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SALE OF FOREIGN BONDS OR SECURITIES
IN THE UNITED STATES
HEARINGS
11EFORE T U G
COMMITTEE ON FINANCE
UNITED STATES SENATE
S E V E N T Y - S E C O N D
F1UST
C O N G R E S S
SKSSION
PURSUANT T O
S. Res. 19
A RESOLUTION AUTHORIZING THE FINANCE COMMITTEE
OF THE SENATE TO .INVESTIGATE THE SALE, FLOTATION, AND ALLOCATION BY BANKS, BANKING
INSTITUTIONS, CORPORATIONS, OR INDIVIDUALS OF FOREIGN BONDS OR SECURITIES IN THE UNITED STATES i
P A R T I
DECEMBER 18, 19, and 21, 1931 j
Printed for the use of the Committee on Financc
UNITED STATES
GOVERNMENT PRINTING OFFICE
9292$
WASHINGTON: 1931
COMMITTKK OX
FINANCE
RKKti 8MOOT. rtah. Chairman
VAT HARRISON. MIMIMJppI,
JAMES K. WATSON* ImlUiw,
DAVID A. RRKD. I'MDSjlvanla.
WILLIAM II. KING, Ct*h.
SAMtTEL M. SHORTRUKJE. Callfo?nlK WALTER R OEOIUJK. ftenruin,
JAMES COU7.KN& Michigan.
DA VII! 1. WAL8VI, U«ft«acJiu**ltii.
HENRY W. KKYES. New IlAn>s«hirtv
ALJtEN W, I.IARKLKY, Krntncfcj.
Ill RAM RIXfillAtt. Connrciiciit.
TOM CONNALLY, Tnai
UOttERT M. LA ruLLETTE. JR, Wi«t*n*irt.THOMAS V. OORB. Oklahoma.
JOHN THOMAS, Idaho.
ES>WARt) 1*. COKTKJAN. Cclnr*>I<t.
WESLEY L. JONES, WaaJiIftfftoti.
CORDELL HULL, Tennr**^.
JESSE II. METCALE,fthod«lilAod.
It
ISAAC M. STEWART, Ctcrk
C O N T E N T S
Testimony o f —
Otto H. Kiilin, member of the banking house of Kuhn, I/oeb & Co.,
New York, N. Y
Thomas W . Lamont, of J. P. Morpan & Co
Charles E. Mitchell, chairman National City Bank
m
117
2
63
SALE
OF
FOREIGN
BONDS
UNITED
OB
SECURITIES
IN
THE
STATES
F R I D A Y , DECEMBER 18, 1931
U N I T E D STATES SEXATK,
COMMITTEE ON F I N A N C E ,
Washington-, D. C.
The coininittcc met at 10 o'clock a. m., pursuant to call of the
chairman, in the committee room, Capitol, Senator Reed Smoot
presiding.
Present: Senators Smoot (chairman), Watson, Reed, Shortridge,
Couzens, Keycs, Bingham, La Follette, Thomas of Idaho, Jones,
Metcalf, Harrison, King, George. Walsh of Massachusetts, Barkley,
Connally, Gore, and Costigan.
Present also: Senator Johnson of California.
The C H A I R M A N . The committee will give their attention. We will
>roceed with the business before us. I wish to present Senate Resort ion 10, introduced by Senator Johnson on December 10, 1930,
which was reported by Mr. Townsend with an amendment; was considered, amended, and agreed to; and I ask that the resolution be
made a part of the record, as follows:
{
Retailed, That the Finance Committee of the Senate be, and It is hereby,
authorized, empowered, and directed to investigate the sale* flotation, and aliocation by banks banking institutions, cori>oratious, or individuals of foreign
bonds or securities in tbe United States, and particularly to investigate and
ascertain—
(a) Whether or not any banks, banking institutions, corporations, or individuals engaged in the banking business in the United States have, as representatives or flscal agents of any foreign governments, or otherwise, sold,
floated, or allocated in the United States securities, evidences of indebtedness,
or bonds of any foreign government; and if so, at what prices such securities,
bonds, or other evidences of indebtedness have been sold or allocated, and what
sums, if any. have been received by the individual, corporation, or bank so
selling or allocating as percentage, bouun, remuneration, or commission for
such gale or allocation.
(b) H i e amount of foreign government 1 securities, bonds, or other evidence* of indebtedness held by bank.*, corporations, or individuals doing a
banking business in the United States, including those securities, bond*, or
other evidences of indebtedness issued not only by foreign governments but
by foreign governmental subdivisions and foreign municipalities, together
with the names of the owners or holders of such foreign securities, bonds*, or
other evidences of indebtedness, the time and manner of acquisition, and the
prices paid therefor.
(c) The amount of foreigu securities or bonds or other evidences of Indebted*
ness issued by foreign industrial associations or corporations owned or held
by banks or corporations or individuate doing a banking business in the United
States, together with the names of the holders thereof and the manner and
circumstances of their acquisition.
( d ) The terms and conditions upon which all of the said securities,-bonds, 4>r
otlier evidence** of indebtedness have been acquired, and the amounts paid
therefor by anr of the said banks owning or holding them*.
SALE OF FOREIGN BONDS OR, SECURITIES
2
Tliis investigation shall be made at the earliest possible moment, and the
Finance Committee, at the conclusion thereof, shall report its findings to the
Senate, the said report and said investigation to be the basis of any legislation
deemed necessary relating to the said subject matter.
For the purposes of this resolution the said committee, or any duly authorized
subcommittee thereof, is hereby authorized and empowered to hold hearings
and to sit and act at such times and, at such place or places as it may deem
necessary; to employ clerical and other assistants; to require by subpoena*or
otherwise the attendance of witnesses and the production of books, papers, and
documents;. to administer such oaths and to take such testimony as the said
committee or any subcommittee thereof may deem necessary; and to do
such other acts as the said committee or subcommittee may deem essential in
the matter of the said investigation.,.
,
,
The said committee or a subcommittee authorized by it may employ stenographic services to report the said hearings, the cost of said stenographic services shall not be in excess of 25 cents >peri one hundred words.
The chairman of the committee or any member thereof may administer oaths
to witnesses. Every person who, having been summoned as a witness by
authority of said committee or subcommit.ee, willfully makes default, or who,
having appeared,1 refuses to answer any question pertinent to the investigation
hereby authorized, shall be held to the penalties provided .by section 102 of the
Revised Statutes of the United States.
For the purpose of this investigation the expenditure of $5,000, to be paid
out of the contingent fund of the Senate on vouchers approved by the chairman
of said committee or a subcommittee thereof, is hereby authorized.
The CHAIRMAN. I S Mr. Lamont'present ?.
Mr. LAMONT. Yes, Mr. Chairman.
The CHAIRMAN. If you will hold up your right hand—you clo
solemnly swear that the evidence you willgive in this hearing before
the committee will be the truth, the whole truth, and nothing but the
truth, so help you God.
M r . LAMONT. I d o .
The CHAIRMAN. Just
take a seat there at the center of the table
opposite the shorthand reporter.
TESTIMONY OF THOMAS W. LAMONT, OF J. P. MORGAN & CO.,
NEW YORK CITY
The CHAIRMAN. Mr. Lamont, you have read the resolution before
rhe committee, have you not ?
Mr. LAMONT. I have.
The CHAIRMAN. The committee will be very pleased, indeed, for
you to present whatever information you have covering all the requests made in this resolution, as best you can; and any member of
the committee has a perfect right to interrupt you at any time, to
ask any question he desires to ask. If you are prepared now to
proceed, Mr. Lamont, you may do so.
Mr. LAMONT. Mr. Chairman, I have no formal data to present at
this moment. I had only a little over a day's notice as to the importance of coming down here, and while I have ample notes with which
to reply to Senators' inquiries, the actual tables or data or anythingof that kind I should wish to check up and complete upon my return1
to New York, so as to be sure we arefilingwith you exactly wThat you,
want to have. But upon obtaining exact information oil that point,:
we shall be very glad tofilewith you very full data on all the points.
Senator EEED. SO that we may. get this in orderly fashion,, let me
ask: You are a member of J. P. Morgan & Co., are you not?
M r . LAMONT. I
am.
SALE OF FOREIGX BONDS Oil SKCUIUTIES
3
Senator REED. And have been for how long?
Mr* L A M O X T . For a little over 2 0 years.
Senator REED. Will you glance at the resolution which lies before
'you and tell us as best you can what loans of foreign governments
your firm has floated since the armistice.
Mr. LAMOXT* May I read from my notes. Senator Reed?
Senator REED. Yes; if you-please.
Mr. L A M O X T . For the Argentine Government in long-term loans
$150,800,000.
The CHAIRMAN. Mr. Lamont, in order to SAVE time, let me ask:
Are you in position also at the same time you are giving us information about securities or bonds, to state at what price such securities,
bonds, or other evidences of indebtedness were sold or allocated?
M r . LAMOXT. Y e s .
The CHAIRMAN. I
think if you have that data with you it would
jbe a good thing to furnish it at the same time.
Mr. L A M O X T . Well, Mr. Chairman, that last is a pretty large order*I can give the data that we have coming from our office. Of course
as to tlie actual distribution all over tho country, the figures on that
,we do not have because we are not retail distributors.
The CHAIRMAN. But you have thefiguresthat you sold them for?
Mr. L A M O X T . Oh, yes; we have all that information;
Senator REED. Let us take the Argentine loan that you have just
mentioned: What spread did you make 011 those loans'?
Mr. L A M O X T . The spread, Senator Reed, on the Argentine loan
varied from 3*4 to 4 per cent, the gross spread.
Senator REED. And out of that of course yOu had some expenses
to pay?
Mr- L A M O X T . Olij well, of course in order to make that statement
at all intelligible 1 should have to break that spread up, because
that was the total of the expense of distributing all over the country
through bond houses, through houses other than our own.
Senator REED. That is not the spread that your own firm received, between your purchase price and your first sale to the bond
group?
M I \ L A M O X T . Oh, 110, but quite the contrary. For instance, in
the Argentine loans our firm received no managing commission
whatsoever. A number of institutions were associated with us in
the original group purchase, in which the per cent varied from 1 per
cent to V/2 per cent.
Senator GORE. Could you give us the number and the names of
those institutions, cither how or later 011?
Mr. L A M O X T . I can later on in every case, and will do so. I
could not give you that data now because I have not got it. here.
Senator GEORGE. Mr. Lainont, the total amount of Argentine bonds
you have given us included all bonds you handled?
Mr. L A M O X T . It includes all long-term bonds handled.
Senator GEORGE. All long-term bonds handled?
Mr. L A M O X T . Yes; for the Argentine.
Senator GEORGE. I thank you.
Mr. L A M O X T . When I file this data I can continue, Senator Reed,
with the break up of this gross spread, so as to show in what maimer
it was distributed among the various distributing groups that
handled these bonds throughout the country.
4
SALE OF FOREIGN BONDS OR, SECURITIES
Senator REED. All right, I will thank you to do that. But as I
understand your answer, neither you nor your firm received any
commission as managers or otherwise.
Mr. LAMONT. In the case of the Argentine bonds we received
none.
Senator SEED. What other foreign bonds have you distributed?
Sir. LAMONT. I will go on now to the others.
Senator REED. I will thank you to do so.
Mr- LAMONT- There were three Australian issues
Senator GORE (interposing). Just a moment. Could you give us
now the number of investment houses throughout the country that
handled those bonds to thefinalpurchasers?
Mr. LAMONT. I can not do that now, but I can furnish you in
due course with the number of houses that were in our distributing
syndicate.
Senator GORE. And then can you give us the number of individual purchasers through those houses?
Mr. LAMONT. N O ; we have no data on that whatsoever.
Senator GORE. On some of your sales you do have that information, have you not?
Mr. LAMONT. N O ; we do not sell directly to the investor ourselves.
Senator GORE. The reason I asked you on that point is that I have
had read to me Mr. Morrow's article published in a magazine, in
which he accounted for distribution through 24 of your investment
houses, or those you operated through, giving the number of individual purchasers of the different securities.
M r . LAMONT. Y e s .
Senator GORE. But
you are not able to furnish that information
generally?
Mr. IJAMONT. Not generally. I recall that article very well, and,
it was a very illuminating one.
Senator GORE. It was, indeed.
Mr. LAMONT. And he took especial pains, Senator Gore, to secure
data as a basis for that article. Now, it may be that Mr. Mitchell,
of the National City Bank, who is to follow me, and one of whoseorganizations has been very active in the distribution of bonds, will?
be able to give you some data on tliat% But we have never gone into
that Beyond the particular situation tfiat Senator Morrow described.
Senator W A L S H of Massachusetts. How many distributing houses
are there in your syndicate, I mean approximately ?
Mr. LAMONT. I should say on A large issue there are several hundred, and it is possible it might go up to 1,000 in the case of some
issues. But that will appear when we file the actual number in each
issue.
Senator GORE. In the case of the Anglo-French loan, it was 2,200,
I believe.
Mr. LAMONT. Yes, I think that was so. But that was an unusually
large syndicate. You see, the amount involved was $500,000,000—
larger than any other foreign government loan ever placed in this
country, being the joint promise to pay of Great Britain and France.
Senator REED. Now, Mr. Lamont, mil you go on to the next item?
Mr. LAMONT. The next item is Australia. The total was $lG5r
000,000 of long-term bonds.
5
SALE OF FOREIGN BONDS OR, SECURITIES
Senator WATSON. Before you go to that. Mr. Lamont, will you permit me to inquire when you handled the last bonds for the
Argentine?
Mr. LAMONT. Certainly, Senator Watson. It was April 2 8 , 1927.
Senator WATSON. What was the amount of that issue?
Mr. LAMONT. The amount of that issue. Senator Watson, was
§21,200,000.
Senator JONES. I understood you to say that you got no compensation for handling these Argentine bonds or anv part of them.
Mr. L A M O N T . Ko, Senator Jones, that would not be quite a correct
way to state it. I said that we got no managing commission for
organizing and managing the group that distributed them. But
we had a "share in the various groups which distributed them, and
in that way we received certain compensation, but simply pro rata
on the same basis as other banks.
Senator JONES. But in case of some bonds, you did receive a managing commission ?
Mr. LAMONT. In the wise of some issues, we received a small managing commission, as we are going to tell you about here.
Senator GORE. You say your last sale of bonds was when?
Mr. L A M O N T . In the case of the Argentine it was April 28, 1927.
Senator Gont\ Oh.
Mr. LAMONT. Oh, yes; Senator Watson's question was dim-ted to
the Argentine.
Senator GORE. But you have made other loans since?
M r . LAMONT. O h , y e s .
Senator GORE. 1 supposed so.
Mr. L A M O N T . No, Senator Reed; you asked me to go ahead. For
Australia, $105,000,000 long-term bonds. We received a managing
commission of one-eighth of 1 per cent in connection with those
issues, and the rest ofthe spread was divided up as the record will
show. It would take a great deal of time if I attempted to divide
it all up here, but 1 can do so if you like.
Senator REED. N O ; we have so many witnesses I will not ask you
to go into all of those details at this time.
Mr. L A M O N T . We will furnish you with complete data on that.
Senator COSTIGAN. Are you prepared to state your compensation in
full in each instance, not* merely your managing compensation but
the total compensat ion ?
Mr. L A M O X T . We are prepared to state it in a form from which
it can be worked out. In other words, we have prepared these tables
in percentage of cost: that is, in accordance with the contracts entered
into with the particular governments. Anybody can reduce it to
dollars and cents if he sees fit.
Senator REED. What was the maximum spread in the case of the
Australian loan ?
Mr* L A M O X T . The maximum spread was 3 per cent. It varied
from 2 t o 3 per cent, depending upon market conditions.
Senator REED. All right.
Mr. L A M O X T . Now, next is Austria, a total of $50,000,000.
Senator GEORGE. Would you be good enough to give the dates of
the first transaction and the last transaction?
Mr. LAMONT* In the case of the Austrian loan?
Senator GEORGE. In all cases.
6
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. In that event we will go back: In the case of the
Argentine loans, which I testified about (the first date in this postarmistice period that Senator Reed indicated), was June 2, 1925,
and the last date, as I have already told you, was April 28, 1927.
In the case of Australia, the first date was July 16, 1925, and the
last date w^as May 8,1928.
Now, we come to Austria: There were two loans, aggregating
$50,000,000, as I have already indicated. The first was June 11,
1923, and the second was July 15, 1930.
Senator GORE. What was the amount of the last loan ?
Mr. LAMONT. The amount of each one was $25,000,000.
; Senator GORE; Thank you.
Senator COUZENS. Have you indicated the spread in that case?
Mr. LAMONT. I N the Austrian case ?
Senator COUZENS. Yes.
Mr. LAMONT. In the case of the first one it was
per cent, and
in the case of the second one it was 4 per cent, the gross spread.
Senator REED. Was there any managing commission?
Mr. LAM'ONTJ' In the case of "the first loan there was none whatsoever. As a managing commission in the case of the second loan it wTas
one-fifth of 1 per cent.
Senator BINGHAM. Did I understand you to say that the gross
spread included all profits of all concerns handling them up to the
final purchase by the ultimate investor?
Mr. LAMONT. That is it. Of the original group and tlie further
certain groups, and so forth, who purchase these bonds, from the
Government, we will say, at a certain figure, and I'etail them finally
to the investor at another figure, the difference represents the gross
spread out of which all commissions, all expenses, all advertising,
all profits and everything of that land, must be deducted.
Senator BINGHAM. Are there more than two groups for it to be
divided among?
Mr. LAMONT. In some cases there are three groups.
Senator BINGHAM. That is, do you mean the original syndicate?
Mr. LAMONT. The original purchasers and sometimes an intermediate banking group, and then thefinalsyndicate, depending upon
the conditions prevailing at the time. Sometimes as a matter of
safety if the issue can not be handled immediately between the time
of purchase and the time of distribution, the risk is distributed among
the members of an intermediate group.
Senator THOMAS of Idaho. In the listing of the spread wouldn't
it be well to show in the record what you paid the Government for
the bonds?
Mr. LAMONT. Oh, certainly that shows in this record that I have
here. For instance, in the case of one Australian bond issue the
price was 98 and the total spread was two and a half points, which
as you will see would make the price that the Government received
95%. Thatwill all appear in this record that we have.
Senator BARKLEY. Let me interrupt for a moment in order to
get my mind clear as to the difference between your compensation,
in wrhicli you share in prorata percentage with the other institutions,
and what you call your managerial compensation. <In some cases, as
I understand it, in addition to-sharing the compensation received by
7
SALE OF FOREIGN BONDS OR, SECURITIES
the other institutions, yon have an item which you call a manager's
compensation.
Mr. L A M O N T . Quite so.
Senator B A R K L E Y . Which is in addition to that prorata compensation, and which I assume is charged for the responsibility and
effort of handling the whole issue.
Mr. L A M O N T . For the responsibility, yes, and the actual work
involved, which is very heavy and very expensive in itself, in managing such a syndicate in these large instances. To tell you the truth,
gentlemen of the committee, I am a little mortified in indicating the
very limited amount of managing commissions that we have received.
I ain afraid I may invoke the sympathy and pity of the committee
too much.
Senator BARKEEY. Why would that compensation apply in some
cases and not in others when you assume the original responsibility
in all cases?
Mr. L A M O N T . It would depend upon the circumstances in the case
of any particular issue. Where one could see that the amount of
managerial work involved was going to be very heavy you would
arrange for yourself a fraction of a commission to try to cover that.
In a case wfiere the work was not going to be so heavy you might
omit it entirely. In the case of the first Austrian loan, there as a
matter of principle, we declined to take any compensation because
that was considered more or less in the light of a public duty, if
we can call it that. Austria was on the verge of collapse, and* this
loan had been arranged by the allied nations of Europe and a guaranty given it by certain nations* It was for the purpose of trying
to rehabilitate the economic situation of a people suffering froni depression and almost in despair, and we made a very extraordinary
endeavor to have the expense just as light as possible.
Senator B A R K L E Y . But you have no such rule to apply generally?
In other words, each case stands upon its own bottom?
Mr. L A M O N T . Yes; each case stands upon its own merits.
Senator GORE. That was one initiated under the League of Nations?
Mr. L A M O N T . The finance section of the league Nations worked
out the plan, yes. Xow, shall I proceed, Mr. Chairman?
The C H A I R M A N . Yes: if you please.
Mr. L A M O N T . We have got through the A's, namely the Argentine,
Australia, and Austria. Now, we come to the B?s, and first is Belgium. We issued a total of long-term bonds for Belgium of $260,000,000. The first one was June 1,1!>20, and the last one was October
23,1926.
Senator GEORGE. Did you show the houses that handled all the
securities for those countries that you have named, or do vou know
that?
Mr. L A M O N T . Well, the data that we will furnish, Senator
George, will show exactly what houses were associated with us in
the original group,- what lrbuses, if any, were associated with the
original group.
Senator GEORGE.- I fchould have said your syndicate. Did they
have other agents here who also handled some securities?
8
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. We were not agents in the ordinary sense of that
word. That is, our house had no fixed agency arrangements with
any of these governments. They were all free to go elsewhere at
any time they liked. But as a matter of fact, practically speaking
as long as we were serving them acceptably, just as in the case of
the old family doctor, they stuck to their bankers.
Senator GEORGE. And so far as Belgium was concerned, it dealt
entirely through your house?
Mr. LAMONT. Belgium dealt entirely through our house and the
Guaranty Trust Co. It was a so-called joint account. And in the
same way with other issues, as will appear from the data we give
you, various nations dealt with us and the National City Bank on
joint account. But that will all appear on the record here.
The CHAIRMAN. Have you that in your record there?
Mr. LAMONT. Yes; but I should like to make the point if I may
that we have no fixed agency arrangements with any of these governments, not even with the British, the French, or any of them.
They are as free as the air to go elsewhere as they may like. t
Senator GORE. In January, 1915, you made arrangements with the
British Government? You were the fiscal agent of the British
Government as per an arrangement of January, 1915.
M N LAMONT; Of what year?
Senator GORE. 1915.
Mr. LAMONT. That arrangement I think, Senator Gore, that you
allude to, was of a different order. We had a commercial agency
arrangement, so called, under which we undertook in behalf of the
British Government to purchase all the great bulk of their supplies
in this country, their supplies of grain and provisions, and raw
materials and all that sort of thing, because they wanted on obvious
grounds an orderly conduct of the matter to have their perfectly
enormous purchases in this country during that period, before we
got into the war,* handled as promptly and expeditiously as possible.
Senator GOKE. But that did not relate to the sale or flotation of
securities ?
Mr. LAMONT. Oh, no. We did float more than one loan for the
British Government, but each loan stood on its own bottom as it
came along.
Senator WALSH of Massachusetts. Did you not enter into a writteii agreement with those countries?
Mr. LAMONT. Oh, in the case of any particular loan wTe enter into
what is called a loan contract, yes, in the case of every single issue.
Senator WALSH of Massachusetts. But up to that time they are
free to go to any banking house they choose to in order to float the
loan, are they ?
Mr. LAMONT. Yes; and after that particular issue is completed
they are free to go anywhere they please again, v
The CHAIRMAN. Can you, Miv Lamont, in the case of each one of
these countries, give us the length of time in which a bond issue was
to run, from the date of issue to the date of payment ?
Mr. LAMONT. Yes. And even in the case of this rough table which
I had prepared for my own use here to-day I have indicated not only
the total amount of the original issue, but the amount of bonds stiu
outstanding under that issue. In the case of several of these issues
the entire amount has already been retired. For instance, in the
9
SALE OF FOREIGN BONDS OR, SECURITIES
case of the Belgian, the first two issues aggregated $80,000,000 and
have already been completely retired. In the case of these other
issues, the operation of the sinking fund, which, of course, is a very
important point in our scheme of things in protecting the American
investor, has resulted in a reduction by a material amount of the
bonds outstanding. You can take the case of the first Austrian issue,
which was $25,000,000, and the operation of the sinking fund means
that the amount outstanding has been reduced to below $18,000,000.
The C H A I R M A N . Will that all appear in the statement that will go
in the record?
Mr. L A M O N T . That will all appear in the statement.
The C H A I R M A N . Very well. You may proceed.
Senator COUZENS. Except the spread.
Senator L A FOLLETTK. Except the spread or where you receive*!
any managerial commission.
Mr. L A M O N T . In the case of the Belgian loans the total spread
varied from 6 points, or (5 per cent, in the early loans when the
market was very, very difficult, down to 4 points in the last loan.
Senator L A FOI-LETIE. Did you have any commission there, Mr.
Lamont?
Mr. L A M O N T . I am now looking that up. In the case of the first
two Belgian loans, Senator La Follette, we did not have any commission. In the case of the third loan we had a commission o^ threetwentieths of 1 per cent
The C H A I R M A N (interposing). Was that the second loan?
Mr. L A M O N T . The third loan. As I have said, in the first two
loans we did not have any managing commission. In the case of the
fourth loan we hud a commission of two hundred and twenty-five onethousandths of 1 per cent. In the case of the fifth and sixth loans
we had, in each instance, a commission of one-fifth of I per cent. I
think thatfinisheswith Belgium.
Senator SHORTCIDGE. Did you give the total amount of the issues
separately?
Mr. L A M O N T . Yes; the total amount was $ 2 6 0 , 0 0 0 , 0 0 0 , distributed
among five issues.
The'CHAIRMAN. Y O U may proceed.
Mr. L A M O N T . Next comes Canada with $105,348,000.
Senator W A L S H of Massachusetts. At what time?
Mr L A M O N T . April 2 5 , 1 9 2 2 . Well, now, there seems to be a little
discrepancv here which will have to be straightened out. The large
table that r I have says $100,000,000: and the small summary that I
have says $105^48.000. But that was the only Canadian long-term
issue. ffhe gross spread was 2*/2 per cent; managing commission,
none.
Senator L A FOIXETTE] What was the last date?
Mr. L A M O N T . There was onty one issue, and that was April 2 5 ,
1922. We apparently have one issue for Chile—but, before we leave
Canada
Senator SHORTRIDGE (interposing); What was the life of the Canadian bonds?
Mr. L A M O N T . The life of TH6 Canadian bonds meant that they ran
from 1922 to a maturity in 1952, a 30-yfcar bond.
