciation)...*
Exchange losses and gains on foreign currencies
TotalNet Income*
Profit and loss credits:
Profits on sales of ferries, lighters, etc
Profit on sale ol hotel at HJukan
Appreciation of sundry securities
Recovery on patent sale previously written otl
Appreciation of Investments In subsidiary companies.....
3, 736,681
4,088,118
6,285,637
211,084
14,321,520
kroDor
8,631,782 52,813,333
4,156,290 25,393,609
Gross profits on sales (before charging depreciation and ,
4,475,492
taxes)
27,322,904
Administrative and general oij>enses
J 6,192,582 1,014,345
Net profit on sales (before charging depreciation and F
taxes)
J
21,13a 322
Sundry operating profits, including sales of electric- I
current to Government
f 159,377
Norwegian
United
States
dollars
Norwogian
kroner
11,510, 072 30,758,772
6,892,954 25,826,540
United
States
dollars
10,297,522
G, 430,071
5,012,810 14,791,420
3,246,717
9,117,491
2,361,430
3,518,056
5,769,758
5,966,385
211,084
027,973
1,029,902
1,065,000
37,678
3,594,480
3,755,023
4,676,511
211,084
788,989
824,227
1,020,494
46,333
2,897,808
2,729,209
4,408,458
211,084
750,532
706,865
1,141,791
54,671
1,840,790
15,465,283
2,760,553
12,237,008
2,686,013
10,246,559
2,653,859
9,152,731
1,222,804
12,617,687
2,252,257
2,554,322
SCO, 674
1,441
193
4r 435
56^476
7^545
792
17,636
18,140
24,958
""221,"162"
48,531
w,m
101,626
139,821
lt 129,008
2,499'
647
536,152
138,863
£
Interdepartmental interest on construction of
FroistuI power plant
Adjustment of bonus of Doctor Eyde.
,
Total.-..-
61,298
.
Profit and loss gross surplus for the year.
Profit and loss dchfts:
Loss on sale of French plant
Loss on sale of limestone works at Skionsfjord.
Depreciation of sundry securities.
. Provision for doubtful collection of Matrefatdene
mortgage
Depreciation of investments in subsidiary com*
panics
Devaluation of plant properties to reduce excessive
construction costs
Amortization of discount on bonds held In treasury.
Write-off of premium on repurchase of treasury
bonds
13,465
716,104
185,480
35,103
5,765
57,917
•344,685
61,526
282,400
61,986
1,254,815
324,090
8,415,767
1,378,503
9,210,048
1,230,542
12,002,372
2,313,783
2,830,722
022,660
125, 747
32,567
149,456
74,500
19,907
9,953
79,324
14,159
26,842
5,892
24,280
3,078
22,500
3,000
18,649
3,329
120,828
26,521
858,300
114,669
317,015
50,587
67,799
14,882
124,591
16,645
240,046
63,720
w
500,000
129,500
I
O
966,250
250,258
956,091
247,627
3
1,229.347
164.240
414,988
215,469
47,295
2,668,387
691,111
8,391,481
12,901,079
1,374,525 7,981,301
2,113,196 16,602,454
1,066.302
2,218,088
12,547,384
19,351,085
% 239,708 2,621,253
3,454,169 25,171,0-12
575,365
5,525,241
Q
525
17,629,794
4,566,117
21,292,560
3,487,721
31,898,469
5,693,877 27,793,195
6,100,600
15,067,154
3,907,573
W
O
«
Less dividends:
Preferred stock
360,029
Common stock..
4,251,139
Officers qualifying shares in subsidiary companies.
679
58,972
696,337
111
405,032
4,782,532
431
54,112
638,916
500,040
5,901,360
483
89,257
1,053,929
86
747,560
8,827,018
330
164,089
1,937,532
72
450,973
5,321,995
355
1,379,174
92
4,611,847
755,420
5,187,995
693,116
6,404,883
1,143,272
9,574,908
2,101,693
5,776,323
1,496,068
16,680,713
2,732,301
19,395,760
2,591,274
25,493,586
4,550,605
18,218,287
3,998,913
9,310,831
2,411,505
76,344
1,915
12,505
314
41,178
3,497
5,501
467
319,109
2,536
56,961
453
586,215
2,278
128,674
500
20,000
13,924
5,180
3,606
5,968
321,645
57,414
588,493
129,174
33,924
8,786
2,585,306 25,171,941
4,493,191
17,629,794
3,869,739
9,276,907
2,402,719
24,280
Total.Profit and loss surplus for year..
Surplus at beginning of year
Total surplus.
Surplus, available for bonuses and reserves
Less:
It onuses to officers and directors
Provision for legal reserve funds
Total.-
•-
Surplus at end of year.....
3,978
24,683,755 3,284.390
78,259
12,819
44,675
16,602,454
2,719,482
19,351,085
74,075
116.802
8
§
03
M
O
S
Ol
SALE OF FOREIGN BONDS OR SECURITIES
542
EXHIBIT 2
Norsk Hydro-elektrisk Kvaelstofaktieselskab and subsidiary companies, except
Aktieselskdb Jndustriforsikring
[Consolidated balance sheet, June 30,1927]
Norwegian
kroner
(ASSETS)
Current assets:
Cash on deposit and on hand
.
.
Customers:
Trade acceptances..
.
.
.
Sales of nitrogen products
Containers returnable
—
..
Miscellaneous trade
Trade creditors' debit balances—
Inventories (based on quantities shown by store records and valued
at approximate cost):
Finished products—
.
.
"Work In progress
.
.
Materials and supplies
Total current assets...
Other receivable assets:
Cash on deposit with banks in liquidation.
..
Loans to municipalities, country banks, parishes, etc..
Due from stockholders, officers and employees.
Guaranty deposits in cash
Total other receivable assets—
Investment in mortgages and securities:
Mortgages on employees' homes.
Other mortgages...
Stocks and bonds
.
Total investment in mortgages and securities..
Investment in subsidiary companies:
Capital stock
Total investment in subsidiary companies..
Plant property:
Book value—
Leaseholds capitalized-..
Depreciation reserve
United States
dollars
15,518,541.89
4,097,002.35
1.065, Ml. 43
5,092,913.23
275,975.23
1,319,064.53
228,441.40
71,967.00
59,166.32
18,639.45
S71,S51.36
96,154.10
2,403,533.49
245,372.92
5,239,976.40
622,515L17
63,551.59
1,357,153.89
29,795,036.40
7,716,91143
1,329,059.35
2,195,OW. 10
310,732.65
47,413.03
344,459.47
568,529.37
80,479.78
12,279.97
3,833,199.13
1,005,748.57
567,741.06
501,587.50
1,974,061.00
147,014.93
130,688.16
511,281.80
3, QIC, 3S9. 56
789,014.89
2,598,440.00
672,995 96
2,598,410.00
672,995.96
176,429,964.51
45,695,36a 81
813,S01.51 £10,09
7 9t 091,926.15£0,485,585,87
Net plant property—Depreciated book value..
96,521,736.85
21,999,129.85
Deferred charges:
Prepaid insurance—Unadjusted operations
Repairs in progress
.
Unamortized discount on bonds..
30,581.52
14.274.44
140,906.35
1,566,760.10
7,920.61
3,697.08
38,049.26
405,79a 87
Total deferred charges
Patents and experimental work.
1,758,524.41
781,215.40
455,457.82
202,334.79
138,384,541.75
35,841,596.31
80,584.36
1,083,344.20
762,315.00
20,871.35
280.586.15
197,439.59
10,752L 25
400,32a 64
163,868.39
2,784.83
103,683.02
42,441. 91
Total
LIABILITIES
Current liabilities:
Bank creditors...,
—.
Trade creditors
.
—....
Employees' savings deposits
.
Miscellaneous accounts payable:
Customers' credit balances
Unpaid dividends..
Due to stockholders, officers, and employees
Accrued accountsTaxes
Interest..
.
*
OtherPay roll
—
Customers' damage claims—.—-—
Patent fees.
. . — . — —
Bratsberg railroad deficit
..
Relocation of repair shop and warehouse...
Total current liabilities..*:—
Due to subsidiary companies....
— — * —
8,824,503.61
733,687.16
2,285,546.43
190,02197
85,928.53
150,000.00
25,000.00
1,060.434.63
52.457.85
22,255.49
38,850.00
6,475.00
274,652157
13,586.53
13,433,196.52
348,057.80.
3,479,197.89
90,146.97
S A L E OF F O R E I G N B O N D S OR S E C U R I T I E S
543
EXHIBIT 2 — C o n t i n u e d
Norsk Hydro-elektrisk Kvddstofaktiesdskak and subsidiary companies, except
Aktieselskab Industriforsikring—Continued
Norwegian
kroner
United States
dollars
LIABILITIES—continued
Funded debt:
First mortgage 7 per cent bonds outstanding In bands of public
Miscellaneous mortgages.
.......
31, 111, 000.00
290.493.21
8,057,749.00
75,237.74
Total funded debt
31,401,493.21
8,132,936.74
Reserves (employees' benefit):
Pensions.......
Workmen's compensation
Accident and sickness.
7,027,063.49
6,768,811.46
723,321.45
1,820,009.44
1,758,122.17
187,34a 26
14,519,196.40
3,760,471.87
5,763,96a 00
4.000,000.00
1,492,865.64
l,036,00a00
Total reserves (employees' benefit)
Reserves (appropriated surplus):
Legal reserve
....
Building reserve
...
...
....
...
Total reserves (appropriated surplus)
Capital surplus arising from the exccss of the capital stock and legal
reserve of subsidiary companies over the ownership value of such stock
Capital stock of subsidiary companies:
Shares of others in Aktieselskabet Rjukan Dagblad
Total capital stock of subsidiary companies
Preferred 8 per cent noncumulative capital stock (parent company)—
Total
Notes:
The companies were contingently liable under guarantees as follows:
Total
No expression has been given in the above to the repair of flood loss
damages, which occurred on June 28, 1027, the estimated cost thereof
being as follows
.
„
... ....................
........
6,763,960.00
1,583,201.82
2,528,865.64
410,049.27
3i, m o o
8,857.80
34.200.00
5,500,360.00
53,139,240.00
9,661,636.00
8,857.80
1,165,593.24
13,763,063.16
2,502,363.72
138,334,54L 75
35,841,59& 31
164,743.00
572,552.00
42,668.44
148,290.97
737,295.00
190,959.41
1,060,000.00
274,5-10.00
EXHIBIT 3
Aktieselkabet Rjukfanfos
[Balance sheet as of June 30,1027]
Norwegian
kroner
Current assets:
ASSETS
Customers—
Trade creditors' debit balance.
* — v " v " v
Inventories (based on quantities shown by store records and valued
at approximate cost):
Otbw receivable assets:
Jjoans to municipalities, country banks, parishes, etc
Due from stockholders, officers and employees
investment in mortgages and securities:
Total Investment in mortgages and securities—.
United States
dollars
3,151,2S4.11
571, SSI. 36
9,016.21
70,662.16
816,182.58
96,15110
2,335.20
18,301.50
93,686.65
3,417,147.92
24,264.84
885,041.31
6,370,545.69
1,649,971.33
1,249,959.35
1,063,729.17
42,100.53
5,000.00
323,739.46
275,505.86
10,904.0!
1,295.00
% 360,789.06
" 611,444.36
296,220.00
83,253.00
76,720.98
21,562.53
379,473.00
98,28151
SALE OF FOrEIGN- BONDS OH:' SECURITIES
544
EXHIBIT
3—Continued
Aktieselkabei Rjukfanfos—Continued
Norwegian
kroner
United States
dollars
ASSETS—continued
Investment in subsidiary companies:
Capital stock
Advances. ••
1,353.161.00
17,179,247.45
Total investment in subsidiary companies.
Plant property:
Book value
Leaseholds capitalized
Depreciation reserve
Net plant property—Depreciated book value.
Deferred charges:
Prepaid insurance
...
Repairs in progress
.
Unamortized discount on bonds
Ut 680.02
45,096.60
69,909,516.07 15,516,512.86
58,381,739.80
2,000.82
105,174.83
658,582.27
766,417*92
Total deferred charges.
Total—..
18,532; 408.45
118,336,152.47
86,791,373.91
!
350,468.70
4,449,425.09
4,799,893.79
30,649,063.49
15,120,870.61
689.15
27,240.23
170,572.81
198,502.24
22,478,965.84
LIABILITIES
Current liabilities:
Trade creditors...
.
Miscellaneous accounts payable: Due to stockholders, officers and
employees....
Accrued accounts—
Taxes
Interest
Other: Pay roll
Total current liabilities
Funded debt:
First mortgage 7 per cent bonds outstanding in hands of publicMiscellaneous mortgages
.
Total funded debt
Reserves (appropriated surplus): Legal reserve..
172,009.94
20,055.00
fi, 565,782.14
502,019.67
53,984.74
7,313,848.49
21,515,000.00
143,801.20
21,658,801.20
6,000,000.00
6,000,000,00
44,55a 57
5,19125
1,700,537.57
130,022.32
13,982.05
1,894,286.76
5,572.385.00
37,244.51
5,609,629.51
1,554,000.00
1,654,000.00
15,539,482.00
518.00
Total reserves (appropriated surplus)
Capital stock of subsidiary companies:
Parent company's shares
..
Officers' qualifying shares
59,998,000.00
3,000.00
Total capital stock of subsidiary companies.
Surplus.,
is» 540,000.00
60,000,000.00
8,181t*T5.78 2tm,W.i3
Total.
86,791,373.91
22,478,965.84
EXHIBIT 4
Norsk hydro-elehtrisk kvaelstofaklieselskab
[Balance sheet as of June 30, 1927)
Norwegian
kroner
United States
dollars
ASSETS
Current assets:
Cash on deposit and on hand
CustomersTrade acceptances.......
Sales of nitrogen products
Containers returnable
Miscellaneous trade.......
Trade creditors* debit balance.
Inventories (based on quantities shown by store records and valued
at approximate cost)—
Finished products..
Work in progress
,
Materials and supplies
Total current assets.
12,442,354.44
1,065,541.43
4,716,017.08
45,277.06
1,096.44
275,975.23
1,221,448.42
11,726.76
2,389,763.67
151,686.27
1,218,35a 14
618,948.7?
39.2S6.74
. 315,552.69
11,030,086.53
5,705,702.41
SALLE O F F O R E I G N
B O N D S OR
EXHIBIT
SECURITIES
545
4—Continued
-Continued
Norwegian
kroner
.
ASSETS—continued
Other receivable assets?
Loans to municipalities, country banks, parishes, etc..
Due from stockholders, officers, and employees
Guaranty deposits in cash
United States
dollars
1,022,876.10
261,557.82
41,045.16
264,924.91
67,743.48
10,630.69
Total other receivable assets.
1,325,479.08
343,299.08
Investment in mortgages and securitiesMortgages on employees' homes
Other mortgages
Stocks and bonds
227,203.06
500,000.00
1,149,508.00
58,846.89
129,500.00
297,722.57
1,876,716.06
486,069.46
86,972,667.50
119,700.00
22,525,920.88
31,002.30
87,092,367.50
22,556,923.18
Total investment in mortgages and securities..
Investment in subsidiary companies:
Capital stock
Advances
Total investment in subsidiary companies.
Plant property:
Book value
Leaseholds capitalized.
Depreciation reserve...
Net plant property—Depreciated book value.
Deferred charges:
Prepaid insurance
Inadjusted operations.
Repairs in progress..
Unamortized discount on bonds
32,059,506.14
27t, 596.00
14,800,318.95
8,303,412.09
70,550.56
3,8$$, 2S*. 61
16,986.791.19
4,399.578.92
27,920.70
12.417.86
40,338.07
908,177.83
7,231.46
3,216.23
10,447.56
235,218.06
988,854.46
256,113.31
130,300,294.82
33,747.776.36
27,084.36
465,840.52
762,315.00
7,014.85
120,652.69
197,439.59
4,937.51
400,32a 54
143,201.39
1,278.8?
103,683.02
56,219.88
2,170,651.90
23a 485.92
562,198.84
59,695.85
24,719.26
150,000.00
25,000.00
6,402.29
38,850.00
6,475.00
4,404,556.40
16,148*802.49
1,140,780.11
4,182,539.84
9,596,000.00
146,692.01
2,485,364.00
37,993.23
Total funded debt.
9,742,692.01
2,523,357.23
Reserves (employees' benefit):
PensionsWorkmen's compensation..
tckness
Accident and sick
7,027,063.49
6,768,811.46
723,321.45
1,820,009.44
1,753,122.17
187,340.26
14,519,196.40
3,760,47L87
5,763,960.00
4,000,000.00
1,492,865.64
1,036,000.00
9,763,96a 00
2,528,865.64
4,500,360.00
53,139,24a 00
18,081,487.52
1,165,593.24
13,763,063.16
4,683,105.27
130; 300; 294.82
33,747,776.36
Total deferred charges
Total
LIABILITIES
Current liabilities:
Bank creditors
Trade creditors.
Employees' savings deposits
Miscellaneous accounts payableCustomers' credit balances
Unpaid dividends
Due to stockholders, officers, end employees.
Accrued accounts—
Taxes
Interest
*
OtherPay roll..
Customers' damage claims
Patent fees
Total current liabilities.
Due to subsidiary companies
Funded debt:
„
. .
. ,
.„
First mortgage 7 per cent bonds outstanding In hands of publicMiscellaneous mortgages
Total reserves (employees* benefit).
Reserves (appropriated surplus):
I^gal reserve
Building reserve
Total reserves (appropriated surplus) Preferred 8 per cent noncumulative capital stock (parent company).
Common capital stock (parent company)
Surplus
*
Total.
546
SALE OF FOREIGN BONDS OIL SECURITIES
AGREEMENTS
Norwegian Hydro-Electric Nitrogen Corporation (Norsk Hydro-Elektrisk
Kvaelstofaktieselskab) agrees with the New York Stock Exchange as follows:
Not to dispose of any integral asset or its stock interest in any constituent,
subsidiary, owned or controlled company or allow any of said constituent, subsidiary, owned or controlled companies to dispose of an integral asset or stock
interest in other companies, unless for retirement and cancellation, without
notice to the stock exchange.
To submit once in each year to the interest represented at the general meeting
of the stockholders of the company and to deliver to the New York Stock Exchange
change after acceptance by the general meeting a copy of a consolidated income
account covering the previous fiscal year and a consolidated balance sheet showing assets and liabilities at the end of the year.
To maintain in accordance with the rules of the stock exchange an agency in
the borough of Manhattan, city of New York, where the principal and interest
of all bonds shall be payable.
To notify the stock exchange 30 days in advance of the effective date of any
change in the authorized amounts of listed securities.
Not to make any change in the listed securities or of a trustee of its bonds
without the approval of the committee on stock list and not to select as a trustee
an officer or director of the company.
To make application to the stock exchange for listing of additional amounts
of listed securities prior to the issuance thereof.
To publish promptly to holders of bonds any action in respect to the interest
on such bonds, notices thereof to be sent to the stock exchange.
To notify the stock exchange if deposited collateral is exchanged or removed.
To have on hand at all times a sufficient supply of bonds to meet the demand
for duplicates in case of lost, stolen or destroyed bonds.
GENERAL
The fiscal year of the company ends on June 30, and the regular annual general
meeting of shareholders is held at a time to be determined by the management,
but not later than five months after the closc.
of the fiscal year.
The accounts of the company are made up annually to June 30, and these
accounts are submitted to the stockholders at the ordinary meetings. The head
office of the company is located at 7 Soligatan, in Oslo, Norway.
The names of the officers and their positions are as follows: Heyn Barth, traffic
manager, Bjarne Eriksen, attorney, B. F. Halvorsen, chemical manager, John
Petersen, sales manager, J. Stoemmer, treasurer, and Sverre B. Braehne, secretary.
The board of directors are as follows: Marc. Wallenberg, president, Stockholm, Sweden; G. Griolet, vice president, Paris, France; Hermann Schmitz,
Heidelberg, Germany; J. E. Moret, Paris, France; H. Finalv, Paris, France;
Thos. Fearnley, jr., Oslo, Norway; Axel Aubert, general manager, Oslo, Norway.
The members of the board of directors of governors consist of the following:
G. de Germiny, chairman, Paris, France; K. A. Wallenberg, vice-chairman,
Stockholm, Sweden; M. Girod de L'Ain, Paris, France; A. Benac, Paris, France;
E. de la Longuinliere, Paris, France; Louis Wibratte, Paris, France: 0 . Bodtker,
Moss. Norway; V. J. B. Borresen, Oslo, -Norway; A. Scott-Hansen, Oslo,
Norway; Erling Onsager, Oslo, Norway.
The place of payment of principal anil interest of these bonds is the National
City Bank of New York, 55 Wall Street, New York City, where the bonds may
also be surrendered for interdenominational exchange and be registered as to
principal.
Throughout the application Norwegian currency has been converted into
United States Dollars at the following respective rates of exchange for the Norwegian Krone: 25.90 cents for the fiscal year ended June 30, 1927; 21.95 cents
for the fiscal year ended June 30, 1920; 17~.85 cents for the fiscal vear ended June
30, 1925; 13.36 cents for the fiscal year ended June 30, 1924 and 16.38 cents for
the fiscal year ended June 30, 1923.
NORSK HYDRO-ELEKTRISK KVAELSTOFAKTIESELSKAB,
By RONALD M . B Y R N E S , Attorney-in-Fact.
SALLE OF FOREIGN BONDS OR SECURITIES
547
THE NATIONAL CITY C O . INTERIU CERTIFICATES FOR NORWEGIAN
ELECTRIC NITROGEN CORPORATION (NORSK HYDRO-ELEKTRISK
8TOF AKTIESELSKAB)
REFUNDING AND
IMPROVEMENT GOLD BONDS, SERIES A 5}£ PER
NOVEMBER 1, 1057
HYDROKVAEL-
CENT,
DUE
N E W YORK CITY, April 1, 1928,
The National City Co. hereby makes application for the listing on the New
York Stock Exchange of its interim certificates for $20,000,000, aggregate principal amount, refunding and'improvement gold bonds, series A 5% per cent, due
November 1, 1957, of the Norwegian Hydro-Electric Nitrogen Corporation
(Norsk Hydro-Elektrisk Kvaelstofaktieselskab), included in Nos. M - l to M 18,929, of the denomination of $1,000 each, and D - l to D-2,142, of the denomination of $500 each, which are issued and outstanding in the hands of the public.
The interim certificates of the National City Co. will be exchangeable at the
office of the National City Co., 55 Wall Street, in the Borough of Manhattan,
city and State of New York, for the bonds, when issued in definitive form and
when received by the undersigned.
For information with respect to the company and with respect to the bonds for
which the interim certificates have been issued, the National City Co., in
making this application, refers to the application submitted above by the Norwegian Hydro-Electric Nitrogen Corporation for authority to list its definitive
engraved bonds when issued in exchange for outstanding interim certificates.
By
T H E NATIONAL CITY C o . ,
RONALD M. BRYNES, Vice
President.
This committee recommends that the above-described interim certificates for
$20,000,000 refunding and improvement gold bonds, series A, 5}4 per cent, due
November 1. 1957, Nos. M - l to M-18,929, for $1,000 each, and D - l to D-2,142,
for $500 each, be admitted to the list.
This committee recommends that the above-described $20,000,000 refunding
and improvement gold bonds, series A, 5% per cent, due November l t 1957, included in Nos. M - l to M-20,000, for $1,000 each, and D - l to D-2,200, for $500
each (and coupon bonds of one denomination issued in exchange for coupon bonds
of another denomination), be admitted to the list, on official notice of issuance
in exchange for outstanding interim certificates, in accordance with the terms
of this application.
ROBERT GIBSON, Chairman.
Adopted by the governing committee, April 25, 1928.
E. V. D. Cox, Secretary.
ANGLO-CHILEAN CONSOLIDATED NITRATE CORPORATION
(Organized under the laws of Delaware)
Twenty-year 7 per cent sinking fund debenture coupon bonds due November 1,
1945. Common stock of no par value to be issued with definitive bonds in exchange for temporary bonds at the rate of 7}4 shares for each $1,000 bond, without
cost, on November 1,1926, or earlier at the option of the company.
New listing:
Authorized issue
—
—
$16, 500,000
Amount outstanding
16, 500, 000
Amount applied f o r - . ,
-16, 500, 000
Authority for issue: Authorized by stockholders November 5,10, and 12, 1925;
authorized by directors November 4, 10, and 12, 1925. No other authority
required.
N E W YORK, N . Y., March 10,1926.
Referring to application A-6848, dated October 13, 1925, of Messrs. Lehman
Bros., for listing on a "when issued" basis the bonds hereinafter described,
Anglo-Chilean Consolidated Nitrate Corporation (hereinafter referred to as the
"company") hereby makes application to have listed on the New York Stock
Exchange $16,500,000 (total authorized issue) of its 20-year 7 per cent sinking
fund debenture coupon bonds, due November 1, 1945 (hereinafter referred to as
the "bonds")> in the denomination of $1,000, included in numbers M - l to M -
548
SALE OF FOREIGN BONDS OIL SECURITIES
16,500, and in the denomination of $500, included in numbers D - l to D-33,000,
on official notice of issuance in exchange for outstanding temporary bonds,,
the bearers of temporary bonds to receive in exchange therefor definitive bonds
and common stock of no par value of the company at the rate of 7)i shares for each
$1,000 principal amount of bonds, without cost, on November 1, 1926, or earlier
at the option of the company.
AUTHORITY FOR ISSUE
The bonds for which application to list is made, are issued under an indenture
(hereinafter referred to as the "indenture"), dated November 1, 1925, made by
the company to Bankers Trust Co., trustee.
The issuance of the bonds and the execution by the company of the indenture
were authorized by meetings of the board of directors held on November 4,10, and
12, 1925, and by meetings of the stockholders held on November 5, 10, and 1-2,
1925.
No public authority is required in connection with the issuance of the bonds for
which application to list is herein made.
DESCRIPTION
The bonds are dated November 1, 1925, mature November 1, 1945, and bear
interest at the rate of 7 per cent per annum payable semiannually on May 1 and
November 1 in each year, without deduction for any Federal income tax not in
excess of 2 per cent per annum. Payment of principal and interest thereon shall be
made at the principal office of Bankers Trust Co., trustee, in the borough of
Manhattan, city and State of New York, in gold coin of the United States of
America, of or equal to the standard of weight and fineness existing on November
1, 1925. The company covenants in the indenture to reimburse the bearer or
registered owner of bonds for any Pennsylvania personal property tax to the
extent of 4 mills per annum on each dollar of the taxable value of the bonds,
or any Massachusetts income tax not in excess of 6 per cent per annum on the
income derived from the interest on the bonds, which may be paid by such bearer
or registered owner as a resident of either of said States, it application be made in
the manner and upon the conditions provided in the indenture within 90 days
after the day of payment of any such tax. The bonds are registerable as to
principal upon presentation at the office of the trustee in the borough of Manhattan, city of New York; such registration shall not affect the negotiability by
delivery of the coupons, which shall remain payable to bearer as therein provided.
For any transfer or registration of a bond the company may require payment of a
sum sufficient to reimburse it for any stamp tax or other governmental charge
imposed or required by law or submission of proper proof that the Bame have been
paid. Bonds of the respective denominations of $500 and $1,000 are interchangeable upon surrender to the trustee for such purpose and upon the payment,
if required by the company, of a sum sufficient for any stamp tax or other governmental charge thereon and a further sum not exceeding $2 for each new bond
issued in exchange. The definitive bonds will be in denominations of $1,000,
included in Nos. M - l to M-16,500, and in the denomination of $500,
included in Nos. D - l to D-33,000.
RIGHT OF HOLDERS OF TEMPORARY BONDS TO RECEIVE COMMON* STOCK WITH PERMANENT BONDS
The temporary bonds carry the right to receive common stock, without p p
value, of the company in accordance with the following provisions contained in
the indenture.
