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national reserve funds (Betriebsreserve), and the “ general
industrial development of Germany ” ought not to be en
trusted to a “ dozen men” (p. 24), the alleged perversity
of whose banking policy is repeatedly emphasized.
The substance of the other criticisms which Lansburgh
makes is as follows: The capital accumulated in German
credit banks through deposits— he insists on nearly every
page— is not utilized in accordance with the wishes of the
depositors. On the contrary, the short-term loans to the
banks are to a considerable extent converted into long
time advances to industry, and accordingly into further
industrial investments. It is, however, “ not a question
(p. 17) whether the credit or advances made by the banks
are beyond cavil.” In this connection the distrustful
remark is merely made (p. 16) that it is impossible to
tell from the bills what their character is. In another
place, however (p. 15), it is expressly admitted that the
“ banks have up to the present followed sound principles
in maintaining the proper liquidity of their resources;”
furthermore (p. 11) that “ for economic and ethical
reasons it is absolutely necessary that promotions and
improvements should go on;” that “ the banks, as a matter
of fact, in determining the amount of capital to be
invested in an establishment or branch of industry, are
guided by its earning power” (p. 10), and finally that
“ provided due care is exercised in the make-up of the
different classes of investments,” we may regard the
conditions as sound (p. 15) “ so long as the existing
practice is continued of investing 40 per cent of the
depositors’ money in bills and the other 60 per cent in
loans to customers.” According to the author, however,
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the criticism of a national banking policy should be pri
marily based upon considerations of general industrial
interests rather than of private interests (p. 17). He
therefore insists that bill credit and advances be granted
only to such enterprises “ as would have been granted
such credit by the individuals who constitute the banks’
creditors, if they had been disposing of their money
independently, without the intervention of the banks.”
This (ibid.) would not yet mean that “ every interest would
come into its own, that agriculture would receive its
proper share in the same way as industry, the govern
ment in need of funds, as well as the private individual
seeking credit. A t any rate, however, there would be
nothing arbitrary about it.” For, as stated in another
passage (p. 20), “ the depositor may have had in mind
buying German bonds or mortgage bonds or acquiring an
interest in a business enterprise. ” In a still more prophetic
manner, we are told on page 21, that “ without the inter
vention” of the banks, the deposits “ would surely have
been devoted to different uses. They would have been
invested in government bonds and would have become
available to the government for other than purely indus
trial purposes. A part of the deposits would have gone
to the small dealers, craftsmen, and agriculturists.”
As to these claims it would really be sufficient to ask,
How does the author know? It is, however, necessary
to add that the author would surely have arrived at
quite different conclusions if he had carefully investi
gated these points, and likewise his fundamental assump
tions which we shall examine now more closely, for upon
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closer examination it is hard to take his contentions
seriously.
As the author has properly observed, in an article28
3
which appeared almost at the same time his pamphlet
was published, the available resources are generally
composed of “ very many small sums of money, each of
which taken alone would remain unproductive.” These
are made available for productive uses only because the
credit banks have for decades persisted in the laborious
work of bringing them together. As I have shown else
where, the intervention of the banks has made it possible
for these small amounts to render to industry in general
far greater service than could have been rendered by them
singly in the hands of the depositors, each one trying to
utilize his amount without the help of any intermediary.29
3
Were it not for the intervention of the banks these
amounts would have remained idle in the hands of the
depositors, their small size making them unsuited for
productive investment.
As this money has become available only through the
activity of the banks, it is impossible to set up as a prin
ciple governing its management and investment that it
should be used only for those purposes and undertakings
for which the various creditors of the banks might have
intended them, “ had they acted independently and with
out the intervention of the banks in the disposition of
their funds.” It is more than likely that, had it not been
for this intervention, they would in most cases have made
no use whatever of their money, and least of all used it
for industrial investment, but, following tradition, would
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have let it lie idle and yielding no interest, a situation
which even Fansburgh would scarcely think ideal.
If nevertheless the “ wish of the individual depositors”
be accepted as decisive in the matter of investing their
deposits, in spite of the fact that this wish is not commu
nicated to the banks, and can scarcely be divined by
them, no one would seriously contend that the present
situation would be improved and not rather be made
much worse. For without being able to do so with abso
lute certainty the banks with their experience and expert
knowledge can ascertain far more correctly than the indi
vidual depositors the conditions of the market for
different sorts of investments, the general state of industry,
the actual condition and the prospects of a given branch
of industry, trade, or agriculture, and the trustworthiness
of borrowers to whom bill credit or credit on current
account is 1o be granted.20
4
Morever, it is evidently wrong to assume that the
depositors, if left to their own decision, “ might” have or
“ surely” would have wished a different disposition of
their deposits than that actually made by the banks.
In the first place by far the larger part of the deposits
in German credit banks is made up of the working re
serves of business men and of other temporarily available
funds of capitalists— in other words, of the funds of persons
thoroughly capable of reading a bank balance sheet. In
regard to the investment of deposits, these statements
convey the information which Lansburgh, too, has been
able to get from them. Thus it is certain that the ma
jority of depositors do not object to the way in which
their deposits are invested, in particular to the investment
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in industrial credit in the shape of bills or of current
accounts. Unless this were so, noting the condition
appearing from the bank statement, they would betake
themselves with their funds to cooperative credit societies,
or to the savings banks in case they wished that the
greater part of their deposits be invested in mortgages
or if they regarded the savings banks as safer.
It is highly instructive in this connection to note the
prevalent opinion among the Federation of German Sav
ings Banks as voiced in the testimony given before the
Bank Inquiry Commission by an expert, closely associated
with the savings banks, that about one-third of the
deposits in the savings banks are temporary in character,
intrusted to the savings banks by persons belonging to
the middle or even higher classes, “ who know exactly why
they deposit their money in the savings banks, even if
only temporarily.” The percentage is particularly inter
esting because it corresponds almost exactly to the pro
portion of the deposits in the credit banks which may be
designated as “ savings deposits.” If this be so, and I
have no reason to doubt it, it proves that, as a matter of
fact, a large number of persons who are thoroughly
familiar with financial affairs21 prefer to put into the
4
savings banks funds that are only temporarily available
pending permanent investment— funds better suited* for
deposit in credit banks.
From this we may further infer that in intrusting such
deposits to the credit banks, or in leaving them there, the
class of depositors just mentioned, or those still better
situated, do so with a full appreciation of the way in
which these funds are invested. Nothing becomes, there
fore, of the assertion that were it not for the banks this
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very class of persons would have turned their money over
to the small dealers, craftsmen, and farmers, or to “ the
Government.” Lansburgh himself admits it as true in
a special case that the classes from which the deposit
ors of the bank are drawn know exactly what they are
doing, for elsewhere22 he remarks that “ as an imme
4
diate result of every boom in industry and trade, part of
the money deposi-ted with the banks is withdrawn and
invested in the most profitable branches of business.”
This is another reason why we cannot admit that through
the activity of the banks “ these savings are forced into
investments which they would not have sought of their
own accord” (p. 12).
Finally, if it be true that the German credit banks have
given their credit predominantly to industry and trade
(we must not forget the latter, particularly the export
and import trade), it is a question whether, aside from a
generous participation in government loans, this after all
is not necessarily the chief sphere of operation for the
credit banks.
We have seen how mortgage and other land credit, with
a constantly increasing specialization, has been widely
extended and developed in a “ truly exemplary w a y”
(bansburgh, p. 5) to meet the needs of agricultural and
urban real estate. Their credit wants, and particularly
those of agriculture, are met by the cooperative credit
societies, the land mortgage associations (Landschaften) ,23
4
and the banks and other institutions which they have
founded, the mortgage banks, and the Central Prussian
Bank for Cooperative Societies, and other institutions of
the same kind. We have also seen that, thanks to the
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16,000 cooperative societies, almost the same may be said
of facilities for credit on personal security (organized for
the purpose) of craftsmen and small business men, and
that through the postal transfer and check system an
urgently needed improvement will be introduced in the
facilities for making payments. We have furthermore
given the reasons why dealings with the credit banks and
bank credit are little adapted to the needs of these
classes, and are therefore but little resorted to by them.
What is the inevitable conclusion from all this so far as
the banks are concerned ? Their domain is industry and
trade (Lansburgh, p. 5), though not their exclusive domain,
as is evident from the fact that they have lent their credit
to the State, the municipalities, etc.
It has been clearly shown that it was not the banks
that brought about the industrialization of Germany,
but certain elementary economic causes working with
irresistible force.
It is equally certain that even under the least favorable
circumstances the banks have stood by the Empire and
the Federal States in raising funds. This alone proves that
another of Lansburgh’s contentions is incorrect, namely,
that as a result of the credit activities of the banks the
reserves of individuals and private establishments are
no longer invested in securities yielding a fixed income.*
The very opposite of this is proved by the appendices to
the report on the imperial financial reform bill. Nothing,
then, remains of all of Lansburgh’s contentions, beyond
the fact admitted on all sides that the industrialization
of Germany has proceeded too rapidly. This is due to
a number of causes (no one can determine in what
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proportion): to the rapid growth of population, the tre
mendous demand for credit made by trade and industry,
occasioned in turn to a large extent by the justifiable
struggle against foreign competition, and finally to
occasional mistakes by the banks in granting credit.
This may suffice in criticism of Lansburgh’s conten
tions.
I shall now turn to the much better-grounded reason
ing and proposals of the late Felix Hecht, whose views,
based on sound knowledge of the theory and practice of
German banking, were recently made public 24 in connec
4
tion with his earlier treatment 23 of the subject.
4
In this connection a welcome opportunity is offered to
supplement these “ introductory observations” on indus
trial credit in a number of points. This at the same time
justifies a more careful examination of Hecht’s proposals
in this part of the book.
Hecht’s proposals are in effect that there should be
established a central institution for long-time credit which
should issue debentures indorsed to bearer, and render
assistance as nearly as possible to all branches of German
industry. These debentures are to be issued either on the
VS
basis of securities taken over from the particular industrial
establishments, or directly and without such underlying
securities. They are to bear the indorsement and guaran
tee of the central institution. Bearing a higher rate of
interest, maturing earlier (an amortization of 7 to 8 per
cent as a rule being provided), and being attended with
greater publicity,20 the debentures of the central institu
4
tion would, in Hecht’s opinion, have great advantages over
existing industrial bonds. Moreover, owing to the wider
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distribution of risks, the security of these obligations would
be greater. In the first place the central institution would
extend its activities to all kinds of industrial undertak
ings which might present an assured earning power.
Furthermore, the earning capacity of these establishments
could be investigated by it more carefully than by the
credit banks. Unlike the credit banks, the central institu
tion could have at its command a large staff of technical
and commercial experts, who would be in a particularly
favorable position to accumulate a very large and valu
able stock of specialized experience. The supposed urgent
necessity for establishing such an institution is based on
the great difficulties which the credit banks encounter
to-day in adopting a rational policy as regards the grant
ing of industrial credit.
We must accordingly begin by testing the correctness of
these premises. For this purpose it will be necessary to
discuss the conditions and the general principles under
lying industrial bank credit, particularly as contrasted
with commercial bank credit, in so far as these have not
been adequately dealt with in these “ preliminary consid
erations,” and in my remarks in the Verhandlungen der
Mitteleuropaischen Wirtschaftskonferenz (Transactions of
the Central European Economic Conference) in Berlin
(May 17 and 18, 1909)27 to which I refer the reader.
4
With reference to this the following points may be made:
1.
The technique of commercial credit, which has been
generally well developed by the German credit banks, is not
identical, as Hecht rightly maintains, with the technique
of industrial credit. The latter is far from being as well
developed by the German banks as the former.
9° 3 IlC>— 11----- 17
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(а) Whenever industrial credit is given, the creditor
is obliged to make sure, throughout the continuance of
the loan that the credit allowed has actually been used
for the purpose for which it was solicited. This he is
seldom in a position to do. In commercial credit, on the
contrary, this is not necessary, or at least not to the same
extent. Even when short-time industrial credit is given to
serve as working capital, the creditor is at all times obliged
to keep watch over it and to see that it is not used in a
manner at variance with the purpose and character of the
loan, by being put into permanent improvements, for
this would mean the tying up of an equal amount of
the bank’s capital. Such supervision can be exercised
only with great difficulty.
(б) For this reason, also because of the resulting risk,
which is greatly augmented by the lack of technical
knowledge on the part of the bank, it is decidedly inad
visable for credit banks to participate directly to any large
extent in industrial enterprises. The instances in which
the banks became industrial entrepreneurs have for the
most part not turned out to their advantage. Direct par
ticipation (not always voluntary) in the sense of taking
over permanently stocks and bonds of the enterprise, is
less objectionable in itself, but even this is likely to prove,
under unfavorable conditions, a burden upon the bank’s
resources and may result in serious impairment of the
liquidity of the bank’s assets.
(c)
In commerce the general practice is to give shorttime credit on personal security, well suited to com
mercial needs. It is necessarily renewed frequently or
increased, or if not, a proportionately higher rate of com-
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mission is stipulated. But such credit is in many respects
far too costly for industry, and often directly oppressive.
In industry such credit is needed only for the transitory
purpose of paying wages and salaries and obtaining the
working capital required either regularly, at more fre
quent intervals, or only once a year, for freight and
insurance premiums, for the purchase of raw material, and
other means of operation. Even this short-term transitory
industrial credit to provide for wages and working capital
is not entirely conformable to the rules and requirements
of short-term commercial credit, for here frequent renewals
and increased borrowings are out of question. Still, as a
rule it can be repaid more quickly than credit intended for
capital outlays. Nevertheless it is objectionable for credit
banks, for it often happens that it can not be taken out of
current income, and thus tends to develop into permanent
credit (Anlage-Kredit) , contrary to the intention of either
party, or at least of the bank. In case payment is de
faulted at maturity, a suit-at-law is for the most part out of
question-, not only for business reasons, but also because
such a suit might lead to far more serious consequences.
(d)
In view of the need for constant supervision with
reference to the stipulated use of the loan (see remarks
under section “ a ”) which is far more urgent in industrial
credit than in commercial credit, astipulation that a given
given industrial establishment should not deal with various
banks and bankers would seem particularly proper.
Hecht 28 and Ad. Weber 29 criticise the German credit
4
4
banks on this ground, charging them with having fre
quently violated this principle, and pointing to the Terlinden case, where no fewer than 14 banks and bankers
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had suffered severe losses through ignorance of one
another’s action. This criticism is, however, unjustified.
From personal knowledge of one of the contracts made
with the Terlinden Company I know that with a view to
supervision in this respect it was expressly agreed that
the company should not deal with other banking establish
ments. Such an agreement, however, is entirely unavailing
in the case of a dishonest debtor, and particularly one who
falsifies not only the books but also the underlying records
(letters, vouchers, etc.). In that particular case the situa
tion would not have been easily revealed, even if the books
had been audited, a step for which there was no occasion
in the absence of any knowledge that the contract had
been violated.
Effective service in this direction could be rendered only
by a central credit bureau established by the credit banks
themselves to which they might report the names of the
borrowers, and the amount and kind of credit granted,
without stating the name of the creditor bank. It would,
however, be exceedingly difficult to establish such an in
stitution, not only because of the mutual competition
among the credit banks but above all on account of the
imperative necessity of business secrecy.
2.
The lending of short-term commercial credit is, gen
erally speaking, less hazardous than the granting of indus
trial credit.
(a)
Disregarding the cases where unsecured credit is
allowed to a manufacturer, in which case the terms and
conditions are the same as in commercial credit, and con
sidering the problem of secured loans, we are concerned
primarily with secured credit given on the hypothecation
of the factory and the grounds belonging to it— property
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on which, as a rule, the mortgage banks will not lend.20
5
(We may disregard here the comparatively few instances
in which policies or securities are pledged.) Even where
a first mortgage is offered, which is not always the case,
the granting of the loan is not entirely unobjectionable.
If it becomes necessary to sell at auction the mortgaged
property, together with the machinery, at a time when it
is idle, little more is likely to be realized on the factory and
plant than the value of the material and the generally low
common value of the ground. In any event, the property
which serves as security for the loan does not represent
the same value to every future purchaser.
Credit ultimately secured by realty (.Realkredit) may be
based further on the issue by the industrial corpora
tion of interest-bearing bonds secured by mortgage. The
flotation of such securities is, however, justified only “ in
the case of a business with an established earning power,
which is independent of any particular management that
may be in control for the time being” .21
5
Loans based on bonds not seemed by mortgage represent
of course nothing more than credit on personal security
(Personalkredit), and if no security of any kind is pledged,
it is nothing more than unsecured personal credit. Such
credit, however, should be granted only under the same
conditions under which commercial loans are granted; that
is, only after a careful investigation of the trustworthiness
and efficiency of the management, the earning capacity of
the business, as well as the profitableness and general
market prospects of the particular branch of industry.
(b)
Industrial credit seemed by lien on realty (Industrieller Realkredit), is particularly hazardous, when the
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industrial establishment concerned does not fall within
the scope of operation and experience of the creditor bank
or of its branches. In such cases the investigation into
the underlying security of the loan can not be made with
an adequate technical knowledge of the business and the
lack of it will cause losses much sooner and in larger
amount than in the field of commercial credit.
(c)
Having failed to give sufficient attention to the
above-mentioned conditions under which industrial credit
may be given, the creditor bank is very frequently obliged to
urge or bring about the reorganization of an establishment
as a stock company in case the latter has not yet assumed
that form. This involves risk for both parties, particu
larly when the change to the corporate form is to be made
in the face of conditions which may unfavorably affect
the market for the stock and bonds to be issued. Such
conditions are the presence of strong or even over
whelming competition on the part of other corporations
in the same line of business, the general, political, or eco
nomic situation, the immediate industrial outlook in the
trade, or the character of the management. Very often
the expediency, from the business point of view, of trans
forming a firm into a corporation does not receive suf
ficient attention in case of enforced reorganizations
effected for the purpose of mobilizing long-term loans, or
short-time credit which has gradually been diverted from
temporary to capital outlays, contrary to the wishes of
both parties, or, at least, of the lender; even less thought
is given in such cases to the earning power of the future
corporate enterprise, which is bound to be affected by the
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increased expense, or to the question whether the enterprise
is at all adapted to the corporate form of organization.
Where the main consideration in the formation of a stock
company is the necessity of mobilizing a loan and liqui
dating or shifting it, the situation is particularly dangerous
for the lender. On the one hand, the bank may be obliged
to carry the newly issued stock and bonds for a long time,
which will diminish its power to realize quickly on its
assets and interfere with its freedom of action. On the
other hand, if it succeeds in floating the securities it may
impair seriously or even permanently its ability to float
future issues (Emissionskredit). The same objections are
present, though not with the same force, whenever a bank,
for the purpose of mobilizing a long-term or standing loan,
is obliged to urge or assist an existing corporation in the
increase of its capital stock or in the issue of additional
bonds, since in this case as well the bank is obliged to
market the securities without much delay.
On the other hand, there certainly were many cases of
industrial enterprises that developed slowly and gradually
and by the judicious aid of long-term loans reached a point
where the condition of the enterprise, the prospective
earning power of the additional plant or improvements,
and the general industrial situation afforded sufficient
evidence that the organization of a stock company or the
issue of new stock or bonds was desirable and feasible.22
5
In the meantime such an establishment can obtain the
funds it may need in the shape of acceptance credit paying
interest on no more capital than has actually gone into
new construction or improvements.
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3.
Under existing requirements for admission to the
exchanges in Berlin, Hamburg, and Frankfort-on-the-Main
industrial securities to be listed, must be in issues having
a minimum par value of 1,000,000 marks ($250,000). On
the smaller exchanges it is sufficient that the issues have
a par value of 500,000 marks. As a result small concerns
may often be obliged to dispose of their bonds among local
circles merely without listing them on any exchange, which
is often a difficult task, or else they may be forced to have
recourse to short-time credit, which is not adapted to their
needs, or even to get along without credit. The latter con
tingency would, of course, happen only in case the provin
cial banks or bankers failed to lend their assistance.
Upon careful study of these considerations we must ad
mit that the central institution proposed by Hecht may
prove beneficial in many ways. Hecht’s view is that such
a special institution would not prove a serious competitor
to the credit banks, but would on the contrary develop
a field of usefulness of its own which would supplement
their work in many ways. This is hardly correct, at least
not so far as moderate-sized industrial establishments are
concerned.
On the other hand we can not admit the necessity of such
a central institution. During the next decades great prog
ress will undoubtedly be made among the credit banks in
the direction of the organic development of long-term in
dustrial credit, which Hecht found wanting. He himself,
referring to the past, emphasized at the beginning of his
monograph the fact that “ during the last three decades the
organization of credit in Germany has made unexpected
progress.” This advance in my opinion has occurred and
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will continue to occur not only in the field of commercial
credit, but in that of industrial credit as well.23 This is
5
particularly true of the latter, for many of the obstacles
which have hitherto stood in the way of the development
and organization of industrial credit are of a general char
acter, and would have to be met by the proposed central
institution in exactly the same way as by the credit banks,
and perhaps under far greater difficulties. In the first
place such an institution would not have at its command
the experience of decades and the far-reaching connec
tions which the credit banks have. The credit banks will
undoubtedly be in a position to avail themselves of the
same experts whom the central institution might employ.
This applies primarily to the trust and auditing companies
which the banks have themselves established, and is at
least equally true of those other organizations, which,
according to Hecht, are to cooperate with the central insti
tution, like the federation and association of electrical
engineers, the society of naval engineers, the association of
German gas and water engineers, the association of Ger
man mechanical and railroad engineers, the federation of
German mechanical engineers, the German association of
mining engineers, and the association of German chemists.
In many important points the central institution would,
to say the least, have no advantages over the credit
banks in making long-term industrial loans. On the
other hand it would be sure to make some of the same
mistakes that have been made by the credit banks, and
some of these on a much larger scale. If perchance it
should avoid some of these mistakes, it is likely to com
mit other mistakes of possibly far more serious conse
quences to the industrial community.
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To begin with, it is evident that in the desire to find a
market for its obligations and to place them in competi
tion with existing securities it would have to make every
effort to show large and continuous dividends.24 It
5
would therefore have to be exceedingly keen for business.
As a result, during times of the high tide of prosperity it
is likely to proffer loans unsolicited or to thrust funds
upon industrial enterprises more often than was the case
among the credit banks. Thus the abuse charged to
the credit banks will prove still more serious in its effects
on general industrial conditions and might lead to the
lending of credit to establishments which would never
have received it from the credit banks.
A more apparent and graver danger lies in this that a
special institution of this character can by no means be as
familiar with the general industrial and financial condi
tions as the credit banks. And yet, in granting credit,
this factor must be considered just as carefully as the
special conditions obtaining in the industry or the branch
of it concerned in the loan. It is to be feared that the
central institution will not take the general business
situation into consideration or will fail to give it due
weight.
Among the reasons assigned to prove the necessity
for establishing a special institution of this character it
is urged that industrial concerns are now forced by the
banks to resort to short-term commercial credit, which
is not adapted to their needs. As against this conten
tion, it may be asked whether the effect of such a special
institution would not be to force establishments to seek
long-term credit for purposes for which only short-term
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loans should be used, as, for example, for the purpose of
procuring current working capital. I think this at least
possible, and I am convinced that Hecht’s charge (unjust
in my opinion) of the “ mechanical standardization of
credit” (Schablonisierung des Kredits) brought against the
credit banks (see his “ Memorial,” p. 7) is likely to prove
true to a greater extent in the case of a special institution
of the kind proposed than it ever was in the case of the
credit banks.25
5
Again, as I shall show later in the course of this book,
a special institution would undoubtedly introduce new
and strong competition for the local provincial banks and
private bankers that make a specialty of extending credit
to the small and moderate-sized industrial establishments
(in case where they do not obtain such credit from the
cooperative societies), particularly credit connected with
the issue of sound industrial bonds in amounts of less
than 1,000,000 marks or 500,000 marks, issues too small
to be listed and dealt in on the exchanges (seep. 248).
Attention is also called to another point— the impor
tance of which Hecht by no means underestimates— the
need of having the underlying conditions for industrial
credit investigated by persons and officers located where
the establishment is situated. This need could not be
met by such a central institution nearly as well as by
our large banks with their numerous branches, agencies,
silent partnerships (Kommanditen) , deposit banks, and
allied institutions. Not having affiliations and subsidiary
institutions, the necessity for local investigation would
oblige the central institution to establish gradually all over
Germany a far more extensive network of local branches
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than those established or ever contemplated by the credit
banks. The desirability of such a step is very doubtful,
but unless this were done the facilities of the central insti
tution for obtaining accurate information and carrying on
its investigations on the spot would be inferior to those
of credit banks.
A further point of criticism raised by the Frankfurter
Zeitung of September 16 and 25, 1908, was that the bonds
which it was proposed to issue would in effect have all
the characteristics of bonds payable to bearer, without
any governmental authorization therefor having been
given or even requested. Another just criticism is to the
effect that it ought to be shown “ that the loans to be
made with the proceeds of the sale of securities have
back of them sufficient security to justify people to invest
their savings therein,” before “ a new kind of obligation
is introduced, which would shift to the public the risk of
long-time industrial credit, formerly borne directly by the
lender.” It is contended that Hecht has not proved this
point, for it is not enough to refer to the fact that the
same objection was raised at one time against the mort
gage banks? The conditions are entirely different, both
on account of the difference in the character of the secu
rity, and the state supervision to which the mortgage
banks are subject, and the complete difference in legal
status, a point which will be gone into further below.
To this I may add the following. One of the advan
tages claimed for the central institution is that its bonds
would be issued against loans of the most varied kinds, and
resting on different kinds of security. Should this indeed
be the case, and were the prospectus to give an account of
252
The
G e r m a n
G r e a t
B a n k s
all the industrial enterprises concerned and in all the details
demanded by the requirements for listing the securities,
the complexity would be so great that it would be as diffi
cult to determine the real value of the bonds as to ascer
tain the actual condition of the central institution itself.
Baron von Pechman (op. cit., p. 94) has properly called
attention to the point that the credit to be given by the
central institution would prove the less attractive to indus
trial concerns the shorter the period of amortization to
which they would have to agree besides the 5 per cent
interest and a high commission. And yet in enumerating
the disadvantages of short-term commercial credit for
industry, Hecht lays special stress, and very properly,
on its costliness.
Finally it must not be forgotten that Hecht’s project
has long ago been realized abroad, even though only in
the form of a provincial bank. However, that is the form
which Hecht himself contemplated, at least at the start.
Now this foreign bank has not met with any great degree
of successv
About ten years ago (1898) a special institution of the
kind contemplated by Hecht was established in Austria—
the Bohemian Industrial Bank (Bdhmische Industriebank)
in Prague— a provincial bank with the moderate capital
of 12,000,000 kronen ($2,436,000). Of late (since 1906)
it has had as one of its special purposes the flotation
of bonds based upon industrial loans repayable in
annual instalments. Up to the present the entire volume
of its bonds, secured by mortgages, had not exceeded
l6 ,639,000 kronen ($3,378,000). In September, 1906, it
established a branch in Vienna, entering thus into direct
253
connection with the money market of Vienna. Topuszanski, secretary to the Ministry in Vienna, who gives
an account of this bank,26 withholds final judgment as to
5
its merits, notwithstanding the reasonable length of time
the institution has been in existence.
Moreover in accordance with the provisions of a special
enactment in Austria of December 27,1905,27governing the
5
issue by the banks of certificates of funded indebtedness,
three large institutions were given the privilege of issuing
bank bonds (Reichsgesetz-Blatt 85. Stuck, Jahrg. 1905),
based on industrial loans secured by mortgage. The lim
itation imposed is that the aggregate amount of the bonds
must not exceed the total amount of the mortgages on the
industrial property by which the loans are secured. The
three institutions referred to are the Allgemeine Privilegierte Oesterreichische Bodenkreditanstalt, the Wiener Bankverein, and the Zivnostenskd Banka in Prague. Of these
only the latter began to issue such bonds as early as 1908.
Although four years have elapsed since the law was enacted
it can not be said that there has been any great activity
along the new lines.
I do not believe in the practicability of the new venture.
In view of our conditions in Germany, at any rate, I
would not advocate the adoption of a law which would
authorize banks to issue certificates of funded indebtedness,
particularly as no great use of such a privilege is likely to
be made in Germany, so far as can be foreseen. We may
recall in this connection that the issue of such certificates
of funded indebtedness was proposed by Pereire, and that
provision was made for it more than 50 years ago in the
charter of the Credit Mobilier and of the Darmstadter
The
G e r m a n
G r e a t
B a n k s
Bank. Everybody is agreed that it was fortunate that
such issues were never made. As it is, the concentration
and decentralization of the banks has led to a complexity
and obscurity in the bank statements that is constantly
increasing. The issue of certificates of funded indebted
ness based on diverse industrial undertakings, the standing
of which can not be easily found out, would not tend to
lessen this obscurity.
Finally, certain weighty objections of a purely legal
nature remain to be discussed.28
5
The following are the only possible forms in which the
bonds might be issued:
I.
BONDS SE C U R E D
BY
M O R T G A G E .2 9
5
i.
Supposing the central institution issues its own
bonds, two cases are possible:
(а) In consideration of a loan made to an industrial
establishment, it might take bonds issued by the latter
(and secured by mortgage) made out to the central insti
tution or to its order. On the basis of these bonds the
central institution might issue its own bonds, depositing
with a trustee as security the bonds of the establishment.
(б) Another way would be this: The establishment issues
bonds secured by mortgage in favor of a bank, which
would make the loan in the first instance. Against these
bonds indorsed by the bank the central institution would
in turn issue its own bonds.
In my opinion there can be no doubt that, inasmuch as
the purpose of the central institution’s “ activity” is “ di
rected ’ ’ 20 exclusively or in part to the making of mortgage
8
loans on the real estate of industrial establishments and to
a 55
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N at i on a l
M onetary
Commission
the issue of bonds on the basis of the mortgages acquired,
the institution would be a mortgage bank according to the
wording, meaning, and purpose of article i of the mortgagebank act of July 13, 1899. As such it must obtain a
charter. As its sphere of business is not be to confined to
any one of the Federated States, it must obtain its charter
from the federated council (Bundesrat). This being so,
the central institution would be subject to the limitations
of the mortgage-bank act. In this respect it would make
no difference whether the mortgage bonds issued by the
various establishments receiving loans were bonds secured
by a specific property or by the full assets of the institu
tions. These considerations apply to the two cases, (a)
and (6), because article 1 of the mortgage-bank act applies
equally, no matter whether the mortgage is originally
made out in favor of the central institution or the mort
gage is obtained by the central institution from a third
party (cf. Komm. Bericht., p. 1, sec. 5; par. 1, No. 1, ibid.).
If this view is correct, the purpose of the bank, to make
loans to industrial establishments and to issue bonds
against them, would in these most important cases be
almost completely nullified. Even if we follow Ernest
Sontag2 1 in rejecting Hecht’s interpretation 22 of section
6
6
12, paragraph 1, clause 2, of the mortgage-bank act, the
policy of the mortgage banks, as shown in note 250,
p. 827, would continue unaltered, according to which,
with few exceptions, no loans are granted on industrial
establishments.
2.
Suppose now that the central institution does not
issue its own bonds. We might then have a case where
the bonds secured by mortgage would be issued by the
256
The
G e r m a n
G r e a t
B a n k s
industrial establishment itself to the order of the central
institution, and the latter would no more than indorse
the bonds. It would make itself liable for them in the
same way that a bank assumes liability for a bill.23 In
6
this case the mortgage-bank act would not apply, for it
would not involve the issue of bonds by the central insti
tution against mortgage loans made by it or by some
other party. The central institution would be acting
only as an intermediary, guaranteeing the bonds issued
directly by the various establishments. These securities,
to be sure, would gain in value and become more readily
marketable, for the reason that they had been passed on
and indorsed by the central institution, but scarcely
more than the industrial bonds floated by a well-known
bank.
On the other hand, so long as the bonds are issued by
various borrowers, and merely indorsed by the central insti
tution, it would be impossible to combine and treat as one
aggregate loan of i million marks the issues of, say, four
establishments where each issue was for 250,000 marks.
This does away with a second argument advanced in favor
of the creation of a central institution, namely, that by
combining a number of loans it would enable the securities
of smaller establishments whose bond issues were for less
than 1,000,000 marks to be listed and dealt in on the
exchanges.
II.
BONDS
NOT
SECURED
BY
M ORTGAGE.
It might be thought that this difficulty could be obvi
ated in the following manner: The central institution
would have the four establishments each issue in its favor
9°311 °
* 1------ 18
257
0
bonds for 250,000 marks, unsecured by mortgage. The
institution might then in turn deposit these bonds with a
trustee, and issue against them its own bonds to the
amount of 1,000,000 marks. These could then be listed
and traded in. The objection against this plan, however,
is that, if one of these establishments should become bank
rupt, the claim based on these bonds would entitle the
central institution to no greater a share in the assets of the
bankrupt firm than would fall to the other non-preferred
creditors of the establishment. In other words, if the
industrial establishment becomes insolvent, the claims
arising from the bonds which it has issued and pledged
with the central institution are on a par with all other
non-preferred claims against the establishment. There
would thus be little inducement to the public to purchase
such bonds, even if these should be admitted to the ex
change, which is doubtful. Should they be listed, it seems
to me that the exchange accepting them would at least
insist that, inasmuch as it might be erroneously assumed
from the fact that the bonds were pledged to the central
institution that they were secured by a preferred lien on
the property (dingliche Sicherheit), the absence of it should
be expressly stated in the prospectus. This would, of
course, spoil the market for such securities.
The outcome of these legal considerations is as follows:
1.
In the case of an issue of mortgage bonds, the cen
tral institution, as such, could be active only in the case
described under I 2. Here, however, it would serve pri
marily only the interests of the larger establishments.
These are, as a rule, closely connected with the banks, and
The
G e r m a n
G r e a t
B a n k s
have hitherto received too much rather than too little
credit.
2. As regards the issue of bonds without mortgage
security there is no real necessity for adding further to a
class of bonds which, contrary to what the purchaser
generally believes, do not confer upon him any right of
lien on the property (dingliches Recht) , the more so that
it would be of no benefit to the small trader as such.
3. To allow the issue of bonds in cases I No. 1 a and b,
there would be need for amending existing legislation in
order to enable the central institution to avoid the neces
sity of obtaining a charter as a mortgage bank. In view
of the existing superabundance of industrial bonds, there
is no adequate justification for such amendment.
Should the central institution enter upon a career as
such, in spite of all the existing economic and legal objec
tions, it can not, in my opinion, look forward to a rapid
or notably successful activity.
(b )
t h e
c u r r e n t
a c c o u n t
b u s in e s s
.264
Current account transactions between the bank and its
clients are one of the main sources of the commissions
earned by the bank in the general course of business. At
the same time the current account is the basis for the
various relations by which both parties are gradually
drawn into closer union. Through the current account
the bank serves in the first place in the capacity of “ maid
of all work” in the business household of its customers,
performing a thousand and one services each for a small
consideration. This menial position, as a rule, is, how
ever, only a temporary stepping stone in its progress to
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National
M on e t a r y
Commission
a position of influence, at times even of dominance, and
one offering great advantages of the most diverse kinds.
For this reason the current account more than any
other branch of business represents the field in which the
various banks fight their competitive battles, particularly
the battle for the industrial clientele. Once regular rela
tions are established through the current account, a direct
road is opened to power and profit for the bank. This
road leads past the various forms of loans, which of them
selves, especially the right to close the account, give a
certain amount of influence to the bank. It leads further
to increased power and profit through reorganizations,
promotions, flotations of securities, consolidations and per
manent participations in industrial undertakings through
stock ownership, or representation on the supervisory
board, or both. Through these transactions it leads to
the conquest of entire branches of industrial activity, to
close affiliation with commanding industrial concerns,
cartels, and syndicates, and marks the beginning of the
supremacy of groups of banks.
In the systematic development of the current account
business in industrial districts, attained only gradually,
and after much labor and trouble, we see at the same time
a powerful lever in the systematic industrial policy of the
banks. The successful carrying out of this policy tends
also to establish, strengthen, and extend the supremacy of
the banks over the private banking houses usually found
in .this field.
The essential features of the current account business
are the following:
The
G e r m a n
G r e a t
B a n k s
In the course of the current account transactions, the
German credit banks first of all provide their customers
with the facilities for making and receiving payments
(Zahlungsverkehr). They receive payments, and make
payments on their account, collect their bills, interest on
mortgages, and claims. For such of their customers espe
cially as are engaged in foreign and over-sea trade, they
draw bills, checks, drafts, and letters of credit. By putting
their signature to the commercial paper of their customers
they convert this paper into safe securities, negotiable
everywhere.25 They accept bills drawn upon them by
6
their customers or clients of the latter. They place at the
disposal of their customers the transfer facilities (Giroverkehr) provided by the bank, its branch offices and affiliated
banks, though this need is but seldom felt, in view of the
giro facilities offered by the Reichsbank.
They also provide foreign bills of exchange for such of
their customers as need them for their foreign trade
transactions. These have retained the character of
instruments of payments to a far greater extent than
the domestic bills. These foreign bills are held by the
German credit banks not only for the convenience of
their customers, but also to maintain the liquidity of
their own assets. They keep them in their portfolios not
indeed to the same extent as the Reichsbank, but never
theless in considerable amounts in order to be in a position
to draw gold from abroad, in case of a money stringency
or a panic. The amount of foreign bills is seldom reported
in the statements of the German banks. The annual
report of the Dresdner Bank for 1908 states that out of
a total in bills of 248,666,816 marks (in 64,951 bills) on
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N at ion a l
M onetary
Commission
December 31, 1908, there were bills in foreign currency
to the actual value of 24,999,370 marks. In the same way
the Disconto-Gesellschaft reports that on the same date,
out of a total of 158,928,057 marks held in bills, there
were foreign bills to the value of 18,347,484 marks. In
1903 more than half (54.5 per cent) of the bill portfolio
of the Berliner Handelsgesellschaft was made up of
foreign bills.
To meet the wants of their customers, the German
credit banks furnish surety bills (Wechsel-Avale) for
their customers, more particularly in favor of the customs
and railroad authorities to guarantee the payment of
customs duties and railroad freight charges, on which
deferred payment has been allowed.26
6
They also undertake to collect foreign and domestic
bills, deducting their expense and commission. However,
under the terms of the current account, which are nearly
always identical on this point, they do not assume
responsibility in the case of foreign bills or bills on smaller
places in Germany, for presenting them on time, or for
having them protested. At the request of their customers
they make remittances by telegraph in order to meet
outstanding obligations in foreign countries.
In their current account transactions they reduce, for
their customers, the risks arising from export and import
trade by discounting or loaning on the bills drawn by the
exporter upon foreign purchasers. They allow the im
porter credit against which the foreign merchant may
draw, and, on the delivery of the bill of lading, they put
their acceptance on the bills of the foreign seller to the
amount of the invoice, thus making it possible for these
bills to be discounted.
262
The
G e r m a n
G r e a t
B a n k s
They allow their customers credit on current account
for a considerable period of time, or they give them
short-time credit on current account or independently
of it, by discounting the bills of their customers or their
clients, or by granting them loans on collateral or in the
shape of the so-called reports. In a few instances,
following the example of the Deutsche Bank, they have
begun lately to discount for their customers even out
standing business accounts.
They accept securities and documents of their custom
ers for safe-keeping in their vaults, as a rule gratuitously
in case a commission is paid on transactions on current
account. In case they undertake at the same time to
look after these securities, they charge an exceedingly
small commission for this service.
Under the latter head we have the following operations:
The cashing of coupons as they become due and the pre
senting for payment of bonds drawn by lot, or repayable
for other reasons; the collection of mortgages and tem
porary interest {Genussscheme) the drawing of incomes
(Geltendmachung von Bezugsrechten) ; the exchanging of con
verted securities or the presenting of such securities for
stamping, in compliance with legal requirements. In the
case of a reduction of capital they deposit the securities
of their customers either for stamping or cancellation.
They further secure new sheets of coupons with the talon
(or certificate of renewal), they supervise the drawings
(with certain reservations), they make additional pay
ments on securities not fully paid up, they pay assess
ments on mining stock, advance cash for coupons payable
in terms of foreign money, etc.
263
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National
M on e t a r y
Commission
In accordance with their general and current account
regulations, the German great credit banks require a
special order of the depositor of securities, in case of
conversions, insurance, giving notice in the name of
stockholders before the general meeting;27 also in case
6
of instalment payments on account of securities not
fully paid, of assessments on account of mining stock,
and in case of reductions of capital when an exchange of
stock for a smaller amount of new stock is to be made
(.Zusammenlegung von Aktien).
According to Waldemar Muller,28 the Dresdner Bank
6
alone manages securities of customers aggregating in
value to nearly 2,000,000,000 marks, not counting the
securities held by its deposit offices. The German credit
banks or their deposit branches and exchange offices
(Wechselstuben) take care of sealed deposits in special
fire- and burglar-proof boxes and vaults, with keys held
by the bank and by the respective depositors, a function
performed abroad, and particularly in England and Amer
ica, by special safe-deposit companies.
In accordance with special rules German credit banks
buy and self securities on commission and make loans
thereon, according to terms described more fully below,
which are essentially the same for all the large banks.
Loans on mining stock, where they are not completely
barred, and on American railroad shares, are as a rule
subject to special agreements.
Customers having a current account with the credit banks
may, if they wish it, open a check account. Balances on
such accounts do not bear interest. On the other hand,
the bank charges no commission on the turnover of such
264
The
G e r m a n
G r e a t
B a n k s
accounts. An accounting is rendered usually each quar
ter. Deposits of cash to this account, if made before 12
o’clock, are credited as of the date of deposit or the next
business day; when made later, they are credited as of
the business day next following. Cash paid out on this
account is charged to the day on which it is paid.29
6
German credit banks, mainly through their exchange
offices and deposit branches, frequently act as interme
diaries for their customers in securing for them mort
gage loans, and often obtain for them or lend them
directly money for building purposes. They make them
selves responsible either in the form of surety or of de
posit of so-called “ Aval-bills” to the customs or rail
road authorities for the payment of customs duties or
freight charges, where credit has been allowed to their
customers; or for the proper fulfillment on time of con
tracts entered upon by their clients for supplies or work.
At the wish of their customers and on payment of a
moderate fee they insure securities left with them for
deposit and care against reduction in value in case of
drawings.
They finance the reorganization into stock companies
of business firms in which their customers are interested;
also the organization of new stock companies. They
underwrite the issue of newly created shares and bonds
in a great variety of forms and on the most diverse terms.
Finally, they supply or secure for their clients necessary
or helpful information regarding new business connections
which the latter may be contemplating and on the stand
ing of individuals or firms to whom credit is to be extended,
also on foreign connections and markets. They grant or
265
a ..
mi s s i o n
obtain for their customers various advantages and facilities,
both in their commercial relations and in their mutual
intercourse, and notably in connection with the flotation
of securities.
As a result of the mutual competition of the banks,
commissions on German current-account transactions
have to-day fallen to a level lower than ever. This is
very deplorable, for it may lead to the neglect of what is
the mainspring of the banking business, the currentaccount transactions, and to the preferment of other
more speculative branches of banking. A point has been
reached where a great many services for which a charge is
made abroad are performed in Germany gratuitously,
and the commissions, where paid, are so slight that often
they do not cover even in part the share of the general
expense which these services involve. Thus as a rule the
commission for the business done on current account is fig
ured on the larger side of the account, being one-half of i
per mille for bankers and i per mille for others. For bill
acceptances the commission is one-fourth of i per cent per
quarter. As a rule this charge is remitted by most large
banks in the case of their regular customers, who are
allowed to issue time drafts on the bank. It is exacted
only when they have no adequate funds on deposit in the
bank on the day when the acceptance is made.20
7
In the absence of a special understanding, interest is
allowed on credit balances normally at a rate i per cent
below the Reichsbank discount rate, and charged on debit
balances at i per cent above the Reichsbank discount rate.
Usually, however, provision is made for a maximum rate
in the one case and a minimum rate in the other.
266
1
The
German
Great
Banks
Payments on current account are usually credited as of
the same day or as of the next business day when they are
made after 4 o’clock. Money paid out is always charged
as of the day on which the payment is made. Bills
collected are entered according to special agreement,
bills discounted as of the day on which they are discounted.
Where the debit balance on current account against a
customer is not merely temporary or when the customer
needs credit either at stated periods (seasonal credit), at
irregular intervals, or continuously, terms must be agreed
upon as to the amount, the rate of interest, the security,
the commission to be charged, etc. These are usually
made in writing and mostly as soon as the account is
opened.
In the course of time and under the pressure of successive
legislative enactments and new legal requirements, the
banks have developed fairly uniform forms of contracts21
7
for their “ business and current account transactions.”
Naturally, however, reservations are made in regard to
special terms affecting commission, interest, the amount of
credit, and the conditions of repayment.
Credit on current account is given only to classes of
business to which bank credit is applicable, and is either
unsecured (Blankokredit) or secured. The bank, how
ever, seeks always to find security against the risk it
assumes in the character and extent of its current account
transactions and in the differences that naturally appear
among its current account clients. The common policy
of the banks is to have as nearly as possible an equilibrium
between the amounts it must provide for current account
customers in the shape of advances or payments and the
267
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N a t io n a l
M onetary
Commission
active balances of the deposits of other current account
customers, as well as deposits expected from them.22
7
Under such conditions, comparatively little of the bank’s
own capital is tied up in current accounts. This safe
guards the bank’s ability to realize quickly on its assets
and secures to it freedom of action. While this favorable
situation is not present every year, or in the case of every
bank, yet, on the whole, and on the average for a number
of years, the condition has been nearly approximated by
the great German banks.
In this connection Muller22 justly says: “ For this reason
7
the customers most highly valued are those who, requiring
credit during the buying season, not only repay the ad
vances during the selling season, but in addition accumulate
balances to their credit. This is true of a large number of
commercial firms and of many branches of industry, notably
in Berlin. The seasons for various branches of business
being different, a large bank with branches and connec
tions in all industrial centers of Germany enjoys the
advantage of a proper distribution of its accounts among
all branches of industry, and of the best possible adjust
ment of credit and debit accounts. Moreover, the periodic
covering 'of loans exerts a reassuring influence, whereas
loans that are running throughout the year require
greater caution and constant vigilance.’’
The magnitude of current account transactions appears
from the following: A t the end of 1908 the current
accounts in the Deutsche Bank, including accounts in the
deposit branches in Berlin and its suburbs, numbered
I7I»3°5- At the end of 1907 the Dresdner Bank had
31,631 current account customers at its central office and
268
1
The
G e r m a n
G r e a t
B a n k s
67,212 accounts in its exchange offices (Wechselstuben), or,
in all, 98,843. At the end of 1908 the number of accounts
at the central office had risen to 35,542.
The security for credit on current account, or for credit
given on current account through acceptance, collateral
loans, or bill discounts, consists as a rule of shares, bonds,
merchandise, bills, or the outstanding accounts of the
borrower, that is, of claims arising from the sale of mer
chandise and manufactures, or of raw materials, halffinished or finished products, belonging to the firm
receiving credit, or of life-insurance policies, patents,
mortgages, dwelling houses, factories, land, or sureties
including secondary and counter sureties (Nach-und
Riickburgschaften) and the like.
Under normal conditions, whenever the banks exercise
due caution— and most of them do— it may be shown that
it is not the secured credit on current account but the
unsecured credit which has proved the safest.
German credit banks grant unsecured credit (Blankokredit) as a rule only after a study of the financial state
ment of the applicant for credit and a thorough investi
gation of his trustworthiness, his financial standing, and
his business, which must present no obscurities to the
inquirer, and when it is established beyond doubt that,
so far as it is humanly possible to foresee, the loan will be
repaid and repaid on time. This practice of granting un
secured credit is far more extensive in southern and cen
tral Germany than in northern Germany, but it is seldom
granted to other than business men, at least not in consid
erable amounts.