Senator COUZENS. AVhat is your distinction between a short-term
bond and a long-term bond!
10
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. My general distinction is this, Senator Couzens.
that a long-term bond is the form of obligation that investors all
over the country are seeking to obtain, in order to have a stable
rate of interest over a long period of time. Short-term notes or
something of that kind, which I will allude to briefly later on, have
to do more with investments for banks, such as short-time paper
that revolves quickly and matures.
Senator COUZENS: In the matter of years or months, what is the
distinction between long term and short term? For instance, say
there are bonds issued for 5, 10, or 20 years, what is the general
distinction when you refer to them as long-term or short-term bonds?.
Mr. LAMONT. That would probably vary according to the opinion
of various experts. I suppose we would call a long-term issue anything from 10 years up. It would be unusual to have any issue
maturing between a 5 and 10 year maturity, and five years or under
we would call a short-term issue. I think that in general would be a
proper distinction.
Senator COUZENS. None are issues serially but all forfixedperiods,
do you mean ?
Mr. LAMONT. That is almost always true. But the serial effect
is reached by means of the operation of the sinking fund.
Senator COUZENS. Oh, yes; I understand that, but I meant in the
hand of the owner they are not serial.
Mr. LAMONT. Not serial as a usual thing.
Senator KJNG. D O I understand that the interest rates begin at
the date of issue' or only after the bonds have actually been sold?
Mr. LAMONT. Interest dates arefixedin each instance by contract.
That is to say, suppose we were issuing a bond in the middle of
September, usually the interest date would be fixed as of the 1st of
October and the 1st of April; and the investor would, of course*
whenever he paid for the bond, receive any accrued interest, if there
was any.
Senator COUZENS. May I ask at that point: Does the agency that
sells these securities act as trustee also for the sinking fund?
Mr. LAMONT. The issuing house or some trust company that may
be designated acts as trustee for the sinking fund.
Senator COUZENS. Obviously there have been some difficulties in
this country, where the issuing house also acts as trustee for the
sinking fund. Is Jthat a wise practice, for the issuing house to act
as trustee for the sinking fund ?
, Mr. LAMONT. I had not heard of the instance you allude to. In
the case of our house I venture with some lack of modesty to say
that it is a very wise practice.
Senator COUZENS. There have been cases that have come to my attention where the issuing house also was trustee for the sinking
fund, and they diverted the sinking fund for other purposes. I am
not saying that it applies to your house or to any other; house.
M r . LAMONT. O h , n o .
Senator COUZENS. I mean
that there is a hazard there, that the
investor does not sem to be adequately protected.
Mr. LAMONT. I had hot heard of those instances. Of course, we
must always presume that the investor^ who has a growing desire
for information and intelligence on these points, will buy his bonds
from a house whose reputation is of high standing, or of a bank;
11
SALE OF FOREIGN BONDS OR, SECURITIES
Senator REED. Needless to say that has never happened in the case
of any of your issues.
M r . LAMONT. O h , n o .
Senator COUZENS. Tell
us why you think it is a wise policy to have
the issuing house also the trustee of the sinking fund?
Mr. L A M O N T . Well, I do not know just what is the answer to that.
It is the usual practice. It has been the banking practice for generations, both in this country and abroad. The house that issues bonds
is supposed to be more closely in touch with the conditions existing
in the country of issue, and it is the natural thing that the operation
should be centered there. You take the case of two outstanding
German Government issues which our house handled—the Dawes
plan loan in 1924 and the Young plan loan in 1930—and there has
been some question at times in the public mind whether the German
Government was depositing promptly and fully the amounts in the
case of those two issues with its sinking fund agent. We happen to
have knowledge that it is and always has. That is a very valuable
tiling, for some one in authority to know and to be able to inform
legitimate inquirers as to the situation: you see.
Senator COUZENS. I S there any limitation placed upon the agent
as to how he may invest that smiting fund?
Mr. L A M O N T . Oh, certainly: that is all prescribed in the contract
between the Government ancf the issuing house. Of course, the sinking fund in America is used very largely for the retirement from the
market of outstanding bonds, just as t have quoted in this case of
Austria.
Senator COUZENS. And in some cases there may be a very large
profit to the sinking fund by buying their own securities below
market value.
Mr. L A M O N T . In some c&ses that is possible.
Senator ICINO. And that enures to the issuing company.
Mr. L A M O N T . It enures to the issuing government. Cut in the
case of these European governments and cases of that kind, I do not
think it has been very marked. I could get information on it,
probably.
Senator COUZENS. Would it not be of a very marked nature under
existing bond market conditions?
Mr. L A M O N T . It would be if foreign governments were able to take
advantage of it.
Senator COUZENS. Might not the sinking fund take advantage of
this depre&sed market on bonds ?
Mr. L A M O N T . I suppose if the sinking fund contained a provision
that would enable the Government to go into the open market and
buy the bonds it would.
Senator COUZENS. Well, isn't that true?
Mr. L A M O N T . N O ; it does not always contain such a provision.
Sometimes it does provide that bonds "shall be retired by lot or by
drawing. Mr. Mitchell, I take it* knows more about tkese thingV
than I do. But that is the way it works.
Senator W A L S H of Massachusetts. Are the contracts which you
make with these governments submitted to the State Department for
approval?
Mr. L A M O N T . Not the contracts.
12
SALE OF FOREIGN BONDS OR, SECURITIES
Senator W A L S H of Massachusetts. What is your relation to the
State Department about these foreign loans?
Mr. LAMONT. I would answer that question by saying this. In
1920 President Harding requested bankers in New York, and I think
also in Chicago, to come to Washington, and explained to them that
before they undertook to make any issues of foreign government
bonds he would like to'have it arranged with the State Department
that it should have cognizance of such projected issues, ana the department would have the privilege, if they so desired, of intervening
in any particular instance. The bankers all acquiesced in such an
arrangement. So far as our particular house was concerned there
was nothing new in that matter. We had always informed the State
Department, by word of mouth or however it might be done, of any
foreign issue.
Senator W A L S H of Massachusetts. Has that practice continued up
to the present time?
Mr. LAMONT. Yes ; although in recent years Washington has not,
so far as I have been able to judge, made so much of it.
Senator W A L S H of Massachusetts. In the case of Cuba, is there any
different arrangement with the State Department? Don't you have
to get their approvalfirst?
Mr. LAMONT. I do not believe I can answer the technique of that,
Senator Walsh. Of course, the relationship between the United
States Government and Cuba as set forth in the so-called Piatt
resolutionSenator W A L S H of Massachusetts (interposing). The Piatt amendment, you mean.
Mr. LAMONT. Yes; the Piatt amendment—always comes in. But
we have been very careful in every instance to notify the State DeSartment, so that I would not make any distinction in the case of
!uba.
Senator BINGHAM. Isn't it true that the Piatt amendment requires
the Cuban Government to secure,the approval of the American Government before it canfloatany foreign loans?
Mr. LAMONT. I think you are right on that.
Senator W A L S H of Massachusetts. Is it not more acute in the case
of Cuba?
Senator BINGHAM. Yes; it is under our own law.
Senator COUZENS. Have you any record of where the State Department has issued an affirmative letter on these proposed loans,
affirming the sale of them?
Senator REED. You mean approving the issue?
Senator COUZENS. Yes.
Mr. LAMONT. They do not do it in affirmative form. They have
done it heretofore in negative form. That is to say, our practice has
been to call up the Secretary of State or one of his assistants and say
that" we have under negotiation with, for instance, the Belgian
Government, an issue of $25,000,000, which we propose to make on
or about such and such a date, and would you be good enough to
inform us in advance as to whether the department interposes any
objection. And we confirm that in writing, and would probably
receive from the State Department in the course of a few days, after
it has consulted with the Treasury Department and the Department
13
SALE OF FOREIGN BONDS OR, SECURITIES
of Commerce, a simple letter stating: M We have received your letter
of such and such date and do not desire to interpose any objection."
Senator COUZENS. Is your understanding of that matter what
Senator Glass generally means when he speaks of the State Department O. K.ing these foreign loans t
Mr. L A M O N T . I would assume that that is what Senator Glass has
in mind, on the ground that the absence of objection constitutes a
blanket approval, which, of course, we have never seen, with all due
respect to Senator Glass.
Senator W A L S H of Massachusetts Do you know whether the representatives of these countries consult the State Department first before they take up the matter with you?
Mr. L A M O N T . I can answer that in a general way. I assume that
thejj do not, because they rely upon us to do that. It is not a diplomatic matter; it is a financial matter.
Senator GORE. They have never disapproved of more than two
proposed loans, have they ?
Mr. L A M O N T . I do not believe I can answer that.
Senator GORE. The potash proposition to France and the.Brazilian
Government with regard to coffee?
Mr. L A M O N T . Well, you have got that more clearly in mind than
I have, Senator.
Senator GORE. I do not think they did.
Senator CONNALLT. Regardless of how it is construed, when you
advise the department that you want to float these loans and it savs
they have no objections
*
M r . LAMONT. Y e s .
Senator CONNALLY. Y O U
construe it as being all right and they
go ahead ?
Mr. L A M O N T . Senator, we construe simply this: We construe that
there is no point of high politics involved which is of such great
importance as to lead the Government of the United States to Slink
it unwise for us to have such initial negotiations.
Senator B A R K L E Y . In case the State Department registers an objection the loan is notfloated,is it?
Mr. L A M O N T . Oh, certainly not.
Senator B I N G H A M . Do you, in your advertisements, advertise the
fact that this loan has been approved by the United States Government?
M r . LAMONT. W e d o n o t .
Senator COUZENS. D O you know of any house that does?
Mr. L A M O N T . I have not know any such, Senator Couzens.
The C H A I R M A N . Mr. Lamont, did Brazil make an application
to
you for a loan and it was disapproved by the Treasury Department
or the State Department?
Mr. L A M O N T . I will answer that, Senator Smoot, by saying that
we have never had any financial relations with the Brazilian Government, and so thev have never made application.
The C H A I R M A N . Have you with Santo Domingo?
M r . LAMONT. N o .
Senator REED. D O YOU
interpret the absence of objection as being
in any sense affirmation of the Stafe Department that the loan is a
secure one or that the credit is good?
02928—31—PTl—:—2
14
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. Why, Senator Reed, in no sense have we ever made
such construction.
Senator REED. They do not undertake to pass upon the solvency or
the continued security of the loan?
Mr. LAMONT. They have never given to us any indication of any
such authority.
Senator GORE. I think the State Department has positively disclaimed any such implication or responsibility.
Mr. LAMONT. NO; they made it plain, as I said to the Senator on
my left a moment ago, that it was only a question of some high
politics involved about which the bank would be presumably in
ignorance but which affected the interests of the United States.
Government.
Senator REED. They have never presumed to pass upon the security
of the loan?
Mr. LAMONT. Oh, never. Never. But I suppose in the case of all
governments or small countries, if they had any special information
as to pending revolutions or anything like that, they would give a
friendly worn to the inquiring house. But as for any affirmatory
investigation of the kind you mentioned, never.
Senator HARRISON. Mr. Lamont, has your house had anything to
do with the Nicaraguan bonds, or were they all witli the house that
issued the first bonds many years ago?
Mr. LAMONT. We have never had anything to do with the Nica
raguan bonds.
Shall I proceed with this summary?
The CHAIRMAN. Yes; proceed.
Mr. LAMONT. I was going back to Canada, because under Canada
there were two very small issues of Province of Manitoba bonds,
aggregating a little over $5,000,000, and both of them have matured
now.
Senator BINGHAM. That is the discrepancy in that figure of
$5,000,000.
Mr. LAMONT. Oh, I guess it is. You are right. Thank you.
Senator REED. Those bonds have been paid, have they ?
Mr. LAMONT. Those bonds have been paid; yes.
Now we come to Chile. We had one issue of bonds on February
15, 1921, all of which have been redeemed.
Senator L A FOLLETTE. What was the amount?
Mr. LAMONT. The amount was $ 2 4 , 0 0 0 , 0 0 0 , Senator.
Senator SHORTRIDGB. What rate of interest?
Mr. LAMONT. They were 8 per cent bonds.
Senator COTJZENS. And the spread ?
Mr. LAMONT. The gross spread was 5 per cent. The managing
commission was nothing.
Next we come to two issues of Republic of Cuba bonds, aggregating $59,000,000, the first made on January 15* 1923, the second
July 1, 1927.
Senator BINGHAM. Mr, Lamont, may I ask a question with regard
;
to the Chilean loan?
Mr. LAMONT. Certainly, i
Senator B I N G H A M . D O you< happen to know how that came to be
paid off so promptly? Were they able to refund them at a low rateof interest through some other country?
15
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. L A M O N T . I assume that that was the case. I assume that that
was the case, but I do not know, but I can have it looked up.
Senator B I N G H A M . They did not refund them by any loans which
you floated?
Mr. L A M O N T . N O ; they did not refund them through us.
Senator B I N G H A M . D O you know if they were refloated in this
country ?
Mr. JLAMONT. That I do not know.
Senator B I N G H A M . Will you let us know ?
Mr. L A M O N T . Yes: although it is possible that some* one of the
other witnesses whom you may call that had to do with the subsequent issues may be able to inform you. But we can look it up.
Now, let us see: Cuba bonds, the gross spread in one instance was
2.48 per cent commission, and the other instance 1.122 per cent
commission.
Senator HARRISON. Mr. Lamont, did your house float more than
one issue of the Cuban bonds?
M r . LAMONT. TWO.
Senator HARRISON. T W O issues I
M r . LAMONT. TWO. O n e i n 1923 a n d o n e i n 1927.
Senator HARRISON. The National City and the Chase
Bank floated
loans for Cuba, did they not?
Mr. L A M O N T . I recall that the Chase Bank did. I do not recall
about the National City Bank, Senator, but Mr. Mitchell, when lie
comes on the stand, will be able to inform you undoubtedly.
Now we come to France: A total of $300,000,000 of boncls in three
issues: the first. September 3,1920; the second, November 24, 1924.
Senator L A I«\U.LETTE. And the third ?
Mr. LAMONT.- Excuse me—the first is September 3 , 1 9 2 0 ; the second, May 23, 1921; and the third, November 24, 1924, each for a
hundred'million dollars.
The first issue has been completely retired. The second issue has
been reduced from a hundred to below $01,000,000. The third issue
has been reduced from a hundred million to below $71,000,000.
The gross spread in these loans ranged from 5 to 6 per cent. In
the case of the first two loans there was no managing commission.
In the case of the third loan there was one-quarter of 1 per cent.
The C H A I R M A N . And the rate of interest?
Mr. L A M O N T . The rate of interest on the first loan was 8 per cent:
second, 7 t h i r d , 7. The rate of interest declined, as you can see,
as market "conditions improved, manifestly.
Senator SHORTRIDGE. And the life of the bonds?
Mr. L A M O N T . The first issue in 1 9 2 0 was due 2 5 years thereafter:
the second was due in 20 vears, and the third in 25. As I sav, of
the total of $ 3 0 0 , 0 0 0 , 0 0 0 all but about $ 1 3 1 , 5 0 0 , 0 0 0 have now "been
retired.
Senator COUZENS. When you say " retired/' you mean the sinking
fund has retired? They may be in the hands of the public, though,
may they not?
Mr. LAMONT* NO; retired; taken out of the hands of the public:
no longer outstanding.
Senator COUZENS. You mean called ?
M R , L A M O N T . Called.
16
SALE OF FOREIGN BONDS OR, SECURITIES
Senator COUZENS. And the percentage was added for the calling
privilege, was it not?
Mr. LAMONT. Was added for what?
Senator COUZENS. A percentage was added for the privilege of
calling, was there not ?
Mr. LAMONT. Percentage to; whom I
Senator COUZENS. T O the owner. Usually a bond carries 1 or 2
per cent for the privilege of calling.
Mr. LAMONT. I could not answer that, Senator, in these particular
instances, but there is no secret about the arrangements.
Senator COUZENS. NO; I understand.
Mr. LAMONT. And it may be made clear in every instance.
Senator SIIORTRIDGE. When you say it was retired, do you mean it
has been paid off?
Mr. LAMONT. Paid off.
Senator SHORTRIDGE. Paid off?
Mr. LAMONT. Yes. So that the total obligations of the Government of France in this country in long-term bonds out of these three
issues is now $131,000,000 instead of $300,000,000.
Senator COUZENS. Does the issuing bank receive a specific security or does it just have the general obligation of the country?
Mr. LAMONT. That depends in different instances, Senator Couzens. IN the case of the larger countries it is usually simply on the
good faith, on the absolute obligation of the government to pay it
themselves*
Senator COUZENS. In the case of the two issues in Germany?
M r . LAMONT. Y e s .
Senator COUZENS. There
was specific collateral put up, and it was
not the general obligation of the country in those cases?
Mr. LAMONT. There were specific revenues allocated.
Senator COUZENS. Yes.
Mr. LAMONT. And that is the next item on my list and, if I may,
I will acquaint you with that as I come to it.
Senator COUZENS. That is all right.
Senator HARRISON. Mr. Lamont, you said the last issue of the
French securities was in 1924?
Mr. LAMONT; That is right, 1924.
Senator HARRISON. What did they sell—those securities to the
public?
Mr. LAMONT; The issue price was 95.
Senator HARRISON. Ninety-five?
M r . LAMONT. Y e s .
Senator HARRISON; Was France J in 1 9 2 6 ; in as good condition-—
Mr. LAMONT (interposing). Wait a mintite; the 1 9 2 4 bonds were
sold at 94.
^ Senator HARRISON. Was France, in your opinion, in as good condition, economically in 1 9 2 6 as they were in 1 9 2 4 ? There was somewhat of an improvement, was there not ?
Mr. LAMONT. So much water has flowed over the dam, Senator,
that I do not know; whether I can cudgel my memory enough to
detail what France's exact economic position was in those years by
way of comparison. Her general condition would be measured bv
her credit in the public markets. Do you see? Now, if you will fell
me what you have in mind, perhaps I can clear up your mind on it.
17
SALE OF FOREIGN BONDS OR, SECURITIES
Senator
believe ?
HARRISON.
M r . LAMONT. Y e s .
Senator HARRISON.
What I have in mind Is that these sold at 94,1
We funded the French debt in 1 9 2 0 , 1 think, on
the basis of 51, They got a very good bargain, did they not?
Mr. L A M O N T . Well, it is not for me to pass upon, either approve or
disapprove the arrangements the United States Government made.
1 thought the United States Government, in general, made very
excellent arrangements with its debtor countries.
Senator HARRISON. They were very generous in that funding
agreement I
Mr. L A M O N T . Well, I am not prepared to enter into motives of
generosity or nongenerosity. I think that they made a very good
arrangement.
The C H A I R M A N , is it not true, Mr. Lamont. that their currency
went all to pieces, the franc went down to 2 cents just before that
settlement was made J
Mr. L A M O N T . When did you say that was?
The C H A I R M A N . In 1 9 2 0 was when the settlement was made.
Mr. LAM.OXT. Why, yes. Now, as you remind me, it comes back.
The franc began a precipitous decline some time in 1924, and it got
worse and worse, and in May, 192G, or April, 1926, there was complete
•despair on the whole subject of the franc, and the general prognosis
was that the franc was going over the dam.
The C H A I R M A N . It was freely sold, however, at 2 cents?
Mr. L A M O N T . I do not remember the exact figure, but it was very,
very low. It was not until Poincare came back into power and had
been in power some months and succeeded in stabilizing the franc
that French Government finance began to come back.
Senator GORE. That was in 1 9 2 7 or 1 9 2 8 , was it not?
Mr. L A M O N T . Well, I should think that was 1 9 2 7 ; yes. Perhaps
it was early in 1927 that things began to look better. Well, let us
see. Sometime in 1920 he took such measures as gave a better look
to the situation, late in 1920.
The C H A I R M A N . Stabilized the franc at 5 cents?
Mr. L A M O N T . Not as high as that. About 4 cents.
Senator HARRISON. At 4.
Senator GORE. About 4 . 9 1 and a fraction.
Senator JOIIN>ON. Was either one of these French issues purchased outright bv Morgan & Co. ?
Mr. L A M O N T . They were all purchased outright by Morgan & Co.
and their immediate associates.
Senator JOHNSON. Yes. At what price, if you please, did they
purchase the French issues?
Mr. L A M O N T . I can answer that best by indicating the issue price
and the spread, which, subtracted from the issue price, gives you the
price that they netted the Government of France. Is that what you
want?
Senator JOHNSON. I wantfirst—asI understood, one of the issues
was purchased outright by J. P. Morgan & Co.
Mr. L A M O N T . They were all purchased outright by ourselves, and
our associates, Senator; yes.
Senator J O H N S O N . Let me see if I can understand i t If I am in
terror, I beg your pardon, but perhaps I may refresh your recollec
18
SALE OF FOREIGN BONDS OR, SECURITIES
tion in that regard. Was there not one issue that was purchased
outright by Morgan & Co. and that subsequently was syndicated in
the fashion in which these loans are syndicated ?
Mr. LAMONT. Well, now, my record would not indicate that. I
can have that special point looked up.
Take the case of thefirstloan, Senator Johnson; it was a hundred
million dollars. The issue price was par, and there was a gross
spread of 6 points, which would mean that France netted 94 for that.
And the original group consisted of four houses.
The second one was issued at 95 with a gross spread of 5 per cent
which made 90 net that the Government of France secured, and in
the original group purchase there were four parties again.
The last one was issued at 94 with a gross spread of 5 per cent,
making 89 net, and there again there were a group of four in the
original purchase.
Senator JOHNSON. All right; the four that you name were the
original purchasers outright of the entire issues; is that correct ?
Mr. LAMONT. That is correct.
Senator JOHNSON. Yes, sir.
Senator GORE. Who were the parties?
Senator JOHNSON. All right; Senator Gore asked who were the
four?
Mr. LAMONT. I would have to look that up, and I will furnish it
in the general record that I furnish.
Senator JOHNSON. Now. subsequently, after the purchase thus by
the four——
M r . LAMONT. Y e s .
Senator JOHNSON.
At the specific price that you have indicated,
in syndicating these bonds was anything charged the syndicate by
the four?
Mr. LAMONT. No; it was not put in that form, Senator Johnson.
I would not put it in that form. The original group of four purchased them at thefiguresI have indicated, and they resyndicated
them to the next group, respectively, at a half of 1 per cent up and
at three-quarters of 1 per cent up.
Senator JOHNSON. Yes. That is the original four purchased them
and they formed another syndicate; that is correct, is it not?
Mr. LAMONT. Yes; in which the original four had an interest.
Senator JOHNSON. In which the original four had an interest ?
M r . LAMONT. Y e s .
Senator JOHNSON.
And the original four received one-lialf per
cent and three-quarters per cent?
Mr. LAMONT. That is it.
Senator JOHNSON. In forming that new syndicate?
M r . LAMONT. Y e s .
Senator JOHNSON.^ Then
the second syndicate thus-formed retailed
the bonds at par, did they not?
Mr. LAMONT. NO. In those instances, because the issues involved
were so considerable, and the market was in such a state as it seemed
wise to require it, there was formed a third, a final, distributing
[syndicate;
Senator JOHNSON. Yes. So that there were the first four, then
the second syndicate from whom or to whom was charged the 1 per
cent or the half per cent or the three-quarters* as the case may be?
SALE OF FOISKIGX RON OS OH SEC IT It IT IKS
M r . LAMONT. Y e s .
Senator JOHNSON.
M r . LAMONT. Y e s .
Senator JOHNSON.
19
Then there was a third syndicate formed?
Was that syndicate charged, then, any percentage of the price?
Mr. L A M O N T . The third syndicate—yes; they got the larger
amount of spread. Thefinalsyndicate got the larger amount because
the actual work of distribution fell upon that final syndicate more
fully. Thov got 4 per cent, respectively, 4 per cent and 3 per cent.
Senator JOHNSON. N O W , let us start with the prices paid for those
three issues by the original syndicate of four.
M r . L A M O N T . Yes:.
Senator JOHNSON. What were those prices, please?
Mr. L A M O N T . Those prices were, respectively. 94
Senator B I N G H A M (interposing). 0 0 and 8 9 !
Mr. L A M O N T . 90 and 89; that is right.
Senator JOHNSON. 9 4 , 9 0 . and 8 9 ?
M r . LAMONT. Y e s , sir.
Senator JOHNSON. For what sum or for what price
were those
bonds ultimately then sold by the last syndicate to the people generally. or to banks generally *
Mr/ L A M O N T . They were ultimately sold to the investor, respectively. at 100, 95. and 94. The banks as purchasers are usually
allowed a small commission as purchasers.
Senator B I N G H A M . Then that accounts for what you call the spread
of the 6 per cent on the first loan, 6 per cent on the second
Mr. L A M O N T (interposing). Five on the second.
Senator B I N G H A M . Five on the second and 5 on the third?
Mr. L A M O N T . That is it.
Senator JOHNSON. Would you give, please, the dates of the three
issues each in a hundred million dollars?
M r . LAMONT. Y e s .
Senator JOHNSON.
That have been dealt with in the fashion that
you have just detailed?
Mr. L A M O N T . Certainly* September 3 , 1 9 2 0 , May 2 3 . 1 9 2 1 , November 2 4 , 1 9 2 4 .
Senator JOHNSON. Thank you.
Senator B I N G H A M . Now, Mr. Lamont, may I make an inquiry?
Mr. L A M O N T . Certainly.
Senator B I N G H A M . I notice in a number of these issues where the
issue came out in 1920 or 1921, as, for instance, in the Belgian loan in
1020, where the spread was 6 per cent; Chilean loan of 1921, where
the spread was 5 per cent; the French loan of 1921, where the spread
was 0 per cent—that the spread seems to bo very much greater than
bonds issued later, as, for instance, the Cuban "loan of 1927, where
the spread was only 1.122, and the Canadian loan.
SIR. L A M O N T . Y e s .
Senator B I N G H A M . Where the spread was only 2 ^
Mr. L A M O N T . To be sure.
Senator B I N G H A M . I am curious to know why it
per cent?
was possible in
later years to do business at so much less profit, and why in the period
of 1920 and 1921. which was, of course everybody remembers, the
reconstruction period in this country, that it was necessary to charge
such a high profit.