The company has delivered to the trustee certificates for 123,750 full paid and
nonassessable shares of such common stock to be held by the trustee for the benefit
of the bearers and registered owners of the temporary bonds. On and after
November 1, 1926, or, at the option of the company," on and after any date
previous thereto, the bearer or registered owner of anytemporary bond may present and surrender said bond with all interest coupons maturing after the date of
such surrender to the trustee at its principal office in the borough of Manhattan,
city of New York, and the company shall then deliver an engraved definitive
bond of like denomination, with appurtenant coupons, and, without cost, certificates for shares for the common stock of the company at the rate of seven and
one-half shares of said stock for each $1,000 principal amount of bonds so surrendered. In lieu of fractional shares of stock, stock scrip shall be issued by the
SALLE OF FOREIGN BONDS OR SECURITIES
549
company as provided in the indenture. The indenture further provides that there
shall be delivered to the bearer or registered owner, upon such surrender, any
dividends in respect of such stock theretofore received by the trustee, whether
in cash or in stock, together with the proceeds of the sale of any subscription
rights with respect to such stock and the interest allowed by the trustee on the
deposit of any cash dividends and proceeds, less the amount of any tax, penalty
or other charge paid by the trustee in behalf of such bearer or registered owner;
the trustee shall also deliver a due bill for such portion of any dividend declared
but not theretofore paid by the company to the trustee applicable to such shares
of stock. In case any temporary bonds shall have been designated for redemption and the first publication of redemption notice been made, the bearer or
registered owner thereof, in lieu of being entitled to receive the definitive bond
and shares of stock, shall only be entitled to receive the certificates of stock and
the due bill, entitling him to receive, on presentment thereof to the trustee on
the redemption date, the redemption price of said bond, if and when such redemption price shall have been deposited by the company with the trustee.
SINKING FUND
The company, in the indenture, covenants that on the 1st day of November,
1928, and on each semiannual interest payment date thereafter, to and including
the 1st day of May, 1945, it will provide for the retirement of $475,000 principal
amount of bonds. Such retirement may be effected by delivering to the trustee
on or prior to the interest payment date bonds aggregating $475,000 in principal
amount, or by paying to the trustee, at least three days prior to each such interest
payment date, cash sufficient to redeem $475,000 principal amount of the bonds
at the sinking fund redemption price, which shall be 105 per cent of the principal
amount thereof, together with accrued interest; or in part by delivering bonds,
and as to the residue by paying cash, as aforesaid. The trustee shall designate
by lot bonds of a principal amount sufficient at the sinking fund redemption
price to exhaust the amount of cash paid to the trustee; thereupon the trustee
shall give notice of such redemption by publication once a week for four successive
weeks in a daily newspaper of general circulation in the Borough of Manhattan,
city of New York, the first publication to be not less than 30 and not more
than 45 days prior to the redemption date. Such notice shall state the
date and place of redemption and recite the serial number of the bonds so to be
redeemed; a copv of such notice shall also be mailed, at least 30 days and not
more than 45 cfays before such redemption date, to all registered owners
of bonds to be redeemed. All bonds purchased or redeemed for the sinking fund
shall be canceled and cremated by the trustee and no bonds shall be issued in
lieu thereof.
REDEMPTION
As provided in the indenture, the company, at its election, may redeem and
pay off on any interest payment date all or any part of the bonds by paying therefor, as the redemption price, the interest accrued thereon to the date fixed for
redemption and 107% per cent of the principal amount thereof. Notice of redemption shall be given by publication at least once each week, for eight successive
weeks prior to the date on which redemption is to be made (the first publication
to be not less than 60 days nor more than 90 days prior to the redemption date), in a newspaper published and of general circulation in the Borough of
Manhattan, city of New York. Such notice shall state the date of redemption
and that the bonds wall be redeemed on said date at the principal office of the
trustee in the Borough of Manhattan, city and State of New York, at the redemption price, and in case less than all of the bonds then outstanding are called for
redemption, shall state the serial numbers of the bonds to be redeemed, the trustee
in such event to designate by lot the numbers of such bonds. The company shall
mail a copy of such notice to all registered owners of bonds to be redeemed at
least 60 and not more than 90 days prior to the date designated for redemption, The company, in the indenture, agrees to deposit with the trustee, at least
three days prior to the redemption date, an amount of cash sufficient to redeem
and pay off all the bonds which the company has elected to redeem. All bonds
so redeemed shall be canceled and. cremated by the trustee and no bonds shall
be issued in lieu thereof.
550
SAXTE OF FOREIGN BONDS OR SECURITIES
DEFAULT
The indenture provides that in case one of the following designated events of
default shall occur:
"(a) Default shall be made in the payment of any part of the principal of any
of the bonds when and as the same shall become due and payable, whether by the
terms thereof, or by declaration or otherwise;
"(b) Default shall be made in the payment of any interest on any of the bonds
when and as the same shall become due and payable as therein expressed, and such
default shall have continued for a period of 30 days;
"(c) Default shall be made in the performance of any of the company's covenants with respect to the payments into the sinking fund;
"(d) Default shall be made in the observance or performance of any other of
the covenants, conditions, or stipulations on the part of the company to be performed, as in the indenture or in the bonds provided, and such default shall have
continued for a period of 90 days after written notice to the company from the
trustee or from bearers or registered owners of not less than 10 per cent in principal
amount of the bonds then outstanding, specifying such default and requiring the
same to be remedied;
"(e) An event of default as defined in any mortgage, indenture, or trust agreement securing any indebtedness maturing more than one year after the creation
of such indebtedness of the company, or of any subsidiary, whether such indebtedness now exists or shall hereafter be created, shall happen and shall result in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable;
" ( / ) If the company shall be adjudicated a bankrupt or become insolvent, or a
receiver or receivers shall be appointed of the property of the company and shall
not be discharged within a period of 60 days;
"(g) If the company shall file a petition in voluntary bankruptcy or shall make
an assignment for the benefit of creditors, or shall admit in writing its inability to
pay its debts generally as they become due, or shall consent to the appointment of
a receiver or receivers of all or any substantial part of its property; or
"(h) If at any time the affairs of the company are placed, directly or indirectly
(except pursuant to the provisions of the indenture), in the hands of any creditors
committee or other group of creditors of the company;
"(i) Final judgment for the payment of money shall be rendered against the
company, and the company shall not discharge the same or cause it to be discharged within 90 days from the entry thereof, or shall not appeal therefrom or
from the order, decree, or process upon which or pursuant to which said judgment
was granted, passed, or entered, and secure a stay of execution pending such
appeal."
Then the trustee, by notice in writing to the company, may, and, upon the
written request of the bearers or registered owners of not less than 25 per cent in
principal amount of the bonds then outstanding, shall, upon being indemnified
to its satisfaction, declare the principal of all of the bonds then outstanding and
the interest thereon, if not already due, to be due and payable immediately and,
upon such declaration, such principal and interest shall become and be immediately due and payable, anything in the indenture or in the bonds contained to the
contrary notwithstanding. If, however, at any time after the principal of all the
bonds shall have been so declared due and payable, such bonds as shall have become due and payable by proceedings for the redemption thereof and all arrears
of interest upon all of the bonds, with interest on overdue interest at the rate of
7 per cent per annum, shall have been paid or shall be paid to the trustee and all
other existing events of default shall have been remedied and made good, or provision therefor satisfactory to the trustee shall have been made, then and in such
case the bearers or registered owners of a majority in principal amount of the
bonds then outstanding, by written notice to the company and to the trustee,
may waive the occurrence of the event or events of default and the consequences
thereof and rescind and annul such delcaration upon such terms, conditions, and
agreements, if any, as they may determine; but no such waiver, rescission, or
annulment shall extend to or affect any subsequent default or impair any right
consequent thereon. The company in the indenture further covenants that upon
default in respect of sinking fund, interest or principal, the company will pay to
the trustee, upon demand, the whole amount due on the bonds and coupons.'*
SALLE OF FOREIGN BONDS OR SECURITIES
551
PURPOSE OF ISSUE
The proceeds of this issue of bonds are to be used for past and future capita
expenditures in connection with the new process and the plant of the company as
now designed, the purchase of the Coya Norte properties, and the improvements
and additions to the railroad, all of which are described herein.
COVENANTS
The company in the indenture covenants as follows:
"(1) That it will punctually pay the principal of and interest on the bonds at
the times and in the manner specified in the bonds and in the coupons attached
thereto.
" (2) That it will use the proceeds of the bonds for one or more of the following
purposes:
"(a) To the extent that the same shall be so required, for the purpose of completing the construction and equipment of the company's new plant, as now
designed, on the so-called Coya Norte property, in the Republic of Chile, so that
such plant when completed will have a minimum capacity of 260,000 metric tons
of nitrate per annum; and for the purpose of reimbursing the company for past
capital expenditures by retiring, or reimbursing the company for the cost of
retiring, at not to exceed par, the company's heretofore issued and outstanding
7 per cent preferred stock;
"(6) The balance (to the extent that the same shall be so required) for the purpose of providing the cost of electrifying approximately 25 miles of that portion
of the company's railroad in which heavy grades are met, and of completing a
railroad cut-off of approximately 30 miles, and of providing such additional rolling
stock, yards, piers, and other port improvements as the company shall deem to be
immediately necessary:
" (c) Any residue not required for the foregoing purposes to be available for the
general corporate purposes of the company.
"(3) That it will do and will cause every subsidiary to do all things necessary:
to comply with the laws of any State or States of the United States of America, or
of the Republic of Chile; promptly to pay and discharge all taxes, assessments
and governmental charges, pay and discharge all lawful claims'which, if unpaid,
might become'alien or charge upon its or any subsidiary's property; to maintain
and keep properties in good condition; to preserve the corporate existence and
other franchises and rights.
11 (4) That it will not voluntarily create or suffer to be created any mortgage or
other like encumbrance upon any of its presently-owned fixed assets, as defined in
the indenture, or permit any subsidiary voluntarily to create or suffer to be created
any mortgage or other like encumbrance, other than to secure indebtedness of
such subsidiary to the company upon any presently-owned fixed assets of the
company which shall have been transferred to or acquired by such subsidiary,
without provision being made by the instrument creating such mortgage or
encumbrance whereby all the bonds shall be directly secured equally and ratably
with the indebtedness secured by such instrument, except that the company
May (1) create mortgages, pledges or liens for the purpose of securing obligations
issued to pay off, refund or purchase outstanding 7 per cent debenture stock
secured by a trust deed dated January 20, 1925, between the company and
Royal Exchange Assurance, or to provide funds for such payment or purchase or
to reimburse the company therefor, and (2) renew or refund any indebtedness
secured by any such mortgage, pledge or lien.
(5) That it will not voluntarily create or suffer to be created any mortgage or
other like encumbrance upon any of its subsequently acquired fixed assets or
permit any subsidiary to create any mortgage or other like encumbrance upon
such subsequently acquired fixed assets other than to secure indebtedness of
such subsidiary to the company without provision being made by the instrument creating such mortgage and encumbrance whereby all the Bonds shall be
directly secured equally and ratably with the indebtedness secured by such instrument, except that the company may: (c) create mortgages, pledges or liens
on any such subsequently acquired fixed assets for any of the purposes for which
mortgages, pledges or liens may be created as provided in (4) above; (6) create
purchase money mortgages, pledges or liens, or create mortgages, pledges or
hens to provide funds for the payment of the cost of such subsequently acquired
fixed assets or of additions, betterments or improvements thereto and to reimburse
any subsidiary for the sums expended within the twelve months next precedm g the creation of such mortgage, pledge or lien thereon for the acquisition of
.92928—32—PT 2 — - 1 7
552
SALE OF FOREIGN BONDS OIL SECURITIES
such subsequently acquired property or in making such additions, betterments
and improvements; (c) the acquisition of property subject to any mortgage, lien
or encumbrance existing at the time of acquisition; (d) the renewal or refunding
of any indebtedness secured by any mortgage, pledge or lien permitted under
(a), (6), or (c).
" (6) It will not incur or permit any subsidiary to incur except as stated in (4)
and (5) any indebtedness which by its terms matures more than twelve months
from the date of its creation nor permit any subsidiary to issue preferred stock
except such as shall be acquired and retained by the company unless the proceeds
are applied to the payment of the cost of acquiring property constituting an
addition to the capital assets of the company or such subsidiary or are applied
to reimburse such subsidiary for expenditures made for one or more of the pur-,
poses aforesaid not more than twelve months previous to the date of incurring
such indebtedness or unless such indebtedness be created for the purpose of
refunding indebtedness herein mentioned.
" (7) It will not declare any pay or permit any subsidiary to declare and pay
any dividend or make any distribution upon its stock other than stock dividends
except out of surplus earnings remaining after deduction of proper charges for
depletion and depreciation computed according to good accounting practice
except that the company may declare and pay dividends or make distributions
from depletion reserves to an'amount not exceeding the principal amount of the
bonds retired by the company and cancelled and of the 7 per cent debenture
stock secured by the trust deed between the company and Royal Exchange
Assurance which shall have been retired and cancelled by the company subsequent to November 1, 1925, through the sinking fund provided by the said
trust deed.
" (8) It will deuly perform the covenants, terms, aud conditions of the aforementioned trust deed and of any other mortgage, pledge, or lien upon its properties.
" (9) It will keep such part of its property as is usually insured by companies
engaged in the same business or in the same location insured against loss or damage
to the extent that such property is usually insured by such other companies and
will cause every subsidiary to keep its property of the same character likewise
insured. It will apply the proceeds of insurance either in the repair, restoration,
or replacement of the property damaged or destroyed and the acquisition, construction, and installation of other assets. In lieu of such insurance the company
or its subsidiaries may set aside and maintain out of earnings or surplus an insurance reserve fund.
: " (10) That it will riot sell or lease or otherwise dispose of all or substantially
all of its property nor consolidate or merge with any other corporation unless1
such sale, lease, consolidation, or merger or other disposition shall be upon such
terms that the ^ purchaser, lessee,or other successor in interest of the company
or the corporation resulting therefrom shall assume and agree to pay the bonds
and coupons according to the terms thereof and of the indenture, and shall also
assume and agree to observe and perform all of the terms, covenants, and provisions of the indenture and of the bonds and coupons." '
HISTORY. AND BUSINESS.
. On September 15,1924, Guggenheim Bros;, through one of their subsidiaries,
purchased at public auction from the Chilean Government a certain nitrate
deposit in Chile known as the Cova Norte lands, paving for the same in cash
$3,346,500. On December 22, 1924, Anglo-Chilean Consolidated Nitrate Corporation was formed under the laws of the State of Delaware, and immediately
took over the Coya Norte lands. The duration of the company's charter is
perpetual. On January 7,1925, the company agreed to purchase as of January
1, 1925, all the assets of Anglo-Chilean Nitrate & Railway Co. (Ltd.), a
British corporation (hereinafter referred to as the "British company"); owning
nitrate properties immediately adjacent to the Coya Norte properties, and also
owning a railway, with perpetual charter, connecting its plants and all other
nitrate plants in the district with the port of Tocopilla, and also valuable water
and port concessions. The British company was incorporated under the laws
of Great Britain on March 28, 1888; at the time of the acquisition of its assets by
the company it had outstanding the following capital stock: 550,000 ordinary
shares of a par value of £1 each (authorized amount 650,000 shares of £1 par
value each); and 350,000 shares of 7 per ccnt cumulative &nd participating
preference stock of a par value of £ 1 each (total authorized amount). The
company completed the taking over of the Coya Norte lands purchased from the
SALLE O F F O R E I G N
B O N D S OR S E C U R I T I E S
553
Chilean Government and of the assets of the British company on March 17,
1925. It is engaged in the business of operating all the properties so acquired.
The common stock of the company is largely owned by Guggenheim Brcs., and
the company will be under their active supervision. The company paid to the
British company for its assets and business as a going concern the sum of £3, 600,000 sterling in the form of the company's 7 per cent first-mortgage debenture
stock now outstanding.
Present capitalization of company
Issued and outstanding
First mortgage 7 per cent debenture s t o c k —
£3, 600, 000
20-year 7 per cent sinking fund debenture bonds (this issue)
$16, 500, 000
Common stock, no par value
:
shares..
1, 756, 750
FIRST-MORTGAGE 7 PER CENT DEBENTURE STOCK
The company has outstanding £3,600,000 (approximately $17,500,000) of
first-mortgage 7 per cent debenture stock, the total authorized issue. This stock
is secured by a first mortgage on the railroad concessions and equipment and real
properties of the company; bearing interest at the rate of 7 per cent, callable for
sinking fund at par, callable in whole at any time at 105 upon three months
(calendar) notice; is dated January 1, 1925, and is due January 1, 1950. It is
secured by trust deed, dated January 20, 1925, between the company and the
Royal Exchange Assurance, a corporation organized under the laws of Great
Britain and Ireland, and by an instrument of mortgage dated March 17, 1925.
Such issue is reduccd by an annual sinking fund of a minimum amount of £150,000
sterling per annum, commencing January 1, 1929. The sinking fund is increased
at the rate of 1 shilling for each metric quintal (220.4) pounds, by which the
annual production exceeds 276,000 metric tons (2,204 pounds) of nitrate in any
year, in accordance with a formula specifically described in the said trust deed.
The mortgage securing the debenture stock does not cover any extension to the
railroad or any nitrate grounds or real estate acquired, or to be acquired, after
Januaiy* 1, 1925.
The following table shows the amount of authorized capital stock of the company, and date of issue and the purpose for which issued:
Summary of authorized capital stock
?
i'.«;
7 per cent Common
stock, no
preferred
stock, par par value
value $100 (shares)
Date of filing certificate
Dec. 22,1924.
..
Nov. 4,' 1925.....
1 The
$10,000,000
(»>
JmmA
-
1,600,000
1,756,750
preferred stock was retired at par In November, 1925.
Summary of issued stock showing purpose for which issued
Date
Dec. 22,1924
Dec. 24,1924
..
;
Preferml'
stock
!
$10,000,000
; Commoik
stock
(shares)
10
1,590,990
Nov. 4,1925
Purpose
Issued for cash—Incorporators' shares.
Issued for properties, rights, and pro*
ccsses acquired from Guggenheim
Bros.
Issued for cash.
156*760
NITRATE RESERVES
It is estimated that the company's present reserves'of nitrate in the ground will
permit the production under the Guggenheim processes of 260,000 tons per year
for a period in excess of 40 years. These estimates have been based upon extensive
sampling and measurements of the reserves.
554
SAXTE OF FOREIGN BONDS OR SECURITIES
PROPERTIES
The Goya Norte lands comprise 35 square miles of nitrate deposits which con*
tain, according to the Government measurements, nitrate in excess of 5,600,000
metric tons (2,204 pounds) without taking into account large quantities of lowergrade material, unworkable at a profit with the methods heretofore used in the
industry and estimated to amount to an additional 2,000,000 tons of nitrate.
The nitrate deposits of the British company were approximately 60 square miles
in extent and were estimated then to contain approximately 6,000,000 tons of
nitrate. While the area of the holdings of the British company is larger than that
of the Goya Norte properties, operations carried on during the past 35 years
have reduced the contents of the former grounds so that to-day the Coya Norte
grounds contain approximately one-half of the combined reserves of the two
deposits. The British company also owned and operated three plants for the
extraction of nitrate having a combined capacity of about 150,000 tons of nitrate
per year. In addition to the deposits and plants, the British company also owned
a railway connecting its plants and those of all other nitrate companies in the
district with the Port of Tocopilla. This railway has approximately 120 miles
of main-line track, exclusive of sidings, etc., and has in the past carried an average
revenue-producing traffic of 331,000 tons annually, contributing materially to
the revenues of the company. Full shipping costs on the company's own tonnage
are included in the company's costs of production. In order to facilitate and
cheapen the cost of operating the railway and t o increase its capacity it is contemplated to electrify that section in which heavy grades are met, and also to
build a 30-mile cut-off, together with additional rolling stock, yards, piers, and
other port improvements. The cost of these improvements is estimated to be
$2,700,000.
The company also acquired from the British company and otherwise valuable
water concessions sufficient to insure an adequate supply of water for the conduct
of its operations.
In Tocopilla the company acquired from the British company valuable port
concessions and terminal facilities including piers for the shipment of nitrate as
well as a large number of houses, shops, and large real-estate holdings.
PRODUCTION
The production of nitrate by the British company for the year 1920-1924,
inclusive, is shown by the following table:
Metric quintals
1920.
1921.
1922.
1923.
1924.
802, 700
521, 548
153, 340
532, 000
957, 500
The plants acquired from the British company are operated according to the
old process and are believed to produce nitrate as cheaply as any plants in Clule
to-day. The Guggenheim engineers have, after more than five years' intensive
experimentation, developed a new method for extraction of nitrate from Chilean
nitrate deposits. The method has been tried out in Ghile in a semicommercial
plant erected for this purpose. This plant was kept in operation for 16 months
and fully confirmed the results obtained in the earlier experimentations. The
process is simple to operate and resembles in its major features the operations
of the Chile Copper Co.'s copper leaching plant, developed by Guggenheim engineers under the supervision of E. A . Cappelen Smith, Esq., the president of
Anglo-Chilean Consolidated Nitrate Corporation.
The advantages of the new Guggenheim process as indicated by the results
obtained in the above-mentioned test plant may be summarized as follows:
(a) Whereas the old process recovers not in excess of 55 per cent of the nitrate
contained in the ground, the demonstration plant indicated a recovery by the
Guggenheim process of approximately 90 per cent.
(b) The tests also indicated that the actual cost of production of nitrate by
the new process would probably be less than one-half of that obtaining in the
average nitrate plant to-day.
The company is entitled, without payment of royalty, to use the new Guggenheim nitrate process, which has been patented in the Republic of Chile. This
right will exist under present patents and any extensions or improvements
thereto,1 both in the company's present plants and in those the company may
SALLE OF F O R E I G N B O N D S OR S E C U R I T I E S
555
construct on its present lands or on unimproved land which may later be
purchased.
The construction of a new plant to employ the Guggenheim process was commenced on the Coya Norte grounds prior to the acquisition of the properties
of the British company, and work upon it has been expedited so that it is expected
that the plant will be completed and put in operation some time in the fall of
1926. The program includes not only the actual extraction plant, but in addition the building of a town for a population of at least 5,000, with waterworks,
sewers, hospitals, schools, and public service buildings of all kinds, all in accordance with the experience developed by Guggenheim companies during many
years of operating properties in Chile. The location of this plant is such that
the major part of all the company's reserves of nitrate-bearing material can be
advantageously treated there. The plant is designed for a minimum production
of 260,000 metric tons of nitrate per year, depending upon the average grade of
nitrate-bearing material which it will be most economical to treat. If it should
be decided more economical to treat higher grade material, then the capacity
of tht plant as designed will reach 350,000 tons of nitrate per^year. The question of the most economical grade of material to be treated is to some extent
dependent upon large-scale tests now under way with mechanical methods of
mining in place of the hitherto universally used hand method. . Reports from
the plant received up to date strongly indicate the probability of successful
application of mechanical mining methods at a marked reduction in cost.
The company therefore estimates that its total productive capacity will be
a minimum of '260,000 tons in the new plant and 150,000 tons in the plant now
in operation, or a total minimum capacity of 410,000 tons per year. It will
be possible to increase the capacity of the new plant to a total of 520,000 tons
of nitrate per year, at an additional expenditure estimated at about $5,500,000.
EARNINGS
Anglo-Chilean Nitrate & Railway Co. (Ltd.) was not subject to United States
Federal income taxes. Its earnings for five years available for interest and taxes
and the amount of interest and British income taxes paid were as follows:
Earnings
available
for inter- Interest
est and
tares
Year
£564244
308,844
138,695
258,4S5
364,123
1920
1922.
1923.
£13,100
10,570
0,130
8,600
8,029
British
income
tax
Amount
Net
earnings
sfiare
£61,057 £490,037
S9,425 206,849
42,341
87,224
178,739
71,146
333,100
22,694
10s. lOd.
4s. 7d.
lid.
3s. lid.
7s 4d.
Anglo-Chilean Consolidated Nitrate Corporation, 1925
Operating income
Other income
Taxes
-
51, 655, 479. 21
158, 896. 16
-
Total
-
i n ^ C ^ : : : : : : : : : : : . : : : : : : : : : : : : : - : - - - - - - - ^ -
Miscellaenous
-
-
ElgStiation ^ ^ I t l ^ j : : : : : : : : : : : : ! ! ! : : : : : : : : : : : - : : : : :
814 > 3 7 5 - 3 7
60,518.50
^
I
S
-
S
J5
2&oS8
The principal" tax payable in Chile is an export tax, the amount Of which is
included in the company's costs of production.
i
SAXTE OF F O R E I G N B O N D S OR
556
SECURITIES
DIVIDENDS
Dividends paid by Anglo-Chilean Nitrate <fc Railway Co. (Ltd.), during the
last 12 years were as follows:
1913
1914
7
1915—
1916
191 7
1918
Capitalization
Rate
Amount
Year
£900,000
1919.
900,000
1920.
30 per cent tax £270,000
free.
25 per cent tax 225,000
free.
900,000
do..
225,000
900,000 30 per cent tax 270,000
free.
900,000 25 per cent tax 225,000
free.
900,000 15 per cent tax 135,000
free.
1921
1922.
1923
1924...
Capitalization
III
III
§11 1 § §
Year
Rate
Amoant
15 per cent tax £135,000
free.
25 per cent tax 225,000
free.
15 per cent tax 135,000
free.
135,000
do
135,000
do
25 per cent less 225,000
tax.
No dividends have been paid by the company (Anglo-Chilean Consolidated
Nitrate Corporation) since its incorporation.
FINANCIAL STATEMENTS
The Anglo-Chilean Nitrate and Railway Company, limited profit and loss account
for the year ended December 31, 1923
To administration expenses in London—Being directors' remuneration, salaries, rent, office expenses, etc
i
To directors' percentage of profits and tax thereon
To telegrams to Chile, law charges and foreign bill stamps.—
To auditors' fees
To service of
per cent consolidated mortgage bonds:
Interest, sinking fund, etc
To income tax_
To stoppage expenses
To balance carried to balance sheet.
£
10, 876
3, 870
351
131
31,749
71, 146
35,650
0 0
9 4
15 3
153,776
151,718
9 6
8 7
305,494
18 1
CREDIT
By trading profits for the year, after allowing for difference
in exchange..
:
By balance of interest and discount accounts
—.
By interest on investments
By transfer fees
286,866
3,294
15,191
142
7
13
8
8
9
1
9
6
305, 494 18 1
Balance Sheet as of December 31, 1923
ASSETS
Construction and equipment of railway, piers, oficinas and
acquisition of nitrate grounds, etc., less depreciation:
Including cost of additional works, plant and machinery,
etc., and after deducting the sinking fund of the 4}4 per
cent consolidated mortgage bonds
Working stocks on hand as per inventories at or below cost:
s
d
Furniture, tools, animals, carts and
£
- *
harness
7,838 17 7
Launches, boats and steam tugs
3, 202 19 7
Fuel and general stores
100,448 9 5
!
.
'
940,785 12 *
£
_
111,490
. 6 7
557
SALLE OF FOREIGN BONDS OR SECURITIES
Plant, machinery and stores in transit at cost
Trading stocks 011 hand as per inventories:
Manufactured nitrate and iodine, and caliche, at c o s t . . .
Sundry debtors:
For nitrate and iodine sold (since
£
s. d.
received)
50,989 10 8
In London
1,153 11 4
In Chile
9,023 2 10
Investments, marketable securities at or under cost
Bills receivable, in hand and in transit.—
Cash in hand, at bankers and on deposit:
In London
89,273
In Chile
13,339
Capital authorized:
650.000
ordinary
shares of £ 1 e a c h . .
350,000 7 per cent
cumulative
and
participating preference shares at £ 1
each
5
0
1
111,597 19 11
10
11
5
61, 075
474, 728
178, 225
102,612
5
7
1,994,495 18
6
LIABILITIES
£
650, 000
d.