269
When security is demanded for a loan, it is a sign of
some doubt on the part of the bank, excepting the cases
when under general or special instructions of the board of
supervisors or under orders from the central office, the
executive officers of the bank or of the branch are forbidden
to make any unsecured loans or to make them beyond
certain amounts, or without special permission.
Hence the demand frequently made for a separation in
the bank statement of secured and unsecured loans can
not be based on the assumption that such data would
indicate to what extent the management was complying
with the dictates of business prudence in demanding
security, as such information would tell nothing regarding
the character of the security— which is the all important
thing.
Although mistakes have undoubtedly been made in
giving unsecured credit,24 the mistakes made in German
7
banking practice, and for that matter also in the practice
of foreign banks, in the lending of credit may be traced,
so far as my experience goes, far less frequently to
improper unsecured loans than to the facts pointed out
in our “ introductory considerations.” Among these have
been excessive liberality and eagerness in lending credit,
the giving to or even forcing upon establishments of
long-time instead of short-time credit, violations of the
principle, which should always be observed, of distributing
risks, and, under the head of secured credit, the false choice
or false distribution of collateral— for which, however, the
competition of other banks may often be responsible—
accepting, for example, as security second mortgages, mort
gages on building lots, unlisted or highly speculative secu-
The
German
Great
Banks
rities, or, worst of all, accepting as “ security” shares
and bonds of the company which was seeking credit. A
practice equally dangerous is the accepting of securities
as collateral at prices manifestly far higher than what they
might be expected to bring at forced sale, and the like.
I believe therefore that in general fewer dangers for
the bank are involved in unsecured credit than in secured
credit. The most questionable secured loans are those
that have developed out of original unsecured loans.25
7
The subject of unsecured credit arising from acceptances
will be dealt with more in detail further on. Such credit
is subject to its own rules and considerations. Satisfactory
as this form of loan may be to a bank at any given moment,
it can not be denied that to give a large or the largest part
of its credit to customers, in the form of acceptances, may
become a source of danger, for it may happen that just
during a crisis when the bank needs all of its resources, it
may be called upon to redeem its acceptances owing to
the inability of the drawers to redeem the bills.
The current account business, including the credit given
on current account, presents considerable advantages for a
credit bank, though in promoting this business there is
need of the utmost attention and caution. Once devel
oped, however, it gradually yields regular earnings, which
are of particular help during adverse times, insuring to the
bank certain minimum dividends, and thereby affording
the management a certain repose and assurance even when
the more speculative branches of its business and more
particularly the flotation of securities fail to bring adequate
returns.
271
N a t io n a l
M onetary
Commission
While it is true that the stability of dividends increases
with the growth of the deposit business, the latter in its
turn is influenced by an extension of the current account
business. On the other hand, the increase of dividends is
dependent mainly upon the expansion of the current busi
ness and particularly the business on current accounts.
The proportion which interest 26 and commissions bear
7
to the total gross profits may be seen from the following
table. So far as commissions are concerned, only the
smallest part is due to transactions on current account;
by far the larger part comes from the banks’ brokerage
business. For 1908 the profit from the bill business is
also included. The percentages are as follows:
1906.
1907.
1908.
P e r cen t.
P e r cen t.
P e r cen t.
73
79
70. 6
61.4
84.8
84. 4
66.6
82.9
7i
96
94 3
69
64
79
A. Schaaffhansen’scher Bankverein.......................
77
SS
Berliner Handelsgesellsckaft...................................
Nationalbank fur Deutschland...............................
73
68
88
88
69
Moreover, since a regular flow of business on current
account can take place only under favorable conditions in
trade and industry, the transactions on current account
give the credit banks an excellent insight into the economic
situation as it presents itself at any moment. At the same
time the bank thereby develops a following of customers
who are able to take over the securities floated by it.
Business on current account and more particularly
industrial loans on current account tend to promote concen
tration.27 They force credit banks to enter into close
7
272
The
G e r m a n
G r e a t
B a n k s
alliance with the old and established provincial banks in
the industrial sections— an alliance of vital importance also
to the latter. This was in fact the real reason for the
first community of interests effected— the alliance of the
Deutsche Bank with the Bergisch-Markische Bank and the
Schlesischer Bankverein in 1897. Again, the provincial
banks and private bankers must gradually lose ground in
the competitive struggle for supplying industrial credit
in proportion as such loans increasingly become long
time loans, which force the lender to tie up large sums
for an indefinite period in capital loans and in flota
tions of securities which often do not allow of immediate
realization. With the increasing concentration of indus
try the situation becomes more acute, as increasingly
larger resources are required for industrial development
and expansion.
Finally, industrial loans pave the way for the employ
ment of the bank’s credit in the reorganization of indus
trial establishments on a corporate basis, or the flotation
of new securities in their behalf. Industrial credit thus
naturally ends in drawing the banks into closer relations
with all industrial interests, linking the credit banks with
industry in a well-nigh indissoluble union for weal or woe.
This union finds effective and visible expression both
toward outsiders and insiders in the mutual representa
tion on the supervisory boards by the leading directors on
7
both sides.28
Similar remarks apply to commercial credit whenever
used merely for the organization of corporations or the
reorganization of firms as corporations and the flotation
90311*— 1
19
373
National
Monetary
mission
of securities. This has been the case in not a few instances,
as for example in the case of certain navigation concerns.
The following data for different years in the second
period show the amount of loans {Debitoren) , in the main,
though not exclusively, loans on current account, for all
banks (numbering 169 at present) having a capital of at
least 1,000,000 marks each; also the relation which these
loans bear to the share capital of the credit banks:
Capital of
Number
Loans (in
banks (in
of banks. r.ooo marks). 1,000 marks).
Year.
Ratio of
loans to
capital.
P e r cen t.
1883.............................................
189s.............................................
1908.............................................
7i
94
169
886,360
1,992,660
6, 604, 652
7 9 6 ,4 4 7
1 .3 4 5 . 4 4 5
3 . 2 5 3 .6 7 3
h i. 3
148. 1
203.O
In the introductory considerations (p. 233 and following)
we have dealt with the objections and criticisms urged on
the alleged ground that the loans are made primarily
in an altogether one-sided and improper manner in the
interests of industry (more correctly trade and industry).
For all German credit banks having a capital stock of at
least 1,000,000 marks each, the total assets were invested
as follows:
Bills.
At the close of—
P e r cent.
1 8 9 s ......................................................................................................................!
5°
1906................................................................................. j
..... ........................................................
S3
1908 ...............................................................................
19
S3
1907 — ...................................
P e r cen t.
52
.
Thus during a twelve-year period scarcely any change
worth mentioning is seen. The assets of the great banks
were placed as follows: 30
7
274
The
G e r m a n
G r e a t
B a n k s
Loans.
Bills.
1
*
1906. ] 1907.
1908
1906.
1907 .
1908.
P e r cl. P e r cl. P e r cl. P e r ct. P e r ct. P e r ct.
Deutsche Bank.........................................
Disconto-Gesellschaft................................
Dresdner Bank.........................................
Darmstadter Bank....................................
A. Schaaffhausen’scher Bankverein...........
Berliner Handelsgesellschaft.....................
Nationalbank fur Deutschland.................
(c)
43
40
45
55
59
59
29
20
22
33
19
24
17
19
22
II
18
45
5i
49
55 i
57
67
68
48
62
45 ■
41
44
17
8
28
43
45
45
19
25
29
18
13
21
18
the acceptance business .
In the field of credit there are essentially three kinds of
bank acceptances in use among German credit banks.
i.
In the first place we have the acceptances in domestic
and foreign commodity transactions, that is to say,
mercantile acceptances (Warenakzepte).
We shall describe in another place the use of accept
ances in foreign trade and the difficulties which had to be
overcome before German bills in terms of marks could at
tain to the stage of approximate equality with English
pound bills, and how long it took before these mark bills,
at first unknown and disliked and having but a limited
discount market, reached the point where they are no
longer subjected everywhere to a higher rate of discount
than the pound bills on London.
A condition in which business men support directly the
burden of credit transactions and bear unaided the risk
involved is in general a sign that industrial organization
is as yet undeveloped. This is the situation in which
products and commodities are sold on long terms by the
manufacturer to the wholesaler, or by the latter to his
275
National
Monetary
Commission
retail customers, the seller drawing a bill on his customer
(often running for six months),20 anticipating the matur
8
ity of it, by discounting the long-time claim with a bank
or banker.
For a long time this was the exclusive procedure in
Germany. It involves on the one hand the serious disad
vantage that the entire commercial and industrial class
becomes accustomed to this very long interval for loans
and payments, often of six months’ duration. Like an
interminable disease, this practice affects also the final
link in the commercial chain, the trade of the retailer with
his customers. On the other hand this practice imposes
unusual hardships on over-sea trade and increases its cost.
The exporter has to draw on his foreign customer bills
in foreign currency for the latter’s acceptance. Owing to
the limited market for such notes, he finds it difficult to
discount them, and has to pay higher rates of discount.
In addition, he has to bear the loss resulting from fluctua
tions in the rate of foreign exchange which may take place
in the interval.21
8
This early phase in the development of industrial or11
ganization has been outlived in Germany, at least to the
extent that for some time past, though in the main not
before the present period, the wholesale trade and large
industrial concerns no longer have been the sole and direct
grantors of credit, having as a rule given up the practice
of accepting the drafts of their customers or of drawing on
the latter. It is much more usual for the German whole
sale trade and the large industrial establishments to draw
upon the banks or bankers with whom they regularly deal.
The bank’s acceptance is then remitted to the creditor,
276
The
G e r m a n
G r e a t
B a n k s
or arrangements are made with the bank whereby the
creditor may draw directly on the bank, the latter accept
ing the draft which is then discounted by the drawer.
This practice which has become common in large-scale
industry and the wholesale trade,22 whereby the imme
8
diate mercantile bill has gradually been replaced by the
bank acceptance, has in the course of time introduced a
certain amount of improvement in the direction of short
ening the time for credit and payment in the whole
sale trade and in industry conducted on a large scale.
The circumstance which has done most to bring about
this change is that only two- or three-month acceptances
of banks and banking houses whose acceptances are
regarded as prime discounts (so-called Privatdiskontos) ,
can be discounted at the private discount rate.
In England, according to the account of Edgar Jaffe,23
8
considerable advance has been made toward dispensing
with mercantile bills altogether, transactions between the
large firms coming more and more to be on a cash basis.
This third stage of development has been arrived at in
Germany only by the large cartels and syndicates which
may be thus said to undertake the solution of an impor
tant economic problem, that of restricting credit transac
tions between producers and their customers.
Thus, for example, the steel works’ union, as stated else
where (note 172, p. 819) reduced the terms for payment on
domestic purchases to fifteen days, at the same time cut
ting down to a large degree the trade discounts allowed,
lo foreign dealers trade discounts are no longer given
at all.
277
I—
I — -..---
The large German banks have among their holdings a
very large number of bills accepted by other banks (great
banks or affiliated banks) and discounted or rediscounted
by themselves. These bills arise from the above de
scribed custom, prevailing among the wholesale trade and
large industrial establishments, to draw on the banks, or
to make special arrangements with them whereby cus
tomers may draw on the banks, the latter accepting the
bills which are then discounted. Some recent writers
who advocate the strict separation of “ mercantile ’ ’
from ‘ ‘ finance ’ ’ bills have improperly classed the above
described bills— true mercantile bills— among the finance
bills, on the ground that they are accepted and indorsed
by banks.
The following is a good illustration. In order to attract
gold to America from abroad in 1908, deliveries of copper,
cotton, petroleum, rice, and other raw materials and food
stuffs were effected much more quickly than usual and the
equivalent was collected much more promptly by drawing
against the shipments. As a result, an unusual number of
legitimate American commercial bills were drawn on the
leading German banks and accepted by the latter. Other
banks were glad to discount this paper. Obviously it
would be wrong to follow’ the customary tradition and call
such drafts “ finance bills ” merely because they were issued
with the manifest purpose of attracting gold, or to go
further and stigmatize them as kite flying or accommoda
tion paper, as was frequently done at that time and up to
very recently in Germany as well as in England. (See
P- 213.)
278
The
G e r m a n
G r e a t
B a n k s
It would be very easy to multiply examples. They
prove that the term “ finance bill” may often be a misno
mer even when applied to bills which the banks are instru
mental in circulating by their acceptance and indorsement
in cases where the purpose of the bill is clearly to raise money.
It would follow, from what has been stated before, that
the term would have to be applied to most bills that cir
culate in Germany at the present time. Thus for example,
according to a statement made before the bank inquiry
commission, out of German bills to the amount of about
400,000,000 marks which the Deutsche Bank alone held in
Berlin, about 300,000,000 marks’ worth consisted of accept
ances of German banks— a situation readily understood in
view of the foregoing considerations.
What has been said applies not only to bills originating
from domestic commercial transactions, but perhaps even
more so to commercial paper originating from oversea
commerce, and accepted by German banks. According to
the statement just cited, 200,000,000 marks of paper of
this class had been accepted by the Deutsche Bank alone.
It is clear from the foregoing considerations that the
greater part of the bank acceptances are found among the
bill holdings of the banks. In 1907 bills to the value of
2,621,630,000 marks were held by all the German credit
banks having a capital of at least 1 million marks each, of
which acceptances alone amounted to 2,035, 290,000 marks
or 78 per cent of the total bill holdings. It may therefore
be assumed that as a rule between 70 and 75 per cent of
the entire bill holdings of German credit banks are made
up of bank acceptances, a conclusion that agrees with the
data given above.
270
Heiligenstadt is justly of the opinion that in order to be
regarded as a “ legitimate” bill, as distinguished from a
finance bill, a bill— i. e. every claim that is presented in the
money market in the form of a bill, must have “ as its
basis an economic good (Wirtschaftsgut) .” I should dis
card entirely the expression finance bill and use instead
the term nominal bill (Leerwechsel). However, the point
should be emphasized that this “ economic good ” need not
necessarily be a present or “ concrete good” or a present
or concrete commodity transaction. It may just as well
be an advance given by the bank to domestic or foreign
industrial or commercial firms with the view of future
production or of a future commodity transaction.
In testifying before the bank inquiry commission,
Heiligenstadt himself pointed out another case where even
in the absence of such a loan, a bill issued would not be
a “ finance bill,” still less a “ nominal bill.” Thus a mer
chant, manufacturer, or provincial banker, who has a bal
ance to his credit in a bank, may draw a bill on the bank
in order to convert this deposit into a form most liquid
and convenient for him. Under the same head belong
the cases mentioned by Totz.24 Thus a banking house
8
may take over securities from a debtor, and sell them
to a third party. It may then draw on the purchaser, who
may in turn be a banking firm. Or again, in taking over
a loan, a bank may settle for it with its acceptance. As
a matter of fact, in both of these instances the transaction
involves “ as much the circulation of a commodity pecu
liar to this branch of business as in the case of grain or
cotton bills,” although all these bills may be found to bear
the names of bankers only. It would be impossible to
The
G e r m a n
G r e a t
B a n k s
deal with all the cases belonging under this head with
anything approaching completeness.
In view of the foregoing it would be well to regard as
nominal bills only such long- or short-time bills, which are
not based on present or future production or on present
or future sales of commodities in industry, agriculture
or trade, or are not drawn with a view to liquidating
credit balances resulting either from these transactions
or from other causes. Neither is it material whether
such bills have been accepted or issued by banks or by
other firms, or drawn by one bank on another. In the
case of long-time bills, however, drawn by one bank on
another, or on private bankers, the presumption is that
they are nominal bills.
As a matter of fact, neither the Reichsbank nor any
other discount bank is able to distinguish a “ nominal
bill” of this kind externally from a “ legitimate bill” any
more than a legitimate stock-exchange time-transaction
can be distinguished from an illegitimate deal of the same
class. Hence there will always be cases where even the
most expert bill broker will be unable to tell with certainty
what kind of bill he is handling.
In connection with the expert testimony before the bank
inquiry commission, two members of the commission,
Heiligenstadt and Fischel, pointed out cases not at all
rare, which show particularly well how little the banks are
able, in many cases, to tell the true character of a bill from
the instrument itself, which may often come to them from
second or third hands, unless they know the character of the
business which gave rise to the bill. “ Let us take the fol
lowing example: A spinner imports cotton from America
281
N at ion a l
M on e t a r y
Commission
and gives his acceptance for it. He spins the purchased
cotton into yarn in two weeks, and sells and delivers the
yarn to a weaving establishment, drawing on the latter
for the goods. The weaving concern makes it into cloth
and sells the woven fabric to some print works, drawing
on the cotton print concern for the goods delivered.
Here we have three bills, each of which must according
to every characteristic be classed as the most substantial
bill in the world; and yet in the last analysis they are
based only on a single commodity” (Fischel).
As a matter of fact, according to the definition we have
given above, we could not characterize any of the above
bills as a “ nominal” bill. The phenomenon in question
of one commodity furnishing the economic basis, or being
the “ economic good ” of a series of bills, may in case of a
boom period or in times of stress, such as was the case in
America in 1908, be intensified by the feverish hurrying
of the processes of production characteristic of such
periods, as witnessed likewise in our own electrical and
other industries.
Let us assume that in consequence of such acceleration
a process that normally requires three months is crowded
into one month. At the expiration of three months,
instead of the usual one bill for three months issued by
one producer, there will be in circulation three bills,
drawn at the successive stages of the process of production
(by the producer of the raw material, the maker of the
partly finished product, and the manufacturer of the
finished goods). This, by the way, is one of the reasons
why we may almost always observe at the height of a
boom period a great increase in the number of bills in
circulation.25
8
The
G e r m a n
G r e a t
B a n k s
2.
The second class of German bank acceptances are the
industrial acceptances of the bank, particularly those in
tended to furnish funds for the following purposes:
(а) To provide temporarily for current operating ex
penses, viz., for salaries, wages, insurance premiums, the
purchase of raw material, and the like, purposes for which
short-time acceptance credit is in every way appropriate.
(б) To provide necessary working capital not merely for
temporary needs. As a rule, for this purpose long-time
credit should be resorted to. The use of short-time ac
ceptance credit in such a case, as we saw above (p.
242), involves considerable danger. It is not necessary
to dwell here on both these points, as they are treated
at length in the introductory considerations and in the
discussion of Hecht’s proposal of a central institution for
long-time industrial credit. What I wish to emphasize
particularly here is this: The volume of acceptances of
German credit banks in circulation has been swelled, to
no slight extent it seems, for the reason that, as abundant
experience has shown, acceptance credit, when granted
for other purposes than that of supplying temporary defi
ciencies in operating funds, is often not repaid at maturity,
but extended, i. e., the acceptance, before it becomes due,
is replaced by a new bill issued by the borrower of indus
trial credit. This bill is again accepted by the bank, dis
counted, and with the proceeds the old acceptance is
taken up.
The danger involved here is greater for the reason that
this form of granting credit is particularly attractive to the
banks, for it does not require the immediate tying up of
their own funds.
283
n et ar y
m m ts s to n
3.
The third category of German bank acceptances oc
curs when the acceptance credit of the credit banks is made
use of by bankers, mainly by provincial bankers, to finance
their own stock exchange speculations or those of third
parties (so-called speculative acceptances— Spekulationsakzept) ,28
8
In this case the possible consequences, and the dangers
involved, are the same as those described under 2a, where
the acceptance credit of the bank is granted to a manufac
turer to provide needed working capital. There is no
doubt that throughout the second period the use by bank
ers of short-time credit on the strength of bank accep
tances was resorted to on a very large scale and to an
ever-increasing extent, partly as a result of the short
comings of stock exchange legislation. The three-month
acceptances of the credit banks are discounted at the
private discount rate and the proceeds are deposited by
the bankers in the bank in order to give them at once a
balance to their credit. On the other hand, the bankers
are debited with the acceptance only as per date of its
maturity. In this way the bankers attain their end of
11
getting money very much cheaper, for to use bank credit
in another form would cost them as a rule 1 per cent more
than the official bank rate.
In so far as this practice helps to meet the regular and
healthy demands of investment, there can surely be no
objection. The procedure becomes, however, objectionable
from the point of view of the general economic interests,
when it promotes extensive speculation and overstraining
of the stock market by the general public. There can be
no doubt that this has been indeed the effect to a large
extent.
284
I
The
Ge r man
Gre at
Banks
The fact is that for a long time past one-third of the
loans on current account given by the banks has almost
regularly been in the form of acceptances.27
8
For all the German credit banks having a capital of at
least 1,000,000 marks each, the ratio between total loans
and acceptances according to the Deutscher Oekonomist
was as follows:
[In m illio n s o f m a rk s .]
L o a n s , in
N um ber
c lu d in g a c
o f b an ks.
c e p ta n c e s .
A cce p t
a n c e s.
P er cen t of
a c c e p t
a n c e s in
t o t a l lo a n s .
A t th e c lo se o f—
94
1 ,9 9 2
706
98
2, 127
752
1 8 9 7 ......................................................................
18 9 8 ......................................................................
102
a . Si
2, 847
3
82s
18 9 9 .......................................................................
116
1900......................................................................
1901......................................................................
3. 295
118
3 ,6 0 2
1 9 0 2 ......................................................................
122
19 0 3 ......................................................................
19 0 4 ......................................................................
124
129
1 9 0 s .......................................................................
137
19 0 6 ......................................................................
143
6 .0 7 3
I , 848
1 9 0 7 .......................................................................
19 0 8 .......................................................................
158
6,437
169
6, 605
2 .0 3 5
1 ,8 9 1
1 8 9 s ......................................................................
1 8 9 6 ......................................................................
108
125
3.356
3. 550
3.929
4.396
5. 238
984
1 .1 5 3
1 .2 9 4
1 ,1 3 6
1 ,1 7 6
1 ,3 0 0
1,4 0 0
X, 601
35-4
35- 4
35- x
34- 6
35
35-9
33-9
33- 1
33
33
3°
30
33
28
For all the great Berlin banks, taken in the aggregate,
the ratio at the end of 1909 was 33 per cent; at the
end of 1907, 34.5 per cent; at the end of 1908, 31 per
cent. For the individual banks this ratio was as follows:
1906.
19 0 7.
Per cen
t.
D e u ts c h e B a n k . . . .
28
D is c o n to -G e s e lls c h a ft.......................................................
D re sd n e r B a n k .
47
42
24
34
30
D a r m s ta d te r B a n k
B e rlin e r H a n d e ls - G e s e lls c h a ft .. .
A . S c h a a ffh a u s e n ’ sch er B a n k v e r e in
25
S
1
1908.
Per cen
t.
Per cen
t.
34
38
4®
28
33
37
22
27
41
39
36
22
>
N ationa l
M o n et ar y
Commission
The amount of acceptances of the six Berlin great
banks (including their branches) outstanding at the end
of each year was as follows:
[In m illio n m ark s.]
A. Schaaff- Berliner
hausen’HandelsscherBank- Gesellverein.
schaft.
Deutsche
Bank.
Dresdner
Bank.
DiscontoGesellschaft.
1895.........
1896.........
1897.........
1898.........
122
116
130
128
75
49
41
32
41
76
44
36
33
41
99
35
31
43
117
34
40
46
1899.........
1900.........
1 9 0 1 .........
1902.........
142
122
47
53
61
34
55
mi
131
37
142
104
37
57
62
ms
54
46
57
1903.........
1904.........
1905.........
1907.........
1908.........
180
114
129
149
170
209
189
89
85
103
41
60
IOI
59
49
62
70
89
81
82
64
64
78
149
74
Darmstadter
Bank.
At the end of—
185
197
264
232
142
162
194
171
89
”
56
76
Acceptance credit increased almost continuously, nota
bly in the eighties and nineties, even as compared with the
capital of the banks.28 On this point reference may be
8
made to the table printed on page 288. The differences
as compared with the figures reported by Ad. Weber
(Depositenbanken, p. 117) are explained by the fact that
in this table surety bills (Avale) furnished by the banks,
are included with acceptances.
Large as the share of the mercantile acceptances must
have been, there can be no doubt that relatively, as well
as absolutely, a very large proportion of the total accept
ance credit given by bankers in this period was made up
of credit in the form of industrial acceptances of the
doubtful sort described under 2b, and of the no less doubtfS6
The
G e r m a n
G r e a t
B a n k s
ful “ speculative” acceptances described under 3. Least
objectionable was the steady and by no means slight
increase of German bank acceptances in oversea trade.
Here they were used to provide reimbursement for ad
vances on merchandise in transit, the bank in these cases
receiving documentary security, viz, bills of lading. For
the Hamburg, Bremen, and London branches of the great
banks, devoted primarily to oversea business, a regular
correlation can be traced between the growth of that
branch of business and the growth of acceptances.
A diminution in speculative acceptances can be ex
pected only as a result of self-education in the banking
profession. This, I feel sure, will be effectively aided by
the voluntary publication, at regular intervals, of sum
mary balance sheets. In my opinion the view that credit
in the form of acceptances and ‘ ‘ reports, ’ ’ could be made
“ subject to certain rules” 29 through legislation is not
8
tenable.
The table printed below (p. 288), shows the amount of
acceptances for the eight great banks of Berlin (the
Commerz- und Disconto Bank and the Nationalbank are
added), and the amount of the acceptances of these eight
banks relative to that in 1883, which is taken as 100.
It also shows the relation of acceptances to their capital
stock, their own business capital (das eigene werbende
Kapital, capital plus surplus funds) and finally to their
entire earning resources (das gesammte werbende Kapital) ,
1. e. their capital stock, surplus, deposits and credits on
current account.
287
N at i on a l
M onetary
Commi ssi on
Amount of bills outstanding (acceptances including '‘ avals ” and checks) .1 0
9
Year.
In marks.
1883.........
1884.........
1885.........
1886.........
1887.........
1888.........
1889.........
1890.........
1891.........
1892.........
1893.........
1894.........
1895.........
1896.........
1897.........
1898.........
1899.........
1900.........
1 9 0 1 .........
1902 .........
1903.........
1904.........
1905.........
1906.........
1907.........
1908.........
In percent
ages of the
figures of
1883.
189,795,100
220,532,000
227,229,700
234,412,800
IO . O
O
116. 2
245.569.000
254.347.500
274,778.100
129. 4
254.338.000
248,280,300
299,049,800
301,806,600
354, 241,200
45 2 ,9 1 9 ,3 0 0
441,416,900
488,521,000
5 3 5 .649.400
5 9 7 .832, 100
670,299,500
627,9x7,300
673.7 4 i . 800
745,542,000
885,733.300
1,0^2, 922,800
1,162,922,900
1. 275,564.600
1, 188, 077,900
119 - 7
123-5
134 0
144. 8
134- 0
130. 8
1 5 7 -6
1590
186.6
238. 6
232. 6
257-4
282. 2
3150
3 53 2
330.8
In percent
ages of the
aggregate
capital of
the 8 great
banks.
61. 2
68.5
70. 4
70. 4
69. 2
69
3
In percent
ages of the
In percent
aggregate
ages of the capital, sur
aggregate
plus funds,
capital and deposits, and
surplus funds credits on
of the 8 great
current
banks.
account of
the 8 great
banks.
53-3
5 9 -7
61.2
60. 4
58.8
58.5
26.6
26. 9
26. 5
26. 6
27.8
25.1
23. 2
.7
57-5
52. I
46.8
52.9
43-1
62.4'
63.0
74. 0
78. 1
74. 2
70. 8
70.5
50.9
21. 7
25.8
51.2
25-4
60. 0
636
25.8
28.6
26. 7
26. 9
63 5
5 9 -9
57-4
5 7 -o
73 4
5 9 -0
82. 2
7 7 -o
66.0
61.7
62. 7
3 55 -0
77-3
392. 8
466. 7
5 5 4 -8
612. 7
672. 1
626. 0
84- 5
88. 7
67-3
104. 4
698
78.8
8l . I
II 4 - 5
105. 7
88.4
81 - 4
9 9 -9
2
2
25 1
25- 9
27. 8
25. 2
24 9
24. 4
24. O
24. 6
*3 - 9
26. 5
23-5
The table reveals the same development which was
noticeable with regard to the bill circulation, namely,
that the amount of acceptances in 1903 had not only
risen again to a point reached in 1889, but had even
largely gone beyond it. In 1908 there was a considerable
decline in the amount of acceptances of these eight Berlin
banks.
288
The
G e r m a n
G r e a t
B a n k s
In conclusion it is of interest to note the ratio of bank
acceptances issued by all German credit banks (with a
capital of at least one million marks each) to the average
bill circulation (in millions of marks).21
9
Average bill cir
culation, assum
ing an average
period between
date and ma
turity of 75 days.
Year.
Bank acceptances on
December 31.
Millions of
marks.
706
.° 5°
189s........................................................
1896........................................................
3
3 . 275
752
1897........................................................
1898........................................................
1899........................................................
1900........................................................
1 9 0 1 ........................................................
1902 ........................................................
1903........................................................
1904........................................................
1905........................................................
3.505
825
984
(d )
t h e
3.875
4 .. 187
4, 660
1. 153
1.294
1, 136
1.176
1,300
I, 400
1,600
4.595
4.301
4.453
4 . 640
5 . MO
d is c o u n t
b u s in e s s
Per cent.
23
23
23
25
28
28
25
27
29
30
3i
.292
German credit banks, like others of the same class, have
a special motive for investing their own and their deposi
tor’s funds in the bill discounting business, since they are
at the same time banks of deposit, and thus are obliged
to invest a large part of their deposits in securities matur
ing at an early date. As the various bills discounted
become due on different dates, the outflow of cash is
balanced by an assured inflow of cash to redeem bills, with
a resulting increase in the cash reserve and the opportunity
for new investments.
The first rank in this line of investment is held by those
bills that are regarded as prime discount bills throughout
the German discount market. Such are the acceptances of
the six foremost Berlin banks, namely, the Deutsche Bank,
9031 1 ° — IX------20
289
N at ion a l
M on e t a r y
Commission
Disconto-Gesellschaft, Darmstadter Bank, Dresdner Bank,
Berliner Handelsgesellschaft, and the A. Schaaffhausen’scher Bankverein, as well as two private banks in Berlin,
Mendelssohn & Co. and S. Bleichroder.
In a general way, bills of the above description are
regarded as representative generic values, in the sense that
the standing of the seller who places them on the market
in any particular case has no effect on the terms of discount,
that is to say, the rate and the commission, as would be
the case with other bills offered for discount. However,
since in the case of these prime bills the rate of private
discount forms only the upper, not the lower limit, the
statement just made does not imply that they may not
occasionally be discounted below that rate.
The second rank is held by those bills which are regarded
as prime bills in the local markets of Berlin, Hamburg, and
Frankfort-on-the-Main (in addition to those of the preced
ing class) and are discounted at the private rate, provided
they fulfil the existing conditions of the bourse as regards
time and amount, a condition which applies also to those
of the preceding class.
According to the regulations of the Berlin Bourse
(similar ones prevail in Frankfurt-on-the-Main), these
prime bills (or private discounts) must be payable in Berlin
or at a place where there is a branch of the Reichsbank,
must be at least 5,000 marks in amount, and run not less
than two nor more than three months. However, in
fixing and quoting actual market rates of private discount,
no difference is made between sixty-day and ninety-day
bills and between “ representative'’ and “ nonrepresenta
tive” private discounts, a practice which to my mind is
290
a ..
The
G e r m a n
G r e a t
B a n k s
not correct. This quotation of the private discount rate
is made in Berlin, not officially, indeed, but yet after a
uniform fashion, by a private central agency, solely
interested in the discount business and acting under
instructions from those engaged in the business.23 The
9
rate of private discount prevailing at the bourse is oc
casionally underbid, as a result of competition, in the
bill-discounting operations which take place outside of
the bourse. The Reichsbank, however, does not buy bills
in Berlin below the Reichsbank rate of discount.
The acceptances of the largest mercantile establish
ments and industrial undertakings are not regarded as
prime discounts. However, as noted in the previous
chapter (p. 276), these firms do not generally regulate
their obligations by means of their own acceptances, but,
as a rule, by those of their banks.24
9
Aside from these acceptances of the leading commercial
and industrial firms just mentioned, which are of rare
occurrence, the acceptances of most of the first-class and
second-class provincial banks and bankers, while regarded
as nonrepresentative bills in the above sense, are admitted
to the benefits of the private rate of discount. In this
case the terms of discount are fixed in accordance with
personal and objective considerations, often quite incom
mensurable in their nature. If, for example, one of these
banks, or even a bank not belonging to this class, allows—
in the opinion of the bourse, which is specially sensitive
in this matter— its credit to be unduly strained it is apt
to be promptly reminded of this fact by finding the rate
of private discount of its acceptances raised, even though
but by one-sixteenth of 1 per cent, which thus occasionally
291
National
Monetary
Commission
constitutes a very effective means of checking the over
loading of credit in the form of excessive acceptances.25
9
Furthermore, with regard to this class of paper, and still
more with regard to other discount material reaching the
bourse and not admitted to the privilege of the private
rate of discount, the principle holds that only those bills
are discountable at private discount that would pass as
“ prime bills” even without the acceptance of a bank.
Such, in fact, ought to be the policy of the banks them
selves in deciding whether a discount is to be made.26
8
Though there be ample reason for recognizing the best
commercial and industrial acceptances as “ prime bills,”
yet the general discount trade gives a decided preference
to the bank acceptance as being easier to negotiate, with
the result that the commercial and industrial acceptances
are being more and more displaced by bank acceptances.
This is one of the factors that concurred in producing the
result noted above under C (p. 279), that some 70 to 75
per cent of all the acceptances discounted by German
credit banks and forming part of their bill holdings are
bank acceptances, discounted by the banks at the rate
of private discount. As these acceptances are payable in
gold, they are in demand even among foreign firms and
banks, especially note banks. These acceptances repre
sent the amounts granted by the credit banks on dis
counted bills, either to customers having a current account
or to outsiders having no such account, as well as the
foreign bills. Here also the policy is “ to take care that
the terms of settlement, never exceeding three months in
duration, shall be distributed over all the months of the
year, and, in particular, that relatively large amounts
2
g2
I
The
G e r m a n
G r e a t
B a n k s
shall become due at the end of each quarter, when settle
ments are heavier ” {die schweren Quartalstermine.)27 The
9
material in the shape of bills available for discounting is
very large in Germany.
The sum total of bills of exchange in Germany, put into
circulation in the course of any one year, was calculated
by W. Prion 28 for twenty-one years, from the proceeds of
9
the stamp tax on bills of exchange as follows:
[In millions of marks.]
• 2 3 , 204
. 22, 965
. 21, 505
188 5..
. 12,060
1890 . . . 1 4 ,0 2 0
18 8 6..
. 11,82 6
1891 . . . 1 4 ,6 0 6
1 8 9 5 . . • X5 , 2 4 I
18 9 6 .. . 16,386
19 0 1..
18 8 7.•
. 12,065
1892 . . . 1 4 , 2 8 4
1 8 9 7 . . • 1 7 ,5 2 6
190 2 ..
18 8 8 ..
. 12,198
X893. . • 1 4 .5 8 5
189 4. . • 1 4 ,7 4 8
1 8 9 8 . . • 1 9 ,3 7 4
1 8 9 9 . . • 2 0 ,9 3 7
190 3 ..
. 22, 266
190 4 ..
• 2 3 , 201
1889 • • . 1 3 , 2 0 6
1 9 O O ..
For 1905 the estimate was 25,506,000,000 marks, that
is to say, the formidable figure of 25^ billion marks, of
which the Reichsbank bought 9,175,000,000 marks’ worth,
or 35-9 Per cent.
For 1905, on the basis of the stamp tax of 14,100,000
marks and a total amount of bills of 25,500,000 marks
(deducting 10 per cent for rounding off), and assuming an
average of seventy-five days for the circulation period of
the bills, it is found that the average bill circulation
was 5,100,000,000 marks (31 per cent of which were
bank acceptances).29 Accordingly for 1907 (stamp tax
9
19,700,000 marks, total amount of bills, less 10 per cent,
in round numbers 31,500,000,000 marks) we get in round
numbers the sum of 6 billion marks.
It may be well, however, to caution the reader against
drawing any general conclusions regarding the higher or
lower economic development of a country from the larger
or smaller amount of bills circulating in it. Such con-
293
N at ion a l
I
M on et a r y
Commission
elusions, though not infrequently made, are bound to be
in most cases deceptive. The amount of bills circulating
in a country is determined by an infinite variety of factors,
such as the more or less pronounced “ industrialization,”
the greater or less degree to which industry and commerce
are habituated to bill credit, or to its complete or partial
replacement by cash payments; the higher development
and greater refinement or the greater or less costliness of
the other forms of credit, such as the collateral and report
business; the favorable or unfavorable state of the balance
of international payments; the greater or less degree to
which the population is habituated to the use of bank
notes, etc.
Were it not so, one would have to infer that the
United States with its relatively small bill circulation, is
backward in its economic development. On the other
hand, from the fact that in France from 1876 to 1907
the average per capita bill circulation has increased con
siderably more than in Germany, one would have to infer
that in France there had been an enormous and rapid
economic development. Both conclusions would be wrong.
France, fbr example, being a creditor nation (while
Germany is a debtor nation), has a large favorable bal
ance of payments, since both the number of her popula
tion and her industrial activity, especially her export
industry, have for some time been stationary, and the
available resources of the nation are in large part invested
in the form of savings deposits and government bonds,
while commercial and industrial enterprises and stock
companies attract them far less than in Germany. The
favorable balance of payments is reenforced by the far
294
The
G e r m a n
G r e a t
B a n k s
greater amount of foreign securities in the possession of
France, and by the receipts from the enormous influx of
foreigners, especially in Paris and on the Riviera.
Hence, before drawing general conclusions regarding
any country, after ascertaining the amount of bills circu
lating in it, we shall have to examine its peculiar economic
conditions and the peculiar organization of its systems of
payment and credit, as we are trying to do in this book
for Germany.
This being premised, let us note the following:
The amount of bills held by all the German banks,
including note banks 30 and mortgage banks,3 1 was as
0
0
follows: 32
0
Business year.
Number of
banks.
1883................
1884................
188S................
1886................
1887................
1888................
1889................
1890................
1891
......
1892
.......
1893
.......
1894
.......
113
113
113
I l6
1895................
135
ns
114
137
136
I3 S
134
133
137
Amount of
bills (in
millions of
marks).
Business
year.
Number of
banks.
Amount of
bills (in
millions of
marks).
I , 203
1896..........
146
1.97°
1. 246
1. 248
1, 277
1.364
1.307
1.S83
1.670
1,661
1.650
1,611
1. 736
1,857
1897..........
1898..........
iso
iS<
5
164
175
2, 190
2,360
2,946
3.087
2,776
2,812
2,972
3.081
182
188
203
3. S07
4.074
4 . 4 S9
214
4 .310
1899..........
1900..........
1901..........
1902..........
1903..........
1904..........
190s..........
1906
.
1907
.
1908..........
16s
171
167
170
We see from this that in the boom year 1899 the amount
of bills in all the banks (including note banks and mort
gage banks) rose to 2,946,000,000 marks; that in 1900,
immediately before the crisis, it even rose to 3,087,000,000
marks and that during the crisis of 1901 it fell to
2,776,000,000 marks.
295
National
Monetary
Commission
However, as early as 1903, as noted when speaking of
the acceptance circulation of the banks, the amount of
bills had again risen to 2,972,000,000 marks, having thus
not merely equaled but even exceeded the amount of the
greatest boom year, 1899. This was on the whole a
normal and satisfactory development. Only an unhealthy
increase in the amount of bills, not accompanied by a
quiet and steady progress in economic development,
would be a matter of regret.
Finally, the amount of bills in the German credit banks
alone (with a capital of at least 1,000,000 marks each) and
the total amount of bills in the great Berlin banks alone,
during the last eleven years, was as follows (according
to the Deutscher Okonomist:33
0
Amount of bills Amount of bills
in German
in the 6 great
credit banks
Berlin banks
(in million
(in million
marks).
marks).
Year.
/
189S..........................................................................
.
1899........................................... .............................
1900..........................................................................
1901..........................................................................
1902...........................................................................
‘903............... ............... ........................
1904............ ..............................................................
19 0 S..........................................................................
1906..........................................................................
1907..........................................................................
1908..........................................................................
660
716
867
828
1. O
SS
1.327
1. S83
1,462
1.483
1.518
1. 7 7 3
1.995
2, 44 7
2. 621
2, 7 42
8 59
865
1.07s
I. 231
1,466
1. 5 0 9
I 422
.
In 1908 all the German banks together held bills to
the amount of 4,300,000,000 marks, the German credit
banks together more than 2,700,000,000, the six great
Berlin banks in round numbers 1,500,ooo,ooo.3M Assum
(
ing, for 1905, a total bill circulation of 5,100,000,000 marks
296
1
The
G e r m a n
G r e a t
B a n k s
and the bill holdings of the six great Berlin banks in the
same year at about 1,000,000,000 (1,064,000,000)— as
against 1,231,000,000 marks, given in the above table,
Prion estimates the share of those six great banks in the
total bill circulation for 1905 at 20.8 percent. On page
279 we noted that as a rule about 70 to 75 per cent of
the bill holdings of the German credit banks consists of
bank acceptances. In that connection we also discussed
the various classes of these bank acceptances.
In the Reichsbank the average amount of domestic bills
was as follows: 1905, 775,723,000 marks; 1906, 946,201,000
marks; 1907, 1,060,076,000 marks.
The latter amount was classified as follows:
Amount.
Per cent.
M arks.
(a) Commerce, transportation, and insurance.................
( 6 ) Banking and credit institutions (as central agencies
for the credit demand of business)..............................
(c) Trade and industry..................................................
(d) Agriculture and allied trades....................................
(e) All other credit users................................................
Total. ..............................................................
187, 948, 0 5 0
1 7 - 73
SS9 . 9 7 S.ooo
5 2 - 82
2 8 4 ,3 7 6 ,0 0 0
26. 83
I I ,
130,
OOO
1 .os
1 6 ,6 4 7 ,0 0 0
i -57
1, 0 6 0 , 0 7 6 , 0 0 0
IO O .O O
The profits from the bill brokerage business, that is to
say, first and foremost the profits obtained from discount
transactions, have not hithereto been always separately
stated in the balance sheets of the German credit banks,
but have in many cases been combined with the interest
earnings, or with the profits gained from trading in foreign
bills and specie. {Devisen undSorten) . Such, for example,
is the practice of the Berliner Handelsgesellschaft.
In England, on the contrary, according to Edgar Jaffa’s
investigations,3 5 the amount of bills at the disposal of
0
297
N at ion a l
M on e t a r y
Commission
banks for the purpose of discounting has shown an almost
continuous decline.
One reason for this is that the English deposit banks,
which discount only for their customers, receive from them
only a part of their bills for discounting and as a rule the
less desirable part, while the larger part of the best bills
is turned over by these customers directly to the bill
brokers, so that the deposit banks are even obliged to buy
from these brokers a part of the bills necessary for the
investment of their funds. The deposit banks themselves
also sell to the bill brokers all bills on foreign countries,
as the banks themselves do not discount these.
Another reason, already mentioned, why the amount of
bills circulating in England has declined is, because, owing
to the more advanced organization of the system of pay
ment and credit in that country, cash payment, at least
among the largest firms, is tending more-and more to take
the place of bills, so that the very best commercial bills
are progressively disappearing from the English money
market.
Similarly bills drawn by importers of raw material on
the selling commission merchant, the so-called brokers’
paper, are gradually dropping out of use, being in large
measure replaced by collateral loans on the strength of
warrants on merchandise stored.
Finally, the number of bills drawn in England on for
eign countries is very small compared to the number of
bills drawn by foreign countries on England (about i to 9),
because the prices of goods exported from England, owing
to the larger market for London pound bills, are calcu
lated in pounds sterling, and payment accordingly is
ordinarily made in the shape of a bill on London.
298
The
G e r m a n
G r e a t
B a n k s
As a result of all these conditions, the English banker
wishing to invest his funds is limited in the main to the
“ domestic bills, steadily declining in number and quality,
while his main interest in foreign bills lies in the accept
ance business.” 38
0
As regards the English deposit banks, there was for
merly a great abuse in the granting of credit by acceptance
of drafts, and as a consequence the acceptance business,
too, has declined to such extent that it is to-day con
ducted only on a very modest scale and under the safe
guard of securities. Thus the acceptance business, even
in so far as it is carried on against shipped goods— that
is to say, against bills of lading, etc.— rests almost entirely
in the hands of the so-called merchant bankers 37 and of
0
the foreign banks,38 while secured or unsecured loans
0
in current account (loans or advances) constitute to-day
the principal form of credit of the English deposit banks,
which is granted exclusively to their regular customers.
However, owing to the easy transition from short-term
to long-term credit and the danger of tying up funds
in the latter, the same difficulties and complaints arise in
England as in the granting of industrial credit by our
own credit banks.39
0
In contrast with these English conditions, we saw that
in Germany the bill circulation and the bill holdings of
the banks, especially the credit banks, are very large, and
that of the total assets of the German credit banks in 1907
(as well as in 1895 and 1896), in round numbers, 53 per
cent appeared under the head of loans (Debitoren) and 20
per cent under the head of bills.
The rate of private discount resulting from supply and
demand of short-term credit at home and abroad— that
299
N at ion a l
M on et a r y
Commission
is to say, the rate of interest to be paid for short-term
credit in the way of discounting of private bills— is, of
course, subject to frequent and wide oscillations. From
it, in conjunction with other factors, especially the Reichsbank discount and the exchange rates, important con
clusions may be drawn regarding the business conditions,
especially the state of trade and industry. This is un
doubtedly true, even though, as we have seen, the bill
acceptance is not merely a means of granting credit to
trade and industry but serves also to a large extent to
procure the means for bourse speculation. But while the
rate of private discount corresponds in a general way to
the condition of the money market at any given moment,
the Reichsbank discount rate is determined not only by
that consideration but also by the general economic situ
ation and by the task, incumbent on the Reichsbank, of
regulating credit and protecting the money standard.
It has been pointed out, and it must be admitted, that
the difference between the official rate of discount estab
lished by the Reichsbank for short-term bill credit and
the rate of private discount quoted in the open market in
Berlin for short-term private bills has been almost uniformly greater during this period than at any other Euro
pean money center.
The differences were as follows:
Year.
Berlin.
Paris.
London.
Vienna.
1 8 7 6 - 1 8 8 0 ...................................................................................
1.19
0.51
0. 36
1 8 8 1 - 1 8 8 5 ...................................................................................
.9 8
• 43
.6 4
•5 1
1 8 8 6 - 1 8 9 0 ...................................................................................
I. 04
.5 0
• 93
• 5°
1 8 9 1 - 1 8 9 5 ...................................................................................
I. II
• 55
1.03
.3 8
. 26
0 .5 1
1 8 9 6 - 1 9 0 0 ...................................................................................
■ 7i
.0 9
. 60
1 9 0 1 - 1 9 0 5 ...................................................................................
I. OI
. 60
•43
• 50
1 9 0 6 ....................................................................................................
I. II
.8 8
. 22
. 21
1 9 0 7 ....................................................................................................
.9 1
. 06
.4 0
. 22
300
The
G e r m a n
G r e a t
B a n k s
It is also true that a difference of over 2 per cent
between official and private discount occurred in Berlin
seven times in the period 1895-1900 and nineteen times
in the period 1903-1907, while no such difference was ever
recorded in London and Paris.30 In explanation of this
1
phenomenon it was stated that this low rate of private
discount, occurring in part simultaneously with a high
rate of bank discount, was due to deliberate endeavors
on the part of banking circles to lower the rate and to
keep it low, for their sole benefit, in plain opposition to
the official discount policy of the Reichsbank, even in
cases where the Reichsbank raised the rate of bank dis
count, either to prevent an outflow of gold abroad or to
draw foreign gold into Germany.
It is not difficult to prove that the above-mentioned
great difference between the rates of private discount
and Reichsbank discount is not due to the cause alleged,
though it is much more difficult to assign the true reasons
for that phenomenon with even a comparative degree of
probability.