20
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. That is, if you will allow me to say so, a very pertinent question. And when you use the word " profit," we are not able
to use that word " profit." We'call it a " spread," because the most
of it, the greater part of it, was absorbed in actual expenses, in distribution over our very wide territory in this country.
For that reason we had to have a larger spread to work on in the
houses throughout the country in the early postwar years, and it was
because those were the days of early reconstruction in Europe before
the countries were all, in the public mind, thoroughly back on their
feet. And it took more of a process of enlightenment and explanation, for instance, to point, out why the obligation of the French
Government, payable in United States dollars, with .the present
degree of weight andfineness,was absolutely good than it did later
on in the later years of this decade when conditions had become more
stabilized.
In this connection, your former colleague, Senator Morrow, and
a dear friend of a great many of us, testified before a Senate committee, I think it was in 1926, on that very point, Senator. He covered it very fully—covered it really better than I can do to-day—and
I would refer you to that testimony. He also covered at that time
very carefully the process by which these ;bonds are distributed
throughout the country, the necessary expenses involved by these
various groups in seeing that they find ultimate lodgment in the
hands of the investor.
Senator WATSON. Mr. Lamont, they are distributed very largely
to your correspondent.banks, are they not?
Mr. LAMONT. Senator Watson, I would answer that by saying we
do not have—our house, you see, is not a bank in itself; it is really
a house of merchants. We do not have exactly what we call correspondent banks. We have what we call a cynaicate group that we
utilize to distribute through from time to time as these issues arise.
It is made up of banks and institutions which have distributing facilities and distributing houses, and so forth. The syndicate lists in
any instance you like will be furnished to you. There is no secret
about that.
Senator HEED. Mr. Lamont, in estimating the reasonableness of
this spread of which you have spoken, it is a fact, is it not, that you
have to bear in mind the possibility that the syndicate will be unable
to dispose of its bonds and may really incur a loss in each case ?
Mr. LAMONT. Certainly, Senator Reed. In any case that arises
where the syndicate has been unable to dispose of the bonds its
members necessarily have to take over their pro -rata share of the
bonds.
Senator WATSON. Has that happened ?
Mr. LAMONT. And, of course, every issuing house makes a great
point of seeing to it, if possible, that there is not a comeback on the
syndicate. But you are quite right in indicating that in each one
of these groups part of the spread must be devoted, we will call it,
to purposes of insurance ; that is to say, any risk of underwriting.
Senator REED. In recent years it is a fact, is it not, particularly
in Londonj that these distributing syndicates have been forced to
absorb a great part of the issues? ' "
21 SALE OF FOREIGN BONDS OR, SECURITIES
Mr.
London has a very sad story on that, Senator Reed.
. % . w|ne faffe o n
i m n d s 0 f the underwriters in
LAMONT.
Senator W A T S O N . Has that very frequently occurred here, Mr.
Lamont t
Mr. L A M O N T . It has occurred sometimes, Senator Watson. I do
not recall offhand instances of them, but probably there are. There
is always the chance of it, you know.
Senator COUZENS. Has the Morgan Co. had any experiences such
as that ?
Mr. L A M O N T . I suppose we must have had in our long term of
Senator COUZENS (interposing). I mean in the last few years?
Mr. L A M O N T . Senator Couzens, I honestly do not remember, be«
cause those are details that do not come to my attention.
Senator COUZENS. They could not have been very extensive for you
to not remember, could they?
Mr. L A M O N T . I think if they had been very extensive, nay memory
would not fail me.
Senator GORE. Will the supplementary data that you are going to
file, Mr. Lamont, show the net profit ? You say the gross profit, and
the expenses have to be deducted to arrive at the net profit?
Mr. L A M O N T . That is it.
Senator GORE. Will any of these that you arc going to file show
your net profit?
Mr. LAMONT* There is no way to arrive at that that I know of.
Senator GORE. In making out your income-tax returns?
Mr. LAMONT* Well, when you make out your income-tax returns
you turn in your profit for the year after all your expenses of every
kind have been paid.
Senator GORE. I understand, but you have to show your net profits
on each transaction.
Mr. L A M O N T . We can not do it? because you would not know just
how much to deduct for overhead m each particular instance, you see.
Senator GORE. In connection with each particular instance, don't
you arrive at your net profit?
Mr. L A M O N T . I should not be able to say in any instance what-a
net profit was. All I know is that we take any such commissions
as finally accrue to us, and from that, of course^ there lias to be
deducted all legal expenses—expenses of advertising, all that sort
of thing, circularizing, and so forth—and then you arrive, perhaps,
at a net figure, which if you wanted to arrive at a net profit would
be again subject to deduction for overhead or something like that.
But we never attempt to refine things down to that point.
Senator B A R K L E V . Mr. Lamont, this contract that you enter into
with each government for each individual loan provides in advance
the amount of spread that should be applied to the loan ?
Mr. L A M O N T . Oh* quite.
Senator B A R K L E Y . I S that supposed to cover all these subconditions
that are distributed among these subsyndicates where you have more
than one?
Mr. L A M O N T . It is not only supposed to but does, because the
Government does not concern itself with how its spread is divided up.
22
SALE OF FOREIGN BONDS OR, SECURITIES
Senator BARKLEY. SO that the
and three-quarters percentage
which the subsyndicate, the third group, got, say, in the case of these
French loans and any such syndicate commissions which might have
been furnished to any groups or syndicates would be included in
these three issues that you have given to apply to these loans?
Mr. LAMONT. Oh, yes; completely.
Senator WALSH of Massachusetts., Does the extent of the loan de-<
pend upon the marketability of the bonds in the given country ? For
instance, is not one of the explanations for the. difference between
the spread in the French bonds and the Canadian and Cuban bonds
the fact that Canadian and Cuban bonds are more easily marketable
in this country ?
Mr. LAMONT. Unquestionably, as applied to the conditions at that
particular time. Unquestionably.
. Senator WALSH of Massachusetts. Are-they not among the two
best foreign bonds sold in this country,.considered by purchasers?
Mr. LAMONT. Well, I would not want to express an opinion on
that, Senator Walsh.
The CHAIRMAN. During the time of the negotiations for these
bonds the French franc was in a very precarious condition' Many
thought it would go below 2 cents, did they not?
Mr. LAMONT. Right.
The CHAIRMAN. And that had some-—
Mr. LAMONT (interposing). Well, a good many people, Senator,
thought it would, go over the dam entirely, like the German mark,'
The CHAIRMAN. And that had a great effect upon the amount of
interest discount that was required to place those bonds in this
country?
Mr. LAMONT. Why, it had a very direct effect. It had a veryi
direct effect; and, as your colleague here has pointed out, we were
able gradually to make the issues on a slightly rising scale, but in the
case of France back in those years, those difficult years, it was always
a pretty heavy job for the distributors of the loans.
Senator GORE. Mr. Lamont, when France stabilized the franc at
less than 5 cents that cut down her domestic indebtedness four-fifths, did it not?
Mr. LAMONT. Oh, yes; it cut down her domestic indebtedness and
it cut down—you, could call it the so-called wealth of her people, by
80 per cent, because in effect she repudiated her obligation to her
own people by 80 per cent.
Senator GORE. Yes; that is, reduced the wealth of the bondholders?
Senator BINGHAM. No; of all the people.
Senator GORE. I would not think the diminution of their tax levy
to pay the bonds would have injured the French people, if they had
to levy only one-fifth as much taxes to pay these as they would other-;
/wise. I mean the burden, the actual burden, taken from the people
in the form of taxes:
Mr. LAMONT. Of course, what we mean applies not only to the*
French Government domestic bond issues themselves, which were in
effect written off to the extent of 8 per cent, but it refers also to all
contracts issued in francs.
Senator GORE. Certainly; all time contracts.
Mr. LAMONT. You are quite right about that.
23
SALE OF FOREIGN BONDS OR, SECURITIES
Senator GORE. Yon would not cure to express an opinion as to the
wisdom of that action?
Mr. LAMONT. The wisdom of the action of what?
Senator GORE. On the part of France in revaluating the franc.
Mr. LAMONT. Oh, no; 1 do not think it is a question of approving
or disapproving. It was a question of what the—very arduous conditions that they were up against at that time. Unfortunately, I
do not think they were able to do anything else. You remember that
they had to spend in northern Francc enormous sums to get their
people even decently housed again.
Senator GORE. What I was getting at, regardless of the reason or
justification, it was a form of repudiation?
Mr. LAMONT. Certainly, just as in the case of Germany the entire
value of the mark was repudiated, so to speak. In the case of Italy,
not so much, but the Italian lira is worth
cents—Senator Reed—
something like that as against nineteen and a third originally.
Senator GORE. And England slipping off the gold standard did
indirectly the same thing?
Mr. LAMONT. Oh, quite. Quite; just as we were off the gold standard in this countrv from 18G0, whatever it was, to 1877. 1878, or 1879.
Senator GORE. Yes; 1 8 6 1 to 1 8 7 9 .
Mr. LAMONT. We have all been through it.
Senator GORE. Yes.
Senator K I N G . Mr. Lamont, you stated that Senator Morrow lias
given a memorandum of the methods by which these bonds were sold
to the public.
M r . LAMONT. Y e s .
Senator K I N G . Was
anything ever done by your syndicate or any
other syndicate that you have any knowledge about that might be
construed in the slightest way as coercion upon the part of your syndicate or any of your related banks to coerce other banks or other
people to take part in this distribution ?
Sir. LAMONT. Not the slightest, in anything that we ever heard or
had to do with. Every bank or banking house to whom we addressed
the syndicate letter ottering it participation in the syndicate has an
absolute right to reject it, and they frequently do.* if it does not
happend to suit their convenience.
Senator K I N G . I think perhaps they might do that with reference
to Morgan & Co., with their standing, but they might not do it with
reference to other syndicates.
Mr. LAMONT. Now, that is very complimentary of you, Senator.
I appreciate it. But I think all syndicates exercised the same right
of declination if it did not happen to suit their convenience at the
time.
Senator BARKLEY. SIR. Lamont, in connection with the observation
you have just made relative to the effect of the English pound, of the
slipping of England from the gold standard, you would not care to
express an opinion as to the probable effect of all that upon the
standard of value in the United States. It is not pertinent to this
inquiry, but your opinion is very valuable.
Sir* L A M O N T . Well, that is ever so good of you, but I think I would
have to take a couple of days off with you and sit down—~
Senator BARKLEY (interposing)* I will not require you to do that.,*
24
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. I would love to do it, if you give me time. We are
under a little pressure these days, but any time we will be glad to
compare notes on that.
You spoke of Senator Morrow's testimony on the method of exSense of distributing these bonds throughout the country. Senator
[orrow made another awfully good point, it seemed, to me, as I ran
over his testimony again, and that was this point: He emphasized the
fact that the banks throughout the United States, the banks in New
York and all that sort of thing, are not" loaded up," using that phrase
" loaded up," with the foreign bonds to the extent that a great many,
people in the public think they are. There seems to be a general
impression on the part of the public that these are bankers' bonds,
that the bankers are loaded up with long-term bonds of countries all
over the world and that their resources are impaired by the extent
of those bond holdings, coincidental with the decline of domesticbonds, and that that is a very menacing—on the one hand—a very
menacing point in the situation, and on the other constitutes a particular class of creditor whose object is to work together or to being
some particular pressure to bear in some direction.
Senator GORE. That is true now, Mr. Lamont?
Mr. LAMONT. That is not true.
Senator GORE. They are not loaded up now with these?
Mr. LABIONT. I would say decidedly not, because, as Mr. Morrow
pointed out, the method has been to distribute these bonds throughout
the country and they are so distributed.
Senator GORE. That is the point. Now, the shrinkage of value IN'
these bonds occurred in the hands of the men that purchased them,,
did it not? In other words, Tom, Dick, and Harry have taken the
loss, not the bank?
Mr. LAMONT. Well, it is a very deplorable thing that in the present
depressed state of the world affairs, our private investors have been
obliged to witness severe declines in United States Government bonds,;
in foreign government bonds, in railroad bonds, industrial bonds, and
every kind of bonds.
Senator GORE. Yes.
Mr. LAMONT. But answering your question: It has been and is today the great investing public upon which those declines have chiefly
fallen, rather than on the banks. Of course, the banks——
Senator GORE (interposing). Has the policy of your house and the
other banks been pretty much the same since the spring of 1927 as
before that date with reference to theflotationof these bonds? You
have handled quite a good many since then?
Mr. LAMONT. I do not believe I get your point as to a particular*
date.
Senator GORE. Yes; since the spring of 1927, for instance.
Mr. LAMONT. Oh, yes; we have had quite a lot since then.
Senator GORE. The reason I asked that question, Mr. Lamont, I
was reading a speech you made before the Pan American Conference
here, and I thought it very wise myself, in which you seemed to see
the clouds rising in this foreign-bond market, and said the American
banker was sitting on the doorsteps of these European governments
importuning them to accept money, and that municipalities and corporations were encouraged to compete for American inoneyi
SALE OF FOKKZGN BONDS OB SECURITIES
25
Mr. L A M U N T . Now* Senator, did I make that speech before the
Pan American Congress?
Senator GORE. Yes, sir.
Mr. L A M O N T . I remember being asked to make it, but I do not
remember making it.
Senator GORE. I have it here.
Mr. L A M O N T . Oh, well, you have it.
Senator GORE. Aiid I think it is good sense, I will say that, if it
had been acted cm.
Mr. L A M O N T . Good enough. I am glad I was guilty at some time
of good sense. May I look at it?
Senator GORE. YES. It is in there, and it is over the last speech.
It has " read written under it.
Mr. L A M O N T . Oh, this is back in 1 0 2 7 , You are right.
Senator GORE. 1027.
Mr. L A M O N T . Y O U are right. I thought you meant this spring.
Senator GORE. It is a passage toward the last of it.
Mr. L A M O N T . D O you want me to read it?
Senator GORE. I wish yon would; yes, because I want to get it in
the record.
Mr. L A M O N T . All right. It is under a subheading, which is entitled tt Necessity to Exercise Caution," and it reads as follows:
From the point of view of tin* American investor it is obviously necessary to
scan the situation with increasing circumspection and to avoid rash or excessive lending. I have In mind the* report* that I have recently heard of American
bunkers and linns competing on almost a violent scale for the purpose of
obtaining loans in various foreign money markets overseas.
Naturally it in a tempting tiling for certain of the Kuropean Government*
to find a horde of American bankers fitting on their doorsteps offering them
money. It if* rather demoralizing for municipalities and corporations in the
frame countries to have money pressed upon them. That sort of competition
tends to insecurity and unsound practice. The American inventor is ail intelligent Individual and can Iw relied upon to discriminate. Yet, in the flrst
instance, such discrimination is the province of the banker who buys the goods
rather than of the investor to whom he sells them.
I may be accused of special pleading in uttering this warning, yet a warning
needs to be given against indiscriminate lending and indiscriminate borrowing.
Senator GORE. It seems to me, Mr. Lamont, that you at least saw
a danger signal or a red light, and I was wondering whether it had
been regarded or disregarded by the bankers since that speech was
made?
Mr. L A M O N T . Well. I do not think anybody can answer that in
general terms, Senator.
Senator GORE. The general policy has remained the same since
then as before?
Mr. L A M O N T . I think that most of the bankers of the country that
were trying to keep in close touch with world conditions felt about
as I have indicated there at that time. It was necessary to go very
carefully; very cautiously.
The C H A I R M A N . Mr. Lamont, have you a copy of the late Senator
Morrow's letter?
Mr. L A M O N T . Letter ?
The C H A I R M A N . Testimony I should say.
Mr. XIAMONT. IT was testimony. ( I T was before a Senate comjhittce.
Senator COUZENS. What year was it, Mr. Lamont ?
26
SALE OF FOREIGN BONDS OR, SECURITIES
M r . LAMONT. I t WAS 192G.
The CHAIRMAN. I would like
Mr. LAMONT. It was not a
to have it in this record.
letter; it was a series of replies to
inquiries from the Senators.
Senator JOHNSON. It was in an examination, that was held before
this committee, in which the examiner really was the Senator from
Mississippi in the main, and Senator Morrow testified quite at
length. I have a copy of it. That, if the chairman desires, I will
bring to him this afternoon.
The CHAIRMAN. Give it to me and I will have it put in the record
at this point.
Senator REED. It may go in at the close of this hearing. We: do
not want to break in Mr. Lamont's testimony.
»
(The matter referred toby.the chairman appears in the appendix.)
Mr. LAMONT. Yes. In the course of Mr. Morrow's testimony he
alluded to a letter that I addressed to Representative LaGuardia on
some points on which he had been misinformed, you see, and I have
a copy of that letter with me, as a matter of fact.
Senator HARRISON. Are you familiar with the -article that he
wrote in Foreign Affairs?
Mr. LAMONT. Yes. That would be very valuable.
Senator GORE. I have that here.
The CHAIRMAN. At the close of your testimony have it put in the
record.
(The article referred to appears in the appendix.)
Mr. LAMONT. Yes. Thank you. Do you desire me to proceed
now, Senator, with/this list ?
The CHAIRMAN. Proceed; yes.
Mr. LAMONT. Wefinishedwith France. We come to Germany.
A total of long-term bonds of' $208,250,000.
Senator BINGHAM. Date ?
Mr. LAMONT. October 14,1924, was thefirstone.
Senator REED. That was the Dawes loan?
Mr. LAMONT. That was the so-called Dawes loan, Senator, $110,000,000. That was all so far as this country is concerned.
The second was June 12,1930, the so-called Young loan, $98,250,000. Of course these data that I am giving you are already all a
matter of public record, with the exception of the details of the
spread which Senator Johnson wanted to know about particularly.
Senator W A L S H of Massachusetts. What was the interest on those
loans ?
Mr. LAMONT. The interest on the first bonds, Senator, was 7 per
cent, and on the second issue it was o1/^ P er cen^*
Senator SHORTRIDGE. What'is the life of the several issues?
Mr. LAMONT. Twenty-five years was the life of the first and
36 years the life of the second. The respective spreads were 5 per
cent on the 1924 loan, and 4 per cent on the 1930 loan.
Senator REED. How did those spreads correspond with the spreads
received by the European bankers on that part of those loans that
was taken abroad—substantially the same?
Mr. LAMONT. IT was substantially the same; in one or two instances a little less, I think, and in one or two a little more. They
varied according to the banking practice in the different countries.
27
SALE OF FOREIGN
BONDS OR, SECURITIES
Senator W A T S O N . Were other German bonds floated in this country, to your knowledge, through other houses if
AIR. L A M O N T . N O other German Government bonds. Senator
Watson.
Senator W A T S O N . That is what I meant. You had the sole issue.
M R . L A M O N T . These are the two sole issues of German Government
bonds. I suppose there are municipal and perhaps provincial bonds.
Senator WATSON. I mean German Government bonds.
Mr. L A M O N T . The total obligations of the German Government
were confined, in this country, to these two issues, which have been
reduced, respectively, by the" operation of the sinking fund, in the
instance of thefirst"issue,already to under $77,000,000. It has been
reduced about thirty-three million odd dollars from the top. In
the case of the sec-owl bond, although issued only in 1930, a year and
a half ago, it has been reduced to $95,670,000.
Senator W A T S O N . Has there been any default whatever in any
payment on those bonds?
Mr. L A M O N T . N O default whatever. The German Government
has been most meticulous in complying with all the provisions of
the sinking fund and having every installment paid on the dot.
Senator COUZENS. What procedure was taken to retire those bonds
from the top?
Mr. L A M O N T . Just the operation of the sinking fund. Senator
Couzens.
Senator COUZENS. H O W did you accumulate the bonds that you
paid out of the sinking fund ?
Mr. L A M O N T . I can not answer that offhand, but I can furnish
you full information.
Senator COUZENS. That is important, because I would like to know
whether these bonds are still in the hands of the public.
Mr. L A M O N T . N O : thej* are not.
Senator COUZENS. H O W did you proceed to pay up certain of them
and leave certain others in the'hands of the public?
Mr, L A M O N T . Either by calling, by number, you see
Senators COUZENS. You do not not know for sure ?
Mr. L A M O N T (continuing). Or by retiring, by private purchase in
the market.
Senator COUZENS. Y O U do not know ?
Mr. L A M O N T . No. In the hands of the American public, out of the
8208,000,000 issued by the German Government, there remains a
total now of only $170,000,000 odd.
Senator B A R K U S Y . In addition to these two loans to the German
Government, has your house handled any loans to municipalities?
Mr. L A M O N T . N O ; none at all.
Senator B A R K L E Y . Or any private industrial bonds?
Mr. L A M O N T . German, you mean?
Senator B A R K L E Y . Yes.
Mr. L A M O N T . None.
Senator B A R K L E Y , So that, so far as your house is concerned, these
two loans cover the entire activity of your house with the German
people, either through the Government or otherwise?
Mr. L A M O N T , These two loans constitute the entire activity.
Senator BARKLEY* Public or private?
28
SALE o f f o r e i g n b o n d s o r
securities
Mr. LASIONT. Yes. It just so happens that we have not had banking relations in Germany. They turned to us to have these two
loans issued, because they were in connection with large financial
settlements under the two reparations plans, the importance of
which was obvious to the whole world. It was a question, in 1924,
of attempting to put Germany back upon her feet so that she could
continue tofinanceher imports from every part of the world, including America; and the loan under the Young plan in 1930 was also of
great importance, only secondary to the first loan.
Senator BARKLEY. Do you know through what houses these municipal bonds you hear so much about in Germany have been issued
in this country ?
Mr. LAMONT. It is easy enough to compile a list. As a matter of
fact, I think the Department of Commerce keeps tab on those.
Senator BINGHAM. Mr. Lamont, I have often heard people express wonder as to why American bankers were willing to loan
Germany money at such low rates, just after Germany had wiped
out all internarindebtedness by allowing the mark to become worthless, and thereby shown that they had no practice, or that they did
not follow the ordinary practice of trying to get their obligations
somewhere within reason by meeting them somehow. It seems to
many people almost incredible that when they wiped out their entire
internal debt by inflation, that American bankers should have been
willing to loan them hundreds of millions of dollars within a very
few years afterwards. What is the answer?
Mr. LAMONT. I think the answer to that is this—and I will address
myself, if I may, to the two. issues of bonds which our house vrps
primarily responsible for. Those bonds constitute the unconditional
obligation of the German Government, payable .in American gold
dollars of the present degree of weight andfinenesswithout any " ifs "
or " ands " or questions whatsoever, with particular revenues allocated to the service of those bonds. Germany had been put back by
the operation of the Dawes plan and by this international loan issue
upon a gold-standard basis and there was no possible reason, I think,
on the part of American bankers, as there is none to-day, to question
the good faith or the ability of the German Government and the
German people to meet their external obligations to that extent.
Senator BARKLEY. A S a matter of fact, did not the fact that Germany paid all her internal debts by a so-called procesjs of repudiation
rather encourage the bankers to believe that they would be more
prompt in paying new loans that might befloatedm this country ?
Mr. LAMONT. That might be one way of putting it, but one has to
draw a very sharp distinction, Senator, between the external obligations of any government, payable in the currencies on the markets
where those obligations are issued, and their own internal obligations. On their internal obligations they have a right, as the American Government has a right, to tax the people in one form or another
until the issue is out of existence, almost. It can be-taxed out of
existence. They haverio*such right in tlie case of any of these foreign obligations, because the contract provides not only that they are
payable in American gold dollars but they are payable without any
deduction for taxes so far as the issuing country is-concerned.
Senator LAFOLLETTE. What WEREF the special revenues that were
set aside for these bonds, if you have the record?
29
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. L A M O N T . Senator Couzens mentioned that-to me a moment
ago. I have it right here.
So far as the inflation is concerned—domestic inflation, of
course—we have all been guilty of that at times. During the time
of our own inflation period, from the time of the Civil War until
1878 or 1879, whenever it was, nobody would have questioned the
soundness of any issue of bonds that the American Government
might make if it promised to pay it in sterling, we will say, of the
legal weight of gold.
Senator B I N G H A M . Mr. Lamont, I was not questioning the issue
of these bonds in connection with the Dawes pan or the Young
Elan, but I wondered whether the remarks you made, which Senator
rore brought out you made in 1927, cautioning the public and the
bankers against going on a campaign of seeking bonds across the
seas, had any reference to the elForts of certain American bankers
and investment houses in pushing loans into Germany at a rate
which has been shown not to be justified.
Mr. L A M O N T . Of course, every loan stands on its own basis. You
might take a loan to the city of Bremen, or the port of Bremen,
whereby it was shown that certain port duties were allocated to the
service of the loan, and it could be shown that that loan, under all
normal conditions in Germany, would be perfectly safe; and I
assume that no loan has been made by any banker in the United
States without taking precautions on that point. I do not think
that the American banking community generally contemplates any
ultimate repudiation of any of those German municipal or provincial obligations—none whatsoeverSenator GORE. They amount to about $ 7 0 0 , 0 0 0 , 0 0 0 , I understand.
Mr. L A M O N T . I do not know. We do not happen to have had
any of them, but I do not think that in the long run the German
people are going to repudiate those. In fact, there is not a single
instance up to date where the service on those loans has been in
default.
Senator L A FOLLFITE. Would you mind answering the question as
to what specific or special revenues were to be used for service on
the Dawes and the Young plan loans?
Mr. L A M O N T . I have it right here, Senator La Follette, and will
be very glad to give it to you.
1. In the external loan of 1924, all service of interest and amortization constitutes a direct and unconditional obligation on the German Government, chargeable on all the assets and revenues of that
government.
2. A specific first charge on all payments provided for under the
Dawes plan, to or for the account of the agent general for reparations payments, such charge being prior to reparations and other
treaty payments, which, in turn, have a specific precedence over
the existing German debt.
3. A first charge, by way of collateral security on the controlled
revenues, that is, the gross revenues of the German Government derived from the customs and from the tax on tobacco, beer, and
sugar* The net revenue of the German Government from the spirits
monopoly, and such tax, if any, as may be similarly assigned to the
German Government in accordance with the terms of the final
92928—31—PT 1
3
30
SALE OF FOREIGN BONDS OR, SECURITIES
protocol of the London1 conference. The German Government may
not create any further charge upon the controled revenues ranking
prior to or equally with the charge created in favor of the bonds
of this loan.