350, 000
0 0
0
1,000,000 0 0
Capital issued:
£
550,000 ordinary shares of £ 1 each
550, 000
350,000 7 per cent cumulative and participating preference shares of £ 1
each
350,000
4H per cent consolidated mortgage bonds
(repayable 1936):
Total amount authorized
600, 000
Issued to date
- — 571,800
Less canceled by operation of the sinking fund
- 388,900
Depreciation and general reserve account. 1 . _
Fire insurance account
Renewals account
Bills payable, accepted, and in transit
Sundry creditors:
In London
70,151
In Chili
9,787
Accrued interest on bonds (payable
1924)
1,371
Unclaimed bond interest and d i v i d e n d s —
ftofit and loss:
Balance as per account 31st December,
1922.......
Deduct—
Dividend of 10 per
cent on preference
shares, paid 11th
£
May, 1 9 2 3 . 35,000
Dividend of 10 per
cent on ordinary
shares, paid 11th
May, 1923
55,000
d.
£
13, 981
d.
0
0 0
0 0
0
0 0
- - -
182, 900
0
922 0
go
w 10
^ 14
3
116 > 8 5 4
0
16
3
3
2
15
0
165,228
9
1
90,000
75,228
0
9
0
1
-
0
0
s. d.
0_
d.
0
£
900, 000
81, 310
513
14
2
558
FIAT.TK
OF FOREIGN BONDS OB SECURITIES
Profit and loss—Continued.
Less corporation profits tax, 1922_„—
£
5,-244
s. d.
4 0
69,984
Add: Balance of profit for the year ending Dec. 31,1923, as per account (subject to corporation profits tax, 1923)'. 151, 718
5
1
8
7
221,702
13
8
45,000
0
0
Deduct—
Interim dividend of
5 per cent on preference shares paid
£
s. d.
Nov. 14, 1923
17, 500 0 0
Interim dividend of
5 per cent on ordinary shares paid
27, 500 0 0
Nov; 14, 1923
£
176,702
s. d.
13 8
1,994,495
18 6
Anglo-Chilian Nitrate <fc Railway Co. (Ltd.) profit and loss account for year ended
December 81,1924
DEBITS
Administration expenses in London—Being directors' remuneration, salaries, rent, office expenses, etc—..—
Directors' percentage of profits and tax thereon
Telegrams to Chile, law charges, and foreign bill stamps
Auditors' fees
Service of 4H per cent consolidated mortgage bonds: Interest,
sinking fund, etc
______
Income tax
Balance carried to balance sheet
-
£
s. d.
10, 796 8 6
3, 870 19 4
376 3 8
131 5 0
8, 029 2 1
22, 993 12 11
46,197 11 6
329,229 15 0
375,427
6 6
CREDITS
Trading profits for the year, after allowing for difference in
exchange,.
____!
Balance of interest and discount accounts.*
Interest on investments
Transfer fees
Balance sheet as of December 81, 1924
•
356,296
2 6
3, 375 19 9
15, 592 10 3
162 14 0
375,427
6 26
ASSETS
Construction and equipment of railway, piers, oficinas, and
other works and acquisition of nitrate grounds, etc., less
depreciation—Including cost of additional works, plant
and machinery, etc., and after deducting the sinking fund
£
of the 4H per cent consolidated mortgage bonds
936,108
Working stocks on hand, as per inventories
at or below cost:
Furniture, tools, animals, carts, and \ £
s.d. f
harness
*
L . i — i ' • 8,392 15 1
Launches, boats, and steam tugs
2, 8321 12 10 '
Fuel and general stores
109,310 11 T f
„
'
" .. 120,535
6 4
.. n
19 0
SALLE OF FOREIGN BONDS OR SECURITIES
Plant, machinery, and stores in transit at cost
IVading stocks on hand, as per inventories at cost: Manufactured nitrate and iodine, and caliche, at cost
Sundry debtors:
For nitrate and iodine sold (since re£
s. d.
ceived)
25,902
5 2
In London
1,645
0 7
In Chile
13,411
3 9
—:
Investments, marketable securities at or under cost
Bills receivable, in hand and in transit
Cash in hand, at bankers, and on deposit:
£
s. d.
In London
52,269 15 1
In Chile
12,413 15 1
:
:
Capital authorized:
650,000 o r d i n a r y
shares of £1 e a c h . .
350,000 7 per cent
cumulative and
participating preference shares of £1
each
£
23,113
s. d.
16 2
178, 670 .19
40, 958
321,174
232, 725
4
9 6
0 11
9 2
64, 683
10
2
1, 917, 970
10
7
LIABILITIES
£
650,000
s. d.
0 0
350,000
0
0
1,000,000 0 0
Capital issued:
550,000 ordinary shares of £ 1 each
550,000
350,000 7 per cent cumulative and participating preference shares of £ 1 each 350,000
Depreciation and general reserve account
Fire-insurance account
Renewals account
Bills payable, accepted, and in transit
Sundry creditors:
In London
In Chile
-
^
0
0
0
0
Less—Corporation profits tax, 1 9 2 3 . . . — ,
Add balance of profits for the year ending
Dec. 31, 1924, as per account (subject to
corporation profits tax, 1924)
QQQ oQo
400, 000
58, 195
41,491
£
55,881
22, 828
<*•
10 0
10 11
0 0
0 0
3 11
19 9
6 2
s-
Unclaimed bond interest and dividends and unredeemed bonds
Profit and loss: Balance as per account Dec.
£
s. d.
31,1923
176,702 13 8
Deduct:
£
s. d.
Dividend of 10 per cent
on preference shares
paid May 16, 1924
(free of tax)
35,000 0 0
Dividend of 10 per cent
on ordinary shares
paid May 16, 1924
(free of cost)
.
. 55,000 0 0 , ^
Q
Q
559
86, 702 13
7,866 4
8
8
78,836
4
8
329,229 15
^^
0
408,065 19
8
^
^
2,646
1 8
19
5
560
FIAT.TK
OF FOREIGN BONDS OB SECURITIES
Deduct—
Interim dividend of 10
per cent on preference
'shares paid Nov. 19,
£
s. d.
1924
35,000 0 0
Interim dividend of 10
per cent on ordinary
shares paid Nov. 19,
1924
55,000 0 0
£
90,000
——-
s. d.
0 0
£
s. d.
318, 065 19 8
1, 917, 970 10 7
Anglo-Chilean Consolidated Nitrate Corporation statement of income for the year
ended DecemberSl, 1925
Net operating income
$1, 655, 479. 21
Other income from interest, discount, e t c . . . . 158,896.16
Charges against income:
Interest—
On first mortgage debenture stock (including payment for Jan. 1, 1926).. $1, 223, 574. 36
On sinking fund debenture bonds
157, 208. 33
1, 380, 782. 69
60, 518. 50
8, 868. 75
1, 590. 90
Taxes
Amortization of bond discount
Miscellaneous
1, 814,375. 37
1, 451, 760. 84
Net income to surplus account
362, 614. 53
Surplus account for the year ended DecemberSl, 1925
Net income for 1925 as above
—
Depreciation for year..
Depletion deductions for year
362, 614 53
$493,039. 39
72, 667. 61
Deficit Dec. 31, 1925-__
565, 707. 00
203,092. 47
Depletion reserve Dec. 31, 1925._______________
-
Net deficit Dec. 31, 1925
72, 667. 61
-----
130, 424. 86
Balance sheet as of December 81, 1925
ASSETS
Current and working assets:
Cash
Call loans
Nitrate and iodine on hand, at cost
-------Materials and supplies at cost
^--—
Accounts receivable-_
Investment in marketable securities
First mortgage debenture stock in treasury—
Total current and working assets..--—
Deferred charges:
Undistributed items in transit
-----Bond discount. . . . . — - - —
Total deferred c h a r g e s - . -
—
-----
$1,383,241.43
7, 200,000.00
922, 344. 96
2, 024, 738. 02
230, 051. 42
407,370. 62
143,219. 65
12, 310, 966.10
$873, 693. 95
1, 055, 381. 25
1> 929,07a 20
SALLE OF FOREIGN BONDS OR SECURITIES
561
Fixed assets:
Property, including nitrate deposits and
lands, at cost
$19, 363, 227. 03
Construction and equipment
$3,094,589.97
Less reserve for depreciation
493,039.39
2, 001, 550. 58
License under Guggenheim nitrate process
patents, at cost
550, 000. 00
Organization and investigation expenses...
205, 871. 61
Total fixed assets
—
$22, 720, 649. 22;
86, 960, 690. 52
LIABILITIES
Current liabilities:
Accounts payable
Unpaid sight and letter of credit drafts
Accrued interest—7 per cent sinking fund
debenture bonds
524, 758. 16
590, 522. 24
192, 500. 00
Reserve for employer's liability
Funded debt:
First mortgage debenture stock, £3, 600,000
(due Jan. 1, 1950)
17, 518, 500. 00
20-year 7 per cent sinking fund debenture
bonds (due Nov. 1, 1945)
16, 500, 000. 00
1, 307, 780. 40
8, 084. 98
Total funded debt
34,018,500.00
Capital and surplus:
Common stock—authorized and issued 1,756,750 shares of
no par value
1, 756, 750. 00
Deficit: From operations
.
$203, 092. 47
Depletion reserve
72, 667. 61
•
130, 424 86
36, 960, 690. 52
DEPRECIATION AND DEPLETION
The company's policy of depreciation is to estimate the life of the various
units comprising the property and to deduct for each unit an annual amount
determined by the number of years at which the life of such unit is estimated.
The company's policy with respect to depletion is to deduct 10.3412 cents per
metric quintal of nitrate recovered from the lands acquired from the British
company; on lands purchased from the Chilean Government, the rate is 6.5928
cents per metric quintal of nitrate recovered.
AGREEMENTS
Anglo-Chilean Consolidated Nitrate Corporation agrees with the New York
Stock Exchange as follows:
Not to dispose of an integral asset or its stock interest in any constituent,
subsidiary, owned or controlled company, or allow any of said constituent, subsidiary, owned or controlled companies "to dispose of an integral asset or stock
interest in other companies unless for retirement and cancellation, without
notice to the stock exchange.
To publish statement of earnings semiannually.
To publish once in each year and submit to the stockholders, at least 15 days
in advance of the annual meetings of the company, a statement of its financial
condition, a consolidated income account covering the previous fiscal year; and
a consolidated balance sheet showing assets and liabilities at the end of the year;
or an income account and balance sheet of the parent company and of all constituent, subsidiary, owned or controlled companies.
To maintain in accordance with the rules of the stock exchange, a transfer
office or agency in the Borough of Manhattan, city of New York, where ail listed
securities shall be directly transferable, and the principal of all listed securities
562
FIAT.TK
OF FOREIGN BONDS OB SECURITIES
with interest or dividends thereon shall be payable; also a registry office in the
Borough of Manhattan, city of New York, other than its transfer office or agency
is said city, where all listed securities shall be registered.
To notify the stock exchange 30 days in advance of the effective date of any
change in the authorized amounts of listed securities.
Not to make any change in listed securities, of a transfer agency or of a registrar
of its stock, or of a trustee of its bonds or other securities, without the approval
of the committee on stock list, and not to select as a trustee an officer or director
of the company.
To notify the stock exchange in the event of the issuance or creation in any
form or manner of a-ny rights to subscribe to, or to be allotted, its securities, or
of any other rights or benefits pertaining to ownership in its securities, so as to
afford the holders of its securities a proper period within which to record their
interests, and that all rights to subscribe to or receive allotments and ail other
such;rights and benefits 3hall be transferable; and shall be transferable, payable, and deliverable in the Borough of Manhattan, city of New York.
To notify the stock exchange of the issuance of additional amounts of listed
securities, and make immediate application for the listing thereof.
To publish promptly to holders of listed bonds and stocks any action in respect'
to interest on bonds, dividends on shares, or allotment of rights for subscription
to securities, notices thereof to be sent to the stock exchange, and to give, to the
stock exchange at least ten days1 notice in advance of the closing of tne transfer
books or extensions in so far as listed securities are concerned, or the taking of a
record of holders of listed securities for any purpose.
GENERAL
The fiscal year of the company ends on December 31.
The annual meeting is held on the third Monday in May at the office of the
company, ,120 Broadway, New York City.
The directors (elected anually) are: Agustin Edwards, chairman, Valparaiso,Chile; E. A. Cappelen Smith, Murry Guggenheim, S. R. Guggenheim,, Simon
Guggenheim, W. E. Bennett, C. Lalor Burdick, Charles D. Hilles, S. W. Howland, J. K. MacGowan, Paul H. Mayer, and Carroll A. Wilson, all of New York
City, N. Y.; Carlos Aldunate Solar, Santiago, Chile* A. C. Burrage and Russell
Burrage, Boston, Mass.; Alfred Houston, Santiago, Chile.
The officers are: President, E. A. Cappelen Smith; first vice president, J. K.
MacGowan; vice president, Paul H. Mayer; secretary and treasurer, W. E.
Bennett; comptroller, J. A. Endweiss: assistant secretary, H. R. Lullman;
assistant treasurers, J. C. Remond and F. N. May.
The place for payment of principal and interest is the office of Bankers Trust
Co.j 14 Wall Street, New York City, where the bonds are also registerable as, to
principal only. The place for the interchange of bonds of either denomination,
as well as the exchange of temporary bonds for definitive bonds and stock cerf
tificates is Bankers Trust Co., 14 Wall Street, New York City.
v.f
ANGLO-CHILEAN CONSOLIDATED NITRATE : CORPORATION,
By E. A . CAPPELEN SMITH, President,'
This committee recommends that the above-described 516,500,000 20-year 7
per cent sinking fund debenture coupon bonds, due November 1, 1945, included
in Nos. M - l to M-16,500, for $1,000 each and D - l to D-33,000, for S500 each
(and copoun bonds of one denomination issued in exchange for coupon bonds of
another denomination) be admitted to the list on official notice of issuance in
exchange fot outstanding temporary bonds, in accordance with the terms of this
application.
.
ROBERT GIBSON,
HARRISON S .
Chairman.
MARTIN,
First Assistant Secretary.
Adopted by the governing committee, March 24, 1926.
SALLE OF F O R E I G N B O N D S OR S E C U R I T I E S
563
R U H R CHEMICAL CORPORATION
(Ruhrchemie Aktiengesellschaft organized under the laws of Germany, November 4, 1927)
Six per cent sinking fund mortgage bonds, series A, due April 1, 1948
Original listing definitive bonds: The total amount authroized is up to twothirds of the cost or fair value of permanent additions provided net earnings
during a specified time shall have been at least three times annual interest charges
on both the outstanding and the proposed bonds.
Total authorized amount of this issue of series A bonds
S4, 000, 000
Retired through operation of sinking fund
, 422,000
Amount outstanding
J
3, 578, 000
Total listing applied for
- - 3, 578, 000
Approved June 30, 1928, by the supervisory Board (Aufsichtsrat) of the
company which, under the laws of Germany and the articles of association of
the company, is duly empowered to approve the issue by the company. Approval of the Prussian ministry of commerce was given by indorsement upon
the corporation's consent for the recordation of the dollar mortgage securing
the bonds.
Indenture and supplemental indenture dated as of April 1, 1928. No other
authorization required.
Capital securities as of June SO, 1930
[One reichsmark=43.8 cents]
Per value
per share
8tock
Capital stock
..
Authorized
for issuance
Authorized
by charter
Previously
listed
Relchtmarkt
RtUhimarkiKricfumarkM
1,000
27,000,000
27,000,000
None.
Outstanding
Reichsmarks
27,000,000
NOTE.-Of the total ofreichsmarks27,000,000 par value outstanding 33 JI percent is paid up, the balance
is doe and the right to demand and receive payment is pledged with the German trustee for the bonds.
Bonds
Date of issue
Fonded and long-term indebtedness:
Ruhr Chemical Cor' poration 6 per cent
sinking fund mortgage bonds, series A. Apr.
Knur Chemical Corporation 8 per cent
loan
July
Accounts "payable'
1931-32
1
PreviInter Amount
Date of final est authorized Amount Amount
ously
maturity 1 rate for issue Issued outstanding listed
If 1923
Apr.
1,1948
1,1929
July
1,1935
Per
cent
6 $4,000,000 H 000,000
>8
3,0001000 3,000,000
(!
•
1
$3,7S9,000
None*
3,000,000
None.
» <1,200,000
JAsofJune30,1930. *
! Contingent additional interest payable from Oct. 1,1932, in each year.
| Half of the amount payable on Oct. 1,1931, and the balance on Oct. 1,1932.
4 Reichsmarks.
•
N E W YORK, N . Y . , June 19, 1931.
Ruhrchemie Aktiengesellschaft (Ruhr Chemical Corporation), * hereinafter
called the company, a corporation organized under German law, hereby makes
application to list on the New York Stock Exchange §3,578,000 principal amount
(being the total amount outstanding) of its 6 per cent sinking fund mortgage
ponds, series A, due April 1, 1948 (hereinafter called bonds), in definitive form,
deluded in numbers M - l to M-4000, in the denomination of $1,000 each, which
we issued and outstanding in the handB of the public.
564
SALE OF FOREIGN BONDS OIL SECURITIES
AUTHORITY FOR ISSUE
The series A bonds are issued under and secured by an indenture and a supplemental indenture, printed in English, dated as of April 1, 1928, and executed by
the company and International Acceptance Trust Co., New York, now the Bank
of Manhattan Trust Co., New York, American Trustee & Deutsche Kreditsicherung Aktiengesellschaft, Berlin, Germany, German trustee, pursuant to
a contract dated as of April 18,1928, between the company and Dillon, Read & Co.
Said indenture and supplemental indenture were executed on behalf of the
company by George E. Dix, duly authorized representative of the corporation acting under a power of substitution executed by Dr. Fritz Mueller, duly authorized
representative of the corporation acting pursuant to a power of attorney executed
by two members of the executive board (Vorstand) of the corporation. The
members of said executive board are duly authorized under the laws of Germany
and the articles of association of the company to bind the company in all matters.
The approval of the supervisory board (Aufsichtsrat) of the company is not
necessary to make said indenture the valid obligation of the company, such
approval being, under German law, purely a matter of internal responsibility.
The entry of the dollar mortgage securing the series A bonds was approved by
the Ministry of Commerce of Prussia and the approval indorsed on such dollar
mortgage on May 9, 1928. No further authority was necessary to validate the
series A bonds.
PURPOSE OF ISSUE
The proceeds from the sale of the bonds were used by the company to furnish
a portion of the funds required for the construction of the company's plant.
OPINION OF COUNSEL
The legality and validity of this bond issue has been passed upon by Cotton,
Franklin, Wright & Gordon, of New York, and Dr. Friedrich Kempner ,of Berlin,
Germany.
DESCRIPTION
The bonds are in definitive form. The bonds are in the English language,
are dated April 1, 1928, mature April 1, 1948, and are subject to redemption as
hereinafter described. The bonds are in coupon form, in the denomination of
$1,000, registerable as to principal only at the principal office of the American
trustee, in the Borough of Manhattan, the city of New York. The total
authorized issue of the bonds is $4,000,000 principal amount, and the total authorized amount has been authenticated by the American trustee and delivered.
The bonds bear interest from April 1,, 1928, at the rate of 6 per cent per annum,
payable semiannually on the 1st day of April and the 1st day of October in each
year. Principal of, and interest on, the bonds are payable in gold coin of the
United States of America of, or equal to, the standard of weight and fineness
existing on April 1, 1928, at the principal office of Dillon, Read & Co., or its successor as fiscal agent, in the borough of Manhattan, the city of New York.
Principal and interest and all other payments with respect to the bonds or the
.indenture are payable without deduction or diminution for any taxes, past,
present, or future, of the German National Government or of any German state,
municipal, or other governmental subdivision or German taxing authority, and,
in every case, so far as lawfully possible, such payments shall be made in time of
war as well as in time of peace and irrespective of the nationality of the person,
firm, or corporation entitled to receive such payments, and irrespective of any
regulation, treaty, or convention of the German National Government or any
subdivision thereof or of any other authority. If the company shall be required
by law to deduct any such taxes from any such payments, which taxes the company may not itself legally assume and pay, the amount of such payments is to
be so increased that the net amount payable, after such deduction, shall be equal
to the full amount stipulated in the bonds and in the indenture.
Principal, premium, if any, and interest are also collectible, at the option of the
bearer or registered owner in London, England, at the office of M. Samuel & Co.
(Ltd.), in pounds sterling, or in Amsterdam, Holland, at the offices of Mendelssohn
& Co. Amsterdam, and Nederlandsche Handel-Maatschappij, in Dutch guilders,
or in Zurich, Switzerland, at the office of Credit Suisse, in Swiss francs, in each
case at the buying rate, in London, or Amsterdam, or Zurich, as the case may be,
for sight exchange on New York City on the day of presentation of the bonds
and/or coupons for collection.
S A L E OF F O R E I G N B O N D S . OB S E C U B I T I E S
565
The definitive bonds have been executed in the name of the company by George
E. Dix, duly authorized representative of the company, and authenticated by
the certificate of International Acceptance Trust Co., New York, American
trustee, endorsed thereon. The interest coupons attached to the bonds bear
the facsimile signature of Fritz Mueller, duly authorized representative of the
company.
SECURITY
The bonds are the direct obligation of the company and in the opinion of counsel, are secured by:
(a) A mortgage lien on the plant owned by the company, and
(b) The obligation of the stockholders of the company to pay to the German
trustee upon demand in case of default under the indenture, the unpaid balance
of their stock subscriptions. The capital stock of the company amounts to
27,000,000 reichsmarks ($6,426,000) par value, all of which has been subscribed
for and on which 9,000,000 reichsmarks has been paid. The balance of IS,000,000
reichsmarks ($4,284,000) is due and the right to demand and receive payment of
such balance has been pledged, by assignment to Deutsche Kreditsicherung
A. G» Berlin, the German trustee, as additional security, for the series A bonds.
The German trustee has the right to enforce such payment at any time in case of
default under the indenture and the stockholders have agreed to make such
payment in dollars at par of exchange, upon demand of the German trustee.
The company's capital stock is now held by 26 companies controlling about 70
per cent of the coke-oven gas production of the entire Ruhr district. These
companies also control about 70 per cent of the estimated reserves of recoverable
coal in this district which at the present rate of production should last several
hundred years. The aggregate net worth of 15 of said stockholder companies,
owning 81.2 per cent of the company's capital stock, as shown by their respective
most recent balance sheets (which balance sheets are of different dates) is in
excess of $538,671,588; the aggregate of the net earnings of each such stockholder
companies for its last fiscal year (which fiscal years end on different dates) as
shown by its published earnings statement is in excess of $23,913,288.
The following companies own 65.98 per cent of the Ruhr Chemical Corporation
stock outstanding, which is distributed among them as follows:
balance
Percentage of Unpaid
of subscription
total stock
price
pledged
owned
with trustee
United Steel Work? Corporation
Harpen Mining CorporaUon
Frederick Krupp Corporation
Good Hope Steel & Iron Works
Mannesmann Tube Corporation
Hoescb-Koln-Neuessener Mining Corporation..
Mathias Stinnes Mining Co
-
Per cmt
32.13
10121
4.80
4.65
4.58
7.41
2.20
$1,383,672.50
437,441 00
205,632.00
199,134.60
196,278.60
317,492.00
94,248.00
65.98
2,833,901.70
There are now listed on the New York Stock Exchange the 6H per cent sinking
fund mortgage gold bonds series A and C, the 6}4 per cent sinking fund debentures
series A, of the United Steel Works Corporation and the 7 per cent sinking fund
mortgage gold bonds of the "Rheinelbe Union" assumed by United Steel Works
Coporation; the 6 per cent gold mortgage bonds of Harpen Mining Corporation
and the 7 per cent sinking fund mortgage gold bonds of Good Hope Steel & Iron
Works.
(c) The company has also pledged under the lien of the supplemental indenture
for the benefit and securities of series A bonds all rights, licenses and interests of
the company under a certain agreement executed November 10 and l l j 1927, with
Gesellschaft fuer Linde's Eismaschinen A. G. and with Concordia Bergbau
A. G., and has convenantcd to pledge under the lien of the supplemental indenture all licenses, patent rights, processes or other rights, which it shall acquire.
The more important franchises, patents and processes owned by the company
are as follows:
.. A license for the use in Germany of the process and machinery for the production of hydrogen and nitrogen from coke oven gas for the syntheses of ammonia
566
SALE OF FOREIGN BONDS OIL SECURITIES
which are covered by German patent No. 301,984 expiring November 21, 1936
The license agreement among other things provides:
1. For instruction of the company in improvements, changes and rearrangement
of the process.
2. That if improvements which come under the license are patented, the
company has the right to receive a license under such patents after the expiration
of the patent No. 301,984.
3. That the company receive the license under conditions at least as favorable
as any other licensee.
The company has also acquired rights in Germany to the Casale process for
the production of synthetic ammonia from hydrogen and nitrogen. The license
covering this process was granted by Ammonia Casale S. A. of Lugano, Switzerland to a group of German companies and the license has been assigned to Ruhr
Chemical Corporation. The term of license is for the life of German patent No.
374,773 (one of the two main Casale patents) which expires on October 12, 1939.
The other important Casale patent No. 374775 expires April 30, 1939. It is
further provided the company has the right to obtain a license for changes and
improvements patented by Casale, but in the absence of agreement, on payments
determined by arbitration.
It is also provided that if Casale grants more favorable licenses to others in
the future, the company's license is to be changed accordingly.
FUTURE ISSUES
The indenture provides that whenever the company shall acquire, by construction, purchase, merger or consolidation or otherwise and shall subject to the lien
of the indenture, any permanent additions, additional bonds may be issued at
any time, up to two-thirds of the cost or fair value, whichever shall be less, of
such additional fixed assets to be subjected to the lien of the indenture, but only
if net earnings, after depreciation, * * * and all other charges except interest
and profits taxes, for 12 consecutive months out of the 15 months immediately
preceding the application for issuance shall have been equal to at least three times
annual interest requirements on all bonds t o be outstanding under the indenture
after such proposed additional issue; additional bonds may also be issued
subject to the foregoing earnings restrictions, against the deposit of an amount
in cash equal to the principal amount of bonds so to be issued such cash to be
withdrawn at any time thereafter up to two-thirds of the cost or fair value of
such additional fixed assets; upon the retirement of bonds theretofore issued
under the indenture (otherwise than through the series A sinking fund so long
as series A bonds shall be outstanding) a like principal amount of bonds may
be issued in substitution therefor.
Sinking fund.—The Supplemental Indenture dated April 1, 1928, contains the
following provisions:
ARTICLE
III
SINKING FUND
Section 1. The company covenants and agrees that it will pay to the fiscal
agent, so long as any series A bonds shall be outstanding, as and for a sinking
fund for series A bonds, on October 1, 1929, and on each October 1, hereafter, to
and including October 1, 1947, the sum of $106,000, and on April 1, 1930, and on
each April 1 thereafter to and including April 1, 1947, the sum of $105,000.
Section 2. The moneys so paid into the sinking fund for series A bonds shall
be applied by the fiscal agent to the redemption of series A bonds by lot on the
respective interest payment dates upon which said payments are due, pursuant
to section 1 of this Article III, at the principal amount thereof plus accrued interest to such redemption date, in the manner provided below. All such moneys
shall be held by the fiscal agent for the payment of the series A bonds thus designated for redemption.