First of all, it is not true that the banks, and especially
the great banks, are essentially interested in keeping the
rate of private discount low by artificial means; on the
contrary, being buyers of bills, in which they invest
their funds, they are interested, like every buyer, in being
able to deduct the largest possible amount of interest on
these bills.3 As a matter of fact, very large amounts
11
of private bills are held not only by the great banks and
the other credit banks but also by the Reichsbank and
the other four note banks as well as by the mortgage
banks, cooperative credit societies (Genossenscliajten) ,
301
N at ion a l
M onetary
Commission
savings banks, insurance companies, commercial and in
dustrial enterprises, etc.
This extensive participation of other buyers of bills
clearly proves that a low rate of private discount does
not always nor exclusively “ benefit” the credit banks,
let alone the great banks. On the contrary, it benefits,
first and foremost, the commercial and industrial firms,
which, profiting by that low rate, draw on the banks,
while the banks are benefited only when, either in
response to demand or of their own accord, they pass the
bills on among their customers or into foreign countries.
Thus a deliberate or intentional “ thwarting” of the
discount policy of the Reichsbank by the large banks
by way of an artificial lowering of the rate of private
discount is out of the question, especially since they may
be in the market both as buyers and sellers of bills,
the latter especially in case of orders on commission
(Kommissionsauftrdgen) . As a general rule, the large
banks, having regard to the interest which they have to
pay on the deposits held by them and the interest which
they in turn (
draw for the credit which they grant on
bills, collateral loans, and contango (Reports), are essen
tially interested in making the rate of private discount
conform as closely as possible to the rate of bank dis
count, since their outlay on account of interest depends
on the rate of bank discount, while the receipts in the
way of interest depend on the rate of interest prevailing
in the market. Prion3 justly points out that the great
12
banks, in calculating the interest on the advances granted
by them, charge the lombard rate of interest of the Reichs
bank, and that when the difference between bank dis3°2
The
G e r m a n
G r e a t
B a n k s
count and private discount greatly exceeds the average,
the customers have a strong incentive to profit by the
cheaper acceptance credit, which would lead to an un
welcome increase both in the offer of bills and in the
acceptance obligations of the banks.
On the other hand, it is not to be denied that the great
banks and other large discounting concerns exercise
a certain influence on the fluctuations of the rate of
private discount and its quotation at the bourse, seeing
that in this field, as in others, they are in a position to
compensate more or less the orders for the purchase or
sale of private bills by means of the sums which they
themselves invest in or withdraw from the private-bill
business, and to bring only the remainder on the market.
There are also exceptional cases in which the great banks,
as well as governmental and municipal offices in Germany
and abroad, are decidedly interested in keeping the rate of
discount as low as possible, and may attempt, at any rate,
by heavy offerings of cash or other measures, perhaps with
the cooperation of all the large discount dealers (Grossdiskonteure), to lower the rate of private discount or to
keep it low, for example when the issue of public bonds,
domestic or foreign, bearing a higher rate of interest is in
contemplation. However, the success of such attempts
will not depend solely on the power of the large discount
dealers, even if acting in concert, since the discount
market is intimately connected with the entire money
market, and consequently the rate of private discount
depends on a number of other factors, such as the rate of
bank discount and its probable development, the foreign
exchange rates, the rates of interest for call money and
3°3
monthly settlement loans, etc. In view of this, and
the usually very large amounts of the bills marketed,
a notable or long-continued artificial lowering of the rate
of bank discount will be found impracticable, even with
the cooperation of all the large discount dealers. In
fact, if it were practicable, it would prove a very serious
matter, especially on those occasions when it is above all
desirable that the great banks should go hand in hand
with the Reichsbank and lend their energetic support to
measures which it deems requisite in the interest of the
general economic well-being.
If, for example, as a necessary and natural consequence
of an unfavorable turn in the balance of international pay
ments, the foreign exchange rates (Devisenkurse) are so
high that there is danger of an outflow of gold, especially
of a withdrawal of foreign gold held on deposit in Germany,
the raising of the official rate of bank discount will as a rule
suffice to stave off for the time being or postpone the com
ing of the moment at which the exportation of gold begins
to pay, unless indeed there be a demand for gold at any
price, as from America in 1907. This precaution, however,
can accomplish its object only when, as is usually the case,
the rate of private discount is simultaneously raised to, or
maintained at a correspondingly high level, as indeed gen
erally happens.
If in such cases the raised rate of bank discount consid
erably exceeds that of foreign bank discount, foreign coun
tries, as a rule, in order to share in the advantage of the
high rate of discount in Germany, will temporarily in
crease their gold deposits in Germany, independently of the
state of the balance of payments, so that in such case the
The
G e r m a n
G r e a t
B a n k s
raising of the bank discount rate may lead to a temporary
gold importation from abroad; again, however, on the
supposition that the private discount rate, too, rises to or is
maintained at a correspondingly higher level.33
1
In these cases, however, in which the prevention of a
rise or of the maintenance of a high level of private dis
count rate would be especially dangerous, the great banks
and other large discount dealers, as a rule, have no
motive even to attempt the exercise of such an influ
ence, because the probability is that, when the raising of
the bank discount rate is desirable in order to stimulate
the importation of gold from abroad or to prevent the ex
portation of gold, the situation will generally be such that
security issues are out of question.
The real reason for the great difference between the rate
of private discount and the rate of bank discount in Ger
many is probably to be sought, first and foremost, in the
fact that in Germany, as contrasted with France, there is a
relatively much larger number of persons or establish
ments, seeking to discount, whose competition in taking up
good bills prevents the formation of a rate of private dis
count corresponding more closely to that of the Reichsbank. A further reason may be found in the fact that the
rate of private discount is made, at least in a general way,
m conformity with the ratio of supply and demand exist
ing in the market. On the other hand, the rate of bank
discount, while fixed by the Reichsbank with an eye to
the regulation of credit transactions and the maintenance
of the gold standard, depends in the foremost place
on the favorable or unfavorable condition of our total
90311
n ------ 2I
305
balance of payments, whose primary expression is to be
seen in low or high exchange rates.
However, another important factor must be considered.
In Germany, whose trade and industry make far larger
credit demands than is the case in France, this demand
is satisfied, in the first instance, by a great multitude of
credit banks, in the most diverse forms, a feature in which
Germany again differs from France. Thus trade and
industry in Germany, as regards their demand for credit,
especially in so far as that demand is to be satisfied by the
discounting of short-term bills, depend on the Reichsbank
only in the second place. As soon as this condition
changes— that is to say, as soon as the absorbing power
of the credit banks is exhausted, as may happen especially
in boom periods— the offer of short-term prime bills on
the market will not be balanced by a corresponding num
ber of discount dealers. As a result, the rate of private
discount will rise and thus the difference between it and the
Reichsbank rate will grow less. This, it is true, will be
the case only so long as the Reichsbank in its turn is not
compelled to raise its rate of discount in order to restrict
the demand for credit made on it, especially active in
boom times.
In so far, however, as the credit banks, especially the
great banks, do exercise an influence on the rate of private
discount and the difference between it and that of bank
discount, it is indeed their duty to aim at lessening this
difference and to give their unstinted support to the dis
count policy of the Reichsbank, whose influence on the
private discount market, one of the most important fields
of credit granting, has doubtless been considerably dimin-
The
G e r m a n
G r e a t
B a n k s
ished through the concentration of the great banks. This
is the very field in which it is desirable, in the interest of
the general public, that the strict policy of dividends—
that is to say, of purely private interests— be subordinated
to public economic policy in cooperation with the Reichsbank, the more so, as in this field some of the functions of
the Reichsbank, viz, the regulation of credit, have to a con
siderable extent been transferred to the great banks.
It must be acknowledged that the great banks and
other great discount dealers have hitherto shown a de
cided disposition to be in the closest possible touch with
the management of the Reichsbank. Even Prion bears
witness that these banks occasionally are reluctant to buy
treasury bills (Schatzanweisungen), “ especially when the
Reichsbank, from motives of discount policy, desires to
throw considerable sums on the market in order to influ
ence the rate of private discount.” 34
1
(E)
Th e
LOMBARD AND
REPORT
B U S I N E S S . 315
•
The lornbard loan (loan on collateral), like the bill dis
count, affords to trade, agriculture, industry, and private
capital the opportunity of personal credit, for short terms,
sometimes also for longer terms, but it differs from the dis
counting of bills in this, that this personal credit is only
granted on security.
The collateral may consist of merchandise, which in the
import and export trade is replaced by bills of lading.
These the merchant or manufacturer pledges in order to
obtain bank credit, which, as a rule, is cheaper than mer
chandise credit (Warenkredit). This bank credit he there
upon uses for a great variety of purposes. His object in
3©7
pledging the security and taking the loan may be, as we
have seen, either to diminish his personal risk in over-sea
transactions or to increase temporarily or anticipate the
realisation of the working capital tied up in certain indus
trial or mercantile transactions. This form of credit
granting by the banks may give rise to the same dangers
that we described above, in connection with the accept
ance and discount credit (transformation of the original
short-term working credit (Betriebskredit) into investment
credit (Anlagekredit). Another purpose for which security
is pledged is to avoid loss through the sale of merchandise
at low prices at an unfavorable moment.
The collateral may also consist of securities or bills,
the latter being in fact the only kind of pledges admitted
in the lombard business of the bourse.
Lombard loans may also’ be secured by insurance poli
cies (at surrender value) or mortgages, the latter being
the most common form in the case of lombard credit in
the building tradg, although involving some risk, since it
is not always possible to realize on mortgages at any
given time. Finally the collateral may consist of any
other kind o£ paper and claims of all kinds.
In all these forms of secured credit the first thing to
be considered is the value of the collateral, the person
of the borrower being only of secondary importance,
which is not the case in ordinary discount credit. How
ever, even in the case of lombard loans the person of the
borrower plays some part at the bourse, inasmuch as the
amount of the loan, the amounts to be put up (Einschuss),
the interest to be paid, and the other conditions of the
lombard business, in a word, the acceptance or rejec-
The
G e r m a n
G r e a t
B a n k s
tion of the paper offered, are not decided without ref
erence to the property of the borrower, his solvency and
trustworthiness. On the other hand, in the lombard
business of the banks, with their regular customers, aside
from the value and quality of the pledge, and the duration
of the loan, sometimes extending to as much as three
months, the terms of the loan are mainly determined by
the longer or shorter duration and degree of intimacy of
the business connection, the amounts involved in past
business transactions, and the commissions paid, as well
as the other advantages which the bank has derived or
expects to derive from this connection.
For obvious reasons, even short-term lombard obliga
tions can not be regarded as liquid short-term invest
ments to the same extent as ninety-day bills, and accord
ingly article 17 (44, No. 3) of the bank act prohibits the
Reichsbank and the other four note banks from using these
lombard obligations for their note reserve. They bear no
indorsements, but only the name of the debtor, and in
case of nonpayment at maturity they necessitate a forced
sale of the objects pledged, which, in the case of merchan
dise, and even of securities, according to the state of the
market, may lead to poor results or none at all, if there
happens to be a simultaneous sale of the same kind of mer
chandise or securities, or a slack demand, or a general
unfavorable condition of the market.36
1
The fact that money thus advanced is tied up for the
period agreed on is another circumstance tending to make
it inadvisable for banks to invest large amounts of their
depositors’ funds in the lombard business. Further
more, the objects pledged can not be repledged, except
309
N ational
Monetary
Commission
by special agreement, which is not customary. On the
other hand, bills, or at any rate private bills, being readily
transferable at any time at the bourse or elsewhere, repre
sent a method of short-term investment which is much
more liquid, that is to say, more easily realizable.
This difference must not be lost sight of in considering
and estimating the liquid assets of banks. At any rate
the investment of money in the lombard business as a rule
is only for a short time, limited, in the practice of the Ger
man credit banks, to days, weeks, or a month, while credit
in the way of bill discounting is as a rule granted for a
longer period, since bank acceptances, in order to pass as
private bills, must run two to three months.
At the bourse three forms of lombard loans are dis
tinguished :
i. Call money (Tagliches Geld), payment of which may
be required at any time. These loans are mostly made by
great banks or bankers, on collateral of securities or bills,
and the rate of interest on them is determined by supply
and demand of available call money and published each
day. As a ^
rule this rate of interest is below the rate of
private discount charged on two-months’ or three-months’
loans, except at the end of the month and on other occa
sions of strong demand for money, for example, when
instalments on securities issued become due. However,
despite the difference of periods for which money is loaned,
the amounts invested in lombard call money and in short
term private bills may constantly alternate and inter
change, according as the lender finds the rate of interest in
the one or the other field more favorable for his purpose,
thus making the rates interdependent.
310
The
G e r m a n
G r e a t
B a n k s
2. Ultimo loans (Ultimogeld), granted from the end of
one month to the end of the next, usually at a rate of
interest varying with the existing conditions of the money
market, being as a rule lower than the rate of contango
money and below the Reichsbank rate of interest on col
lateral loans, but higher than the rate of private discount.
3. Money loaned for a longer but fixed term, which at
the Berlin bourse is as a rule furnished, first and foremost,
by the Seehandlung (Prussian State Bank). That insti
tution, as a rule, grants lower rates of interest than the
bourse. When the time the bills have to run agrees with
the duration of the lombard loan, the Seehandlung, in
discounting bills, charges the same rate of interest as in
case of the fixed-term lombard loan— that is to say, as a
rule in both cases the rate of private discount. In this
point, again, it differs from the bourse. On the other
hand, the Seehandlung is more exacting than the bourse
as regards the quality of the securities pledged and the
standing of the borrowers. At the bourse, on the other
hand, the rate of interest for ultimo collateral loans is as a
rule higher than the rate of private discount, but, except
in case of strong demand, lower than the Reichsbank rate
of interest on collateral loans. The latter, too, makes
loans only on certain classes of paper (art. 13, No. 3b,
of the bank act), and the limit to which loans are allowed
is considerably lower than at the bourse.
The opportunity thus offered by the Seehandlung of
obtaining favorable rates of interest is taken advantage
of by the great banks, which are able to comply with the
severe requirements of the Seehandlung as regards the
standing of the borrower and the quality of the collateral.
311
a ..
National
Monetary
Commission
The usual requirement is that this collateral shall consist
of domestic or foreign government bonds, or of mortgage
bonds, but it may also consist of prime bills, which,
having already been indorsed in blank by the banks or
their customers when discounted, do not have to be
indorsed again. Thus in the latter case, through a
wholly unostentatious use of bills as collateral, a form
of credit is created which the great banks normally use in
preference to rediscounting private bills in the open mar
ket; normally, as we have seen, the great banks, when
they cannot avoid a step of this sort, prefer to redis
count long-term private bills in foreign markets or among
their own customers.
Aside from the above-mentioned forms, in vogue in the
lombard business at the bourse, the banks grant lombard
loans for longer terms, up to three months, in which the
lombard rate of interest is fixed by agreement, usually
higher than the rate of private discount.
The ultimo money loaned in the lombard business of
the bourse, against collateral in securities or bills, is used
to a very large extent by speculators in securities, either
to terminate or to prolong a speculation, provided, of
course, that they possess such securities. If such is not
the case, and the bull speculator (Haussier) is neverthe
less willing to continue the prolongation, he accepts the
securities bought as per ultimo, obtaining the funds for
the purchase price by a loan on collateral repayable on
the last of the following month, for which he has to pay
the usual rate of interest for ultimo loans on collateral,
pledging the securities accepted and buying again the
same securities as per next ultimo. This lombard rate
313
I
The
G e r m a n
G r e a t
B a n k s
of interest will, of course, be the higher the more active
the bull speculation at the bourse.
The bull speculator may use another method. Having
to take up certain securities on the last of the month, he
sells them to a third party (his bank) for delivery on the
last of the month, receiving payment or being credited at
the so-called settlement price (Liquidationskursus). At the
same time he buys back the same securities from the
third party at the same price, plus the so-called report
money, as per ultimo of the next month. The amount
of this charge has to be such that the bank shall be
compensated for the month’s delay in receiving back
the purchase price of the securities pledged, so that it
has to receive the interest for the intervening period.
The rate of interest— that is to say, the rate of the report
money— is determined by the market value of each indi
vidual security or in percentages of the face value (accord
ing as the security itself is quoted in one way or in the
other).
On the other hand, the bear speculator— that is to say,
the person who, expecting a fall in quotations, has sold
securities which he does not own, for delivery on the
last of the month, but does not wish to procure them on
the last of the month because the market, instead of
falling, has risen, or is not in position to procure them
because he has no money, proceeds as follows: He
procures the securities to be delivered on the last of the
month by buying them from a third party that owns
such securities (his bank), to be delivered to him on the
same date. The bank thereupon debits him with the
purchase price and at the same time buys the papers
313
N at ion a l
M onetary
Commission
back from him for delivery on the last of next month,
at the same price, with deduction of the monthly interest
to be calculated according to the method above indicated
(the so-called deport). The greater the scarcity of se
curities on the last of the month, and the greater there
fore the need for them on the part of the bear speculators,
the higher will be, as a rule, the interest which the owners
of the securities will require to be deducted (deport),
which in such cases may thus be lower than the rate of
lombard interest for ultimo loans prevailing at the same
time.
To the speculator, all these cases represent, economi
cally, a prolongation of his speculation; juridically, in the
last two cases (report business) the combination of a cash
sale with a purchase for delivery (report) or a cash pur
chase with a sale for delivery (deport).
The lender in such case is simply dealing with two differ
ent methods of granting credit, that is to say, of investing
such money as he may have at his disposal for the time
being. In the report business he runs somewhat greater
risk, because he has to furnish a sum of money exactly
equal to the quoted value of the security, but then, as a
rule, he draws somewhat higher interest, for as a rule the
report money is higher than the rate for ultimo money in
the lombard business, because the former includes a
premium for risk.
On the other hand, if the lender furnishes ultimo money
on collateral in the shape of securities, he runs less risk—
a matter of special importance to the owner of investment
seeking funds— because he is able to fix the amount of the
loan on the securities according to their quality, not being
3 14
The
G e r m a n
G r e a t
B a n k s
required to stake his money on them to the full amount
of the market value. However, since the rate for ultimo
money as a rule is lower than the rate of report money,
he usually draws less interest than in the report business.
From the point of view of both the speculator and the
lender, either case represents either intentionally or at any
rate in effect a fostering of speculation in securities,
through the taking or granting of short-term credit.
Hence the increase of the report business, especially in
case of a boom, is as a rule a grave symptom of a decided
increase in speculation. Accordingly, a writer in the
“ Frankfurter Zeitung ” justly finds no cause for con
gratulation in the fact that in the case of io banks in
Berlin and Frankfurt the sums invested in the report
business rose from 148,550,000 marks at the end of 1892 to
284,590,000 marks at the end of 1894, an increase of nearly
100 per cent, while from 1888 to 1889 the increase was
only 55 percent (from 344,760,000 to 533,240,000 marks).
The great banks as a rule will not act as brokers for those
of their customers who wish to invest money in reports,
because that would diminish the amount held in current
account on which they have to pay but slight interest,
while they themselves, as a rule, are able to make better
use of their depositors’ money in the way of the lombard,
discounting or report business.
On the other hand, so far as their own temporarily
available resources are concerned, the great banks invest
heavily in the two forms of short-term credit, that is to
say, in ultimo loans, whose rate of interest influences also
the rate of private discount,3 and in report money. In
17
particular, when the domestic rate of interest is higher
315
N at ion a l
Monetary
Commission
than abroad, the banks often invest very large sums of
foreign capital in report loans, although in such cases the
borrower has to assume the risk of a variation in the
exchange rates.
The tax on the report business to the full amount of
the transaction stamp (Umsatzstempel), based on the com
bined amounts of sale and purchase, led to the result that
at the German bourses the ultimo loans have declined in
importance in the lombard business, as compared with
the report loan, especially since the rate of tax applying
to the report business might also be applied to the case
of the ultimo loan.
This result was rather regrettable, all the more because
lombard loans, unlike report loans, have not one and the
same date of repayment, and because the pledges by which
they are secured cannot as a rule be realized as easily
as the securities of the report loans. Finally, the con
ditions of the report loans are typical, established once
for all by the terms of the bourse, while the terms of lom
bard loans, as we have seen, have to be fixed by special
agreement applying only to each individual transaction.
Recently similar factors have been operative in the
same direction. By the federal stamp tax law of June 3,
1906 (schedule 4a, sec. 4), the stamp tax on the report
business has been reduced to one-half of the former rate,
the tax being based on the more highly appraised of the
two transactions into which the report business is jurid
ically divided. On the other hand, the so-called im
proper lombard business (uneigentliches Lombardgeschaft),
in which the recipient of the securities may return other
securities of the same kind, is, according to the practice of
316
The
G e r m a n
G r e a t
B a n k s
the revenue authorities, subject to the full tax according
to the schedule. Only the taxing of the lombard business
proper, of little importance at the bourse, in which the
recipient does not enjoy the right referred to, is subject
to the law of the individual States. In Prussia, accord
ing to the exemption clause to schedule 58 of the stamptax law of July 31, 1895, the documents certifying such
lombard loans are exempt from tax, provided that they
are repayable within at most a year and that the value
of the security given is at least equal to the loan granted.
Lombard loans on the security of bills (which there
upon are not further indorsable) with the view of granting
but not of securing credit play a very unimportant part
among the operations of the great banks.
The former bourse law having absolutely prohibited the
dealing in futures in the case of certain securities and
greatly hampered it in the case of others, the cash busi
ness (K assageschaft ) has for years been the favorite sphere
of speculation in securities at the bourse, the bankers of
the medium and smaller class having to resort for that
purpose extensively to call money in the lombard business
in speculating either on their own or their customers’
account.
The terms usually charged on lombard business by the
great banks are about the same as those of the Berliner
Handelsgesellschaft, reprinted below from W. Prion’s
work.38 They may, of course, be more or less modified
1
m individual cases, the lender enjoying considerable lati
tude in this respect, since these terms merely state the
maximum amounts of loans (“ up to”).
317
N at i on a l
M on e t a r y
Commission
If the market value of the securities no longer shows
the margin agreed on as compared with the loanable
value, a corresponding additional deposit (Einschuss) is
to be furnished, either in cash or in securities. The dec
laration to be signed by customers in the case of a lom
bard loan (unless the conditions of the current account
are deemed sufficient) has been reprinted by Friedr.
Deitner 3 and others.
19
M AXIM UM A M O U N T S L O A N A B L E O N S E C U R IT IE S Q U O TE D A T
THE
BERLIN
BOURSE.
I. Up to nine-tenths of the quotation of the day: Bonds
of the German Empire and of the German Federated
States; mortgage bonds issued by Prussian mortgage banks
and cooperative credit associations, as well as the bonds
of German cities and Prussian counties (Kreise); bonds of
German (other than Prussian) mortgage banks; stock and
debentures of nationalized railways; bank notes of foreign
states; gold and silver, in coin and in bars; debentures of
German railways.
II. Up to four-fifths of the quotation of the day: Bonds
of foreign governments and cities; foreign railway bonds;
foreign farm and real estate mortgage bonds; German rail
way shares.
III. Up to three-fourths of the quotation of the day:
Foreign railway shares; bank shares.
IV. Up to two-thirds of the quotation of the day: De
bentures of industrial concerns quoted at not less than 90
per cent. Shares of industrial concerns quoted at not less
than 150 per cent; if the quotation is higher, the excess
above 150 per cent is loaned on only to one-half the
3 1*
I
The
G e r m a n
G r e a t
B a n k s
amount and with the restriction that the loan is not in
any case to exceed 150 per cent of the face value. Secu
rities quoted more than 20 per cent below par are not
accepted as collateral. Mining shares and securities not
quoted at the Berlin Bourse are loaned on only under
special agreement.
According to the official statement submitted to the
Bank Inquiry Commission under date of March 31, 1908,
the sum total of lombard loans of the Reichsbank (on
5,650 pledge receipts) amounted to 255,687,100 marks,
distributed as follows:
1. Agriculture and allied industries (249 receipts)....................
Marks.
1, 803, 300
2. Industry and trades..................................................................
17, 853, 600
3- Commerce, transportation, and insurance.............................
21, 562, 800
4 - Banking and finance, viz.:
(a) Joint-stock b an k s 3 0 .......................................................
2
99, 618, 900
(b) Other financial institutions...........................................
88, 422, 000
5 - Public savings banks................................................................
12,620,500
6- Cooperative credit societies of all kinds................................
5, 108, 900
7 - Private persons.........................................................................
5, 788, 700
8. All others (corporations, foundations, et c.)..........................
2, 908, 400
T o t a l ........................................................ ............................
255,687,100
The exhibit shows also how greatly, in the transactions
of the Reichsbank, the lombard business is eclipsed by the
discount business, a result due, no doubt, in part to the
fact that lombard loans are not permitted to be used as
reserve for notes.
In 1907, as was shown (p. 297), the average of domestic
bills held by the Reichsbank was 1,060,076,000 marks,
while during the time from December 31, 1907, to April 7,
1908, the Reichsbank bought 1,389,357 domestic bills to
the amount of 2,897,985,044 marks.
319
N a tion a l
Monetary
Commission
Unfortunately, in the German bank balances lombards
have hitherto been for the most part combined with “ re
ports ” (under the head “ lombards and reports ” or merely
“ lombards” or “ reports”) in one total. This is all the
more incorrect, because, although both kinds of invest
ment represent as a rule forms of short-term credit,
lombards occasionally run for longer periods (up to three
months). Furthermore, although in many respects the
two kinds of investment serve the same purposes, yet, as
we saw, there are essential differences in these purposes as
well as in the nature of the investments.
As regards the composition of the “ reports,” such an ex
pert as Felix Hecht3 1 has justly pointed out that they may
2
include securities not easily realized, and furthermore se
curities issued by the banks themselves and sold on credit
to their customers. However, the same may be true of the
lombards.
Again, in the balance sheets and reports of the credit
banks (with the exception of some great banks) it has hith
erto to a large extent been the practice to make no differ
ence between lombard loans on merchandise relating almost
exclusively to articles the prices of which are quoted in the
market or at the bourse and lombard loans on securities,
the latter including also securities not quoted at the bourse
or securities issued by banks but not yet listed at the
bourse. However, in the bimonthly summary balances
since published by the great banks (beginning with Feb
ruary 28, 1909), the “ advances on merchandise and ship
ments ” are separately stated, and hence it may be assumed
that the same will be done hereafter in the annual bal
ance statements. At the same time the combination of
The
G e r m a n
G r e a t
B a n k s
“ reports and lombards” into one item has been retained,
probably on account of the practical difficulties that
would be involved in their separation.
Finally, some credit banks were accustomed formerly
to record advances on merchandise under the head of
“ secured loans in current account” (gedeckte Debitoren).
Thus, in studying past records, we have to bear in mind
that in the balance sheets of most banks the two items
were lumped, and thus the growth of lombards and reports
for the four great Berlin banks stated below (in millions
of marks) can be traced only for the two items combined:
DEUTSCHE B A N K .
1870 .....
2. 7
13. 2
I9.9
i 87 3 - • ... . .
8-7
...... i 4 - 5
187 4
1 8 75 .......... 16. 4
1 8 7 6 .....
32. 2
187 7
...... 1 1 . 0
1 8 7 8 .......
i5-5
1 8 7 9 ...... 3 4 - 8
1871
..... |
1872 .....
1 8 8 0 .. .
1881 . . . • •
1882 . . . ..
1883. . . ■ •
1884. . . ..
1885 . . . ..
1886. . . • •
1887 . . . ..
1 8 8 8 ... • •
1889. . . . .
32.5
29.8
30- 6
34.8
11.2
33-i
30.8
4 7 -i
66. 1
18 90 ....
1 8 9 1....
18 92....
1893----1894....
1895----1 8 9 6 ....
1897----1898 ....
1899-----
40. 7
26. 1
43-6
34-3
69. 8
60. 8
68.9
101. 2
114. 1
103-5
1900..
190 1..
1902..
1903..
1904..
1905..
1906..
1907 .
1908..
.
•
.
.
.
•
•
•
.
69.4
98-3
184.6
184.0
190.4
238.7
227.3
154-9
222.1
31 .9
14.9
11.4
18.6
48. 6
36. 0
23.3
27.4
31.7
40.6
190 0 ....
1 9 0 1....
190 2....
1903----1904----1905----190 6....
1907----190 8 ....
3 i -5
3 i -4
49.9
58-2
73-7
3 8- 5
57-7
49-5
58.0
21 .6
3 3 -o
28.9
54-2
49-9
42-3
51-8
5 7.6
73-8
19 0 0 ....
1 9 0 1....
1 9 0 2....
1903----1904----190 5 ....
190 6....
1907----19 0 8 ....
40. 03
34- 8
7 3 -o
62. 1
96.5
103. 0
ii9-5
56.6
113- 8
DISCONTO-GESELLSCH AFT.
1870.
1871 .
1872 .
1873 1874.
i 8 75 •
1876.
1877.
1878.
1879-
7.6
8.4
37-8
16. 1
H -5
.6
i -5
2. 1
5-3
I4 - 7
1880. . . . .
1881 . . . ••
1882 . . . . .
1883... . .
1884. . . • •
1885... . .
1886. . . -•
1887 . . . . .
1888. . . - •
1889. . . • -
24. 8
29.5
12.5
18.2
45-i
26. 8
3 i -3
10. 2
35-3
34-7
1890.
1891.
1892.
1893.
1894.
18951896.
1897.
1898.
1899.
...
. ..
...
. ..
...
...
•••
...
...
...
DRESDNER B A N K .
18731874l 8 75 •
1876.
1877.
1878.
1879.
1880.
1881.
0.4
•7
1. 1
1. 6
1.9
2-7
5-4
4-1
22. 5
9031I ° — 11
1882 . . . . .
1883. . . • 1884. . . . .
1885. . . • •
1886. . . ••
1887 . . . . .
1888. . . • •
1889. . . -1 8 9 0 ... . .
-2
2
12.0
15- 1
19. 1
5*9
15-3
9. 6
37-8
59-6
38.2
321
1891. . . .
1892. - ..
1893.
1894. - • i895- • ••
1896. - - 1897. . . .
1898. . ..
1899. . . .
Monetary
Commission
DARMSTADTKR B A N K .
1 8 7 0 .. .
1871...
1872. . .
18 73...
18 74...
18 75...
1876. . .
1 8 77...
1878...
18 79...
••
••
■ •
..
..
..
..
..
..
7-9
H -7
15-3
9. 6
10.3
76
8. 9
18.5
28. 0
1880.. . • •
1881 . . . • •
1882 . . . . .
1883. . . • •
1884. . . • •
1885... . .
1886. . . ..
1887 . . . . .
1888. . . ••
1889. . . . .
18 90 ... . .
1 8 9 1 . . . ..
1892.. . . .
1 8 9 3 ... ..
1 8 9 4 ... ••
1 8 9 5 .. . ••
1 8 96... • •
1 8 9 7 . .. • •
18 98 ... • •
1 8 9 9 . .. • •
3°-3
25.3
24. 8
3 i -3
34-9
24. 6
22.9
26. 8
39-7
41. 0
27. 6
22.7
27. 6
24.1
30.5
3 i -4
30. 5
23. 1
32.3
310
1900. ..
1901...
1 9 0 2 ...
1903.•.
1 9 0 4 ...
1 9 0 5 . ..
1 906...
1 9 0 7 . ..
19 08 ...
• • 38.9
•• 3 7 - 9
•• 4 5 - 7
•• 7 3 - 3
• • 48-5
•• 65.2
For all the German credit banks (with a capital of at
least 1,000,000 marks each), the lombards and reports
during the last eleven years amounted to the following
sums (in millions of marks) *
1898..
1899..
1900..
1901..
........ 668.8
........ 736.8
........ 5 9 7 - 7
........ 5 9 4 - 0
1902........ . .. 691.5 1906..... . ... 1,099.4
8
1903........ . . 70 . 2 1907..... . . . . 1, 162.6
1904........ ••• 7 7 3 - 9 1908..... --- 1, 3 4 8 . 5
9 7 0 -9
1905........
A t the six great Berlin banks the lombards and reports
during the last eleven years amounted to the following
sums (in millions of marks):
1898. . . •• 4 i 5 - 6
1899. . . ■ • 4 6 3 - 1
1 9 0 0 . . . . . 30 2.0
• 477-8
• 5 8 8 .3
■ 6 7 9 .3
1904..
1905..
1906..
1901 . .
1902 . .
• 2 9 4 .3
• 432.0
1903 • • • 443-0
1 9 0 7 . . . •• 594-4
1 9 0 8 . . . . . 660. 8
Of the total assets the following amounts (in millions
of marks) were invested in lombards and reports:
1894.
Amount.
Per
cent.
Amount.
Per
cent.
Amount.
60. 7
36.0
3° - 4
IS- 19
IS- 20
20.08
15.20
31.4
15-09
222.12
58.10
113. 8
65. 29
21. I
H. 93
25. O
12. 50
53 - 4 °
69. 7
48. s
5 4
°
6s
In the Deutsche Bank..........
In the Disconto-Gesellschaft..
In the Dresdner Bank..........
In the Darmstadter Bank.. ..
In the Berliner Handelsgesellschaft..........................
1908.
189s-
00
National
IO.
50
9. 67
14 - 77
Per
cent.
12 . OO
6. S
10. 9
9. 6
12
The
(f )
T
G e r m a n
h e
b r o k e r a g e
G r e a t
b u s in e s s
B a n k s
{Kommissionsgeschaft).
The brokerage business of the German credit banks,
especially of the great banks, has never remained con
fined within the narrow scope assigned to the broker
(Kommissiondr) by paragraph 383 of the Commercial
■
Code (Handelsgesetzbuch) , according to which the term
broker (.Kommissiondr) designates exclusively a person
who makes a business of buying and selling, in his
own name but for another’s account, merchandise and
securities.
On the contrary, the German credit banks have from
the beginning also engaged, in their own name and for
other persons’ accounts, in business not consisting of the
purchase and sale of merchandise or securities, but
which are nevertheless subject to the legal provisions
regulating the brokerage business, according to the present
Commercial Code (art. 406).
As instances of such operations, the following may be
enumerated: The payment of the indemnity to Spain by
the United States for the cession of the Philippines,
effected through the mediation of the Deutsche Bank, as
set forth by Ad. Weber;32 the cooperation of various
2
great German banks in the preparation and execution of
the nationalization of the private railways, first those of
Prussia and later those of other German States, begun in
1879 and continued for several years, a cooperation
which was very extensive and not confined to the pur
chase of shares; the cooperation of the Dresdner Bank
and the A. Schaaffhausen’scher Bankverein in the acqui
sition of an adequate amount of stock of the HiberniaGesellschaft, undertaken at the instance of the Prussian
323
Government, and again not limited to the purchase of
stock; the cooperation of the Disconto-Gesellschaft in the
settlement of the French war indemnity in 1871-72; the
mediation of the Disconto-Gesellschaft in the conversion
of the stock of the Roumanian Railway Company into
Roumanian government bonds (1879-1881); the reor
ganization of the Northern Pacific Railroad Company
effected by the Deutsche Bank, partly on account of
third parties, etc. In the main, however, the business
carried on by the credit banks and especially the great
banks is the brokerage business proper, conducted on the
bourse. The scope of this business has been enlarged by
all the numerous factors tending toward an increase of
power and concentration, some of which we have already
mentioned, while others yet remain to be discussed.
Such are especially the relations to industry, constantly
growing more intimate, and the deposit offices estab
lished gradually in large numbers by all the great
banks, with the exception of the strictly centralized Ber
liner Handelsgesellschaft. For although Waldemar Mul
ler33 may j^e right in stating that the business of the
2
deposit and exchange offices (Wechselstuben), “ so long
as it was confined to the use of interest and the commis
sion business in securities, did not cover the considerable
expenses for rent, personnel, etc.,” yet the originators of
these deposit offices acted on the expectation that the
makers of the deposits and the users of their safes would
little by little tend to utilize the other facilities of the
offices for arranging all their business and property mat
ters, especially investments of capital, that is to say,
entrust them with the brokerage of their bourse transac-
The
G e r m a n
G r e a t
B a n k s
tions. This assumption, founded on the desires and wants
of their clientele, has in the main proved well founded,
as well as the further expectation that the clients of the
deposit branches would also little by little become habitual
and trustworthy customers for the securities issued by
the central offices, their financial standing and solvency
being well known to the local offices.
The deposit branches have often been criticised as tend
ing to encourage to a considerable extent speculation in
securities on the part of their customers, and to urge the
participation of customers in bourse speculations, after
the manner of “ touting bankers” (Animierbankiers) . It
would be difficult to prove the justice of this criticism.
As a matter of fact, the central authorities of the great
banks and of the other credit banks, in view of article
94 of the bourse law, as well as from an intelligent regard
for their own interest, have from time to time issued the
strictest instructions to the managers of their deposit
branches and exchange offices to refrain from encouraging
bourse speculation on the part of their customers or
others. These instructions are periodically repeated.
It can not be doubted, however, that, notwithstanding all
instructions and warnings, certain managers of deposit
branches have offended in this respect. This is likely
to occur again, especially in the case of those managers
who, besides their salary, draw a commission merely from
the net profits of their deposit branches, a practice which
it would be well to discontinue. It must not be forgotten,
however, that the public and the customers themselves
often dictate to the managers, and not only resent every
exhortation or warning, but issue their orders in peremp-
325
N at i on a l
M on et a r y
Commission
tory form. It may also happen that the speculators,
without the knowledge of the manager of one deposit
branch, enter into speculative enterprises with other
deposit branches and use the knowledge gained at one
branch either to check the other or for conclusive action,
beyond the control of the first manager.
Withal, the aim of these deposit branches and exchange
offices must be to minister solely to the legitimate invest
ment of funds and to the other needs of their customers,
as they arise in the course of business, and to cultivate all
the branches of the regular (current) bank business, with
the exception of the security issue business and the security
business for own account. To their credit it must be
said that a growing portion of these establishments,
especially the older ones, have been following the policy
just commended.
Extreme caution must be practiced in the ^investment
business, both as regards the securities issued by the
banks themselves and other securities. It can not be
maintained that this caution has always been sufficiently
observed in the past. In particular it ought to be laid
lV\
down as a principle that those persons who are compelled
by their financial situation to follow anxiously every
oscillation in quotations and who are severely affected
by every diminution in interest income should not be
advised to invest in dividend-paying securities, because
these are subject to great fluctuations not only as to divi
dends but also as to the market value, corresponding to
the fluctuating rate of dividends. On the other hand,
those persons who insist on acquiring dividend-paying
paper, either because of speculative tendencies or of their
326
r
The
G e r m a n
G r e a t
B a n k s
needs of seeking higher returns than are usually offered
by government bonds and other securities bearing a fixed
rate of interest, would do well at any rate to “ mix,” that
is to say, to buy small amounts of safe stock of various
industrial enterprises, in order not to stake everything on
one card. The better returns in one branch of industry
or in one company will then offer them a kind of insurance
against diminished returns in other companies. The
principle of the distribution of risk applies also to the
private capitalist, and it is the duty of managers of
deposit branches to exert their influence in this direction,
whenever their advice is asked.
Aside from these cases, it is the practice among the
managers of the great banks, so far as I know, to instruct
the managers of deposit branches and exchange offices,
though not always with success, to abstain from all recom
mendations and advice beyond a mere statement of facts
within their knowledge regarding the securities to be
bought or sold, especially when such securities have been
issued by the great banks themselves, since in such case
the very fact of issue expresses the favorable opinion of
the issuing bank. When customers ask for information,
it is the branch bank manager’s duty to point out to them,
to the best of his knowledge, those factors which, after
careful examination, he thinks will be apt to determine
the intrinsic value, safety, prospective yield and market
of the securities to be purchased or sold, including in the
appropriate case, the conditions under which they are ad
mitted to trading at the bourses at home or abroad. He
should on principle decline to utter any prognostications
regarding the future development of the market value, no
327
1
1
N~a t i o n a l
Monetary
Commission
matter how urgent the questions which are almost
always addressed to him on this point. This caution is
especially demanded in view of the fact that the very
shrewdest experts in the money market, possessing the
most minute knowledge of the innumerable factors that
influence the market value, profess to be unable to lay
down any rule as the result of their experience, except
that, as they say at the bourse, “ it always turns out
the other way.”
In the brokerage business at the bourse, the Berlin
great banks 34 and a wide circle of other establishments
2
are guided by certain “ business regulations,” which in the
main are identical, as shown by the printed blanks. They
embody the following principles:
1. All orders given to the bank for the purchase or sale
of bills, foreign bills of exchange (Valuten), or securities
are executed by the bank in its own name, unless the
contrary is expressly agreed on, or unless the bank itself
in the individual case makes an express statement to the
contrary.35 Any phrases used in the transaction, such as
2
“ I bought or sold for you,” that might indicate an agree
ment with a'third party, do not alter this rule. In each
instance the bank has the right to charge, in addition to
the commission, the regular expenses, especially the usual
brokerage (Kurtage) and stamp tax.36
2
2. Any bourse transaction undertaken by the bank for
its customers is subject to the rules in force at the time
in that kind of business at the domestic or foreign
bourse where the transaction is to be executed, even when
the business is transacted by the bank in its own name.
The bank has the right to prolong term engagements
\
328
1
The
G e r m a n
G r e a t
B a n k s
made at the bourse, if it sees fit, or to cancel them entirely
or in part, unless the customer gives explicit modifying
orders regarding the pending engagement, which order
must be received at the latest on the last but one exten
sion day— the so-called day of premium declaration (Prdmienerklarungstag). The bank has the same right of can
cellation before this term, if the person giving the order
fails, on demand, to pay such supplementary margin
(Einschuss) as may be required (see No. 3, below, second
paragraph) .37
2
3.
In order to safeguard all claims against the customer
through the current business connection,38 as well as for
2
any bill obligation that may be pending (unless a special
arrangement has been made), the bank has the right of
pledge or retention in regard to any securities, including
interest coupons, annuity (.Rentenscheine) and profit-share
certificates, and all other valuable paper which may have
come into its possession or keeping in the course of busi
ness or in any other way.39 However, if such securities
2
are turned over to the bank expressly in the name or on
account of other persons, the bank possesses the right of
pledge or retention in virtue of those claims only which
may have arisen in connection with the respective securi
ties.30 Securities deposited in German banks without
3
being provided with a German stamp are not subject to
the right of pledge and retention.3 1
3
If the margin (Einschuss) or the balance due the bank,
including any pending bill obligations, is not paid when
due, a written demand for it is sent by registered mail.
If this remains without effect, the bank, in order to satisfy
its claims, has the right, without further warrant or period
329
N at i on a l
M on et a r y
Commission
of grace, to sell the pledges at any time and place in accord
ance with the provisions of articles 1221 and 1235 of the
civil code.32 Article 1237, section 2, and article 1238 of
3
the civil code are not applicable to this case. Neither
has the customer the right, according to article 1246 of
the civil code,33 to require any departure from the regular
3
form of sale of the pledge.
The demand just mentioned is deemed to have been
delivered if it is sent by registered mail to the last address
known to the bank, even if the letter comes back marked
“ Can not be delivered. ”
The acquisition of the pledged object by the broker him
self is permitted, according to article 400 of the commer
cial code, only in the case of goods which have a market
or exchange price and in the case of securities which are
officially quoted; the broker has to prove that the price
which he charged to the client is the market price pre
vailing at the time of the execution of the order; this
time is the date ‘ ‘ at which the broker delivered the notice
of the execution for forwarding to the client” (art. 400,
sec. 2, paragraph 2 of the commercial code), a provision
which, like a number of others (articles 387, 400, secs. 3b
and 5; articles 401, 405, sec. 2), is intended to prevent
the so-called “ Kursschnitt ”— that is to say, speculation by
the broker to the detriment of the client.
As a wilful contravention of article 400, section 2, para
graph 2, is subject to penalty (according to article 95, sec.
1, No. 2 of the bourse law), most of the great banks have
established a special bureau whose duty it is to see that
the law is strictly observed by their representatives at
330
\
The
Ge r ma n
Gr e at
Banks
the bourse. This or some other bureau also makes sure
that the proper stamps are used.
According to articles 3 and 4 of the law “ relating to the
duties of business men (Kaufleute) in the safe-keeping of
securities belonging to third parties” of July 5, 1896 (the
so-called bank deposit law), the broker who carries out an
order for the purchase of securities (of the kind specified
in art. 1) is bound to send to his client within three days
a list of the items purchased, with indication of the nomi
nal value, the numbers, and any other marks of distinction
(Stiickeverzeichnis— itemized statement). According to the
business regulations of the great banks, and most of the
German credit banks, however, the banks as a rule require
of their clients a written waiver of the sending of the item
ized statement in case the securities purchased have not
been fully paid, and the client remains indebted to the
broker for the rest, the purchased paper being left as pledge
in the custody of the broker. The business regulations
expressly state that the object of this waiver is to prevent
the passing of legal title in the purchased securities to the
client, which, according to article 4 of the bank deposit law,
would be the effect (at the latest) of the sending of the
itemized statement. As it is, however, the broker— that is
to say the bank— retains title until the purchase price has
been fully paid. Until this is done, the items purchased are
not credited to the deposit account of the client and do
not become his property. Accordingly they are not kept,
on behalf of the client, separate from the bank’s own hold
ings or those of third parties, and are not entered in the
deposit book according to their distinctive marks (art. 1 of
the bank deposit law). On the contrary, they are booked
331
I
N at ion a l
Monetary
Commission
by the piece without indication of number, this record be
ing often known in the great banks by the name of Account
C (Konto C) , in contradistinction to the custody account,
pure and simple, of the items belonging to the client
(provincial banker) himself (Deposit Account A), and
Deposit Account B. The latter comprises the items in
regard to which the provincial banker (the client of the
great bank) making the deposit or transmitting an order
for purchase has made the declaration (in compliance
with art. 8 of the bank deposit law) that the items are the
property of others or that the purchase is to take place
for the account of others. This Deposit B, therefore, is
“ not free;” that is to say, it does not serve the bank as
security for all its claims against the provincial banker.
In order that the broker (the central banker) may dispose
of items booked under Deposit Account B, it is necessary
in all cases, according to legal decision, that the client
(the provincial banker) shall have declared, that he in
turn had been given express consent to such disposition.
According to article 3, section 2 of the banking law, the
waiving of the requirement of an itemized statement
(Stuckeverzeichnis) may be done by bankers in any form,
even verbally, and once for all, but in the case of persons
who are not bankers only expressly34 in writing and only
3
for each individual case.
Only when the remainder of the purchase money has
been paid, the purchased items, on demand of the client,
are transferred from the item account (Account C) to
the Deposit Account A.
As regards the method of keeping securities booked
under or transferred to Deposit Account A, the great
The
G e r m a n
G r e a t
B a n k s
banks as a rule adopt the arrangement by classes, that is
to say, securities of the same kind but belonging to differ
ent customers are kept together, the items belonging to
any particular customer being, of course, marked by bands
bearing the customer’s name and the nominal value of the
items. This method of keeping by classes enables each
item to be found more readily and is therefore preferred
to the method of keeping all the securities belonging to
one customer in a portfolio marked with his name. At
the same time, for the purpose of having a check on the
holdings, all banks carry both “ living” account books, in
which each customer has one account for all his securities,
and a “ dead ” account book in which each class of securi
ties has an account, the names of the customers being
entered under each class, with the items of that class
standing in their names.
In the case of mere safe-keeping of securities, or where an
order for purchase is followed by safe-keeping, many pro
vincial banks and private bankers are in the habit of ob
taining from the customer an authorization to return secu
rities of equal value in place of those deposited or pledged,
or to use them for their own (the bank’s) profit.35 Such
3
authorization has to be made in conformity with article 2,
section 1 of the bank deposit law, expressly in writing
and for each individual case, only when the person in
question is not a banker. The great banks, however, do
not make a practice of obtaining such authorizations.
The banks, although not required by law, regularly
furnish a memorandum giving the issue numbers of the
securities, generally by signing and returning one of the
two slips (bordereaux) which accompany the order.