Then, at the London Conference, the governments entered into a
protocol whereby they specifically approved such allocation, and
waived their own rights to reparations subordinate to that.
Senator GORE. You have not been taking any of this beer money?
Mr. LAMONT. We have been very careful, of course, to see that no
revenue came from that. [Laughter.]
Senator GORE. I want to ask one question, Mr. Chairman.
Mr. LAMONT. Excuse me a minute, Senator. Senator La Follette
asked me tofinishon this.
Senator GORE. Pardon me.
Mr. LAMONT. We come to the second loan of 1930, but I will repeat
myself somewhat and cover both loans:
As to security respecting German external loan 1924 (Dawes
loan), and German Government international 5y2 per cent loan, 1930
(Young loan):
The service of interest and amortization of the Dawes loan is:
(1) A direct and unconditional obligation of the German Government chargeable on all the assets and revenues of that Government.
(2) A specificfirstcharge on all payments provided for under the
Dawes plan to or for the account of the agent general for reparation
payments, such charge being prior to reparation and: other treaty
payments, which in turn have a specific precedence over the existing
German debt,
(3) Afirstcharge by way of collateral security on the " controlled
revenues," i. e., the gross revenues of the German Government derived from the customs and from the taxes on tobacco, beer, and
sugar; the net revenue of the German Government from the spirits
monopoly and such tax (if any), as may be similarly assigned by the
German Government in accordance with the terms of the final protocol of the London conference. The German Government may not
create any further charge upon the controlled revenues ranking prior
to or equally with the charge created in favor of the bonds of the
loan.
The London protocol declared that "the signatory governments
further declare that they consider the service of the loan as entitled
to absolute priority as regards any resources of Germany, so far as
such resources may have been subjected to a general charge* in favor
of the said loan; and also as regards any ^resources that may arise as a
result of the imposition of sanctions.*'
The payment of thfj principal, interest, and sinking fund of the
loan is the direct and unconditional obligation of the German Government to the bondholder, for which the full faith and credit of the
German Government are pledged;'
By way of jguaranty for1 the service of the annuities, the German
Government has, in accordance with the new plan, created a fixed
annual direct tax of 660,000.000: reichsmarks ($157,212,000) on the
German Railway Co. for 37 years, such tax enjoying priority over
any tax now W hereafter to be levied on the railway company.
31
SALE OF FOREIGN BONDS OR, SECURITIES
Under the new plan the German Government has further undertaken, without prejudice to the securities for the German external
loan? 1924, to reserve free from any charge for any other loan or
credit the proceeds of the customs, tobacco, beer, and alcohol (monopoly administration) duties save with the consent of the Bank for
International Settlements, and then only subject to the priority in.
favor of the annuities as provided for in the new plan.
Those provisions, in general, Senator La Follette, constitute the
security.
Senator GEORGE. Mr. Lamont, are any of these German bonds now
held by your house, or the distributing agencies or syndicates, as
you call them, or any member of the distributing agencies?
Mr. L A M O N T . On the latter point, Senator, we have no idea
whether they are held or not. I mean to say, we do not know what
the private holdings, if any, maybe of any of these houses. So far
as we are concerned, we hold a few. I do not know how many, but
it is easy enough to look up.
Senator GEORGE. Would you mind putting that in the record t
Mr. L A M O N T . Any amount of these two issues of bonds ?
Senator GEORGE. Yes.
Mr. L A M O N T . Of course, that is a matter of our private affairs,
but I do not believe there is any objection to it.
Senator GEORGE. I asked you if you would mind putting it in the
record.
Mr. L A M O N T . I will say, informally
Senator BEED. Would it not be better, Mr. Chairman, to have the
witness and all other witnesses furnish a statement directly to the
committee, and then we can decide whether we want to put it into
the record or not! We can then decide whether or not we want to
put private affairs into the record.
Senator COUZENS. Mr. Chairman
Mr. LAMOMT. So far as I am concerned, I do not think we have the
slightest objection.
The C H A I R M A N . Then, send that information to the chairman of
the committee and we will take it up with the full committee, as to
whether it should be published or not.
Senator COUZENS. Mr- Lainontrthe amounts you have just referred
to were the amounts that were floated in this country I
Mr. L A M O N T . Yes*
Senator COUZENS. What was the aggregate floated in all the countries? Or do you know?
Mr. L A M O N T . I ought to know, and I think I can tell you, Senator
Couzens. In the matter of the first loan, the total amount of the
Joan was approximately $200,000,000.
Senator COUZENS. Of which you took
Mr. L A M O N T . Of which a little over half was done in this country.
Senator COUZENS. Now, the second?
Mr. L A M O N T . The second one was, as I recall it, $ 3 0 0 , 0 0 0 , 0 0 0 , of
which about a third was done in this country. That is subject te
correction. Do you recall, Mr. Mitchell?
Mr. MITCHELL, I beg your pardon.
Senator REED. D O you know the exact'amount?
Mr. M I T C H E L L . That is about right
32
SALE OF FOREIGN 'BONDS OR SECURITIES
Mr. LAMONT. That is about right.
think we took about a third
of them in this country. That, of course, is a matter of public record;
Senator COUZENS. In retiring these bonds through the sinking
fund, do you know whether all the countries had the same procedure
iriTetiring these bonds put of the sinking fund?
Mr. LAMONT. The customs and the practices as to sinking funds,
Senator Couzens, differ in almost all countries.' The British practice in sinking funds is quite different from the customary American
practice. The French practice, I think, is different in another way.
I can npt detail the different variations, but each one, of course, has
been built up by tradition, based upon what was best applicable to
{
its own market. - r
^ ,
Senator COUZENS.-So far as* the retirement in this country are concerned, they would all have to go through your house; is that
correct?
Mr. LAMONT. They would all have to go through the sinking fund,
if that happened to be handled at our house.
Senator COUZENS. In this case where is the sinking fund in this
country—in your house?
Mr. LAMONT. I think so.
Senator COUZENS. You do not know whether the German sinking
fund is in your house or not ?
Mr. LAMONT. I am almost sure it is, but I would want to check up
on that. We might have invoked the services of a trust company,
but I think it is with us.
/
Senator COUZENS. I think it is important to know how the sinking fund is applied in the retirement of the outstanding securities.
Mr. LAMONT. That is very readily ascertainable.
Before I take up the next item, you were asking me, Senator,
whether the dealings of J. P. Morgan & Co. with Germany have been
confined to these two issues of bonds, and I replied that they had.
In that connection it may be appropriate at this time to say that, so
far as the short-term credits are concerned—short-term credits of the
German banks—we do not happen to have a dollar of those, because
we did not have dealings with the German banks.
In that connection, there has been a great deal of misunderstanding
and exaggeration in the public mind as to the extent of the holdings
of American banks in short-term German bank credits.. It is a very
unfortunate misunderstanding. It is a very unfortunate exaggeration, because an entirely wrong impression, in our judgment, has
been created.
What has happened, as all you gentlemen know, has been simply
this, that American banks, and the big banks generally over the
country, from the Atlantic to the Pacific, have had German banking
correspondents for years, probably for generations, and they have
been in the habit of granting commercial, and sometimes other sorts
of credits, to these German banks for thefinancingof the exports of
American cotton, copper, and all sorts of things. That has been the
practice that has gone on, and I am told that there are 90 of these
American banks that have been! engaged in this perfectly legitimate,
proper banking process, very necessary to the whole export trade of
our country, so far as Germany is concerned. And yet the public
inind has been apparently almost inflamed with the idea of large
figures. I have heard statements made that certain New York banks.
33
SALE OF FOREIGN 'BONDS OR SECURITIES
for instance, were loaded up with these short-term German credits to
the extent, in any individual case, of two or three hundred million
dollars. Of course that is perfectly fantastic. I have not looked at
the portfolios of the banks m New York, but I happen to know that
the largest amount of credit outstanding in any bank is $70,000,000
or thereabouts, and it would be in the case of a bank whose other
capital resources were so large that it was not a matter of danger, or
even of comment.
Senator GORE. D O they not have security anyway, Mr. Lamont?
Mr. L A M O N T . Yes; they presumably have security. These bills are
of two orders, chiefly, presumably, for commercial transactions—
what they call commercial bills, drawings by the German banks
against their American correspondents in Chicago, Boston, New
York, or wherever it may be, concerning the financing of shipments.
Senator GORE. The banks have not assumed any particular risk in
connection with short-term credits, have they?
Mr. L A M O N T . It is obvious that the total of the short-term credits
extended to German banks by the aggregate of banks in America,
Great Britain, France, Switzerland, and Holland, we will say, has
been a cumbersome amount. I will put it that way. That is obvious,
because when things came to a crisis in Germany last summer you
will recall that a temporary arrangement was entered into in which
these banking credits woulcl be extended automatically for a period
of six months, until investigation: could be made and an orderly
process restored. Mr. Wiggin and other bankers from other countries are now in Berlin, as you know, for the purpose of arranging a
schedule of gradual liquidation of these.
Senator GORE. The morning paper says credit has been extended
for a year.
Mr. L A M O N T . That may be true, but I think it is important for this
committee to know—as it would ordinarily know anyway—that these
short-term German credits do not constitute, in their volume, a
danger to the American banking situation to-day.
Senator COUZENS. Mr. Lamont, with reference to those bills, were
they not self-maturing?
Mr. L A M O N T . I have no doubt that a large part were self-maturing.
Some were not self-maturing. They were what might be called
finance bills; but I assume that there was a general understanding
between the German bank—it might be the Deutsche Bank, or whatever it might be—and its American correspondent, that as one particular bill fell due it could be replaced with an equivalent amount
from another good bill.
Senator COUZENS. May I ask what effect it would have had upon
those short-term credits if Germany had gone off the gold standard,
say, last May, or April, or June?
Mr. L A M O N T . I cfo not know what public effect would have been
had, but so far as the ultimate effect is concerned, I would not look to
see any, because those are dollar credits, you understand.
Senator COUZENS. But they are not the same dollar credits as are
referred to in the bonds, where thefinenessand weight are considered.
Mr. L A M O N T . The same document is not invoked. It is not such a
formal document, but they are just as much payable in American
dollars, finally, as any bond is.
34
SALE OF FOREIGN" B O N D S O R SECURITIES
Senator COUZENS. SO that, in effect, if Germany had gone off the
gold standard last April, for example, these short-term loans would
not have been affected in value, except psychologically?
Mr. LAMONT. That is all. And if she should go off the gold standard to-day, by any chance, they would not be so affected.
Senator SEED. It would merely take more marksto raise that many
dollars.
Mr. LAMONT. T O raise the same amount in dollars.
Senator SHORTRIDGE. The obligation is to pay in American gold
dollars.
Mr. LAMONT. That is it.
Senator BARKUBY. That applies, of course, only to $ 2 0 0 , 0 0 0 , 0 0 0 of
this $ 5 0 0 , 0 0 0 , 0 0 0 German issue that you mentioned a while ago.
Mr. LAMONT. I beg your pardon?
Senator BARKUBY. That situation applies only to $ 2 0 0 , 0 0 0 , 0 0 0 of
the $ 5 0 0 , 0 0 0 , 0 0 0 you spoke of a while ago. The total of the two
issues of your houseMr. LAMONT. Let me make the discrimination there. The two
issues I spoke of, Senator, were two long term bond issues of the
German Government.
Senator BARKLEY. Yes.
, Mr. LAMONT. These short-term credits are not to the German
Government at all, and the German Government has no immediate
concern. They are to German banks.
Senator W A L S H of Massachusetts. Do our banks carry short-term
credits from other countries?
Mr. LAMONT. Oh, certainly—France, Italy, and all over the world.
The CHAIRMAN. It seems unlikely that we shall be able to get
through with the witness at this morning's session.
Senator JOHNSON. Before you adjourn, Mr. Chairman, there are
two questions, merely for additional clarity.
About what would you say, Mr. Lamont, was the amount of the
short-term credits—the average amount?
Mr. LAMONT. What do you mean by "the average amount"?
Senator JOHNSON. What would be, generally speaking, the shortterm credits that are outstanding?
The CHAIRMAN. In the United States.
Mr. LAMONT. YOU mean of German banks?
Senator JOHNSON. Yes.
Mr. LAMONT. I could not answer that, Senator Johnson, because
we have not been in close touch with that situation, but I think Mr.
Mitchell, when he comes on the stand, will probably be able to give
you an approximate reply.
Senator JOHNSON. I have seen it stated in the press—and I do
not, of course, vouch for the accuracy of it because of that fact—1
that they aggregate something between $ 7 0 0 , 0 0 0 , 0 0 0 and $ 8 0 0 , 0 0 0 , 0 0 0 .
Would that be substantially correct, in your opinion?
Mr. LAMONT. That I honestly do not know.
Senator JOHNSON. Of these short-term credits, you have said that
one bank has $ 7 0 , 0 0 0 , 0 0 0 at the present time.
Mr. LAMONT. That is the largest holding, I understand^ of any
one institution.
! Senator JOHNSON. That is, one single institution in this country
has $ 7 0 , 0 0 0 , 0 0 0 . That is all, sir.
35
SALE OF FOREIGN BONDS OR, SECURITIES
Senator B A R K L E I \ Just one question in connection with these
German loans. These two loans, in which you participated to the
extent of about $200,000,000, aggregate $500,000,000. Three hundred
million dollars were floated in other countries; is that correct?
M r . LAMONT. Y e s .
Senator B A R K L E Y . The Dawes and the Young loans?
M r . LAMONT. Y e s .
Senator B A R K L E Y . D O you know whether the German
government
has floated additional loans in other countries?
Mr. L A M O N T . N O ; she has not. Not so far as I am aware; I will
put it that way.
Senator B A R K L E Y . Up to this time there has been no default of
any sort in keeping the bond of these loans?
M r . LAMONT. NO.
Senator W A L S H of
Massachusetts. Mr. Chairman, I move that we
recess.
Mr. L A M O N T . Mr. Chairman, may I make one observation just
before we adjourn, brought about by Senator Johnson's emphasis on
this sum of $70,000,000? I quoted deliberately that amount of
$70,000,000 to show how exaggerated the statements were as to very
much larger amounts in individual institutions, and I added the fact
that in the case of this particular institution, whatever it was, its
capital resources were so great as to make this amount constitute
nothing in the way of a menace or danger of any kind. The reason
that 111 are perhaps gone out of my way before this committee to
emphasize these points about these credits was that there is a good
deal of unwarranted and undue tremor in the public mind about the
soundness of certain large financial institutions, and I think that
every opportunity shouldoe taken to reassure the public mind on the
points winch are weighing upon it now. I make that statement by
way of explanation.
'f'he C H A I R M A N . If there are no further questions at this time
Senator T H O M A S of Idaho. Mr. Lamont, do you feel, then, that
the investing public is unduly exercised about the German bonds?
Senator W A L S H of Massachusetts. Securities, you mean.
Senator T H O M A S of Idaho. The German bonds that they hold.
Mr. L A M O N T . I would say from my observation that they are unduly exercised.
Senator GORE. I would like to ask one question in connection with
Germany, Mr. Chairman. We hear it repeatedly stated, Mr. Lamont,
in the magazines that Germany has been making reparations payments, either directly or indirectly, out of borrowings and not out
of revenues; that she has been paying her old debts by creating new
debts. I know of no truth to that effect. Are you in a position to
say whether that is true or not?
Mr. L A M O N T . Senator Gore, in answering that you would have to
point out this: You can not divide the revenues of any government
into various pockets in the way of receipts and then divide it into
other pockets in the way of outgo. The thing all comes in and it all
goes out* Undoubtedly the loans which countries foreign to Germany have made to the German Government, to German municipalities, and to German industries—if in any case—and to German banks
have helped to put the German people in a position so that they could
better pay reparations. These loans have undoubtedly helped to
36
SALE OF FOREIGN 'BONDS OR SECURITIES
reestablish the German economy, to get their industry going, and, in
so far as that has been accomplished, and in so far as they have been
users of American products, those loans have been very constructive
for America.
Senator GORE. The point is that she was not getting out of debt
and was not paying debts with revenues, but with money borrowed.
Mr. LAMONT. That is perfectly true. Also, as these revenues have
flowed through other governments to the United States, they have so
far helped to pay intergovernmental debts to the United States
Government.
The CHAIRMAN. If there are no further questions to be asked at
this time, the committee will stand adjourned until 1.30 this afternoon. Mr. Lamont, we would like you to continue at that time.
(Whereupon, at 12 o'clock noon, the committee recessed to meet
at 1.30 o'clock p. m.)
AFTER RECESS
The committee resumed at 1.30 p. m., at the expiration of the
recess.
The CHAIRMAN. The committee will come to order. Mr. LamontJ
you may proceed;
TESTIMONY OF THOMAS W. LAMONT, OS J. P. MORGAN & CO.,
NEW YORK CITY—Resumed
Senator JOHNSON.' Mr. Chairman, before the witness proceeds with
his statement ma^ I ask him if it is within his knowledge and he
can do so, if he will answer this question : Can you take a loan like
the first one that was mentioned, the Argentine loan of $159,800,000,
and follow it through so we may know exactly the procedure in
relation to the various loans that have been made?
The CHAIRMAN. Senator Johnson, did you mean to follow it
through up to date, so that the committee may know what is its
status now?
Senator JOHNSON. I want Mr. Lamont to follow it through the
various steps taken by his house, in order that we may understand
exactly the mode of procedure in the matter of these various loans.
Thus far he has stated, and very frankly, but in general terms
concerning them. I thought if he would take one loan, like the
Argentine loan, and that was the first one he spoke of, and would
just describe it from beginning until it was disposed of in this
country, it would give us a picture of the entire situation which
otherwise we would not have.
The CHAIRMAN. Mr. Lamont, have you that information?
Mr. LAMONT. I think so. But I am not sure that I can satisfy Senator Johnson. Yet I think, with the information I have at hand, I
should be able to do so. At least I can go ahead, and then by inquiry
Senator Johnson can develop any points that I do not fully cover.
Senator JOHNSON; I will thank you to do so.
Mr. LAMONT. That first loan to the Argentine was back June 2,
1925; and I assume that prior to the date of that issue the representatives of the Argentine Government stated to us they desired
to secure a certain loan in an external market, like the American
37
SALE OF FOREIGN BONDS OR, SECURITIES
market, and that they described the purposes for which the Government legitimately required such a loan. I assume that this purpose appealed to us as sound and constructive and that we undertook
to canvass the situation and ascertain whether we could issue such
a loan upon the American market, subject to a check up with Washington to find if there were any political auestions involved. Whereupon I assumed that some time prior to tne date of issue
Senator JOHNSON (interposing). Will you pardon me for a moment?
Mr. L A M O N T . Certainly, Senator Johnson.
Senator JOHNSON. Y O U say you " assume." May we take that as
a colloquialism for stating the fact?
Mr. L A M O N T . That is my way of stating that that was the invariable practice, Senator Johnson.
Senator JOHNSON. Yes, sir.
Mr. L A M O N T . I can not recall the circumstances relating to this
particular issue, of course, but that is undoubtedly what took place.
Senator JOHNSON- All right.
Mr. L A M O N T . Then, in due course and prior to the issue, we undoubtedly executed a contract with the Argentine Government, and
I assume that the Argentine Government's signature was given
through the Argentine ambassador at Washington, or something like
that, and we formed our syndicate group, in that instance consisting
of 782 participants; and in due course on the date mentioned, June
2,1925, we proffered those bonds to the Dtiblic.
Senator JOHNSON. D O you know at what price they were proffered
to the public?
Mr. L A M O N T . Certainly.
Senator JOHNSON. Will you please tell us?
Mr. L A M O N T . At the issue price of 9 6 . There was the same spread
as described this morning, when I spoke of that and the other issues.
At the same time that we offered them to the public the members of
the syndicate, consisting of banks, banking houses, bond houses, and
so forth, undoubtedly offered those bonds to their own clients
throughout the country. They had their salesmen, I assume, to offer
them, and finally in due course the issue was completed. Now, I
assume that in the case of this issue, as in the case of the great bulk
of the issues of bonds, they .were placed with investors and that, after
continuing the syndicate for a certain number of days to be assured
that the market was sound and required no support on the part
of the syndicate, we dissolved the syndicate, and then that operation
would have been completed.
Senator JOHNSON. Was there more than one syndicate there?
Mr. LAMONT* No; in that instance only one.
Senator JOHNSON. In the first instance were the dealings undertaken entirely by your house?
Mr. L A M O N T . N O : they were undertaken by our house and one
other.
Senator JOHNSON. And what was that other house, if you please?
Mr. L A M O N T . It is not recorded here, but I assume it was the
National City Bank or the National City Co.
Senator REED. N O W . if I may interrupt you, Senator Johnson.
Senator JOHNSON. All right
38
SALE OF1 FOREIGN BONDS' Oil SECURITIES
Mr. LAMONT. That will all appear in the record that I will furnish—I will add for your benefit, Senator Johnson.
Senator JOHNSON. I thank you.
Senator REED. Was the purchase price that you and your one
associate in this case paid to the Argentine Government made known
to the seven hundred and odd members of the syndicate who took
the bonds over from you?
Mr. LAMONT. Approximately, oh, yes; in every case.
Senator REED. YOU have not concealed from them the fact that
the purchasing group was making a small profit before selling to
the syndicate, hav^ you?
Mr. LAMONT. Oh, no. On the contrary, in the syndicate letter we
say that the bonds will be syndicated at such and such a price, that
price " representing a profit to the original group."
Senator JOHNSON. In the first instance what was the purchase
price, if you please?
Mr. LAMONT. The bonds were originally purchased at 92.
Senator JOHNSON. That is by you and tlie National City Co.
Mr. LAMONT. That is it.
Senator JOHNSON. NOW, the svndicate was immediately formed
after the purchase of the bpndsf
Mri LAMONT. I do not know how soon after the purchase, but it
was formed subsequent to the purchase.
Senator JOHNSON. At what price were the bonds handed to the
syndicate?
Mr. LAMONT. They were handed to the syndicate at 93%.
Senator JOHNSON. At 93y2 did you say?
M r . LAMONT. Y e s .
Senator JOHNSON.
And then" the syndicate sold them at what
price? If you have stated it, I did not get it, and I wish you would
repeat it for my benefit.
M r . LAMONT^ A t 9 6 .
^ Senator JOHNSON. They('were sold at 96 by the syndicate;
M;
Mr. LAMONT; That is right.
Senator; JOHNSON. I thank ybu.
Mr. LAMONT. D6es that complete your inquiry. Senator Johnson?
Senator JOHNSON. It does for this particular instanceMr. LAMBERT. Good: Now; I will
s a y — '
Senator REED (interposing). Mr. Lamont, -will you start at that
point in your table at which .you were last interrupted and complete
the list Of foreign loans?
Mr. LAMONT. I can do that I think without much delay. To Italy
there were two loans. This record, which I will file with the committee in a day or two, will show one was in 1925 and the other in
1927, one of them direct to the Italian Government of $100,0002000,
and the other to what was known as the Italian Credit Consortium,
being a corporation owned by the Italian Government, as I recall it,
but the exact relationship does not appear here, for a total of
$12,000,000; < The original issue of $100,000,000 has been reduced by
the operation of the sinking fund to about $89,000,000, and the other
to about $91)00,000 from the original amount of $12,000,000.
Senator SHORTRIDGE. As to all of the; Government bonds issued
concerning which you have testified, they^ere severally payable in
gold, were they not?
39
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. L A M O N T . They were severally payable in gold dollars.
Senator SHORTRIDGE. Of a certain weight and fineness.
Mr. L A M O N T . Yes. In no instance have we issued any other character of bonds. Now, to go ahead with the Italian bonds: One
issued for the city of Rome in 1827 for a total of $30,000,000, which
has been reduced by the sinking fund to $27,500,000, in round
numbers.
Then, in February, one to Japan, and that was what was known
.
as the large reconstruction earthquake and fire loan
Senator JOHNSON (interposing). You have passed away from Italy
now.
M r . LAMONT. Y e s .
Senator JOHNSON.
Will you please state what, if any, compensation or remuneration was received by you in the case of the Italian
loans?
Mr. L A M O N T . In the case of the first Italian loan the gross spread
was iy 2 per cent, and our managing commission was two hundred and
twenty-five one thousandths of 1 per cent. In the case of the second
loan the gross spread was 4 per cent and our managing commission
was one-fifth of 1 per cent. In the case of the Rome loan the spread
was 4 per cent ana our managing commission was one-fifth of 1 per
cent.
Now, if you are ready, we will come to the Japanese bonds.
Senator JOHNSON. Just pardon me for a question before you leave
the Italian bonds,
Mr. L A M O N T . Certainly*
Senator JOHNSON. Were the Italian bonds taken alone by the house
of Morgan?
Mr. L A M O N T . Oh, no. In the original purchase group in each
instance there were three participants.
Senator JOHNSON. I beg pardon, but I did not hear your answer.
Mr. L A M O N T . I say, there were three participants in the original
purchase group.
Senator JOHNSON. Will you state what three tliey were?
Mr. L A M O N T . I do not remember^ but we will certainly furnish
that information to }*ou.
Senator JOHNSON. All right.
Senator HARRISON. What was the date of the last Italian issue I
Mr. L A M O N T . The last Italian Government issue was . a 7 per cent
bond issued at 96^.
Senator HARRISON. And that was after we had funded the debt
with Italy at 23 cents on the dollar, wasn't it?
Mr. L A M O N T . Yes; that is right.
Senator J O H N S O N . And the other one was taken at what price,
please?
Mr. L A M O N T . That was the last one. The other one was at !)4y2r
being a 7 per cent issue.
Senator JOHNSON. S O that we have one before and one after the
funding of the Italian debt?
Mr. L A M O N T . No; not one before the funding of the Italian debt.
Senator JOHNSON. Both afterwards?
Mr. L A M O N T . Yes; both subsequent to that time.
Senator REED. And both of them had to carry 7 per cent on the
face value.
SALE OF FOREIGN BONDS OR SECURITIES
40
M r . LAMONT. Y e s .
Senator HARRISON,
Wasn't that issue being negotiated about the
time we were negotiating the funding of the Italian debt?