The fiscal agent shall, prior to March 1 and prior to September 1 of each year,
select by lot, in any usual manner approved by it, in its discretion, series A bonds
for redemption, equal in principal amount to the amount of the next ensuing payment due on account of said sinking fund, as above provided, and shall call said
series A bonds for redemption on said next ensuing interest payment date by
causing notice of such redemption to be mailed to the American trustee and to
be published in the name of the company once a week for at least four successive
weeks preceding such redemption date in two daily newspapers, selected by the
SALLE OF FOREIGN BONDS OR SECURITIES
567
fiscal agent, printed in English, published and of general circulation in the
borough of Manhattan, city of New York, the first publication to be not less than
30 and not more than 35 days prior to such redemption date, which notice shall
state the numbers of the series A bonds designated for redemption. The fiscal
agent shall cause a similar notice to be mailed, postage prepaid, at least 30 days
prior to such redemption date, to each registered owner of series A bonds designated for redemption whose address shall appear on the transfer register, which
shall be open to inspection by the fiscal agent at any reasonable time. Failure
to give such mailed notice or any irregularity therein, however, shall not affect
the validity of any redemption proceedings.
The fiscal agent may, in its discretion, also give notice of any redemption by
one or more publications in such other newspapers in the United States of
America, Canada, or Europe as it may deem proper. Failure to give any such
additional published notice or any irregularity therein, however, shall not affect
the validity of any redemption proceedings.
Section 3. Notice of such redemption having been duly given, as hereinbefore
provided, and the sinking fund payment necessary to pay the redemption price
having been deposited with the fiscal agent on or before the redemption date,
the series A bonds so designated for redemption shall on the date and at the place
designated in such notice become due and payable at the redemption price hereinbefore in this Article III set forth, and from and after the date of redemption
so designated, unless default shall be made in the payment of the redemption
price of said bonds, interest on said bonds so designated for redemption shall
cease, and on presentation and surrender of said bonds specified in the notice of
redemption, in accordance with said notice, with all appurtenant coupons maturing after said redemption date, said bonds shall be paid at redemption price. All
unpaid interest instalments represented by coupons which shall have matured
on or prior to said redemption date shall continue to be payable to the bearers
severally and respectively, and the redemption price payable to the holders of
the series A bonds presented for redemption shall not include such unpaid instalments of interest represented by coupons unless coupons representing such
instalments shall accompany the series A bonds presented for redemption.
Section 4. All series A bonds, together with the unmatured coupons thereunto
appertaining, redeemed for the sinking fund for series A bonds, shall be canceled
by the fiscal agent and after such cancellation shall be delivered to the American
trustee, which shall make notation thereof on its records, and no such bonds shall
be reissued nor shall any bonds of any series be issued in exchange therefor or, in
lieu thereof so long as any series A bonds shall be outstanding. Such canceled
bonds and coupons shall be held, or disposed of, by the American Trustee as the
company may in writing direct. The American trustee shall be entitled to accept a certificate from the fiscal agent that such bonds and coupons have been
duly canceled as conclusive evidence of the fact of such cancellation and shall
be fully protected in relying thereon.
Redemption of bonds.—It is provided in Article V of the indenture as follows:
ARTICLE
V
REDEMPTION OF BONDS
Section 1. The provisions of this section 1 shall govern the redemption of all
bonds of all series (otherwise than for any sinking fund for any series), provided
that, as to any series, different provisions for the redemption of bonds thereof
are not made in such bonds or in any supplemental indenture executed in connection therewith. The company shall give written notice of its intention to
redeem any bonds of any series which by their terms are redeemable (otherwise
than by operation of any sinking fund for such series) at the option of the company, and of the series and principal amount thereof to be redeemed, to the
paying agent for such series of bonds, at least 50 days prior to the date upon which
such redemption is to take place, and shall request such paying agent to give due
notice thereof as herein provided. Thereupon notice of such redemption of
bonds shall be mailed to the American trustee and shall be published by such
paying agent once a week for four successive weeks in two daily newspapers
selected by such paying agent, printed in English, published and of general circulation in the borough of Manhattan, city and State of New York, the first
publication to be not less than 30, nor more than 35 days prior to the redemption
date designated. If part only of any series of bonds is to be redeemed, such
notice shall state the numbers of the bonds of such series designated for redemption, determined as hereinafter provided. Such paying agent shall cause
02928—32—PT2
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568
SALE OF FOREIGN- BONDS OH:' SECURITIES
similar notice t o be mailed postage prepaid, at least 30 days prior t o such redemption date, to each registered owner of bonds designated for redemption whose
address shall appear on the transfer register, which shall be open to inspection
by all paying agents at any reasonable time. Failure t o give such mailed notice,
or any irregularity therein, however, shall not affect the validity of any redemption proceedings.
Such paying agent, may, in its discretion, also give notice of any such redemption by one or more publications in such other newspapers in the United States
of America, Canada, or Europe as it may deem proper. Failure to give any such
additional published notice or any irregularity therein, however, shall not affect
the validity of any redemption proceedings.
In case the company shall advise the paying agent for any series of bonds then
outstanding which is redeemable in part (otherwise than through operation of
any sinking fund for such series) that it has elected to call for redemption a part
only of such series, such paying agent shall thereupon select b y lot, in any usual
manner approved by it, in its absolute discretion, the particular bonds of such
series to be so redeemed. The company and the trustees shall be entitled but
shall not be required to have representatives present at any drawings of bonds
for redemption.
. The cost of all notices published and/or mailed by any paying agent under any
of the provisions of this indenture shall be paid or reimbursed t o such paying agent
by the company on demand.
Notice of any redemption having been duly given and the funds sufficient to
redeem the bonds so designated for redemption having been duly deposited with
the paying agent for such bonds, the bonds so designated for redemption shall, on
the date and at the place designated in such notice, become due and payable at
the applicable redemption price set forth in said bonds, and from and after the date
of recemption so designated, unless default' shall be made in the payment of the
redemption price of said bonds, interest on the bonds so designated for redemption
shall cease (except as may be otherwise provided in any supplemental indenture)
and on presentation and surrender of the bonds specified in the notice of redemption, in accordance with said notice, with all appurtenant coupons maturing after
said redemption date, said bonds shall be paid at said redemption price. If
not so paid on presentation thereof, interest shall continue to be payable on the
bonds, at the respective rates of interest borne by such bonds, until such bonds
shall be paid. All unpaid interest installments represented by coupons which shall
have matured on or prior to said redemption date shall continue to be payable to
the bearers severally and respectively, and the redemption price payable to the
holders of the bonds presented for redemption shall not include such unpaid
installments of interest represented by coupons, unless coupons representing such
installments shall accompany the bonds presented for redemption.
All bonds redeemed pursuant to the provisions of this Article V, together with
the appurtenant coupons, shall be canceled forthwith by the paying agent at
whose office such bonds were surrendered for payment or collection and shall be
delivered to the American trustee, which shall make notation thereof on its
records. Such cancelled bonds and coupons shall be held or disposed of by the
American trustee as the company may in writing direct.
Section 2. Upon payment to the American trustee of an amount sufficient to
redeem at the applicable redemption price set forth in the bonds, respectively,
and/or to pay, all outstanding bonds upon the next succeeding date or dates upon
which the bonds are redeemable and/or payable, and upon furnishing the American
trustee with proof that notice of redemption of all bonds to be redeemed has been
duly given in accordance with the applicable provisions 'of this indenture,the
bonds and any supplemental indenture (or provision for such notice made in a
manner satisfactory to the American trustee), and on payment to the trustees and
and paying agents of all costs, charges and expenses in relation hereto, the trustees,
at the written request and cost of the company, shall by proper instruments,
release unto the company all of the assets and property mortgaged and pledged,
and shall cancel and satisfy this indenture.
Out of the moneys deposited with the American trustee for the redemption or
payment of outstanding bonds of a particular series, such trustee shall pay either
to, or upon the order of, the paying agent for the service of the bonds of such series,
from time to time, upon delivery to such trustee of the bonds of such series, an
amount equivalent to the redemption price or amount payable at maturity, as
the case may be, of the bonds of such series so delivered/or, upon the written
request of such paying agent, such trustee shall thereafter act as paying agent in
respect of redemption or payment of the bonds of such series, or such trustee ana
SALE: OF FOREIGNBONDS,*OR;SECURITIES
569
such paying agent may make such other arrangements in respect of the redemption
or payment of the bonds of such series as may be mutually satisfactory to such
trustee and paying agent.
In case the American trustee shall, upon writtenrequest of the paying agent for
the service of the bonds of a particular series, act as paying agent in respect of the
redemption or payment of the bonds of such series, such trustee shall make such
payments out of the moneys deposited with it for the redemption or payment of
the bonds of such series as if said trustee had been appointed paying agent hereunder, and all of the provisions of this Article V in respect of the protection and
duties of such paying agent shall apply to such trustee.
Section 3. The company may purchase any,of .the bonds with moneys other
than those depositied with any paying agent for the redemption of bonds or for
the account or any sinking fund for any series of bonds and, from time to time,
may surrender any bonds so purchased to the American Trustee, which shall
thereupon cancel said bonds together with any coupons appertaining thereto
and shall make notation thereof on its records and shall hold, or dispose of, such
canceled bonds and coupons as the company may in writing direct.
Except as otherwise provided in any supplemental indenture, no such purchase
or cancellation of bonds shall reduce in any way any amount required to be paid
to, or deposited with, any paying agent by the company for account of any sinkr
ing fund or purchase fund. .
Section 4. The trustees shall be entitled to accept a certificate of any paying
agent or of any other depositary duly designated in any bonds or any indenture
supplemental hereto as to the deposit with it of any funds under this Article V
and shall be fully protected in acting on such certificate."
Default.—It is provided in Article VIII of the indenture as follows:
ARTICLE
VIII
REMEDIES OF TRUSTEES AND BONDHOLDERS
Section 1. In case one or more of the following events, herein termed "events
of default," shall happen, that is to say:.
(a) Default shall be made in the due and timely payment of interest on any of
the bonds, when the same shall become payable, as therein and herein or in any
indenture supplemental hereto expressed; or
(b) Default shall be made in the due and timely payment of principal of any
of the bonds, or the premium thereon, if any, when the same shall become due and
payable, either at maturity, by call for redemption or otherwise; or
(c) Default shall be made in the due and timely payment of any installment of
any sinking fund provided for any series of bonds; or
(d) Default shall be made in the observance of any of the other covenants on
the part of the company in any of the bonds or in this indenture or in any indenture supplemental hereto expressed, and the company shall not remedy such default within 30 days after written notice of such default, requiring the company
to comply with the covenant or agreement in respect of which it is so in default,
shall have been served upon the company by the trustees or either of them, who
shall serve such written notice at the request of the holders of one-fourth in principal amount of the bonds then outstanding; or ;
(e) Default shall be made in the due and timely payment of interest or principal of any funded debt of the company or in the due and timely payment of any
installment of the sinking fund provided for any funded debt of the company; or
CO The company shall become insolvent or shall fail to meet its debts as they
mature or any bankruptcy proceeding (Konkursverfahren) or any proceeding
pursuant to the law of July 5,1927, concerning compositions to avoid bankruptcy
(Gesetz ueber den Vergleich zur Abwendung des Konkurses vom 5. Juli 1927)
shall be instituted by or against the company; or
(ff) The company shall make a general assignment for the benefit of creditors; or
(h) The affairs of the company shall, without the consent of the American
trustee (which consent the American trustee may give or withhold in its absolute
discretion without liability to any one), be placed directly or indirectly in the
control of any committee of creditors, s
Ji
Then the American trustee may, and upon request in writing by the holders of
a majority *in principal amount of the bonds then outstanding shall, declare the
principal of all the bonds, if not already due, to be forthwith due and payable,
and upon such declaration the same shall become due and payable immediately.
This provision, however, is subject to the condition that; if, at any time after the
principal of the bonds shall have been so declared due and payable and before
570
SALE OF FOREIGN BONDS OIL SECURITIES
the recovery by the trustees, or either of them, of final judgment or decree under
this indenture, the principal of all bonds then due and payable otherwise than
solely by reason of such declaration and all arrears of interest upon all of the bonds,
with interest on overdue instalments of principal and interest at the same rates,
respectively borne by the bonds on which such principal and interest are overdue,
together with the reasonable compensation and all charges and expenses of the
trustees, the paying agents, and their respective agents and attorneys shall have
been paid by the company, and all other defaults under the bonds or any of them,
or under this indenture or any indenture supplemental hereto shall have been
made good to the satisfaction of the trustees, then and in such case the holders
of a majority in amount of the bonds then outstanding, by written notice to the
company and to the trustees, may waive such default and its consequences;
but no such waiver shall extend to or affect any subsequent default or impair
any right consequent thereon.
SEC. 2. In case of the happening of an event of default specified in section 1
of this Article VIII, or in any supplemental indenture, then and in each and every
such case, such default subsisting the trustees may proceed to protect and enforce
their rights and the rights of the bondholders under this indenture by any appropriate form of legal proceeding, whether for the specific performance of any
covenant or agreement contained herein, in aid of the execution of any power
herein granted, for any forcelosure or enforcement of any mortgage or land charge
constituting a part of the lien hereof and/or for the enforcement of any proper
remedy, as the trustees, being advised by counsel, shall deem most effectual to
protect and enforce the rights aforesaid. Upon the happening of any such event
of default the German trustee as representative (Vertreter) of the bondholders
pursuant to section 1189 of the German Civil Code and/or as owner of any land
charge will, upon the written request of the American trustee, exercise its rights
as such representative and/or owner for the protection of the bondholders and
enforcement of any mortgage or land charge constituting part of the lien of this
indenture.
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Section 7. In case (1) default shall be made in the due and timely payment of
interest on any of the bonds at any time outstanding; or
. (2) Default shall be made in the due and timely payment of principal and the
premium thereon, if any, of any of the; bonds, when the same shall become payable, whether upon maturity of any of the bonds, or upon call for redemption or
upon declaration as authorized by this indenture or by any supplemental indenture or upon a sale as provided in section 5 of this Article VIII.
Then and in each such case, upon demand of the American trustee, the company will pay to the American trustee, or, if so demanded b y the American trustee,
to the German trustee, for the benefit of the holders of the bonds and coupons
then outstanding, the whole amount that then shall have become due and payable
oil such bonds and coupons then outstanding, for interest and/or principal
and/or premium, with interest at the same rates, respectively, borne by the bonds
on which principal and/or interest and/or premium, are overdue; and, in addition
thereto, such further amount as shall be sufficient t o cover the costs and expenses
of collection, including the payment of all expenses and liabilities incurred hereunder by, and a reasonable compensation to, the trustees and any and all paying
agents and their respective agents and counsel and, in case the company shall fail
to pay the same forthwith upon such demand, the trustees, or either of them, in
their own names, and as trustees of an express trust, shall be entitled to recover
judgment for the whole amount thereof against the company, and against the
whole or any part of the property of the company, real, personal, or mixed, and
the company covenants and agrees that such judgment may be entered of record
in any court of the State of New York or of the United States of America without personal appearance of the company and solely upon affidavit of the American
trustee, alleging such default.
The trustees or either of them shall be entitled to recover judgment as aforesaid,
either before or after or during the pendency of any proceedings for the enforcement of the lien of this indenture upon the trust estate, and the right of the trustees
t o recover such judgment shall not be affected b y any sale hereunder, or by the
exercise of any other right, power, or remedy for the enforcement of the provisions
of this indenture or the foreclosure of the lien hereof; and in the case of any sale
of all or any part of the trust estate, and of the application of the proceeds of sale
t o the payment of the debt, the trustees, or either of them, in their own names,
and as trustees of an express trust, shall be entitled t o enforce payment of, and to
SALE: OF FOREIGN BONDS, * OR; SECURITIES
571
receive all amounts then remaining due and unpaid upon, any and all of the bonds
then outstanding, for the benefit of the holders thereof, and shall be entitled to
recover, judgment for any portion of the debt remaining unpaid, with interest at
the rate or ; rates aforesaid. No recovery of any such judgment by the trustees,
and no levy of any execution upon such judgment upon property subject to the
lien of this indenture, or upon any other property, shall in any manner or to any
extent affect the lien of the trustees or bondholders, upon the mortgaged assets
or any part thereof, or any rights, powers, or remedies of the trustees hereunder,
or any rights, powers, or remedies of the holders of the bonds, but such lien, rights,
r
powers, and remedies shall continue unimpaired as before.
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Covenants.—It is provided in Article V I of the indenture as follows:
ARTICLE
VI
PARTICULAR COVENANTS OP THE .COMPANY
In addition to the other covenants and agreements on its part herein and in
the bonds, the company covenants and agrees as hereinafter in this article set
forth:
*
Section 1. The company will duly and punctually, pay the principal of, and
the premium, if any, and interest on, every bond and every, installment due
for any sinking fund or purchase fund provided for any series of bonds, , at the
respective dates and places and in the manner provided herein, and in the bonds
and coupons thereunto appertaining, and in any supplemental indenture executed pursuant to Article IV hereof with respect to any series of bonds, according
to the true intent and meaning thereof and hereof. * * • \
Section 2. Subject to the provisions of. section 9 of Article III hereof, the
company will, forthwith upon the acquisition by it of any owner's land charge
(Eigentuemergrundschuld) upon anv real estate which is or shall hereafter
become subject to the lien of this indenture ** * * cause such owner's land
charge to be cancelcd of record in so far as recorded. In case'any mortgage or
land charge shall rank prior to or equally with the lien of this indenture, the
company will cause a notice (Vormerkung) 6f its obligation to effect such cancellation to be recorded, in accordance with German law, with respect to each
such mortgage or land charge upon each piece of real estate constituting a part
of the trust estate and upon each piece of real estate which may hereafter become
subject to the lien hereof.
,
"
Section 3. The company will'not voluntarily, create, or suffer to,'be created,
any debt, lien, or charge which would or could be prior to the lien of this indenture upon the mortgaged assets or any part thereof, o r upon the income thereon,
except any mortgage or other lien which may exist at the time of acquisition
thereof upon any property acquired by the. company after the date of this
indenture or be created thereon to secure the payment of any unpaid portion
of the purchase price of such property; and the company will duly and punctually pay and discharge all taxes, assessments, and goviernmental charges (including those under the Dawes plan, as defined in section 9 of Article I hereof, and
otherwise) lawfully imposed upon it, and particularly all such taxes, assessments,
and governmental charges the lien'whereof, if unpaid, could be or become prior
to the lien hereof, and also all taxes, assessments, and governmental charges
lawfully imposed upon the trustees, or either of them, or upon the lien or interest
of the trustees, or either of them, in respect of the mortgaged property; so that
the lien and priority of this indenture shall be fully preserved and the mortgaged
assets,of the company shall be kept free from the lien of any such taxes, assessments, or charges at'the cost of the company, without expense to the trustees
or the bondholders, provided, however, that the company shall have the right,
by appropriate legal proceedings, to contest any such tax, assessment, o r charge
and pending such contest may delay or defer the payment thereof, unless either
of the trustees shall deem its interests in the mortgaged property endangered
by such nonpayment and shall serve a written notice on the company-to that
effect. If the company shall fail to pay any tax, assessment, or chargie upon
any part of the mortgaged premises when the same shall become due and payable, the trustees or either of them may, and upon the request of holders of 10
per cent in'principal amount of the bonds of any series then outstanding and
upon being provided with adequate funds for that purpose shall, pay such taxes,
assessments, or charges, provided that such payment shall be made under protest
572
SALE OF FOREIGN BONDS OIL SECURITIES
if so requested in writing by the company; all amounts so paid, with interest
thereon at the rate of 6 per cent per annum, may be forthwith sued for and
recovered from the company by the trustees, or either of them, in an appropriate
action for that purpose and, until thus paid by the company, shall be a charge
upon the mortgaged property prior to the lien of the bonds secured hereby.
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Section 7. The company is duly authorized and empowered under all applicable provisions of law in the United States of America and Germany and otherwise
in all respects, to create and issue the bonds and to execute this indenture and to
mortgage and pledge its property as herein provided, and all action on its part
for the creation and issue of the bonds and the execution of this indenture and
the mortgaging and pledging of its property, as hereinbefore provided, to secure
the same, has been duly and effectively taken; all bonds, when executed and
authenticated as herein provided, in the hands of holders thereof, will be valid
and enforceable
in* accordance
terms.
*
*obligations
* of the company
*
* with their
*
Section 9. The company will cause all indebtedness secured by any prior liens
(as defined in section 12 of Article I hereof) upon any part of the trust estate to
be paid when the same shall become due and payable and will cause all obligations
in connection with such indebtedness to be duly performed.
Whenever the company shall acquire any prior lien or pay the indebtedness
secured by any prior lien, the company will forthwith cause such prior lien to be
removed of record in the manner provided in section 9 of Article III hereof, and
will notify each of the Trustees in writing that, and of the manner in which, such
removal has been effected.
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Section 12. The company will at all times insure and keep insured, in reputable
insurance companies approved by the German trustee, or in some other manner
satisfactory to the German trustee, all its property of a character usually insured
by companies operating plants, located in Germany, similar to the plants of the
company, against loss or damage, in such manner and to such extent as similar
property is usually insured, but at all times to an amount in the aggregate at least
equal to the principal amount of the outstanding bonds. * * *
Section 13. The company will not, so long as any of the bonds are outstanding
sell or otherwise dispose of any real estate or plants or other property now or
hereafter subject to the lien of this indenture, except as herein expressly permitted. Nor will the company, by merger, consolidation or any other form of
amalgamation, combined its business and properties with those of any other firm
or corporation, except as herein expressly permitted.
Section 14. The company will at all times keep proper books of record and
account in which full, true and correct entries will be made of all dealings or
transactions in relation to the plants, properties, business, and affairs of the
company * *
Section 15. So long as any bonds are outstanding, the company will cause its
books and those of its subsidiaries, if any, to be audited annually, at the expense
of the company, by a public accountant or a firm of public accountants, appointed
or approved by the American Trustee, and will cause copies of such audit reports,
in reasonable detail, certified by such accountant or firm of acountants (including
the balance sheet, earnings statement for the preceding fiscal year and surplus
account of the company and its subsidiaries, if any) to be furnished to each
trustee and to each paying agent within six months after the close of each fiscal
year of the company. # * #
The company will, within 30 days after the annual meeting of its stockholders,
furnish to each of the trustees and each paying agent the balance sheet, surplus
account and earnings statement of the company, in the form approved at such
annual meeting of stockholders. Each of said balance sheets, surplus accounts
and earnings statements shall be certified to by two members of the executive
board of the company. * * *
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Section 17. So long as any of the bonds shall be outstanding, the company will
not declare or pay any dividend on, or make any distribution to any of the holders
of, its common stock except out of net earnings of the company arising from the
operation of its business, nor will it declare of pay any such dividend or make any
such distribution until the company shall have delivered to each of the trustees
SALE OF FOREIGN BONDS OR SECURITIES
573
a certificate of the company, signed by two members of its executive board,
certifying that one year has elapsed since the company started full operation, and
that the company has set up the full legal reserve, amounting to 10 per cent of
its total capital stock, required by German law. For the purpose of this section
17, the company shall be deemed to have started full operation on the first day of
the first six months' period within which the company shall have produced
nitrogen products, having a nitrogen content of at least 7,500,000 kilograms of
pure and salable nitrogen, as certified in writing to the trustees by an engineer
satisfactory to the American trustee."
In addition to the above covenants and agreements in the Indenture it is provided in Article V of the Supplemental Indenture as follows:
Section 1. Whenever from time to time the company shall acquire any licenses,
patent rights, processes or other rights in respect of, or in addition to, or amenda-'
tory of or supplementary to, the pledged licenses (as defined in section 5 of Article
I hereof), the company will forthwith cause to be subjected to the lien of this
Supplemental Indenture, for the sole benefit and security of the Series A Bonds
and of the bonds of such other series, if any, as shall then be secured by the
pledged licenses as permitted by section 1 of Article VII hereof, all such fuither
or additional licenses, patent rights, processes or other rights, and the company
will cause to be executed and delivered to the German trustee such agreements,
assurances, assignments and other documents as may be necessary effectively to
subject the same to the lien hereof. The company will endeavor to retain the
right to operate its plant under the Pledged Licenses", to the extent legally possible,
so long as any of the Series A bonds shall be outstanding.
Section 2. Without the prior written consent of the German trustee, the company will not grant any sublicense under, or make any assignment of, any of the
pledged licenses or make or agree to any changes or modifications in the pledged
licenses or voluntarily terminate or do anything w;hich may cause the termination
or forfeiture of any of the pledged licenses. * * *
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Section 7. The stockholders of the company have jointly and severally guaranteed payment of interest accruing upon the Series A bonds to a date one year
after the beginning of the first six months' period within which the company
shall have produced nitrogen products having a nitrogen content of at least
7,500,000 kilograms of pure and salable nitrogen. The company covenants
that it will cause the engineer referred to in section 3 of Article VII of the Indenture to certify to each trustee, within ten months after the beginning of said six
months' period, that the company has produced at least said amount of pure and
salable nitrogen within said six months' period. The company will also publish notice, not later than eleven months after the beignning of said six months'
period, that the company has produced at least said amount of pure and salable
nitrogen within said six months' period, and that accordingly said guaranty of
the stockholders does not extend to any interest accruing after one year from the
beginning of said six months' period. Said notice shall be published at least once
in a daily newspaper, printed in English, published and of general circulation in
the Borough of Manhattan, City of New York. Neither trustee shall be under
any obligation to require the furnishing of said engineers' certificate or the
publication of said notice or otherwise with respect to said guaranty of the
stockholders.
SEC. 8. So long as any of the series A bonds shall be outstanding the company
will not, without the prior written consent of the German trustee, * make any
changes or modifications in, or terminate or make any breach of, the contract
dated March 20, 1928, between the company and Gutehoffnungshuette Oberhausen Aktiengesellschaft or the contract, dated March 20, 1928, between the
company and Aktiengesellschaft fuer Kohleverwertung.
PROVISIONS APPLICABLE IN THE EVENT OP INTERNATIONAL DISTURBANCES
It is provided in Article X I V of the indenture as follows:
SECTION 1. The company covenants that notwithstanding the existence at any
time of a state of war between Germany and the United States of America or
any other international or-national disturbance in German affairs, it will, unless
expressly prohibited by law, continue to made all deposits and payments required
by this indenture and any supplemental indenture and the bonds, and in all other
574
SALE OF FOREIGN BONDS OIL SECURITIES
respects will continue to comply with and perform the several provisions of this
indenture and of all supplemental indentures and of the bonds.
SEC. 2. If, by reason of the existence of a state of war or because of any law or
regulation the making of all or any of such deposits and payments, as herein and
in any supplemental indenture and in the bonds provided, should be impossible,
and if at such time the Kingdom of The Netherlands shall not be at war with
Germany, the company, so long as such impossibility shall continue, will in such
event make, unless expressly prohibited by law, each and every one of said deposits and payments to Nederlandsche Handel-Maatschappij, a banking corporation
of Amsterdam, Holland, and will comply with and perform each and every of
said provisions of this indenture and of all supplemental indentures in the same
manner as though said Nederlandsche Handel-Maatschappij had been named in
each of said provisions instead of any paying agent therein named. In such event
also, so long as such impossibility shall continue, said Nederlandsche HandelMaatschappij shall be substituted for, and shall act in the place and stead of, all
paying agents with the identical powers, authority, and duties in all respects as
though its name appeared in this indenture and in all supplemental indentures
and in the bonds instead of the names of such paying agents wherever the same
occur.
In case the Kingdom of the Netherlands shall be at war with Germany, but
the Republic of Switzerland shall not be a party to such war, each and every of
said deposits and payments shall be made to Messrs. Pictet & Cle., a banking
firm of Geneva, Switzerland, which shall in such event be substituted for said
Nederlandsche Handel-Maatschappij, above.
MUTILATED, DESTROYED, AND LOST DEBENTURES
The indenture provides that in case any bond with the coupons thereto apperi
taining shall become mutilated or be destroyed or lost, the company may in its
discretion issue, and the American trustee may thereafter in its discretion authenticate, a new bond of like tenor and date (including coupons) in exchange and
substitution for such mutiliated bond with coupons, upon cancellation thereof or
in lieu of and substitution for such destroyed or lost bond and coupons, upon the
holder filing with such trustee evidence satisfactory to it of such mutilation, destruction, or loss Of Buch bond and coupons, and of his ownership thereof, and furnishing the company, the trustees, and the paying agent for bonds of such series
with indemnification satisfactory to them. Any such new bond and coupons
shall'constitute original additional contractual obligations on the part of the
company, whether or not the destroyed or lost bond and coupons be at any time
enforceable by anyone and shall be entitled to the benefit and lien of this indenture.