333
N at i o n a l
M on e t a r y
Commission
No perfectly reliable conclusions can be drawn from the
balance sheets hitherto in vogue concerning the extent of
the brokerage business of the great banks. On the one
hand, the heading ‘ ‘ Comjnissions ’ ’ (Provisionen) covers
not only the commissions derived from the brokerage
business in its widest sense, but also in many cases all or
part of the commissions derived from the discounting of
bills, which really ought to be booked under the bill
account, because these commissions are not always
deducted from the particular bill entries, but are calculated
only at the reckoning of the whole account (from the
amount of the total transactions) .36 Again, the commis
3
sions earned in the current account business are in many
cases booked under the commission account, so that this
account, homogeneous as it looks, is really a ‘ ‘ collective
account. ”
What has been said here of the commissions earned
through the discounting of bills holds true also of the
purchase and sale of securities, the commissions due to
the banker being either calculated from the total transac
tions of the account, on the larger side, or being at once
added to or deducted from the calculated total amount of
each individual statement.37 In the former case the net
3
profit in the way of commissions is transferred in one sum
at the reckoning of the account to the collective account
“ Commissions;” in the latter case the commissions are
booked in a separate account, but in that case, if a
wrong impression is to be avoided, they have to be
picked out singly and transferred to the commission ac
count. This distinction while of no importance as regards
the question of the total amount of profit from the
brokerage business, does exert an influence, of course,
334
The
G e r m a n
G r e a t
B a n k s
on the amount of commissions. Thus, for example,
according to a resolution of the Stamp Union (Stempelvereinigung) , the total transactions in dividend-paying
securities are no longer carried in ordinary account, as
was done so long as a commission was calculated only from
the total transactions of that account (on the larger side),
but a special commission is charged, both for the purchase
and for the sale of dividend-paying securities, which are
booked in a separate account, the dividend-paying security
account.
With the reservations resulting from the above state
ments, an approximate idea of the extent of the broker
age business in the German credit banks may be gained
from the following table, since a very large part of the
commissions (Provisioned,) booked on the commission
account (Provisionskonto) is undoubtedly derived from the
brokerage business proper.
According to the Deutscher Oekonomist, 38 the German
3
credit banks having a capital of at least i ,000,000 marks
each showed the following totals (in millions of marks):
Year
Gross
profits
Ratio of
Commis commis
sions
sions (P r o v is io n e n )
(P r o v i to gross
s io n e n ).
profits.
Year.
Gross
profits
Ratio of
Commis commis
sions sions (P r o (P r o v i - ■ visionen)
s io n e n
to gross
profits.
P e r cent
P e r cen t
0
0
O
v
O
78.69
110.48
141.O
O
1 4 1 .0 4
1x2. is
xn. 93
no. 03
II 2.29
150.83
158.93
19. 7
20. S
20. 7
24. 2
32. I
32.2
28.8
26. 7
27.8
28. 1
34-3
35 4
25-3
26.0
25-S
22. O
22.8
22. 8
25- 7
23.8
25. 2
25. O
22. 8
22. 3
1897---1898.. . .
1899---1900. . . .
1901. . . .
1902. . . .
179-37
218. 38
261.77
262.02
258.40
256.76
40. 4
S°. S
5 7 -9
O
d
1893---1894---189s---1896....
7 7 - 81
0
1885....
1886__
1887__
1888__
1889....
1890....
1891__
1892...,
1903---1904----
2 5 3 -21
190s---1906... .
3 3 0 .20
58.9
S7 - 7
62. 7
68. 2
81.4
3 7 7 - 08
91
1907---1908.. ..
382. 28
4 1 7 .20
335
273-5°
•4
9 7 -S
103-7
22.5
23.1
22. 1
22.9
22.8
22.5
24.7
25.0
24.7
24.3
2SS
24. 9
From this it appears that the commissions (Promsionen),
with the exception of the years of depression of 1891 and
1892, kept on rising, very rapidly from 1885 to 1890, less
rapidly but very steadily for the period following 1892; but
since the total gross profits from 1885 on (with slight in
terruptions in 1891-1893, 1901 and 1903), also rose very
considerably, the ratio of commissions to gross profits
remained nearly uniform throughout the period 1885-1908,
showing, in fact, a slight decline.
At any rate, almost one-fourth of the gross profits
throughout that period resulted from commissions derived,
no doubt, for the most part from the brokerage business
(Kommissionsgeschdft) .39
3
(g )
t h e
t r a n s f o r m a t io n
AND
,
f o u n d in g
S E C U R IT Y
,
is s u in g
,
s y n d ic a t e
,
B U S IN E S S .
(i ) The transformation and founding business.
The objections to the German “ mixed banking sys
tem ’ ’ are twofold. On the one hand it is urged that the
deposits are not sufficiently secured by liquid assets, which
implies a lack of soundness in administration. This point
will be dealt with at greater length in section 8. On the
other hand, it is pointed out that the transformation
and founding business extensively conducted by the Ger
man credit banks involves grave dangers both for the credit
banks themselves and for the community at large. This
point we shall now proceed to discuss.
In previous sections (pp. 4 and 5) we noted that the
prompt undertaking of the transformation and founding
business— that is to say, the financing business proper 30—
4
by the German credit banks, corresponded to an urgent
336
The
G e r m a n
G r e a t
B a n k s
need of the industrial and commercial interests of Ger
many. The very earliest German credit banks were
created, first and foremost, for the purpose of promoting
trade and industry, as indicated by the very firm name of
the Darmstadter Bank: “ Bank for Trade and Industry.”
The establishment in Germany of special banks of deposit
was out of the question, mainly because, in view of the
low level of prosperity of the population, such banks would
not have yielded sufficient profits.
Furthermore, in the very beginning of the volume we
pointed out that the special nature of the transformation
and founding business demands a vast amount of technical,
business, and general economic knowledge and experience,
which could only be accumulated little by little in the
credit banks. The need for such experience, combined
with the continuous watching of the money market and
an accurate knowledge of the capital market, as well as of
the factors connected therewith, such as the capacity
of the market for taking up new securities and the con
ditions determining the market value of these securi
ties, etc., was of itself sufficient to create “ special
economic organs,” which, to use Schaeffie’s expression,
were to perform “ the special function of the initiative
in the joint-stock industry. ”
Moreover, the necessity of a division of labor, of
combination and decentralization of establishments, of
applying the wholesale demand and of overcoming or
warding off foreign competition, gave rise to industrial
large-scale production, whose favorite form is the stock
company, because it obtains credit more easily than the
individual entrepreneur, and on that account is more
90311 °— 11----- *3
337
N ational
Monetary
Commission
susceptible of expansion. This was another reason whyin Germany the task of transforming existing establish
ments into stock companies, or of founding new stock
companies, fell to the share of the banks, as central reser
voirs of funds available for productive purposes, the stock
companies themselves representing a concentration of
small amounts of capital, each in itself insufficient for pro
ductive utilization.
Large-scale industry and capitalism, bearing to each
other the reciprocal relation of cause and effect, were thus
enabled, by the aid of the German credit banks, to unite
in an inseparable alliance, which impressed its character
istic stamp on the entire economic development of Ger
many during the two epochs under discussion.
We saw (pp. 38 and 115) that in Prussia, up to the inter
vention of the credit banks, during the entire quarter of a
century from 1826 to 1850, only 102 stock companies,
with a combined capital of about 638,000,000 marks,
were formed. In contrast with this, the first epoch here
considered (more accurately the period terminating with
the beginning of the second half of 1870), was marked by
the founding of 295 stock companies with a capital of
about 2,404,760,000 marks, due, first and foremost, to the
activity of the German credit banks in the field of trans
formation and issue.
But even this was merely the first puff of wind before
the beginning of the storm.
Beginning with the second half of the year 1870 up to
1874, 857 stock companies were formed in Germany, with
a capital stock of 3,306,810,000 marks. This overproduc
tion in transformations3 1 and new flotations in these
4
The
G e r m a n
G r e a t
B a n k s
four and one-half years, as well as the great abundance of
money and the fever of enterprise and speculation, were
of course either created or at least reinforced by the
sudden inflow of the 5,000,000,000 francs of the French
war indemnity. Combined with other factors, that over
production was one of the most important causes of the
great crisis of 1873.32
4
In the first epoch (from the middle of the nineteenth
%
century to the year 1870), when industrial enterprises
to a large extent lacked sufficient capital and energetic
entrepreneurs, the banks, in many, perhaps the majority
of cases, had to take the initiative in the work of trans
formation and founding. A natural incident of this proc
ess was that the banks often took a share, at times a very
considerable share, in the transformed or newly founded
enterprises through the purchase of stock or other direct
participation. As noted above (p. 72), the 1852 report of
the A. Schaaffhausen’scher Bankverein expressly states
(p. 3) that it is the function of a large bank “ to induce the
capitalist? of the country to direct idle capital toward
those enterprises, which, when properly launched, in re
sponse to real needs, and offering the guarantee of expert
management, bid fair to bring adequate returns.” It was
that very bank, the oldest German credit bank, which
as early as 1851 took a share in the founding of the
Horder Bergwerks- und Hiittenverein, in 1852 in that of
the Coiner Bergwerks-Verein, the Colnische BaumwollSpinnerei, the Colnische Maschinenbau-Aktiengesellschaft,
the Coln-Mlisner Bergwerks-Aktiengesellschaft, and the
Colnische Baumwoll-Spinnerei und Weberei, wisely mak
ing choice of local enterprises in its near vicinity, which
339
I
N ational
Monetary
Commission
it was in position to keep under steady surveillance. In
this way it avoided those severe losses to which other
banks, not equally cautious, were subjected at that time.
Thus the Darmstadter Bank, shortly before the crisis
of 1857, took part in seven industrial enterprises which in
1856 it had transformed into stock companies or newly
founded. These enterprises had a combined capital of
2,500,000 thalers, in round figures. Among them wT a
as
woolen and cotton factory, a spinning and weaving factory,
a mining company, the Oldenburg-East Indian Shipping
Company, and two machine factories. This permanent
investment in stock meant afterward corresponding
amounts permanently written off. In one case, that of
the Mannheim woolen factory, the entire stock was lost.
The Disconto-Gesellschaft in 1857 founded the Heinrichshutte mining and smelting works with a capital of
about 1,750,000 thalers. In 1863, after heavy losses, it
was found necessary to separate that enterprise from the
Disconto-Gesellschaft and to place it in control of the
business managers, with participation of the DiscontoGesellschaft on a silent partnership basis. In 1872, the
establishment was merged in the newly founded Dortmunder Union Aktiengesellschaft fur Bergbau- Eisen- und
Stahlindustrie, which was destined to cause still greater
trouble to the bank.
The Mitteldeutsche Kreditbank suffered heavy loss
through the acquisition of the Tudwigshutte at Biedenkopf, which in 1858 had been transformed into a stock
company under the name of Oberschlesischer Huttenverein, the share of the bank amounting to one-third of
the stock. The same happened with the Wasungen cigar
340
The
G e r m a n
G r e a t
Ban k s
factory, in which the bank acquired a share interest
in 1856.
This initiative in the business of transformations and
foundings, often dearly paid for by the banks, was largely
reinforced and facilitated by the defective legislation of
that time, which made practically no provision for the
true indication nor the strict civil and penal responsibility
of the persons concerned in the founding. It was only
the new law (Novelle) of 1884 that defined the term
“ founder ” (Griinder), provided for the complete publicity
of the founding process, and introduced strict civil and
penal responsibility of the founders and their associates.
The argument accompanying that law describes the pre
vious legal condition in words which deserve to be rescued
from oblivion (pp. 87-88):
“ Ihe founding process was concealed; the true indication of
the founders was not legally required; the leading promotess
acted without any sense of responsibility and were exempt
from any kind of control. The temptation to put private
interest qbove that of the company to be established was too
powerful. No person was appointed and no measures taken
to guard the interests of the company. For a long time after
its foundation the newly-formed company possessed no corpo
rate autonomy and remained defenseless in the hands of per
sons whose only object was their profit as founders. At the
same time the public, which these persons, without any risk or
responsibility, had in every possible manner sought to attract
to a participation in the company, either formally organized
or to be organized, had no reliable data whereby to form a
correct estimate of the enterprise.
In a number of the criminal proceedings that took place
during the crisis just past [1873] it was not even possible to
34i
ascertain the names of the authors and publishers of the pros
pectuses by means of which the public had been invited to
subscribe.”
So long as it was possible to start industrial transforma
tions and foundings under the screen of anonymity and
freedom from any strict responsibility, there was of course
also an opportunity for “ industrial stock jobbery” (“ industrielle Ausschlachtungen” ) which Sattler,33 with a some
4
what strange exaggeration, describes as the essence of trans
formation in general; and, above all, overcapitalization
of the worst kind was the order of the day. There was
no inquiry into the prices allowed for the property con
tributed (Apports), nor into the compensations allowed
for the founding and the preparations for it, nor into
the intermediate profits made. The premium on the
shares issued by the company did not flow into the reserve
fund of the company, as it does now, but into the pockets
of the original owners who were credited therewith on
account of the property contributed by them (Apports).
As, moreover, the names of the founders and the interme
diate profits were in nowise required to be published the
transformation and founding business could not fail to
become a special trade offering peculiar attractions. On
the other hand, it is not surprising that of the 857 stock
companies, with a capital of 3,306,810,000 marks, which,
as we have seen, were established in the time between
the middle of 1870 and the beginning of 1874, that is to
say, before the new Joint Stock Companies Taw of 1884,
not fewer than 123 were in liquidation as early as Decem
ber, 1874, and 37 were bankrupt (im Konkurs) 3 4
4.
The
G e r m a n
G r e a t
B a n k s
As may be gathered from what has been said, the great
banks in the first epoch very largely footed the bills for
the transformations and foundings of that time. It must
be further admitted that, after quickly earning the profits,
often very large, from the transformation or founding,
they did not leave the enterprises to their fate, as they
might easily have done under then existing legislation, but
retained a share in them, often to a larger extent than was
compatible with the principles of liquidity. This was
done not only in order to retain the necessary influence
over the industrial enterprise, but also, as expressly stated
in many reports of that time, in order to exercise a perma
nent supervision over the management of those enter
prises, a measure which was deemed indispensable in the
interest of the issue credit of the banks, since the trans
formation or founding was in most cases followed by
issues of stock or bonds. This was the main reason why
it became customary even in the first epoch to appoint
some of the directors of the credit banks as members of
the supervisory boards of industrial enterprises.
Even in the second epoch (1870 to the present date)
there was no lack of instances of permanent direct par
ticipations of the banks in industrial enterprises, leading
to the same untoward results as in the first epoch,
though during this more recent period they have been the
exception.
Thus the Disconto-Gesellschaft involved itself in great
loss and trouble ever since 1872 because of the foundation
of the Dortmunder Union, and after 1890 because of its
participation in the Internationale Druckluft- und Elektrizitats-Gesellschaft (Popp) and in the Venezuela Rail•
343
N ational
M o n et a r y
Commission
way. The same happened to the Dresdner Bank by
reason of the taking over of the Anglo-Deutsche Bank
(1892) and the consequent participation in the Export
and Warehouse firm (Export- und Eagerhaus-Gesellschaft)
J. Ferd. Nagel, which cost that bank about 2x 2 million
/
marks.
The Deutsche Bank was for years involved in great
difficulties and annoyances through the foundation of
the Deutsch-Oesterreichische Mannesmann-Werke, estab
lished under its direction and with its participation in
1890, the bank having the presidency in the supervisory
board. In 1900 the capital stock of that concern had
to be reduced from 34,000,000 to 25,000,000 marks.
In the case of the Berliner Handelsgesellschaft, which
remained in the main a flotation bank even in the second
epoch, the loss in 1873 arose not so much from voluntary
participations in new foundations, in which it lost in round
figures 158,000 thalers, or 1 ^ per cent of its capital at
that time, as from securities of newly founded companies
that could not be disposed of— that is to say, involuntary
participations— such as are apt to occur in the issue busiIV
ness. It suffered also exceedingly large losses through
the founding of the German Local and Street Railway
Company (Deutsche Lokal- und Strassenbahn-Gesellschaft)
and the Petroleum Exploration Franchise and Oil Land
Company {Petroleum-Bohr Gerechtsamen- und OellandGesellschajt), in 1880.
It can not be doubted (see p. 242, under b) that
the permanent assumption of large risks in enter
prises by credit banks is incompatible with the funda
mental principles of sound banking policy. Transgres344
1
The
G e r m a n
G r e a t
B a n k s
sions of this rule have almost always brought their own
atonement, often of a cruel nature. For this reason the
credit banks, during the second epoch, in order to avoid
direct participation, have to a large extent resorted to the
intervention of trust and finance companies for the pur
pose of exercising their promoting activity and for the
financing of subsidiary banks.
The reorganization of an existing enterprise is a less
serious undertaking for a bank than a new foundation,
because the earning capacity of the enterprise has already
been tested for some time before transformation. On the
other hand, it is more risky than a new foundation, if the
transformation is compulsory. Such may be the case
when the industrial enterprise is compelled to resort to
this expedient for the purpose of canceling the bank
credit granted to it. It may also happen that a bank
which had granted to the enterprise long-term or short
term operating credit, which in default of repayment has
little by little been transformed into permanent loans, is
compelled to demand the transformation in order, first of
all, to mobilize that credit in the form of stock, and then
to realize on that stock as soon as the state of the market
may permit.
The special danger of such a compulsory transforma
tion, as noted in another connection (pp. 243 to 247), lies
in this that under the pressure of necessity it is not pos
sible to give due consideration to the dangers that may
arise from the transformation, in view of the overwhelming
competition of other stock companies, or of the general
politcal, economic, and business conditions, and the market
conditions and prospects of the special branch of industry.
345
1 ..
1
N at ion a l
Monetary
C o mm is s i o n
There arise the further questions, whether the enterprise
is suitable for the form of a stock company, whether it
can be made to pay in view of the greater running expenses
which may with certainty be expected to result from the
transformation, and, finally, whether a sufficiently capable
management is on hand and can be permanently retained.
All these questions are apt to receive insufficient considera
tion in the case of compulsory transformations, with dire
consequences sooner or later.
On the whole, however, the transformation and issue
business during the second epoch proceeded much more
quietly and conservatively than during the first epoch,
the reason being that the banks had little by little acquired
greater technical and business experience in this field,
and were less and less required to take the initiative
in foundings and transformations. That initiative was
transferred to a constantly increasing extent to industry
itself, which became more and more independent in pro
portion as it was enabled to determine the necessity and
manner of investments of capital. In many cases also,
as we have seen, foundings or transformations were occa
sioned, during the second epoch, in obedience to the
requirements of the cartel policy, by purely technical con
siderations, as for example, the consolidation of a number
of small competing enterprises into one large concern, the
consolidation of different stages of the process of produc
tion in one establishment, the combination of iron fur
naces with coal mines and conversely, etc.
Moreover, beginning with 1884, the intentional or cul
pably negligent overvaluation of property contributed
(Apports) was made very difficult, the concealment of the
346
1
The
G e r m a n
G r e a t
B a n k s
names of the founders and their associates and of the
founders’ profits, or of profits made pending the organiza
tion, was rendered virtually impracticable under existing
legislation, and the value of shares or compensations
granted as an equivalent for property contributed or
taken over was made subject to thrice-repeated audit by
persons strictly liable civilly as well as criminally.
These new conditions helped the industrial concerns
to meet the crisis of 1900 infinitely better than that of
1873. But in addition, the new law of July 18, 1884
(art. 185b, Nos. 1 and 2), had placed the stock com
panies under obligation to establish a legal reserve fund,
to which a certain part of the yearly net profits and the
premiums on any new stock was to be transferred (see
art. 262, commercial code). As a result, very consider
able reserve funds had been accumulated, especially by
industrial companies, by the time the crisis of 1900 burst
upon them, strengthening their financial status, and
consequently also their power of resistance in critical
times. ■
2. The issuing, syndicate, and security business.
(a)
T h e I s s u in g
B u s in e s s in G e n e r a l .
The issuing business is discussed in this place, because its
development by the German credit banks has been such
that it became a branch of the regular banking business
from the very start, and because the issuing business in
very many cases involves the granting of credit, though
this is not implied in its nature. Accordingly it seems
appropriate to discuss the issuing business in connection
with the other credit business of the banks.
347
It was normally to be expected that the issuing business
would grow in importance in Germany as a consequence
of increasing prosperity, because the higher and middle
classes in Germany have long been in the habit of invest
ing their available funds permanently either in enter
prises, participations, real estate, buildings and mortgages,
or in securities. Bank deposits in Germany are made up
mainly of the temporary investments of the available
funds belonging to these classes and the operating reserves
of the trading classes. By far the commonest form of
permanent investment is in securities.
(a )
M e t h o d s U s e d in t h e I s s u in g B u s in e s s P r o p e r , a n d in
th e
P r e l im in a r y S t a g e s .
The issuing business of the banks, which in Germany
absorbs a very large portion of banking activity, is by
no means one of those occupations in which large profits
can be raked in without trouble and “ without corre
sponding work.” 35 On the contrary, it requires a vast
4
amount of labor, sagacity, and caution on the one hand
and of financial, economic, and mercantile knowledge on
the other. In particular, those who conduct it must have
a clear insight into the situation and prospective develop
ment of the money and capital market, the relation be
tween supply and demand in both markets, and into the
working of those factors that may influence the rates of
bank and market discount, the exchange rates, as well as
the absorbing capacity of the ordinary and extraordinary
circle of customers.
Thus, even before underwriting the proposed issue, a
careful and detailed examination is required, which pre
The
G e r m a n
G r e a t
B a n k s
supposes a large amount of expert knowledge and practical
experience. The decision whether the undertaking (that
is to say, the financing) is advisable or not depends in each
case not only on the examination of the intrinsic value of
the securities to be underwritten, the reasonableness of
the price demanded, and the solvency and trustworthiness
of the debtor (state, commune, corporation, company,
etc.), but on a large number of other important factors,
which require close examination.36
4
First and foremost, in accordance with the fundamental
principles of banking policy, to wit, the distribution of
risk and the maintenance of the liquidity of the assets
which might be endangered by the tying up of funds for
a considerable period, it is necessary to inquire whether a
quick distribution of the proposed‘issue— that is to say,
a smooth and prompt completion of the financing and
issuing business— may be expected in view of the situation
of the home market (occasionally also of foreign markets),
the general economic and political conditions, the existing
and prqspective ease or stringency of the money market,
the known or probable issue of like or similar securities,
some of which may bear a higher rate of interest, or be
presented under better auspices, or correspond more
closely to the existing favor or inclination of the
public, etc.
When the question of undertaking the issue has already
been answered in the affirmative, the fixing of the most
advantageous conditions of underwriting and of payment
requires the closest study and discussion. The very man
ner of underwriting will differ according to the situation
of the money and capital market and according to the
349
periods for taking over and payment. In particular, these
and a number of other factors have to be considered in
order to decide whether it is advisable to underwrite the
entire amount in question unreservedly (in a lump or in
partial amounts, to be determined by agreement), or only
a part without reserve, the other ‘ ‘ under option. ’ ’ In the
latter case it becomes important to decide whether the
prices of the ‘ ‘ options ’ ’ may be the same for all the partial
amounts to be taken up gradually, or whether the prices
of the ‘ ‘ options ’ ’ may be graduated in a manner advan
tageous to the financing establishment, while the seller
in such cases will frequently demand rising ‘ ‘ option ’ ’
prices. As regards the mode of payment and the periods
of taking up and paying for the partial amounts assumed
or to be assumed at option, the bank will have to try to
secure the most advantageous conditions, having regard
to the conditions of subscription that may afterwards be
deemed practicable.
If during the negotiations there occurs an unfavorable
turn either in the financial situation of the debtor or in
the money and capital market or in the political or gen
eral economic situation, and the bank while unwilling to
undertake the issue desires to bind the other party, it may
be found advisable to grant for the time being a certain
credit to the party in question, and this will necessitate
the determination of the conditions of payment of interest
and principal. At the same time, however, the bank may
either try to secure the right of preemption of the future
loan, against which the credit is to be reckoned at a rate
which is known to be seriously offered by a third party
(which the bank will, of course, try to avoid as much as
The
G e r m a n
G r e a t
B a n k s
possible), or an option on the entire future loan or a part
of it, at a price or graduated prices to be determined
beforehand. The manner of this graduation and the
amount of the graduated prices may again give rise to
protracted negotiations.
As regards the principle of the distribution of risk, the
bank will have to consider whether it is not already over
loaded with securities of the same kind, or even, if earlier
issues of the same debtor have not been completely
placed, or whether such overloading of the market with
the same or similar securities exists or is to be expected.
On the other hand, it is to be considered whether the risk
of the underwriting may not be diminished by the forma
tion of an underwriting syndicate (Uebernahmekonsorhum) or subsidiary participations (Unterbeteiligungen).
If the underwriting has been decided on, the juridical
features of the contract may sometimes present serious
difficulties, especially as regards the juridical form of the
act of pledging demanded by the bank of property items
intended to secure the loan. In that case foremost atten
tion must be paid to the law (possibly foreign law) pre
vailing at the place where the items pledged are located,
and at the same time all the measures will have to be
agreed on which are necessary and admissible in order to
afford security also to the individual holders of the certifi
cates of partial indebtedness to be issued— for example,
the appointment of a representative, whose rights and
duties will have to be defined. Again, it may be neces
sary that the so-called war clause be introduced, especially
if a considerable period elapses before subscription, as is
apt to be the case when the issue is to be made in different
351
countries simultaneously, so that official listing will have to
be secured from several authorities. In virtue of this war
clause the bank would have the right to withdraw from
the contract in case any of the countries concerned
becomes directly or indirectly involved in war. It must
be borne in mind, however, that other unfavorable events
may occur, and hence it will be advisable to endeavor to
secure the insertion of a general withdrawal clause— for
example, to the effect that the bank has the right to with
draw in case the quotation for the leading government
securities, such as German Imperial bonds or consols, shall
have fallen below a certain point.
Furthermore, the contract will have to provide that the
debtor shall agree to furnish all documents, balance sheets,
and other evidence required for the purpose of the subscrip
tion or demanded by the respective listing authorities
(Zulassungsstellen); to remit to the issuing house some time
before maturity the amounts required for the payment of
coupons or certificates drawn by lot, together with the
commission due to the bank for this service, which also
has to be specified; finally, to publish in designated peri
odicals those periodic notices which are legally required,
in particular, statements of the number and designation
of the securities which (in the manner agreed on— that is
to say, by lot or by free sale) shall become subject to re
demption. In regard to such redemptions, drawings, etc.,
the debtor will also have to agree to make these redemp
tions, as well as the payments on coupons, at the home
of the underwriting bank, etc.
After the underwriting has been agreed on, the next
thing to determine will be the price at which the issue is
The
G e r m a n
G r e a t
B a n k s
to take place in order to complete the transaction as expe
ditiously as possible. On this point the following obser
vations may prove of value:
A purely arbitrary fixation of the issue price is hardly
ever practicable; on the contrary, the limits within which
anything like a free determination of the issuing price is
possible are, as a rule, decidedly narrow.
In the case of shares or bonds of a new enterprise the
lower limit is fixed by the price paid by the underwriter,
with the addition of interest, stamp tax, fees and commis
sions, and a suitable profit. This profit, especially in the
cases covered by article 41, section 1, of the bourse law,37
4
must also include a suitable premium against risk. The
upper limit is defined by the market quotations of enter
prises of the same or similar nature, already listed at the
bourse, and the price of which will correspond in the main
and in the long run to the intrinsic value, the dividends
distributed, and the prospective earnings.
In the case of domestic state and communal loans the
upper limit of the issuing price, unless determined by the
debtor himself, will be fixed by the quotations reached by
former loans of the same debtor or by corresponding loans
of other states or communes enjoying about the same
credit. It may happen, however, that these quotations
are kept artificially low with a view to the impending
new loan, or that they are merely nominal and could not be
maintained in case of large transactions. The lower limit
in this case, too, is the price to the underwriter, plus inter
est, stamps, fees, and a profit, which, if possible at all,
varies in the case of domestic state and communal loans
between one-eighth, one-fourth, and, in rare cases, one-half
90311 ° — 11------24
353
N at i o n a l
M on e t a r y
Commission
of i per cent, while even in the case of foreign state loans
a profit of three-fourths of i per cent is a rarity.
The issue prices of securities offered for sale simulta
neously at several bourses at home and abroad have, of
course, to be so fixed at home that a disturbance of the
domestic sales through foreign sales during the period of
subscription and for some time after is not to be appre
hended.
In case of an issue of bonds of a debtor who is already
represented by listed securities bearing a higher rate of
interest, the holders of these may be tempted, immediately
upon the publication of the new issue, to sell their old
securities, if they can do so with profit, and to buy the
new securities bearing a lower rate of interest, in case the
price of issue is such that a rise may be expected. As this
operation is apt to disturb and disorganize the whole
market in these securities, it may be desirable to guard
against it by an appropriate price of issue and by other
conditions of subscription.
It may, indeed, happen that in the issuing of securities
the price has to be fixed at a higher figure than might nor
mally have been the case, especially when in time of a rising
market, by reason of an actual or expected increase in the
earnings of enterprises and the intervention of speculation,
the entire level of quotations rises. This will of necessity
have a marked effect on the premium on newly issued
securities, especially on those issued in connection with an
increase of capital of existing companies.38
4
The time at which an issue (subscription) is to take place
is of great importance as regards the question of under
writing in general and as regards the issue and the price of
354
The
G e r m a n
G r e a t
B a n k s
issue. It is to be ascertained whether the bank or market
discount, which maybe low at the time of the underwriting,
or the pertinent foreign exchange rates, might not, through
existing or impending causes, tend to become more unfa
vorable at the time for which the issue is planned. If the
debtor desires the issue to take place at a certain time, per
haps coincident with the end of a quarter, when there is
notoriously a strong demand for cash in the money market,
it may be well to inquire whether it would not be better to
fix the date at the beginning of the next quarter, for
example, at the beginning of January, when, by reason of
payments on coupons, of bills, salaries, mortgages, interest,
rent, etc., there is wont to be greater ease in the money
market.
If this be not feasible, it remains to be considered
whether the taking up of the securities should not at least
be made easier for the subscribers or purchasers through
a graduation of the periods of taking up and payment, or
through facilities in the way of calculating the interest, etc.,
whether a larger bonus should be paid to the bankers whom
it is proposed to interest in the placing of the securities,39
4
whether the requirement of a cash deposit at the time of
subscription should be waived, etc.
Furthermore, steps should be taken, especially through
a low price of issue, to prevent the market from being dis
organized, after the close of the subscription, by immediate
realizations of so-called “ concert subscribers” (Konzertzeichner), that is to say, persons who, in expectation of a
rise of the paper issued, subscribe solely for the purpose of
selling their subscriptions at once on the bourse, no matter
how insignificant the profit. One way of preventing this
3 SS
I
N at i o n a l
M on e t a r y
Commission
is to give some kind of preferential treatment to those sub
scribers who are willing to agree not to sell the securities
allotted to them for some months, but to deposit them
with the issuing firm.
Finally, as regards the time after the issue, especially
when an underwriters’ syndicate (JJebernahmekonsortium)
has been formed, it remains to be considered up to what
amount— usually stated in the syndicate contract— the
securities shall be bought up in the market in order to pre
vent an immediate or premature fall of the quotation be
low the price of issue, in so far as this fall is not justified
by the general situation or by the state of the bourse.
According to the practice and banking etiquette pre
vailing in Germany, an issuing firm is not merely justified
but positively in duty bound, by the requirement of the
“ care of an ordinary issuing firm,’ ’ to effect such pur
chases of its own issues. This practice can not be re
garded as an attempt to produce an artificial rise of quo
tations or to effect their artificial “ regulation.” There is
always the danger that speculators may attempt, imme
diately or very soon after the issue, to depress the market
value by speculative sales or realizations, while there may
be no intrinsic reason for a decline. To guard against
this, it is well to have some one in the market ready to take
up these speculative securities, at least within certain
limits. Of course this precaution must not be carried so
far that speculators might be encouraged to speculate ‘ ‘ on
the back ’ ’ of this very syndicate which is ready to purchase.
The execution of this part of the issuing programme thus
requires special knowledge of the bourse and special cau
tion and alertness.3
3 56
The
G e r m a n
G r e a t
B a n k s
The considerations here sketched have to be applied to
a greater or less extent before, during, and after each issue.
In addition, special difficulties may arise in certain cases,
especially in connection with the underwriting of foreign
loans, when care has to be used to insure against fluctua
tions in exchange, or against the thwarting of the issuing
operation through arbitrage operations of domestic or
foreign concerns, made possible by the condition of the
market.
At any rate, the multitude of factors to be taken into
consideration in this field suffices to show how incorrect it
is to suppose that this important branch of the activity
°f the German credit banks can be conducted without
corresponding work, sagacity, and prudence.
There have been cases in which the principles controlling
the issue of foreign loans were not observed by German
issuing firms, any more than by foreign firms, possessing
much longer experience; but aside from these, it will have
to be admitted that in the immense number of instances,
especially in the second epoch, there were but very few
cases in which the issues could be said to have been under
taken in a rash or otherwise questionable spirit.30
5
The prospectuses published for the purpose of issue,
which, it must be said, are for the most part read only
afterward and only when something unfavorable has
happened, have almost invariably contained, in conformity
with the law, the data necessary for forming a judgment
regarding the intrinsic value of the securities issued. They
have also abstained from any undignified advertising, which
for that matter would not be allowed by the authorities on
whom the admission to the bourse depends.
357
N a t io n a l
M on e t a r y
Commission
The German credit banks know from their own expe
rience, or from that of other banks, that nothing is likely
to injure the reputation of a bank so severely and so last
ingly among its customers and among the general public,
as a failure to discharge in the most conscientious manner
its duties in connection with the issue of securities.3 1
5
3
(/ )
T he; E xtent
of the
German Issue B usiness.
According to the Deutscher Oekonomist, the market
value of all the capital raised in Germany by way of issues
since 1889 was as follows (in millions of marks):
1889... . . . 1 , 7 4 1
1890... . . . 1 , 5 2 0
1891...
1892...
1893...
1894..
1895..
1896..
1897..
1 89 8. .
1899. .
1900..
1901..
1 902..
1903..
• • 1 .3 7 5
. .1,944
• -2,407
. . 2 , 6l2
• U 777
■ -1,623
. .2, n o
• - 1, 665
1904...
1905.••
1906...
1907...
1908...
• • - U 995
• --3,190
• - .2,741
• - . 2, 135
• • -3 ,4 1 5
From 1883 to the end of 1907, there were issued in
Germany securities to the selling value of 40,000,000,000
marks in round figures.
For the years 1900-1907 both the Frankfurter Zeitung
and the Deutscher Oekonomist have arranged the issues
by classes of securities, in the tables reprinted in the fol
lowing pages.
35 *
Issues of securities made in Germany, as ascertained or estimated (in millions of marks).
(S e e S u p p le m e n t to P r o c e e d in g s o f B a n k I n q u ir y C o m m iss io n o f 1908 [ite m s I —V o f q u e s tio n sh eet].)
1900.
Class of securities.
Face value.
Market
value
Face value.
Cb
1902.
1901.
Market
value
Face value
1903-
Market
value
Face value.
Market
value.
O
b
(0) A ccord in g to F r a n k fu r te r Z eitu n g .
172.50
55 4 - 95
3 °- 94
68. 30
3 S4 - 47
292.00
7. 87
448. s8
29. 09
German state loans.......................................
Foreign state loans.......................................
Municipal and provincial bonds.....................
German mortgage bank bonds.......................
Foreign mortgage bank bonds.......................
Other bonds.................................................
Bank shares..................................................
Railway and street-railway shares.................
Industrial shares...........................................
187. 30
44 - 7 °
322- 7 °
270.00
7. 24
US- ° 3
65. 12
2 S4 - 44
68. 18
367. 90
23-57
76.04
Total.................................................
1,466.47
1.583 - 69
1.854,87
199 - 94
318. 16
270. 00
7. 12
201. is
147- 74
506. 01
42.06
35 2 . 05
292. 00
575 -0 0
532.82
344-35
313 -4 7
416. 44
41 9 - 95
3 7 3 -oo
3 7 3 -oo
6- 73
211 .5 4
61.46
26. 23
103.82
6- 75
211.7 4
3 9 - 20
21.55
81.21
r, 808. 70
2, 072. 75
7 - 57
441-83
3 7 - 13
348. 0
0
144- 12
3 4 2 . 86
461.5 9
343.36
136.25
^
34 °. 48
461.59
29-33
256.67
22.S3
258.S3
26.32
89. 61
94 36
135-14
! 9 5 - 33
2.032.35
1.833.5°
^
29-39
1,912.44
pv
H-l
33-06
116.31
^
^
**
(6) A ccord in g to D eu tscher O ekon om ist.
GBRMAN SECUR IT IE S.
State loans........... .......................................
Communal loans...........................................
Mortgage bonds............................................
Railway bonds................. ............................
Industrial bonds...........................................
216. 30
222.38
126. 10
88. 70
178.20
200. 40
220. 35
126. 10
8s. 02
178. 77
554 - 00
505-57
294-37
293-58
210. 50
14. 81
210. 50
14. 99
189.31
193-29
580. 0
0
197. 89
411.04
8. 77
164. 25
5 3 6 . 40
196.13
411.04
8. 71
158.10
340. 0
0
214.14
564. 72
317.63
208.56
564.72
^
2 . OO
1-94
S
65. l6
64.96
I
<-»
National
•
19 00.
1902.
1901 .
19 03 .
C la ss of secu ritie s.
F a c e v a lu e .
(6)
M a rk e t
v a lu e .
F a c e v a lu e .
M a rk e t
v a lu e .
F a c e v a lu e .
M a rk e t
v a lu e .
F a c e v a lu e.
M a rk e t
v a lu e .
A rd gto D tsch O n ist— C o n .
cco in
eu er eko om
GERMAN SECURITIES— c o n tin u ed .
49. 60
2. 91
174- 5 i
30. 60
36. 36
2 9 7 . 47
T o t a l ........................................................................
55-63
138. 04
461.06
1 1 6 .os
1 ,3 1 6 . 29
1,5 0 1 . 84
183.20
3 - 0°
3-43
48 . 01
3-99
.45
114
.33
4 6 . 61
155-18
160. 40
184
.47
155-28
195.32
1 .4 1 2 .7 3
1 .4 1 2 . 31
1 ,6 4 7 . 70
6 S 7 - 19
1. 391- 9°
1 , 4 2 4 . 13
168. 36
37-50
29. 26
2.8 s
13-82
1 2 .8 6
3
02
4 3 - 9°
8 1
I .
67-
57
FOREIGN SECURITIES.
339-
54
367-
62. 96
00
6 1 .2 2
77
8-75
83-44
6 .6 8
12. 60
1 6 .9 5
7-43
12.
1 6 .4 4
6. 29
6 . 16
1 4 9 - 73
29. 82
2 9 .3 0
1.00
■97
3 - 27
3- 20
4.
72
6-
75
1 .8 5
•5 i
•5 i
2 1 0.83
481.86
453-50
5 8 .9 6
6 5 .0 6
14. 00
20. 90
6. 00
9.
3.6 0
3. 60
2. 5 6
280.39
275-27
225.83
156
1 .6 3 8 . 56
OO
1 ,6 2 3 .1 4
2 ,1 2 9 .3 6
2,
no.
69
OO
245-93
241.67
1 ,6 3 7 .8 3
1 ,6 6 5 .8 0
Commission
8.
80.
35-32
74
7. 16
.59
5 - 50
9. 00
1 , 7 7 7 . 11
5°
87.93
8 .3 6
5 -63
“ O. 0 0
1 ,5 9 6 .6 8
8 8 . 16
36.
M o n et a r y
I s s u e s o f s e c u r itie s m a d e i n G e r m a n y , a s a s c e r ta in e d or e s tim a te d { i n m i lli o n s o f m a r k s )— C o n t i n u e d .
95
19 0 4.
C la ss o f s e c u ritie s.
F a c e v a lu e .
M ark et
v a lu e .
F a c e v a lu e .
19 0 7 .
1906.
i ° M ark et
v a lu e .
F a c e v a lu e
M a rk e t
v a lu e .
F a c e v a lu e .
-J
M ark et
v a lu e .
^
(a) A c c o r d in g to F r a n k fu r t e r Z e i t u n g .
G e rm a n s ta te l o a n s .........................................................
2 8 5.0 0
2 8 3 .8 7
454- 00
4 5 4 .6 8
6 6 8 .0 0
668. 97
5 4 6 .0 0
5 4 1 .0 6
F o r e ig n s t a t e lo a n s .........................................................
1 0 0 .7 6
87. 24
7 2 4 .2 1
16 9 . 32
1 6 3 .6 1
M u n ic ip a l a n d p r o v in c ia l b o n d s ..............................
2 1 7 .0 8
2 1 6 .7 7
4 2 1 .3 6
6 7 6 .3 9
4 1 8 .4 5
4 3 1 -2 3
4 2 9 .7 9
4 9 .8 3
4 9 6 .6 6
G e rm a n m o rtg a g e b a n k b o n d s ................................
4 6 7 .3 8
4 6 7 -3 8
5 13 -0 2
5 13 -0 2
359-74
28 7. 24
2 8 7 .2 4
F o r e ig n m o r tg a g e b a n k b o n d s ...............................
2 1 .8 7
2 1 .3 4
5 -6 2
S- 62
359- 74
6. 75
5i- 11
505-57
O t h e r b o n d s .......................................................................
2 0 3 .5 9
2 5 8 .0 7
2 5 7 .2 9
1 7 2 .8 4
1 7 2 .9 6
B a n k s h a r e s ........................................................................
13 6
2 0 6 .2 4
2 8 9 .7 7
8 1 .9 6
1 0 7 .3 1
.55
199-2 4
.45
201
333-15
I 5I -99
331-31
203. 44
R a ilw a y a n d s t r e e t - r a ilw a y s h a r e s ........................
70. 78
68. 91
6 .8 0
1 1 .0 6
I n d u s t r ia l s h a r e s ..............................................................
19 2. 58
2 6 7 .6 0
3 2 7 -3 0
492. 52
T o t a l ........................................................................
1 .6 9 5 -
59
1 ,8 1 3 .8 0
2. 937- 45
3 , 1 0 6 . 49
37-35
440.74
2, 577-44
^
6. 77
42. 46
3- 61
4- 70
624. 28
16 4. 66
2 4 0 .2 0
2 .8 4 2 .6 8
1 ,8 1 2 .9 9
1 ,8 9 9 .9 6
55i - o o
5 4 6 .2 2
430. 86
^
4 2 5 -4 4
^
(6) A c c o r d in g to D e u ts c h e r O e k o n o m is t.
GERMAN SECURITIES.
S t a t e lo a n s ..........................................................................
343-00
335-64
4 2 8 .8 0
4 2 9 .6 6
63 7-0 0
6 3 8 .1 1
C o m m u n a l lo a n s ...............................................................
2 4 2 .6 3
2 3 9 .4 8
25 8 .8 3
M o rtg a g e b o n d s ................................................................
506. 24
506. 24
3 2 6 .3 3
3 2 6 .3 3
8 .6 0
8. 52
1 1 .8 1
346.8 3
404- 59
9- 50
347-00
404- 59
R a ilw a y b o n d s ..................................................................
569. OO
257- 40
5 6 9 -49
9. 02
1 .0 0
- 99
I n d u s t r ia l b o n d s ..............................................................
1 0 9 .1 4
n o . 14
1 1 5 .2 4
1 8 2 .2 7
1 8 3 .1 0
1 7 0 .9 0
1 .7 0
2. 16
. 61
1 7 2 .7 9
.6 2
.
TO
B a n k s h a r e s ........................................................................
3- 50
1 2 9 .47
18 4. 19
282. 19
1 0 8 .8 9
1 .8 6
3- 06
1 5 2 .4 9
306
^
1 .5 0
6 5 2 .8 0
2 8 4 .1 4
4 3 1-3 2
^
2,520. 83
1.876.79
2,059.20
= = = = =
^
12
49
I 1 4 .0 6
3- 83
1 9 6 .5 1
n 6 .83
146.5°
2 .3 8
2 .8 0
I n d u s t r ia l s h a r e s ..............................................................
2 2 4 .2 7
359-80
309-18
55 2 . 09
T o t a l ........................................................................
1 . 57 9 - 23
1,762.96
1,809.19
2,082. 19
I n s u ra n c e c o m p a n ie s ' s h a r e s .................................
389.
94
2 . 157 - 52
^
^
1904.
1907.
1906.
1903-
C lass of secu rities.
P a c e v a lu e .
(6)
M a rk e t
v a lu e .
F a c e v a lu e.
M ark e t
v a lu e .
F a c e v a lu e .
M a rk e t
v a lu e .
F a c e v alu e.
M ark e t
v a lu e.
A in toD tsch O n m — C on .
ccord g eu er eko o ist
866.30
9 9 -1 5
7 i i . 13
3 7 .5 0
3 6 . 21
2 0. 00
105.0 9
80. 80
7 8 .0 3
1 8 . 79
3 -8 o
M o rtg a g e b o n d s ................................................................
42.05
3 9 -5 1
R a ilw a y b o n d s ..................................................................
4 7 - 75
4 7 - 77
206.82
4 1 . OO
4 1.6 7
4 . OO
4. 16
R a ilw a y s h a r e s .................................................................
20. 00
1 7 . 20
4 6 . 20
74 -3 4
3 0 . OO
34. 6s
8. 00
15 -0 3
B a n k s h a r e s ........................................................................
1 2 . 85
18. i s
2 6 . OO
3 0 . 62
2 4 . 25
3 8 . 13
1 6 . 05
2 3 -3 4
8 .60
10-33
1 2 . OO
2 9 . 20
2 2.88
3 3 - 78
236.34
232.11
i , 10 8 .4 9
19 5.0 7
220.65
T o t a l ........................................................................
1.8 15-5 7
1-9 9 5-07
1,2 18 .3 2
3 .0 27 .51
1 9 . 40
6 . 75
6 . 75
2 0 2 . 13
49 .6 9
48. 18
3, 1 9 0 .6 8
2 .3 5 2 . 59
2 , 7 4 1 -4 8
4 . OO
3 4 -0 0
3 2 .4 6
142. 8s
15 2 . 66
2 , 0 1 9 . 64
2 , 2 1 I .9 2
Commission
G r a n d t o t a l ..........................................................
2 0 . OO
M on e t a r y
HORRIGN SECURITIES.
S t a t s lo a n s ..........................................................................
National
I s s u e s o f s e c u r itie s m a d e i n G e rm a n y , a s a sce rta in ed or e stim a ted ( i n m i lli o n s o f m a r k s ) — C o n t i n u e d .
The
G e r m a n
G r e a t
B a n k s
------------------------------------------------------------------------------ -
—
In these tables32 the amounts of shares, bonds, and
5
mortgage bonds set down are those officially reported in
the market. It is important, however, to note that the
following were omitted: Conversions; issues effected pri
vately, outside of the official market (which were only
stated when they were advertised in public journals);
mere introductions of securities already quoted at Ger
man bourses; finally, new securities which made no de
mands on the market, inasmuch as they were issued
solely for the purpose of exchange against shares, etc.,
of another enterprise.
The figures given by the Frankfurter Zeitung are seen
to differ from those of the Deutscher Oekonomist very
considerably, both in the enumeration of the different
classes of securities and in the amounts under the head of
the same classes of securities.33
5
A word of explanation is required in regard to the issues
of foreign state loans (see article 2 11. G. 2d, below), noted
m both tables, because on the authority of these tables
the complaint has been made, even before the Bank Inquiry
Commission, that these issues have evidently had a decided
effect in making our balance of payment more unfavorable.