Mr. LAMONT. I can answer that question very specifically because
I happened to conduct the negotiations. So I will say that there
was not even one word or hint or suggestion of a loan from us until
they had signed up here in Washington. If I understand the nature of your'inquiry I think it well to make a comparison between
the rates of the Government settlement and the rates of this. Of
course, these bonds that were issued to the public have got to be
priced^ in accordance with market conditions prevailing at the
time, and that is the,sole guiding feature. If French bonds are
selling on a 7 per cent basis you could not hope to offer Italian
bonds on better tliart a 7 per cent basis, and perhaps not quite so
good. That is the sole consideration in the pricing of these issues.
What is the value of money being invested in the general market
based upon bonds of a similar order of credit?
Senator JOHNSON. Don't you think you could put that in another
way. That that represents the capacity to pay of the debtor, too?
Mr. LAMONT. I would think so.
Senator REED. Those two Italian issues were offered for the Italian Government in order for it to raise new money?
M r . LAMONT. Y e s .
Senator REED. And
the Italian Government quite naturally had to
pay the market price to get that new money?
Mr. LAMONT. That is it.
Senator REED. But the refunding of the American Government's
claim against the Italian Government was not an attempt to bring
in new money, but an attempt to salvage money already owed, a
salvaging operation for an existing debt which was made in the
stress of war time ?
Mr. LAMONT. That is correct.
Senator HARRISON. You advised your correspondents, however,
that these Italian issues were good and sound, a safe investment?
Mr. LAMONT. Why, Senator Harrison, we never issue a bond unless
we believe it to be good.
Senator K I N G . Let me ask right there: Were those bonds purchased?
M r . LAMONT. Y e s .
Senator K I N G . SO that you practically underwrote them?
Mr. LAMONT. Yes ; all of them were purchased. On the point
that
Senator Reed makes let me say: I recall at the time that it was
Count Volpi, Italian Finance Minister, who said to us when he
opened up the question of a loan that he had entered into certain
commitments with the United States Government which he was
obliged to fulfill in due course, and that it was absolutely necessary
in Ms scheme of things to arrange for the stabilization of the Italian
currency at the earliest possible moment* and that in order to do
that effectively he must seek some foreign credit.
Senator JOHNSON; Can you state approximately how long after
the funding of the debt with the United States Government those
loans were made?
41
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. A S I rccall it, the Italian settlement was made some
time in the autumn of 1925, and after it was signed up, and very
soon thereafter, Count Volpi came to New York.
Senator W A L S H of Massachusetts. That rate of 7 per cent was
considerably higher, at the time those bonds were issued, than the
rates current upon municipal, State, and industrial bonds of this
country, w^as it not?
Mr. LAMONT. Oh, certainly.
Senator WALHII of Massachusetts. So that there was somewhat of
an inducement on the part of bankers in this country to invest
abroad because at a larger rate of interest.
Mr. LAMONT. Well, of course, the rate of interest is always gaged
by the credit of the obligor. You are quite right about that.
Senator W A L S H of Massachusetts. It is also a benefit to the purchaser of the bonds to get the high rate of interest?
Mr. LAMONT. Certainly, as high a rate as he can get consistent
with safety.
Senator SHORTRIDGE. Mr. Lamont, from time to time as you are
proceeding you speak of retiring certain bonds by and through the
sinking fund.
Mr. LAMONT. Yes*
Senator SHORTRIDGE. Would you have the goodness to make that
clear? There are those who do not quite understand that process.
What I want developed is, in order tliat all may understand what
is meant by the retirement or payment of outstanding bonds, the
application of funds in the sinking fund.
Mr. LAMONT. All right.
Senator SHORTRIDGE. Will you have the goodness to explain that?
Mr. LAMONT. Certainly. That is along the same lines that I
answered certain questions propounded by Senator Couzens this
morning.
Senator SHORTRIDGE. Yes.
Mr. LAMONT. In the case of these foreign bonds, speaking in general terms, the contract provides that the Government, which is the
obligor, shall annually or semiannually meet not only the interest
due—that is, the coupons—but shall also remit a certain amount of
money to act as a sinking fund for the retirement of the bonds.
Sometimes the amount of that sinking fund is so considerable as
automatically to retire the entire issue of bonds by maturity. Sometimes it is not as large as that. It depends upon circumstances.
Then that sinking fund operates in one, perhaps, of two ways:
Sometimes it is, such as the British , practice, for the sinking fund
simply to take bonds by lot or bv drawing into the fund and pay a
certain price for them, and the bonds, so far as any reissue is concerned, are not kept alive, but the sinking fund operates each year
to reduce the amount of the bonds outstanding.
The other method is by the market operations that Senator
Couzens was developing this morning, that is to say, in the case of
the Italian bonds the Government might say, " We will place in
your hands one, two, or three millions of dollars per annum, wherewith you shall acquire at the market price from time to time such
bonds as may be available."
Senator SHORTRIDGE. That is< to say, your buv outstanding bonds
by the application of the money in: the sinkingfund?
42
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. That is it exactly.
Senator SHORTRIDGE. And you retire the bonds so purchased.
Mr. LAMONT. That is it exactly. And as they are retired of course
it makes the total of the . bonds diminish, and automatically adds
to the safety? of the residue held:by the American investors.
Senator REED. This particular Italian issue you are talking about
has a definite call price, I think. I think I recall seeing an advertisement calling bonds by lot within the last couple of weeks.
Mr. LAMONT. Well, that is very likely, Senator Reed.
Senator GORE; In those loans that you managed for Italy, you
considered their capacity to pay, you said a moment ago. You took
their willingness to pay. for granted^ did you?
Mr. LAMONT. Not only their willingness to pay, but their determination to pay;
Senator GORE. But in relation to the debts which that government owes to the United Statesj both the capacity to pay and the
willingness to pay seem to constitute factors.
Senator REED. If I might interrupt I. will say: I think the only
cases in which an unwillingness to pay has been shown by a foreign
government is the case of Russia.
Senator GORE. I do not think so. I think France has shown considerable unwillingness to pay in connection with reparations payments to her.
Senator REED: They have not defaulted.
Senator GORE. I do not mean to say that they have defaulted,
but they have stated and restated, have iterated and reiterated their
unwillingness to pay unless they collect reparations. I have read
to me newspaper statements to that effect at least, but I do not know
whether the newspaper statements to that effect are correct or not.
Senator KING. Senator Gore, do I understand you to mean that
France, since she has negotiated a settlement with the United
States the terms of which it is not necessary to inquire into here,
has given out statements, that is, any responsible government in
France or any person responsible in France to speak for the government, to the effect that France would not pay the United States
as the obligations mature unless reparations were paid to her by
Germany?
Senator GORE; I could not say that any one officially authorized
to represent the French Government has said that, but that statement has been repeatedly published in the newspapers, and Mr.
McFadden in the House stated a day or two since that within four
or five days there had been received such a communication from
France. Now, I do not think we ought to attach too much importance to that, and it was for that reason I introduced a resolution
calling for the information, because I think a whispering campaign
of that sort is unfortunate, and of course if it is not true the facts
ought to be known. But there is no secret that France at least has
been represented, whether responsibly or not, as having the fixed
purpose not to pay the Government of the United States unless she
collects reparations from Germany' and I think that represents her
attitude to-day. But, Mr. Chairman, pardon this digression.
Mr. LAMONT. Mr, Chairman, shall I now proceed ?
The CHAIRMAN: Senator Gore, the time to find that out is when
France refuses to pay, and I do not think she is going to do it.
43
SALE OF FOREIGN BONDS OR, SECURITIES
Sir. L A M O N T . We come now to the two direct Japanese Government issues, the first one of February 11, 1924
Senator CORE (interposing). Pardon the interruption. But, Senator King, that was connected with their ratification or approval of
the Berenger-Mellon agreement, that her payments depended upon
reparations.
Mr. L A M O N T . I will continue.
The C H A I R M A N . Please do so.
Mr. L A M O X T . The first of these Japanese loans, being that of
February 11, 1924, and being known in general terms as a loan for
reconstruction and rehabilitation of Japan after their terrible
earthquake and fire of the previous September; that was in
effect an international loan in respect of the fact that there was an
offering in the British market coincident with the offering in the
American market. The total amount of the issue was $150,000,000
in the American market, bearing
per cent interest, and issued at
92y2. There was an outside spread of 5 per cent. The operation of
the sinking fund has reduced the outstanding issue from $150,000,000 to $133,000,000. There was a very large public response
to that issue, particularly because of the faith in the promise to pay
I take it, of the Japanese Government, plus a feeling of great sympathy for the hardships which their people were enduring.
The second Japanese Government bond issue was made in May
of 1930. It was for $71,000,000 as I have it here, at 90, with a 4 per
cent spread.
Senator JOHNSON. With how much of a spread ?
Mr. L A M O N T . Four per cent.
Senator J O H N S O N . I thank you.
Mr. L A M O N T . Then coming to the three issues
Senator REED (interposing). Those were 5 % , were thev not?
Mr. L A M O N T . Yes. Then coming to the three Japanese issues
guaranteed by the Imperial Government, one of them was to the
city of Yokohama in November, 1926, a 6 per cent bond for approximately but not quite $20,000,000, and which has been reduced by the
sinking fun to $18,000,000 plus, issued at 93, with a 4 per cent spread.
The next was a loan to the City of Tokyo, guaranteed by the Imperial Government, made in March of 1927, 5y2 per cent bonds, for
a little over $20,000,000, and which has been reduced by means of
the sinking fund to a little over $19,000,000 now, issued at 89y2,
with a 3y2 per cent spread.
The third issue, last June, to the Taiwan Electric Power Co., that
is, an electric power company operating power in the Island of
Formosa, guaranteed by the Imperial Government, of $22,800,000,
at 5V& per cent, issued at 93%, with a
per cent gross spread*
The only other long-term issues that we have had were, two to the
Government of Switzerland, one dating back to August i , 1923, a 5
1>er cent loan of $20,000,000. Well, that was really not a long-term
oan. It has all been matured and paid off now.
Senator K I N O . Was that a loan to the Government of Switzerland
or to one of the cantons!
Mr. L A M O N T . N O ; that was a loan made.directly to the Government
of Switzerland, r
», *
Senator K I N O . I thank you;
44
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT.1 The next loan was in April of 1924, issued for
$30,000,000, at 5% per cent, at 97%, with a 3%-point spread.
Senator JOHNSON. Returning to the Japanese loans for just A
moment, please: Were they all syndicated?
Mr. LAMONT. They were all syndicated. Senator.
Senator JOHNSON. And were they all disposed of to the general
banks and the general public?
Mr. LAMONT. Well, I can not answer that. I have not enough
details to show, but I assume that the syndicate was wound up without ha vinjg to take any of the bonds back. But as to that I do not
know; It is easy enough, to find out, however. As I have said, in
the case of the first issue there was a very strong response on the
ground that-—- '
Senator JOHNSON (interposing). That was after their great disaster?
Mr. LAMONT. Yes; after the great earthquake.
Senator JOHNSON. Were those bonds in thefirstinstance all taken
by the house of Morgan ?
Mr. LAMONT. The original purchasing group included four, and I
happen to remember in that instance that they were J. P. Morgan
& Co., Kuhn, Loeb & Co., the National City Bank, and the First
National Bank.
Now, the Switzerland loans I have already given to you, and that
covers our issues since the* war, or since 1920, of long-term indebtedness of foreign governments.
The CHAIRMAN. Mr. Lamont, will you hand that list to the
shorthand reporter for the purpose of our record?
Mr. LAMONT. I should like to have this to take back with me to
check it over and supplement it with certain information in response
to inquiries made here, so as to make it more complete. I got this
up very hastily;
The CHAIRMAN. That will not take you very long?
M r . LAMONT. NO.
The CHAIRMAN. Then
we will have to hold up our printing until
you can get that to us.
Mr. LAMONT. But this would be very likely as an annex to the
record.
Senator WALSH of Massachusetts. I note that you have had only
one issue of foreign bonds during the past year.
M r . LAMONT. Y e s .
Senator WALSH of Massachusets. And that is a small issue.
M r . LAMONT. Y e s .
Senator WALSH of Massachusetts. Is that due to conditions
in
Europe and throughout the world?
Mr, LAMONT. That is due to conditions throughout the world.
Senator WALSH OF Massachusetts. But I suppose you have had
applications?
Mr. LAMONT.^ Well, I think the most of the foreign governments
have fully realized prevailing conditions and have refrained from
making application.
The CHAIRMAN. You may proceed.
Mr. LAMONT. We also in the course of these years issued certain
very short-time securities, and also certain revolving credits to the
45
SALE OF FOREIGN BONDS OR, SECURITIES
governments, all of which have matured and been paid off, and none
of which had to do with the investing public, which I assume this
resolution has particularly to do with.
Senator K I N G . And I assume some of those were based upon commercial transactions, were they not?
Mr. LAMONT. In general, Senator King, they were, I would say,
because they were Government transactions, more in connection with
Government operations. It might be some temporary credit, for the
stabilization of the lira, or something like that, which was matured
.and paid off. But that was the general purpose.
Senator KEED. Mr. Lamont, has American commerce benefited from
these loans in any way?
Mr. LAMONT. Why, Senator Reed, I should think that American
commerce had in the long run benefited very greatly by these loans.
Of course it is quite arguable that in certain instances the matter of
foreign loans has been overdone, but to take the situation as a whole
we all know that foreign nations in Europe found themselves after
the war denuded as to working capital. That applied to the industries; it applied to a very great many different phases of their situations. And those loans liave been designed, as is quite manifest as
stated on their face, either for stabilization purposes or to furnish
funds that might be used for temporary credit in an attempt to
restore the normal course of commerce. We all know that our foreign trade is dependent upon the normality with which those processes can be carried out. And I go so far as to say that not only
have they contributed very materially to the maintenance during
those years of our foreign trade, but that they have contributed very,
very materially to the capacity of the borrowing governments to enable them to discharge their obligations when due, and punctually,
to the United States Government.
Senator BARKLEY. The press over a period of years or months has
constantly stated and reiterated that Germany was paying reparations to the European nations out of money which she borrowed in
the United States and that in turn those nations paid to the United
States out of their war debt, and that that vicious circle seemed to be
perpetual, until this year, when no longer could they borrow money
m this country with which to pay reparations, the present condition
arose, and that that was largely responsible for the so-called moratorium. To what extent has "Germany paid reparations to other
nations in Europe out of money borrowed in the United States?
Mr. LAMONT. Well, a somewhat similar question was propounded
to me this morning, and I ventured to point out that you could not
make an exact coupling between those two forms of operation, be-,
cause you can not form a direct connection between a loan, for
instance, that some American bank may make to the city of Bremen
for harbor improvements and a payment by the German Government
of reparations. But in general you can say this without any question, that the loans made to the German economy as a whole, governmental, municipal, industrial, and so forth, and even credits extended
to the banks, were designed to improve the conditions toward a
restoration of normal conditions in Germany; and to put her people
in a way to enable them to pay reparations. So that if you want to
92928—31—
46
SALE OF FOREIGN BONDS OR, SECURITIES
be very rough and ready about the thing I think you are quite warranted in saying that the loans made to Germany were moneys which
will help enable Germany to pay reparations, which restored her so
that her economic situation was such as to enable her to pay reparations to other European governments, and the .moneys such governments received in that way added, of course, to their capacity to meet
their obligations to the United States Government.
Senator BARKLEY. So far as actual loans to the German Government are concerned, only a little more than $200,000,000 having been
engaged in this country since 1920, that means that Germany could,
not pay all of her reparations from money she has borrowed as a
Government.
M r . LAMONT. N o .
Senator BARKLEY.
Whatever indirect effect all the loans might
have in the way of assisting the German Government in its ability
to pay reparations, it is decidedly untrue to state tliat the Government of Germany as such, out of the money borrowed from this
country, had paid reparations during a period of years.
Mr. LAMONT. Such statement is entirely inaccurate.
Senator KING. None of the loans were earmarked so as to know
that they were money for reparations to pay other countries, I
take it?
M r . LAMONT. N o .
Senator REED. It is
also true that the German Government has borrowed more money from-other European countries, including Great
Britain, than it has borrowed from us, is it not?
Mr. LAMONT. I have no record of that, Senator Reed, but that
would be my guess, because the German Government or people in one
way or another have borrowed, I think, a good deal of money in
Switzerland and in Holland and in Sweden, and so forth.
Senator REED. We know that more than half of the Dawes and
Young loans werefloatedabroad.
Mr. LAMONT. More than half of the Young loan was, but about
half of the Dawes loan.
Senator REED. That is the only long-term borrowing that the German Government, properly speaking, has done, is it not?
Mr. LAMONT. In this country, yes, and otherwise too so far as I
am aware.
Senator WALSH of Massachusetts. Can you state the total extent
of the value of foreign bonds your company has handled in this
period?
Mr. LAMONT. I can tell you the total value, Senator Walsh, at the
time of the issue, and the total remaining outstanding.
Senator WALSH. I should like to haye that for the record.
Mr. LAMONT. The principal amount of the bonds offered by us,
long-term bonds I mean, and let me put that in, in the period referred
to, namely, since 1920, has been $1,807,578,000'. Out of that amount
there has been retired by the operation of sinking funds arid otherwise the sum of $438,280,100, leaving outstanding as of December
15, this month, $1^369^297,900.
Senator WALSH of Massachusetts. I thank you.
Senator L A FOLLETTE. Mr. Lamont, what factors do you take into
account in making arrangements before you undertake to underwrite
47
SALE OF FOREIGN BONDS OR, SECURITIES
or float one of these loans ? I am not now speaking of any particular
loan, but your general practice.
Mr. LAMONT. The factors that we take into consideration of course
are, first, the standing of the government itself which proposes to
become the obligor; the factor as to whether its budget is in balance,
or nearly in balance, or is headed closely toward a balanced budget.
Manifestly if a government were headed toward getting her budget
further out of balance, that would be an adverse factor and a very
strong deterrent. The next question would be the purposes for which
the proceeds of the issue were to be devoted, whether on the whole
those purposes were constructive or otherwise. And that is a point
one can not entirely answer always. I mean in the case of a lesser
government you can ask specifically: Just what are you going to do
with this money? In the case of the French Government or the
Government of* Great Britain, latter of which of course does not
appear on this list, where the government is above all Question a*
to its soundness of method, why, it might devote it to the general
purposes of the government. We may happen to know, as in the
case of Italy, that it is for the stabilization of the lira, that that
was foremost in their mind. Those are the chief factors, plus the
state of our own market, which is a very important point.
Senator L A FOLLETTE. Do you take into account the ability of the
Government to convert their currency into dollars? In other words,
do you take foreign exchange from both angles into consideration?
Sir. LAMONT. Oh, yes; that is taken into consideration; and we
always make certain to our own satisfaction that the service, interest
and sinking fund, on any issues we propose to bring out are not so
considerable as to be an undue burden upon the exchanges.
Senator L A FOLLETTE. D O you take into consideration—for instance, in the case of Germany—a possible conflict between payments
on these obligations which you underwrite and obligations which the
Government has in the way of war debt or reparations payments?
Mr. LAMONT. We think "that might be an academic question, Senator La Follette, but not a practical question. It is not a practical
question because, as you bring up the case of Germany and we may
look to that particufar instance, we know that the only method by
which Germany can be restored to economic health and by which
she can pay any obligations she may be undertaking for reparations
is to have the normal course of traae and commerce restored in that
country. So that while it might be on the face of things a conflict,
and you may call it a priority, or whatever it may be} there is no
actual question there. Take tlie case of France vis-a-yis Germany :
It is realized that unless German commerce is restored, unless she is
put in position where her people and corporations can pay taxes to
continue government revenues, reparations can not be paid. So that
while there has been considerable in the papers of late on this question of priorities, as a matter of actual practice we do not think it is
going to amount to a row of pins.
Senator L A FOLLETTE. If I understood you correctly a while ago,
you stated that J. P. Morgan & Co. have not underwritten any loans
which have been floated for industrial corporations in these foreign
countries.
Mr. LAMONT. Might I ask you to repeat that?
48
SALE OF FOREIGN BONDS OR, SECURITIES
Senator L A FOLLETTE. I will ask the shorthand reporter to read
my question to you.
(Thereupon the question was read, as follows:)
Senator LA FOLLERM If I understood you correctly awhile ago, you stated
that .T. P. Morgan & Co. have not underwritten any loans which have been
floated for industrial corporations in these foreign countries.;
Mr. LAMONT. We have issued no such loans except in one or two
1
cases that I pointed out in this list;
Senator W A L S H of Massachusetts: To Japan, I think it was.
Mr. LAMONT. Japan I think was the only one.
Senator K I N G . That was in reference to the city of Yokohama.
Mr. LAMONT. NO; that was to the electric power company to which
I have referred.
Senator L A FOLLETTE. In that case do you endeavor to make an
analysis of thefinancialcondition of the company, as you would for
an issue of domestic bonds ?
Mr. LAMONT. In that particular case, yes; we were furnished with
very complete information as to the operations of the company, its
policy, and all that sort of thing. But, frankly, we relied more in
the last analysis upon the guarantee of the Japanese Imperial Government than we did upon the original obligor, although that in
itself was deemed to be perfectly sound.
Senator L A FOLLETTE. Speaking from your general information,
would you say that there is available as complete and accurate an
analysis of thefinancialsituation of foreign corporations for which
bond issues are floated in this country as you are able to obtain
in the case of domestic corporations seeking to float bond issues?
Mr. LAMONT. Well, you see, Senator La Follette, I do not believe
I can answer that question with authority because
Senator L A FOLLETTE (interposing). I was asking for your opinion, and I qualified the question by saying from your general
information.
Mr. LAMONT. Well, my general experience would lead me to
believe that on the whole American banking houses are very careful to secure complete and adequate information in any instance
that you might have in mind.
Senator L A FOLLETTE. Have the stock exchange listing requirements concerning foreign bonds had any effect upon the character
of the issuesfloatedin this country ?
Mr. LAMONT. Not that I know of. But I do not believe I quite
understand what you mean.
Senator L A FOLLETTE. As I understand it, the stock exchange
has within the period we have been discussing adopted some requirements concerning the flotation of foreign securities that are to be
listed on the New York Stock Exchange. I wondered whether, in
your judgment, these requirements have had any influence upon
the character of the issues floated.
Mr. LAMONT. I can answer that in a general way; no. The requirements of the New York Stock Exchange are designed to the
one end of making the technical issue of a bond perfectly safe, in
that no counterfeit 6r anything like that can be brought about.
And there has to be very great caution exercised, in that respect;
with the result that certain Countries now • and then have said* 1
49
SALE OF FOREIGN BONDS OR, SECURITIES
suppose: Well, it seems to us you are taking undue precaution
there. But those are the rules and they are complied with.
Senator L A FOLLETTE. There is nothing in those requirements
which tend to improve the character of the bonds which are listed?
Mr. L A M O N T . Oh, well, in general terms. I would not go so far
as to say to improve their character, but to improve the technical
safety oi the issue. I will put it that way.
Senator L A FOLLETTE. D O you think the policy of the State Department in giving a negative answer concerning the issues of
bonds to foreign governments has resulted in improving the character of foreign bonds issued i
Mr. L A M O N T . I do not believe I could venture an opinion on that,
simply because the practice which I said inhered in our house and
in other places, like the National City Bank, and so forth, always
to have consulted the authorities over here in Washington, and long
before there was any request of that kind made.
Senator L A FOLLETTE. What were the factors that resulted in the
flotation of such a large volume of foreign loans in this country, in
your judgment ; what were the more important factors?
Mr. L A M O N T . The important factors, of course, were, as I said
a while ago, that many of these foreign governments, or the most
of them I would thinlc, had found themselves more or less impoverished because of the ravages of war; that while their people were
industrious and hard working they were suffering from the effects
of the war and they felt that the ravages could be restored if they
could get something like working capital to help restore it. The
American investing public and the bankers, on the other hand,
looked over there and saw those countries in the last degree ultimately solvent, as we thought and as we believe will prove to be the
case. * We saw that they required this situation alleviated, and we
further saw that unless we were able to obtain a certain amount
of foreign loans for them our own foreign trade would be imperiled.
There was American money available at that time, and money wras
fairly easy, so those were tlie chief factors.
Senator L A FOIXETTE. D O you think the incentive of the commissions to be made through the flotation of these loans had any influence in the large volume that was floated?
Mr. L A M O N T . Oh. I think, Senator La Follette, that the matter
of the gross or the net profit with respect to any buy-and-sell operation is always important. We are merchants. T*hat is what we
are, just like*any merchant in the grain business or the cotton business, or anything else, and the question of a legitimate profit is certainly a consideration.
Senator L A FOLLETTE. D O you think that the higher yield of the
foreign bonds made them attractive to the American investor?
Mr. L A M O N T . I think in many instances that is perfectly true.
You take the question propounded by Senator Walsh, and he mentioned something along that line—take the loans to the Government
of France in the early part of the decade, and everybody knew in his
heart of hearts that the French people, industrious and thrifty as
they are, would ultimately be able to pay the very limited amount
of foreign obligations which they were negotiating for in dollars,
and if the market wTere 7 j>er cent, or even more, it was a very slU;
tractive investment. That is, if you had faith in the future of the
50
SALE OF FOREIGN BONDS OR, SECURITIES
country. And if you did not, it would not be attractive on any
basis.
Senator L A FOLLETTE. In your judgment, has the volume of these
foreign bonds and credits at any time during the period that we
have been-discussing, conflicted with or impaired the ability of domestic, and especially small domestic corporations, to secure credit?
Mr. LAMONT. Oh, I would answer unquestionably no. Unquestionably no. The interior banks, as you know, have always been, at least
during the period of easy money and before we ran into present
conditions, ready to grant ample credit. No; I think it would work
the other way. I should think the American export trade had been
stimulated so .much by foreign loans in general that the domestic
situation would have been aided.
Senator L A FOLLETTE. I think you may have answered this question before2 but I want to make sure that it is in the record: In your
judgment, is there a direct relation between these largeflotationsof
foreign securities in this country and the tremendous expansion of
the export trade of America during the period preceding the
depression?
Mr. LAMONT. Oh, yes. While you can not figure out the exact
cause and effect in dollars and cents, I have no doubt it had a very
strong bearing; otherwise where in the world would our foreign buyers have gotten money with which to buy our cotton, wheat, copper,
meats, and all that sort of thing? I don't know where.