HISTORY OP CAPITALIZATION
The > company (formerly known as Kohlcchemie Aktiengesellschaft) was
organized in November, 1927, with a capital of Reichmarks 500,000, subscribed for
in: full and 25 per cent paid and divided into 500 shares of Reichmarks 1,000 each.
On April 24, 1928, the capital was increased to Reichmarks 27,000,000 par
value, divided into 27,000 shares of the par value of Reichmarks 1,000 each.
This Reichmarks 27,000,000 par value of stock has been fully subscribed for at
par, 33% per cent of the par value thereof has been paid in and the balance is
due. The authorized capital stock of the company now consists of 27,000 shares
of the par value of Reichmarks 1,000 per share, all of which are issued and outstanding. Each share has one vote. The shares are entitled to no special
rights to dividends or upon liquidation.
-The funded indebtedness of the company as of June 30, 1930, was as follows:
6 per cent sinking fund mortgage bonds, series A, 53,789,000; 8 per cent note,
S3,000,000; accounts payable 1931-32, Reichmarks 1,200,000.
PROPERTIES AND OPERATIONS
Ruhr Chemical Corporation (formerly known as Kohlechemie Aktiengesellschaft) was organized by important coal and steel companies located in the
Rhur district. The company's plant at Oberhausen-Holton, (near Essen, Ruhr)
Germany, is equipped to produce ammonia, nitric acid, and fertilizer, utilizing
coke-oven gas as a raw material. Manufacturing is carried on. under certain
patented processes,, known as the Concordia-Linde and Casale processes. The
SALLE OF FOREIGN BONDS OR SECURITIES
575
company was formed after several years of research in the development of
methods for the more profitable utilization of the enormous quantities of cokeoven gas produced in the Rhur district. Contracts, extending beyond . the
maturity date of the series A bonds, assure the company a supply of coke-oven
gas in amounts adequate for its requirements.
The company's plant consists of two units subject to the lien of the 6 per
cent sinking fund mortgage bonds. The first was completed in May, 1929, at
a cost of approximately $5,000,000. The second unit was completed in October,
1930, at a cost of approximately $3,000,000.
Prior to the completion of the second unit, the company's production for the
fiscal year ending June 30, 1930, was 13,778 metric tons of pure nitrogen content. The whole plant has a capacity of approximately 55,000 metric tons of
pure nitrogen content.
^
#
The company has acquired rights in Germany to the Concordia-Linde process
for the production of hydrogen and nitrogen from coke-oven gas and to the
Casale process for the production of synthetic ammonia from hydrogen and
nitrogen. The practicability of these two processes has been established through
their use for a number of years. Combined operation of these two processes
increases the economic value of each. The plant is the first in Germany to
combine the two processes in its operations. The productive capacity of all
nitrogen plants working under the feasale process, is equivalent to about oneeighth of the capacity of all nitrogen plants in the world.
The company is a member of the German ammonia syndicate, which is obligated to purchase synthetic nitrogen produced by its members at a uniform
price for all members and in proportion to their participations in the syndicate.
This syndicate and the German nitrogen syndicate of wThich it is a member
distribute practically all of the synthetic nitrogen products manufactured in
Germany.
VALUATION
The valuation (based in part on the estimated cost of certain plant extensions
since completed) placed on the properties of the company by report of Mr.
H. A. Brassert, an American consulting engineer, dated May 16, 1929,: is in
excess of $8,000,000.
L
DEPRECIATION
The policy of the company is to allow for depreciation and depletion as follows:
There have been "written off" during the fiscal years of 1928-29 and 1929-30
(on an average) on: Buildings, 6.1 per cent; machinery and working equipment,
13.5 per cent; movables, 25 per cent; total on an average, 11.8 per cent.
Article VI, section 4 of the indenture provides, that the "company, having
possession as herein provided, will diligently preserve the rights and franchises
now or hereafter granted or conferred upon it and will, in so far as the same is
consistent with proper industrial practices, in using and operating its buildings and
plant as the same are now constructed, or as the same may hereafter be constructed
or extended, at all times maintain and preserve the same and every part thereof,
together with the fixtures and appurtenances, in thorough repair, working order
and condition and supplied with fuel, motive power and equipment. The company agrees at any time or times on request of either trustee, to furnish to such
trustee a schedule showing in reasonable detail the property covered by the lien
hereof, but neither trustee shall be under any duty to require the same to be
furnished unless requested to do so by bondholders holding not lessithan 10 per
cent in principal amount of the bonds of any series then issued and outstanding."
Employees.—At the present time the company employs approximately 600
persons.
Dividends.—No dividends of any kind have been paid on the company's capital
stock.
FINANCIAL STATEMENTS
The following financial statements of the company have been certified by Geo,
E. Dix, attorney in fact of the company.
, , • T.
These are given below: (1) Statement of income and profit and loss for the period
from October 28, 1927, to June 30, 1930. (2) Balance sheet as,of June 30, 1928,
June30,1929, and June 30, 1930.,
i^ ;
FIAT.TK
576
OF FOREIGN B O N D S
OB
SECURITIES
Statement of deficit, Ruhrchemie Aktiengesellschaft, al June SO, 1928 and June 30,
1929
(Expressed in American doll ais by conversion of German Relcbsmarks at par of exchange 23.8 cents]
Charges
and credits Balance at
Balance at
during
June 30, year ended June 30,
1929
1023
June 30,
1929
Financing expenses written off:
In respect of taxes onm crease of capttaL^
bo ds
ri
A
Bankers, legal and^other incidental expenses
'
Difference in exchange arising through adoption of a fixed
rate of $1—RM4.20
Stamp duty
Proportion of discount amortized
In respect of prospective financing
Depreciation written off
Operating, general and administration expenses
Interest payable in respect of 20-year 6 per cent mortgage bonds,
series A
Together.
Deduct, miscellaneous income:
Interest receivable
Proceeds from sales of products..
Rents, etc
Balance, being deficit
Adjustment arising from conversion in balance sheet of funded debt
at 4.20, the specified rate for redemption, instead of at par of exchange
Deficit, as per balance sheet.
$38,850.16
$3,170.16
$85,680.00
81,083.70
8,687.60
89,771.30
21,174.69
39,994.00
25,489.80
658.61
21,174.69
39,984.00
5a 979.60'
4,7®. 09
142,060.53
154,913.42
25,489.80
4,708.09
142,060.53
154,254.81
59,976.00
239,904.00
299,880.00
317,216.96
571,934.67
889,151.63
63,502.79
175,005.83
30,639.32
2,279.68
238,508.62
3a 639.32
2,279.68
63,502.79
207,924.83
271,427.62
253,714.17
361,009.84
617,724.01
361,009.84
619,324.01
1,600.00
255,314.17
1,600.00
NOTE.—The plantfirstcommenced production during the months of May and Juae, 1929. It is impracticable to allocate any proportion of the operating, general and administration expenses as a charge agamst
the output during this initial period.
No charge has been made tofixedassets to June 30, 1929, in respect of interest during the construction
period.
Statement of earnings and deficit for the year ended June 80, 1930
[Expressed in American dollars by conversion of German reichsmarks at par of exchange 23.8J
Net sales, less turnover tax
Deduct: Cost of sales—
General production costs and inventory variation
Provision for depreciation
Gross profit of sales.
Deduct:
.
Administrative and general expenses
Charge under Dawes plan (estimated).
Net profit on sales
Add: Interest and rents receivable. .
$632, 948. 01
458, 458. 26
!
i, 091, 406. 27
478, 902. 64
109, 315. 44
11, 909. 33
!
-
Net profit and income.
Deduct:
Financial and other charges—
On 6 per cent sinking fund
mortgage bonds—
Interest
$233,561.54
Amortization of discount..
25, 489. 80
Bankers, legal and miscellaneous costs
4, 831. 43
- $1, 570, 308.91
^
121,224.77
357, 677. 87
28,08£ as
385, 760.15
263,882.77
SALLE OF F O R E I G N B O N D S OR
SECURITIES
Deduct—Continued.
Financial and other charges—Continued.
On 8 per cent note—
Interest
$102,686.33
Amortization of issue
expenses
7, 129. 16
On bank loans and overdrafts.
Together
Less: Interest charged to fixed asset accounts!
Profit for the year ended June 30, 1930
Less—
Inventory reserve created (net)
Reserve for contingencies
-
577
$109, 815. 4 9
4 7 , 214. 0 3
420, 912. 29
81, 149. 81
$339, 762. 48
45, 997. 77
28, 903. 90
39,117. 67
Balance of deficit for the year..
Deficit at June 30, 1929..
68, 021. 5 7
22, 023. 80
617, 724. 01
Adjustment arising from conversion in balance sheet of funded
and long-term debt at 4.20, the specified rate of redemption,
instead of at par of exchange
Deficit as per balance sheet.
639, 747. 81
2, 7 1 5 . 6 0
642, 463. 41
N O T E . — T h e quantities of products on hand at June 3 0 , 1 9 3 0 , valued at $ 4 7 8 , 2 1 3 . 5 5 , included in the inventories, were obtained from the stock records, no
physical inventory of such products having been taken at that . date. The
nature of these products precludes a reliable measurement of quantities.
During the year 1 9 3 0 , interest amounting to. $ 8 1 , 1 4 9 . 8 2 has .been capitalized
as construction work in progress.
Balance sheets Ruhrchemie Aktiengesellschaft as at June 30, 1928, 1929, 1930
Assets and liabilities
Current assets:
Cash at bank and on hand.
Notes receivable
Accounts receivable.Inventories of raw materials at cost, and of products at
estimated cost
—
Inventories of raw materials and products at cost or
market whichever lower (less reserve)1
Total current assets.
June 30,1928 June 30,1929 June 30,1930
$267,777.50
$286,468.40
187-47
29,128.14
72,768.52
543 056.80
257,964.97
388,365.06
932,750.32
12,138.00
Trade investment at cost.Fixed
Properties, plant and equipment at cost
Freehold property, office and sundry equipment..
Less, depreciation reserve
$166,608.34
119,082L 50
104,002.68
assets:1
121,969.93
5,336,683.20
5,689,666.85
142,600.53
600,518.80
121,969.93
5,194,622.67
5,089,148.05
70,462.19
121,969.93
Constructional work in progress Including prepayments
l
061,728.29
f
thereon
Proportion of cash proceeds resulting from issue of bonds and
capital deposited with German trustee as construction fund. 4,080,326.02
Construction fund—balance of proceeds of 8 per cent note de" posited with trustee, andfinalinstallment of 8 per cent note,
receivable Aug. 1,1930
—
-—•
5,194,622.67
5,159,610.24
4,591.91
2,024,630.55
5,264,024.24
5,199,214.58
8,314,786.78
35,700.00
38,080.00
Add inventoried plant..
Payments for acquisition of patents
See footnotes at end of table.
1,130,545.99
578
SALE OF FOREIGN BONDS OIL S E C U R I T I E S
Balance sheets Ruhrchemie Aktiengesellschaft as at June 80, 19S8, 1929,198
Continued
June 30,1923 June 30, 1929 June 30,1930
Assets and liabilities
Deferred charges to operations: ,
Discount on bond issue, less amortization to date........
Discount on bond issue and otherfinancingexpenses,
less amounts amortized
.__
„__
„_________
Miscellaneous prepaid expenses, -r . . .
$434,306.20
$458,816.40
$468,972.46
15,874.86
458.816.40
484,847.32
6,082.096.04
9,782,602.42
484,30ft. 20
6,066,295.41
Current liabilities:
Bank loa™* and overdrafts.., L
^
Accounts payable
Accrued interest and other expenses
Accrued interest and other expenses, including reserve for
contingencies
.........
Total current liabilities
-
19.640.58
99,coaoo
4
474,449.03
84,971.02
809,736.45
184,019.39
140,931.41
119,609.58
559.420.05
Liabilities on construction work, payable from funds deposited
with trustee
..... . . . .
„
1,134,6*7.25
73,778.58
Funded and long term debt:
6 per cent sinking fund mortgage bonds, series A, due 1948.4,000,000.00
Less, redeemed for cancellation
...
4,000,000.00
4,000,000.00
211,000.00
4,000,000.00
4,000,000.00
3,789,000.00
8 per cent note (with contingent additional interest due 19321935«
Account payable 1981-1932-
3,000,000.00
285,600.00
4.000,000.00
Net worth:
Share capital authorized and issued.
Less—Calls not paid'
-
Deficit
4,000.000.00
7,074,600.00
6,42fi, 000.00 6,426.000.00 6,426,000.00
4,284.000.00 4,2S4,000.00 4,284.000.00
2,142.000.00 2,142.00a 00 2,142.00a 00
619,324.01 . 642; 463.41
255,314.17
1,419,536.59
1.886.685.83 1.622.675.99
6,006,295.41 6,082,0^6.04 9,782,602.42
1 The quantities of products on hand at June 30,1930, valued at $478,213.55, Included in the inventories,
were obtained from the stock records, no physical inventory of such products having been taken at that
date. The nature of these products precludes a reliable physical measurement of quantities.
i At June 30, 1928 contingent liabilities on contracts in respect of construction work in progress, etc.,
amounted to $1,999,200. At June 30, 1929, contracts for tbe construction of a new unit had been signed,
Involving the company in a liability of $481,950 on completion. At June 30.1930 contingent liabilities on
uncompleted construction contracts existed amounting to $761,600. No charge has been included in the
cost of fixed assets in respect of interest during the construction period to June 30, 1929. During the fiscal
year ending June 30, 1930, interest amounting to $81,149.82 has been capitalized as construction work in
progress.
»Under the terms of the purchase contracts the company becomes liable to a further payment of $35,700.
(This note applies to accounts of 1929 and 1930).
«Under the terms of Issue of tho 8 per cent note due 1932 to 1935, the company is obligated to pay an additional interest charge based upon sales for the six years ending June 30,1937, subject to a total minimum
payment of $204,918. No provision has been made in the 1930 accounts for this liability.
»The whole of the unpaid capital of the company iadue upon demand, and the rights thereto have been
assigned to the German trustee under the 6 per centfsinking fund mortgage bonds, series A. Upon payment of the uncalled capital, taxes amounting to $35,680 will become chargeable upon the company.
AGREEMENTS
Ruhrchemie Aktiengesellschaft agrees with the New York Stock Exchange as
iollows:
.. .
To notify the New York Stock Exchange promptly of any change in the general
character or nature of its business.
To publish periodical statements of earnings, as agreed upon with the committee.
As required by German law, to make available in each year,1 for inspection by
stockholders, a proposed balance sheet and profit and loss account for. the preceding fiscal year at least 15 days in advance of the annual meeting of stockholders
called to adopt such balance sheet and profit and loss account (which meeting
is required by German law to.be called within six months after the close of the
fiscal year), and immediately after such meeting to cause the balance sheet and
profit and loss account adopted at such meeting to be published in the maimer
n
required by law.
* > ; i* "
SALLE OF FOREIGN BONDS OR SECURITIES
579
Annually to file with the Bank of Manhattan Trust Co., New York, trustee for
the bonds, for inspection by bondholders, a balance sheet and profit and loss
account of the corporation,, substantially in the form, contained in the listing
application.
To maintain, in accordance with the rules of the stock exchange, in the Borough
of Manhattan, city of New York, south of Chambers Street, a registry office
where the bonds shall be registerable and transferable as to . principal, and a
fiscal agency where principal and interest of the bonds shall be payable.
To notify the stock exchange 30 days in advance of the effective date of any
change in the authorized amounts of listed securities.
Not to make any change in the bonds or of a fiscal agency or of a trustee of the
bonds without the approval of the committee on stock list; nor to select an officer
or director pf the corporation as a trustee of its mortgages.
\ To make application to the stock exchange for the listing of additional amounts
of listed securities sufficiently prior to the issuance thereof to permit action in due
course upon such application.
To forward to the stock exchange copies of all notices mailed to stockholders
looking toward charter amendments, and to file with the stock exchange a certified
copy of amended charter, or resolutions of directors in the nature of amendments,
as soon as such amendments or resolutions have become effective.
To notify the stock exchange of the change or removal, to a substantial extent,
of collateral deposited under any of its mortgage or trust indentures under which
listed securities are outstanding.
To furnish the New York Stock Exchange, on demand, such reasonable information concerning the corporation as may be required.
It is agreed that all publication of notice as to redemption of bonds made elsewhere than in the Borough of Manhattan, New York, shall be made simultane-.
ously with New York publication.
GENERAL'
All conversions from German to United States currency have been made at
the rate of 23.8 cents to the reichsmark.
The duration of the company's existence is not limited.
The articles of association in their present form were adopted October 28,1927,
and were filed November 4, 1927, with the trade registry office.
The fiscal year ends June 30.
The annual meeting of the stockholders is held on a date fixed by the Aufsichtsrat, within Bix months after the close of each fiscal year, at the principal office of
the corporation or at some other place fixed by the Aufsichtsrat.
The principal statutory and executive office of the corporation is at Oberhausen-Holten, Germany.
The active management of the corporation is in the hands of the executive
board (vorstand), the names of the members of which are set forth in Exhibit A.
The names of the members of the supervisory board (aufsichtsrat) are set forth
in Exhibit B.
The trustee of the bonds signing the indenture and supplemental indenture was
the International Acceptance Trust Co., New York. At the date of this application the trustee of the bonds is the Bank of Manhattan Trust Co., New York,
successor to the International Acceptance Trust Co., Deutsche Kreditsicherung
Aktiengesellschaft, Berlin, Germany, is agent of the trustee in the enforcing of
the provisions of the indenture and in the administering of the trust estate.
The place or registration of the principal of the bonds is at the principal office
of the Bank of Manhattan Trust Co., 40 Wall Street, Borough of Manhattan,
the city of New York.
The place for the payment of principal and interest on the bonds is the office of
thefiscalagent of the corporation: Dillon, Head & Co., 28 Nassau Street, Borough
of Manhattan, city of New York. Bondholders may, at their option, collect
principal and/or interest in London, England, at the office of M. Samuel & Co.,
(Ltd.), in pounds sterling; or in Amsterdam, Holland, at the offices of Nederlandsche Handel-Maatschappij and of Mendelssohn & Co. Amsterdam in Dutch
guilders; or in Zurich, Switzerland, at the offices of Credit Suisse, in Swiss francs;
in each case at the buying rate, in London or Amsterdam or Zurich, as the case
may be, for sight exchange on New York City on the day of presentation of the
bonds and/or coupons for collection.
R U H R CHEMICAL CORPORATION.
(Ruhrchemie Aktiengesellschaft.)
By GEO. E. DIX, Attorney-in-fact.
580
S A L E OF FOREIGN B O N D S OIL S E C U R I T I E S
This committee recommends that the above-described $3,578,000 6 per cent
sinking fund mortgage bonds, Series A, due April 1, 1948, included in numbers
M - l to M-4000, for $1,000 each, be admitted to the list.
FRANK ALTSCHTJL,
Chairman.
Adopted by the governing committee, July 8, 1931.
ASHBEL GREEN,
Secretary.
EXHIBITS
These exhibits constitute an essential part of the application. The statements
of fact contained in them are made on the authority of the applicant corporation
in the same manner as those in the body of the application.
EXHIBIT
A
The active management of the corporation is in the hands of the executive
committee (vorstand), the names and addresses of whose members are as follows:
Dr. Friedrich Martin, Oberhausen; Dr. Wilhelm Heck el, Oberhausen; Dr. Fritz
Mueller, Essen-Steele; Dr. Karl Schmidt, Essen; Dr. Wilhelm Wolien weber,
Dortmund; Max Kelting, Oberhausen-Holten (vice-member).
EXHIBIT
B
The names and addresses of the members of the supervisory board (aufsichtsrat) are as follows: Bergassessor Fickler (chairman), Dortmund: Dr. ing. e. h.
Winkaus (vice chairman), Essen; Bergassessor Buskuhl, Dusseldorf; Dr. jur..
Dechamps, Oberhausen; Dr. ing. e. h. Hoppstaedter, Bochum; Mr. Kauert,
Essen; Bergassessor Kellermann, Oberhausen; Dr. ing. e. h. Knepper, Essen?
Dr. ing. e. h. Pott, Essen; Dr. ing. e. h. Tengelmann, Essen.
T H E LAUTARO NITRATE C O .
(LTD.)
An operating company incorporated January 4, 1889, under the English
companies acts, controlled indirectly by Anglo-Chilean Consolidated Nitrate;
Corporation. First mortgage 6 per cent convertible gold bonds, due July 1,
1954.: Closed issue.
Definitive bonds in exchange for outstanding and listed interim receiptst
amount authorized $32,000,000; amount issued $32,000,000; amount applied for
$32,000,000; authorized by shareholders Sept. 16, 1929 and Oct. 1, 1929; authorized by directors Oct. 1, 1929. No other authority required.
Capital securities
Stocks
7 per cent cumulative preferred (sterling) shares.
7 per cent cumulative preferred (dollar) shares
Ordinary shares (2,000,000)
Bonds
First mortgage 6 per cent convertible gold bonds, due 1034..
First mortgage debenture stock, due 1940
First mortgage (Antofagasta) debenture stock, due 1940.
Par
value per Authorized
share
£5
$100
£8,000,000
Is.
$32,000,000
£100^000
Interest
rate
Authorized
for issue
Percent
6
Outstanding*
8,000,000;
<9
£100,000.
Outstanding
$32,000,000
$32,000,000
£1,500,000 , » £1,119,745
ȣ1,126,380
£1,500,000
. 1 Entire authorized issue reserved for conversion of the first mortgage 6 per cent convertible gold bonds,
due July 1,1954.
* Balance of authorized issue retired through sinking fund operations to June 7,1829, and not reissuaoie*
. The entire authorized and outstanding issue of 2,000,000 ordinary shares of the Lautaro Nitrate Co., Lim*
ited, is owned by Lautaro Nitrate Corporation, a Delaware corporation. The authorized and outstanding
capitalization of said Lautaro Nitrate Corporation consists of 4,000,000 shares of common stock, without par
581
SALE OF FOREIGN BONDS OIL SECURITIES
N E W YORK C I T Y , N . Y . , December 11, 1929.
Referring to the previous application for the listing of certain interim receipts,
A-8731, dated June 14. 1929, the Lautaro Nitrate Co. (Ltd.), a company in-,
corporated under the English companies acts (hereinafter called the company),
hereby applies for the listing on the New York Stock Exchange of $32,000,000,
principal amount (total authorized issue), first mortgage 6 per cent convertible;
gold bonds, due July 1,1954;(hereinafter called the bonds), Nos. M - l to M-32000,
for $1,000 each, on official notice of issue in exchange for outstanding and listed
interim receipts of the National City Co.
AUTHORITY FOR ISSUE
The bonds are issued under and secured by a certain mortgage trust indenture,
dated as of July 1, 1929 (hereinafter called the indenture), executed by the company to City Bank Farmers Trust Co., as trustee (hereinafter called the trustee).
The execution of the indenture and the issue thereunder of the bonds were
authorized by the shareholders of the company by resolutions adopted at meetings
held on September 16, 1929, and October 1, 1929, and by the board of directors
of the company by resolutions adopted at a meeting held on October -1, 1929;
and no other authorization for the execution of the indenture and the issue of
the bonds is required.
PURPOSE OF ISSUE
The sale of the bonds provided the company with funds which, it is estimated,
will be sufficient to construct (with interest during construction) and equip a new
plant to operate under the Guggenheim process, and to provide working capital
therefor.
F
DESCRIPTION
The bonds are dated as of July 1, 1929, mature July 1, 1954, and bear interest
at the rate of 6 per cent per annum, payable semiannually on January 1 and
July 1 in each year. Both principal and interest of the bonds are payable at
the principal office in the Borough of Manhattan, city of New York, State of
New York, of City Bank Farmers Trust Co., or its successor as trustee under the
indenture, in gold coin of the United States of America of or equal to the standard
of weight and fineness as it existed on July 1, 1929. Both principal and interest
of the bonds are also collectible, at the option of the holders, either at the city
office of the National City Bank of New York, in London, England, .in-pounds
sterling, or at the Amsterdamsche Bank,-in Amsterdam;1 the Netherlands, in
guilders, in each case at the buying rate of such bank for sight exchange on New
York, current on the day when the bonds or the interest coupons (as the case
may be) are presented for such collection. Both : principal and interest are
payable without deduction from either principal or interest, or from any premium
on such principal, for or on account of any taxes, assessments, or other charges
or duties now or hereafter levied or to be levied by the' Republic of Chile or by
any political subdivision thereof, or (except in the case of collection in:London)T
for or on account of any taxes, assessments or other charges or duties now. or
hereafter levied or to be levied by the United Kingdom of Great Britain and
northern Ireland, and all installments of interest are payable without deduction
for any United States of America Federal income tax thereon not in excess of
2 per cent of such installment.
The bonds are issued in coupon form only, are of the denomicatioh of $1,000
each and are registrable, as to principal only, at the principal office of the trustee
in the Borough of Manhattan, city and State of New York, suchregistration
being noted on the bonds.
WARRANTS'
'
The company has been informed that a certain" warrant, by its terms entitling
the holder of each bond to receive on January, 1, 1930, without cost, 10 shares of
common stock, without par value, of Lautaro Nitrate Corporation, a Delaware
corporation, will not, as previously contemplated, accompany the definitive
engraved bonds the listing of which is covered by this application, but that, for
the convenience of the holders of interim receipt!*, in lieu of such warrant, there
will-be delivered, upon exchange of each said outstanding interim receipt of the
National City Co., with each bond a certificate for ;10 shares of common stock of
:;
said Lautaro Nitrate Corporation.
'582
SALE1
OF FOBEIGN- BONDS OB' SECURITIES
REDEMPTION—SINKING
FUND
In the manner and subject to the terms and conditions set forth in the indenture,
the bonds may be redeemed, in whole or in part, at the option of the company,
on any interest date prior to maturity, upon at least 60 days' prior notice published in one daily newspaper, printed in the English language, published and of
general circulation in the Borough of Manhattan, the city of New York, and in one
daily newspaper printed in the Dutch language, published and of general circulation in Amsterdam, the Netherlands, at a redemption price equal to 105 per cent
of the principal thereof. The bonds may also be redeemed, in whole or in part,
upon like notice, on any interest date prior to maturity, at said redemption price,
through the operation of the sinking fund provided for in the indenture. Recemption notices, in the case of partial redemptions, will designate the serial
numbers of the bonds to be redeemed, such serial numbers having been determined by the trustee by lot, in any manner deemed by the trustee to be fair.
The sinking fund provided for in the indenture is sufficient to retire the entire
issue of bonds by maturity. On or before April 15, 1933, and on or before each
October 15 and April 15 thereafter, the company is required to pay to the trustee
$782,250; provided, that, if the total tonnage of nitrate extracted after June 30,
1929, from any of the properties subject to a first mortgage in favor of the bonds,
calculated in the manner provided in the indenture, up to and including the
December 31 or June 30, as the case may be, next preceding the date of payment
in each case, exceeds 274,000 metric tons multiplied by the number of semi-annual
periods occurring subsequently to June 30,1932, the company is required to make
an additional sinking fund payment equivalent to $2.50 for each metric ton of
such excess, less a sum equivalent to the aggregate amount of all additional
payments (if any) previously made into the sinking fund. Sinking fund payments may be made in whole or in part, at the option of the company, in cash or in
bonds taken at the redemption price thereof. Any cash paid to the trustee is to be
applied by it to the redemption of bonds on the next succeeding redemption date.