The prospectuses thus far issued concerning the intro
duction of foreign securities at the bourse give no indica
tion of the amounts that have really been placed in Ger
many. On the contrary, according to the regulations
for listing hitherto in force, the entire foreign loan,
even if it was offered simultaneously in different places at
home and abroad, had to be noted at the German bourse,
for example, in Berlin, even when only, say, one-third of
the entire loan was intended to be placed in Germany and
363
N ation a l
M on e t a r y
Commission
was so placed. It is true that, in virtue of this notation,
the other two-thirds also had acquired ‘ ‘ the right of domi
cile in Germany, ’ ’ as one member of the Bank Inquiry
Commission expressed it. However, the effect of this
favors not only the foreign country, which in such case
might throw on the German market the two-thirds placed
in that foreign country, but it also favors Germany,
because the one-third actually paid for in Germany may
also be utilized abroad, if desired, since the conditions
of listing at the foreign bourses are as a rule identical
with those in Germany.
If we were to change our regulations for listing,
foreign countries would doubtless do the same, and the
consequence would be that the foreign market would be
closed to us as regards the part of the foreign loan placed
in Germany, a result which might be attended with grave
consequences in critical times and in time of war.
Furthermore, in regard to the statements made in the
tables, it is to be noted that foreign countries, if they
expect a profit, also partake of the foreign loans placed
in Germany. It must also be remembered that foreign
securities always tend to return to the home country, as
was extensively illustrated in the case of the Austrian,
and in recent years also in the case of the Italian securities.
How large a part of any foreign loan has been perma
nently placed in Germany can thus not easily be esti
mated, and this is the reason why the two tables (see
note 353 on p. 837) differ so much.
(6 )
T
h e
I
s s u in g
o f
I
n d u s t r ia l
S
e c u r it ie s
.854
The business of issuing industrial securities is the key
stone of the vast structure of the industrial relations
between banks and industry, whose foundation is the
364
The
German
Great
Banks
current-account business. The reverse process, namely
the case in which the issue of new securities of an enter
prise transformed into a stock company becomes the
bridge for a regular current account and credit business
between the two parties, is of much rarer occurrence. The
dangers to the banks arising from both classes of busi
ness are equally great, being perhaps even greater in the
current-account business, for the simple reason that, as
we saw, no fixed rules for industrial credit have yet
been developed in the German banking business, assuming
even that such rules could possibly be evolved. On the
contrary, the technique of the issuing business, its premises
and limits, have become more and more familiar to the
German credit banks, often through sad experience. Their
details are thus well known, both as regards the issue of
new securities of an existing enterprise to be transformed
into a stock company (which, according to art. 41 of the
bourse law can take place only one year after the entry
of the company on the register and after the publication
of the first balance sheet), or those of a new enterprise, or,
finally, those arising from an increase of capital, fusion, or
reorganization. Of course the risk in the issuing business
will be less when the bank acts merely as broker, that is
to say, on account of the industrial enterprise, though in
its own name.
Speaking of reorganizations, it may be remarked that
the German credit banks, especially the great banks, have
rendered important service in that direction to distressed
enterprises, as well as to the public in general, especially
during the second epoch. After effecting the reorgani
zation, which often involved great expenditure of time,
1
365
II ..
N at i o n a l
M on et a r y
Commission
capital and labor, and could only be carried out in the
face of great difficulties and opposition, the banks, by
staking their own issuing credit, restored the earning
capacity of the reorganized enterprises and put an end to
the prevailing disorder in the trading of shares, bonds, and
mortagages. This was illustrated not only by the reor
ganizations of the Berlin mortgage institutions, effected
by the cooperation of all the great banks and banking
houses of Berlin, after the collapse of 1901, but also by a
series of other reorganizations, such as those of the
Lothringischer Hiittenverein Aumetz-Friede and the Differdinger Gesellschaft (now Deutsch-Luxemburgische
Bergwerks- und Hiitten-Aktiengesellschaft in Bochum
und Differdingen). After their financial and technical
reconstruction, these companies contributed materially
toward raising the pig-iron industry of Luxemburg and
Lorraine to its present commanding position.
On the whole, however, the relations of the banks to
industry take the slower way of current-account credit
and the many forms of short-term credit above described,
in which the temporary demand for operating credit is
satisfied. Only little by little is the long-term credit de
veloped which finds its natural commercial expression in
the issue of shares and bonds.
By such an issue the connection between the banks on
the one hand, as principal representatives of the capi
talist system of economic organization, and industrial pro
duction on the other hand, is drawn so tight that they are
thereafter joined “ for better or worse.” Sooner or later
this connection finds further expression in the appoint
ment of members of the bank directorate to the supervis366
The
G r e a t
G e r m a n
B a n k s
ory council of the industrial enterprises, while occasionally
some “ captains of industry” are appointed as members
of the supervisory councils of banks. The former practice,
as was pointed out elsewhere, is virtually caused by the
necessity for the banks to maintain the influence which
they have gained through the issue; also by a regard for
their issue credit, which makes it the duty of the bank,
according to the well-established and sound practice of
German banking, to retain such permanent control. The
converse practice— that is to say, the appointment of lead
ing personalities of an industry as members of the super
visory boards of banks, where, as a rule, they have much
less influence than the representatives of banks in the
management of industrial companies— is not merely an act
of courtesy toward the latter, but also the manifestation
of the mutual desire for an outward expression of the
close business relations that have been established and
the expression of a desire on the part of industry to main
tain the closest possible agreement in views and aims as
regards the industrial policy of the banks.
Appendix IV gives a statistical view of the extent to
which such permanent contact between the two parties,
m mutual desires, demands, and interests, has been estab
lished during the second epoch by the appointment of
representatives of the great banks to the supervising
boards of industrial companies. The table also shows the
extent and degree of intimacy (manifested especially in the
filling of the office of president) of the industrial relations
of the great banks to the several branches of industry.35
5
This form of “ friendly” relations through the filling of
positions on the supervisory board, it must be confessed,
367
N at i o n a l
M on e t a r y
Commission
was sometimes effected only after considerable unpleas
ant argument, as, for instance, when the Dresdner Bank
gained two places on the supervisory board of the
Eaurahutte.36
5
The slow and laborious work which often has to precede
the moment at which the question of an issue becomes
practical can not be too highly estimated as regards its
economic value. The cautious forward movement, step
by step and stage by stage, of a private industrial enter
prise or an industrial stock company, that may have been
founded by the aid of a bank, toward higher and higher
aims is aided by a gradually growing current-account and
acceptance credit in proportion as the yearly surplus from
operation does not suffice for the necessary reconstruction
and additional construction. The burden of interest thus
imposed on the enterprise is in the nature of things ac
commodated to the state of improvements or enlarge
ments of the time being. The larger and permanent
investment credit subsequently granted to the strength
ened enterprise is merely the natural closing act of this
process o f’healthy and organic development assuming the
form of an issue of stocks or bonds. Examples of this
may be found in abundance in the connections of every
great bank with industrial enterprises especially in the
mining, machinery, and electrical industries.
On the other hand, the banks have found an especially
important and extensive field of activity in the promotion
of industrial combinations, consolidations, and fusions,
which, as a rule, are carried out exclusively or preferably
through the agency of issue credit. This tendency of the
business policy of industrial enterprises, manifested in
368
The
G e r m a n
G r e a t
B a n k s
various ways even during the first epoch, became especially
pronounced in the second epoch through the development
of the cartels. Thus, as early as 1853 the Phonix Com
pany in Taar, established as a stock company, arose from
a combination of four iron furnaces and the Nassau ironore mines. In 1898, with the powerful aid of the banks,
it absorbed the Westfalische Union. 37 Similarly, the
5
Horder Verein, founded in 1852, decided in 1864 to under
take the introduction of the Bessemer process, and accord
ingly acquired a number of iron-ore mines (Kleineisensteingruben). The possession of these, however, ceased to
be a necessity when the Horder Verein, with the assist
ance of the banks, acquired in 1879 the Thomas and Gil
christ patents.38
5
Again, the great increase in the number both of the
so-called “ furnace mines” (.Huttenzechen)— that is to say,
iron furnaces which acquired coal mines— and of the socalled “ mine furnaces” (Z ech en h u tten )— that is to say,
coal mines which acquired iron furnaces— during the sec
ond epoch was in many cases rendered possible only by
the aid of the issue credit of banks. The same was true
of the so-called combined plants, which became necessary
after the introduction of the Thomas process and which
gave to them so great a superiority over the so-called
pure works” (reine Werke), whose condition became
more and more difficult.
In the same way the banks promoted the great number
of fusions, whose object was either to get rid of trouble
some competition, to combine successive stages in the
process of production, or to diminish the cost of produc
tion.39 Such fusions were especially frequent in the min0
903 xi°—11-----25
369
National
Monetary
Commission
ing industry; for instance, in the case of the Gelsenkirchen
Mining Company and in the electrical industry, which
from the very beginning was in close touch with the
banking interest.
The regular current-account connection of the banks
with the great industrial establishments gradually led to
the result that the influence of private banking houses,
till then considerable, was crowded into the background,
despite the long-continued business connection between
these private banks and industry. The issue business
of the banks, which required larger and larger capital and
increasingly permanent investments— that is to say, the
assumption of a great and long-continued promoter’s risk—
tended still more to weaken and eliminate the mediumand small sized private banking houses, a process which
extended far beyond the limits of the individual indus
trial districts, and which was intensified and accelerated
in a marked degree by the above-mentioned provision
of the bourse law (art. 39, now 41).
The assumption of fiscal agencies (Zahlstellen) for the
payment of dividends and interest on bonds and for
the redemption of drawn bonds, though at times un
connected with any issue, may nevertheless be regarded
as an incidental effect of the issuing business, tending to
promote not so much the process of concentration as the
profits of the banks, but at the same time leading occa
sionally to new current-account connections. Hence, so
long as the requisite caution is observed, the fiscal agen
cies, combined with the positions on the supervisory
boards, supply a means whereby the industrial connec
tions of the great banks may be measured. From the lists
370
The
G e r m a n
G r e a t
B a n k s
of the six great banks of Berlin for 1903-4 Otto Jeidels as
certained the following numbers of industrial fiscal agencies
of these banks, which, however, are probably incomplete
(especially as regards the Disconto-Gesellschaft and the
Berliner Handelsgesellschaft):30
6
Number of fiscal agencies.
1. D e u ts c h e B a n k ............................................................................................
250
2. A. S c h a a f f h a u s e n ’ s c h e r B a n k v e r e i n ....................................................................
211
3. D r e s d n e r B a n k .................................................................................................................
19 1
4. D a r m s t a d t e r B a n k ........................................................................................................
161
5. D is c o n t o -G e s e ll sc h a ft ................................................................................
h i
6.
B e r l i n e r H a n d e l s g e s e l l s c h a f t ..................................................................................
95
As regards the class of industrial securities issued, it
may be said that, as a rule, the issue of shares is preferred
for obtaining the capital for permanent improvements,
while the issue of bonds (redeemable by amortization
within a fixed period) is preferred for obtaining the
means for improvements of considerable duration, indeed,
but yet terminating after the lapse of a certain time. It
must, however, always be kept in mind that the issue of
bonds, unlike the issue of stock, burdens the enterprise
permanently with fixed interest charges, so that it re
quires great caution. According to Otto Jeidels, in the
case of the six great Berlin banks above named, the issues
of industrial bonds in the boom period of 1899 amounted
to about one-fourth of all syndicate business (40 bond
issues out of a total of 161 syndicate participations),
and in 1901, the year of the crisis, as much as four-fifths
of all syndicate participations (83 out of io i).31
6
According to the Deutscher Oekonomist, the actual
capital raised by means of issues of German industrial
shares was as follows (in millions of marks):
371
N at i o n a l
1892 . . .
2.5
M on e t a r y
372
190 3...
1 8 9 9 ...
276
19 0 4 ...
1900...
461
1905.. .
i 55
1906...
18 9 8 ...
36
1 8 9 5 . . . • • i 43
1896. . . . • 213
19 0 1...
1907.
190 2...
18 9 7 ...
34
1 8 9 3 ... • •
18 9 4 ... • •
Commission
•
•
195
•
•
360
•
•
431
560
1908.
652
552
According to the table from the Deutscher Oekonoinist,
given above (pp. 360 and 361), the actual capital raised
in the shape of German industrial bonds issued from
1900 to 1908 was as follows (in millions of marks):
1900. . • 178 .77
• 193-29
1902. . . 158. 10
1901. .
1905.. • 115-24
1906.. . 183.10
64. 96
i 9° 3 - •
1904.. . n o . 14
1907—
172.79
1908—
314
The foreign industrial bonds admitted to trading at the
bourse from 1897 to 1907 amounted to a nominal value
of 135,100,000 marks, of which 6,300,000 marks repre
sents the value of converted bonds (Statistisches Jahrbuch fur das Deutsche Reich, 29 Jahrgang, 1908, p. 238).
The total number of industrial issues by the six great
Berlin banks 32 in the nine years from 1895 t° 1903 was
6
as follows:
i 89 S
1896
1897
1898
1899
1900
1901.
25
26
17
19
14
9
27
14
20
29
14
20
14
29
18
14
14
19
IS
11
13
17
9
21
7
IS
10
17
17
25
19
23
IS
3i
25
19
21
30
So
l6
Schaaffkausen’scher Bankverein..
Berliner Handelsge-
13
IS
8
25
Disconto -Gesellschaft
Darmstadter Bank . .
l6
24
24
23
27
1902
1903.
20
15
A.
Finally Jeidels endeavored to ascertain the geographic
distribution 33 of the industrial relations of the great
6
banks and the distribution, by classes of industries, of the
industrial companies 34 connected with the banks, both
6
from the data regarding their representation on the super
372
The
G e r m a n
G r e a t
B a n k s
visory boards and the fiscal agencies, though the latter
method can yield no reliable results. There can be no
doubt that the distribution of industrial relations is most
regular in the case of the Deutsche Bank and of the Disconto-Gesellschaft, and next to them in the case of the Ber
liner Handelsgesellschaft and the Darmstader Bank,
although the latter shows on the whole more South Ger
man and (as a consequence of the absorption of the Breslauer Disconto-Bank), also Silesian industrial relations,
which is also true of the Deutsche Bank. The industrial
relations of the Dresdner Bank, naturally, are mostly with
the Kingdom of Saxony, those of the A. Schaaffhausen’scher Bankverein with Rhineland and Westphalia.
The distribution of the industrial relations by branches
of industry is most regular in the case of the Deutsche
Bank and the Disconto-Gesellschaft, both banks having
extensive relations with foreign railway companies, and
the Deutsche Bank also with electrical companies. In the
case of the Darmstadter Bank the relations to tramways
and breweries predominate, in the case of the Berliner
Handelsgesellschaft the relations to the “ heavy indus
tries,” such as iron and other metals (schwere Industrie),
electric companies, and tramway enterprises.
Among particularly close connections during the second
epoch we may mention the following:
The Deutsche Bank with Siemens & Halske, the North
German Lloyd, the Hamburg-American Steamship Com
pany, the Huldschinsky Works, the Deutsche PetroleumAktien-Gesellschaft, the German and Oversea Electrical
Company (Deutsche-UeberseeischeElektrizitdts-Gesellschaft),
the Electric Elevated and Underground Railway Corn-
373
National
Monetary
Commi ssi on
pany (
Gesellschaft fur Elekirische Hoch- und Untergrundbahnen).
The Disconto-Gesellschaft with the Gelsenkirchen Min
ing Company (Bergwerks-Aktien-Gesellschaft), which on
January i, 1905, entered into community of interest rela
tions with the Red Earth Furnace Stock Company of
Aachen {Aachener-Hiitten-Aktien-Verein Rote Erde) and the
Schalker Mine and Furnace Company (Gruben- und HiittenVerein) the Dortmunder Union, the Aschersleben Potash
Works, Ludwig Loewe & Co., the Machine Factory and
Flour Mill Construction Works (Maschinenfabrik und
Miihlenbau-Anstalt) Luther in Braunschweig.
The Dresdner Bank with the Kattowitzer Mining Com
pany, Felten & Guilleaume, the German-Austrian Mining
Company (Deutsch-Oesterreichische Bergwerks-Gesellschaft),
the Lauchhammer Stock Company and the Laurahiitte.
The Berliner Handelsgesellschaft with the General
Electric Company (Allgemeine Elektrizitats-Gesellschaft) the
Harpen Mining Company (Harpener Bergbau-Gesellschaft) ,
the Hibernia, the Consolidation Mining Company (Bergwerksgesellsfihaft Consolidation), the Upper Silesian Iron
Industry {Oberschlesische Eisenindustrie), the Upper Sil
esian Coke Works (1
Oberschlesische Kokswerke), the Accum
ulator Works, Limited (Akkumulatoren-Fabrik AktienGesellschaft) in Berlin.
The A. Schaaffhausen’scher Bankverein with AumetzFriede, the Harpen Mining Company {Harpener BergbauGesellschaft), the Hoesch Steel Works (Stahlwerk Hoesch),
the Bochum Union (Bochumer Verein— absorbed in 1907
by the Phonix), the Phonix, the Hoerder Mining and Fur-
374
The
G e r m a n
G r e a t
B a n k s
nace Company (Bergwerks- und Hutten-Vereiri), the Inter
national Exploration Company (Internationale Bohrgesellschajt), the Hercynia Company (Gewerkschaft Hercynia).
The Darmstadter Bank with the German-Tuxemburg
Mining and Furnace Company (Deutsche-Luxemburgische
Bergwerks- und Hutten-Aktien-Gesellschaft), and the Peace
ful Neighbor (Friedlicher Nachbar), the A. Riebeck
Works (A. Riebeck’sche Montanwerke Aktien-Gesellschaft
in Halle), the Company for Brewing Industry (AktienGesellschaft fur Brauindustrie), Griesheim-Elektron Chem
ical Works (Chemische Fabrik Griesheim-Elektron), and
the Chemical Works formerly H. and E. Albert (Chemische
Werke normals H . and E. Albert (Biebrich).
The representatives of the banks on the supervisory
boards of the industrial companies have always taken
special care to fulfill one very effective part of the “ advi
sory function ” 35 of the supervisory board, viz, to provide
6
for the disposal of the products of the industrial com
panies in question to suitable industrial enterprises on
which the banks were able to exercise some influence.
As regards industrial issues, Eberstadt36first ascertains
6
the net amount received by any particular industry from
the issues undertaken in its behalf, which amount he calls
net capital claim [Kapitalreinanspruch]— (net capital
receipts [Kapitalreinempfang] would be a more correct
term) — consisting of the nominal value plus the (purchaseprice)— premium or minus the agio; whatever goes beyond
that “ net claim” or “ net receipts,” as a result of a rise
in the market value, he regards as pure ‘ ‘ speculation, ’ ’
due to the “ gambling propensity of the public” (p. 15).
37 5
N at io n a l
M on et a r y
Commission
In this way, of course, he arrives at enormous ‘ ‘ speculative
amounts. ’ ’ How false this view is may be seen at once
from the fact that the quotations of any particular day,
mostly based on insignificant transactions, can not be
regarded as a measure even for large amounts, let alone
the entire stock, and because the “ speculators” very
largely reinvest the profits of their speculative sales in
industry. Above all, however, the statement is untrue
because the quotation depends first and foremost on the
varying intrinsic value of the securities, that is to say, on
the condition of the enterprises in question, and does not
depend on the “ gambling propensity” either solely or
even in large part.37
6
It is because he disregarded the above considerations that
Eberstadt was able to arrive at the conclusion (p. 42) that
from January 1, 1895, to April 1, 1900, nearly 1,000,000,000
marks, that is to say, for the average of that period about
186,500,000 a year, were employed solely for “ speculative
purposes ’ ’ in stock, mining and smelting enterprises alone
(he does not even include “ Kuxe,” i. e., mining shares). In
contrast wit}; this, he estimates the ‘ ‘ demand for capital
by industry” for the same period and for the same
branches of industry at only about 419,500,000, or about
80,000,000 marks a year.
The latter statement is as erroneous, and moreover as
misleading, as the former. The demand for capital in the
mining industry, as we had repeated occasion to note in
speaking of the economic development during that epoch,
falls far short of the amounts supplied by issues, which
in bad years are only possible to a limited degree or not
at all. On the contrary, it is supplied also by way of
376
current-account, discount, acceptance, report and collat
eral credit, etc., to a much larger extent than is indicated
by Eberstadt. It is, of course, difficult to ascertain
the amounts thus placed at the disposal of industry in
general and of the mining industry in particular, either
for the period as a whole or for each year, since the
amounts in question are not separately booked. Certain
it is that they always played a great part. The most
summary comparison between the demand for short-term
credit, recorded on a previous page for a number of in
dustries, with the amounts of credit granted during that
period, suffices to show that the issues alone came no
where near covering that demand, and that the banks
throughout that period granted industrial credit38to the
6
utmost possible limit, occasionally even to a degree incom
patible with a sound distribution of risk.39
6
As regards the financing of shares and bonds of real
estate companies (Terraingesellschaften ), it may be said
that in this direction the great banks have hitherto, in
many, perhaps most cases, not pursued any far-sighted
economic aims, and that to a large extent they have not
concerned themselves with the great questions of land
policy.
(c)
T h e F l o a t in g
of
G erm an State and C om m unal L o an s.
In describing the development of the German banks
during the first epoch (1848 to 1870), we saw that all
the great banks then in existence regarded it as an
essential part of their program and business policy to
take part in the business of floating state loans. State-
N at ion a l
M on e t a r y
Commission
ments to this effect are found in some of the early annual
reports of these banks.30 On page 62 we gave a review
7
of the most important state and communal loans, which
were taken over during the years 1854 to 1869 by the
Darmstadter Bank and the Disconto-Gesellschaft, i. e.,
the two leading banks of that period. Success in this field
was achieved, however, as is expressly stated in the jubilee
report of the Disconto-Gesellschaft3 1 in the face of
7
decided “ opposition on the part of the old-established and
well-known private banking houses, which until then had
held a monopoly of the financial business and in every
manner attempted to ward off the invasion of the new
banking companies.” The banks in many cases won in
this struggle only by showing a far greater liberality
toward the individual States and communes in the fixing
of the terms of loans and in reducing the hitherto cus
tomary rates of brokerage.32 As a result numerous state
7
loans were taken over even during the first period, as for
instance, loans contracted by Prussia, Bavaria, Saxony,
Wurtemberg, Baden, Brunswick, Hamburg, Bremen,
Austria, etc. as well as municipal loans offered by Danzig,
Worms, Mannheim and others. As early as 1859 a
Prussian mobilization loan of 30,000,000 thalers was
taken over by the Disconto-Gesellschaft in conjunction
with other then existing Berlin banks and banking
houses, this joint operation being the forerunner of the
“ Prussian syndicate” (Preussenkonsortium) subsequently
formed under the leadership of the Seehandlung (Prus
sian State Bank). This syndicate became effective in
378
a
—
r
The
G e r m a n
G r e a t
B a n k s
1868, when it took over Prussian loans to an amount of
45,000,000 thalers. In the following year it took over ad
ditional Prussian loans to a total amount of 5,000,000
thalers, made necessary by the annexation agreement
(Rezess) with the erstwhile free city of Frankfort-on-the■
Main.
Between the years 1868 and 1901 the DiscontoGesellschaft, the Darmstadter Bank, and other credit
banks, as well as a number of private banking houses, at
times with the partial cooperation of the Seehandlung,
took over and issued 255,000,000 marks of Bavarian State
loans alone. As regards the war loan of August 3 and 4,
1870, amounting to 120,000,000 thalers, its issue was
effected without the cooperation of the banks by means
of a national subscription at the rate of 88 per cent. The
jubilee report of the Disconto-Gesellschaft mentions on
page 35 that at the preliminary negotiations regarding
this loan, held in the Prussian ministry of finance, the
two representatives of German banks and banking firms
present declared “ that the success of this loan could be
assured only in case it was issued at a rate of 85 per cent.”
The report continues:
“ This rate was recommended upon the plain business
consideration that the issue price would have to be fixed
on a parity with the market prices then quoted for similar
Prussian state securities. The authorities, however,
reckoned only with the prevailing national sentiment and,
disregarding the actual conditions of the money market,
fixed the subscription price at 88 per cent. The result
was that the nominal amount subscribed on the two
subscription days, August 3 and 4, did not exceed
379
N at ion a l
M on et a r y
C o m m is s i o
68,000,000 thalers, which at the subscription price of 88 per
cent yielded a net amount of only 60,000,000 thalers.” 33
7
In October, 1870, a funded federal loan of 20,000,000
thalers was issued with better regard for the condition of
the money market. In November, 1870, and January,
1871, additional war loans totaling 142,000,000 thalers
were issued in the form of 5 per cent treasury bills, payable
in five years. These loans were taken over and placed
by a German syndicate of banks and banking houses with
the collaboration of English banks. No use was made
of the last war credit of 120,000,000 thalers (law of April
26, 1870) because of the receipt of part of the French war
indemnity.
Between 1871 and 1880 no less than 640,000,000 Prus
sian and 142,000,000 Imperial loans were taken over and
issued by the Prussian syndicate and by the other syndi
cate for the loans of the Empire. The total amount of
public loans underwritten and placed by syndicates of
banks and banking houses on behalf of Hanseatic towns,
and the States of Wurttemberg, Saxony, and Hessen
reached nearly 1,000,000,000 marks.
After 1880, notwithstanding the successful experience
had with the old method, it was thought that in order to
prevent the growth of a monopoly of banks and banking
houses it would be feasible to place a large portion of
newly issued Prussian and other State loans with the
various applicants by way of competitive subscription (im
Wege freier Begebung). The result was in the main
merely a considerable depression in the market and of
the prices of German State bonds.
380
1 ..
1
1
The
German
Great
Banks
In February, 1899, the Deutsche Bank alone took over
75,000,000 marks of 3 per cent Imperial bonds and 125,000,000 marks of 3 per cent Prussian consols.
In September, 1900, the entire amount of 80,000,000
marks of 4 per cent treasury bills, payable in 3 ^ to 5
years, was awarded to the New York banking house of
Kuhn, Foeb & Co. This measure was strongly criticized,
notwithstanding the fact that the German money market
as a result was greatly relieved by the influx of gold
from abroad.
The amount of German communal loans issued during
this period in which the Disconto-Gesellschaft partici
pated— and this for 40 cities only, specified in the jubilee
volume, page 42— up to the end of 1900, was, in round
figures, 300,000,000 marks, while the amount of mortgage
bonds of cooperative land credit associations (landschaftliche Pfandbrieje) and provincial and district loans {Provim- und Kreisanleihen) issued during that period with
the cooperation of the Disconto-Gesellschaft reached
almost 1,000,000,000 marks.
Combining domestic State and communal loans issued
during the last 15 years of the second period, we find the
following totals, according to the Deutscher Oekonomist:
Net amounts realized (effective Betrdge) in millions of marks.
18 9 4 ...
1895. . .
18 9 6 . . .
1 8 9 7 ...
• • 295
• • 139
. . 160
. . 167
1898.. .
I 8 9 9 . . . . . 660
1 9 0 0 . . . . . 420
1 9 0 1 . . . . . 799
19 0 2 ...
19 0 3 ...
• • 733
• • 526
19 0 6 ....
1 9 0 7 -----
19 0 4 ...
19 0 5 ...
•• 575
. . 687
19 0 8 .... . ..
985
972
1,77 0
The net amounts of German state loans only, as distinct
from German communal loans, issued yearly during the
important period 1900 to the end of 1908, according to the
381
statements of the Frankfurter Zeitung, printed above on
pages 359 and 361, as well as of the Deutscher Oekonomist, were in thousands of marks:
F ig u r e s o f th e —
F ig u r e s o f th e —
Y ear.
Y ear.
F ra n k fu rte r
Z e itu n g .
D e u tsch e r
O e k o n o m ist.
19 0 0 ....................
1 7 2 ,5 0 0
20 0.40 0
1901
.....
5 0 6 ,0 10
S ° S .S
19 0 2
......
5 3 2 ,8 2 0
5 3 6 .4 0 0
19 0 3
......
343. 36o
3 1 7 .6 3 0
19 0 4
......
2 8 3 ,8 70
70
F ra n k fu rte r
Z e itu n g .
19 0 5
19 0 6
...
...
19 0 7
19 0 8
...
...
D e u ts c h e r
O e k o n o m ist.
454, 680
4 2 9 ,6 6 0
6 6 8 ,9 7 0
638, n o
5 4 1 ,0 6 0
5 4 6 ,2 2 0
1 .0 7 9 ,0 0 0
i , 2 5 8 ,9 9 0
335.640
This is not the place to discuss the causes of the enor
mous growth in the yearly issues of state loans. Suffice it
to say that the constant pressure weighing on the market
of imperial and state loans already issued or about to be
issued has been one of the main causes of the low market
prices of German imperial and state issues, prices which in
no way corresponded to their intrinsic value. Neither did
the reduction of the interest rate from 3/4 to 3 per cent
tend to commend these securities to German investors,
who were used to a higher interest rate paid by various
solid industrial securities and in most cases could not
afford such a low yield on their capital.
The German communal loan issues during the same
period are given in the following table, which states in par
allel columns the data of the Deutscher Oekonomist and
those of the Frankfurter Zeitung. The latter, however,
includes under the same head loans issued by cities and
provinces:
The
G e r m a n
G r e a t
B a n k s
Net amounts realized (effective Betrage) on German communal loans during
19 0 0 - 1 9 0 8 .
[In thousands of marks.]
Figures of the—
Figures of the—
Year.
Deutscher
Oekonomist.
Frankfurter
Zeitung.
220.350
293.580
1902 . . . . . . . . .
196,130
..
19 0 3
208,560
1904
.................
239,480
318, 160
352,050
416,440
340,480
216,770
1900.......
190 1 ...
Year.
Deutscher
Oekonomist.
1905
1906
..
..
3 4 7 .000
1907
1908
..
..
425,4 4 0
5 11. 7 io
2 5 7 .4 0 0
Frankfurter
Zeitung.
418,450
429,790
496,660
606,430
A comparison of the annual amounts of communal
loans with those of state loans discloses the striking fact
that the former differ in size but little from the latter.
There is no doubt that many of our communes have
become obsessed during the recent period, especially
during the last decades, by a sort of mania of greatness.
As Waldemar Muller 34 says, “ Every mayor thinks he
7
has failed to live up to the requirements of his office if he
does not' borrow a million every couple of years for
slaughterhouses, sewers, the construction or purchase of
electric plants and city railways, nay, even for paving and
schoolhouses, the expenses for which ought to be de
frayed out of current revenues.”
At all events, considering the large amounts added to
German communal loans almost every year, of which by
far the larger portion has been taken over and emitted
by the German banks, it can not be seriously contended
that in this field the German banks have not taken suffi
cient care of the “ domestic market.”
383
N at i on a l
(d)
T
h e
F
M on e t a r y
l o a t in g
o e
F
Commission
o r e ig n
S
e c u r it ie s
.
(or) Principles underlying the flotation of foreign securities.
In section 7 of this part (p. 527 and foil.) an attempt is
made to answer the question, whether the so-called “ export
capitalism ” is to be regarded as necessary, admissible, and
unobjectionable on general principles, and in particular
beyond the amount required to compensate for the ex
cess of imports over exports.35 In that section, however,
7
the above question is discussed and answered only as a
matter of principle, while in the present chapter we are
concerned with the question, what special principles
are to govern the issue of foreign securities, and what
limits are to be drawn in this field.
In my opinion the three fundamental requirements for
a sound policy in this regard are as follows:
(1) The issue of foreign securities in the domestic
market, like the establishment of branches of domestic
enterprises and participations abroad, is permissible only
after the domestic demand for capital has been fully
satisfied, since the first duty of the banks is to use the
available funds of the nation for increasing the national
productive and purchasing power and for strengthening
the home market.
(2) International commercial dealings as well as inter
national flotations ought to be but the means for attaining
national ends and must be placed in the service of national
labor.
(3) Even when the two foregoing conditions have
been fulfilled, the greatest care will have to be used in
selecting the securities to be floated. Our experience in
384
The
G e r m a n
G r e a t
B a n k s
the eighties with Argentine, Greek, Portuguese, Chilean,
Servian, and similar securities proves the paramount
necessity of drawing a sharp distinction between individual
countries and securities.
It may be granted that so far as the eighties are con
cerned, when we entered that particular field in competi
tion with other nations, we obtained, in the main, only
those foreign loans which the other countries, with their
old established international relations, either had left
to us or at least did not seriously contest, and that for
these reasons our choice was confined within rather nar
row limits.
At present, when as the result of slow, careful, and labor
ious efforts, our financial relations with foreign countries
have improved to a gratifying extent, we must more than
ever be careful to underwrite as a rule only securities of
such countries as possess what may be called a rich and
extensive “ hinterland,” either in the shape of good
colonies or of large provinces presenting a hopeful field
for agricultural, industrial, and commercial enterprise,
or countries which possess strong reserves in other shape
and are thus in a position to endure and speedily emerge
from hard times.
Furthermore, whenever practicable and in so far as we
are not bound by previous engagements toward foreign
countries, the time and amounts of underwriting as well
as the interest rates on foreign loans should be fixed with
due regard to the economic and financial conditions pre
vailing at home. In particular (barring those previous
engagements just mentioned), in times of industrial
prosperity, a proper regard for the discount policy of the
9 0 3 1 1 ° — i i ------ 26
385
N a t io n a l
M on et a r y
Commission
Reichsbank and for our balance of payments 36 should
7
induce our banks to show the utmost conservatism in
the flotation of foreign securities and in the granting of
long-term credits to foreign countries, a principle which
has not always been sufficiently observed by the German
credit banks. Still, in criticising the methods used here
tofore, we must bear in mind that, when a foreign coun
try, possibly after a long interval, applies to us for urgently
required funds, at a time deemed opportune to itself, it is
only in the rarest instances that we shall be in a position
to say that the time is not opportune for us and that the
applicant had better call at some other time. Such a
procedure might result not only in spoiling our relations
to the respective foreign country, but eventually in the
loss of our entire position in the international market.
Furthermore, in cases where the purpose of the loan
permits it, such pressure as we are able to exert should be
brought to bear in order to provide in the loan contract
that any orders for works and contracts, the expense
of which is to be defrayed by the loan, be placed in
Germany, m the interest of our industry.
As the jubilee report of the Disconto-Gesellschaft justly
remarks (p. 45), it was “ precisely the action of the banks
in underwriting foreign loans and introducing them to the
German market that proved so signally effectual in pro
moting the development of German industry.” Thus,
among other things, the Russian, Austrian, Hungarian,
Portuguese, and Roumanian railway loans of the nineties,
as well as the financing of the Venezuelan, Anatolian, and
Bagdad railways, the constructions at the Iron Gate, the
long-continued work carried on by the Shantung Railway
3S6
1 ..
1
The
G e r m a n
G r e a t
B a n k s
and Mining Companies, have brought to German indus
try a large number of lucrative orders. In other cases,
however, as a result of political and competitive con
ditions, all efforts to secure a participation of German
industry have failed, though on some particularly oppor
tune occasions, as for instance, that of the Kongo Rail
way,37 the banks insisted, as a condition of their own
7
financial cooperation, that German industry be given a
share in the work.
On the whole, despite painful experience, we have to
agree with Schmoller’s general conclusion 38 that, in order
7
to maintain and strengthen her position in the world
markets, Germany will have to increase rather than re
strict her foreign financial business, provided, of course,
the above stated general and special requirements are
observed.
Other countries have had just as bad if not a worse ex
perience in this field; moreover it goes without saying that
the mastering of all the difficulties in this field requires
an apprenticeship. This point seems to have been largely
overlooked by Sartorius Freiherr von Waltershausen in
his otherwise valuable work entitled “ The economic sys
tem of investments of capital abroad.” 39 The sugges
7
tions made in that book are largely— notwithstanding his
denial— the mere expression of a strong and, in my opin
ion, wholly groundless lack of confidence in the manage
ment of our banks as hitherto conducted, which, I main
tain, have on the whole achieved great results in the in
terest of the nation, notwithstanding some occasional
faults and errors. Moreover, some of his suggestions, in
my opinion, are in a large measure impracticable.
387
N at i on a l
M o n et a r y
Commission
This is true in the first place of the suggestion that inas
much as there exists no suitable representation of the in
terests of purchasers of securities, the protective com
mittees representing foreign bondholders whose interests
are endangered should interfere in a preventive capacity
(op. cifi, p. 310 et seq.) by carefully advising their con
stituents before the purchase of newly issued securities.
This suggestion was thoroughly punctured by Kaemmerer,
who points out that such an organization— the lack of
which the author deplores— does already exist in the shape
of our banks. For it can not be said that the banks advise
their customers against their own better knowledge in
questions of purchase of securities, underwritten by them
or by other banks, or that, as a rule, they are not far more
expert in this field than the members of any protective
committees.30 Moreover, according to our legal provi
8
sions, the very purpose of the prospectuses is to exhibit
the main points underlying the intrinsic value of the
securities. As a rule this is done, but the trouble is that,
as a rule, nobody reads them. The people who are specu
lating on a pise of securities neither read prospectuses nor
do they listen to the counsel or warnings of third parties,
let alone protective organizations.
A like criticism applies to the proposition (op. cit., p.
305) that the underwriters, in order to become perma
nently interested in state and communal issues, should
be legally required to retain permanently some part,
even though but a small part, of the issue (one-half to
2 per cent according to a graduated scale) and to de
posit it, say, at the Reichsbank. The author may rest
388
1 ..
1
T
The
G e r m a n
G r e a t
B a n k s
assured that not only bankers will “ shake their heads”
at such a proposition (op. cit., p. 30). It reminds one
of the other proposition that the banks should redeposit
at the Reichsbank part of the deposits entrusted to them
by their customers. If this keeps on we may arrive at
an ideal state in which all the capital or the greater
part of it is redeposited and thus made safe. It is true
that this will insure the fullest degree of liquidity, se
curity, and proper management, but the only trouble
will be that one will no longer be able to do any busi
ness. Do the critics really believe that it suffices to
turn the knob of legislation or to draw up a few govern
mental regulations in order to attain the proper manage
ment of our banks— in regard to which, for that matter,
the critics are by no means agreed? Vestigia terrent, in
no other field, as was repeatedly shown, have state con
trol and legal interference proved such dismal failures,
as in that of banking. Though I am anything but an
advocate .of laissez-faire principles, I have too exalted a
conception of the State and its attributes to wish to see
it exposed to further chances of tests of this kind, which
as a rule can only result in humiliation.
Notwithstanding this criticism of the individual pro
posals of the author, it gives me pleasure to acknowledge
that fundamentally, i. e., so far as the prerequisites and
aims of the issues of foreign loans are concerned there
seems to be no difference of views between us. I may
say that these fundamental principles were formulated
by me in the main as early as 1906 in the second edition
389
r
N at i o n a l
M on e t a r y
Commission
of this work, prior to the appearance of Waltershausens’
book.
My aim in the above discussion was merely to prove
that in this department of banking, as well as in others,
the lessons and experience of the past may enable us to
draw correct conclusions regarding the future and to dis
courage outsiders from proposing all sorts of impracti
cable reform measures.
On the other hand, granted that in consequence of
the issue of “ exotic” securities, German investors suf
fered considerable losses during the eighties, especially
from 1886 to 18893 1 it seems to me rather immaterial
8
whether the data regarding the amount of these losses
are exact or perhaps, for various reasons, inexact. As
Ad. Weber has pointed out, hardly a single investor
bought at the highest price and sold at the lowest price;
furthermore, the calculation disregards the large number
of those who bought these securities for speculative
purposes only and who disposed of them after the con
siderable rise in the market (of 10 per cent and more)
which in rtlany cases followed immediately after their
issue. It may also be pointed out that the table of the
Deutscher Oekonomist, reproduced by Ad. Weber (op.
cit., p. 133) contains securities which had not been under
a cloud (notleidend) even for a single day, such as the
Lisbon municipal loan. In the same manner I do not
ascribe any decisive importance to the unquestionable
fact noted by Schmoller in the well-known introduction
to the Proceedings of the Bourse Inquiry Commission
(p. XXV) that against the losses should be placed the
39 °
T
The
G e r m a n
G r e a t
B a n k s
gains of about a billion marks which had accrued to Ger
many from investments in American and Russian secu
rities alone, made during the period from i860 to 1892.32
8
However, with a view both to the past and to the fu
ture, it is necessary to note that the time at which those
issues took place was characterized by an abundance of
money, caused by a preceding period of economic de
pression which lowered the value of money and the rate
of discount. This was also the period of railway nation
alization and of actual or threatened conversions.33 The
8
combined effect of these factors was to start an impetu
ous desire on the part of the investment-seeking public
for securities yielding a higher rate of interest.
In this connection it is interesting to recall the fact
recorded in Gilbart’s book above cited,34 that in England,
8
also mainly as a result of a plethora of available capital
and the resulting low interest rate, as early as the years
1822 to 1825, inclusive, there were issued foreign, mainly
“ exotic,” loans, totalling £25,994,511, i. e., over half a
billion marks within four years,35 which later on gave
8
occasion for many a sad experience. It is true that
among these loans there is found a 5 per cent Prussian
loan of £3,500,000 issued in 1822, a 3 per cent Danish
loan of 1825 to the amount of £5,500,000, and a 5 per
cent Russian loan of 1822 amounting to £3,500,000, but
the rest, i. e., the greater part, were essentially “ exotic
values,” viz, 5 per cent loans of Australia, Brazil (2),
Greece (2), Mexico, Portugal, and Spain (2), and 6 per
cent loans of Buenos-Aires, Chile, Colombia (1), Guate
mala, Mexico, Peru (2), etc. There had also been in
391
England a considerable reduction of the interest rate on
a large proportion of British consols, which doubtless had
long been foreseen, viz, in 1823 the conversion of £135,000,000 of 5 per cent into 4 per cent consols, and in 1825
the conversion of £80,000,000 of 4 per cent into 3;V per
2
cent consols.
(P) Amount of foreign securities issued in Germany.
The combined effective amounts of all foreign issues
(except issues of foreign shares of stock), viz, the issues
of foreign state and communal loans, railroad bonds, etc.,
since 1894, i. e., for the last fifteen years, according to the
Deutscher Oekonomist, were as follows:
Million
marks.
18 9 4 ... . . . .
1 8 9 5 . . . ----189 6 . . . . . . .
18 9 7 ... . . . .
338
300
489
608
Million
marks.
1898 . .
1899. . . . .
1900. . . . . .
203
185
19OX. . -----
199
Million
marks.
1902 . . . . . . 445
1903 . . ----- 199
1904 . . . . . . 186
1 9 0 5 . . ------874
Million
marks.
1906. . . . . . .
1907. . .
149
1 908 . . . ----- 205
The combined value of the foreign securities listed at
the German bourses from 1897 to 1907 according to the
Statistisches Jahrbuch fur das Deutsche Reich (vol. 29,
1908, p. 228), shows a total of 28,957,700,000 marks, of
which 8,224,600,000 marks represents the value of con
verted securities. This leaves a net value for newly listed
securities of 20,733,100,000 marks. The majority of these
foreign securities were listed simultaneously at foreign
bourses.
The 29,000,000,000 marks or thereabouts of listed
foreign securities show the following distribution:
The
G e r m a n
G r e a t
B a n k s
[In thousands of marks face value.]
Total
amounts.
Class of securities.
1. State loans.............
Conversions
(included in
total).
6,583,600
S4 . 000
7 S4 . 5 °°
332, 700
360,200
24, 3 °o
2,680, 300
3,928,600
145.800
135,IO
O
202,300
8, 600
8, 600
I, 3 4 2 , 4 0 0
° l 8 , 800
6, 300
28, 957, 700
3-
19,896,300
699,900
8,224,600
Mortgage bonds of Landschaften (cooperative land
S- Bank shares...............................................................
a Transformations.
The effective value of foreign state and communal loans
alone according to the Deutscher Oekonomist was as follows:
Million
marks.
189 4. • • ----i 8 95 • • • . . . .
1896. . .
i 8 97 • • • •••■
Million
marks.
marks.
195
98
1898 . . . . . . 278
189 9 . . . . . . 102
1902 . .
233
19OO. . . . . .
1901 . . -----
1 90 4. . . . . .
1905 . . -----
171
42
1903 . . . . . . 1 16
99
711
Million
marks.
1906. . . • • • • 5 5
1907. . . . . . .
78
1908. . . . . . . 169
For the period comprising the largest activity in the
issue of foreign securities, viz, the years 1886-89, the
nominal value of these issues shows the following totals:
18S6
Marks.
516, 400, OOO
1887
456, 300, OOO
1888
1889
696, IOO, OOO
749, IOO, OOO
It appears thus that during these four years the nominal
value of foreign issues offered to German investors was in
excess of 2,417,000,000 marks,36or 45 per cent of the nom
8
inal value of 5,431,000,000 marks of issues of all kinds.
The many serious objections to these figures are found
393
National
M on e t a r y
Commission
stated in a previous chapter (see above pp. 363). It may
suffice to mention here that as a matter of fact a con
siderable part of these issues was not placed in Germany
and therefore not paid by the German public.
If the above-given figures of the Deutscher Oekonomist
(see pp. 360 to 362) are used, which comprise all classes
of foreign issues including foreign shares (the amount of
which does not figure in the above table), we obtain for
the period 1900-1908 the following totals:
Effective amounts.
1.000 marks, j
1,000 marks.
1 , 108, 490
I 9 ° ° ............................................. 275, 27O 1905
1 9 0 1 .............................................. 210, 83O |1906
i 9 ° 2 ...................................... 4 5 3 , 5° °
1 9 0 3 ........................................... 241 , 670
1 9 0 4 ..........................................
220, 65O
152, 660
228, 020
1907
1908
2 32 ,110 |
The effective amounts of both domestic and foreign
securities issued during the same period are stated above
on pages 360 and 362 by the same authority as follows:
1900..........
1,000 marks.
. I , 777, IIO
1901..........
1902..........
. 2, I I O ,690
1903 •••• • • •
1904..........
1 9 0 5 ................
1906................
..............
1,000 marks.
3,190, 680
..............
2,74 1,48 0
1 9 0 7 ................
1908................
..............
3 ,4 15 ,8 2 0
• 1 , 9 9 5 ,0 7 0
A comparison of these two sets of figures proves that
the German banks, partly as the result of their experi
ence with a part of the foreign loans issued during
the eighties, have become much more careful in issuing
such loans. As a matter of fact the amounts of foreign
securities issued during 1900-1908, as given in the above
trble, in most cases are not quite one-half and in some
cases even much less than one-half the corresponding
amounts for 1886-1890.
394
The
G e r m a n
G r e a t
B a n k s
It also appears from the table just given that the
amount of foreign securities issued during the year 1907,
152,660,000 marks, when as a result of the American
crisis there was a great money scarcity in Germany as well,
fell much below the like amount in 1906, 220,650,000
marks, while the amount for 1908 represents but one-fifth
of the corresponding amount for 1905.
During the high-tide period of the issue of foreign
securities (1886-1889), as stated before, the proportion of
these issues to the total issues effected in the country was
no less than 45 per cent. In 1905 the proportion was
only a little above one-tliird, in 1906 a little less than
one-tenth, and in 1907 only about one-fifteenth of all
issues effected in Germany during the same years.
The above figures prove likewise that during the very
years which we found to have been characterized by a
particularly gratifying increase in the productive and
purchasing powers of the nation, the “ export of capital"
from Germany has considerably abated, and that during
these years the banks have been acting in accordance
with the principle laid down above (p. 384, No. 1) for the
regulation of foreign issues in general. In so doing they
were partly influenced, to be sure, by the high rate of
discount, “ obeying necessity, not their own impulse.”
(e) A
m ounts
of
L is t e d S e c u r it ie s I s s u e d
the
G
reat
B
e r e in
by
each
of
Banks.
Appendix V at the end of the volume contains exact
information regarding all securities issued by each of the
six great Berlin banks and admitted to the privilege
395
of being traded in and quoted at the Berlin bourse during
the years 1883 to 1908.
Appendix VI gives similar information for the securities
emitted by the six great Berlin banks and admitted to
like privileges at all German bourses during the years 1897
to 1908. For earlier years than 1897 official data were
available for the Berlin bourse only.
( /)
T
he
S y n d ic a t e
B
u s in e s s
(Konsortialgeschaft).