Senator L A FOLLETTE. In your judgment, did that contribute to the
excessive expansion of plant facilities in this country during that
period?
Mr. LAMONT. I should not think it would be so very much, not a
freat deal at least, because what the European countries required
uring that decade, especially in the early part of the decade, was
not so much manufactured articles as raw materials and commodities
such as we were able to furnish in the way of agricultural products,
which helped us enormously in that respect.
Senator K I N G . But was not our expansion, that is our mechanical
expansion, rather during the war, and has there been very much
mechanical expansion in our industries since then?
Senator L A FOLLETTE. I do'not agree with you.
Senator K I N G . I do not state it as a fact, but I was wondering if
there had been any very great: industrial expansion in a mechanical
way since the war.
Senator L A FOLLETTE. There has been tremendous expansion in
plant capacity since the war, both due to actual expansion of plant
and to the technological improvement of industrial processes.
Senator K I N G . I know that there was during the World War and
immediately thereafter, but I did not recall that industrial expansion
had been very great during the past five or six years.
Mr. LAMONT. I think Senator La Follette is right—that there has
been considerable expansion of plant capacity in the middle part of
this decade.
Senator K I N G . Oh, yes; about that, all right.
Mr. LAMONT. That was due both to foreign and domestic demand,
chiefly domestic, I would say, where tilings, as we all know too well,
get to rolling along on a too rapid scale, where people borrow and
spend, or borrow and buy, and all that sort of thing.
51
SALE OF FOREIGN BONDS OR, SECURITIES
Senator GORE. That was the very point I was going to ask you
about, this policy on the part of European governments to borrow
and buy. That, of course, had to come to an end, unless there was a
saving from capital.
Mr." LAMONT. When I used the phrase about borrowing and buying
I was alluding to the domestic inflation here in the United States,
and the expansion of plant facilities, and not to foreign matters.
Senator GORE. I think you stated that our foreign trade, our exports, were augmented greatly on account of the borrowings and
purchases abroad.
Mr. LAMONT. I did say that; but you must bear in mind that this
borrowing has not been solely responsible for the volume of our
export trade. A great part of it has been due to the savings and
thrift of the people over there. You can not find any harder working people, any more saving people, than the French, and, in general
terms, I guess than the German and Italian.
Senator GOKE. One further point in regard to Germany and the
Question of priority: Now, German bonds issued pursuant to the
)awes plan were expressly given priority, were they not, over all
other German obligations?
Mr. LAMONT. That is true.
Senator GORE. Is it true also of bonds under the Young plan?
Mr. LAMONT. They were given general priority subject to the prior
lien of the Dawes bonds. I have read into the record the exact status
of the security in the case of both of those issues.
Senator GORE. I did not know that, and wanted it in the record.
Senator K I N G . The obligations due from foreign governments are
approximately $5,000,000,000, due from South American and Central American Governments, roughly speaking, are they not?
Mr. LAMONT. My memory does not serve me on that. I should
have to refer to some documents of the United States Department of
Commerce, which department has made a very careful and complete
compilation, but I know it is a very considerable amount.
Senator JOHNSON. In 1025 or thereabouts did you arrange for a
credit in this country for the Bank of England ?
Mr. LAMONT. Willi you state that again ?
Senator JOHNSON. Did you arrange for a credit for the Bank of
England in 1025 or thereabouts?
Mr, LAMONT. NO. We never have had anything to do with the
Bank of England credit, Senator Johnson. Great Britain determined in the spring: of 1025, as I recall it, to go back to the gold
standard, and the British Government approached us for a 1-year
credit. Now, that was the British Government. At the same "time
we were informed without knowing any of the details of the matter,
that the Bank of England was arranging for a temporary credit
through the Federal reserve banks of this country. We arranged
ours and they arranged theirs, and as I recall it there were no drawings under our credit, and upon the maturity of the credit it simply
matured and really there was no paying to be done, for it was simply
a credit.
Senator JOHNSON. D O you remember how much they desired at
that time?
Mr. LAMONT. That they arranged for as a stabilization?
Senator JOHNSON. Yes, sir.
52
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT^ I have it here somewhere and will find it.
Senator GORE. IT was $ 3 0 0 , 0 0 0 , 0 0 0 that they arranged for, as I
understand it.
Mr. LAMONT. With us it was a credit to the British Government
of $100,000,000.
Senator REED. And no part of it did they ever draw.
Mr. LAMONT. My recollection is that no part of it was ever drawn
upon.
Senator JOHNSON. Y O U say that was $ 1 0 0 , 0 0 0 , 0 0 0 , arranged by the
house of Morgan?
Mr. LAMONT. It was $100,000,000 by a group of institutions that
associated themselves with us.
Senator JOHNSON. And in addition to that, there was a credit by
the Federal reserve banks.
Mr. LAMONT. There was a credit which the Bank of England arranged for, as we were informed at the time, with the Federal reserve
system.
Senator JOHNSON. Which was $ 2 0 0 , 0 0 0 , 0 0 0 , was it not?
Mr. LAMONT. That,is my recollection.
Senator JOHNSON. Did you receive any compensation for the credit
that was arranged at that time, and that you say was not drawn
upon ?
Mr. LAMONT. Oh, our group received what you would call a standby commission for promising to let them have the money if they
wanted to draw upon it.
Senator JOHNSON. Pardon me, but I do not know exactly what
you mean by " a stand-by commission." Explain that, please.
Mr. LAMONT. Oh, that is a commission for granting the credit.
The group that we arranged gave the right to the British Government to call upon us at any time within two years to advance them
$200,000,000.
Senator JOHNSON. Y O U meant $100,000,000, did you not?
Mr. LAMONT. Yes; I meant $ 1 0 0 , 0 0 0 , 0 0 0 . Pardon me. We were
paid for that.
Senator JOHNSON. And for that grant of a right to draw on you,
you were paid?
Mr. LAMONT. Yes; certainly.
Senator JOHNSON. State the amount, please.
Mr. LAMONT. Well, as I have it here it was a total of 1 % per cent
per annum.
Senator JOHNSON. And how long did that offer last?
Mr. LAMONT. T W O years.
Senator JOHNSON. S O you charged them 2y 2 per cent then, I
take it?
Mr. LAMONT. Well, it would amount to exactly what I said.
Senator JOHNSON. Y O U said it was 1 % per cent per annum and
would run for two years, which would be 2y2 per cent.
Mr. LAMONT. T W O and a half per cent for the privilege, and they
had the privilege on their part of surrendering the thing at the end
of a year.
Senator JOHNSON. Do you know who arranged the Bank of England credit with the Federal reserve?
Mr. LAMONT. I have not the remotest idea. At the time in question the Bank of England had as its head Governor Norman, and the
53
SALE OF FOREIGN BONDS OR, SECURITIES
Governor of the Federal Reserve Bank of New York was Mr, Strong.
Ve had nothing to do with that and no knowledge of it. I mentioned
it particularly oecause Mr. McFadden, in the House of Representatives, was good enough some time ago to credit us with having been
active in the arranging of it, and I just wanted to go on record by
saying we had nothing to do with it
Senator BARKLET. Mr. Lamont, this question may be one that
you prefer not to answer* It may be a question about which if
you have an opinion you do not wish to give it. But as to this inorar
torium, upon which this resolution is based, or at least in some way
connected, providing for a suspension for one year of the payment
to us of the interallied debts by European countries, six months
of the time has now been consumed, and it will run only until the
30th of next June. The provision is that over a period of 10 years
after that time this amount to be paid this year will be spread out
and be paid in addition to the regular annual payment which will
come due. Have you any opinion or would you be willing to express
an opinion now as to whether the governments involved will be able
to meet their regular annual obligations beginning at the end of this
one year of suspension, and also one-tenth of the amount they should
have paid this year: spread out over that period. Or will they be
faced by the same situation then that we are up against now ?
Mr. LAMONT. Senator Barkley, I would not dare venture an
opinion on that. I would not dare to do it. I think the officials of
the United States Treasury have all the information and will be
able to get all the information from month to month thatJLS possible
and available on those questions* But as to either prejudging or
prophesying I would not dare to do it.
Senator KEED. Furthermore, what might be true of one government
might not be true of alt
Senator BARKLEY. Yes; I realize that.
Mr. LAMONT. Quite true, quite true.
Senator HOWELL. Mr. Lamont is it not true that some of these
governments that will be affected by the moratorium should pay now?
Mr. LAMONT. I am not in a position to answer that categorically,
because, as I say, you can study their budgets, you can study what
their present economy is. I prefer not to be drawn into a discussion,
if you please, on matters that are so strictly pertinent to the Government. I have great confidence in the officials of this country being
able to handle the situation adequately.
The CHAIRMAN. Are there any other questions?
Senator REED. I S there anything, Mr. Lamont, that you would like
to say before youfinisht
Senator JOHNSON. Mr. Chairman, may I ask: Mr. Lamont, have
you any knowledge on the subject of industrial loans or loans other
than those that are governmental?
Mr- LAMONT. I have no detailed knowledge whatsoever, Senator
Johnson, but I take it from what Senator Smoot, the chairman, has
said you purpose calling various other bankers here who will be able
to give you entirely adequate information on that
Senator JOHNSON. You have not dealt with the industrials?
Mr. LAMONT. No; we have not dealt with that phase of the
situation.
;
Senator JOHNSON. Nor with short-term credits?
54
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT: Nor with short-term credits that are outstanding;
no. I mentioned a while ago that we had some revolving credits
and you just alluded to one with the British Government back in
1925.
Senator JOHNSON. I was speaking of German short term.
Mr. LAMONT. N O . A S I said this morning, our practice was not to
undertake German short-term credits, and the point that I made was
that that whole phase, I thought, had been unduly exaggerated in the
public mind as to its extent and importance.
Senator GORE. Mr. Lamont, one other question.
Mr. LAMONT. Certainly.
Senator GORE. I notice in the year 1 9 2 9 foreign loans in this country were greatly reduced. Was that due in part to the pendency of
the Young plan and the high money rates in this country?
Mr. LAMONT. Why, I would think so, and because at that time the
need was not insistent from possible foreign borrowers. Of course,
the moment that the difficulties of the autumn of 1929 arrived the
idea of making foreign loans fell very much into the background.
Senator W A L S H of Massachusetts. Mr. Lamont, Senator Gore
asked you how much of the German foreign bonds your company
held and you said you would supply it for the record. Have you
any objection—if you have I wish you would state it—to supplying
the total amount of foreign bonds which your house now holds or
the agencies with which it is connected?
Senator REED. That will be shown in this statement that you are
going to send us, will it not, Mr. Lamont?
Mr. LAMONT. Well, so far as that is concerned, Senator Walsh,
we have no agencies. I mean—yes; we are by ourselves, as far as
that is concerned.
Now, as far as furnishing that information is concerned, we have
no objection whatsoever to furnishing it in confidence to the members of the Finance Committee of the Senate. I think it would be
probably unwise for detailed information of that kind, representing
the portfolios to a certain extent of all the banks, leading banks
and banking houses in the United States, to be made public. I can
not conceive of what good that would do.
Senator W A L S H of Montana. I appreciate that.
Mr. LAMONT. D O you see? But so far as the purposes of this committee are concerned, we have absolutely nothing to conceal.
Senator W ^ L S H of Montana. O F course, if it were a larger sum it
would indicate that you had great confidence in these securities and
you are willing to assume tne responsibility you are asking other
banks and private individuals to assume.
Mr. LAMONT. That might be and that might not be, because, Senator Walsh, our business is not to be investors ourselves, in the last
analysis, but to be merchants.
Senator W A L S H of Montana. I understood that.
Mr. LAMONT. And you can also realize that in times that we are
going through in this country it has been especially important for
large banks and large banking houses like ourselves to keep as liquid
possible for the purpose of meeting domestic situations.
Senator GORE. I S your organization afirmor corporation ?
Mr. LAMONT. We are a partnership with unlimited liability.
55 SALE OF FOREIGN BONDS OR, SECURITIES
Senator B A R K L E Y . Mr. Lamont, do you think that trade barriers
sucli as tariffs between our country and other countries and among
other countries in the world has had any effect on the capacity of
our debtors to pay?
Mr. L A M O N T . N O W , that is a pretty broad question, and I have
such a regard for the chairman of the Finance Committee that I
do not want to get into argument with him about the tariff, because
I am a low-tariff Republican.
Senator B A R K L E Y . Your answer is yes, then.
Senator K I N O . I think there are other low-tariff Republicans.
Senator GORE. Don't press him on that point.
Senator BARKLEY. I say, your answer was " Yes."
Senator SIIORTRIDGE. Would you cite any agricultural item in
the tariff the rate on which should be reduced?
Mr. L A M O N T . N O ; I am not an expert on the tariff. I will trust to
Senator Smoot on that, in the last analysis.
The C H A I R M A N . Or any other rates under the conditions as existing in the world.
Senator SHORTRIDOE. I S there any item in that tariff
The C H A I R M A N (interposing). Raised in California.
Senator SHORTRIDOE. Raised in California or anywhere else that
you would have reduced ?
Senator COSTIGAN. Mr. Chairman, before we adjourn may I ask
a question?
The C H A I R M A N . Certainly.
b Mr. COSTIGAN. Mr. Lamont, I was out of the room part of the
time, and you may have already spoken on this subject. Has your
firm handled municipal German bonds?
Mr. L A M O N T . We have never handled any municipal German
bonds or any bonds other than two issues of German Government
bonds, which I described in the course of the testimony.
Senator COSTIGAN. One more question: It happens that I come
from Colorado. On what principle do you allot bonds to particular
banks? For example, on what principle would you allot a certain
amount of bonds to a Colorado bank for sale?
Mr. L A M O N T . We would allot those bonds to the Colorado bank,
Senator Costigan. purely on the basis of the amount that they
wanted and thougnt they could dispose of to advantage.
Senator COSTIGAN. Have you determined that amount in advance,
articular quantity that they feel
ndling syndicates, so as to start
somewhere, is to say" we are able to offer you an interest in this
syndicate of a hundred thousand dollars bonds, or whatever the
figure may be.
Senator K I N G . Hundred million?
Mr. L A M O N T . N O ; I am speaking of any one particular house. A
hundred thousand dollars bonds, and then the house receiying that
determines as to whether it wants a hundred or 50 or none.
Senator COSTIGAN. If a bank declines to take its allotment, or any
allotment, is it at a disadvantage with respect to the handling of any
future bonds?
Mr* L A M O N T . Oh, no; except on a common-sense basis—that is,
if a house found itself consistently unable to place any bonds,
56
SALE OF FOREIGN BONDS OR, SECURITIES
eventually we would take that as an intimation that it did not care
to have an invitation extended. That is all.
Senator COSTTGAN. In other words, in line with your testimony
this morning, you wish us to understand that no: compulsion, direct
or indirect, is brought to hear upon any individual bank to take a
particular issue?
Mr. LAMONT. Absolutely, completely.
Senator JOHNSON. One thing more, if you •will pardon me.
Mr. LAMONT. It is all right.
Senator JOHNSON. I S the house of Morgan thefinancialrepresentative or agent of Italy at the present time?
Mr. LAMONT. A S I said in the early part of my testimony, Senator
Johnson, we have nofixedfinancialor fiscal agency arrangements
with anybody, with any foreign government. We have undertaken
in certain instances to act for such governments ill afinancialway,
and in the absence of any withdrawal of either side those loose arrangements have continued; but as for calling ourselves specifically
thefinancialagents of the Government of Italy, or any other government, we do not do that. We have no right to do it, and they have
every right to go any where they please.
Senator JOHNSON. I S the same arrangement which you suggest,
and only that, in vogue with France?
Mr. LAMONT. Quite.
Senator JOHNSON. IS the same arrangement in vogue with Great
Britain?
Mr. LAMONT. It is in vogue with every country.
Senator JOHNSON. Well, has any other country had any other representative in New York besides the house of Morgan?
Mr. LAMONT. Any other country than what?
Senator JOHNSON. Great Britain, France, or Italy.
Mr. LAMONT. In the case of Great Britain, we have since during
the war been their chief representative. That does not mean that
they may not have had relations with somebody else that we do not
know about, but we have been their chief representative in connection
with financial matters in America, other than their Government
relations.
- Senator GORE. What other foreign countries?
Mr. LAMONT. Pardon me, if I may continue to answer Senator
Johnson's question. He asked me specifically.
Senator GORE. Yes.
.
Mr. LAMONT. In the case of France they have had, we thought,
considerable relations with other houses. The same is true with
Italy. Although any large issues of public loans like this have
always been concentrated with us so far as negotiations are concerned.
Senator SEED. It is true, is it not, Mr. Lamont, that in recent years
Italy has been paying the United States Government through Kidder,
Peabody & Co.?
'V .
- Mr. LAMONT. That has been their practice, as I recall it.
Senator JOHNSON. I did not follow7 what Senator Reed said. I do
not know whether it related to what I asked or not.
- Mr. LAMONT. Yes; it has a bearing on that.
Senator REED. I said that in recent years Italy had been making
her payments to the United States on her Government debt through
the house of Kidder, Peabody & Co.
57
SALE OF FOREIGN BONDS OR, SECURITIES
Mr. LAMONT. I am not aware, Senator Reed, as to how complete
that is. I know that they have utilized Kidder, Peabody & Co.'s
services at various times. That is as far as I should be able to go.
Senator JOHNSON. Have you an establishment in Paris, Mr.
Lamont?
Mr. LAMONT. There is a Paris house called Morgan & Co. which is
allied with our New York house.
Senator JOHNSON. Have you a house in London?
Mr. LAMONT. In the same way we have a firm in London that is
under the British laws, of course, called Morgan, Grenfcll & Co.
Senator JOHNSON. In Rome?
Mr. LAMONT. NO. Those are the ony two affiiations that we have.
Senator JOHNSON. NOW, Senator Reed spoke of Kidder, Peabody.
Are you connected in any fashion with them?
Mr. LAMONT. None whatsoever.
Senator JOHNSON. They have been partners in your syndicates?
Mr. LAMONT. In some and not in others.
Senator JOHNSON. That is all so far as I am concerned.
Mr. LAMONT. Senator Reed asked me one question as to whether
there were any general remarks, and in reply to that I might permit
myself to say very briefly that, while I regard this question of foreign bond issues and the whole relation with foreign finance as undoubtedly an important factor in our whole situation, in all Ameri*
can economy: an important factor infinanceand trade, and all that;
nevertheless, we do not deem it as of anything like the importance
that the domestic situation has, if I may say so.
In other words, we think that all the alarums and excursions that
have unfortunately come in the last few months, and have exaggerated in the public mind the extent of American foreign investments, is somewhat unfortunate. It may have been inevitable, but it
is somewhat unfortunate.
I alluded this morning to our belief and knowledge that no American banking institution was in the slightest degree embarrassed by
its holding of short-term foreign credits. We think—at least I
think; I am expressing an individual view in this, of course—I think
that if we can address ourselves-to certain phases of our domestic
situation, our foreign situation wrill in due course help to take care of
itself.
In other words, I think that^ in this bond market that we were
describing, in which we have witnessed a decline in the markets of
domestic bonds as well as foreign bonds, we see that the railroad
bonds are in a way the backbone of the market That is to say, the
transportation industiy of this country is the chief great industry of
the country. It is under a cloud to-day, because its earnings are not
apparently sufficiently close to its outgo. That is the reason that
we have lieen very much pleased by the report that the workers, the
railway workers, were themselves contemplating a voluntary reduction of wages, coming down somewhat in line with the reductions of
wages in other industries and on the farms; because we can't see that
as the one factor at the present moment, the great factor at the present moment, that will tend to lead to stability in our domestic bond
market, which, after all, is the backbone of our investment community. Anything that the American community can do in expressing good will toward" getting this negotiation for the reduction
58
SALE OF FOREIGN BONDS OR, SECURITIES
of wages and the rehabilitation of the railways put on a swift and
effective basis—that is going to contribute more than any other one
thing, outside of sound legislation at Washington.
I may permit myself to thank you. Senator Smoot, and all the
other Senators here, for your exceeding courtesy.
The CHAIRMAN. We thank you for coming.
Senator COUZENS. I would like to ask Mr. Lamont one thing, so
long as you brought up the railroads: Is it your opinion, Mr. Lamont, that therailroads will need governmental aid,financialaid?
Senator WATSON. Speak a little louder, will you, Senator?
Senator COUZENS. I asked Mr. Lamont if it was his opinion that
the railroads would need governmental aid financially.
Mr. LAMONT. Senator Couzens, I am a little puzzled as to just
how to answer that, and I will tell you why I am a little embarrassed. I understand that there is pending before the Congress now
a recommendation on the part of the administration as to the formation of a so-called emergencyfinancecorporation, and I should not
wish to be understood as coming over here and pretending to tell
any Members of this Congress what they should or should not do, because, as I say, I have every confidence in the discretion and
capacity of this Congress.
If I were to be forced to give a personal opinion, I should say
that the bill authorizing the creation of such a corporation was of
very great importance at the present moment. I would believe that
the earlier such a corporation would be formed the less it would be
called upon to perform any functions.
Senator COUZENS. I do not think Mr. Lamont quite got the point.
The so-called reconstruction loan fund that the President has suggested proposed to set up $500,000,000 for refinancing banks and
financial institutions and railroads. That proposed to set up an
entirely new organization which, obviously, will take considerable
time, because it means the election of; three or four new directors,
which will have to be picked out and confirmed by the Senate, and
it also will be devoted to the refinancing of closed banks and other
destitutefinancialinstitutions.
The railroads, however, have had experience with the Government
in going through the Treasury Department with adequate collateral,
which has been satisfactory both to the railroads and with the
Government.
I was asking tlie question whether or not, in Mr. Lamont's opinion,
the railroads can wait until this so-called reconstruction corporation
is set up.
Mr. LAMONT. Well, of course, you never can tell just how long you
can keep the patient going, but if there were signs in the Senate and
House of early action, prompt action, with reference to this corporation, Senator Couzens, I should say that the railroads would get
along until that time. But I do think it would have to be early.
Senator COUZENS. Representations have been made to me that the
railroads are in dire need of assistance and that .they are unable to
borrow it through the New York investment houses; that the New
York Central is in need, and other railroads are in great need, and
that the New Yorkfinancialhouses have refused to come to their
assistance. Is that: correct?
S A L E OF . F O R E I G N BONDS OR S E C U R I T I E S 59
Mr. L A M O N T . Oh, in that form I would not say it were correct at
all, Senator Couzens. Certain solvent railways are financing their
immediate needs by means of short-term loans, which the banking
houses and the banks have been very ready to grant. They have done
everything to keep this situation going in good shape.
But, manifestly, banks and banking houses can not continue to
lock up their resources indefinitely in such short-term loans, for in
accordance with the practice those loans must be refunded into bonds
before very long.
Now, with the existing bond market they can not be refunded.
The houses have not refused, but they are not able—if the issues of
these highly solvent roads that we know about are selling far below
par as they are—it is quite impossible for them at present to market
another issue obviously.
Senator C O U Z E N S . May I ask how long these New York houses will
be willing to carry these railroads on short-term loans before converting them into long-term bonds?
Mr. L A M O N T . There is not any answer that could be made to that.
The banks in New York, just like the banks all over the country, are
doing everything in the world they can to fulfill the requirements of
their customers, everything.
Senator C O U Z E N S . N O W , in these short-time loans that you are
making to these banks prior to the time of converting them into
long-time bonds, how long have you made those loans for?
Mr. L A M O N T . Oh, they vary. I do not know. They might be 90
days, mi "lit be 6 months. The maturity does not make much difference. The nominal maturity, Senator Couzens, does not make much
difference, because if things are going along a bank wants to renew
if it can. But I am just pointing out in general terms the state of
this very basic industry and the necessity for cooperation along two
lines: One, wage reductions so as to enable them to balance their
budgets, and the other, possible emergency corporation for use to
turn to in the very near future.
Senator COUZENS. H O W long will that require, in your judgment,
this emergency loan from the Government, if such were arranged?
Mr. L A M O N T . Oh, that would work out, I suppose. Why, nobody
can tell. You know, even better than I,, how the War Emergency
Corporation functioned, how successfully it functioned. It took in
quite a lot of loans at the outset and then began to liquidate it
The same general course would follow, I would think. But the
authorization by Congress in the setting of it up in itself will be
a very great help.
And as I said at the start on this point, on the point you are
inquiring about, the sooner you do it the less you will need it.
Senator K I N G , Mr. Lamont, the credit corporation which has been
organized of $500,000,000, will that not perform some of the functions and meet some of the exigencies to which you refer?
Mr. L A M O N T * You are referring to the; emergency banking corporation?
Senator KING..Yes.
Mr. L A M O N T . That is doing all it can already, Senator, with the
banks. That has no power, of course, to make loans to railroads
or industrials.
60
SALlE OF FOREIGN; BONDS OR SECURITIES
Senator K I N G . I understand that, but as I understood one of
the questions of Senator Couzens—and I may have misunderstood
him—he included in the functions of this organization giving the.
banks credits.
Senator COUZENS. That is correct.
Senator K I N G . And I was Wondering if the credit corporation,
with its $500,000,000—and I have, talked withthe President on two
occasions—was not in position to give effective aid to banks that
have frozen assets and perhaps some banks that are in the hands of
receivers.
Mr. L A M O N T . Well, SO far as the banks whose assets are good
and yet are more or less frozen, as I undeistand it that corporation
is already functioning in their favor very decidedly. So far as assets that are in the hands of receivers, I should not think that that
corporation would have power to function.
Senator K I N G . I think that it does. However J it has the right to
loan to banks where they have good collateral?
Mr. L A M O N T . Yes; that is true; But that is banks. Senator
Couzens is asking about railroads.
Senator K I N G . Yes.
Senator COUZENS. N O W , may I ask Mr. Lamont if he knows what
rate of interest thesefinancialhouses are charging the railroads for
their short-time financing?
Mr. L A M O N T . Current rates.
Senator COUZENS. What is that?
Mr. L A M O N T . Why, darned if I know. I suppose thatSenator SHOBTRIDGE (interposing). Five, 6, 7, 8 per cent?