Upon conversion of any bonds into dollar preferred shares, the company will,
at its option, be entitled to a credit on account of any sinking fund payment or
payments, in an aggregate amount equal to 105 per cent of the principal amount
of bonds so converted.
. All bonds redeemed pursuant to any of the provisions of the indenture, all
bonds delivered to the trustee in lieu of cash, in discharge, in whole or in part of
any sinking fund payment, and all bonds converted into said shares, will be
canceled by the trustee and permanently retired.
For certain detailed provisions of the indenture with respect to the sinking
fund, reference is made to Exhibit A.
•) I
CERTAIN PROVISIONS WITH RESPECT TO DEFAULT
Events of default, declaration of maturity of bonds and waiver of default—The
indenture provides in Article X , section 51, as follows:
"Sec. 51* In case any one or more of the following events (hereinafter referred
to as'defaults') shall occur:
" (o) Default in the payment of the principal of, or any premium on, any of the
bonds, when due, whether at maturity or pursuant to notice of redemption, or
otherwise;
"(6) Default in the payment of any instalment of interest on any of the bonds,
and any such default shall continue for a period of 30 days;
"(c) Default in the payment of any sinking fund payment, and any such default shall continue for a period of 60 days after the date when such payment
shall have become due;
" (d) Default in the performance or observance of any other covenant or
agreement contained in this indenture on the part of the company to be performed or observed, and any such default shall continue unremedied for a period
of 60 days after written notice thereof shall have been given to the company
by the trustee (which may give such notice, in its discretion, and shall do so upon
the written request of the holders of 25 per cent in aggregate principal amount
of the bonds then outstanding), unless, within such period, the company shall
have, in good faith, commenced proceedings to remedy such default; or
" (e) The company shall become insolvent, or shall admit in writing its inability
to pay its debts as they mature, or shall be wound up (except for the purpose of
reconstruction or amalgamation).
"Then, in each and every such case, the trustee, upon written notice to the
company may declare the principal of all the bonds then outstanding (with the
SALLE OF FOREIGN BONDS OR SECURITIES
583
premium thereon, in the case of any'bonds which shall have been called .for
redemption at a premium) to be due and payable immediately; and, upon any
such declaration, the said bonds shall become immediately so due and payable,
anything in this indenture or'in the bonds contained to the contrary notwithstanding: Provided, That if, at any time, either before; or after the principal of
the bonds shall have been so declared due and payable, all arrears of interest
upon all the outstanding bonds, together with the reasonable charges and expenses
of the trustee, its agents, attorneys, and counsel, and any and all other sums then
payable hereunder for any'purpose, shall have been paid, and any and every
default in the performance or observance of any covenant or agreement in the
bonds or in this indenture contained shall have been remedied or made good, or
provision deemed by the trustee to be adequate shall have been made therefor,
then in each'and every such case, the holders of a majority in aggregate principal
amount of the bonds then outstanding hereunder, by written notice to the
company and to the trustee, may waive such default and its consequences and
rescind any such declaration of maturity with respect to the principal of such of
the bonds as, except for such declaration, would not have been or become so due
and payable: And provided further, That no such rescission shall extend to or
affect any subsequent default, or impair any right consequent thereon.
"Anything herein contained to the contrary notwithstanding, the trustee may,
:upon the written request of the holders of a majority in aggregate principal
amount of the bonds, at the time outstanding hereunder, waive any default
hereunder and its consequences, except a default in the payment of the principal or
interest of any of the bonds, or any premium on such principal, when1 and as the
same shall become due and payable by the terms thereof or of this indenture."
Percentage of bonds controlling the trustee—The indenture provides in Article
X, section 55, in part, as follows:
-- •1''SEC. 55. In case default shall occur in any of the respects specified in section 51
hereof, and such default shall have continued for the period (if any) therein
specified, then, upon the written request of the holders of 25 per cent in aggregate
principal amount of all the bonds then outstanding hereunder, and upon being
ndemnified as hereinafter provided, the trustee shall exercise any one or more of
the powers herein conferred upon it and shall take all steps needful for the projection of the rights of the trustee and ofthe holders of the outstanding bonds,
tespectively, including, among other things, such appropriate judicial or administrative proceedings, by action, suit or otherwise, as the trustee, being advised by
counsel, may deem most expedient in the interest of the holders of the outstanding
bonds."
a
SECURITY
The bonds are direct obligations of the company and are secured, in the opinion
of counsel, by first mortgages, in accordance with Chilean law, on the new plant
and on approximately 40 square miles of nitrate lands available to/the plant and
estimated to contain approximately 13,800,000 metric tonis of nitrate on the
basis of estimated recovery under the Guggenheim process. Anglo-Chilean
Consolidated Nitrate Corporation, a Delaware corporation, has guaranteed completion of the new plant free of any. liens prior to the lien in favor of the bonds.
.V The bonds are also secured by mortgages on certain nitrate lands, estimated
to contain approximately 7,800,000 metric tons of recoverable nitrate, subject
to the mortgages securing the two issues of
per cent first mortgage debenture
stock, outstanding as of June 7, 1929, in the aggregate principal amount of
£2,246,125 ($10,930,767.31).,
CONSTRUCTION OF NEW . PLANT
The indenture provides in Article V, section 26, as follows:
- "SEC. 26. The company covenants that it will, with all reasonable dispatch,
cause a plant (the word 'plant' being understood to include all buildings, mining,
railway, and other equipment and accessories installed for the ultimate purpose
r of producing nitrate and iodine from the ore as it exists in the ground, and all
houses and public buildings constructed for the benefit of the staff and workmen
employed in connection with such production), with an approximate capacity of
540,000 metric tons of nitrate per year and with the necessary facilities for the
extraction of nitrate under the Guggenheim process (hereinafter referred to as
the 'mortgaged plant'), to be 'designed, constructed, and equipped upon lands
; to which the mortgaged properties are naturally tributary.
The mortgaged plant
and the right freely to use the land upon which it is constructed shall be subjected
to the operation -of this indenture through a local mortgage or local mortgages
92928—32—PT 2
19
'584
SALE1 OF FOBEIGN- BONDS OB' SECURITIES
which shall be d'first lien upon the mortgaged plant and upon the right to use
the land for the purposes of the plant. : Such use shall be available for the prob
able life of the plant and transferable upon the sale of the plant."
DEPOSITED MONEYS AND CONSTRUCTION FUND
I
i.
. !•
.
f.
The indenture provides in Article VI, sections 27 and 28, as follows: • r
"SEC. 27, Upon the issuance and delivery of the entire $32,000,000. aggregate
principal amount,, of bonds, as provided in section 2 hereof, the company covenants that it will forthwith deposit or cause to be deposited with the trustee a
sum in cash equivalent to the net proceeds received by the company from the
sale of the bonds, which sum, together with any other moneys which may, from
time to time, be added thereto, is hereinafter referred to as the 'deposited moneys/
"SEC. 28. The deposited moneys shall be held by the trustee, in trust, as part
of the security for the bonds outstanding under this indenture, until paid out,
from time to time, subject to the terms and conditions hereinafter in this Article
VI set forth, for one or more of the following purposes:
" ( a ) T o pay the expenses of the company in connection with the creation and
issuance of the bonds, including, but without limiting the generality of the fore*
.going, expenses in connection with the preparation and execution of this inden: ture and the local mortgages, in connection with title examinations, reports and
opinions, and in connection with the authorization and issuance of the dollar
preferred shares of the company, including any duty, tax, or assessment in respect
thereof, but not including discount upon the bonds.
" (&) To pay the installments of interest upon the bonds, from time" to time,
as the same shall become due, until such time as evidence that the mortgaged
plant has been completed shall have been presented to the trustee, pursuant
to the provisions of Section 31 hereof: Provided, That no installment of interest
falling due after July 1, 1932, shall be payable out of the deposited moneys.;
" ( c ) To pay the cost of designing, constructing and equipping the mortgaged
plant.
" ( d ) Upon the completion of the mortgaged plant, to pay any balance remaining to or upon the order of the company for its corporate purposes, as provided
I n section 31 hereof."
For further information with respect to said Deposited Moneys and Construction Fund, reference is made to the indenture.
•J
CONVERSION PRIVILEGE
, . Each bond is convertible, at the option of the holder, at the principal office of
the trustee, in the Borough of Manhattan, city and State of New York, at any
time after the issuance thereof and prior to July 2, 1939, or, in case such bond
shall be called for earlier redemption, then at any time prior to 5 full days before
the date designated for such redemption, into full paid and nonassessable 7 per
cent cumulative preferred (dollar) shares of the company, of the par value (nominal amount) of $100 per share, as the same shall be constituted at the time of
:such conversion, at the rate of 10 such shares for the principal amount thereof,
in the manner and subject to the terms and considerations provided in the
indenture.
The company has been informed that upon conversion, on or prior to July 1»
1939, of any bond into 7 per cent cumulative preferred (dollars) shares of the
company, in the manner provided in the indenture, City Bank Fanners Trust
Co., as agent, will deliver to or upon the order of the bearer of such bond, or, if
such bond is registered, to or upon the order of the registered owner thereof, a
unit, comprising four shares of common stock of Lautaro Nitrate Corporation,
said Delaware corporation, and/or such shares and/or other securities and/or
cash as may from time to time, have been added to or substituted for such four
shares of common stock of said Lautaro Nitrate Corporation in the manner
provided in a certain letter of instructions, dated as of July 1, 1929, from The
National City Co. to City Bank Farmers Trust Co., as depositary.
A legend is to be indorsed on the definitive engraved bonds in substantially
the following form:
.-ir
" U p o n conversion of the within bond, at any time after the issuance thereof
and prior to July 2, 1930, in the manner set forth therein and in the mortgage
trust indenture therein referred to, the bearer, or in ease the .within bond shall
; be registered, the registered owner thereof, shall be entitled to receive, from the
undersigned depositary, four shares o f ? the-common stock, without par value,
SALLE OF FOREIGN BONDS OR SECURITIES
585
of the Lautaro Nitrate Corporation, a Delaware corporation, or, in case of certain changes in the capitalization of the Lautaro Nitrate Corporation, of a character described in a certain letter of instructions, dated as of July 1, 1929, from
The National City Co. to the undersigned, as depositary, such shares and/or
other securities and/or cash as may, from time to time, have been added to or
substituted for such four shares of common stock of the Lautaro Nitrate Corporation, in the manner set forth in and subject to the terms of the said letter; of
instructions.
C I T Y B A N K FARMERS TRUST COMPANY,
By
Depositary.
, Authorized Officer
CERTAIN PROVISIONS WITH RESPECT TO MUTILATED, DESTROYED, OR LOST BONDS
The indenture provides in Article II, section 6, as follows:
"Sec. 6. In case any bond issued hereunder, with its interest coupons (if any),
shall be mutilated, destroyed, or lost, the company may execute and cause the
trustee to authenticate and deliver a new bond in exchange and substitution
for, and upon the cancellation of, the mutilated bond and its interest coupons
(if any), or in lieu of and in substitution for the bond and its interest coupons
(if any) so destroyed or lost. In any such case, the applicant for the substituted
bond shall furnish to the company and to the trustee evidence to their satisfaction, in their discretion, of the ownership of such bond and of the destruction or
loss thereof, and also such security or indemnity as may be required by the
company and the trustee. Upon the issue of any substituted bond, the company,
at its option, may require the payment of a sum sufficient to reimburse it for any
stamp tax or other charge or expense connected therewith, and also a further
sum, not exceeding two dollars for each bond so issued in substitution."
CONSOLIDATION, MERGER, AND SALE UNDER CERTAIN CONDITIONS
The indenture provides in Article VIII, section 44, as follows:
"Sec. 44. So long as the company shall not be in default hereunder, nothing
contained in this indenture or in any bond issued hereunder shall prevent (and
this indenture and the bonds issued hereunder shall be construed as permitting
and authorizing, without acceleration of the maturity of any of the bonds) any
lawful consolidation or merger of the company with or into any other company
or companies lawfully authorized to acquire and operate the properties of the
company, or a series of consolidations or mergers, or successive consolidations
or mergers, in which the company or its successor shall be a party or parties,
or any sale or transfer, subject to the continuing lien of the local mortgage or
.mortgages covering the same and to the continuing operation of this indenture
and to all the provisions hereof, of all or substantially all the mortgaged properties of the company, as an entirety, to a company lawfully authorized to acquire
and operate the same, or any lawful scheme for the amalgamation of the company with one or more other companies: Provided, That such consolidation,
merger, sale, transfer, or scheme for amalgamation shall be upon such terms as
fully to preserve and in no respect to impair the lien, priority, and security of
the respective local mortgages and of this indenture and the rights and powers
of the trustee, and of the holders of the bonds issued hereunder, with respect to
the properties then subject to the lien of the respective local mortgages and to
the operation of this indenture: And provided further, That upon any such consolidation, merger, sale, transfer, or scheme for amalgamation, the company
formed by such consolidation, or into which such merger may be made, or to
which such sale or transfer may be made, or resulting from such scheme for
amalgamation, shall in writing assume the due and punctual payment of the
principal and interest of all outstanding bonds according to their tenor and the
due and punctual performance and observance of all covenants and agreements
contained in this indenture on the part of the company to be performed, or
observed."
586
S A L E OP, F O R E I G N ; B O N D S OR
SECURITIES
Capitalization and stock references
Stocks
Classes:.
7 per cent cumulative preferred (sterling) shares (1,600,000)
7 per cent cumulative preferred shares (320,000)
Ordinary shares (2.000,000)
Par value
per share
£5
$100
l's.
Amount
authorized
£8,000,000
$32,000,000
£100^000
Amount
outstanding
£8,000,000
£100,000
» Entire authorized Issue reserved for conversions of the first mortgage 6 per cent convertible gold bonds,
due July 1,1954.
The cumulative preferred (dollar) shares will be entitled to receive cumulative
dividends at the rate of 7 per cent per annum on the capital paid up or credited
as paid up thereon, payable quarterly on the 1st day of January, April, July, and
October. Dividends will accumulate from the quarterly dividend date next
preceding the issuance of such shares.
The cumulative preferred (dollar) shares shall be issued subject to the provision that the company may redeem all or any of such shares on any dividend
date, upon 60 days' notice, at 105 per cent, plus accrued dividends.
In any liquidation the cumulative preferred (dollar) shares will be entitled to
repayment of the capital paid up or credited as paid up thereon, plus a premium
of 5 percent thereof, and to all accumulated unpaid dividends thereon, calculated
down to the date of repayment of capital, whether or not earned or declared, but
to no further right to participate in profits or assets.
The cumulative preferred (dollar) Bhares and the cumulative preferred (sterling) shares shall, both as regards dividends and rights in case of liquidation,
have priority over the ordinary shares. Such cumulative preferred (dollar)
shares and cumulative preferred (sterling) shares shall rank pari passu, subject
(1) to certain hereinafter described provisions with regard to redemption of the
cumulative preferred (dollar) shares, (2) to the difference in premium payable in
case of liquidation to the holders of such cumulative preferred (dollar) shares
and cumulative preferred (sterling) shares respectively [such premium in the
instance of the cumulative preferred (dollar) shares being 5 per cent and in the
instance of the cumulative preferred (sterling) shares being 10 per cent], and
(3) to due allowance being made in respect of the difference in the nominal
amount of such respective shares; provided, that if it shall become necessary in
case of liquidation, or for any other purpose, to ascertain the sterling equivalent
of the cumulative preferred (dollar) shares, conversion shall be effected at the
rate of exchange ruling at the time.
Cumulative preferred (dollar) shares, cumulative preferred (sterling) shares,
and ordinary shares carry the right to one vote per share at general meetings of
the company.
In the articles of association, the company has agreed as follows:
(1) On January 1 and July 1 of each vear the company will pay to The National
City Bank of New York at its head office in the city of New York (but only
out of profits otherwise available for dividends and after provision has been
made for dividends on the cumulative preferred (dollar) shares and cumulative
preferred (sterling) shares, and subject to the pro rata rights of the cumulative
preferred (sterling) shares with respect to the sinking fund), a sum of money
equivalent to the half-yearly instalment sufficient to redeem, by equal half-yearly
instalments, by July 1, 1954, all the cumulative preferred (dollar) shares which
are at the time of any such payment outstanding.
(2) From time to time The National City Bank of New York shall pay over
to the company out of such sum of money, $105 for each cumulative preferred
(dollar) share redeemed or retired, upon production of evidence to the bank that
the company has redeemed and retired or (if lawful) has purchased and retired
such shares.
.
(3) If in any year the company has insufficient profits available to meet in
full the requirements of the above-mentioned sinking fund and any sinking fund
(up to but not exceeding an accumulative sinking fund of 1 per cent per annum,
increased by 3 pence per metric quintal of nitrate sold by the company from
lands owned by it on June 17, 1929, in excess of 1,600,000 tons in any year)
which may at any time hereafter be established for the amortization, directly or
SALE OF FOREIGN, BONDSOR;TSECURITIES
587;
indirectly, of the cumulative preferred (sterling) shares, or of any income bonds
for which the cumulative preferred (sterling) shares may be exchanged, the
amount so available shall be appropriated to such sinking funds pro rata. ;
No cumulative preferred (dollar) shares redeemed or retired, in accordance;
with the foregoing provisions, shall be reissued.
HISTORY, BUSINESS, PROPERTY, AND SALES
The company was incorporated January 4, 1889, under the English companies
acts and the duration of its charter is perpetual. The company is the largest
present producer of Chilean nitrate. The company owns more than 1,100 square
kilometers (approximately 418 square miles) of land, located in Chile (where the
only known commercial deposits of nitrate exist), and conservatively estimated to
contain approximately 30,000,000 metric tons of nitrate recoverable under the
Shanks process. The company owns 26 plants equipped to operate under the
Shanks process, which is the process exclusively used in Chile with the sole exception of the Maria Elena plant of Anglo-Chilean Consolidated Nitrate Corporation, which operates under the new Guggenheim process and is by far the largest
present plant in Chile. Ten of the company's plants are in present operation
producing at the annual rate of approximately 800,000 metric tons; The cost of
production in these plants is believed to be as low as that attained by any other
nitrate company in Chile, except Anglo-Chilean Consolidated Nitrate Corporation, and is considerably below the average for the industry.
The company has commenced operations looking to the construction on its
property of a plant for the extraction of nitrate under the Guggenheim process.
The new plant is designed for an ultimate capacity of 540,000 metric tons of
nitrate per annum and, it is expected, will be in complete operation not later than
July 1, 1932. Anglo-Chilean Consolidated Nitrate Corporation has acquired
the patents and all rights, present and future, to the Guggenheim process and has
licensed the company for the use of the process, free of royalty (except one initial
payment of $485,000) on all lands now owned and unimproved lands hereafter
acquired in Chile.
The outstanding features of the Guggenheim process are the ability t o extract
sodium nitrate efficiently from rock of lower grade than is considered economical
for use in the Shanks process, the conservation of all heat wastes in the operation
and the employment of about one-fourth of the men necessary for similar production under the old process. Thus, it is possible to introduce mechanical methods
for handling the material on a larger scale than heretofore, the available reserves
of nitrate are greatly expanded, the output per unit of fuel consumed is materially
increased, and, incidentally, a purer product is delivered. The. experience of
Anglo-Chilean Consolidated Nitrate Corporation has shown that the quantity
of nitrate recoverable from a given area of average nitrate land is about 100 per
cent more and the unit production cost about 40 per cent less under the Guggenheim process than under the Shanks process.
The sales of nitrate in metric tons for the past three years and six months have
been as follows: 286,476 in 1926; 483,656 in 1927; 283,796 in the six month*
ended June 30, 1928, and 541,449 in the year ended June 30,1929.
With the new plant to be constructed for operation, under the Guggenheim
process operating at full capacity the net earnings of the company, after depreciation and depletion, before interest, are estimated at approximately $13,400,000
per annum, equivalent to five times the combined maximum annual, interest
requirements on the present issues of debenture stock and the bonds; On the
basis of the foregoing estimate, and deducting combined maximum annual interest
requirements on the issues of debenture stock and the bonds, annual dividend
requirements on the seven per cent cumulative preferred shares outstanding and
United States Federal income taxes at the present rate of 12 per cent per annum;
payable by said Lautaro Nitrate Corporation, the balance is equivalent to SI.66
per share of common stock, without par value, of said Lautaro Nitrate Corporation. The amount of depreciation and depletion deducted in this calculation is
quivalent to more than 70 cents per share of common stock, without par value,
said Lautaro Nitrate Corporation.
SUBSIDIARIES; • <
.
The company has no subsidiaries.
588
SALE OF FOREIGN BONDS OR SECURITIES
FUNDED DEBT
In addition to the bonds the listing of which is covered by this application the
company had outstanding on June 7, 1929, £1,119,745 first mortgage debenture
stock, due December 1, 1940, and £1,126,380 first mortgage (Antofagasta) de^
benture stock, due December 1, 1940.
Said £1,119,745 debenture stock is issued under and secured by a certain trust
deed, dated July 28, 1924, from the company to The Law Debenture Corporation
(Ltd.). Said trust deed creates a first charge under Chilean law on certain
properties of the company on part of which the bonds the listing of which is
covered by. this application are a junior lien as hereinbefore stated. The total
authorized issue is £1,500,000, all of which has been issued and the balance of
which, to wit, £380,255, has been retired through a sinking fund to June 7, 1929.
Said debenture stock is subject to call on any interest date after June 1, 1932, on
six months' notice or in the event of liquidation for amalgamation or reconstruction, at 102 per cent. Said trust deed provides for a sinking fund of £100,000
per annum, to operate by purchase at.or under par or by drawings (in November
for repayment on December 1) at par. The amount of the sinking fund is, in
the event of the company selling in any one year more than 4,000,000 metric
quintals of nitrate of 100 kilos each from the grounds specifically mortgaged, to
be increased in the next year by an amount equal to 2s. for each quintal sold in
excess of 4,000,000. Said debenture stock is listed on the London Stock ExExchange.
Said £1,126,380 (Antofagasta) debenture stock is issued under and secured by
a certain trust deed, dated October 22, 1925, from the company to The LawDebenture Corporation (Ltd.). Said trust deed creates a first charge under
Chilean law on certain properties of the company on part of which the bonds the
listing of which is covered by this application are a second lien (as hereinbefore
stated), and creates a charge (subject to the charge of the said trust deed dated
July 28,1924) on the properties of the company subject to said trust deed, on part
of which the bonds the listing of which is covered by this application are a junior
lien (as hereinbefore stated). The total authorized issue is £ 1,500,000, all of which
has been issued and the balance of which, to wit, £373,620, has been retired through
a sinking fund to June 7, 1929. Said debenture stock is subject to call at 102 per
cent on any interest date after June 1,1932, on six months' notice. In a voluntary
liquidation for amalgamation or reconstruction said debenture stock will not be
redeemed at less than 102 per cent. In said trust deed provision is made for an
annual sinking fund to operate by purchase at or under par or by drawings (in
November for repayment on December 1) at par. The amount of the sinking
fund is, in the event of the company selling in any year more than 7,200,000
metric quintals of nitrate produced from the grounds specifically mortgaged, to
be increased in the next year by an amount equal to 2s. for each quintal sold in
excess of 7,200,000 quintals. Said debenture stock is listed on the London Stock
Exchange.
DIVIDENDS
Prior to October 1, 1929, the capitalization of the company consisted of 96,000
ordinary A shares, 96,000 ordinary B shares, and 96,000 ordinary C shares, not
entitled to dividends until the happening of certain contingencies, and of
1,312,000 ordinary shares of £ 5 each. On that date a dividend of 6 per cent
on the said 1,312,000 ordinary shares was declared, pavable 3 per cent on October
25, 1929, and 3 per cent on December 31, 1929. On October 1, 1929, subject
to and without prejudice to the said dividend, the capitalization of the company
was altered and the said ordinary shares, ordinary A shares, ordinary B shares,
and ordinary C shares became known as 7 per cent cumulative preferred (sterling) shares, dividends upon which accumulate from January 1, 1930.
The company has paid dividends on its ordinary shares as follows: 1919,
16 per cent; 3 years to 1922, nil; 1923, a share bonus of 42 6/7 per cent out
of reserve; 2 years to 1925, 15 per cent each year; 1926, 5 per cent; 1927, nil;
t o June 30, 1928, 3 per cent; 12 months to June 30, 1929, nil.
EMPLOYEES
The number of employees of the company is approximately 15,000.
S A L E OF F O R E I G N , B O N D S OR; T S E C U R I T I E S
DEPRECIATION ,AND DEPLETION,.
589;
T
The charges against earnings for the depreciation and depletion of the properties of the company for the last fiscal year were as follows:
Depreciation
.... $713, 727. 74
Depletion
—
J
433, 129. 11
Total
--TT--—
-
1,146, 856. 85
FINANCIAL STATEMENTS
' R
There are hereinafter set forth the following financial statements of the company:
(o) Income account for the years ended December 31,1926, and December 31,
1927, the six months ended June 30, 1928, and the year ended June 30, 1929;
(5) Surplus account for the years ended December 31, 1926, and December 31,
1927, the six months ended June 30, 1928, and the year ended June 30, 1929; and
(c) Balance sheet at December 31, 1926, December 31, 1927, June 30, 1928,
and June 30, 1929.
The Lautaro Nitrate Co. (Ltd.y
(A) INCOME ACCOUNT I
Year ended
Dec. 31,1926
Year ended
6 months ended Year ended
Dec: 31, 1927 June 30, 1928
June 30, 1929
$14,061,577.82
$22,409,112.23
$12,123,891.25
$22,238,746.04
12,710,882.17
;
452,970.18
19,151,534.57
490,768.51
9,861,916.99
586,815.71
- 18,361,048.27
1,146,856.85
13,163,861.35
19,642,303.08
10,443,732.70
19,507,905.12
Gross
—.J
andprofit
administrative expense....
General
1,797,716.47
556,504.47
2,766,809.15
490,508.40
1,675,158.55
240,107.27
2,730,840.92
509,347.01
Net profit
Other income and deductions (net)
1,241,212.00
178,421.22
2,276,300.75
159,143.67
1,435*051.28
126,064.74
2,221,493.91
.667,604.21
1,410,633.22
2,435,449.42
1,561,116.02
2,889,098.12
...
957,529.86
39,779.74
967,155.07
40,000.68
389,382.78
823,785.26
.....
997,309.60
1,007,155.75
389,382.78
823,785.26
422,323.62
1,428,293.67
1,171,733.24
2,065,312.86
Net sales
Cost of sales (ex-depreciation)
Depreciation
-V -
Total cost of sales
Income available for interest and
taxes
Interest
Taxes
. . . .
Total interest and taxes
Net income
i...
(B) SURPLUS ACCOUNT *
Surplus at the beginning of the period. . ' $3,370,843.03
-53,193.76
143,760.89
44,738.71
$3,527,315.85
98,725.47
$3,642,596.42
630.415.39
3,317.649.27
422,323.62
2,099,022.18
11,428,293.67
3,428,590.38
1,171,733.24
3,012.181.03
2,065,312.86
3; 739,972.89
1,596,212.00
3,527,315.85
4,600,323.62
957,727.20
5,077,493.89
2,143,'700.89
3,527,315.85
3,642,596.42
5.077,493.89
Add: Net income for the year
Balance
Less* Dividends paid
Surplus at end of period..
1
- —
Fiscal year changed in 1028 to end June 30 instead of December 31.
NOT®.—Conversions of the company's accounts from pounds sterling into United States dollars hare
been made at the rate of $4.8605 to the pound.
'590
SALE 1
OF FOBEIGN- B O N D S OB' S E C U R I T I E S
The Lautaro Nitrate Co, (Ltd.)—'Continued
<C) BALANCE SHEET»
Year ended
Dec. 31, 1926
Year ended
Dec. 31,1927
6 months ended Year ended
June 30, 1923
June 30,1929
$505,052.67
$2,159,542.71
$1,168,983.18
$835,246.67
1,148,117.82
909,968.10
1,051,766.23
559,952.94
1,615,430.90
5,018,614.38
6,695,387.88
12; 129,781.57
8,088*125.19 j
8,916,137.29
15,140,412.08
47,610,356.70
5,599,953.08
54,849.253.18
42,174,114.37; 42,309,144.60 | 42,010,403.62
48,225,316.51
ASSETS
Total current assets.