As stated above (p. 349) the two essential requirements
of any sound banking policy are the liquidity of the
resources and the distribution of risks with regard to
persons, funds involved, time and place, even in the case
of the most promising undertakings and the most bril
liant market condition, when there is every prospect
for a speedy and smooth transaction of the business.
As a necessary consequence of these two requirements,
when a bank contemplates the underwriting of a business
of some magnitude, it tries to strengthen itself by alli
ances, because there is always the possibility of a change
in the politidhl and economic weather conditions, and in
the prospects and constellations bearing on each particular
transaction.
Accordingly we noted that in 1859 the German credit
banks, probably for the first time, formed two bank
syndicates. The first was organized by the Darmstadter
Bank for the liquidation of several engagements, which fell
due in i860, especially of the Rhine-Nahe bonds. The
i860 report of the bank makes special mention of this
agreement in the following terms: “ This form has decided
advantages, since it diminishes the risk of the individual
396
a
T
The
G e r m a n
G r e a t
B a n k s
participants and facilitates the accomplishment of the
common task.” The second syndicate was formed by the
Disconto-Gesellschaft for the purpose of underwriting a
part of the loan of 30,000,000 thalers required for the
mobilization of the Prussian Army and gave the first
impetus for the subsequent formation of the so-called
Prussian syndicate (Preussen-Konsortium).
The members of such syndicates, as a matter of course,
are under obligation to fix or bind their quota for the
common use of the syndicate during the term of the
syndicate agreement, which is fixed, but may be extended
by unanimous resolution. The execution of the common
operation is intrusted, as a rule, to a syndicate manager
or managers, whose action is subject to the approval of
the executive board of the syndicate, or, if the latter be
small, of the other syndicate members, as regards all
measures of importance or such as exceed the normal
course of the syndicate business. In most cases the
maximum amount of underwriting that may become
necessary is fixed beforehand. This maximum may,
however, be exceeded, as a rule, by majority vote or by
assent of the executive board in case the management of
the syndicate deems it necessary or profitable.
The frequent allotting of subsidiary or secondary par
ticipations (Unterbeteiligungen) by the individual mem
bers of the syndicates may be caused by considerations
of greater liquidity and of better distribution of risk. But
quite often such action may be due to mere business con
siderations, when it is desired by such courtesies to acquire
a claim to reciprocal treatment on the part of the favored
domestic or foreign houses, or else to reciprocate a similar
397
courtesy already received. Very frequently this action is
a means of conferring a favor on customers regarded as
specially valuable, or of indemnifying certain customers
for participations which had yielded poor profit or been
terminated with a loss. Such “ subparticipants” (Unterbeteiligte) acquire no rights against the syndicate, but only
against the member of the syndicate by whom the sub
sidiary allotment is made. The latter is under obligation
of keeping them informed and accounting to them and to
fulfill toward his subsidiaries everything “ required by com
mon honesty with regard to commercial etiquette” (par.
157 of the Civil Code) and conversely to abstain from
doing anything that might conflict with this principle.
An important class of syndicates are the so-called
guarantee syndicates (Garantiekonsortien) which are
formed by several banks in the interest of industrial or
commercial undertakings, in order to assure the success
of an increase of capital. In such cases the legal priority
right of the old stockholders may be excluded— the syndi
cate offering them the new shares at the price they were
taken over by the syndicate (zum Uebernahmepreis) plus
a certain surcharge. If the legal priority right remains,
the guarantee syndicate agrees to take over those shares
which are not accepted by the old shareholders. In many
cases the acceptance of syndicate participations is by no
means voluntary. Whenever there are permanent groups
(e. g. for Asiatic, Russian, Austro-Hungarian business or
for business in the domain of the electrical industry), any
bank belonging to the group is bound to accept its par
ticipation quota in the underwriting or issue unless there
398
T
The
G e r m a n
G r e a t
B a n k s
is a special arrangement— which is rarely the case—
whereby it is free to abstain from a particular operation
of the group. The obligation remains even when a bank
objects to the particular operation as a whole or to any of
its features, to the time, or, what is not less important,
the price, or to any other terms of the issue.
Since the formation of syndicates and the ceding of
subsidiary participations may be a feature of every under
writing and issue transaction and is of daily occurrence in
connection with an immense number of finance operations
of this sort, it would serve no useful purpose— even were
it practicable— to attempt to state the number and
amounts of syndicate operations and participations during
the first and second periods. Such an attempt would be
futile for several reasons:
In the first place until recently such syndicate partici
pations of the banks were often lumped in the bank reports
with “ securities owned, ” which was decidedly wrong from
the accounting point of view. Only in the summary
reports (Rohbilanzen) of the great Berlin banks, published
since the end of February, 1909, has this practice been
discontinued. On the other hand, certain amounts, prop
erly coming under the head of “ syndicates” were often
booked with “ securities,” and vice versa. The true prin
ciple would be to book under the head of “ syndicates ” all
those participations which call for additional installment
payments or which are not at the disposal of the bank,
while securities allotted to the bank as a result of a syndi
cate participation either without the above restrictions, or
when these restrictions no longer apply, should go under
the head of “ securities.” Finally, in many cases, the
399
I
National
M on e t a r y
Commission
items “ syndicates” and “ securities” are either not speci
fied at all or only insufficiently specified in the balance
sheets. The mere enumeration of the syndicate partici
pations loses all interest and value, unless combined with
information showing the distribution of risks with regard
to persons, funds involved, time and place, which is,
however, impracticable from the business point of view.
Neither is it practicable, as will be shown more fully in
section 8, to carry out the suggestion of giving a state
ment of the installments remaining due and unpaid at the
end of the year on account of syndicate participations,
since, for obvious reasons, the amounts of these obliga
tions may not be known to the syndicate management
itself and at all events could, in most cases, not be ascer
tained on the 31st of December.
For these reasons I am in a position to give only a few
numerical data; and even these data must be used with
caution because of the shortcomings found until recently
in the accounting methods of our banks.
The number and amounts of syndicate participations
of the Deutsche Bank in State, communal, and railroad
securities, a§ well as in “ shares and bonds of various
companies,” during the crisis year 1900, and the years
immediately preceding, i. e., during the period 1897 to
1901, inclusive, were as follows:37
8
Number of Amounts
participa in thou
sands of
tions.
marks.
Year.
179
400
33. 870
Th e
G e r m a n
G r e a t
B a n k s
The syndicate account of the Dresdner Bank for the
years 1896-1900 was composed as follows:38
8
[Amounts in million marks.]
1896.
1899.
1898.
1900.
Total..................
Amount.
Number.
Amount.
6. 9
Number.
14
Amount.
Amount.
8.7
Number.
Number,
1. State securities, land
mortgage bonds, and
preference bonds (Prioritaten).. .
12
2 - Shares and bonds of
railways and other
transportation enter
prises ......................... I O
3 - Bank shares.............. I O
4 - Securities issued by
real-estate companies
(Terraingesellschaf ten). 5
5 - Industrial and insur
ance companies; over
sea enterprises............ 2 3
Amount.
Number.
j
1897.
6.9
6
13
6. 2
12
4.8
7
3-1
7
5- 3
2. I
7
2. 3
5
2.
9
4-9
9
IO
8
4 -9
3-8
4
6
3 -8
5
•9
4. 98
9
4-5
2. 19
S
I.
8. 18
24
10. 9
35
16.3
5°
20. 8
46
60 27.85
57
24. 6
68
32. O
86
3 9 -3
76
1- 3
4
2. 4
16. 2
According to the summary reports of seven great Ber
lin banks as per June 30, 1909, the syndicate participa
tions of these banks 39 on that day showed the following
8
figures, as compared with corresponding figures under
date of December 31, 1908.
[Amounts in thousands of marks.]
S yn d icate
pa rticip a
tions.
Banks.
J u n e 30.
1909.
D ec. 31,
1908.
2 3
, OOO
3 6 .8 4 0
4 8
,50 0
64,
3 6
,30 0
3 3 . 5 9 0
4 4
.900
4 3 0
4 6 .8 4 0
2 4 , I OO
31.8 0 0
401
33.29 0
13 .9 0 0
9 0 3 11°— 1 1 ------ 27
3 3 . 5 9 0
12 , 130
( g) T
h e
S
e c u r it y
B
u s in e s s
.
The security transactions of the banks may be said to
be partly voluntary, partly involuntary in character.
The voluntary transactions of this class include the
investment of the liquid bank resources in correspond
ingly liquid investment securities— i. e., such as can be
speedily realized and, secondly, speculative security trans
actions. The latter may assume the form of the per
fectly legitimate though largely speculative report and
arbitrage transactions, or that of regular bourse specu
lation, or finally that of acquiring securities for the pur
pose of obtaining a temporary or permanent influence on
industrial undertakings.
The involuntary security transactions of the banks
comprise (i) the holdings of such securities as the bank is
unable to dispose of, including securities either issued by
the bank itself or turned over to it as its share of syndi
cate participations, (2) the purchase of securities immedi
ately after their issue, for the purpose of preventing an
undue depression of their market value.
Generally "speaking, considerable security holdings are
not regarded as a favorable sign, although during critical
periods large holdings of this class may represent an
increased proportion of particularly liquid assets, or a
special reserve for deposits. Thus, for instance, the
Deutsche Bank in its 1908 report mentions holdings of
32,000,000 marks in treasury bills and defends this course
as proper and correct. As a rule, however, excessive
holdings of securities will be interpreted to mean either
that the times have not been propitious for the issue
business of the bank, or that it maintains excessive
T h e
G e r m a n
G r e a t
B a n k s
speculative engagements, or that it is involved to an
excessive extent in speculative transactions on its own
account— a line of business which can be regarded as per
missible only to a very limited extent— or, finally, that it
has been unable to find sufficiently profitable employment
for its funds. It is for these reasons that a large propor
tion of the writing off done by the banks occurs under
the head of securities’ account.
In accordance with sound banking policy the investment
securities include also foreign securities, payable in gold
and dealt in at several bourses, which are therefore of an
international character. During critical or warlike pe
riods such securities form a valuable reserve and increase
the banks’ capacity for intervention and action. But, as
stated above, a large portion of these holdings may be com
posed of shares of stock, through the possession of which
the bank intends to exercise temporary or permanent in
fluence upon an undertaking either by shaping the decisions of a given general meeting of stockholders, or by
“ controlling” it outright, or by obtaining representation
on its supervisory board.
Of all the German banks the Darmstadter Bank is prob
ably the one that since its foundation and up to the present
time has published more detailed statements regarding the
composition of its security holdings3 0 than any other
0
bank.
The Darmstadter Bank gives the following groups: (i)
German public securities, real estate mortgage bonds, and
railway debentures; (2) foreign state and communal
bonds, first mortgage bonds of foreign railways, and bonds
of German industrial undertakings; (3) stock shares of
403
National
M on e t a r y
Commission
German and non-German industrial and mining concerns;
(4) bank shares; (5) sundry holdings.
The Deutsche Bank groups its security holdings under the
following four heads: (1) State and communal bonds,
mortgage bonds and railway bonds; (2) shares of railroads,
banks, and industrial concerns; (3) bonds of industrial
concerns; (4) sundry holdings.
The Dresdner Bank distinguishes among its security
holdings only three groups, viz: (1) State bonds, mortgage
bonds, railway and industrial bonds; (2) shares of banks,
railroads, other transportation companies, and insurance
concerns; (3) shares of industrial corporations.
It would therefore be of but little value to give figures
of securities held by the various banks, since, as was re
marked on page 399, the account “ securities owned” in
many cases appears understated, inasmuch as a certain
portion of the securities, properly belonging under that
head, is booked under the head of “ syndicate participa
tions.” On the other hand, it is equally true that securi
ties which properly belong under the head of “ syndicate
participatiorfS ” are at times found booked under the head
of “ securities owned.” A similar shifting is frequently
noticed between the account “ securities owned” and that
of “ permanent participations in other banking institu
tions and concerns,” if the two accounts are separated at
all. The bimonthly summary statements, now published
by a number of banks, separate the two accounts.
During the period of great activity preceding the crisis
of 1901 the account “ securities owned” showed a large
increase over that shown for the previous years. Thus
the Dresdner Bank showed the following changes
404
The
G e r m a n
G r e a t
B a n k s
(in millions of marks) under that head for the years
1896-1900:
1896
Group I . .
Group II . .
Group I I I . . .
___ ___
1897-
1898.
1899.
9 -8
5-8
8.7
8. 2
19
This table shows a considerable increase largely in the
amount of industrial shares held.
In the case of the Darmstadter Bank the like account
for the period 1896-1902, classed by its five groups,
shows the following changes (in millions of marks):3 1
9
1896.
1897.
1898
G r o u p I .........................
1.8
1.3
I. I
G r o u p II................
1.4
.9
4.8
G r o u p III ..............
5- 1
3-9
2. 6
1 .9
3-3
1-9
I
I
G r o u p I V ..............
G r o u p V ................
•7
1899
59
1900
19 01 .
I. 2
3 .2
3 .1
5-4
5-4
x. 7
1-7
I
•
.
4
2.3
4.8
1902.
4.4
3.3
i. 6
.7
9
9.4
2.9
.8
The summary balance sheets (RoJnbilanzen) of the
undermentioned banks published under date of June 30,
1909, show the following figures (in millions of marks) for
the account “ securities owned, ” though without detailed
grouping, as compared with the figures for the end of the
preceding year.32
9
Situation on Situation on
June 30, 1909. Dec. 3i, 1908
Deutsche Bank.................................................................
Disconto-Gesellschaft.......................................................
Dresdner Bank.................................................................
Darmstadter Bank...........................................................
A. Schaaffhausen’scher Bankverein..................................
Nationalbank fur Deutschland..........................................
Commerz-und Disconto-Bank...........................................
4s
©
5 i .3
5 5 - 68
23.8
54 - 4
5 i -5
4 3 -o
26. $
31.8
29 49
61.03
4 7 - 77
42.33
21. 17
33-39
N ationa l
M onetary
Commission
In closing this chapter the following points regarding
the investment and issue activities of the banks must be
emphasized:
The successful accomplishment of the important and
various tasks devolving upon the banks, becomes possible
only when there is a strong bourse— i. e., an organization of
the utmost strength and elasticity during normal times
and of the utmost power of resistance during critical and
bad times. It is only through the concentration of the
converging streams of offers, demands, and news that
resultant prices will present a fairly accurate picture of
underlying conditions. But this function of balancing
offer and demand can be performed by the bourse in a
satisfactory manner only in case there can be enlisted for
permanent as well as temporary service sufficient amounts
of capital to be used in transactions, which, like trading
in futures, prevent as much as practicable violent and
sudden variations in the quotations of securities and are
apt to give timely warning of impending disturbances of
the financial equilibrium. As Schmoller puts it in his
Grundriss, Volume II, page 37, in the security market the
option business represents “ a more refined technique of the
modem business for future delivery;” it is “ an instrument
of increasingly correct calculation of future probabilities,
a means of controlling the most important elements of
price formation” and a form of business, “which may be
improved, regulated, and placed on a higher moral level
but can not be dispensed with.” The same author very
properly says, on page 493 of the same work: “ Every
improvement in the organization of the market has in view
a more correct price formation, while any lessening of
406
The
G e r m a n
G r e a t
B a n k s
extreme price variations results in the lessening of the
damages caused by crises.”
It is often said that the strength of a bourse lies in the
fact, that in times of general business prosperity it will
register invariably a strong upward movement of values
notwithstanding all obstacles caused by fiscal and bourse
legislation. But such a view is due to imperfect knowl
edge and excusable only on that ground. Economic laws
are superior to governmental laws. No bourse or fiscal
law can prevent altogether the upward movement of busi
ness, nor a corresponding advance of values— which is
merely emphasized by speculation— of concerns sharing
in that advance.
This error is the more regrettable, because the need
of a strong bourse is felt more and more in view of the
impending grave competitive struggle. Now, the strength
of a bourse is shown precisely in the fact, ‘ ‘ that during
prosperous periods it is successful in preventing impet
uous and excessive advances of values, during bad times—
in averting excessively rapid and sudden declines in val
ues, and during a crisis— in preventing the unreasonable
discouragement of the public and thus an undue depre
ciation of values. ’ ’ (Memorial of the Centralverband
December, 1903, p. 35.) It is only necessary to recall the
disastrous 9th of February, 1904, the date of the outbreak
of the Russian-Japanese war, in order to get a clear idea
of a strong bourse— and its reverse.
S
e c t io n
3.— BANK GROUPS.
The subject of this chapter are not those bank groups,
which are formed as the result of the permanent clustering
407
N at i on a l
M on e t a r y
Commission
of a number of so-called “ concern-banks” (Konzernbanken) around a leading bank, representing a permanent
community of interest and action of the banks concerned
and embracing the entire field of banking operations.
These groupings are the result of concentration tendencies
and will be discussed at length in a subsequent chapter.
Nor will the discussion of this section take in the socalled ‘ ‘ syndicates ’ ’ (Konsortien) which, as was pointed
out above, are formed with the view of distributing the
risk, of preserving the liquidity of resources and in the in
terest of smoother and more rapid performance of a single
given financial operation. It has been shown that when
ever the risk or the engagements assumed are especially
large, syndicates composed of a shifting number of bank
ing firms are constantly formed for each given case either
under the name of a " guarantee-syndicate ” or “ loansyndicate.”
The bank groups, which are to be discussed in the pres
ent chapter, are permanent combinations, formed by
certain banks and banking firms for certain operations or
classes of dperations, and involving a more or less close
alliance among the individual banks. Among the reasons
of such formations the following may be mentioned:
i. In the beginning of the first period they were the
only means of enabling the new banks to share in the
participation of domestic and foreign loans in compe
tition with the powerful private houses, especially the
Rothschilds, who until that time had an almost uncon
tested monopoly in that field. This was the occasion
which gave rise to the so-called Preussenkonsortium
408
The
G e r m a n
G r e a t
B a n k s
(Prussian syndicate) for the underwriting and issue of
the Prussian consols, to a somewhat differently composed
group, formed during the second period, to underwrite
the loans of the German Empire and to the so-called
Rothschild group for undertaking the issues and kindred
operations of the Austro-Hungarian Government.
(a)
The Prussian syndicate, as already stated, owes its
origin to a syndicate of large Berlin banks and banking
houses formed in 1859 under the leadership of the Disconto-Gesellschaft on the occasion of the Prussian army
mobilization loan of 30,000,000 thalers.33 It took a lead
9
ing part in the loan operations of the sixties and seven
ties, continuing its activity to the most recent years in
floating most of the Prussian state loans. This arrange
ment, however, was by no means exclusive, as the Prus
sian Government during the eighties, also during most
recent years, in order to prevent a monopoly, repeatedly
appealed to the market direct. On other occasions the
Government would dispose of portions of its loans to
individual banks and banking houses, although the per
manent effects of such a policy on the market were
rather unfavorable. Sometimes a member of the group
would underwrite singly an entire imperial or Prussian
loan. The latter mode was followed in May, 1900, when
the Deutsche Bank undertook the issue of 200,000,000
marks of German imperial bonds and Prussian consols.
The Prussian syndicate, as at present (in 1909) con
stituted, is headed by the Royal Seehandlung (Prussian
main bank), and after the elimination of defunct firms
includes the following banks and banking houses:
409
N at i on a l
M on et a r y
Commission
Bank syndicate for Prussian state loans.
K o n ig lic h e
S e e h a n d lu n g
(P r u s s ia n
J a c o b S . H . S te rn , F r a n k fo r t-o n -th e M a in .
m a in b a n k ) .
Bank
fu r
H andel
und
In d u s tr ie .
L . B eh ren s & So h n e, H a m b u rg.
B e r lin e r H a n d e ls g e s e lls c h a ft.
N o r d d e u ts c h e B a n k , H a m b u r g .
S . B le ic h r o d e r .
V e r e in s b a n k , H a m b u r g .
C o m m e r z - u n d D is c o n to -B a n k .
M . M . W arburg &
D e lb r iic k , L e o & C o .
A llg e m e in e
der
C r e d ita n s ta lt,
L e ip z ig .
D e u tsc h e B a n k .
D ir e c tio n
C o ., H a m b u r g .
D e u tsc h e
D is c o n t o -G e s e lls c h a f t.
R h e in is c h e C r e d it b a n k , M a n n h e im .
D resdn er B a n k .
B a y e r is c h e H y p o th e k e n - u n d
W ech -
s e lb a n k , M u n ic h .
F . W . K ra u se & Co.
M e n d e ls s o h n & C o .
B a y e r is c h e V e r e in s b a n k , M u n ic h .
M itte ld e u ts c h e K r e d itb a n k .
K o n ig lic h e H a u p tb a n k , N u re m b er g .
N a tio n a lb a n k fu r D e u ts c h la n d .
O s tb a n k
S a l. O p p e n h e im , j r ., &
L azard
H andel
und
W u r tte m b e r g is c h e
C o ., C o lo g n e .
S p e y e r -E llis s e n ,
fu r
G ew erbe,
P osen .
A . S c h a a ffh a u s e n ’ s c h e r B a n k v e r e in .
F r a n k fo r t-
V e r e in s b a n k ,
S tu ttg a r t.
o n -th e -M a in .
(6) The bank group for underwriting the loans of the
Empire, as at present constituted, is headed by the
Reichsbank, and after the elimination of various defunct
firms includes the following banks and banking houses:
Syndicate for i mperial loans.
M e n d e ls s o h n
R e ic h s b a n k .
K o n ig lic h e
S e e h a n d lu n g
(P r u s s ia n
&
Co.
M itte ld e u ts c h e K r e d itb a n k .
N a tio n a lb a n k fu r D e u ts c h la n d .
m a in b a n k ) .
B a n k fu r H a n d e l u n d I n d u s tr ie .
A.
B e r lin e r
S a l. O p p e n h e im , jr ., & C o ., C o lo g n e .
H a n d e ls g e s e lls c h a f t.
L azard
S . B le ic h r o d e r .
D e lb r iic k , L e o & C o .
M a in .
d e r D is c o n to -G e s e lls c h a f t
Co.
L . B eh ren s &
Sohne, H am bu rg.
N o r d d e u ts c h e
D resd n er B a n k .
W . K rau se &
F r a n k fo r t-
J a c o b S . H . S te rn , F r a n k fo r t-o n -th e -
D e u tsc h e B a n k .
F.
S p e y e r -E llis s e n ,
B a n k v e r e in .
o n -th e -M a in .
C o m m e r z - u n d D is c o n to -B a n k .
D ir e c tio n
S c h a a f f h a u s e n ’s c h e r
Bank,
H am bu rg.
V e r e in s b a n k , H a m b u r g .
410
The
G e r m a n
M. M . W arbu rg &
A llg e m e in e
G r e a t
B a y e r is c h e
C o ., H a m b u r g .
D e u tsc h e
C r e d ita n s ta lt,
L e ip z ig .
R h e in is c h e
M u n ic h .
fu r
H andel
und
G ew erbe,
P osen .
M a n n h e im .
B a y e r is c h e H y p o th e k e n - u n d W e c h -
V e r e in s b a n k ,
K o n ig lic h e H a u p tb a n k , N u r e m b e r g .
O s tb a n k
C r e d itb a n k ,
B a n k s
W u r tte m b e r g is c h e
s e lb a n k , M u n ic h .
V e r e in s b a n k ,
S tu ttg a r t.
(c)
In Austria there has existed since 1848 a close
relationship of the financial administration of the Govern
ment with the Vienna house of Rothschild, which until
1855, when the Osterreichische Kreditanstalt was added,
conducted practically all the financial operations for the
government. It was only in 1864 that the Disconto
Gesellschaft, at the head of a syndicate of German bank
ing houses, entered into competition with the Rothschild
house and the Kreditanstalt, and was allotted, out of a
total silver loan of 70,000,000 florins, the portion of
23,500,000 florins. It was this successful competition
which brought about the entrance of the Disconto-Gesellschaft into the group known subsequently as the Roth
schild syndicate. During the following years a number
of other banks and banking houses joined, including
the Allgemeine Osterreichische Bodenkredit-Anstalt of
Vienna, the Ungarische Allgemeine Kreditbank, and the
Bank fur Handel und Industrie. The latter institution,
as early as 1854, had joined the Rothschild firm in under
writing a loan for the Government of Baden, and in 1862,
that is to say, much earlier than the Disconto-Gesellschaft, had participated in an issue of 83,000,000 florins of
the Austrian 5 -per cent i860 lottery loan by the Roth
schild firm and the Kreditanstalt. Later on the group
was joined by the banking houses of S. Bleichroder, Sal.
Oppenheim, jr., of Cologne, and Mendelssohn & Co., and
4 11
during the most recent period— for state loans— by the
Austrian Postal Savings Bank.
The Rothschild syndicate represents to-day a firm
organization for the common management not only of
Austro-Hungarian finance operations of a public char
acter, but also of all other finance operations which it
cares to undertake in either of these two countries. It is
composed at present of the following concerns:
Rothschild group.
D ir e k tio n d e r D is c o n to -G e s e lls c h a f t.
d e R o t h s c h i ld fr b r e s, P a r is .
O s te r r e ic h is c h e
N . M . R o th s c h ild & S o n s , L o n d o n .
K r e d ita n s ta lt
fu r
H a n d e l un d G ew erbe.
A llg e m e in e
M . W o d ia n e r .
O s te r r e ic h is c h e
Boden-
k r e d it -A n s ta lt, V ie n n a .
S . M . v o n R o th s c h ild , V ie n n a .
S a l. O p p e n h e im , jr ., C o lo g n e .
U n g a r is c h e
M e n d e ls s o h n & C o .
A llg e m e in e
K r e d itb a n k
in B u d a p e s t .
S . B le ic h r o d e r .
O s te r r e ic h is c h e
P o stsp a r k a sse
(fo r
s t a t e lo a n s ) .
B a n k fu r H a n d e l u n d I n d u s tr ie .
(2)
The organization in 1890 of a group for Asiatic busi
ness was the natural consequence of the founding, in 1889,
by a number of large banks and private banking houses,
of the Deutsch-Asiatische Bank. A great many difficulties
had to be overcome before this bank could be founded.
In the first place there was the nearly always successful
tactics of the Chinese negotiators in charge of the national
finance and railroad business of playing off against each
other the individual competitors in the various countries.
On the other hand, for a long time no concerted action
with English banking circles nor even of German banks
with each other could be attained, the latter having
formed two separate groups under the leadership of the
Disconto-Gesellschaft and of the Deutsche Bank respec-
The
G e r m a n
G r e a t
B a n k s
tively. The organization of the Deutsch-Asiatische Bank
and the formation a year later of the Syndikat fiir
Asiatische Geschdjte (syndicate for Asiatic business) put
an end to the competitive struggle between those two
groups. Inasmuch as independent action of other Ger
man banks had but little chance in the future, united
action of German interests became assured not only with
reference to Chinese, but also all Asiatic financial opera
tions, the new powerful syndicate, led by the DiscontoGesellschaft, undertaking the common planning and man
aging of loans and advances to the central governments,
provinces, and railroad companies in China, Japan, and
Korea and the organizing of railroad and mining com
panies in China. The structure of this syndicate is, how
ever, somewhat loose, as it is left to each member to keep
aloof from any individual transaction.34
9
The successful activity of this syndicate was frustrated
for the time being by the outbreak in the nineties of the
Chinese-Japanese war. In March, 1896, the syndicate suc
ceeded for the first time, with the gratifying cooperation
of the English Hongkong and Shanghai Bank, in taking
over £8,000,000 of the total Chinese loan of £16,000,000.
An agreement was also reached with the English bank for
future common action in Chinese business on the basis of
equal participation, resulting, soon afterwards, in 1898, in
the common taking over of the remainder of the Chinese
war indemnity to Japan in the shape of a yAi per cent
loan of another £16,000,000.
Since then the Asiatic syndicate has managed success
fully a number of other financial transactions.
413
N a t i on a l
M on e t a r y
Commission
(3)
The formation of groups for the permanent common
handling of other domestic state loans— as for instance, the
underwriting of the Bavarian and Baden loans and of for
eign state and railroad loans (such as Swiss, Argentine,
Mexican, Russian, Roumanian, Portuguese, etc.)— occurred
more frequently during the second period. These groups,
however, if we except the Russian group headed by
Mendelssohn & Co., did not attain the same solidity of
structure and consequent exclusive power as the group
formations mentioned in paragraph 2. Their origin was
often due to a combination into one group of syndicates,
originally opposing each other, or to the subsidiary banks
of a great bank combining into a single-issue group for cer
tain underwriting purposes. The same remarks apply to
group formations for the taking over of municipal loans,
as, for instance, of Cologne, Hamburg, Frankfort-on-theMain, and Munich. In the latter case the groups are
composed of local houses, strengthened in some cases by
the joining of friendly outside banks. However, these
groups show frequent changes of membership, since
they were 'hever strong enough to completely shut out
competition.
As this chapter is devoted exclusively to the discus
sion of permanent bank groups, no specific mention is
made of those syndicates which, originally formed inde
pendently of each other, for the taking over of state or
municipal loans, frequently coalesced into one group for a
single transaction, in order to do away with mutual out
bidding. Such transitory combines may be characterized
as mere price conventions.
414
The
G e r m a n
G r e a t
B a n k s
On the other hand, syndicates originally formed as
societates unius rei, for instance, for the taking over of
a municipal loan, may gradually coalesce into solid and
permanent group formations. During the second period,
particularly, it became more and more customary to main
tain the combination after the first successful cooperation
in case the character of the transaction was such that its
recurrence at regular intervals might confidently be ex
pected. This was unfortunately true of municipal loans,
the recurrence of which could be predicted with almost
mathematical certainty. In such cases each party of the
syndicate felt at first only morally bound to refrain from
independent bidding or from joining another syndicate,
but to either suggest or await an invitation to a meeting
of the syndicate, unless it had informed beforehand the
management of the old syndicate of its contrary decision.
The management of such syndicates, unless a change was
expressly provided for, as a rule remained unchanged for
subsequent transactions.
(4)
A large number of bank groups originated during
the second period as a result of the changed relations of
the banks to industry as set forth in previous chapters.
In this field the formation of groups, while due to
designed industrial policy, had become more pronounced
and definite since the nineties, and in turn caused a more
refined differentiation and growing intensification of this
policy. The principal cause was, however, the enormous
demand for capital by industry in general, and the electro
technical industries in particular. Accordingly we find
such bank groups closely allied with the so-called “ heavy ”
I
N a t io n a l
M on e t a r y
Commission
industries (mining, iron and steel) as well as with the
“ light” industries, especially the electrical industry,
breweries, secondary railways, and petroleum enterprises.
Until about 1900 there had been formed, to correspond
with the seven combinations of electrical undertakings
to be discussed later on, seven bank groups, each back
ing the respective industrial combination and attending
to the issue business of the industrial combination as
well as to its other financial operations. In particular
the Siemens & Halske stock company was backed in
1900 by a group of 11 banks headed by the Deutsche
Bank; the combination formed under the leadership of
the Allgemeine Elektrizitatsgesellschaft (A. E. G.) was
backed by a bank group consisting of 8 banks headed by
the Berliner Handelsgesellschaft; the combination known
as the Union-Elektrizitatsgesellschaft (U. E. G.) was
backed by a bank group headed by the Disconto-Gesellschaft, etc.
In the same year the so-called “ Loewe-Gruppe ” (i. e.,
the group of industrial undertakings controlled by the firm
Eudwig Doewe & Co.) was backed by the same six banks
and banking houses which stood behind the Union-Electrizitatswerke. This banking syndicate, formed at first
for purposes of common underwriting, subsequently con
ducted also the other financial operations of the indus
trial group.35 It appears that since the nineties the ever
9
increasing extension of the plant and the annexing of a
number of hitherto independent concerns made it impos
sible to have the largely increased demands for capital met
either by the original firm or by any single banking institu
tion, the latter partly for the reason that a number of bank416
The
G e r m a n
G r e a t
B a n k s
ing institutions were simultaneously interested in several
enterprises of the electro-technical industry.
In the field of secondary railways (Kleinbahnen) sev
eral groups were formed. One of them is headed by the
Berliner Handelsgesellschaft, which founded the Westdeutsche Eisenbahngesellschaft. Another is headed by
the Darmstadter Bank, which organized the Silddeutsche Eisenbahngesellschaft at Darmstadt; a third,
headed by the Nationalbank fur Deutschland, is backing
the Allgemeine Deutsche Kleinbahngesellschaft und vereinigte Eisenbahn- Bau- und Betriebsgesellschaft at Berlin
(General German Secondary Railway and Consolidated
Railway Construction and Operation Company).
The object of the first group was to assist the firm of
Benz & Co., engaged in the construction and operation of
secondary railways; that of the second group, to assist
the similar enterprises of the firm Herrmann Bachstein;
while the group headed by the Dresdner Bank has
founded trust companies for the floating of German
and Austro-Hungarian railway securities (Zentralbank fur
Eisenbahnwerte) , also the firm Orenstein & Koppel (now
consolidated with the firm Arthur Koppel), engaged in the
construction of field and secondary railroads.
In the field of the petroleum industry the two foremost
groups are those headed by the Deutsche Bank and by
the Disconto-Gesellschaft. These organizations are the
expression of the industrial enterpreneur activity of the
great banks, an activity which during this period has for
good reasons been slackening. The aim is to counterbal
ance the monopoly position in the petroleum market of
the American and Russian producers.
9 0 3 1 1 0— i i ----- 28
417
%
N at i on a l
M on et a r y
Commission
In 1903 the Deutsche Bank became interested on the one
hand in the Roumanian petroleum company Steaua
Romana by taking over a large portion of newly issued
stock and by having one of its directors made chairman
of the supervisory board, and, on the other, in the
Galician petroleum company “ Schodnica. ”
Subsequently, on January 21, 1904, together with the
Wiener Bankverein, the Darmstadter Bank, the Nationalbank fur Deutschland, the Mitteldeutsche Kreditbank, and
the banking firm of Jakob S. H. Stern in Frankfort-onthe-Main, it founded in Berlin the Deutsche Petroleum
Aktiengesellschaft (with a share capital of 20,000,000
marks), into which it merged its participations in the
Roumanian, Russian, and Galician, also in some Hanover
petroleum enterprises. The new company soon after
made an agreement with the Petroleum-Produkten-Aktien
gesellschaft in Hamburg for the transportation of the
Roumanian petroleum.
About the same time (1903) the Disconto-Gesellschaft,
together with the firm of S. Bleichroder, participated in
the petroleum industry company “ Bustenarii ’ ’ and in an
other large Roumanian petroleum company, the ‘ ‘ Telega
Oil Company (Limited), ’ ’ which made an agreement for
the transportation of the petroleum with the Shell Trans
port and Trading Company, which in turn owned shares
of a nominal amount of 2,600,000 marks, out of a total
nominal capital of 3,000,000 marks in the PetroleumProdukten-A ktiengesellschaft.
In 1905 the Roumanian petroleum refining company
‘ ‘ Vega ’ ’ and the ‘ ‘ Society for the Development of the
Roumanian Petroleum Industry Credit Petrolijer ’ ’ were
4x8
The
G e r m a n
G r e a t
B a n k s
organized, the first under the combined auspices of
the Disconto-Gesellschaft, S. Bleichroder, and the Compagnie Industrielle des Petroles at Paris, for the purpose
of refining crude petroleum. In the same year the Dis
conto-Gesellschaft group merged its Roumanian petroleum
participations in the “ Allgemeine Petroleum-IndustrieAktiengesellschaft,” founded by it with a capital of
17,000,000 marks.
A third group, headed by the Dresdner Bank,and com
prising the A. Schaaffhausen’scher Bankverein, the Inter
nationale Bohrgesellschaft, and several industrial and
banking firms, founded in Roumania a third petroleum
company under the name of the “ Petroleum-Aktiengesellschaft Regatul Romana, ” with a capital of 24,000,000 lei
(francs).
In 1906 the European Petroleum Union, with a capital
of 37,000,000 marks, was founded by Russian petroleum
producers, closely connected with the crude-oil produc
ing firm of Nobel Brothers in St. Petersburg and the
banking house de Rothschild Freres in Paris, in company
with the Deutsche Bank and other (Russian, Roumanian,
and Galician) petroleum interests, with the object of con
solidating the various European selling organizations
controlled by them.
In all the above-described cases special care was taken
to distribute the risk by the formation of groups, to
mobilize the participations by the organization of stock
companies, with the view, undoubtedly, of disposing of at
least part of the participations as the companies grew in
strength, and of retaining only an amount required for the
continuance of permanent influence.
419
The industrial-bank groups are thus seen to differ from
other bank groups in that they represent a combination of
the industrial entrepeneur activity— which as matter of
principle it would be better to leave to industry itself—
with that of bank financing proper and a special banking
initiative (Bankinitiative). It is the latter that has
caused the unprecedented growth in Germany of some
new industries, such as the electro-technical, or the crea
tion of hitherto nonexisting industries, such as the
petroleum industry.
S e c t io n
4.— THE OVER-SEA AND FOREIGN BUSINESS
OF THE GERMAN CREDIT BANKS.36
9
I. T he P art T aken
by
the
German Over -Sea I mport
B anks
and
in
D eveloping
E xport T rade.
As stated before, a special section (Sect. 7) will be
devoted to the discussion of the question whether, to what
extent, and under what circumstances the so-called “ ex
port capitalism”— i. e., the investment of German capital
in foreign enterprises, businesses, and securities, particu
larly the fcnmding of subsidiary companies destined ex
clusively for over-sea business, is necessary and proper.
For the present we will merely note the fact that the Ger
man great banks, since the beginning of the second period,
devoted themselves energetically to the promotion of our
industrial and commercial relations with over-sea coun
tries. We shall attempt now to describe briefly the com
mercial objects of this activity and the gradual develop
ment of this part of German banking policy.
The earliest formulation of this policy, which extends
far beyond the previous limits of German banking, is
The
G e r ma n
G r e a t
B a n k s
found in paragraph 2 of the charter of the Deutsche Bank.
There can be no doubt that the founders of that institu
tion, in view of the general economic position of Germany,
regarded this as their foremost aim and a necessary and
true policy, for its execution was stated to be part of the
program of the new bank in the following terms:
The object of the company is the transaction of all sorts
of banking business, particularly the fostering and facilitating
of commercial relations between Germany, the other European
countries, and over-sea markets.
The purpose of this program was to fill a gap in the
organization of German credit and banking clearly per
ceived by the founders and more particularly by the early
managers of the bank. This “ bold stroke” and the eco
nomic insight disclosed can not be appreciated too
highly.37
9
The Deutsche Bank has followed its ambitious pro
gram38 with the utmost vigor and tenacity, preparing
9
its future success by a number of deliberate and far
sighted measures.
The activity of the Deutsche Bank as an intermediary on
behalf of import and export trade was soon taken up also
by the Disconto-Gesellschaft, which in many lines of bank
ing activity during this period showed a degree of devel
opment as large, or nearly as large, as the Deutsche Bank.
Previously, German industrial and commercial interests
in foreign, especially over-sea countries had to fall back
almost exclusively upon the intermediary of English and,
in some cases, French banking institutions. For while
bills in terms of German currency had no foreign market,
English bills particularly, had almost boundless and unlim-
421
N at ion a l
M on e t a r y
Commission
ited circulation, since English banks were represented in
one form or another in all parts of the world.
As the first result of its activity, the Deutsche Bank
secured for German commerce and industry a firm posi
tion in the world market, and introduced German bills
into the channels of over-sea commerce where they were
almost unknown up to that time. This was especially
difficult at the beginning of the period, when the gold
standard did not yet exist in Germany, for bills in terms
of the multifarious German currencies (see p. 39) were
unknown and disliked in international business, (which
is transacted mainly by means of bills,) and were there
fore subject to higher rates of discount than the London
sterling bills.39
9
In order therefore to improve these conditions, the
first requisite was to open credit at London to the Ger
man importer and exporter. This the Deutsche Bank
attempted to do at first through an agency of its own at
that place. When this attempt failed, through difficulties
of formal nature, the bank acquired an interest in the Ger
man Bank o¥ London, Ltd., without, however, attaining
fully the desired object.
On the other hand, the German exporter and importer
was to be given an opportunity40 “ to obtain such credit
0
in Germany by the introduction of German currency bills
in over-sea markets and by offers to buy the bills drawn on
German exchange centers.” The Deutsche Bank at
tempted to attain both these objects by establishing in
1872, i. e., before the introduction of the German gold
standard, branches in Yokohama and Shanghai which
were to buy bills drawn on Germany, so that the Ger422
a ..
The
G er m a n
Great
Banks
man exporter, who had calculated the selling price of his
goods in marks, might be paid abroad in marks, while
the importer might credit the foreign seller at the bank
with the amount of the invoice in marks and meet pay
ment in marks upon bills subsequently drawn by the
seller.
Both branches in eastern Asia had to be closed in 1874,
i- e., after an existence of barely two years, mainly because
the continuous depreciation of silver had diminished the
invested capital. Similarly the La Plata bank, opened in
1872 by the Disconto-Gesellschaft and taken over by the
Deutsche Bank in 1874, had to be liquidated in 1885. But
in the meantime the Deutsche Bank opened branches in
German centers of over-sea trade— one in Bremen (in
1871) and another in Hamburg (in 1872). In the same
year a silent partnership (Kommandite) in New York was
formed. By 1871, in order to obtain the means required
for these enlargements of its business, its capital had been
doubled from 5,000,000 to 10,000,000 thalers.
Finally, in 1873, it succeeded in opening in London a
branch of its own, whose business operations soon assumed
considerable proportions. The clients of the bank, who
imported goods from over-sea markets, were now in posi
tion to draw their bills either in marks on Germany
(Berlin, Bremen, Hamburg) or in pounds sterling on
London, as it appeared to them more advantageous in
accordance with the respective discount and exchange
rates in the two countries. Thus the first and most diffi
cult stage in this development was successfully passed.
It must be said that even the program of the Deutsche
Bank was regarded with little favor in banking and
423
mmission
bourse circles. The sentiments prevailing among these
circles at that time are accurately reflected in a South
German newspaper, which has been used by Model as
the only journalistic source not only as regards this
subject but also in discussing the activity of the banks
during the earlier period. This paper41 stated, not more
0
than four weeks before the foundation of the Deutsche
Bank, that the houses which were chiefly interested in the
projected bank were “ not regarded as able” to manage
an institution of this class “ in accordance with modern
requirements” and “ that its founders would save them
selves from a splendid fiasco if they were to take over
their own shares, since there was absolutely no sympathy
for the project in Berlin.”
The same paper, in speaking of the doubling of the
share-capital in 1871, stated that there was no need for
such an increase, “ even if it were true that the bank
intended to establish silent partnerships in the regions
peopled by the Riff pirates, Kaffirs, and Blackfoot Indians.”
After the initial failures, when the branches in Eastern
Asia had to >be closed (in 1874), the following remarks
were made: “ The Deutsche Bank, in closing its branches
in Shanghai and Yokohama, confesses its inability to
execute its original high-sounding program, since it was
primarily founded for the purpose of freeing German
commerce in foreign countries, particularly in China,
Japan, and the East Indies, from the tutelage of English
and French bankers. The question of liquidation of the
bank is now being seriously debated; at all events, a re
duction of its capital would seem to be advisable. ’ ’
424
The
Ge r man
Gre at
Banks
A still sharper criticism of the Deutsche Bank by the
same paper in 1875 reads as follows: “ One of those bank
ing establishments, which has anything but fulfilled its
program, and whose right to exist can only be based
on the fact that, though long moribund, it still manages
to exist, is the so-called Deutsche Bank in Berlin. ’
The Deutsche Bank, however, has not allowed itself
to be diverted from its path either by its early failures or
by criticism. Mainly through its branches and agency in
Bremen, Hamburg, and London, it fostered the over-sea
business consistently and with ultimately brilliant success.
In a subsequent chapter we shall relate the attempts of
the Deutsche Bank, and after it of a number of other
banks, to lend their energetic and ever-growing support
to German import and export trade by means of branches
as well as through the founding of subsidiary banks.
The principle which may be said to have dominated their
entire activity has been correctly formulated by Emil
H e r z ,as follows: ‘ ‘ The part of the confidential adviser
in business (der wirtschaftliche Vertrauensmanri) both at
home and abroad must be taken by the banker. ’ ’
As soon as German trade felt certain of banking sup
port in its import and export activity on the part of the
branches of the banks in the great centers of oversea
trade (Hamburg, Bremen, London), or of the German
subsidiary banks working hand in hand with the parent
banks in Germany, it naturally emancipated itself from
the foreign intermediaries by enlisting the usually much
cheaper services of the German banks and their branches
or of their subsidiary banks.
425
N a t i on a l
M on et a r y
Commission
Let us first take the case of the exporter.43 He sells
0
his goods as a rule on long terms for delivery at over-sea
places, where after possibly several months’ sailing they
are paid by the buyer only when unloaded and then only
by means of the buyer’s acceptance. Through his con
nection with a German bank the exporter is now enabled
to turn over his bill of lading to that bank with an order
to deliver the same to the buyer through its over-sea
connection, say its subsidiary bank, after payment of the
amount of the bill or after acceptance of the draft, the
latter in case the goods have been sold on longer terms.
In case of nonpayment, of which he is to be advised by
cable, the order further provides that the goods are to be
insured and stored at the over-sea place of destination at
the expense of the seller.
In such cases the exporter is usually able to procure at
least part of the purchase price, and thus fresh operating
capital, long before the arrival of the goods, the bank
granting him an advance upon the floating goods. This
advance is made upon the pledging by indorsement of
the bills of lading, which secure the delivery of the goods
at the point of destination and upon the transfer of the
accompanying insurance policy either according to fixed
loan terms or according to such terms as may have been
agreed upon on the particular occasion. These advances
vary between 40 and 75 per cent of the invoice, a copy
of which is to be handed to the bank.
It goes without saying that such advances are granted
as a rule only on such goods which are not easily subject
to the risk of decay, waste, breakage, loss of weight, or
leakage.
426
The
German
Great
Banks
Provided the documents are genuine and the exporter’s
personal credit is good up to the amount advanced, the
bank, when taking the above precautions, will run but
little risk. The risk will naturally be greater, in case the
advance is made on goods which are not yet definitively
sold. In the latter case, when, for instance, the exported
goods are directed to the oversea representative of the
domestic export firm, who is to try to sell them only upon
arrival, the loan will be made as a rule by a subsidiary
institution of any of the German banks (as for instance
the Deutsch-Ueberseeische Bank, the Deutsch-Asiatische
Bank, the Bank fur Chile und Deutschland, etc.). These
banks, at the request of the oversea agent of the domestic
exporter, who turns over to them the bills of lading, will
receive and store the goods upon arrival at destination,
and in turn will honor the bills drawn upon the German
exporter’s oversea representative who takes the goods
from the storehouse and gradually makes good the credit
on the drafts as he sells the goods.
In such cases the loan transaction is particularly risky
when the agents order too large a stock and thus cause
a reduction in the price of the export goods, which may
be even intensified, in case the banks have to under
take the forced sale of the goods after failure of the subse
quent payments. In these cases the bank may suffer loss
if the recipient of the advance proves of insufficient solv
ency, or the pledged goods— of insufficient value.
Besides granting advances upon merchandise the banks
render assistance to the export trade in various other
ways. They will, for instance, give him reimbursement
(rembours) credit (see p. 428, below) against the documents
427
f
by attaching their acceptance to the draft of the seller,
who is thus enabled to discount it at the private rate.
The bank may also accord its acceptance to the domestic
exporter on the basis of bank credit, extended not by him
to the foreign buyer, but by the latter to him, the bank
being ordered by the foreign buyer to accept the drafts of
the domestic exporter up to a certain amount, against
receipt of the shipping documents, which order is usually
confirmed by the bank to the exporter (‘ ‘ confirmed letter
of credit ’ ’).