Mr. L A M O N T . No, no. Just before the Federal reserve bank raised
its discount rate and before money became a little dearer than it
had been the rates were very low. Now they are still in accordance
with the current market.
Senator COUZENS. Representations have been made to me that any
sound railroad at this time needing money in Wall Street would be
required to pay 7 and 8 per cent. Is that your understanding?
Mr. L A M O N T . I have never seen any such loans on such a basis,
never.
Senator SHOBTRIDGE, What would it be? Mr. Lamont?
Mr. L A M O N T . I do not follow the details of banking. I am probably culpable, but I do not, very frankly. But I heard a debate the
other day as to whether this railroad which was borrowing considerable should pay 4 or
per cent, if that will give you any
light.
Senator COUZENS. May I ask Mr. Lamont what railroads his
house, the house of Morgan, arefiscalagents for?
Mr. L A M O N T . We are not formal fiscal agents for any road, Senator Couzens. Years and years ago we had certain formal fiscal
arrangements with two or three roads, but by mutual consent those
were wiped out, oh, 10 or 15 years ago, and we are not formal fiscal
agents for any of them. But by tradition and practice we act for
a number of them.
Senator COUZENS. What are those?
Mr. L A M O N T . Welly among them I would mention the New York
Central, Northern Pacific, Chesapeake & Ohio.
61
SALlE OF F O R E I G N ; B O N D S OR
SECURITIES
Senator C O U Z E N S . Does that include all of the Van Swearengen
•enterprises?
Mr. L A M O N T * N O ; not all of them. The Chesapeake & Ohio happens to be one of the railroads. No; those are divided up, as a
matter of fact. Formerly they were in more or less groupings that
had separate bankers, and we have not wanted to disturb existing
arrangements*
I do not mean by any method of seeming exclusion to make my
list limited, but I am just mentioning a few companies that cofrne
to my mind.
Senator B A R K L E Y . Mr. Lamont, it has been Stated that of the
$500,000,000 supposed to be available through this credit corporation for assisting destitute banks and others, only $15,000,000 has
been granted or used. Do you know whether that is accurate or
not?
Mr. L A M O N T . No; 1 have no information on that at all, Senator.
You see, this company has to do with incorporated banks, and we
had no part in that except initially to assist; cooperate as we could,
in the furtherance of it, and I would say that we would subscribe
to some of the capital stock if we were wanted to.
Senator B A R K L E Y . Y O U do not know anything about the details
of its operation?
Mr. L A M O N T . Not a thing. That is in the hands of the respective
clearing houses in the various financial centers of the country.
Senator COSTIGAN. Mr- Lamont.
Mr. L A M O N T . Yes, SenatorSenator COSTIGAN. If the question is deemed relevant and proper
by you, may I ask whether any member of the house of J. P. Morgan & Co. is a director in any of the leading banking institutions in
••aiiy of the countries, the securities of which have bee:n marketed in
tins country ? For instance, Germany, or Great Britain, if Great
Britain be included?
Mr. L A M O N T . Let me say first that no question that any Senator
of this committee would ask would be anything but proper.
Second, if I understand the question, it is as t<* whether any
member of the firm of J. P. Morgan & Co. is a director in any
foreign bank located in any one of the countries whose governments
have arranged loans through us in this country. Is that correct?
Senator
COSTIGAN.
That is the substance.
Mr, L A M O N T . The answer is no.
The C H A I R M A N . We thank you.
Senator GORE. Mr. Lamont, not being a corporation, I suppose
yon have no outstanding stock or capital. Is there any statement
showing the capitalization?^
Mr. L A M O N T . N O ; there is no published statement at all. Fortunately, or unfortunately, the entire resources of every member of
the firm are pledged to the fulfillment of all our obligations.
Senator R E E D . Mr. Lamont, I think you made a slip of the tongue
when you said that the Paris and London firms were the only other
firms with which you knew your house was connected. Isn't there a
connection with Drexel & Co.?
Mr. L A M O N T . He asked me foreign.
Senator REED. You did not answer in that way.
92G2&-51—PTl
6
62
SALE * OP FOREIGN' BONDS: OR i SECURITIES
Mr; L A M O N T . Oh, pardon me; I am glad you reminded me of
that, Senator. Oh, yes; Drexel & Co., at Philadelphia.
Senator JOHNSON. I was not referring to any domestic companies.
Senator REED. His answer- did not indicate that.
Senator JOHNSON. You istate the connections in this country are
very numerous?
Mr. L A M O N T . NO, Senator Johnson. I am very glad you brought
that up. (Drexel & CoV are the only affiliate we have; Drexel & Co.,
Of Philadelphia.
Senator JOHNSON. " The only affiliate." Just what do you mean
by that?
"
'
-Mr. L A M O N T . I mean afirmin which we are interested.
Senator JOHNSON. Oh, yes. But you have firms, however, that
are representatives, agents, and the"'like, and of which you are
agents and representatives, of course?
Mr. L A M O N T . No; we have not; if I may differ from you radically.
Senator JOHNSON. Pardon me?
Mr. L A M O N T . I F I may differ from you radically, we have not.
Senator JOHNSON. Oh, gracious; I am sure you differ from me
radically, and we differ radically on many things, and always
pleasantly.
Mr. L A M O N T . Always pleasantly.
Senator JOHNSON. YOU have—what do you call them, correspondents?
Mr. L A M O N T . You see, we are a private banking house, Senator
Johnson, and we do not solicit actively the accounts of interior banks
and banking houses. We leave that in general terms to the incorporated institutions. I mean to say, the National City Bank, the Chase,
the Guaranty, all have large lists of the interior depositors and
correspondents running, I suppose, to two or three thousand. We
have a few—some personal acquaintance or something like that, but
very few.
Senator GORE. H O W many members of your firm?
Mr. L A M O N T . Excuse me. Senator Johnson has one thing more. #
Senator JOHNSON. When a loan is allocated to houses, what list
do you take? How do you determine the houses to allocate it to?
Mr. L A M O N T . T O determine the make-up of the syndicates, Senator Johnson; that is to say, the list to whom we shall extend an
invitation to join a particular syndicate, by the previous record
we have in the office. Naturally, we keep a careful catalogue of
the houses and banks that have been members of previous syndicates,
and we utilize that.
Senator JOHNSON. However tentative the connection may be, there
are houses with which you are connected, of course, in the United
States^ and many of them^ and that goes without saying, I take it,
and so I did not inquire about local establishments or establishments
in the United States with which in any degree you were connected.
- Mr. L A M O N T . Well, there is ho use in getting into an argument
about that. The connotation, in my thought, of your inquiry was
•to the Effect that we had very-intimate relations through other
houses to the extent of our being able to indicate' to such houses
what our wishes were or what our judgment'was^ and I wanted to
negative that idea.
63
SALlE OF FOREIGN; B O N D S OR S E C U R I T I E S
Senator J O H N S O N . Then, you do not indicate what your wishes
are to the various other houses?
Mr. L A M O N T . I F we invite them in to take a part in the syndicate,
that means that we think that we are inviting them to take a part
in a sound enterprise.
Senator J O H N S O N . Of course.
Mr. L A M O N T . And they have the privilege of joining or not joining.
Senator J O H N S O N . And, of course, you mvite those with whom you
are familiar and with whom you have had dealings before?
Mr. L A M O N T . Quite right.
Senator J O H N S O N . I do not think there is any .disagreement
between us in that respect.
Mr. L A M O N T . Probably not.
Senator GOUE. H O W many members are there of your firm?
Mr. L A M O N T . I guess there are about 1 2 in New York now, 1 2 or 1 3 .
Senator G O R E . I S there a published list?
Mr, L A M O N T . Oh, yes, certainly; it is a matter of public record.
Senator GOHE. I bhould be glad if you would turn it in when you
are correcting your statement.
Mr. LAMOXT.* Very well, sir.
The C H A H « M A N , We thank you for your statement.
(Witness excused.)
TESTIMONY OF CHABLES E. MITCHELL, CHAIRMAN NATIONAL
CITY BANK, NEW YOBK, N, Y.
The C H A I R M A N . Y O U are associated with the National City Bank,
New York ?
Mr. M I T C H E L L . I ain chairman of the National City Bank of New
York.
The C H A I R M A N . H O W long have you held that position?
Mr. M I T C H E L L . I became the president of the National City Co.,
which is the investment affiliate of the National City Bank, in 1916
or 1917: and I became president of the National City Bank in 1921
ahd I have been chairman and chief executive officer of the bank and
of the affiliate company for something over three years.
The C H A I R M A N . Are you associated in any way with J. P. Morgan
& Co.?
Mr. M I T C H E L L , Only in business relationships.
The CHAIRMAN*. Not as an owner or an officer?
M r . MITCHELL. N O , sir.
The CHAIRMAN. Mr. Mitchell, you have listened to the testimony
of Mr. Lamont. You know about the trend of information that this
committee desires to secure from you. If you have a statement that
you desire to make, we should be very glad to hear it at this time and
have vou tell the committee as near as possible what the National
City l$ank has done by way of loans in any connection whatever with
foreign countries; , T*
Mr. MITCHELL! Senator Smooth I have prepared no statement for
your committee, but I have been most interested in the line of questioning of Mr. Lamont, and l think perhaps it might be helpful,
before .we go into the detail of our own operations, that I discuss
with you some of the questions in whicfy within the last hour; you
have shown a direct interest.
04
SALlE OF FOREIGN; BONDS OR SECURITIES
The CHAIRMAN. I am quite sure that the members of the committee will be interested in your statement along that line.
Mr. MITCHELL. One point has particularly impressed me. A
question was introduced as to what happened to the money that was
raised by virtue of these foreign loans. These loans produce dollars
to . the credit of the borrower, and except as those^ dollars are used
in the payment of already existing debts in America, they must be
used in the purchase of American products, American goods and
services. Many of us have found a real inspiration in the fact
that in the issuance of this large volume of foreign loans we were
playing a part in the development of American trade and industry.
That is ourfirstmotive always.
We maintain branches of our bank the world around, at the crossroads of commerce, always for the benefit of American manufacture
and American trade, and in our foreign security issues we look to
the same result.
If I may bring this one step forward in the discussion, I have
had prepared a statement of the international payments, the balance
of the international payments of the United States for the period
from 1923 to 1930. It is very short, and if I may give it to the
committee in its few items, I would like to have their attention.
On the credit side we have, first, the excess of exports; that is,
the excess of exports over imports, which runs to afigureof $4,850,000,000 during this period. Interest received, $4,100,000,000.
Foreign investments in the United States; $1,722,000,000.
War debt payments, which of course include miscellaneous government transactions, $1,196,000,000.
Discounts and commissions, $746,000,000.
Freight and shipping, $586,000,000.
Miscellaneous items, $545,000,000; a total of $13,646,000,000.
The CHAIRMAN.' What period of time?
Mr. MITCHEIJ,. Trom 1923 to 1930, inclusive. Of course this figure
is small by virtue of my taking into the credit side only the excess
of exports over imports.
On the debit side we have foreign investments, $6,293,000,000.
Tourist expenditures, $4,233,000,000 •
Senator K I N G . YOU are speaking of Europe only, are you?
Mr. MITCHELL. I am speaking of the entire world.
Immigration remittances and charity, $2,193,000,000.
Ocean passenger • traffic, $474,000,000; and the balancing item is
gold, $453,000,000.
Now I ask you, gentlemen^ what would happen if we were to remove the item of $6,293,000,000? covering the foreign investments?
In the balancing of the account it would have to be covered by a reduction of some of these items that are on the credit side. It is my
opinion that it will show itself particularly in an elimination of the
item of excess of exports, which has been $4,850,000,000.
Foreign investments, in other words, very largely control the volume of the export business of the United States. They should have,
therefore, a sound basis of desirability to the most critically patriotic
of Americans; and the fact that the banking interests of this country havefloatedforeign loans in America is something which should
have the; praise; rather than the criticism of any body of men.
65
SALlE O F FOREIGN; B O N D S OR
SECURITIES
That is a general statement with respect to this phase of foreign
investments.
Senator C O U Z E N S . D O you mind if I interrupt you at this point?
M r . MITCHELL. NO, sir.
Senator C O U Z E N S .
$6,000,000,000?
M r . MITCHELL.
YOU
Yes.
say we invested in foreign countries
Senator C O U Z E N S . I assume that the investment was made for the
purpose of manufacturing goods in those countries?
Mr. M I T C H E L L . I do not think, Senator, that that is a safe conclusion. To some extent it has been used to increase the productivity of
other countries.
Senator COUZENS. Do you know to what extent?
Mr. M I T C H E L L . With respect to our loans to Germany, we have
always endeavored to bring them within the requirement that the
avails-shall be used for productive purposes.
Senator C O U Z E N S . Yes; but what I was trying to get at was this.
You say $0,000,000,000 has been invested in foreign countries, and
1 was wondering what proportion of that amount was used to produce goods that had heretofore been made in America.
Mr.'MITCHELL. That I can not answer, sir.
Senator COVZKNH. Would you say that A large proportion of the
$0,000,000,000 was invested there by producers in this country to
avoid the tariff over there?
Mr. M I T C H E L L . NO; a very small portion of itvSenator Couzens.
Senator C O U Z E N S . I S it not a fact that American industries have
gone to foreign countries, including Canada, Great Britain, Germany, and France, to manufacture, in order to avoid having to pay
the current tariff there?
Mr. M I T C H E L L . That is quite true; yes.
Senator C O U Z E N S . Y O U do not know what percentage that is of the
$6,000,000,000 i
Mr. M I T C H E L L . No, sir; that I can not answer from these figures.
Senator B A I I K L E T . That does not represent our total foreign investments; that covers the 8-year period from 1023 to 1D30?
Mr. M I T C H E L L . That is right
Senator B A R K L E Y . And ii there have been any removals of American industries resulting from recent tariffs, it has been since these
figures were compiled ?
Mr. M I T C H E L L . Y O U are quite right, Senator.
Senator GEORGE. Y O U were asked if that $6,000,000,000 represents a
mere removal of capital or loans or investments
Mr. M I T C H E L L . It represents entirely capital loaned which should
come back through our taking of foreign goods and services. If it
does not come back in that way, it will either stay out or come back
in the form of gold.
Senator GEORGE. I meant, though, did that $6,000,000,000 item represent the mere removal of an industry, for instance, from this
country into Canada?
Mr. M I T C H E L L . Oh, yes; now I understand your question.
Senator GEORGE. That is what I thought.
Mr. M I T C H E L L . That represents capital that went into the hands
of foreigners enabling them to buy our .cotton and our copper and
pur manufactured goods*
66
SALE ' OF 'FOREIGN = BONDS OB SECURITIES
'-Senator L A FOLLETTE. I S that sum exclusive of the foreign governmental obligations that have beenfloatedin this country ?
Mr. MITCHELL. 1 No ; it includes that.
Senator L A FOLLETTE. Can you tell us what proportion of the
6,000,000,000-figure you have used in foreign governmental obligations ? And by that I mean to include either the central governments
or political subdivisions thereof.
M R ! MITCHELL. No; I can not. I can give you the figure of our
own business from which you maybe could possibly get some inkling.
Senator L A FOLLETTE. Of course, in so far as any portion of that is
foreign governmental obligations, those loans did not necessarily
result in any orders for American goods placed in this country, did
they?
Mr. MITCHELL. Senator La Follette, as I said at the very outset,
that is the only way such moneys can be used, except as they may be
used for the payment of debts to America already existing. In other
words, they must be used for the purchase of American-goods or for
the payment of debts.
Senator La Follette. I understood Mr. Lamont to say that in
making these governmental loans it was often impossible to* tell what
purpose the proceeds were to be used for; that where the loan was
made to a governmental entity it might be used for balancing the
budget or, in other words, as I understood it, it was lost in the economy of the governmental entity to whom the loan was extended.
Mr. MITCHELL. Senator La Follette, I fear we are are mixing
two questions. One is the purpose of the loan. That might be
for one thing or another, but it does not affect the particular question of how the exchange is used. May I illustrate in an attempt to
clarify?
Senator L A FOLLETTE. I F I understand you, what you mean is
that when these obligations are ultimately paid off it must be done
by either a balance of trade established in this country by the foreign government, or it must come in the form of gold.
Mr. MITCHELL. No; I am sorry,;Senator La Follette, that I failed
to make myself clear. Let me illustrate simply. Let us say foreign
country X causes a loan to befloatedin this market, and the avails
of that loan are put on deposit with the National City Bank. That
country has dollars at that time. That country may have no need
for dollars. It may be that they, are goin^ to use that money for
the purchase of something in England or the payment of a debt in
England. What they do then is to sell the dollars to somebody that
wants them, and buy sterling. But that dollar credit that was
made for them is then passed to somebody else, and it will always
stand out as a dollar credit until it is used by somebody: and the only
way in which the dollar credit can be used is in the purchase of
American goods or in the payment of some debt that is already existent in America.
Do T make myself clear ? Has my illustration clarified it ?
Senator GORE. I am anxious to,arrive at what Mr. Mitchell includes in his $6,000,000,000. Tlie Department of Commerce in its
handbook puts our total foreign loans and investments, including
those: publicly and privately taken, and direct investments.1 at "about
$15,000,000, and the amounts are about equal! Those publicly offered
and privately taken are in the neighborhood of $7,000,000,000. and the
67
SALlE O F F O R E I G N ; B O N D S OR
SECURITIES
direct investments, so called, are about $ 7 , 0 0 0 , 0 0 0 , 0 0 0 , Just what
do you include in your $6,000,000,000?
t
Mr. M I T C H E L L . I include the amount of foreign issues made during the period from 1923 to 1930, which figures are revealed in the
report of the Department of Commerce. Those figures are drawn
from their report, sir.
Senator SHORTRIDOE. Floated here in America?
Mr. M I T C H E L L . Floated here in America during that period.
Senator SHORTRIDOE, By private concerns as well as Government
issues ?
M r . MITCHELL. Y e s , s i r .
The C H A I R M A N . That does not include all we have, does it?
Senator SHORTRIDOE. I do not understand it.
Mr. A I I T C H E L L . Senator Smoot, of course it does not include
those
issues made prior to 1923. Those that are still outstanding will add
to the amount.
The C H A I R M A N . And that is about $ 9 , 0 0 0 , 0 0 0 , 0 0 0 ?
Mr. M I T C H E L L . I notice that Congressman McFadden made the
statement the other day in the House that $17,000,000,000 in private foreign securities, including those of South America, were held
in the United States. The facts as revealed by the report of the
Department of Commerce are that there were still outstanding at the
end of 1930 $7,836,000,000 of foreign securities. In addition to that,
of course
Senator SHORTRIDOE. Pardon me. Foreign securities held here in
America, }Tou mean?
Mr. M I T C H E L L . Foreign securities held here in America. In addition to that, of course, there is a large amount of American capital
directly invested abroad by American corporations.
The C H A I R M A N . That is what I had reference to.
Mr. M I T C H E L L . That has to be added, naturally.
The C H A I R M A N . I was going to ask you if in this $ 6 , 0 0 0 , 0 0 0 , 0 0 0
that you speak of there is not included" the amount of money that
Americans have invested' in Czechoslovakia for the manufacture of
goods. It does not cover any part of that investment?
Mr. M I T C H E L L . It does not. It includes only those publicly^ issued
offerings that have been made in this country. It does not include
investment of private corporations. In addition, it does not include
about $125,000,000 for long-term capital employed by financial
institutions in exchange and what not.
Senator C O N N ALLY. I want to see if I caught Mr. * Mitchell's answer correctlv when he replied to Senator La toilette.
* You take tlie position that a foreign government makes a loan here
and gets dollars credit and that that money can then be expended for
buying American commodities in the finai analysis?
* Mr. MrRCIIELL. That is certainly so, sir.
Senator C O N N A L L Y . That credit is on the books of your bank.
But suppose that government wants gold. Would you not have to
send your gold abroad?; Suppose they say, " We don't want to buy
any American goods; we don\ want to buy anything in America;
we want the gold." Then you would have to ship it to tliemi
M r . MITCHELL.
Yes;
Senator C O N N A L L Y . Then it would not be put into the buying of
American goods or the payment of debts, would it ? They could buy
68
SALE ' OF 'FOREIGN = BONDS OB SECURITIES
their goods wherever they wanted to, or pay their debts wherever
they wanted to?
Senator SHORTRIDGE. They would buy shoes in Czechoslovakia
rather than here in- America ?
Mr. M I T C H E L L . What is that, Senator?
Senator SHORTRIDGE. In a word, they would have the right to call,
1 " ,J1
fo
"
not? '
OS.
Senator SHORTRIDGE. But it is not customary for it to go abroad
in that manner?
Mr. MITCHELL. I do not recall any case, Senator, where that has.
been done. 'X
Senator B A R K L E Y . In case of country X iborrowing $ 1 0 0 , 0 0 0 , 0 0 0 *
from ybur bank or from any other-bank in this country, the object
of which ultimately was to pay somebody they owed in England,,
they convert these dollars into pounds, or if they want to pay somebody in Switzerland they may convert them into pounds and then
convert the;pounds into the circulating medium of Switzerland, and
so on, until they finally get to the fellow to whom they; owe the*
money, and they pay him out of-this loan that they have obtained
here.f«'-And>it may be that the country into whose circulating medium the money is transferred uses that to buy goods in this country
or to pay somebodyan this country whom they owe.4 So that in that
roundabout way your original statement is practically correct,, al*
though it is possible that it might be subject to modification in caseany country demanded gold instead of the credit. ;
M R . M I T C H E L L . • Quite so.f You never can destroy the credit being*
used in that way- It must be used by somebody. *
Senator SHORTRIDGE. Much of this loan went to Czechoslovakia,,
did it not?
,
Mr. MITCHELL. We have had several loans there;
Senator SHORTRIDGE. To develop their shoe industry there, chiefly,,
which is; in competition with ours ?
• Mr; M I T C H E L L . It went to the government, however.
Senator SHORTRIDGE. Hence our tariff, and rightly.
Senator;COUZENS. Are you going ahead on the same lines of showin
Senator C O N N A L L T ; Before you get off that subject: Then you
would wish to modify your first statement?:
Mr.iMrrcHELL. Why, yes; if they take gold, it is modified to that
extent.
Senator C O N N A L L T . That is what they want when they come over
here to borrow. They want gold; they do > not want greenbacks, do
they?
Mr. M I T C H E L L . As you will clearly see, they have not taken the
gold;
Senator C O N N A L L T . I know; but you said it could not be done ia>
any other way, and I just wanted to get the facts.
Mr. M I T C H E L L . I grant that it can be taken out in gold, but it is
seldom done;
Senator L A FOLLETTE. Is it possible that if any of these credits
were used to purchase American securities of. corporations in this
69
SALlE OF FOREIGN; BONDS OR SECURITIES
country it thus would be an investment rather than a purchase of
goods?
Mr. M I T C H E L L . It might easily be so. yes; where there were substantial repurchases, especially in Europe, of American securities.
Senator LIA FOLLETTE. In other words, there was a certain amount
of participation in our own stock-market operations during this
period on the part of borrowers in this country?
Mr. MITCHELL. Probably not by the borrowers. The dollar exchanged may have worked around into the hands of an investor who
perhaps sola sterling and bought the dollar and that dollar bought
American securities.
Senator COUZENS. D O you discern a difference between an investor
and a speculator?
Mr. MITCHELL. They often change from being one to the other so
rapidly that it is quite impossible, Senator Couzens.
Senator GORE. A great many of these foreign debts payable in this
-country *re actually paid in gold, Mr. Mitchell, are they not, and
that is one reason for the accumulation of gold in this country now,
is it not?
Mr. MITCHELL. I would say that very few payments are made in
that way, Senator.
Senator GORE. What draws gold here, Mr. Mitchell? We hear a
jrood deal about the pigment of these international balances either
in goods, the transfer or credits, or gold. We have been given to understand that the exchange of goods was not as free as it might be,
-and that a good many of these obligations had actually been paid in
gold. Why does it come here if it does not come in payment of
•debts?
Mr. MITCHELL. The gold comes here and accumulates to make up
this international balance of payments, especially
Senator GORE. That is the-point
Air. MITCHELL. We get balances created in this country because of
the confidence of the world in this country, and those are very often
converted into gold which is earrmarkei and held here; but that
does not change the quantity. The quantity of gold comes as the
result of this international balance of payment.
Senator GORE. Paying in gold instead of goods?
M r . MITCHELL. Y e s , s i r .
May I revert to Senator Couzens's inquiry as to the difference
l>etWeen an investor and a speculator, because I fear that I was a little
facetious in the answer to it. I think I should say that where one
buys for the purpose of receiving interest or dividends for income
over a period, his future income to take care of his future requirements, he is obviously an investor. Where one buys with the idea
that what he buys is going up in price quite promptly and he is prepared to sell the minute it moves up, that man is a speculator.
Senator COUZENS. But you say they change very rapidly from one
to the other?
Mr. MITCHELL. I said that simply for this reason, Senator, that we
oftenfind,,as perhaps many of you know, that one may buy something thinking that the security will have an early rise, and when it
fails to do so, he continues to hold it and becomes an investor.
Senator BARKLKT. There are a great many investors of that kind
in this country now.
70
SALlE OF FOREIGN; BONDS OR SECURITIES
Yes; there are a great many.
Senator SHORTRIDGE. Y O U have read the resolution introduced by
Senator Johnson, have you not?
Mr! MITCHELL. I have; yes, sir;
Senator SHORTRIDGE. Have-you prepared a'statement responsive to
that resolution as far as you grasp its purpose?
Mr. MITCHELL. I haveSenator SHORTRIDGE. I suggestJ Mr. Chairman, that Mr., Mitchell
be permitted to present,to us;his statement, and then perhaps suffer
cross-examination or further inquiry.
The CHAIRMAN. Very well. You have an hour and 20 minutes.
Mr. 'MITCHELL. May I be permitted for just a moment to carry on
thefiguresthat I was giving, because I think it will round out what
I wanted to say, and it will take but a moment, sir?
The CHAIRMAN. Very well.
Mr, MITCHELL; I wanted to add that of thisfigureof $7,841,000,000
which the Department of Commerce estimates as the total amount
of foreign securities here, the member banks of the Federal reserve
system as of June 30, this year, held $643,000,000. Of that total,
$339,000,000, or somewhat more than half, was held by country banks,
banks in the central reserve cities of New York and Chicago held
$154,000,000, while banks in other reserve cities held $150,000,000.