-
Property, buildings, and equipment....
Less: Reserve for depreciation
Net investments in property
Investment in and advances to Compania Salitrera Blanco Encalada
Other investments
Deposits in guaranty (contra)
Guaranty for workmen's accident pension (contra)
Total assets
8,970,353.02
10,623,523.51
46,904,306.14
4,730,191.77
47,382,404.48
5,073,259.82
I
958,299.74 |
49,891.12
1
1
572,147.83
118,883.73
189,675.24
6,891.51
153,87a 27
53.805,828.74 . 51,391,055.14 I 61,807,247.71
63,649,568.27
686,019.56
82,124.13
225, Gil. 60
123,077.90
!
1
225,641.60;
LIABILITIES
Bankers for guaranties (contra)
Bank overdrafts
Bills payable
Accounts payable
Reserves for taxes—
Export duties..
Interest payable
_
Unclaimed dividends_
Customers' advances
Other current liabilities Total current liabilities
6 ^ per centfirst-mortgagedebenture
stock
Mortgage guaranty for workmen's accident pensions (contra) Reserves for workmen's accident insurance and pensions
....
Fire-insurance fund
Employees'pension fund
Capital stock issued and subscribed....
Profit and loss
Total liabilities
6.623,63a 67
1,903,409.33
206.095.54
2,062,968.48
1,301,508.20
75,485.74
84,101.31
146,733.25
2,725.24
311,219.73
1,468,491.19
421.881.46
574.956.05
69,819.19
36,111.62
82,406.15
189,675.24
859,552186
1,966,342.90
509,087.00
125,117.96
65,60a42
88,29a 48
4,037.74
mm
Cash deposit with respect to proposed
issue or first mortgage 6 per cent con*
vertible gold bonds.—Sundry debtors and suspense items
Stocks of nitrate, iodine and general
stores
27,577.48
4,413,542.06
5,783,03a 09
3,193,526.99
3,807,701.60
7,851,295.45
13,552,574.72
12,310,400.66
11,963,293.93
10^974,808.39
123,077.90.
331.950.78
72,997.50
31,921,514.76
2,143,760.89
362,574.20
72,997.50
31,924,24a 00
3,527,315.85
376,415.26
72,997.50
31,924,240.00
3,642,596.42
225,986.08
391,909.06
72,997.50
38,932,000.00
5,077,493.89
53,805,828.74
51,391,055.14
51,807,247.71
63,649,568.27
* Fiscal year changed in 1923 to end Jane 30 instead of December 31.
NOTE.—Conversions of the company's accounts from pounds sterling into United States dollars have
been made at the rate of $4.8665 to the pound. The foregoing balance sheet does not give effect to the issue
of the bonds the listing of which is covered by this application. The net proceeds of sale of the bonas
were deposited with the trustee in accordance with tbe provisions of the indenture (as hereinbefore set fortn
under the caption' 'deposited Moneys and Construction Fund.") The present capitalization of the company is also hereinbefore set forth under the caption "Capitalization and Stock Preferences"
AGREEMENTS
The Lautaro Nitrate Co. (Ltd) agrees with the New York Stock Exchange as
follows:
Not to dispose of an integral asset or its stock interest in any constituent,
subsidiary, owned or controlled company, or allow any constituent, subsidiary,
or owned or control companies to dispose of an integral asset or stock interest in
other companies unless for retirement and cancellation without notice to the
stock exchange.
To publish once in each year and submit to the stockholders, at least 15 days in
advance of the annual meeting of the company a statement of itsfinancialcondition, a consolidated income account covering the previous fiscal year and a
consolidated balance sheet showing the assets and liabilities at the end of the
year; or an income account and balance sheet of the parent company and of all
constituent, subsidiary or owned or controlled companies.
SALLE OF FOREIGN BONDS OR SECURITIES
591
To maintain, in accordance with the rules of the stock exchange, a fiscal agency
in the Borough of Manhattan, city of New York, where the principal of the bonds
with interest thereon shall be payable; also a registry office in the Borough of
Manhattan, city of New York, where the bonds shall be registerable as to prinir
cipal.
To notify the stock exchange 30 days in advance of the effective date of any
change in the authorized amount of the bonds.
Not to make any change in the bonds or of the trustee of the bonds without
the approval of the committee on stock list and not to select as a trustee an. officer
or director of the company.
To make application to the stock exchange for the listing of additional amounts
of listed securities prior to the issuance thereof*
To publish promptly to holders of the bonds any action in respect of interest
on the bonds, notice thereof to be sent to the stock exchange.
''
To publish such notices as may be required by the indenture with rspect to
redemption of bonds through the sinking fund or otherwise both in the United
States of America and elsewhere on the same calendar day.
GENERAL
The fiscal year of the company ends June 30.
The annual meeting of the company is held once in every year at such time
(not being more than 15 months after the holding of the last preceding annual
meeting) and place as may.be determined by the board of directors.
The company maintains offices at 53-54 Leadenhall Street, London, £ . C. 3,
and Calle Prat, 239, Valparaiso.
The directors are: E. A. Cappelen Smith, chairman; Alfred Houston, vice
chairman; Carlos Cavallero, Jose M. Rios Arias, Jorge Vidal, Carlos Castro
Ruiz, Edward Savage, Paul H. Mayer, Emiliano Figueroa, Robert Marsh, jr.,
Fernando Santa Cruz, and Joaquin Irarrazaval; Jorge Vidal, manager. ;
The London board is: Solomon Robert Guggenheim, chairman; Right Hon.
The Earl Castle Setwart, M. P., John Hunter, J William^ Egerton Mortimer,
L. M. Florent Pasquet, Admiral Sir Aubrey Smith, K. B. E., C. B., M. V. O.,
and E. A. Cappelen Smith: John Hunter, secretary.
The registrar of the bonds is City Bank Farmers Trust Co., New York City.
Both interest and principal are payable at the head office of the National City
Bank of New York, and are also collectible, at the option of the holder, at the
city office of the National City Bank of New York in London, England, in pounds
sterling, or, at the Amsterdamsche Bank, in Amsterdam, the Netherlands, in
guilders, in each case at the then current buying rate of such banks for sight
exchange on New York.
The outstanding interim receipts of the National City Co. for the bonds are
exchangeable at the office of the National City Co., in New York City, for bonds,
with certificates for common stock of said Lautaro Nitrate Corporation, j •
?
T H E LAXJTARO NITRATE C o . ( L T D . ) ,
By PAUL H . MAYER,- Director.
This committee recommends that the above-described $32,000,000 first mortgage 6 per cent convertible gold bonds, due July 1, 1954, included in Nos.
•M-l to M-32000 for SI,000 each be admitted to the list on official notice of
issuance in exchange for outstanding and listed interim receipts of the National
City Co., in accordance with the terms of this application. /
ROBERT GIBSON, Chairman.
Adopted by the governing committee, December 26, 1929.
,
ASHBEL GREEN,
Secretary.
This exhibit constitutes an essential part of the application. The statements of
fact contained in it are made on the authority of the applicant corporation in the
same manner as those in the body of the application.
-W
W;
W
EXHIBIT A?
-I-
m
. (SWKINO FUND ,, -L U:
r
*; The indenture provides in article 4, sections 22, 23, and 24, as follows: / "
5.. "Section 22. As and for a sinking fund for the retirement of the bonds, the
company will pay to the trustee on1 April 15, 1930, and semiannually thereafter
on October 15 and April 15 in each year, to and including October 15, 1932, a
592
SAI*E ;OF,; FOREIGN: BONDS; .OR SECURITIES
sum:in each case equal to $2.50 ifor each'ton of jiitrate extracted from any part
of the-first mortgage properties during the six months' period ending, on Decern?
ber. 31-or. June'30, as .the case may be, next preceding the date of such payment,
the.sums (if any) so paid being hereinafter referred to as 'Preliminary sinking
fund payments'; and on April 15, 1933, and semiannually thereafter, on October
15 and April 15 in each, year, so long as any; of the bonds remain outstanding and
unpaid, the company wiU pay to jthe trustee the sum ;of S782,250 (hereinafter
referred to as 1 Fixed, sinking fund payment') in each case; Provided, That, if the
total aggregate number of tons.of nitrate extracted from the first mortgage properties subsequently to June 30, 1929, and prior to the interest date next preceding
the date of any fixed sinking fund payment, shall be in excess of 275,000 tons
multiplied by the number of six months' periods elapsed between June 30, 1932,
and said interest date, the company shall pay to the trustee, at the time of making
such fixed sinking fund, payment, an additional sum (hereinafter referred to as
'Additional sinking fund payment') equivalent to $2.50 for each ton of nitrate
so extracted in excess, less a sum equivalent to the aggregate amount of all additional sinking fund payments (if any) previously made: And provided further,
That the aggregate amount of all preliminary sinking fund payments (if any)
shall be credited as payment on account of the fixed sinking fund payment due
April 15, 1933, the excess (if any) to be credited against subsequent fixed sinking
fund payments.
"Subsection A. For the purpose of the sinking fund, the number of tons of
nitrate extracted from the first mortgage properties shall be calculated as follows:
"(a) In case of nitrate extracted from unmixed ore, the number of tons of
nitrate actually extracted therefrom at the mortgaged plant shall be deemed to
be the amount of nitrate, contained in such ore, extracted from the first mortgage
properties.
" (b) In case of nitrate extracted from mixed ore, the aggregate nitrate content
of such ore shall be determined as nearly as practicable on the basis of the aggregate tonnage and the average grade thereof, and the plant extraction (as defined
in paragraph (z) of section 1 hereof) from such mixed ore shall be applied to the
nitrate content of so much thereof as was mined from the first mortgage properties; and the resulting multiple shall be deemed to be the amount of nitrate,
contained in such ore, extracted from the first mortgage properties: Provided,
That, in such calculation, the plant extraction applies to the nitrate content of
ore mined wholly from the first mortgage properties shall not be less than 84
per cent, irrespective of the actual plant extraction.
" (c) In case any ore mined from the first mortgage properties shall be delivered
for treatment to any plant other than the mortgaged plant, the aggregate nitrate
content of such ore shall be determined as nearly as practicable on the basis of
the aggregate tonnage and grade thereof, and an arbitrary plant extraction of 88
per cent shall be applied thereto; and the resulting multiple shall be deemed to
be the amount of nitrate, contained in such ore, extracted from the first mortgage
properties.
"Section 23. Any sinking fund payment may be made, at the option of the
company, either in cash or in bonds with all unmatured interest coupons attached,
or partly in cash and partly in bonds, which bonds shall be accepted by the trustee
at a value equivalent to the redemption price thereof. Upon conversion of any
bond or bonds into dollar preferred shares, in accordance with the provisions of
article 9 hereof, the company shall, at its option, be entitled to a credit on account
of any sinking fund payment or payments becoming due subsequently thereto,
in an aggregate amount equal to 105 per cent of the principal amount of any bond
or bonds so converted.
"Section 24. Any cash at any time paid into the sinking fund shall be applied
by the trustee to the redemption of bonds, in the manner provided in this article 4,
on the next succeeding interest date, at the said redemption price: Provided,
That such cash shall be sufficient to redeem not less than $50,000, aggregate
principal amount, of bonds.
"Any such cash shall be so applied by the trustee in the following manner:
" I f , 70 days prior to any interest date, there shall be on deposit with the trustee
for account of the sinking fund, a sum in cash sufficient to redeem, at the said
redemption price, bonds of an aggregate principal amount of $50,000, or more, the
trustee shall select, by lot, in any manner deemed by the trustee to be fair, for
redemption on such interest date, such number of bonds as shall equal the amount
of such cash divided by 1,050, without taking into account any fractions in such
result, and shall thereupon cause notice of redemption of the bonds so selected
to be given in the manner provided in section 21 hereof/'
SALLE OF FOREIGN BONDS OR SECURITIES
593
AMERICAN I . G . CHEMICAL CORPORATION
(A corporation organized under the laws of Delaware on April 26, 1929)
GUARANTEED 5H PER CENT CONVERTIBLE DEBENTURES I'
(Guaranteed by I. G. Farbenindustrie Aktiengesellschaft (I. G. Dyes), Frankfort
on the Main, Germany)
i
:'
Original listing: Definitive engraved debentures in exchange for. outstanding
listed interim receipts of the National City Co.
/
V , ! 7 ' VV
;
Total authorized issue
: $30, 000, 000
Amount outstanding
29, 990, 000
Amount applied for
„
_
29, 990, 000
T
Authorized by board of directors, April 26, 1929; no other authority required.
Capital securities
, Number of shares
Par value
Authorized
by charter
Authorized
for issue
Previous- Outstandly listed
ing
$3,000,000
3,000,000
$910,000
3,000,000
None.
None.
$400,170
3,000,000
30,000,000
None.
29,990,000
STOCK
Classes:.
Common, class A
Common, class B
None.
None.
BONDS
Guaranteed 5H per cent convertible debentures, due May 1, 1949
Interest
rate
5H
Amount
authorized
30,000.000
N E W YORK CITY, June J , 1929.
American I. G. Chemical Corporation, a corporation organized and existing
under the laws of Delaware (hereinafter referred to as the " company") hereby
makes application to have listed on the New York Stock Exchange $29,990,000,
aggregate principal amount, of its definitive engraved guaranteed 5% per cent
convertible debentures (hereinafter called the "debentures"), due May 1, 1949,
included in Nos. M - l to M-29990 of the denomination of $1,000 each, on official
notice of issuance and in exchange for outstanding and listed interim receipts of
the National City Co.
AUTHORITY FOR ISSUE
The debentures issued under and secured by a trust agreement, dated May 1,
1929, executed by the company, I. G. Farbenindustrie Aktiengesellschaft (I. G.
Dyes), as guarantor (hereinafter sometimes referred to as the 1 guarantor"), and
the National City Bank of New York, as trustee (hereinafter referred to as the
"trustee"). Execution of the said trust agreement and the issue of the debentures were authorized by resolution of the board of directors adopted April 26,
1929. No further authority required.
PURPOSE OP ISSUE
The proceeds from the sale of the debentures will be used to acquire the stock
of certain American chemical companies and for the purpose of fostering and
financing the development of chemical and allied industries.
The bonds were sold by bankers at 95 and interest.
SOCIETY
The debentures are the direct credit obligations of the company and are secured
by various restrictive covenenats which are discussed in detail under the heading
"covenents."
GUARANTY
The guarantor guarantees as and for its own debt the due and punctual payment of the debentures, at maturity, or, in case of redemption thereof prior to
maturity, upon such redemption, and the premium, if any, in case of redemption
'594
SALE1
OF FOBEIGN- BONDS OB' SECURITIES
thereof prior to maturity, and the due and punctual payment of the interest
thereon as the same becomes due from time to time. The guaranty is indorsed
upon each of the debentures, in form as provided in the said trust agreement,
executive with the facsimile signatures of two duly authorized representaves of
of the guarantor and countersigned by a duly authorized representative of the
guarantor.
The guarantor has irrevocably appointed the company, as and for its duly
authorized representatives during the life of the said trust agreement upon whom
all notices and demands and any and all service of legal process with respect to
the debentures and the said trust agreement may be served with the same legal
force, effect, and validity as if served upon the guarantor.
DESCRIPTION OF THE DEBENTURES
The debentures referred to in the said trust agreement as "guaranteed B}i per
cent convertible debentures" are dated May 1, 1929, mature May 1, 1949 and
bear interest at the rate of 5)4 per cent per annum, payable semiannually on
November 1 and May 1 in each year. Both principal and'interest are pavabie at
the head office of the trustee, in the Borough of Manhattan, city and State of
New York, in gold coin of the United States of America of or equal to the standard
of weight and fineness existing May 1, 1929; both principal and interest arc also
collectible, at the option of the holder, either at the city office of the National
City Bank of New York, in London, England, in pounds sterling, or at the
Deutsche Laenderbank Aktiengesellschaft, Berlin, Germany, in reichsmarks, in
each case at the then current buying rate of the respective banks for sight exchange
on New York.
The debentures are in coupon form in the denomination of SI,000 each and are
not registerable.
The debentures are executed in the company's name by its president or a
vice president, impressed or imprinted with the corporate seal or a facsimile
thereof, attested by its secretary or assistant secretary, and are authenticated by
the National City Bank of New York, as trustee; the interest coupons attached
to the debentures are executed with the facsimile signature of the company's
treasurer.
CONVERSION PRIVILEGE
The debentures are convertible, at the option of the holder, at any time prior
to January 1,1939, or, in case this debenture shall be called for earlier redemption,
then at any time up to and including the sixth full day prior to the date designated
for such redemption, into full paid and non-assessable common A shares of the
company, without par value, as the same shall be constituted at the time of such
conversion, at the rate of (a) 17 shares of such stock for the principal amount
thereof, if converted on or before December 31, 1931, (6) 16 shares of such stock
for the principal amount thereof, if converted after December 31, 1931 and before
January 1, 1933, (c) 15 shares of such stock for the principal amount thereof, «
converted after December 31,1932, and before January 1, 1934, (d) 14 shares of
such stock for the principal amount thereof, if converted after December 31,1933,
and before January 1, 1935, (e) 13 shares of such stock for the principal amount
thereof, if converted after December 31, 1934, and before January 1,1936, if)
12 shares of such stock for the principal amount thereof, if converted after
December 31, 1935 and before January, 1937, (g) 11 shares of such stock for the
principal amount thereof, if converted after December 31,1936 and before Januarv
1, 1938, and (h) 10 shares of such stock, for the principal amount thereof, u
converted after December 31, 1937, and before January 1, 1939, and at rates
proportionate thereto in case of certain changes In the capitalization of the
company of the character described in the said trust agreement, with a cash
payment of accrued interest and a cash adjustment for any balance of principal
not evenly converted (at the rate at which such principal is converted) into whole
shares of stock all in the manner and subject to the terms and conditions as
provided in the said trust agreement.
INDEBTEDNESS
The debentures constitute the only funded debt of the company, the aggregate
principal amount of which, under "the said trust agreement, is not to exceed
$30,000,000.
SALLE OF FOREIGN BONDS OR SECURITIES
595
DEFAULT
In the event that there is any default by the company and the guarantor in the
payment of principal of any debenture when due, whether at maturity or pursuant
to notice of redemption or otherwise, or, in the payment of the premium, if any;
payable thereon, in the case of redemption thereof prior to maturity, or, in the
the payment of any interest on any debenture which shall continue for a period
thirty days, or, in the performance or observance of any other covenant or agreement on the part of the company in any of the debentures, or in the trust agreement contained, which shall continue for a period of sixty days after written
notice thereof shall have been given to the company by the trustee, which may
in its discretion give such notice as hereinafter provided, unless within such period
the company shall have in good faith commenced proceedings to remedy such
default, and/or the company or the guarantor shall be adjudicated a bankrupt
by a court of competent jurisdiction or by order of any such court a receiver of
any essential portion of the property of the company shall be appointed and
such order shall have continued in effect for a period of ninety days, undischarged
or unstayed, on appeal or otherwise, then in each and every case the trustee may;
and upon the written request of the holders of 25 per cent of the aggregate
principal amount of all the debentures than outstanding, shall by* written notice;
mailed or delivered to the company, declare the principal of all the debentures
then outstanding to be due and payable immediately and, upon such declaration,
the same shall become and be immediately due and payable, anything in the said
trust agreement or in the debentures contained to the contrary notwithstanding,
subject, however, to the condition that, if at any time after the principal of the
debentures shall have been declared due and payable, all arrears :of interest
such debentures, with interest on overdue installments of interest at the rate of
6 per cent per annum and all expenses and charges of .the trustee, its agents^
attorneys and counsel, and all other sums payable under the said trust agreement
for any purpose, shall be paid and every default in the performance or observance
of any covenant or agreement in the said trust agreement or debentures contained
shall have been made good or secured, then in each and every such case the
holders of a majority o f the aggregate principal amount of the debentures then
outstanding, by written notice to the company and the trustee, may waive such
default and rescind such declaration of. maturity as, except for such declaration;
would not have been or become so due and payable, and such waiver by.a majority
of the aggregate principal amount , of the outstanding debentures shall bind all
holders of the debentures then outstanding: Provided, That no such waiver or
rescission shall extend to or affect any subsequent default o r impair-any right
consequent thereon.
...
. i .
. Anything in the said trust agreement contained to > the contrary notwithstanding the trustee may at any time upon the written request of the holders of a
majority of the aggregate principal amount of the debentures at the time: out^
standing, waive any default mentioned in the said trust agreement except:a
default in the payment of principal or interest of any of the debentures when and
as the same shall become due and payable by the. terms thereof.
'•"if
REDEMPTION OF DEBENTURES
The company shall have the right at its option to redeem in the following
manner all or any of the debentures outstanding under the said trust agreement,
in whole or in part, on any interest date prior to maturity, at a redemption
price equal to 110 percent of the principal thereof, if redeemed on or before November 1, 1938, or for the principal amount thereof if redeemed thereafter. If at
any time the company desires to redeem less than all the debentures at the time
outstanding, it shall notify the trustee in writing of the aggregate principal
amount thereof which it desires to redeem, specifying the interest date (which
shall not be less than seventy-five days after such notification) on which it desires
to make redemption. As soon as practicable thereafter (and in event within
10 days) the trustee shall select by lot in any manner deemed by the trustee to be
fair, the particular serial numbers of the debentures to be redeemed and shall
certify to the company the serial numbers so selected. The company shall
thereupon publish in at least two daily newspapers, written in the English
language, published and in general circulation in the Borough of Manhattan,
city and State of New York, once a week for eight successive weeks, the first
publication being not less than 60 days prior to the interest date on which redemption is to be made, notice of redemption of such debentures, specifying the serial
numbers thereof and the date of redemption and requiring that such«debentures
'596
SALE1
OF FOBEIGN- BONDS OB' SECURITIES
be surrendered at the head office of the trustee in the Borough of Manhattan,
city and State of New York, for redemption at the redemption price thereof
payable out of the money deposited with the trustee as provided in the said
trust*agreement, and giving notice, also, that, on such date, interest on such
debentures shall cease to accrue. In the event that the redemption shall be of
the whole of the debentures outstanding at the time, it shall give notice thereof
in like manner, except that the notice need not specify the serial numbers of the
debentures to be redeemed. All debentures redeemed pursuant to any of the
provisions of the said trust agreement shall forthwith be cancelled by the trustee
and shall be delivered to or upon the written order of the company and no
debentures shall thereafter be issued in lieu thereof.
COVENANTS
The company covenants with the trustee and with the respective holders of
the debentures, that it will duly and punctually pay or cause to be paid the principal and interest of all the debentures issued under said trust agreement in
accordance with the terms thereof, and, so long as any of the debentures remain
outstanding and unpaid, the company (a) will at all times keep an office or agency
in the Borough of Manhattan, city and State of New York, where notices and
demands with respect to the debentures and said trust agreement may be served,
and will, from time to time, give notice to the trustee of the location thereof
and in case the company fails so to do, notices and demands may be served at
the head office of the trustee in the Borough of Manhattan, city and State of
/ New York; (6) will not directly, or indirectly, extend or assent to the extension
of the time for the payment of any interest coupon or claim for interest of or
upon any debenture1, and it will not be a party to any arrangement by purchasing
or refunding or in any manner keeping alive such interest coupon or claim for
interest; (c) will not execute any mortgage upon, or make any pledge of, or
create or suffer to be created any lien or charge on, any of its assets as security
for any indebtedness of any character, without expressly providing that all
debentures then outstanding so be secured ratably with any other indebtedness
secured by such mortgage, pledge, lien or charge, provided, that this covenant
shall not apply (1) to the execution of any purchase money mortgage on any
fixed property, as defined in the said trust agreement, acquired by it or to the
acquisition by it of fixed property subject to, and if the company so elects, the
assumption by it of the payment of, ah existing mortgage or mortgages thereon,
if the aggregate indebtedness secured by such purchase money or other mortgage
or mortgages shall not exceed 60 per cent of the cost or fair value (whichever
shall be less) of the fixed property so acquired, or (2) to the pledge by the company of personal property as security for anv notes, debts or other obligations
incurred in the regular course of business and maturing within 12 months from
the date of incurring the same; (d) will not consolidate or merge with or into
any other corporation, or sell all, or substantially all, of its properties and assets
to any other corporation, except upon the terms and conditions set forth in said
trust agreement, and the company will not enter into any such consolidation or
merger or make any such sale, if the holders of 66JS per cent or more, of the
aggregate principal amount, of the debentures then outstanding shall object, in
the manner as provided in the said trust agreement; (e) will at all times maintain,
preserve and keep all its property, furnishings, and fixtures in thorough repair,
working order and condition so far as advantageous (in the judgment of^ the
board of directors of the company) to the business of the company; (f) will do
or cause to be done all things necessary to preserve and keep, in full force ana
effect, its corporate existence and franchises, except as may be otherwise permitted by law or by its certificate of incorporation, and will c o m p l y with all
lawful requirements of the laws of any State of the United States of America
and of any other government applicable to the company, and will not voluntarily
do, suffer or permit any act or thing designed to hinder, delay or imperil the
payment of the indebtedness evidenced by the debentures; (g) will promptly
pay and discharge, or cause to be paid and discharged, any and all lawful taxes,
rates, levies, assessments, liens, claims or other charges levied or assessed against,
or imposed, or accruing on, the company, or against or on any of its properties
or any part thereof, or upon the income derived therefrom, or fromthe operations
of the company; provided, that the company shall not be required to pay or
discharge, or to cause to be paid or discharged, any such tax, rate, levy, assessment, lien, claim or other charge so long as in good faith and by appropriate
legal proceedings the validity shall be contested; (ft) will keep or cause to oe
SALE OF 1 FOREIGN'' -BONDS' 'OR! SECURITIES
597
kept all the buildings, structures, machinery/'equipment/ furnishiiigs; fixtures,'
products, materials, and supplies which the company may at anytime own or
acquire, of a character such as is customarily insured, insured in good'and responsible insurance companies, or at the option of the company, by means of adequate
insurance reserves set aside and maintained out of the gross earnings, against
loss or damage to the extent and in the amount (if any) that similar properties
are customarily insured; (t) will not, as provided in the said trust agreement,
alter or amend its certificate of incorporation, as filed in the office of the Secretary
of State of the State of Delaware on April 26, 1929; (j) will within 90 days after
the close of each fiscal year, render to the trustee a statement of the income
account of the company for such fiscal year and a balance sheet of the company
taken at the close thereof, certified by the president or ivice president and the
treasurer or assistant treasurer of the company and audited by a competent
accountant or firm of accountants satisfactory to the trustee; and(&) the company, so long as any of the conversion rights of any of the debentures have not
been exercised, will not issue any of the stock or other securities convertible at
any time into the common A shares of the company at a price less than the conversion price, determined in accordance with the provisions of the said trust
agreement.
. ij ,
"
AMERICAN I. G. CHEMICAL CORPORATION
History and purpose.—As a result of the development of its world-wide activities, I. G. Farbenindustrie Aktiengesellschaft (as more fully described below)
found it expedient and desirable to cause a corporation to be organized in the
United States under the name of American I. G. Chemical Corporation. This
company was incorporated on April 26, 1929, under the laws of the State of
Delaware, and endowed with broad corporate powers to foster and finance the
development of chemical and allied industries in the United States of America
and elsewhere. All of its 'common Btock now outstanding was issued against
cash, or for the acquisition of stocks of certain American chemical companies,
including substantial interests in Afga-Ansco Corporation and General Aniline
Works (Inc.) (formerly Grasselli Dyestuff Corporation); which two companies
are more fully described below. The company also intends to participate in
other chemical enterprises, especially in the development of new fields of chem4
f
ical activity.