However, the most prominent function of the branches
of the German banks at Hamburg, Bremen, and London,
also of the oversea banks, is the financing of imports from
oversea countries, especially of raw materials.44
0
This is done in the following manner: The domestic
buyer of the article (importer) procures in the first place
from his German bank a “ draft” credit (Trassierungskredit) in the form of 1‘ rembours ’ ’ credit up to approxi
mately the amount of the invoice in favor of the over
sea seller of the article (wool, cotton, grain, rice, coffee,
ore, etc.), With the understanding, that the seller, or
the latter’s bank, shall have authority to draw upon
the bank of the importer to the extent of the purchase
price. The bank will accept the foreign bill, which the
oversea seller or his bank will send to it after the load
ing of the goods, or have presented to it for acceptance
by a German banking connection, only in case a full set
of the bills of lading together with insurance policy,
invoice, description of weight and quantity and, if need
be, the certificates of origin, are turned over to it.45 In
0
this way the delivery of the goods to the bank is assured,
The
G erman
Great
Banks
as are also the identity of the article and the terms of
sale, as described by the importer, as well as the fact that
the particular transaction is a real, bona fide commercial
transaction, corresponding to the importer’s statement.
After the bank has accepted the bill, which as a rule
runs for thirty or one hundred and eighty days after sight,
the seller is enabled to discount it either abroad or at an
other German bank, the first bank having to honor its
acceptance on maturity.
In case the importer, as is normally the case, has resold
the goods to another domestic buyer, the goods must be
forwarded to this new buyer. In that case the bank will
have to deliver to its customer the shipping and other
accompanying documents, for the purpose of forwarding
them to another trusted party. This does away with its
collateral security, and up to the time of payment or the
remittance of a draft by the buyer the bank has to grant
blank credit, which, however, is usually of but short dura
tion. When this remittance is received, the bank dis
counts it, credits the amount to the importer as per date
of maturity, and as a rule finds itself in possession of the
cash a good while before maturity of its own acceptance.
In case the buyer has not resold the goods, they are
stored after their arrival in Germany, under the super
vision of the bank or of its representative, the bank
receiving a new security in the shape of the storehouse
certificate, the bill of lading having been delivered to the
master of the vessel at the time of unloading.
In the case of these import transactions the granting
of credit may likewise be required, as for instance when
the German importer has to pay at once, at the time of
429
loading abroad, the purchase price for the goods bought.
In such case his German bank accords him “ reimburse
ment” credit (Rembourskredit) by ordering its oversea
affiliation to pay the purchase price upon receipt of the
documents, the importer returning the purchase price
upon arrival of the goods, or in case of sale to a third
party (see above) on return of the documents.
Finally, if the importer has sold the goods to another
country, prior to their shipment, his German bank will for
ward the bills of lading to its affiliated bank in that country
and order it to hand the documents to the buyer or his
bank upon payment of the purchase price or against
acceptance.
It is in this manner that transactions relative to the
importation of cotton from America, of wool from Aus
tralia, Cape Colony or Argentina, of grain from Russia
or America, of rice from eastern Asia, of copper from
America, of ores from Spain and Sweden, are effected to an
annual aggregate amount of several billions of marks.46
0
As the underlying documents and declarations are exam
ined with extreme care (much more needed in this than
in other classes of business transactions) the settlement
is made as a rule without any hitch, since, as Waldemar
Muller justly remarks, the bank in granting the combined
reimbursement and acceptance credit, runs a risk only in
case the documents happen to be forged, or if after the
goods are handed to the importer “ in trust ” (zu treuen
Handen), the latter as well as his buyer fail at the same
time. Against such emergencies the banks may take
some, though not always sufficient precautions.47
0
43°
The
G e r m a n
G r e a t
B a n k s
Loans on merchandise collateral may be combined
with “ reimbursement transactions” (“Remboursgeschaft”)
in case the importer or his foreign agent desire to lay
in abroad a stock of raw materials. In the latter case,
upon receipt of the acceptance the goods are held insured
in store at the disposal of the bank by its shipping agent
(to whom the documents are sent) until such time as the
client has released them in total or in part by remitting
the corresponding amount of the purchase price.
It is clear that the ‘ ‘ reimbursement ’ ’ business can be
successfully handled only by first-class banking houses
whose acceptances are known as prime bills abroad as
well as at home, and are therefore taken without question,
even in larger amounts. For such bank acceptances are
to be preferred per se to the acceptance of the commercial
house which receives the goods, and usually also for the
additional reason that they can be realized at the private
rate of discount. As a rule these banks and banking
houses yvill grant such credit in terms of German currency;
only in exceptional cases, as in some countries of South
America, Asia, and Australia such credits will be in terms
of pounds sterling and bear the acceptance of their
London agency.48
0
Since as the result of continuous efforts mark bills have
gained a respected position in foreign markets alongside
of sterling bills, British aid and intervention is no longer
required in nearly the same proportion to settle the bal
ance of payments on account of German imports and
exports. The time may be said to have passed, at least
in the majority of cases, when German exporters, in order
to collect their foreign claims, and foreign exporters when
431
National
M on e t ar y
Commission
selling goods to Germans, had to draw on London, or
when German importers had to settle the credits of their
sellers via London.
When the Deutsche Bank made its first efforts to gain
for mark bills an equal standing as compared with sterling
bills, it had not merely to struggle against foreign lack of
confidence and the competition of the English banks,
it also became the object of attack on the part of domestic
banking and other interests on the ground that, as a result
of the above-described fostering of our oversea import and
export trade, in accordance with its program, its accept
ance account at times became so greatly swelled as to
exceed, and sometimes even greatly exceed, the amount
of the share capital of the bank, even after the large
increases of its capital during the later period. But as was
shown above, the acceptance business for the promotion
of oversea commerce, which is transacted chiefly by means
of international bills, contains no excessive elements of
risk, provided only due caution is observed. Hence
in criticising the extent of the acceptance accounts
of our banks, regard should be had not so much to the
quantity as to the quality of the drafts which the banks
accept.
II.
T
h e
a n d
F
L
O
o r e ig n
f o r
O
p e n in g
o n d o n
B
,
a n k s
v e r s e a
o f
a n d
,
B
r a n c h e s
t h e
a n d
a n d
F
O
o f
in
H
a m b u r g
r g a n iz a t io n
D
o m e s t ic
o r e ig n
B
S
o f
O
, B
u b s id ia r y
u s in e s s
r e m e n
v e r s e a
B
,
a n d
a n k s
.
(r) Participations of the Deutsche Bank.
In the preceding chapter we saw how the Deutsche
Bank opened branches first at Bremen (1871), and Ham
432
The
G e r m a n
G r e a t
B a n k s
burg (1872), the German centers of oversea commerce,
and London (1873), with the view of fostering German
oversea import and export trade. These branches were to
serve, so to say, as advanced posts for the observation,
exploration, and winning of new territory by the German
banks.
(a)
In 1886 the Deutsche Bank organized in place of
the above-mentioned La Plata Bank, which had to be
liquidated in 1875, the Deutsche Ueberseebank (effective
July 1, 1887), with a paid-up capital of 6,000,000 marks
(10,000,000 nominal), for the purpose of fostering com
mercial relations with South America, especially Argen
tina. This bank in turn was superseded on June 17,
1893, by the Deutsche Ueberseeische Bank,*0 founded in
9
Berlin with a capital of 20,000,000 marks, and increased in
1909 to 30,000,000 marks.40
1
The bank has had a continuously prosperous career, as
may be seen by the rate of dividends paid:
Per cent.
I ^93 • • ............ 6
1 8 9 4 . . ............ 7
1 8 9 5 . . ............... 9
Per cent.
1 8 9 7 . . ............ 8
189 8. . ............ 8
1 8 9 9 . . ............ 8
1896. .
1 9 0 0 . . ............
............
9
8
Per cent.
1 9 0 1 . . ............ 8
1 9 0 2 . . ............
8
I 9 0 3 - • ............
1 9 0 4 . . ............
8
8
190 5 . .
Per cent.
............ 8
1 9 0 6 . . ............... 9
1 9 0 7 . . ............... 9
1 9 0 8 . . ............... 9
The number of its branches totals at present 21, of which
8 are in Chile (Santiago de Chile, Antofagasta, Concepcion,
Iquique, Temuco, Valdivia, Osomo and Puerto-Montt),
4 in Argentina (Buenos Aires, Bahia Blanca, Cordoba, and
Tucuman), 4 in Peru (Lima, Callao, Trujillo, and Arequipa), 2 in Bolivia (La Paz and Oruro), 1 in Uruguay
(Montevideo), 1 in Ecuador (Guyaquil), and 2 in Spain
(Madrid and Barcelona). The firm name of the branches
in foreign countries reads: Banco Aleman Transatldntico.
90311 — 11
-29
433
%
N at ion a l
Monetary
Commission
The former branch of the Deutsche Ueberseeische Bank
in the City of Mexico was merged, in 1906, with the Mexikanische Bank fur Handel und Industrie (see below under
“ m ”), founded with the cooperation of the Deutsche
Bank. In turn the Deutsche Ueberseeische Bank ab
sorbed the firm Guillermo Vogel & Co., in Madrid, in
which the Deutsche Bank had previously held a silent
partnership interest (Kommandite).
(ib) In March, 1889,4 the Deutsche Bank, in conjunc
11
tion with the Dresdner Bank and other institutions, with
the view of fostering German commercial relations with
Turkey, founded the Anatolian Railway Company (Societe du Chemin de fer Ottoman d’Anatolie), with head
quarters at Constantinople, which, having acquired before
December 31, 1892,42 a small railway opposite Constanti
1
nople, undertook to extend it from Haidar-Pasha, near
Constantinople, to Ismid (92 kilometers), thence to Angora
(486 kilometers) and from Eski-Shehir to Konia (445
kilometers). The capital of the company was at first
45.000. 000 and subsequently 60,000,000 francs.
(c) In the same year (1889) the Deutsche Bank, jointly
with the Wiener Bankverein, acquired the share interest
held by Baron von Plirsch in the Actiengesellschaft der
Orientalischen Eisenbahnen (Oriental Railway Company),
founded in 1879 with a capital of 20,000,000 Austrian gold
florins and operating 1,563 kilometers of railways,48 and
1
with it the concession for the Macedonian line SalonikiMonastir. This concession it ceded to the Soctite du
Chemin de fer Ottoman Salonique-Monastir, founded Feb
ruary 5, 1891 (with headquarters at Constantinople), with
a share capital of 20,000,000 marks and debentures of
60.000. 000 francs.
434
1 ..
1
I
The
G e r m a n
G r e a t
B a n k s
In North America the Deutsche Bank maintains very
active business connections, resulting in numerous finan
cial transactions and underwriting of American public
securities, treasury bonds, various railway bonds, and
other railway transactions. The temporary depression in
the price of Northern Pacific securities caused, for the time
being, grave anxiety to the bank, which was terminated
by the reorganization of the railroad, effected under its
auspices.
At first (beginning with October 15, 1872) the bank
secured a silent partnership interest in the banking firm
of Knoblauch & Lichtenstein, in New York,44 amounting
1
to $500,000 currency (1,845,000 marks), but as a result
of financial losses of that firm it had to reduce its par
ticipation to $400,000 (1,680,000 marks),45 while the
1
liquidation of the firm, which took place October 15, 1882,
caused even a loss of about 700,000 marks.46
1
In 1890 the Deutsche Bank, mainly because of its con
nection ;with many American railroads, especially the North
ern Pacific Railroad Company, instituted, in conjunction
with Frankfort and American houses, the Deutsch-Amerikanische Treuhand-Gesellschaft (German-American Trust
Company) at Berlin, with a nominal share capital of
20,000,000 marks, whose main object was to issue its
own debentures on the basis of solid American securi
ties to be purchased by it, and, in the second place, to
represent the interests of holders of securities issued by
American enterprises which had become insolvent. When
the first object of the company, mainly in view of the
precarious financial situation in the United States, was
found to be unrealizable, the capital of the company was
435
N a t i on a l
M o n et a r y
Commissio
at first reduced to 1,000,000 marks.47 Later on, by the
1
by-law (Statut) dated December 9, 1901, the company
was reconstructed under the new name of Deutsche Treuhand-Gesellschaft. While the second of the above-named
purposes still remained one of the objects of the recon
structed company (whose capital was increased to 1,500,000
marks), its principal function became the examination of
the accounts of stock companies and the undertaking of
trustee operations and those of pledge holding. Its activ
ity in these fields has proved eminently satisfactory.
In 1889 the Deutsche Bank, with the view of promoting
commercial relations between Germany and Eastern Asia,
participated in the founding of the Deutsch-Asiatische
Bank at Shanghai, with a capital of 7,500,000 taels. (See
III, par. 1, below.)
(d) With the view of executing the financial part of the
tasks of the Anatolian Railway Company, there was
founded at Zurich in 1890, with the participation of the
Deutsche Bank, the Bank fiir Orientalische Eisenbahnen,
with a nominal capital of 50,000,000 francs of common
shares (StaMmaktien) and 13,000,000 francs of preferred
shares (Vorzugsaktien)
The debenture capital since
May, 1907, amounts to 30,000,000 francs.
(e) In 1894, with the view of fostering commercial
relations between Germany and Italy, the Deutsche Bank
participated in the founding of the Banca Commercial#
Italiana at Milan, the present capital of which is
105,000,000 lire. (For particulars, see III, par. 2.)
(J) Between the years 1898 and 1904 the Deutsche
Bank, together with other banks and firms, participated
. 418
4 36
1 ..
1
The
G e r m a n
G r e a t
B a n k s
in the founding of the Deutsch-Atlantische, Ost-Europaische und Deutsch-Niederldndische Telegraphen-Gesellschaft, and the Norddeutsche Seekabelwerke (North-German
marine cable works). In 1908 it took part in the found
ing of the Deutsch-Siidamerikanische Telegraphen-Gesellschaft. (See pp. 458 and 459, No. 6.)
(g) In 1899 the Deutsche Bank cooperated in the
launching of the Schantung-Bergbau- and the SchaniungEisenbahngesellschaft (Shantung Mining and Shantung
Railway Companies) founded by a number of German
banks and firms. See pp. 458 and 459, No. 6.)
(h) When in 1901 the Anatolian Railway Company was
granted the concession for the extension of its lines from
Konia to Bagdad and the Persian Gulf,4 that company,
19
in conjunction with a number of Turkish, German,
Austrian, French, Swiss, and Italian firms, founded the
Imperial Ottoman Bagdad Railway Company.40 During
2
1905 a controlling interest in the railroad between Mersina
and Adana was acquired in behalf of the Bagdad Rail
way, the first portion of which, from Konia to Burgulu,
was opened for traffic October 25, 1904. In the spring
of 1908, “ after four years of laborious negotiations,” 41
2
the required state guarantees were at last secured for the
further construction of the Bagdad Railway over the
Taurus and Amanus mountains to Syria and upper Meso
potamia as far as El Helif near Mardin (840 kilometers
from the last point reached by the Bagdad Railway in
1908, 1,738 kilometers from Constantinople, and about
1,155 kilometers from Bassora on the lower Shatt-elArab), ‘ ‘ assuring thus the furtherance of this great
undertaking. ’ ’
437
»
N ation a l
M on et a r y
Commission
(i)
In 1904 the bank founded the Ost-Afrikanische
Gesellschaft (East-African Company), with headquarters
in Berlin, a colonial company with 21,000,000 marks of
nominal capital, the Empire guaranteeing a minimum
interest return of 3 per cent and repayment at the rate
of 120 per cent.
(k)
In 1904-1905 the Deutsche Bank participated in
the founding of the Deutsch-Ost-Afrikanische Bank with a
capital of 2,000,000 marks and central office at Berlin,
which is both a credit and note issuing bank for the Ger
man colony of East Africa. (See III, sec. 3, below.)
(/) In December, 1905, the Deutsche Bank, in con
junction with the Deutsche Ueberseeische Bank, the
banking house of Lazard Speyer-Ellissen in Frankforton-the-Main and the Schweizerische Kreditanstalt, with
the view of promoting German commercial relations with
Central America, founded the Zentral-Amerika-Bank,
Aktiengesellschaft, with central office at Berlin and a
capital of 10,000,000 marks, of which 25 per cent was
paid in for the time being. But, as the company was
unable to secure the state concession for the transaction
of banking operations for its proposed branch in Guate
mala, the original object of the enterprise was changed
in 1906, so that the present name reads Aktiengesellschaft
fur uberseeische Bauunternehmungen (“ Company for over
sea building enterprises’’). Its present object has thus
been considerably narrowed. Dividends paid during 1905
to 1908 were: o, o, 5, and 4 per cent.
(m)
In 1906 the Deutsche Bank, in conjunction with
the banking house of Speyer & Co. in New York, with
the view of promoting German commercial interests in
u ..
The
G e r m a n
G r e a t
B a n k s
South America and more especially in Mexico, founded
the Mexikanische Bank fur Handel und Industrie (Banco
Mejicano de Comercio € Industria), with its main office
in New York. This bank, as stated above, assumed the
business of the Banco Alemdn Transatlantico in Mexico;
its nominal capital is 10,000,000 pesos, the term of its
concession is forty years; the dividends paid in 1907 and
1908 were at the rate of 6 per cent.
As regards the foreign participations of the Deutsche
Bank in Europe it may be stated that—
in) The bank had entered into a silent partnership
as early as January 1, 1873, with the Paris banking house
of Weissweiller & Goldschmidt 42 by a participation
2
(Kommanditeinlage) of 1,000,000 francs, but this partici
pation was reduced to 500,000 francs as early as 1876,
and terminated soon after, owing to the liquidation of
that firm.
(0)
In 1877 (Oct. 1) the Deutsche Bank entered into a
silent partnership with the Vienna banking house of
Giiterbock, Horwitz & Co. by a participation of 750,000
florins (1,290,000 marks), which was, however, repaid
December 31, 1883.43
2
(p) In 1895 the Deutsche Bank formed a silent part
nership with another Vienna banking firm, Rosenfeld &
Co., but subsequently organized a group of German and
Austrian banks for the purpose of participating in Aus
trian and Hungarian business.
(q) In 1895 the Deutsche Bank entered into a silent
partnership with the Madrid firm Guillermo Vogel &
Co.44 The latter, as mentioned above, was taken over
2
in 1906 by the Deutsche Ueberseeische Bank.
439
(r)
The bank became interested in the mining business
in the early nineties by a participation in the firm Ad.
Goerz & Co., of Berlin and Johannesburg.
Almost all the other great banks followed the example
of the Deutsche Bank in developing and extending for
eign and oversea relations, some of them rapidfy and
energetically, others hesitatingly and to an inconsiderable
extent. The bank which did so most rapidly and exten
sively was the Disconto-Gesellschaft.
(2 )
P
a r t ic ip a t io n s
op
th e:
D
is c o n t o
-G
eseeesch aft
.
This bank as early as 1873 had participated in the
founding of the La Plata Bank, subsequently transferred
to the Deutsche Bank.
(а) In 1880 the Disconto-Gesellschaft cooperated in
the reconstruction of the Deutsche Handels- und Plantagen-Gesellschaft der Sudseeinseln (German Commercial and
Plantation Company of the South Sea Islands). The
capital of this company was 2,750,000 marks. During
1883-1887, at the instigation of Ad. von Hansemann,
it cooperated in the organization and founding of the
Neu-Guinea-Kompagnie (with a capital of 6,000,000
marks).
(б) In 1887 the Disconto-Gesellschaft, in conjunction
with the Norddeutsche Bank, founded the Brasilianische
Bank fur Deutschland45 with main office in Hamburg
2
and a capital of 10,000,000 marks, for the promotion of
commercial relations between Germany and Brazil. This
bank has at present (1908-9) five branches (in Rio de
Janeiro, Sao Paulo, Santos, Porto Allegre, and Bahia).
The rates of dividends were as follows:
T h e
G e r m a n
G r e a t
B a n k s
(c) In 1889 the Disconto-Gesellschaft participated in
the founding of the Deutsch-Asiatische Bank,46 organized
2
by seven Berlin banks with the view of fostering German
trade with eastern Asia (cfr., p. 455, No. 1). Particulars
regarding this bank are found further below.
(d) In 1890 the Disconto-Gesellschaft entered into
silent partnership connections (.Kommandite) with the
banking firm of Ernesto Tornquist in Buenos Aires, and
the Antwerp firm H. Albert de Bary & Co., allied with the
former, the aggregate participation being 2,187,000 marks.
The latter firm was transformed in 1900 into the stock
company “ Compagnie Commerciale Beige, anciennement
H. Albert de Bary & Co.,” with a share capital of 5,000,000
francs, the Disconto-Gesellschaft continuing its partici
pation through ownership of stock.47
2
(e) In 1894 it cooperated in the formation of the Banca
Commerciale Italiana (see below, p. 456, No. 2).
(/) In 1895 the Disconto-Gesellschaft, together with
the Norddeutsche Bank, and in cooperation with several
business houses having trade connections with Chile,
founded the Bank fur Chile und Deutschland 48 at Ham
2
burg with a capital of 10,000,000 marks. This bank has
441
N at i on a l
M on e t a r y
Commission
now nine branches in Valparaiso, Santiago, Concepcion,
Temuco, Iva Paz, Oruro, Antofagasta, Victoria, and
Valdivia. Its dividends show the following development:
1896, o per cent; 1897, 5 per cent; 1898, 2 per cent; 1899-1901, 7 per
cent; 1902-6, 8 per cent; 1907, 4 per cent; 1908, 8 per cent.
(g) In 1897 the Disconto-Gesellschaft in conjunction
with the firm of S. Bleichroder, founded the Banca
Generala Romana 49 in Bucharest for the promotion of
2
German-Roumanian trade relations. The bank has now
(1909) two branches in Braila and Craiova, and an agency
in Constanza.40 Its capital is 10,000,000 francs (Lei).
3
Its rates of dividends were as follows:
1898, 6 per cent; 1899, 5 per cent; 1900, 7 per cent; 1901, 8 per cent;
1902-3, o per cent; 1904, 6 p ercen t; 1905, 8 p erce n t; 1906-8, 9 per cent.
(,h) In 1898 the Disconto-Gesellschaft participated in
conjunction with a number of domestic and foreign firms
in the founding of the Banque Internationale de Bruxelles
for the promotion of German-Belgian trade relations. The
nominal capital of the new bank was 25,000,000 francs.
It paid the following rates of dividends:
1899, 6 per cent; 1900, 4 per cent; 1901-3, o per cent; 1904, 4 per cent;
1905-8, 5 per cent.
(f)
In 1899 the Disconto-Gesellschaft participated, in
conjunction with a number of German banks and bank
ing houses, in the founding of the Shantung Railroad and
Shantung Mining companies (particulars for which are given
below). During the period 1898-1904 and again in 1908
it took part also in the organization of several telegraph
and cable companies (see below, pp. 458 and 459, No. 6).
(k) In 1900 the Disconto-Gesellschaft founded the Otavi
Mining and Railroad Company with a capital of 1,000,000
marks, which was increased to 20,000,000 marks as early
44 2
The
G e r m a n
G r e a t
B a n k s
as May 12, 1903, for the purpose of constructing a railway
between Swakopmund and Tsumeb. Through the com
pletion of a branch line between Onguati and Karibib a
junction was effected in 1906 with the main line Swakop
mund-Windhuk.41
3
()
7
In 1904 it founded the East African Railroad Com
pany, with a share capital of 21,000,000 marks. A
minimum dividend of 3 per cent on this capital, as well as
a redemption price of 120 per cent, have been guaranteed
by the Empire.
(m) In 1904-5 the Disconto-Gesellschaft took part in the
establishment of the German-East African Bank, with the
main office at Berlin and a branch at Dar-es-Salaam,
which acts as a credit and note-issuing bank for the
German East African colony.
(n) In 1905 the Disconto-Gesellschaft, together with
the firm of S. Bleichroder, the Norddeutsche Bank, and
several Bulgarian firms, for the purpose of fostering German-Bulgarian trade relations, established the Banque de
Credit (Kreditna Banka) at Sophia, with a nominal capital
of 3,000,000 francs (lev).
(0)
In the same year (1905) the Disconto-Gesellschaft
in conjunction with the firm C. Woermann at Hamburg,
established the Deutsche Afrika-Bank with a capital of
1,000,000 marks. This bank opened branches in 1904 at
Swakopmund, Windhuk, and Liideritzbucht and took
over the business at those places of the Damara and
Namaqua Trading Company (Limited) which had been
founded in 1904 by the above-mentioned firm.
(p) By the taking over of stock in 1905 the DiscontoGesellschaft became interested in the General Mining
443
and Finance Corporation (Limited) in London, founded
by the Dresdner Bank in conjunction with Albu Broth
ers, with a capital of £i ,250,000. The investment did not
prove profitable, as may be inferred from the fact that the
value of this stock as carried on the books of the company
had to be reduced considerably several times.
(q) In 1906 the Disconto-Gesellschaft in conjunction
with a number of German banks, banking houses, and
firms took part in the foundation of the Kamerun Rail
road Company. (See below, p. 458, No. 5.)
It is noteworthy that to the end of the nineties the
Disconto-Gesellschaft adhered to the principle of strict
centralization in the internal management of its affairs.
In particular it discountenanced the opening of branches
for the promotion of over-sea trade. It should be said
though, that it had been represented for years at Ham
burg by the Norddeutsche Bank, with which it had
become closely allied during the first period.
It was only in 1900 that the Disconto-Gesellschaft, in
view of the considerable growth of its own over-sea
connections', decided upon the opening of a branch in
London, followed in 1903 by the opening of another
branch in Bremen.
It may be also noted that as early as 1888 the DiscontoGesellschaft, together with the Norddeutsche Bank
entered into an agreement with the firm Friedr. Krupp,
which had obtained a state-guaranteed concession for the
construction of the Great Venezuelan Railroad between
Caracas and Valencia with a total length of 180 kilo
meters, by which it took over the construction of that
road 4 2 The transaction, while resulting in considerable
3.
The
G e r m a n
G r e a t
B a n k s
contracts and orders for German industry, caused the bank
numerous long-continued troubles an d . annoyances of
all kinds.
Finally, it should not be overlooked that the DiscontoGesellschaft, as a member of the Rothschild Syndicate,
participated in a large number of Austro-Hungarian state,
railroad, and other finance transactions, took part in 1887
and 1888 in the emission of Argentine loans, and partici
pated in a number of finance and loan operations in behalf
of the Finnish, Russian, and Roumanian Governments
1
and railroads. (For particulars see App. V and VI.)
(3 )
P a r t ic ip a t io n s
of
the
D
resdner
Bank.
(а) With the view of promoting its foreign, particularly
its over-sea relations, the Dresdner Bank founded the fol
lowing branches: 1892, one in Hamburg; 1895, one in
Bremen, and 1901, one in London.
(б) In 1889 the Dresdner Bank participated in the
founding of the Anatolian Railway Company, also of the
Company for the Operation of the Oriental Railroads (see
above, 1 b and c),and in the establishment of the DentschAsiatische Bank. (See below, p. 455, No. 1.) In 1891 it
took part in the founding of the Bank for Oriental Rail
roads. (See above sub. id.)
(c) In 1894 it participated in the founding of the Banca
Commerciale Italiana. (See below, p. 456, No. 4.)
(d) In 1899 it took part in the founding of the Shantung
Mining and Shantung Railway companies. (See below,
pp. 458 and 459, No. 6.)
(e) In 1904-5 it participated in the founding of the
German West-African Bank. (See below, p. 457, No. 4.)
445
(/) In 1905 it entered into a close alliance with the
banking house J. P. Morgan & Co., of New York, London,
and Paris 4 3 for the purpose of common action in the
3,
field of international finance and issue operations and of
extending the German market for American securities.
This alliance led to the common participation of the two
parties in the now liquidated Sovereign Bank of Canada
at Montreal.
(g) About the end of 1905 the Dresdner Bank, in con
junction with the A. Schaaffhausen’scher Bankverein and
the Nationalbank fur Deutschland, with the view of pro
moting trade relations with the Orient, especially with
Turkey, Greece, and Egypt, founded the Deutsche Orientbank stock company in Berlin, with a share capital (now
fully paid-in) of 16,000,000 marks 44 and two .branches
3
in Constantinople and Hamburg, taken over from the
Banque d’Orient in Athens. Since then additional
branches have been opened in Alexandria, Brussa, Cairo,
Kalamata, Smyrna, and Casablanca (Morocco). Divi
dends in 1906 were 4 per cent, in 1907, 4 per cent, and in
1908, 4 percent.
(h) About the same time (end of 1905 45 the Dresdner
3)
Bank, with the view of promoting German commerce with
South America, founded jointly with the A. Schaaff
hausen’scher Bankverein the Deutsch-Sudamerikanische
Bank stock company, with the main office at Berlin, and
a nominal capital of 20,000,000 marks, divided into 4 series
of 5,000,000 marks each. This bank has at present (1909)
3 branches (in Hamburg, Buenos Aires, and Mexico).
In 1908 it entered into close relation with the above-men
tioned Sovereign Bank of Canada in Montreal (capital
446
The
G e r m a n
G r e a t
B a n k s
$2,000,000), severed however in 1908 by reason of the
liquidation of the Canadian bank. No dividends have
as yet (i. e., for the years 1906, 1907, and 1908) been
declared by the Deutsch-Sudamerikanische Bank.
(V In 1906 the Dresdner Bank participated, in con
)
junction with several German banks, banking houses, and
commercial firms, in the founding of the Kamerun Rail
way Company. (See below, p. 458, No. 5.)
\k) It became interested in the mining business by par
ticipating, in company with the Disconto-Gesellschaft, in
the General Mining and Finance Corporation, Condon,
which had been founded by it jointly with Albu Brothers,
with a capital of £1,250,000.
The Dresdner Bank also participated in the emission of
the 1905 Chinese state loan, in the 5 per cent loan of the
Tehuantepec National Railway Company, and in two
(4X per cent and 4 per cent) Japanese gold loans. (For
particulars, see Append. V and VI.)
(4 )
F a r t ic ip a t io n s
of
the
D arm stadter B a n k .
The Darmstadter Bank up to the present has not
established any branches for the promotion of over-sea
trade. But as early as 1854 it acquired a silent partner
ship interest (Kommandite)— the first of similar inter
ests— in the New York firm E. vom Baur & Co. This
firm, however, went into liquidation about the end of
1885.46 In 1900, jointly with the Bankers’ Trading Syndi
3
cate of London— its own creation— which in turn was
closely allied with the banking house S. Japhet & Co. and
the Nordwestdeutsche Bank (subsequently the Deutsche
Nationalbank, Kommanditgesellschaft auf Aktien) of
447
N at i on a l
Monetary
Commission
Bremen, it took the first steps for the promotion of foreign
business.
In 1906, with the view of extending business relations
with the United States, it founded, in cooperation with
other German and American banking firms, the AmerikaBank, a stock company in Berlin, with a capital of
25,000,000 marks, divided into 5 series, of which 5,000,000
marks were fully paid in, and the rest to the extent of 25
per cent, while 10 per cent premium on the shares, i. e.,
2,500,000 marks, was placed into the reserve fund.
However, this bank went into liquidation in 1909, and its
shares were taken over by the Darmstadter Bank.
The Darmstadter Bank participated in the launching
of the following organizations for the promotion of over-sea
commercial relations:
(a) 1889: In the founding of the Deutsch-Asiatische
Bank. (See below, p. 455, No? 1.)
(b) 1898-1904 and 1908: In the founding of several tele
graph and cable companies. (See below, pp. 458 and 459,
No. 6.)
(c) 1899: In the founding of the Shantung Mining and
the Shantung Railway Companies. (See below, ibid.,
No. 6.)
id) 1906: In the founding of the Kamerun Railway
Company. (See below, p. 458, No. 5.)
Its own foreign, though not over-sea connections, were
quite numerous even during the first period.
(a)
As early as 1857, for the purpose of promoting busi
ness with France, it formed a commandite in Paris. The
latter, after excellent results, had to be liquidated in 1871,
owing to the unfriendly sentiment then prevailing. In
44 &
The
G e r m a n
G r e a t
B a n k s
1873 a new commandite was established, which, however,
went into liquidation shortly after, in 1877.
(b) In 1870 a commandite was formed in Vienna
(Dutschka & Co.), which was liquidated in 1902. Its
clientele was taken over by the Weekselstuben-Aktiengesellschaft Merkur in Vienna, which in 1908 had a capital
of 20,000,000 kronen ($4,060,000) and 9 branches. There
is a close alliance between this institution and the Dartnstadter Bank.
(c) In 1871 it founded for the promotion of trade
between Germany and the Netherlands the Amsterdamsche
Bank in Amsterdam,47 with which it has since main
3
tained the most intimate relations. Simultaneously, for
promoting trade with Belgium a commandite was formed
in Brussels.
(d) In 1873-74 the bank formed a commandite in
Milan.48
3
(e) In 1877 the Darmstadter Bank, jointly with other
firms, founded the Ungarische Escompte- und Wechslerbank
in Budapest.
(/) In 1881 it founded the Wurttembergische Bankanstalt, formerly Pflaum & Co., in Stuttgart (share capital,
in 1909, 10,000,000 marks), which in turn formed in the
same year a contractual community of interest— the
earliest union of this class— with the Wurttembergische
Vereinsbank.
(g) In 1890 it acquired a commandite interest in the
banking house Marmorosch Blank & Co. in Bucharest. In
conjunction with the Berliner Handelsgesellschaft it trans
formed that firm into a stock company under the name of
the Banca Marmorosch Blank & Co., Societate Anonima
9 0 3 1 x ° — I I ------- 3 0
449
N at i on a l
M on e t a r y
Commission
(effective January i, 1905), whose capital amounts at
present to 10,000,000 lei ($1,930,000).
(h) In 1898 it founded, in conjunction with a number
of domestic and foreign houses, the Banque Internationale
de Bruxelles, with a capital of 25,000,000 francs.
It also became interested in the mining business through
the acquisition of shares of the Consolidated Mines Selec
tion Company and of the African Venture Syndicate
founded in 1903.
During the second period it participated in all the
Austrian and Hungarian emissions of the Rothschild
group, and together with several other banks and banking
houses took part in the emission of Portuguese state,
municipal, and railroad securities, which latter operations
for several years proved a source of great trouble and
financial losses. It also shared in the emission of the 5
per cent Chinese state loan, the 4P2 and 4 per cent Japanese
loans of 1905, and other finance operations, for which see
Appendices V and VI.
(5 )
P a r t ic ip a t io n s
of
the
B
e r l in e r
H
andelsgesele-
schaft.
The Berliner Handelsgesellschaft participated in the
founding of the following companies for the promotion of
German oversea interests:
(а) 1889: Deutsch-Asiatische Bank. (See below, p.
455, No. 1.)
(б) 1898-1904 and 1908: Several German cable companies
and cable works. (See below, pp. 458 and 459,^0. 6.)
(c) 1899: Shantung Railway and Shantung Mining
companies.
45 °
The
G e r m a n
G r e a t
B a n k s
(d) 1906: Kamerun Railway Company.
Among its foreign, other than oversea connections, the
following may be mentioned:
It had a share in the founding of the following institu
tions :
(e) 1872: Schweizerischer Bankverein in Basel with a
share capital of 50,000,000 francs.
(/) 1898: Banque Internationale de Bruxelles (jointly
with several other firms).
(g) 1904-5: Banca Marmorosch Blank & Co., Societate
anonima in Bucharest (jointly with the Darmstadter
Bank).
(,h) 1908: Stock company formerly Andreevics & Co.
in Belgrade, with a share capital of 4,000,000 francs (jointly
with the Pester Ungarische Commerzialbank).
Moreover the Berliner Handelsgesellschaft maintains
close relations to the stock company Labouchere Oyens &
Co. Bank in Amsterdam (capital 6,000,000 florins) and
since 1903 to the New York banking house, Hallgarten
& Co.*
It also took p art49
3
1887: In the founding of the Dutch South African Rail
road Company in Amsterdam.40
4
1889: In the acquisition of the Egyptian railroad
system.4 1
4
1894: In the founding of the Banca Commerciale Italiana.
1894: In the founding of the Compania Sevillana de
Electricidad in Sevilla and the Compania Barcelonesa de
Electricidad in Barcelona.
1897: In the founding of the Bank fur elektrische
Unternehmungen in Zurich.
1898: In the founding of the Aluminium-Industrie-Aktiengesellschaft in Neuhausen (Switzerland).
1898: In the founding of the Deutsch-Ueberseeische
Elektrizitatsgesellschaft (German Oversea Electric Com
pany).
1899: In the establishment of the Deutsch-Ostafrika
Linie (German East Africa Steamship Line).
1903: In founding the Deutsch-Chinesische-Eisenbahngesellschaft.u2
1904: In founding the Deutsche Kolonial-Eisenbahnbauund Betriebsgesellschaft (German Colonial Railroad Con
structing and Operating Company) for the execution of
railroad and port constructions in the German colonial
possessions.
Since April, 1905, it has been operating under a lease
contract the Usambara railroad in German East Africa.
In conjunction with the firm Lenz & Co. it has contracted
with the Imperial Government for the construction of the
railroad^ Luderitzbucht-Kubub.
The Berliner Handelsgesellschaft took a prominent part
in the underwriting of all Russian, Chinese, and Japanese
loans emitted in Germany during the second period. It
also emitted several Servian state and railroad loans.
(For particulars see Append. V and VI.)
(6) Participations
A. Schaaffhausen ’scher
B ankver Ein .
of the
Although the main strength of this institution from the
start has been due to the promotion of domestic rather
The
G er m a n
Great
Banks
than foreign business, it participated also in the founding
of the following concerns engaged in the foreign field:
(a) 1889: Deutsch-Asiatische Bank. (See below, p. 455,
No. 1.)
(b) 1894: Banca Commerciale Italiana in Milan. (See
below, p. 456, No. 2.)
(c) 1898-1904 and 1908: A number of telegraph com
panies and cable works. (See pp. 458 and 459, No. 6.)
(d) 1898: Banque Internationale de Bruxelles.
(e) 1899: Shantung Mining and Shantung Railway
Companies. (See below, pp. 458 and 459, No. 6)
(/) 1905: Deutsche Orient-Bank in Berlin, jointly with
the Dresdner Bank (see above sub. 3, g) and the Nationalbank fur Deutschland.
(g) 1905: Deutsch-Sudamerikanische Bank, stock com
pany, in Berlin, jointly with the Dresdner Bank. (See
above sub. 3, h.)
(h) 1906: Kamerun Railway Company, jointly with
several other banks. (See below, p. 458, No. 5.)
(7) P articipations
of the
N ationalbank
fur
D eutsch
land.
This bank took part in the founding of the following
institutions:
(a) 1889: Deutsch-Asiatische Bank. (See below, p. 455,
No. 1.)
(b) 1895: Credito Italiano in Rome. The present share
capital of the institution is 75,000,000 lire ($14,475,000);
its branches number at present 17.
453
N ational
Monetary
Commission
(c) 1899: Shantung Mining and Shantung Railwaycompanies. (See below, pp. 458 and 459, No. 6.)
(d) 1904: Banque d'Orient, established by it in Athens.
(Share capital, 10,000,000 francs; branches in Saloniki and
Smyrna.)
(e) 1905: Deutsche Orientbank, stock company, in Ber
lin, founded in conjunction with the Dresdner Bank (see
above, sub. 3, g) and the A. Schaaffhausen’scher Bankverein. This bank was detached from the Banque d’Orient
and took over the latter’s branches in Berlin, Hamburg,
and Constantinople. Additional branches have been
opened since in Cairo, Alexandria, Brussa, Kalamata,
Saloniki, Smyrna, Tangier, and Casablanca.
Since 1905 the Deutsche Orientbank has maintained a
community of interest with the Deutsche Paldstina-Bank
in Berlin, founded in 1899 by the banking firm Von der
Heydt & Co., for the promotion of trade with Palestine
and the Levant. The latter bank took over the assets
and liabilities of the Deutsche Palastina und Orient-Gesellschajt (Limited) in Jerusalem, with a capital of 5,000,000
marks. Pt has now 4 branches (in Jaffa, Jerusalem,
Beirut, and Hamburg), and in turn founded a subsidiary
company, the Levante-Kontor {Limited?), with a branch in
Constantinople. The dividends on its preferred stock
show the following rates:
Per cent.
Per cent.
1899
.....................................
O
1904..................................
o
1900
.....................................
5
I 9 ° 5 ........................................................................................
5
19 0 1
.....................................
5
1906..............................................
6
1902
.....................................
4
I 9 ° 7 ........................................................................................
6
i 9 ° 3 ........................................................................................
0
1908..............................................
6
454
The
G e r m a n
G r e a t
B a n k s
if) 1909: The bank took part in the increase of capital
of the Credit Mobilier Frangais.
III.— T he Common Subsidiary Companies (TochterGesellschajten) op THE G erman Credit B anks for
the
P romotion
of
Over -sea
and
F oreign B usiness.
The following subsidiary institutions were founded
jointly by a large number of German banks and banking
houses to assist German trade and industry in gaining
new markets and to preserve and expand existing markets
or to develop our colonies.
1. In 1889 there was founded for the promotion of
our trade in eastern Asia the Deutsch-Asiatische Bank43
4
at Shanghai, which at the end of 1908 had twelve branches
in Berlin, Hamburg, Tientsin, Tsingtau, Hankow, Hong
kong, Calcutta, Tsinanfu, Peking, Yokohama, Kobe
in Japan, and Singapore. The share capital amounts
to 7,500,000 Shanghai taels, fully paid in. The follow
ing great banks participated in its founding: The Deutsche
Bank/ Disconto-Gesellschaft, Dresdner Bank, Darmstadter Bank, Berliner Handelsgesellschaft, A. Schaaffhausen’scher Bankverein, and Nationalbank fur Deutschland.
By grant (Konzession) dated July 6, 1906, based on par
agraph 3 of the law regarding the colonies and the imperial
decree regarding the issue of bank notes in the colonies,
dated October 30, 1904, the Deutsch-Asiatische Bank was
given the right for a period of fifteen years to issue bank
notes in denominations of 1, 5, 10, and 25 Mexican dollars
and of 1, 5, 10, and 25 taels through its branch offices
located in the German possession of Kiauchau and in
China. The dividends44 paid were as follows:
4
455
N ational
Monetary
Per cent.
18 8 9 ..................... ....................
0
18 9 0 ..................... ....................
1 8 9 1 ..................... ....................
Commissio n
1899......................
1900......................
2K
0
Per cent.
..................
6
..................
7
1901......................
1 8 9 3 ..................... ....................
1 8 9 4 ..................... ....................
1 8 9 5 ..................... ....................
..................
..................
9
10
..................
..................
10
11
..................
..................
9
8
..................
8K
5
7
8
1903......................
6
190 7.....................
1908.....................
1904.....................
1905 - • • ..............
1906.....................
1 8 9 6 .....................
1 8 9 7 ..................... ....................
18 9 8 .....................
7
1902......................
1 8 9 2 .....................
..................
2.
In 1894, for the promotion of our trade with Italy,
there was founded the Banca Commerciale Italiana45
4
in Milan. Among the participants there were the same
great banks, except the Nationalbank fur Deutschland,
which was interested in the Credito Italiano. The capi
tal of the Banca Commerciale Italiana at the end of
1908 was 108,000,000 lire. It has now 35 branches,
among them one recently opened at Constantinople.
The dividends paid were as follows:
Per cent.
1902
8
..............
8K
190 5 .................................................
1906
.........................................
9
9
..............
..............
8X
8
1 9 0 7 .................................................
19 0 8 .................................................
9
Q
..............
.......... oy2 1903 ..................................... 8
1 8 9 7 -----1898 . . . .
1 8 9 9 -----1900 . . . .
1901 . . . .
Per cent.
......................................... 8
6K
I9 ° 4 .................................................
1 8 9 5 -----1896 . . . .
1
1
For the promotion of trade with Tunisia the Banca
Commerciale Italiana in turn founded in 1907 the Banca
Commerciale Tunisina with the head office at Paris.
During the same year it also participated in the increase
of capital of the Banco Commerciale Italiano in Sao Paulo,
Brazil, whose firm name has been changed since to the
Banco Commerciale Italo-Brasiliano (capital 5,000 contos).
In 1908 it founded in Constantinople the Societd Commer456
The
G e r m a n
G r e a t
B a n k s
dale per VOriente (share capital, 3,000,000 lire) for the
promotion of trade between Italy and Turkey.
3. During 1904-5 the Deutsch-Ostafrikanische Bank46
4
was founded with the head office at Berlin, a nominal
capital of 2,000,000 marks and branches at Zanzibar,
Mombassa and Dar-es-Salam. This institution acts both
as an ordinary and a central note bank for the German
colony of East Africa.47 In its latter capacity it is
4
to regulate the money market, to facilitate payments
within the colony and to make remittances between the
colony on the one hand and Germany and other countries
on the other. It has also been granted the privilege of
issuing bank notes in terms of rupees in accordance with
business demand up to the threefold amount of its capital
with minute provisions regarding the reserve for its note
circulation. 48 Among the institutions participating
4
in its foundation there figured also the Deutsch-Osta)rikanische Handelsgesellschajt (German East African
Trading Company) which had been organized in the same
colony likewise with the cooperation of German banks.
Among the great banks which took part in the founda
tion of the East-African Bank we find the Deutsche Bank
and the Disconto-Gesellschaft.
4. During 1904-5 the Deutsch-Westafrikanische Bank49
4
was formed, a colonial company with a capital of
1,000,000 marks and its main office at Berlin. At the
end of 1908 it had three branches (in Hamburg, Lome in
Togo, and Duala in Kamerun). Its function is to act as a
bank in the colonies of Togo and Kamerun, i. e., to regu
late the money market and to facilitate payments in these
colonies; also to facilitate remittances between these colo-
457
»
N a t io n a l
Monetary
Commission
nies on the one hand and Germany and foreign countries on
the other. The Deutsch-Westafrikanische Bank does not
possess, however, the privilege of note issue. 40 It may
5
be noted that the participants in its foundation include
besides the Dresdner Bank and several commercial firms,
also the Deutsch-Westafrikanische Handelsgesellschaft (Ger
man West African Trading Company) which operates in
the same colony.
5. The year 1906 witnessed the foundation of the Kamerun Railroad Company for the construction of a railway
from Duala to the Manenguba Mountains with a capital of
5,640,000 marks preferred and 11,000,000 marks common
stock. In accordance with act of May 4, 1906, the Ger
man Imperial Government guarantees a 3 per cent yearly
dividend on the common stock, besides the redemption of
the capital at the rate of 120 per cent. (Reichsgesetzblatt, 1906, p. 525.) Of the great banks the following took
part in the foundation of the company: Berliner Handels
gesellschaft, Darmstadter Bank, Disconto-Gesellschaft,
Nationalbank fur Deutschland, Norddeutsche Bank and
the A. Schaaffhausen’seher Bankverein. Among the
founders figure also the banking firms S. Bleichroder,
von der Heydt & Co. in Berlin, Wilh. Schlutow in Stettin,
M. M. Warburg & Co. in Hamburg, also the commercial
firm C. Woermann in Hamburg, and the Aktiengesellschaft fur Verkehrswesen (Stock Company for transporta"" tion enterprises).
6. Again in the interests of national policy all the banks
and firms concerned in the foundation of the DeutschAsiatische Bank took part also in the launching of the
following enterprises. In all these cases there could be
458
The
G e r m a n
G r e a t
B a n k s
no thought of the speedy realization of the capital tied up in
these enterprises.
1898: Land-und Seekabelwerke A. G. (Stock Com
pany for land and sea cable works) in Cologne - Nippes
(share capital 6,000,000 marks).
1899: Schantung-Bergbau-Gesellschaft (Shantung Mining
Company) in Berlin, with a share capital of 6,000,000 marks.
1899: Schantung-Eisenbahn-Gesellschaft (Shantung Rail
way Company) in Berlin, with a share capital of 54,000,000
marks.
1899: Deutsch-Atlantische Telegraphen-Gesellschaft, Stock
Company in Cologne, with a share capital of 24,000,000
marks.
1899: Norddeutsche Seekabelwerke (North German Sea
cable works), stock company in Cologne-Nordenham, with
a share capital of 6,000,000 marks.
1899: Osteuropdische Telegraphen-Gesellschaft (EastEuropean Telegraph Company), stock company in Berlin,
with a share capital of 1,000,000 marks.
1904: Deutsch-Niederlandische Telegraphen-Gesellschaft
(German-Dutch Telegraph Company), stock company in
Cologne, with a capital composed of 7,000,000 marks of
stock and 7,250,000 marks of bonds.
1908: Deutsch-Sudamerikanische Telegraphen-Gesellschaft
A. G. (German-South American Telegraph Stock Com
pany), in Berlin, with a capital composed of 4,000,000
marks of stock and 7,800,000 marks of bonds.
1907: A number of German banks participated in the
establishment of the State Bank of Morocco.
At the end of the nineties there were in existence only
4 German over-sea banks. In 1903 their number was 6,
with 32 branches, while at the beginning of 1906 there were
459
Monetary
Commission
as many as 13, possessing a combined capital of fully
100,000,000 marks and about 70 branches.
But even these achievements appear rather unimportant
when compared with those of other countries in the same
field. Thus, for instance, England, in 1904, had 32 colo
nial banks with head offices in London and 2,104 m the
colonies, besides 18 (30 in 1907) other British foreign
banks with 175 branches.41 France in 1904-5 had 18
5
colonial and foreign banks with 104 agencies; Holland 16
over-sea banks with 68 branches.
S
e c t io n
5.
G
G
e r m a n
C
o m p o s it io n
D
C
e n e r a l
iv id e n d s
r e d it
;
, W
G
B
F
; G
a n k s
o f f
,
E
r o ss
E
e n e r a l
r it in g
R
in a n c ia l
e s u l t s
a r n in g s
x p e n s e s
R
a n d
o f
;
N
e s e r v e s
a n d
e t
P
t h e
t h e ir
r o f it s
,
.
The financial results of all German credit banks (with a
share capital of at least 1,000,000 marks) for the years
1885 to 1908, inclusive, their number, and the dividends
paid by them, are summed up in the following table:42
5
Dividends.
«'
Year.
Number
of banks.
Gross earn
ings, in
thousands
of marks.
Net earn
ings, in
thousands
of marks.
Amount of,
in thou
sands of
marks.
Rate of
(per cent).
i 8 8 S ......................................
71
7 7 ,8 1 0
5 6 ,1 4 0
46, 430
6. 41
1 8 8 6 ......................................
71
7 8 ,6 9 0
57.1 8 0
47.1
6.
1 8 8 7 ......................................
7i
8 0 ,9 7 0
5 7 .7 4 0
4 8 ,0 0 0
70
43
6- S3
1 8 8 8 ......................................
71
11 0 ,4 8 0
7 5 .3 9 0
5 8 .9 7 0
7 - 79
1 8 8 9 ......................................
93
141,
OOO
i 1 0 ,5 0 0
8 1 ,9 2 0
8. 77
1 8 9 0 ......................................
92
14 1 ,0 4 0
9 8 ,3 0 0
79.
630
7. 60
1 8 9 1 ......................................
95
I 12, 150
7 4 .1 4 0
6 3 ,0 7 0
6 . 11
6 1 ,2 3 0
0
0
1 8 9 s ......................................
94
I I I
. 930
7 6 ,8 5 0
1 8 9 3 ......................................
93
IIO
, 030
7 1 .7 7 0
5 9 . 74°
5.72
1 8 9 4 ......................................
96
I 1 2 ,2 9 0
8 5 ,1 1 0
6 8 ,6 2 0
6.
1 8 9 5 ......................................
94
150.330
h
, 920
8 3 .5 5 0
7. 61
1 8 9 6 ......................................
98
158.930
11 8 ,3 5 0
9 2 ,6 9 0
7.66
460
i
0
National
49
The
German
Great
Banks
D iv id e n d s .
Y ear.
N um ber
o f b an ks.
G ro s s e a r n
in g s , in
th o u s a n d s
o f m a rk s .
N e t earn
in g s , in
th o u s a n d s
o f m a rk s .
A m o u n t o f,
in t h o u
san ds of
m a rk s .
R a t e of
(p er cen t).
102
1 79 .37 0
7
2 1 8 ,3 8 0
13 4 ,6 9 0
16 2 ,8 0 0
1 0 1,8 3 0
108
1 2 6 ,3 6 0
7 .8 6
1 8 9 9 .............................
19 0 0 .............................
I l6
2 6 1 ,1 7 0
1 95 .47 0
14 8 ,5 6 0
8. 12
I l8
26 2,0 2 0
1 8 5 ,2 7 0
14 0 ,5 2 0
.............................
25 8 ,4 0 0
1 5 2 ,6 4 0
n o , 520
1902 .............................
125
122
2 5 6 ,7 6 0
1 5 6 ,1 7 0
1 2 0 ,5 1 0
6. 19
1 9 0 3 .............................
124
2 5 3 ,2 1 0
1 7 0 ,5 6 0
13 0 ,8 8 0
6. 5 9
1 9 0 4 .............................
1 9 0 5 .............................
129
2 7 3 .5 0 °
3 3 0 ,2 0 0
1 8 9 ,7 8 0
137
1 4 5 .5 4 0
16 8 ,5 4 0
7 - 75
1 8 9 7 .............................
1 8 9 8 .............................
1901
1 9 0 6 .............................
1 9 0 7 .............................
1 9 0 8 .............................
143
158
169
2 2 4 ,7 3 0
- 63
7 -19
5-6
6
7-
25
3 7 7 .0 8 0
2 55 .53 0
18 6,8 8 0
7 .8 8
3 8 2 ,2 8 0
2 5 5 .3 8 0
19 0 , 7 2 0
7 - 45
4 1 7 ,2 3 0
2 6 1 ,0 1 0
19 4 ,8 2 0
7 - 41
It may be seen from this table that the German credit
banks have paid an annual dividend below 6 per cent only
three times during the last twenty-four years, namely,
for the years of depression, 1892 and 1893, when the
rate went down to 5.80 and 5.72 per cent and for the
crisis year 1901, when the rate was as low as 5.66 per
cent. Even for the years 1902 and 1903 following the
crisis the average dividends exceeded 6 per cent, while
for each of the last five years the average has been in
excess of 7 per cent. During the years of the high crest
of business activity, 1889 and 1899, average dividends
in excess of 8 per cent were paid, viz, 8.77 and 8.12 per
cent. These are exceedingly satisfactory and moreover
stable results.
It is further seen that the average 1907 dividends of
7.45 per cent show a decline since 1906, when the average
was 7.88 per cent, notwithstanding the fact that the
average discount rate of the Reichsbank in 1907 stood
at 6.03 per cent, as against only 5.15 per cent for the
461
I
N a t io n a l
M on e t a r y
Commission
preceding year. This may serve as an additional argu
ment against the contention that the banks are interested
in a high bank rate. The truth is that whatever advan
tage they may derive from the higher interest rates on
current account, this advantage is as a rule more than
compensated by the fact that in such times emissions
are either out of question or else made quite difficult;
that in addition the security business is less profitable,
that the value of the security holdings is shrinking,
necessitating corresponding amounts to be written off,
and that at such time losses under the head of debit
accounts are also inevitable. A continuous high bank
discount rate is therefore as a rule not favored by the
banks.
If it is considered that the operating capital of a bank
includes also the surplus funds and that therefore in
calculating the dividend rates the former must also be
reckoned, the following results for the last seven years
are obtained, according to the Deutscher Oekonomist:43
5
[A m o u n ts expressed in th o u sa n d s o f m arks.]
1902.
i 9° 3 -
1904.
1,948, 476
1,984,642
2, 005.136
380,211
391,362
400,372
448,380
2,328,687
2,376,004
2,405,508
2,623,695
120,512
130,881
145.s n
168,536
5 - 10
5-5i
6. 05
6. 40
6. 59
7 - 25
7 - 75
1905.
Share capital on which dividends
Surplus at the beginning of the
ye
Total of capital and surplus
(G esam tes eigenes
K apv-
Rate of dividends calculated on
the basis of capital and surplus
Rate of dividends calculated on
the basis o f c a p i t a l only
<
6. 19
462
The
G e r m a n
G r e a t
1906.
Share capital on which dividends
are earned.................................
Surplus at the beginning of the
year..........................................
2 ,
1908.
1907.
2 ,3 7 1 .7 8 1
B a n k s
2 ,6 2 7 ,8 5 5
S54. 4x1
479.5 6 1
202
58 6,75 0
5S 9 ,
Total of capital and surplus
(Gesam tes
eigenes
K a p i-
t a l ) .................................
2 ,8 5 1 ,3 4 2
.1 1 3 .6 1 3
3 ,2 1 4 ,6 0 5
Dividends, amount of...................
18 6 ,8 8 4
1 9 0,72 2
19 4 ,8 2 9
6. 50
6 . 12
6. 06
7.88
7 - 45
7- 4i
Rate of dividends calculated on
the basis of capital and surplus
................................. per cent..
Rate of dividends calculated on the
basis of capital only. . .per cent. .
3
It appears that on an average more than i % per cent
of the dividends is to be imputed to the surplus funds.
It is hardly possible for an outsider to calculate the
return to the banks themselves on the capital invested,
since neither the average amounts of capital employed
during a given year nor the interest paid by the banks
are known. For the same reason it is impossible to
calculate the profits of the various business branches of
the banks. Neither are the net returns to the holders
of bank shares identical with the dividends received by
them, in case a premium was paid, when the shares were
purchased. For the period 1871 to 1900 the average
income from dividends derived by shareholders of German
credit banks amounted to 6.74 per cent; for 1880-1900
to 6.84 per cent, while the net income of shareholders for
the last ten years was 6.70 per cent.44
5
For the year 1908 the returns on various shares from
the shareholders’ point of view 45 that is, the net returns
5—
to shareholders— were as follows:
I
463
Banking, 7.7 per cent; insurance, 19.3 per cent;
chemical industry, 15.7 per cent (large-scale chemical
enterprises, 11.5 per cent); mining, smelting, salt works,
etc., 9.5 per cent; textile industries, 9.4 per cent; elec
trical industry, 8 per cent; secondary railways (Kleinbahnen) and street railways, 4.3 per cent.
The average dividends of the 14 Berlin banks 46 were
5
invariably higher than those of other banks, as may be
seen from the following table, which gives the compara
tive figures for the last seventeen years:
Average dividends paid
by—
Average dividends paid
by—
All German
banks with a
capital of at
least
1,000,000
marks each.
18 2
9
18 3
9
18 4
9
18 s
9
18 6
9
18 97
18 9 8
18 9 9
19 0 0
Berlin
banks.
P e r cen t.
P e r cen t.
5- 80
5 - 72
7 - 49
7. 61
7. 66
7 - 63
7.86
8. 12
7.19
6. 03
5 - 73
8. 14
8. 29
8.48
8. 45
8. 45
8. 59
7. 61
1 9 0 1 ...............
1902...............
1903...............
1904...............
1905...............
1906...............
1907................
1908...............
All German
banks with a
capital of at
least
1,000,000
marks each.
Berlin
banks.
P e r cen t.
Year.
P e r cen t.
566
6. 19
6- 59
7 - 25
7 - 75
7.88
7 - 45
7 - 41
5 - 75
6. 72
7 - 23
8. 15
8. 72
8 .77
7 - 93
8.06
We may reiterate here what we stated in the earlier part
of the volume, viz, that the rate of dividends increases
with the increase of the current business of the bank, while
the steadiness of the dividends increases with the increase
of its regular deposit business.
On the other hand there is no basis of fact for the notion
of a recent writer,47 according to which the profits of the
5
bank increase in proportion to their combined capital and
464
r
The
G e r m a n
G r e a t
B a n k s
surplus, a fact which he regards of the utmost economic
interest. As a matter of fact, the reverse is true: With
the progressive growth of profits— that is, with the growth
of business, especially their current business— the banks,
in accordance with sound business policy, have been
increasing their capital.
Of the total gross profits of the German banks (with a
capital of at least 1,000,000 marks each) almost onequarter is due to commissions earned chiefly in the broker
age business. According to the Deutscher Okonomist the
gross profits, commissions, and the proportion of com
missions to gross profits show the following figures:
Y e a r.
Num ber
of banks.
Gross profits
(1,000
marks).
Commissions
(1,000
m ar k s).
Proportion
of commis
sions to
gross profits.
P e r cen t.
1884......................................................
1885......................................................
7i
83,000
7i
1886......................................................
24. 0
7 7 ,800
19.900
19,700
7i
78,700
20,500
26. 0
18 8 7......................................................
7i
80,900
20,700
25-5
1888......................................................
1889......................................................
7i
II O , 05 0
24,200
32, 100
32,200
22. O
22. 8
22.8
25- 7
93
I 4 1 , OOO
1 8 9 0 . . . . *...........................................
1 8 9 1 ......................................................
92
1 4 1 , OOO
95
I 1 2 , OOO
28,800
1892....................................
94
I I I , 900
26,700
0
0
2 5 -3
1893......................................................
1894......................................................
93
IIO,OOO
I 12,200
27,800
28,100
25.2
1 8 9 s ......................................................
1896..................................
189 7......................................................
1898.......................
97
150,300
158,900
34,300
35.400
40,400
25.0
22.8
22. 3
22.5
50,500
23- I
57.900
60,000
58,800
22. I
22.9
22. 8
22. 5
24. 7
96
98
102
179,400
1899.................................. ; .................
1900...........................
108
Il6
I l8
1 9 0 1 ......................................
1902.............................
125
122
1903......................................................
124
129
218,400
261,800
262,000
258,400
256,700
2 5 3 ,200
1904......................................................
1905......................................................
1906....................................
1907......................................................
1908...............................
9 0 3 1 1 0— 1 1 ------- 3 1
137
143
158
169
465
273, 5 °°
330,200
377,000
382,300
417,200
5 7 . 7°o
62,600
68,200
81,400
91,400
9 7 . 5 °o
103,700
25. O
24. 7
24-3
25-5
24-9
N a t io n a l
Monetary
Commission
The gross profits of the Berlin banks show the following
figures (in million marks):
1897..............
1898..............
1899........ .
190 ...............
0
1901.............
1902.............
............
............
............
............
............
98.8 1903................
1904................
1 4 4 -5
1905................
1906................
1 3 9 -9
131-6 1907................
0 5
138.2 19 848............
........... 140.4
........... 152-6
........... 190.7
........... 201.3
According to a calculation of the Kolnische Zeitung49the
5
total gross profits of 57 German banks in 1903 originated
as follows: From bills and interest, 48 per cent; from
commissions, 25 per cent; from issues and participations,
22 per cent.
For the years 1905-1908 the profits from commissions
and interest constituted the following proportions of the
total gross profits: (a) for all banks: 71 per cent, 75 per
cent, 86 per cent, and 76 per cent; (6) for 9 Berlin banks:
67 per cent, 71 per cent, and 78 per cent.
Of the gross profits of the Berlin great banks the follow
ing proportions were derived from commissions and
interest:
11
1906.
P e r cent.
Deutsche Bank.....................................................
Disconto-Gesellschaft.....................................
Dresdner Bank.....................................................
Darmstadter Bank................................................
Berliner Handelsgesellschaft..................................
A. Schaaffhausen’scher Bankverein........................
1907.
P e r cent.
69
73
64
68
88
69
79
55
1908.^
73
79
77
88
P e r cent.
70. 6
61. 4
84.8
66.6
82. 9
84. 4
The assertion has been made that as early as 1894 all the
banks except the Darmstadter Bank, and in 1905 all the
banks, except the Disconto-Gesellschaft and the Darm
stadter Bank derived sufficient earnings from their current
466
1 ..
1
The
G e r m a n
G r e a t
B a n k s
business, that is, the specie, coupon, and bill business,
interest and commissions, also from their commandites, to
fully pay their dividends. This assertion made by Loeb
(see Model-Loeb op. cit. p. 152) is erroneous, as the author
fails to deduct from the above earnings the corresponding
expenses of operation. These expenses41 for all German
6
credit banks with a capital of at least 1,000,000 marks
each were as follows (in million marks):
Y ear.
1883................
1884................
1885................
1886................
1887................
1888................
1890................
1891................
1892................
M illio n
m a rk s .
12.4
13-5
14-0
14. 8
15-6
17. 1
22.8
23-4
24. O
M illio n
m a rk s .
Year.
26. 9
26. 2
29. 2
32.8
3 7 -°
1893
1894
1895
1896
1897
1898
1899
1900
1901
45-8
53-3
Y ear.
1902
19 3
0
1904
1905
1906
1907
1908
M illio n
m a rk s .
66. s
69. 7
7 4 -9
90. 8
107. 9
121.8
134-5
5 9 -8
64. 2
It is seen that during the course of concentration the
cost of operation has been steadily and largely increasing.
In 1908 it constituted about 32 per cent of the gross earn
ings of all the larger banks, compared with 31 per cent in
1907, 28 per cent in 1906, 27 per cent in 1905 and only 18
per cent in 1895. For the 9 Berlin banks the cost of
operation in 1908 amounted to not less than 66,800,000
marks, as against gross earnings of 196,000,000 marks, that
is, 34 per cent, as against 32 per cent in 1907, 30 per cent
in 1906, and 28 per cent in 1905, the individual banks
showing proportions more or less favorable than the
averages just given.
For the 6 Berlin great banks the cost of operation for
1908 was 55,900,000 marks; that is, 33 per cent of the
467
gross earnings, the figures for each of these banks being as
follows (in million marks):
1907.
Gross
e a rn in g s.
1908.
C ost of
o p e ra tio n .
G ro ss
e a rn in g s.
D e u t s c h e B a n k ....................................................
53-6
20. O
55-o
D is c o n t o - G e s e lls c h a f t ......................................
27. 8
8-S
29. O
D re s d n e r B a n k .....................................................
3i- S
1 7 .8
14. O
18.0
9. 8
7. 6
310
D a r m s t a d t e r B a n k ............................................
B e r lin e r H a n d e ls g e s e lls c h a f t .......................
A.
S ch aa fT h a u sen ’ s ch e r B a n k v e r e i n . . . .
19- 3
14- 7
2.5
3-4
18. 3
C ost of
o p e ra tio n .
2 1 .4
8. 9
10. s
8. 2
3-9
3-0
The most noteworthy facts brought out by the table is
the relatively small cost of operation in the case of the
Berliner Handelsgesellschaft, due to its continued strong
centralization, and the relatively high cost of operation in
the case of the Deutsche Bank, due undoubtedly to its
strong decentralization.
The amounts written off by all German credit banks
(with a capital of at least i ,000,000 marks each) prior to the
fixing of the clear profits were as follows (in million marks):
---------------------n—
Y ear.
7883
M illio n
m arks
Y ear.
...............
M illio n
m a rk s .
Y ear.
M illio n
m a ck s.
8. 2
T885
6. 6
t 888
8 2
8-
3
4- I
2. 5
5-8
10. 7
1 8 9 1 .......................
8 .9
I
900....................
35- 1
1 2 .8
This table does not include the amounts written off
prior to the fixing the gross earnings by reducing the valua
The
G e r m a n
G r e a t
B a n k s
tion of particular assets (so-called silent reserves). The
specially large amounts written off in 1901, viz, 51,600,000
marks, are due to the crisis of 1900-1901.
According to the Deutscher Oekonomist, the surplus
funds showed the following total amounts and proportions
to the share capital:
D a t a fo r a ll b a n k s .
Y ear.
C a p it a l
s t o c k (in
th o u s a n d s
o f m a rk s .)
723. 9SO
733.690
1 8 8 5 .............
1 8 8 6 .............
1 8 8 7 ............
758 ,0 0 0
18 8 8 .............
772,400
S u r p lu s (in
th o u s a n d s
o f m a rk s .)
93,2 4 0
99,2 7 0
10 7 ,9 0 0
D a t a fo r th e B e r lin b a n k s .
P rop o r
t io n o f
s u rp lu s t o
c a p it a l
s to c k .
C a p it a l
s to c k (in
th o u sa n d s
o f m a rk s .)
S u rp lu s (in
th o u s a n d s
o f m a rk s .)
Per cen.
t
P rop o r
t io n o f
s u rp lu s t o
c a p it a l
s to c k .
Per cen
t,
12 . 90
3 2 6 ,7 4 0
55 .0 8 0
1 7 . 00
1 3 .5 3
1 4 .2 3
332, 75°
35i . 75°
59,5 2 0
18 .0 0
6 7 ,1 4 0
19- 00
7 4 .0 3 0
22. n
n s . 320
15 6 ,0 6 0
1 5 .0 0
3 6 8 ,1 8 0
1 5 .9 0
18 7 ,8 8 0
1 7 .8 2
473.1 2 0
507.450
1 1 9 .6 5 0
1 8 9 1 .............
1 . ° S 3 .2 1 0
1 9 1 ,7 2 0
1 8 .2 0
4 8 1, 240
117
1 8 9 2 .............
1» 05 7 .0 9 0
2 0 0 ,3 10
1 2 3 ,1 8 0
2 4 .9 2
1 ,0 4 6 ,1 7 0
19 6 ,3 3 0
1 8 .9 5
1 8 .7 7
494.390
1 8 9 3 .............
4 8 6,40 0
1 8 9 4 .............
1 ,0 6 7 , 520
199,820
X17, 560
534.20 0
12 0
24. 17
22. 56
1 8 9 5 .............
1 8 9 6 .............
1 ,1 3 4 ,8 2 0
2 x 0 ,6 2 0
1 8 .5 6
6 2 6 ,8 6 0
14 2 ,4 6 0
22. 73
19 .
656.
15 3 .0 4 0
23.32
X, 4 18 ,0 9 0
19- 10
57°
1 8 9 7 .......... '
18 9 8 .............
758 ,0 8 0
1 7 2 ,3 2 0
22. 73
1 9 .6 0
9 2 6 ,5 3 0
20 2,8 60
2 1 .9 0
1 8 9 9 .............
19 0 0 .............
1 ,9 0 6 ,2 5 0
235.2 5 0
2 7 0 , 75
°
330.370
373.930
390,9 3 0
1 9 .6 1
I , 0 19 , 920
2 2 5 ,5 4 0
22. I I
19-95
1 ,0 1 9
,920
230 ,680
2 2 .6 2
3 8 0 ,2 10
19 . 40
1 ,0 1 5 ,8 0 0
2 2 3 ,7 3 0
2 2 .1 3
23- 45
9 8 1 ,4 5 0
I,
240,310
1 ,6 8 8 ,1 7 0
00
1. 054.330
(0
18 9 0 .............
1 8 8 9 .............
OO
10 3 ,8 2 0
,910
,490
22. 00
23 -58
2 4 .5 0
1901.............
1. 959.550
1. 959.29 0
1 9 0 2 .............
1 .9 8 0 ,5 9 0
3 9 1 ,3 6 0
1 ,0 2 2 ,8 0 0
2 3 9,8 90
1 9 0 3 .............
19. 75
1 .9 8 9 .9 6 0
40 0 ,3 70
20. 12
1 , 0 1 9 , 4oo
2 4 3 .3 10
23- 87
19 0 4 .............
2 ,0 6 6 , 540
4 48 ,38 0
2 1 .6 8
1 ,0 7 1 ,2 0 0
2 7 8 ,9 5 0
, IOO
26. 04
294
2 5 .8 0
2 8 .3 0
29. 10
1 9 0 5 .............
2 ,2 2 3 ,5 8 0
1 ,1 3 6 ,7 0 0
2 ,4 3 2 , 140
22. 70
1 , 1 7 5 ,4 4 0
1 9 0 7 .............
479.5 6 0
554, 4io
2 1 .5 0
1 9 0 6 .............
2 ,5 7 2 , 890
5 8 6 ,7 5 0
22 .8 0
1 ,2 0 9 ,1 0 0
3 3 3 ,7 5 0
3 4 4 .8 5 0
19 0 8 .............
2 , 6 4 6 , 6xo
6 0 7 ,0 7 0
22. 90
1 ,1 7 8 ,0 0 0
3 4 2 ,8 9 0
28. 50
A very material part of the surplus funds does not come
from the business profits, but represents chiefly amounts
paid in by the stockholders in the shape of premiums and
469
National
M on et a r y
Commission
placed with the surplus funds in accordance with the pro
visions of paragraph 262 of the Commercial Code (formerly
article 185, b, secs. 1 and 2 of the Aktiennovelle (corpora
tion share act) of July 18, 1884. The surplus funds grew
according to the above table in the case of all banks with
a capital of at least 1,000,000 marks each from 12.90 per
cent in 1885 to 22.90 per cent in 1908, and in the case of
the Berlin banks from 17 per cent in 1885 to 29.10 per cent
in 1908. On an average, the surplus funds grew more
rapidly than the capital stock.
During the year 1900, when the surplus funds in all the
banks amounted to nearly 20 per cent (19.95) and in the
Berlin banks to nearly 23 per cent (22.62), the surplus
funds in other enterprises (according to Ed. Wagon,
op. cit., p. 170) were:
Pe r cent.
In the wood in d u stry................................................................. .............
8. 89
In building com panies..............................................................................
In the brewery in d u str y ..........................................................................
10. 87
17. 07
In the coal in d u stry..................................................................................
In the machinery in d u stry......................................................................
20. 48
22. 94
In the chemical in d u stry.......................................................................... 23. 38
In the rubber in d u stry............................................................................. 27. 1 5
In the paper in d u stry............................................................................... 27. 16
I must say, however, that this very favorable develop
ment of the surplus funds of the banks is due to the excel
lence of our corporation laws rather than to the excellent
policy of our banks, as Ed. Wagon would have us
believe.43
6
At all events it is due chiefly to the relatively large
surplus funds that the German banks and industrial com
panies were able to pass through the crisis of 1900 relatively
well, in strong contrast to the crisis of 1873, and that their
recovery after the crisis took so little time. It is seen that
470
The
G e r m a n
G r e a t
B a n k s
the surplus funds of the German banks compare quite
favorably with the surplus funds accumulated in the most
important branches of industry. It must, however, be
borne in mind, that, like the industrial corporations, our
banks have endeavored to accumulate so-called “ silent
reserves” in addition to the legally prescribed surplus
funds as shown in the balance sheets. These “ silent
reserves” can be traced chiefly to the extremely cautious
and conservative modes of valuing the assets of the
institutions before the gross earnings are calculated.
The fairly steady progress of the former period (18481870) contrasts with the rapidity with which Germany’s
whole economic life and, with it, German banking are
advancing in the present period, in about the same way
as the speed of the mail coach of the times of the Holy
Roman Ivmpire of the German nation, contrasts with the
flight of the modern automobile, which while it speeds
along, overcoming all obstacles, corners, and surface
difficulties, endangers at times both the innocent pedes
trian as well as the occupants. Just as in the case of
the automobile, so in the case of German banks, public
safety and real progress are safeguarded only when the
persons in charge combine great technical skill with the
greatest virtue of persons in control, that of keeping
within bounds.
Not only private but also public interests are at staxe.
With the power and the influence of the large enterprises
grows also the responsibility of the managers, as well
as the necessity of supplanting the indiscriminate
choice of means by wise self-restraint of the leaders.
It is not without significance that a distinction is made
471
N at ion a l
M on e t a r y
Commission
between banks proper and private banking concerns, and
that the bank employees are spoken of as bank officials.
They are, in fact, employees of enterprises which by
reason of their functions and development “ can not be
regarded as purely private undertakings” 44 and toward
6
which the regulations of private law are becoming less
and less applicable.
S
e c t io n
6.
a g e m e n t
t h e
G
T
h e
a n d
r e a t
B
C
B
h a r a c t e r
D
u s in e s s
e r l in
B
a n k s
o f
t h e
B
u s in e s s
e v e l o p m e n t
o f
M
e a c h
a n
o f
.
Before describing in the next chapter the concentration
movement in German banking during the second period,
I shall attempt to characterize summarily the particular
methods of management and operations of each of the
great Berlin banks, as shown in previous chapters, in
connection with their various activities.
TH E
DEU TSCH E
BANK.
i . The distinct merit of the management of the Deutsche
Bank, which was founded only in the beginning of the
second perifld, is that from its very inception is showed a
clear insight both into the needs of the hour as well as
of the more distant future. Accordingly its policy has
been to make timely and proper provisions for these more
distant needs, so that the bank was hardly ever taken
unawares by unexpected happenings and in its actions
and policies was almost never influenced by untoward
developments. The bank was thus never compelled to
make sudden changes in its policy, dictated by the pressing
needs of the moment, and in all its activities presents a
picture of safe, quiet, and steady progress.
472
r
The
G e r m a n
G r e a t
B a n k s
2.
There are three main directions in which the abovementioned qualities of management are brought out most
clearly and brilliantly, and in which the Deutsche Bank
has become a model for German banking as a whole:
(а) The Deutsche Bank, immediately after its creation,
adopted as an integral and essential feature of its banking
policy, the systematic fostering of the deposit business
through the establishment of deposit offices, (which num
bered 74 at the end of 1908), thereby effecting the con
centration of a part of the available funds of the nation in
the credit banks for productive investments and uses.
The amount of its deposits increased from 4,800,000
marks at the end of 1871 to 74,800,000 marks in the year
1894 and reached the total of 779,500,000 marks at the
close of 1908.
(б) It was first among the banks to recognize the ne
cessity for the German credit banks, of following a syste
matic industrial policy, and immediately upon recogni
tion of this necessity it took the proper practical steps in
line with its new policy.
In the year 1897 a community of interests formed
simultaneously with the Bergisch-Mdrkische Bank in
Elberfeld and with the Schlesischer Bankverein in Breslau,
both of which had long been active in the chief industrial
districts of Rhineland-Westphalia and Silesia, secured
to the Deutsche Bank, with one stroke, a firm foundation
for permanent industrial connections in these districts.
(c) Although other banks had made scattered efforts
along the same lines, the Deutsche Bank was the first to
recognize the need of a systematic fostering of industrial
exports by the German credit banks and proceeded to lend
473
N a t i on a l
M on et a r y
Commission
its support to that policy with an energy undaunted either
by difficulties or occasional failures. Soon after its crea
tion it established branches in Bremen, Hamburg, and
London, followed later by the creation of subsidiary
companies in foreign countries or for the foreign trade,
such as the Deutsch-Amerikanische Treuhand-Gesellschaft,
(1890) the Deutsche Ueberseeische Bank (1890), the
Deutsch-Ostafrikanische Bank, {1904-5), the CentralAmerika-Bank (1905), and the Mexikanische Bank fur
Handel und Industrie (1906).
The same and even larger purposes were served by the
founding of the Anatolische Eisenbahn-Gesellschaft (1889),
the Betriebsgesellschaft der Orientalischen Eisenbahnen
(1889), the Bank fur Orientalische Eisenbahnen (1891), the
Kaiserl. Ottomanische Eisenbahngesellschaft (1903), the
Bagdad-Bahn (1903), and the Deutsch-Ostafrikanische
Bank (1904-5).
In all its activities abroad the Deutsche Bank was
governed by the viewpoint which I endeavored to express
in another part of this book (Sec. 7) in the words: “ The
skirmishes of the political advance posts are fought out
on financial ground” {Die politischen Vorpostengefechte
werden auf finanziellem Boden geschlagen). This is shown
best by the bank’s activities in Turkey, in the case of the
Anatolian and the Bagdad railways, etc.
It was the above-mentioned lines of policy which
caused the Deutsche Bank (as we shall see in the next
Part, IV) to develop a strong tendency toward con
centration, particularly by decentralizing its operations.
In this connection the bank quite frequently and suc
cessfully availed itself of opportune moments for prompt
474
a ..
The
G e r m a n
G r e a t
B a n k s
and energetic action, even at times when other banks
preferred to follow a cautious and waiting policy. For
instance, on the same day when the business and bank
ing world was shocked by the news that the Leipziger
Bank had closed its doors the Deutsche Bank announced
the opening of a branch in Leipzig.
The beginnings of concentration date back to the
seventies, when the Deutsche Bank participated in a
number of bank liquidations, which will be discussed
in detail later on. This action proved the source of
considerable profits, and, what was more important,
resulted at the same time in the gain of a large clientele
of the first order in various sections of the Empire.
It also gave the bank an opportunity to obtain a firm
foothold in southern Germany by founding in Frankforton-the-Main, one of the leading financial centers, a
branch of its own on the ruins of the Frankfurter Bankverein.
By constantly extending the network of communities
of interest and by the conclusion of friendly agreements
(F reundschaftsvertrdge) on the basis of the “ mostfavored treatment,” it steadily increased the concentra
tion and through it extended its sphere of activity and
influence. With each further phase of concentration the
bank also increased the domain of its current-account,
bill, contango, acceptance, and emission business. This
can be seen very plainly from a comparison of the
table below (p. 480), which shows the earnings from its
various fines of business, with the table showing the
progress of concentration (Appendix VII). The bank
recognized from the very beginning, even while it was
475
N a t io n a l
M on et a r y
Commission
planning large activities abroad, that the fostering of the
deposit and the regular business must always constitute
the backbone of a German credit bank, and it took no
step in its concentration development which did not
involve also a vigorous advancement in this direction.
The systematic development of its industrial policy
began with the “ bold move” of 1897. During the first
two decades, however, the bank did little or nothing
toward extending its industrial connections through
the founding or transforming of industrial enterprises.
A t that time it sought to improve these connections rather
through expanding its current-account and acceptance
business. When in 1890 it followed the example of
the other banks by founding the Deutsch-Oesterreichische
Mannesmannrohrenwerke (German-Austrian Mannesmann
Tube Works), this “ step from its straight path” did
not prove profitable.
Since the nineties, however, the German Bank has
shown but little difference from the other banks as
regards its industrial, founding, transforming, credit, and
emission business, 45 although, generally speaking, it
6
shows far less activity than the other banks in the field
of industrial promotion proper. It was only recently
that it entered upon this line of activity on a large
scale by financing, with apparent success, a number of
petroleum companies. (See above, p. 418 and following.)
It should be said that the Deutsche Bank was also in
advance of most other banks, in adhering the more
strictly to the principles of distribution of risk and
liquidity of resources the more it extended its sphere
of activity.
476
The
G e r m a n
G r e a t
B a n k s
Increases of capital for the purpose of restoring the
liquidity of its resources were never resorted to at a time
when the liabilities had already grown to dangerous
proportions as compared with the liquid assets of the
institution, but were secured beforehand, when such an
unfavorable change was to be reasonably expected as the
natural consequence of the normal growth of business.
Such increases often proved unpleasant surprises to stock
holders and speculators, causing unjustified apprehension
of decreased earnings.
As a result of the mutually interdependent business
policies described above, the Deutsche Bank has shown a
greater steadiness in the development of its dividends as
well as its surplus funds than any other bank. This is
proven by the table below, taken from the report of its
operations for 1908. Its surplus funds, as shown in its
balance sheets (exclusive of the no doubt considerable
“ silent reserves”), amount at present to 51 per cent of
the capital stock of 200,000,000 marks, the latter having
grown from an original capital stock of 15,000,000 marks
in 1870.
With reference to earnings from the current business
and the extent of its oversea business, the Deutsche Bank
takes first rank. Its acceptance account as a result of
its large oversea business often reached proportions which
were deemed excessive in some quarters. The bank
undertook the underwriting and emission on a large scale
of German state and communal loans. It had a leading
part in the emission, among others, of the loans of the
following states: Argentina, Bosnia, Bulgaria, Chile,
477
China, Mexico, Spain, and Turkey (for particulars see
Append. V and VI). It took up in their entirety the
German and Prussian loans of 1899, amounting altogether
to 200,000,000 marks.
The bank repeatedly suffered losses through the specu
lations of the managers of its branches and commandites;
thus in 1882 through the speculations of the managers of
its New York commandite, in 1897 through the specula
tions of the manager of an exchange office (Weekselstube)
of the Hamburg branch, and in 1891 through the specu
lations and embezzlements of a Berlin official, which
necessitated a writing off of 1,000,000 marks. The losses
in the current-account business have been relatively small,
and in view of the large surplus have had no appreciable
effect on the bank.
On the other hand, like the other banks, it had to
write off repeatedly serious losses on account of partici
pations and industrial business. Under this head fall
the losses due to the liquidation of its early branches in
Shanghai and Yokohama, of its commandites in New
York and 'Paris; the Argentine participations and emis
sions, the Deutsch-Amerikanische Treuhand-Gesellschaft
(German-American Fidelity Company), the Mannesmannundertaking; also losses occasioned through its partici
pations and connections in the United States, especially
with the American railways, such as the Northern Pacific
Railroad Company. The successful reorganization of
this road is due primarily to the energy and sagacity of
the Deutsche Bank.
The standing which the German mark bills attained
in foreign markets, and which constituted the first stage
The
G e r m a n
G r e a t
B a n k s
in the increasing independence of our export trade from
foreign intermediaries, is primarily the work of the
Deutsche Bank and in the second place that of the
Disconto-Gesellschaft.
The German Bank participated and as a rule took a
leading part in all the joint enterprises of the large banks,
initiated for the advancement of the foreign and espe
cially the oversea relations of Germany, as, for instance,
in the founding of the Deutsch-Asiatische Bank (1889),
the Banca Commerciale Italiana (1894), the Banque In
ternationale de Bruxelles (1898), the Schantung-Bergbau
und Eisenbahn-Gesellschajt (1899), the telegraph and
cable companies of the years 1898 to 1908, and the
Kamerun-Eisenbahngesellschaft (1906).
The following table shows in detail the development
of the Deutsche Bank:
479
National
Monetary
Commission
Statistical review of the develop
Cash, coupons,
bills, bank
End of
credits, con
calendar tango, treasury
year—
bills and
securities.
M arks.
1870 . . . .
1871. ...
1872 . . . .
1873. . . .
1874 . . . .
1875---1876. . . .
1877----_
1878_
1879---1880 . . . .
1881. . . .
1882_
_
1883....
1884....
i88S----_
1886_
1887_
_
1888_
_
1889....
1890....
1891....
1892....
1893---1894. • ■ •
189s • • • ■
1896---1897••••
1898 . . . .
Debits on current account,
Credits on advances on merchandise, etc.
current
Acceptances.
account and
deposits.
(a) Secured. (b) Unsecured.
M arks.
4 3 . 5 4 7 , 190
no. 3 7 3 .161
65,103,158
96, 4 5 4 ,424
41,546,656
7 3 . 5 7 7 . 426
92,679,843
85.896, 9 7 °
HO, 913,709
106,236,471
129,277,138
48,471. 1 9 7
68,585,210
63.938, 4 9 1
92,471,665
84,705,IOI
107,724,165
122,280,372
132,414,350
137.809,036
159,040,048
185,939,718
217,322,621
203,2 4 7 ,700
200,297,992
205,848,449
214,453,6x6
250,630,525
. 237, 181
I I ,742 ,210
27,842,441
25,184,925
17.521,326
24.555.468
35,3x2,592
41,310,408
42,776,959
56,035,000
49,490,850
64,282,435
66, 649, 4 X
0
80,060,464
85,725,6x8
91,567,601
91.567,364
95.685,222
106,626,950
139,041,615
115,164,961
86,918,718
103,378,662
105,769,429
110,958,904
2 9 5 .845. 9 5 °
287,217,599
3 5 9 .718 . 9 5 4
177.124, 9 4 4
1 5 4 ,761,993
182, 405,232
2 0 3 ,x 12,894
232,196,609
149.917.199
164, 517, X I
O
1 5 9 . 53i.662
175,801,987
208,419,928
217,646,924
234,758,079
248,828,238
252,5 5 3 . 5 4 5
247,762,714
284,869,072
2'96, 959, 088
3 1 4 .997.810
3 7 8 , 7 7 7 .898
2,352,265
22,922,080
38, 671,172
50, 727.055
56,977,289
M arks.
5,680,689
22,739,225
41,602,899
72,854,311
81, 4 3 5 .860
72,117,806
436, 939.357
444,068,368
1899 . . . .
4 53 . 8 57.134
4 7 9 , 9 4 7 .2 1 1
1900. . . .
1901 . . . .
1902 . . . .
486 ,153.982
573. 593.263
3
M arks.
2, 158, 120
7,828,140
18,293,382
X2,487, 3 7 3
17,447,623
17,091,166
16, 328, 058
13,400,531
13, 1 X . 7 9 7
7
14, 178, H9
i 6 , 3 4 9 , 525
21,235,646
19, 184, 402
28,096,181
36, 5 0 3 . 5 9 7
27, 876, 166
26,820,749
30, 173,948
42,527,464
40,600,115
34, 061, 7X1
28,086,866
29.898,397
36, 691, 151
33.983,676
46, 9 3 7 ,481
45.006,7x8
58,666,995
53 1,166,114
244, 553,839
2 5 4 ,245 ,936
264,996,941
71,060,603
i 9 °S- • • • 9 3 1 .983.038
1906. . . . 1,0 29 ,74 0,8 85
1 9 0 7 ----- 1, 0 2 4 , 5 8 4 , 7 3 7
1908. . . . 1 ,0 1 4 , 205,572
1,064,340.143
1,250,744.129
1,264,405,721
1,268 8 i 6,25 j
2
3x4,525 .40 5
3 3 4 , 315,096
382,712,175
473,181,109
7 7 , 324,
840,004,989
630 .259.107
720,476,427
789. 374,381
8 9 3 . 594,072
6 1, 99 2,2 95
72,764,087
71 ,8 06, 556
72 , 4 9 2 , 17 4
1903- • • •
1904. . . .
6 7 4 , 679.
032
7 2 2 ,1 6 3, 9 79
5 0 9 .7 9 8 ,1 3 2
5 1 5 , 6 5 2 ,1 6 3
480
283
96, 022, 215
117,181,085
160,243,675
177,054, 188
160, 947, 532
M arks.
2,463, 7 4 0
7,600,918
2 3 »5 I 2 » 0 9 0
30,269,944
37,6x4,960
42,475,164
41,038,337
38,836,891
44,032,363
48,205,643
4 5 ,834. 592
54, 216, 214
46,140,476
69,048,298
83,658,784
80,942,605
82,753,414
88,821,789
93.912,184
105,801,771
101,076,473
85,007,988
96,093.677
96,325.332
93.865,465
122,496,507
116,646,487
130,5x1,769
128,3 40,2 14
14 1, 8 83 ,55 5
141. 131.301
1 4 2 , 4 2 0 , 9 17
1 4 5 . 3 ° i . 506
179,808,067
185,083,202
197.843,098
226,110,088
26 3,537,867
231,948,426
The
G e r m a n
G r e a t
B a n k s
ment of the Deutsche Bank.
Syndicate
participa
tions.
Capital
stock.
M arks.
M arks.
830, 932
1, 738,834
|
1,894,900
1,090,216
2,494. 231
x,720,608
1, 267, 186
3,798, 1 X
3
2, 9 3 9 , 071
6,942,299
1 4 , 3 7 S, 726
J
14,740,480
16,146,000
11,3 0 2 ,2 3 9
8, 7 7 3 , 3 2 2
20,886,257
Surplus.*6
8
M arks.
15,000,000
30,000,000
45,000,000
f
j
60,000,000
|
1
29 ,7 10,209
J
75,000,000
29. 7 3 4 , 251
26,901,840
1 3 ,8 47, 627
3 1 ,6 34 ,5 6 8
\ 100,000,000
1
150,000,000
3 5 ,868,442
3 1 . 527,497
35,0 56,6 87
3 5 , 505,516
3 2 , 355.392
160,000,000
3 3 .058,426
23, 563,873
180,000,000
4 5 . 341,545
200,000,000
53,42 7,88 6
36, 841, 129
90311
9
1 23, 852,467
24,600,094
IO
IO
( 38,634,390
l 3 9 ,6 5 1, 0 2 7
4 5 . 275.637
4 6 ,4 58 ,1 29
48,049,218
49,340,262
50,642,845
55 ,28 3,29 5
76,662,853
7 8 , 3 9 8 ,560
IOO,OOO,OOO
1 0 1 ,8 3 1 , 9 x 7
103,699,003
1 1 ------ 32
9
9
5 9 , 030, 455
3 5 ,3 6 7 ,9 i i
9
481
End of
calendar
year—
M arks.
239.342,864
8
951,44S.036
8
2,891,276,883
3,765,140,668
4
5,509,149,588
5
5 .512, 5 9 6 ,634
3
6
7 . 132, 4 9 7 . 077
6
7 ,325, 231,848
6M 7,129,850,865
8, 834, 737,806
9
IO
10,484,4 9 7 ,746
10K 12,898, 9 5 3 , 5 4 0
IO
12,054,513,781
13.205,456,803
9
15,650, 971, n o
9
5
J 23,108,580
25, 162, 756
2 5 , 5 9 2 ,561
26,025,280
26,590,882
20,7 99 ,$7 3
21 ,7 9 4 ,8 52
30 ,9 38 ,12 5
33, 882 ,7 58
P e r cen t.
36,215
161,972
703,611
1,308,987
2,341,569
3 , 4 3 4 .506
4,411,581
4,857,429
5,472,928
6,646,742
7 , 7 7 6 ,419
9 ,3 5 4 ,0 5 9
13,816,131
14,381,884
1 5 , 3 0 9 , 7 io
15,748,039
16,212,6x1
16,659,769
2 3 , 5 4 9 ,785
2 1 , 49 3 ,3 1 1
Aggregate
Dividends. over duringturn
year.
15. 1 4 7 . 9 9 9 ,465
16, 180, 649,366
18,062,819,201
23 .3 8 1 ,7 9 2 , 3 5 2
28 ,1 25 ,25 0,9 88
28 ,30 4,1 26 ,9 96
1870
1871
1872
1873
1874
1875
1876
1877
1878
1879
1880
1881
1882
1883
1884
1885
1886
1887
1888
1889
1890
9
25, 559,
8
2 5 . 3 3 1 .2 7 4 ,74 3
1891
1892
8
29, 15 2,668 ,706
31,617,185,8 05
1893
1894
37,900, 537, 501
3 5 ,4 9 7, 0 8 5 ,0 15
5 6 , 7 8 3 . 4 1 5 .833
59 , 6 4 0 ,1 0 6 , 14 4
1895
1896
1897
1898
1899
1900
1901
1902
1903
66, 8 9 7 .1 3 1 . 3 3 8
7 7 ,2 0 5, 58 5, 3 47
8 5 . 5 9 0 , 5 9 4 ,109
91,611,054,053
9 4 ,4 7 0 ,7 2 1 ,2 6 8
1904
1905
1906
1907
1908
9
IO
IO
IC
IO/ 4
II
II
II
II
II
12
12
12
12
12
236, 637
3 7 , 9 i 3 . 3 6 o,
703
329
50, 770, 285,211
4 4 , 395,084,
4 9 . 7 7 3 .486,885
51,8 15 ,610,70 1
TH E
D IS C O N T O -G E S E L E S C H A F T .
The Disconto-Gesellschaft was founded at first as a
Kreditgesellschaft (credit partnership) by the later-day
Prussian Minister of Finance, David Hansemann, and in
1856 transformed into a Kommanditgesellschaft auf Aktien
(limited stock company), under the firm name Direktion
der Disconto-Gesellschaft. As we showed above, this bank,
as early as the first period (1851-1870), took a leading
part in the fostering of the current-account business and
in the underwriting and emission of German state and
communal loans and railway shares.
Until the year 1900, however, i. e., for nearly fifty
years, this company apart from commandite participations
adhered strictly to the policy of strict business centraliza
tion. It was only through the fostering and extending
of over-sea relations that it came to establish in 1900 a
branch in London. In 1901 the liquidation of the banking
house M. A. von Rothschild & Sons in Frankfort-on-theMain led to the opening of a branch in that city. During
the second period it was prominently connected, as a
member of the Rothschild syndicate, with all the under
writing and issue business conducted by this group,
especially the state loans and the railway enterprises in
Austria and Hungary, also with the issue of Russian,
Roumanian, Chinese, and Japanese loans.
It fostered industrial relations even during the first
period with relatively good success, though refraining as
a rule from speculative excesses. In so far, however, as
it permitted itself to be led into financing and managing
industrial enterprises, it had to suffer the same, and at
482
I
@FedFRASER