Capitalization.*—The capital structure of the American I. G. is as follows:
. . >
. . . . . . .
. ,..
Guaranteed 5H per cent convertible debentures
Authorized
-
;$30.ooo.oco
do..„j
Cqmmon B shares, no par v a l u e . _ „ 4 - —
3,000.000
Outstanding
$29,990,000
400,170
3,000,000
' A'sufficient number of the comihon A shares will' be at all times reserved to
provide for the convertible debentures. In addition the I. G.. Farbenindustie
Aktiengesellschaft has been granted an option exercisable from time to,time prior
to January
1935, to purchase as a whole or in part from the company, common
A shares, the aggregate of any such purchase or purchases not to exceed 1,000,000
shares, at prices equivalent to the current prices'at which the debentures are
convertible, $s provided in the said trust agreement, j-j•! 1 .
v. j
J;
Balance .sheet as %f May * 31', 1929
'^i.;^''
ASSETS
-J-.!-^
Cash and demand loans
. . - . - I J - - . . . $10, 956,107. 29
Loans due within 3 0 d y a s . . _ .
„ 5, 690, 000. 00
Bills and accounts receivable-— 2 1 , 071, 948. 10
Securities
;
----J L1 - -1'--- ^ -s^fr n'-i'-r -r — 2 0 , 7 6 7 , 000. 00
Organization expenses and deferred c h i r g e s ' - ^ - i ; - . j - r ,;. 2, 768, 32L 42
Accrued interest
T«1- r T
sV*^- tie!-rri rr. - -K-i r - ; 153, 800.; 59
_
j f.
M'-wl '.i/rji.?>l *?v? 'itilV. !!tn >.v- • '.-.L" J Ir.-:
;.v61, 407, 177, 40
Total assets
. j-ii'Uis^ii f:i
t
Notes and accounts payable
Accrued interest payable
sfrm ,r..'>
5 Hi LIABILITIES;i-.iV/
--——-
i
-
<~:—" • ..•; •
"i V-.-M n
408, 053. 00
138, 906. 27
'598
SALE1
OF FOBEIGN- BONDS OB' SECURITIES
Guaranteed 5% per cent convertible debentures:
Original issue.
$30,000,000.00
Converted
LL_.__--J_-.__10, 000. 00
Outstanding.
_ l __ ^
1
Capital:
Common stock A, no par value—,
Authorized shares
Unissued shares
- - - -1 -
_ . . $29, 990,000.00
3, 000, 000. 00
2, 599, 830. 00
Issued and outstanding
400, 170
Common stock B no -par value, authorized, issued, and outstanding. _ ^ i . Paid-in surplus,_ • _ ^ _ _ _ i
Net profit to May 31, 1 9 2 9 . „ . _
Total liabilities- ^ _ - -
10, 004, 250.00
3,000,000.00
17,771, 850.00
94,118.13
61,407, 177. 40
Earnings available for interest.—It is expected that the net earnings of .the
company from the securities acquired by it, together with an amount equal to
6 per cent interest upon the initial cash funds in its treasury, will amount to more
than double the amount necessary for the payment of debenture interest.
" *)• ' • fil*'
'
AGFA-ANSCO CORPORATION
The Agfa-Ansco Corporation, incorporated in the State of New York> is enr
gaged in the manufacturing and selling of films, photographic materials, and
apparatus, and in this line is the second largest enterprise in the United States.
The company'has factories in Binghamton, Johnson City, and Afton, N. Y., and
is now completing the construction of a large modern film plant in Binghamton.
It has acquired all the.assets of Ansco Photo Products (Inc.), at Binghamton,
and of Agfa Photo Products of New York City, and, further, the entire capital
stock of Agfa Raw Film Corporation of New York City. Under a contract
with I. G. Farbenindustrie Aktiengesellschaft, Agfa-Ansco has the sole right in
the United States to manufacture all photographic products developed by I. G.
Farbenindustrie Aktiengesellschaft. Of the 300,000 common shares without par
value outstanding, the company owns 120,000 and of the $5,050,000 par value
7 per cent cumulative preferred shares outstanding the company owns $2,020,000
par value.
GENERAL ANILINE WORKS (INC.), FORMERLY GRASSELL1 DYESTUFF CORPORATION
, The General Aniline Works (Inc.), is engaged in the manufacture of synthetic
organic chemicals and dyestuffs. It has a plant in Albany, N. Y., and in Linden,
N. J., where it manufactures a great variety of dyestuffs. Production has shown
steady and consistent growth, so that during the past two years the plant equipment had to be considerably increased.
Under a contract with I. G. Farbenindustrie Aktiengesellschaft, it has the
permanent right to exploit in the United States all duestuff patents and inventions developed by the plants of I. G. Farbenindustrie Aktiengesellschaft. The
products of General Aniline Works, Inc. are sold by the General Dyestuff Corporation, New York, which maintains branches and warehouses in the industrial
centers of the country. The corporation is also the beneficiary of profits derived
from the manufacture and sale of medicinal and pharmaceutical products. Of
the 130,000 capital shares of no par value, the Company owns 58,500 shares.
1. G. FARBENINDUSTRIE AKTIENGESELLSCHAFT
History.—'The I. G. Farbenindustrie Aktiengesellschaft was originated at the
end of 1925 from the merger of the following Stock Companies previously associated in chemical and allied industries:
f v
Badische Anilin & Soda Fabrik in Ludwigshafen a.Kh.
Farbenfabriken vorm. Friedr. Bayer & Co. in Leverkusen
Farbenfabriken vorm. Meister Lucius & Bruening in Hoechst a/M
Actiengesellschaft fuer Anilin Fabrikation in Berlin
Chemische Fabrik Griesheim Elektron in Frankfurt a / M
Chemische Fabriken vorm. Weiler;ter Meer in Uerdingen
SALE OF .FOREIGN: BONDS: OR SECURITIES
599
The absorbing company, the Badische Anilin <fc Soda Fabrik, was founded in
1865, with principal office in Ludwigshafen a/Rh. At the time of the merger its
firm name was changed to I. G. Farbenindustrie Aktiengesellschaft and its principal office transferred to Frankfurt a/M. The business of the other companies
are still carried on, as branches of the Company, with a corresponding addition
to their firm names.
On the strength of the decision of the general meeting of the I. G. Farbenindustrie Aktiengesellschaft on September !, 1926, the assets of the Koeln-Rottweil
A. G. Berlin, were taken over as of January 1, 1926. The powder factories of
this enterprise existing since 1872 were leased to the Dynamit A. G., formerly
Alfred Nobel & Co., in Hamburg, while the other factories (artificial silk, linoleum, etc.) are operated by the I. G. Farbenindustrie Aktiengesellschaft.
Business.—The I. G. Farbenindustrie Aktiengesellschaft is one of the largest
and most successful corporations in the world engaged in.chemical and allied
industries. I. G. Farbenindustrie Aktiengesellschaft manufactures and distributes practically everj- chemical product required to cover the ever increasing
demands of modern commerce, industry, and agriculture. The more important
products include dvestuffs; pharmaceutical products, insecticides, and fungicides; organic and inorganic chemical products; solvents and lacquers; light
metals (elektronmetal); photographic articles and films; artificial silk; synthetic
nitrogen, fertilizer, and other nitrogen products; synthetic gasoline.
The annual capacity of the synthetic nitrogen plants is over 600,000 tons of
pure nitrogen, or over one-third of the present total world consumption. Within
the last few years I. G. Farbenindustrie Aktiengesellschaft has also evolved a
process (the so-called hydrogenation process) of making synthetic gasoline from
coal, and is actually producing and marketing this product in Germany in increasing quanities."
In 1927 I. G. Farbenindustrie Aktiengesellschaft entered into a contract with
the Standard Oil Co. of New Jersey for the joint exploitation in the United States
of this hydrogenation process for treating crude oil. Negotiations are now proceeding looking to a broader working arrangement between the Standard Oil
Co. of New Jersey and I. G. Farbenindustrie Aktiengesellschaft.
Properties and employees.—I. G. Farbenindustrie Aktiengesellschaft, directly
or through its affiliated or constituent companies, controls supplies of the principal raw materials needed in its manufacturing processes. Its real estate aggregates nearly 20,000 acres, including the sites of its great factories in excess of 100,
and brown coal mines with an annual production of about 20,000,000 tons.
It has 478 miles of private railway lines on which it operates over 12,000 privately
owned freight cars and locomotives. Total employees number over 140,000, including some 2,000 chemists and engineers engaged in scientific research in its
laboratories.
Earnings available for guarantee.—The net earnings of the guarantor, available
for depreciation and dividends upon its stock, averaged during the three years
1926, 1927, and 1928 approximately $40,440,000, or over twenty-four times the
maximum interest requirement ($1,650,000) on these debentures. For the year
1928 such earnings amounted to over twenty-seven times such interest requirements.
Policy as to maintenance and depreciation.—The company sets aside an exceptionally large portion of its earnings to depreciation.
Although the total fixed assets of the company are carried at approximately
$107,500,000, the following amounts have been written off for depreciation,
depletion, etc.:
192 4
$10,770,000
192 5
-
—
-
12, 800, 000
192 6
17, 906, 000
192 7
—
17, 788, 000
1928
17,082,000
Governmental restrictions.—There are no governmental restrictions against any
payments which the I. G. Farbenindustrie Aktiengesellschaft might be called
upon to make as guarantor of these debentures.
Currency.—Conversions of reichsmarks to dollars in this listing application have
been made at par of exchange, $1 equal to 4.2 reichsmarks.
92928—32—PT 2
20
600
SALE
OP,
FOREIGN;
BONDS OR SECURITIES
Capitalization
Authorized
Reichsmark
Convertible debentures, variable interest.
6 per cent preferred stock, series A (Reichsmark
7100,000,000 held for account of company)..
3H per cent preferred stock, series 6
Common stock (Reichsmark 160,702,200 held for
, account of company).:.....
Dollars
Outstanding
Reichsmark
Dollars
250,000,000
SO, 523,810 1249,823,600
59,481,810
100,000,000
40,000,000
23,800,524
0,523,810
None.
40,000,000
None.
9,523,810
960,000,000
228,571,429
799,297,800 190,309,000
> Entire Reichsmark 250,000,000 issued, hut 170,400 already converted.
" The present market value of the outstanding common stock of I. G. Byes is
approximately $500,000,000.
Financial statements, J. G. Farbenindustrie Aktiengesellschaft
1. Profit and loss account for the years ending December 31, 1926, 1927, and
1928.
•
2. Balance sheet for the years ending December 31, 1926, 1927, and 1928.
(1) PROFIT AND LOSS ACCOUNT
(The net following profit figures are arrived at after deducting annual payment on account of Dawes debenture charges]
Dec. 31,1020
Reichsmark
Gross profit
.....................
.................
Less expenses:
General overhead
—
Interest on b o n d s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation
....
Net profit....
Surplus carried forward
:•
..........
Totai proflt and loss account
-
Dollars
Dec. 31,1927
Reichsmark
Dollars
Dec. 31,1928
Reichsmark
Dollars
186,074,625.56
44,285,700.00
224,303,485.26
63,384,200.00
257,139,238.00
61,199,100.00
42,110,400.22
10,024,400.00
48,740,643.00
11,602,400.00
75,236,860.07
17,900,466.66
74,741,809.00
17,788*600.00
61,904,541.00
15,000,000.00
71,776,628.00
12,353,300.00
3,570,000.00
17,082,800.00
117,356,270.10
27,930,800.00
123,491,352.00
29,391,000.00
138,681,069.00
33,006,100.00
68,718,255.37
1,805,604.49
16,354,900.00
429,700.00
100,812,133.26
2,396,739.86
23,993,200.00
570,400.00
118,458,169.00
4,426,777.92
28,193,000.00
1,053,600.00
70,623,859.80
16,784,600.00
103,208,873.12
24,563,600.00
122,884,046.92
29,246,600.00
107,655,900.00
72,890,300.00
81,426,000.00
119,112,900.00
69,759,100.00
(2) BALANCE SHEET
'
>;;
346,890,932.70
201,134,166.63
226,034,585.44
454,672,970.50
215,303,482.35
82,561,600.00
62,149,900.00
63,796,200.00
108,212,100.00
61,256,500.00
382,462,743.62
296,143,054.77
246,914,828.46
411,802,197.00
101,274,227.96
91,026,100.00
70,482,100.00
. 58,527,700.00
98,008,900.00
45,523,300.00
451,915,469.19
306.261.581.16
342,126,143.36
500,474,465.76
251.088.762.17
67,880,200.00
35,490,000.00
16,155,600.00
.8,446,600.00;
67,880,200.00
35,490,000.00
, 16,165,500.00
8,446,600.00
80,212,200.00
80,490,000.P0
103,370,200.00
24,602,100.00
103,370,200.00
'24,602,100.00
160,702,200.00
Subscribed preferred stock " A " in treasury;
Paid in .
.
Not paid in
40,000,000.00
120,000,000.00
9,520,000.00
28,560,000.00
40,000,000.00
120,000,000.00
9,620,000.00
28,660,000.00
25,000,000.00
75,000,000.00
17,850,000.00
Subscribed preferred storks series " H " unpaid
160,000,000.00
20,600,250.00
38,080,000.00
6> 332,300.00
100,000,000.00
26,606,250.00
38,080,000.00
6,332,300.00
100,000,000.00
26,606,250.00
23,800,000.00
6,332,300.00
1,794,078,587.62
426,990,700.00
1,817,673,501.71
432,582,500.00
2,139,174,861.63
600,123,600.00
0ah
hf.
S:
Ws
O-
1
ASSETS
Plant, buildings; machinery, equipment, railways
Bond and stock Interests In affiliated and other companies
Inventories...........
,
Receivables..........
Cash on hand and in banks
subscribed common stock in treasury:
1 .raid in...
•V Not paid i n . . . . ; . . . . . . ' - .
i
I
-
—
—
-—
19,090,500.0019,150, COO. 00 :
!
38,247,100.00
S-
$
Q
Mv
6,050,000.00
or
O;
(2) BALA NO K SHEET—Continued
Deo. 31, 1926
Reichsmark
LIABILITIES
Common stock
Preferred stock, series " A "
Preferred stock, sories1 * B "
Reserve fund
Pension and support fund.....
Jubilee fund
,
Foundations..
Funded debt
..........
Called bonds outstanding.......
Unclaimed back dividend, etc....
Accrued bond Interest
Accounts payable:
Due banks...
Duo others
Profit from current year
Profit
Dollars
000,000,000.00 214,200,000.00
160,000,000.00 38,080,000,00
520,000.00
40,000,000.00
173,154,003. OA 41,210,000.00
10,329,200.00
43,400,000.00
714,000.00
3,000,000.00
572,200.00
2,404,168.00
1,839,400.00
7,728,680.50
..
.
Doc. 31, 1927
Belchsmark
Dollars
900,000,000.00 214,200,000.00
160,000,000.00 38,080,000.00
40,000,000.00
9,520,000.00
176.254,618* 53 : 41,948,600.00
43.400,000.00
10,329,200.00
3,000,000.00
714,000.00
2,840,979.15
676,200.00
062,131.59
229,000.00
Deo. 31,1928
Reichsmark
960,000,000.00
100,000,000.00
40,000,000.00
188.291,355.68
43.400,000.00
3,000,000.00
2,938,717.09
254). OOO) OOO. 00
471.765.08
014,040.19
15,000,000.00
Dollars
228,480,000.00
23,800,000.00
9,520,000.00
44,813,300.00
10,329,200.00
714,000.00
699.700.00
59,500,000.00
112.300.00
140,100.00
3,570,000.00
201,167.13
47,000.00
366,691.57
87,300.00
83,412,845.81
310, 252,985.38
11), 852,300.00
73,840,200.00
06.767,154.90
320,773,061.85
15,890.600.00
76,844,000.00
82.097,711.33
330,475,325.34
19,539.300.00
78,653.100.00
303.6OS.83l.22
92,602,500.00
387, MO. 207.75
02; 234.600.00
412,573,036.67
US, 192,400.00
1,805,601. 49
68,718,255.37
429,700.00
i6,3M,ooaoo
2.396,730,86
100,812.133.23
570,400.00
23,993,200.00
4,426.777.92
118,45S, 169.00
1,05:1600.00
28,193,000.00
16,784,600.00
103,208,873.13
21,603,600.00
12*2,8&4,946.92
29,246.600.00
432; 582,500.00 2,139,174.861.63
509.123.600.00
70,523,850.86
1,794,078,587.52
426, WOO, 700.00 1.817,673.501.71
SALE OF FOREIGN, BONDSOR;TSECURITIES
603;
AGREEMENTS
American I. G. Chemical Corporation' agrees with the New York Stock Exchange as follows:
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To notify the stock exchange in the event of a change in the character of its
business.
To notify the stock exchange in the'event of any substantial change in the
management or affiliations of the company.
To submit statement of earnings annually.
To publish once in each year and submit to stockholders at least 15 days in
advance of the annual meeting of the company a statement of its financial
condition, an income account covering the previous fiscal year, and a balance
sheet showing assets and liabilities at the end of the year.
To maintain, in accordance with rules of the stock exchange, an agency in the
Borough of Manhattan, city and State of New York, where the principal of all
listed securities, with interest thereon, shall be payable, also a registry office in
the Borough of Manhattan, city of New York, where all listed stocks shall be
registered.
To notify the stock exchange 30 days in advance of the effective date of any
change in the authorized amount of listed securities.
Not to make any change in listed securities, of a transfer agency or of a registrar
of its stock, or of a trustee of its bonds or other securities without the approval of
the committee on stock list and not to select as a trustee an officer or a director
of the company.
To notify the stock exchange in the event of the issuance or creation in any form
or manner'of any rights to subscribe to or to be allotted its securities or of any
other rights or benefits pertaining to ownership in its securities so as to afford
the holders of its securities a proper period within which to record their interests,
and that all rights to subscribe or to receive allotments and all other such rights
and benefits shall be transferable and shall be transferable, payable, and deliverable
in the Borough of Manhattan, city of New York.
To make application to the stock exchange for the listing of additional amounts
of listed securities prior to the issuance thereof.
To publish promptly to holders of bonds any action in respect to interest on
bonds or allotment of rights for subscription to securities, notices thereof to be
sent to the stock exchange, and to give to the stock exchange at least 10 days'
notice in advance of the closing of the transfer books or extensions or the taking
of a record of holders for any purpose.
GENERAL
The fiscal year of the American I. G. Chemical Corporation is from January 1
to December 31.
The legal seat of the company is in the city of Wilmington, county of Newcastle,
State of Delaware.
The annual general meeting of shareholders will be held at the office of the
company in the city of New York, State of New York, on the second Tuesday
in the month of April.
The board of directors consist of Prof. Dr. Carl Bosch, Walter Duisberg, Edsel
B. Ford, W. Greif, Max Ilgner, Adolf Kuttroff, Dr. F. ter Meer, Herman A.
Metz, Charles E. Mitchell, Hermann Schmitz, Walter Teagle, William H. Yom
Rath, Paul M. Warburg, W. E. Weiss.
The officers of the corporation are: Hermann Schmitz, president; W. Greif,
first vice president; Herman A. Metz, vice president and treasurer; Max Ilgner,
vice president; William H. Vom Rath, secretary; R. W. Ilgner, assistant secretary;
G. Frank Fahle, assistant treasurer.
The transfer agent, for the common A shares, of the company is the National
City Bank of New York.
The registrar, for the common A shares, of the company is Bank of the Manliattan Co.
Both principal and interest on the debentures are payable at the head office
of the National City Bank of New York, Borough of Manhattan, New York
City.
By
AMERICAN I . G . CHEMICAL CORPORATION,
WILLIAM H. VOM R A T H , Authorized Representative.
604
SALE OP, FOREIGN; BONDS OR SECURITIES
This committee recommends that the above-described $29,900,000 5)i per cent
convertible debentures, due May 1, 1949, included in Nos. M - l to M-29990,
for $1,000 each, be admitted to the list on official notice of issuance in exchange
for outstanding interim receipts, in accordance with the terms of this application*
ROBERT GIBSON, Chairman.
Adopted by the governing committee, June 26, 1929.
ASHBEL G R E E N , Secretary.
SALE OF FOREIGN BONDS OR SECURITIES IN THE
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UNITED STATES
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WEDNESDAY, JANUARY 6, 1932
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UNITED STATES;SENATE,
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C O M M I T T E E ON F I N A N C E , 1 1 ;
Washington, D- O.
The committee met at 10 o'clock a. m., pursuant to adjournment
on yesterday, in the committee hearing room in the. Senate Qffice
Building, Senator Reed Smoot presiding.
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Present: Senators Smoot (chairman), Shortridge, Couzexis, Thomas
of Idaho, Jones, King, George, and Gore.
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Present also: Senator Johnson.
The C H A I R M A N . The committee will come to order. Mr. James
Speyer, of Speyer & Co., will be our witness. Mr. Speyer, if you will
hold up your right hand and be sworn: You do solemnly swear that
the evidence you are now to, give in this hearing before the committee will be the truth, the whole truth, and nothing but the truth,
so help you God?
M r . SPEYER.
I do.
The C H A I R M A N . Just take a seat about the middle of the table
there opposite the committee reporter.
TESTIMONY
OF JAMES
SPEYER, OF SPEYER
CITY
&
CO.,
NEW
YORK
(The witness was duly sworn by the chairman of the committee.)
The C H A I R M A N . Mr. Speyer, whom do you represent?
Mr. S P E Y E R . I represent Speyer & Co.
The C H A I R M A N . Just keep your seat. What is your business?
Mr. S P E Y E R . Investment bankers.
The C H A I R M A N . At New York City?
Mr. S P E Y E R . At New York City. The firm was established in
1837.
The C H A I R M A N . You deal in foreign bonds, do you not?
Mr. S P E Y E R . We deal also in foreign bonds. That is not our
exclusive business. We deal in American railroad bonds.
The C H A I R M A N . You have with you a list of all foreign loans which
you have made?
Mr. S P E Y E R . Yes, Mr. Chairman. This was gotten up in the last
few days, only finished on yesterday, and there may be some slight
errors, but I think it is correct, subject to some small corrections.
Senator J O H N S O N . Mr. Speyer, is your concern a copartnership or
a corporation?
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Mr. S P E Y E R . A copartnership.
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SALE1
OF FOBEIGN- BONDS Ob' SECURITIES
Senator JOHNSON. Will you give us the members of that copartnership, please?
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Mr. S P E Y E R . D O you want all of their names?
Senator JOHNSON. If you can state them.
Mr. SPEYER. James Speyer, DeWitt Millhauser, Ralph Wolf,
Leon H. Kronthal, Louis J. Grumbach, all residents of New York
City; and Edward Beit von Speyer, my brother-in-law; and Herbert
Beit von Speyer, his son, resident in Frankfort-on-Main.
Senator JOHNSON. Where do they reside?
Mr. SPEYER. The latter two are resident in Frankfort-on-Main,
Germany.
Senator JOHNSON. And your residence is where?
Mr. SPEYER. New York City.
Senator JOHNSON. And you have resided there for a great many
years?
Mr. SPEYER. I was born there, one of the few people;
Senator JOHNSON. Those are the names of all of the members of
your copartnership?
M r . SPEYER. Y e s , sir.
Senator JOHNSON. And all are nonresidents except yourself?
Mr. SPEYER. Oh, no. They are all residents of New York except
the last two members of my family.
Senator JOHNSON. That is, Mr. Edward Beit von Speyer and Mr.
Herbert Beit von Speyer?
Mr. SPEYER. Yes; and they live in Frankfort-on-Main.
Senator JOHNSON. Pardon me. I misunderstood you.
Senator KING. Are they American citizens?
Mr. SPEYER. Not the last two I mentioned.
The CHAIRMAN. Were they born in this country?
M r . SPEYER. N O , sir.
Senator JOHNSON. Have you there before you a list of foreign loans
that have been made by your firm?
Mr. SPEYER: Yes, sir; in detail. Here is a copy of the list.
Senator JOHNSON. Mr. Chairman, I ask first that the list be put
into the record, and then I should like Mr. Speyer to run hastily
through it if he will.
The CHAIRMAN. Very well. The list may be made a part of the
record at the conclusion of Mr. Speyer's testimony.; '
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Senator JOHNSON. Mr. Speyer, vou will start out now.with what
loan?
Mr. SPEYER. This list contains the foreign bond issues that we
have handled. It shows the purchase price, and sale price, and
spread, so called, and profits.
Senator K I N G . D O you mean the gross profits as well as the profits
to your firm?
Mr. SPEYER. The gross profits to the firm.
The CHAIRMAN. Mr. Speyer, will you speak out a little louder so
that all members of the committee and the newspaper men can
hear you?
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Mr. SPEYER. This list contains details of all f o r e i g n l o a n s in whicn
Speyer & Co. participated, together with the amounts, prices, and
gross profits to Speyer & Co.
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Senator COUZENS. Over what period of time?
SALE OF FOREIGN. BONDS OR SECURITIES
607
Mr. SPEYER. Since the war. I thought that was all that ;you
wanted.: =
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Senator COUZENS. Do you mean since 1 9 1 8 ?
Mr. SPEYER. Well, in 1 9 2 0 was the first foreign loan. ,.
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^Senator JOHNSON. The first one, beginning November 1, 1920, ;
city of Berne, Switzerland, and now I will turn to. the last column of
the statement where you have Speyer.
Co.'s profits, if you. will
turn to that
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M r . SpEYER. Y e s .
Senator JOHNSON. The total
loans is shown as $ 1 , 8 0 6 , 6 4 7 . 2 7 .
Mr. S P E Y E R . That is correct.
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amount of all profits from all thesQ
Is that correct?
That is the gross profits not count-
ing overhead;
Senator JOHNSON.* That is your gross profit?
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Mr. S P E Y E R . Yes.
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.vTifSenator JOHNSON. Very well, sir. Now, we start with the loan of
$ 6 , 0 0 0 , 0 0 0 to the city of Berne, Switzerland, and will get the details
ofthatfirst.
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Mr. S P E Y E R . May I just say in that connection, talking about gross
profit, that the total loans placed in this country was $ 2 7 6 , 0 0 0 , 0 0 0 ,
and that the gross profit of Speyer & Co. is a little less than two-thirds
of 1 per cent on that amount.
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The C H A I R M A N . D O you say two-thirds of 1 per cent?
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Mr. SpEYERi Two-thirds of 1 per cent; yes. ;
Senator JOHNSON. That is a very small profit indeed.
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Mr. S P E Y E R . I t is.a<:very small;profit.
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Senator JOHNSON.; And that amounts to $ 1 , 8 0 6 , 6 4 7 . 2 7 . Is that
correct?
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Mr. S P E Y E R . Yes, sir. And, Mr. Chairman, if I might amend the
statement just made, over the period of years shown we participated
with the leading European bankers in foreign loans amounting ,to
$568,000,000.
Out of that amount, there were placed in this country
by us $ 2 7 6 , 0 0 0 , 0 0 0 , as per this statement. However, I wish to make
clear that the total amount of ; the loans which we participated in
with leading foreign bankers amounted to $ 5 6 8 , 0 0 0 , 0 0 0 , and yet out
of this amount there was placed in this country $ 2 7 6 , 0 0 0 , Q 0 0 . ~ , I
mean offered by us in this country. And out of that $ 2 7 6 , 0 0 0 , 0 0 0
there were taken in Europe $33,000,000, so that all of the balance was
placed in this country by us, amounting to $ 2 4 2 * 0 0 0 , 0 0 0 , in,round
figures.
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, Senator C O U Z E N S . How did you come to sell some securities in
Europe when you had so many European bankers engaged in this
matter with you?
Mr. S P E Y E R . European bankers wanted to place some of it with
their clients, and so they took some of the bonds back from us.
: The CHAIRMAN. Was that done through your brother-in-law and
nephew in Europe?
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It was done through leading bankers, very
: Mr
@FedFRASER