As to life-insurance holdings of foreign securities, the latest report
for 52 legal reserve companies as of December 30, 1930, shows total
foreign stocks and bonds of $581,000,000, of which it is interesting
to note $517,000,000 were Canadian securities and $64,000,000 other
foreign securities.
Thus by far the greater part of the foreign issues outstanding in
this market are distributed among individuals or institutions other
than banks and lfe-insurance companies*
How numerous the individual holders are is very difficult to estimate. » If we use thefiguresthat Senator Dwight Morrow presented
in the article referred to in Mr. Lamont's testimony, of $3,269 as the
average holding per individual of foreign securities, and divide that
into the $7,836,000,000, we would deduce that the total number of
investors in foreign securities in this country aggregates 2,400,000.
That figure is obviously much too high.
When we look at the income-taxfigures,,we find that in 1030 there
were returns* from 3,376,000 individuals; 2,613,000, or 77 per cent,
had incomes tinder $5,000, and would not be a very prolific field for
foreign; security sales.
;;
Perhaps the best figure one: can get is an estimate published in
1927 by Mr. McCoy, a Government actuary of the Treasury Department, thafr the number of individual holders of domestic"bonds at
that' time* amounted to 1,300,000. How many of those individuals
held foreign bonds is anybody's guess.
Senator/WALSH. Much less, of course.
Mr. MITCHELL. It is a guess.
Senator SHORTRIDGE. That was in 1927?
Mr. MITCHELL. Yes; i* Of course, there7 have been large issues of
f o r e i ^ securities since then. I should say that probably the figure
of foreign security holders in this country would probably be in
excess or a million and a half in number.
Mr;.MITCHELL.
Senator
SHORTRIDGE.
Individual holders?
71
SALlE OF FOREIGN; B O N D S OR S E C U R I T I E S
Mr. M I T C H E L L . Yes. Just one other point along this line. In
view of what I sense as perhaps a criticism of publicly issued longterm foreign loans, I call attention to the fact that the Federal Farm
Board, a Government body, extended in September unsecured longterm loans to* the German and Chinese nationalist governments
w hich financed the export of wheat. Those loans /covered seven and
a half million bushels of wheat to Germany to be paid for December,
31. 1934. with an interest rate of
per cent, and about 15,000,000
bushels to China to be paid for in three installments, in 1934, 1935,
and 1936. with an interest rate of 4 per cent.
Of course there can be no vital difference between the flotation of
a money loan made by American investors with which those countries could buy that wheat, and an extension by the United States
Government of credit in the from of the wheat itself.
Senator G O R E . They took Chinese bonds for those, did they not!
Senator SHORTRIDGE. Mr. Chairman, this resolution calls for information as to—
whether or not any bunks, banking institutions, corporation*?, or individuals
engaged in the banking business In the United States have, as representatives
or fiscal agents of any foreign governments, or otherwise, sold, floated, or
allocated in the United States securities—
And so forth. That is the information we are seeking.
Senator R E E D . I think Mr. Mitchell has given us very interesting
information about the relatively small holdings of banks, in these
foreign securities.
Senator SHORTRIDGE. That may well be.
Senator HEED. I think that is especially significant at this time.
The C H A I R M A N , I know it is in opposition to what the general
opinion has been, and I think it ought to be clear.
Senator SHORTMDGE. I have no objection to that.
Senator W A L S H of Massachusetts. This is all part of the general
statement that you asked the witness to make, that he thinks will
be helpful.
The C H A I R M A N . I think it will.
Mr. M I T C H E L L . I introduced this purely on the theory that from
your questioning of Mr. Lamont these figures might be* of interest,
sir.
Senator G O R E . Mr. Mitchell, the Farm Board took Chinese bonds
for that wheat, did they not?
Mr. M I T C H E L L . I have no information as to just what they took.
Senator G O R E . That is my understanding. Your bank has not any
of those Chinese bonds?
Mr* M I T C H E L L . NO. My point was that there is ho difference bet
tween issuing Chinese bonds to our public and furnishing them with
dollars with which they could buy the wheat and having the Government itself make them a wheat loan.
Senator G O R E . Or a gift, as the case might be?
Mr. MiTCHEi-ii. ,/Vs it might be;
Senator C O U Z E N S . I think there is a distinction there, Mr. Mitchellt
Mr. M I T C H E L L . I have herfe, gentlemen, all of iihe issues handled
by the National City Co. directly as managed from 1910 to datef and
I shall be glad t& go through any pait ofc this,1 if you desire me to
start and give you the details;
The
CHAIRMAN,
How many countries are there?
72
SALlE OF FOREIGN; BONDS OR SECURITIES
Mr. MITCHELL. I have not had this made up by countries. It is
made up chronologically by dates of issue. I can start and go
through on that basis, if desired.,
The CHAIRMAN. You have no objection to having it all printed in
the record, have you?
Mr. MITCHELL. Well, for the same reason that Mr. Lamont spoke
of—no; I see no objection to having this published in the record.
Senator SEED. What items of information does it give with regard
to each issue, Mr. Mitchell ?
Mr. MITCHELL. It starts out with the name of the issue, the date
it was offered, the amount of the issue, the rate of the issue, the
maturity of the issue, payments that have been made to date through
sinking funds, the cost price, the offering price, the number of dealers
that were associated with us, the number of dealers on original terras,
and the profits to them— —
Senator KEED. The gross profit?
Mr. MITCHELL. The spread to them—profit spread, we call it.
The CHAIRMAN. D O you mean gross or net profit?
Mr. MITCHELL. That is the gross spread. Then, wherever there
has been an intermediate group, the number interested therein, the
spread and the profit in each case; then the banking group, the number of dealers participating therein, the profit spread, and the
amount; then the selling group, the number of dealers interested
therein, the profit spread, and the amount. The total expenses directly charged to the issue, which would be advertising, legal expense,
telegraph, perhaps the traveling expenses of a negotiator—not the
expenses of our own organization, which in general are expenses of
our administration, clerical, statistical, and selling. Those would
be the general expenses that are directly chargeable to the syndicates,
and then there is drawn up the total net profit in the particular issue.
Then I have taken the National City Co.'s retailing of each one
of these issues, showing the participation that they had in the selling
group, the amount of profit, what part they took in the intermediate
group and in the banking group, and the profits there; the selling
group, and the participation in profits there. The gross profits of
the National City Co. are then aggregated from which the deductions are made of the discounts and the general expense, and thus
we arrive at the net profit. Then there is shown the number of the
National City Co.'s retail sales in each issue. Then I have produced,
in addition to that, sheets referring to the issues of others in which
the National City Co. has participated, which cover the same information as in the case of the directly managed issues. Much of
this latter has been covered by Mr. Lamont already; but my sheets
show the amount of our interest, and the sales and gross profits.
Senator W A L S H of Massachusetts. Can you state from that table
the total face value of the foreign securities that you have
merchandised?
Senator SEED. First, the total in which you were the syndicate
managers.
Mr. MITCHELL. This total runs to $1,071,955,000.
Senator W A L S H of Massachusetts. How much is outstanding!
Mr. MITCHELL. There have been retired of that $222,866,000.
Senator SHORTKEDGE. Government obligations, or Government and
private concerns!
73
SALlE OF FOREIGN; BONDS OR S E C U R I T I E S
Mr. M I T C H E L L . Government and corporate.
Senator T H O M A S of Idaho. Mr. Mitchell, you are now speaking of
the operations of the National City Co.?
Mr. M I T C H E L L . Where they were the originators of the issue.
Senator T H O M A S of Idaho. Did the National City Bank handle
issues aside from the National City Co.. or did the National City
Co. handle all the issues?
Mr. M I T C H E L L . They handled ail of the issues, sir.
Senator HEED. Mr. "Mitchell, necessarily your .second tabulation,
which includes other people's offerings in which you participated,
must to some extent overlap with thefiguresgiven us by Mr. Lamont.
Mr. M I T C H E L L . It does.
Senator R E E D . That is, wherever you are interested in a Morgan
issue, it would occur in both his statement and yours* Is that right?
Mr. M I T C H E L L . Not in thefirstlist of which I have spoken.
Senator R E E D . But in the second ?
Mr. M I T C H E L L . In the second list it does.
Senator B A R K L E Y . Mr. Mitchell, that tabulation has no relation to,
nor any information concerning, the present holders of those bonds,
does it ?
Mr. M I T C H E L L . NO, Senator.
Senator B A R K L E Y . Does it show what percentage of the amount
of it your institution still holds, if any?
Mr. MITCHELL.^ NO; but I am perfectly ready to tell you that our
institution—for instance, the National City "Co., that' has floated
this very large amount of bonds, having been interested in the flotation outside of the first list of $3,260,000,000 of other issues^-I think
we have in our portfolio at the present time $350,000 worth of bonds.
Senator GORE. In the National City Co. or in the National City
Bank?
Mr. M I T C H E L L . In the National City Co.
Senator GORE. H O W many in the National City Bank?
Senator R E E D . Mr. Chairman. I have no doubt Mr. Mitchell is
perfectly willing to answer this for his own company. We are getting into the present-day private fortfolios of these banks, and I
do not think we ought to ask for public answers. Thepresent witness is perfectly willing to answer.
Senator W A L S H of Massachusetts. Do you not suppose they will
show in the returns of the banks?
Senator R E E D . NO; only in the..gross totals.
Senator SHORTRIDGE. Mr. Mitchell, let me ask you a question.
Mr. M I T C H E L L . May I correct a figure, the figure as to the present
holdings of the City Co.? Since I have already mentioned an
amount, Senator Reed, I am going to take the liberty of a correction
by saying we have $334,000 worth of foreign government bonds and
$525,000 of foreign corporate bonds—that is, at par value.
Senator SHORTRIDGE. Mr. Mitchell, let. me ask you one or two
questions.
Have you data before you which would enable you to tell us how
many French Government bonds and how many French corporate
bonds your house has handled as manager, if that be the proper
phrase; and similarly, if so, as to German and as to English bonds?
.Senator W A L S H of Massachusetts!: The first; table shoivs eyeiything he has:
74
SALlE OF FOREIGN; BONDS OR SECURITIES
Senator SHORTRIDGE. I S that all there?
Mr. MITCHELL. It would have to be picked out as to countries.
Senator SHORTRIDGE. Have you it grouped together ?
Mr. MITCHELL. The issues are listed here chronologically.
Senator SHORTRIDGE. Y O U have not grouped it together, then, showing the French issues, the German issues, or other national issues ?
Senator REED. We can have a clerk do that in an hour.
Senator SHORTRIDGE. That is what I wanted to know, if that could
be done.
Senator REED. I ask that the two statements produced by the
witness be put into the record at this point.
Senator JOHNSON. Mr. Chairman, I am not a member of this committee, and I have not the right, of course, to indulge in any objection, but it is a perfectly silly idea to put long statements of this
sort in the record without the commitee or anybodj* knowing what
they are, and then, I presume,- prevent any cross-examinaion respecting them.
Senator REED. I am not conscious, Mr. Chairman, of having
suggested that the committee should not have them, or that it
should not cross-examine, or that it should not now know everything that is in them. I think it will be convenient to have the
statements appear in the record now, before we go any farther with
the witness in the discussion of the statements.
Senator JOHNSON. I have not any objection to that; but you were
predicating it originally upon the statement that certain things
the witness had volunteered ought not to be stated in his own interest or in the interest of hisfinancialinstitution, and I assumed from
that that you did not desire publicity concerning the particular
statements, or concerning any cross-examination upon these matters.
Senator R E E D . NO; not at all. It is merely the details of the
present portfolios, which, with most institutions, are their private
business, and I do not think we ought to make them public, although
we ought to get the information for ourselves. But these statements showing the issues they have managed and put out I think
ought to appear in the record now; and I was going, for myself,
to ask Mr. Mitchell to take up that matter and give us an analysis
of these different issues that he has managed.
The C H A I R M A N . I asked Mr. Mitchell to put them in the record,
Senator Johnson, in thefirstplace.
Senator W A L S H of Massachusetts. Are thev in the record now?
The C H A I R M A N . Without objection, they will be put in the record.
(The statements referred to will appear in the appendix.)
Senator GORE. I wish to ask a question now.
A few minutes ago I propounded a question as to how many of
these bonds are now held in the portfolio of the National City Bank.
You stated the amount in the National City Co. If you have any
objection to stating the amount in the portfolio of the bank, of
course I will not insist on it. Nowr Senator Reed, did vour question
include that as private information for the committee ? I did not
understand.
Senator REED. Oh, yes. As soon as these statements have been
ordered printed, then I wanted to follow it up by asking Mr. Mitchell
to send to the committee in writing a statement showing the present
75
SALlE OF FOREIGN; B O N D S OR S E C U R I T I E S
holding of foreign bonds by the National City Co. and the National
City Bank.
Senntor W A L S H of Massachusetts. In other words, you are giving
him the same protection Mr. Lamont had ?
Senator REED. Exactly.
Senator GORE. That will meet my desire.
The C H A I R M A N . Mr. Mitchell, how long will it take you to send
that information ?
Mr. M I T C H E L L . Oh, I can give you that very promptly.
Senator R E E D . By Monday?
The C H A I R M A N . I should like to have that information follow this,
so that we will have the whole picture at once.
Senator REED. We are not going to print it. We are going to
print this, of course.
The CnAiRMAN. That is what I say.
Senator W A L S H of Massachusetts. What?
The C H A I R M A N . The confidential information.
Mr. M I T C H E L L . For the confidential information of this committee, I can give the information before I leave Washington.
The C H A I R M A N . That is all right.
Senator SHORTRIDGE. Will you indulge my asking this? Then I
am quite throught
Let me ask you this question: Has your house acted as representative or fiscal agent for any foreign government? Has it or not?
Mr. M I T C H E L L . " Fiscal agent" is a very vague term, Senator.
Senator SHORTRIDGE. Representative, then. Is that as indefinite?
Mr. M I T C H E L L . " RepresentativeT' is not a term that would seem to
me to be a proper one. W e have relations with countries that are
that close that we have done all of their financing in America.
Senator SHORTRIDGE. Y O U have managed the disposal of certain
foreign bonds of certain foreign governments? Is that right-?
M r . MICHELL.
Y e s , sir.
Senator SHORTRIDGE. All right. With a view to distributing them
out to the ultimate purchasers in America; is that right?
M r . MITCHELL. Y e s , sir.
Senator SHORTRIDGE. What I should like to get at is, have you
handled any for the French Government, for example—the government as such?
Mr. M I T C H E L L . Not for the Government directly; no, sir.
Senator SHORTRIDGE. All right For corporations or municipalities in France?
Mr. M I T C H E L L . I think not. We have handled, I think, directly,
a railroad issue.
Senator SHORTRIDGE. Very well. Now, what I should like to have
put into the record in simple, straight, understandable shape is,
what Government bonds or corporate bonds of French issue your
house has handled in the way you have indicated; similarly as to all
other foreign governments, so that we can have it clearly, simply
before us; for we are plain, simple men, and want to "have the
matter put in simple, plain manner. That is what I \rant to
know. That is what this resolution calls for.
Senator REED. Senator, I have just been looking over the statement that the witness has given us, and it shows exactly that in*
formation in plain, simple, comprehensible language; but I suggest.
76
SALlE OF FOREIGN; BONDS OR SECURITIES
to make it clear, that you take that list now, Mr. Mitchell, and give*
us the details with regard to each French issue that appears on that,
statement, if there are any.
Mr. M I T C H E L L . Just the French issues?
Senator BEED. Yes; start with the French issues.
Senator SHORTRIDGE. That is what I want. Then go on down.
Senator BEED. Just pick out the .French issues, from that statement.
Senator W A L S H of Massachusetts. Would you like to proceed
chronologically? That would save time.
Senator SHORTRIDGE. I was about to suggest that. If there are any
from Austria or Estonia or Belgium, go down alphabetically.
Mr. MITCHELL. I am taking them up chronologically, which is the
basis upon which this report is made.
June, 1919, Swedish Government, an Issue of $25,000,000. The
rate was 6 per cent. The issue matures in 1939. It was called for
payment and paid 102 on June 15, 1929. The cost of that issue to
us Vas 96%. The offering price was= 99%—in other; words, a gross
spread of 3 points.On original terms we had 12 houses with us. They took a spread
of 1 per cent.
Then a banking group was formed, consisting of 422 dealers..
Their spread was one point and a quarter.
Then a selling group was? formed of 341 dealers, with a spread of
three-quarters of 1 per cent.
The total expenses directly chargeable against that issue were
$43,077; and the gross profit after these particular expenses incident
thereto was a total of $711,000.
The National City Co. participated in the selling group on the*
original teniis to the-extent of $5,500,000; In the banking group it
participated to the extent of $4,570,000. In the selling group it
participated to the extent of $5,726,000.
Its total profit on the deal, after these expenses, was $111,448.25..
The number of its own retail sales .was 962.
This is the information that I can give as I go right, through this
list.
Senator KEED. The profit in that transaction amounted to about
2 per cent of the liability incurred by your company, then? Is that,
right?
Mr. MITCHET/L. Yes. Our original-terms liability was $5,500,000Our profit was $111,000.
I ask in connection therewith, however, to call: your attention to
the fact that we have a large organization, very far spread, the
expenses; of which—which do not enter in in my statement of expenses here—run from a low of $6,000,000 to a high of $10,000,000 per
year.
Senator KEED. Is:any of that included here?
Mr. M I T C H E L L . None of that is included.
Senator BEED. All that has to be paid out of these profits?
Mr.' M I T C H E L L . That all has to , be paid out of these and other
profits.
Senator REED. Have you deducted from these profits any salaries
of: your salesmen or any commissions taken ?
M I \ M I T C H E L L . None.
77
SALlE OF FOREIGN; BONDS OR SECURITIES
Senator REED. JU.st to complete the story about that Issue, what
part, if any, of that issue has been paid by the obligors?
Mr. M I T C H E L L . It has all been paid. It was sold to the American
public at par and has all been called at 102.
Senator COUZENS. What is the next ?
Mr. M I T C H E L L . The next issue was September 28, 1920, Kingdom
of Norway, $20,000,000. These were 8 per cent bonds, due in 1940.
This issue has since been called at 110. though offered to the American public at par.
Our purchase price of that issue was 94*4—in other words, 3%
per cent spread. Five houses participated with us on original terms
in that issue, and hud a spread of three-quarters of 1 per cent. We
formed an intermediate group of houses before coming to the socalled banking group—an intermediate group of 15 houses that took
1 per cent spread.
Our banking group in this case was large—529 in the banking
group. They had a spread of 2% per cent.
Then we formed a selling group, 464 houses being in that group.
They took a spread of V/* per cent.
The total expenses directly charged to the issue were $19,294.
The total profit was $1,130,705.08.
The National City Co. had a participation on original terms in
this issue of $6,750j)00. They had a participation of $4,809,000 in
the intermediate group, a participation of $2,655,000 in the banking
group, and a participation of $2,715,500 in the selling group. Our
own organization, at retail, made 1909 separate sales. Their net
profit, after deducting discounts and general expenses, was
$165,085.31.
The next issue was Solway et Cie, which is a Belgian company.
They are a chemical company in Belgium.
Senator COUZENS. D O we care to go into those private corporations? I do not see what wre have to do with that.
Senator REED. It will all be in the record. If the committee wants
it, we might as well go ahead.
Senator COUZENS. Why not confine it to the foreign loans?
Senator REED. This is a foreign company.
Senator COUZENS. It is a foreign company, but it is not a foreign
government.
Senator SHORTRIDGE. I think it would be well to confine it to the
foreign governments: and then if we want this additional information given in detail, that can be furnished.
Senator L A FOLLETTE. The resolution calls for information concerning industrials as well.
Senator COUZENS. But that is all going to be in the record;
Senator SHORTRIDGE. All right.
Senator COUZENS. Why not confine it to the countries, Mr. Chairman ?
The C H A I R M A N . I should think it would be better to do that, because every one of them will be in the record.
Senator COUZENS. Then if we want to go back to: it afterward, we
can do so.
Senator W A L S H of Massachusetts. What percentage are countries
and what percentage are industrials, approximately ?
92928—31—tT 1
6
78
SALlE OF FOREIGN; BONDS OR SECURITIES
Mr. MITCHELL. I have not the loans so separated, sir.
Senator REED. Clause C of the resolution calls for industrial loans.
Let us hear about this one.
Senator BARKLEY. Of course, this will all be in the record, anyway.
Mr. MITCHELL. This loan to Solvay et Cie. was made October 4,
1920. The issue was $10,000,000.
Senator SHORTRIDGE. What was that corporation?
Mr. MITCHELL. A chemical corporation in Belgium. The loan
was $10,000,000. The rate was 8 per cent. It matured in 1927. It
was called, however, in 1924 at 104, though issued at 100. The issue
was bought by us at 94, giving a total of 6 points spread.
We had six houses with us on original terms, and they took a
spread of 1% per cent.
There was no intermediate group.
Our banking group consisted of 44. Their spread was 1 y2 per
cent.
A selling group was formed of 123 houses. Their spread was 3
per cent .
The National City Co. had a participation on original terms of
$2,000,000; in the banking group a participation of $2,475,000; in
the selling group a participation of $2,304,500.
After deductions for expenses we had a profit in this deal of
$100,869.50; and we ourselves made retail sales of that issue to 503
separate investors.
The next is Kingdom of Denmark, which we issued in October,
1920. The issue was one of $25,000,000, and carried 8 per cent
coupons, due in 1945. The issue was offered at par? but was called
in 1925. I can not give you the call rate on that without referring
to my papers. I can do that quite promptly, if I may.
Senator REED. Mr. Mitchell, when you say " the issued was called,"
you mean, of course, that it was called, paid, and extinguished? Is
that right?
Mr. MITCHELL. That is right, sir.
Senator CONNALLY. Mr. Chairman, it is not important as to
whether they paid 104 or 105. It has been paid. Why should we
kill a lot of time over that?
Mr. MITCHELL. It has been paid. I can not tell you the call price
on it, but it was probably at a premium.
That issue cost us 95. In other words, there was a 5-point spread.
There were three houses associated with us on original terms. There
was a 1 per cent spread on original terms.
Thirty-four houses were associated with us in the banking group.
The spread there was 1% per cent.
Four hundred and seventy-two houses participated in the selling
group, and the spread was 2y2 per cent.
The National City Co. participated on original terms to the amount
of $16;188,000. It participated in the banking group to the extent
of $12,000,000. It participated in the selling group to the extent
of $5,858,000. The total profit to it on this transaction, after deducting discounts and general expenses, was $416,000.
Senator REED. How much were the expenses?
Mr. MITCHELL. The expenses were $35,000.
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SALlE OF FOREIGN; BONDS OR SECURITIES
The CHAIRMAN. Let me .say to the members of the committee that
all of this is going to be printed in the record. Do you think it is
necessary to have all of these items read here? You "have a sample
of them now. Why not let us put the details in the record, and have
the matter complete? We will have to refer to it anyhow if we ever
want to make a statement; and, if there is no objection on the part
of the members of the committee, I ask that that be printed in the
record without further reading.
It will be done, Mr. Mitchell. You may proceed now with the next
matter.
Senator JOHNSON. IN any of those sales were there any losses?
Mr. MITCHELL. I)O you mean any of these syndicates—any of these
particular issues?
Senator JOHNSON. Yes, sir.
Senator SHORTRIDGE. Suffered by whom?
The CHAIRMAN. The syndicates.*
Mr. MITCHELL. Not in this particular list. I see two issues where
others were managers where there was a loss.
Senator JOHNSON. Some other institution made some loss?
Mr. MITCHELL. Yes; they doubtless made a loss. Other institutions would have made a loss there if we did, without question.
Senator SHORTRIDGE. The purchasers of the bonds have made some
loss; have they?
Mr. MITCHELL. Just as the purchasers of American bonds have
made some loss; yes, sir.
Senator JOHNSON. YOU have spoken of two institutions, Mr.
Mitchell, and I am not familiar with them. You say "the National
City Bank " and " the National Co."? Is that right?
M R . MITCHELL. The National City Co.
Senator JOHNSON. Are they affiliated institutions?
Mr. MITCHELL. The stock of the National City Co. is owned by
trustees who hold it for the beneficial interest of holders of the shares
of the National City Bank of New York.
Senator HEED. And the transfer of the stock of the bank carries
with it a proportionate interest in the trust?
Air. MITCHELL. Quite so.
Senator JOHNSON. We may say they are affiliated, at least, then?
M r . MITCHELL. Y e s , sir.
Senator SHORTRIDGE. But separate corporations?
Mr. MITCHELL. Separate corporations; yes, sir.
Senator GORE. Mr. Chairman, in connection with
the question I
asked about the amount of foreign bonds held by the National City
Bank, I should like to get in the record at this point the statement
that I think this entire investigation grew out of a popular belief in
this country* or a suspicion, if you please to call it so, that a group
of New York banks commonly referred to as the international bankers have to-day large holdings of foreign-government securities, and
that they are fostering an agitation to cut down, cancel, or reduce the
debts owing by the foreign governments to this Government in order
to enhance the value of their holdings.
I think that is why this investigation is being held; and, so far as
I am concerned, I want to>put> in the record an expression of my
regret that the committee "willriotbe able to advise the Senate or the
country as to whether or not that is true. I do not think anything is
80
SALE OF FOREIGN BONDS OR SECURITIES
more unfortunate than to have a belief or suspicion of that sort pervading the public opinion of the country if it is not true, particularly
if it is contrary to the facts.
The CHAIRMAN. Up to the present time, of course, nothing has,
been presented here that would show that that is true.
Senator GORE. That is true; and I think it is equally important to
the banks and to the country to have the truth known about this
matter. What I have in mind is this: The information will be available to the committee under Senator lleed's request; but I am not
certain that we will be in a position to make use of it, as it comes in
confidentially.
Senator SEED. Why can we not ask Mr. Mitchell right now
whether he is agitating or participating in any agitation for the
reduction or cancellation of the intergovernmental debts due to this
/Senator KEED. I think that settles it, Senator Gore.
Senator GORE. YOU think that settles it? I do not think tliat quite
settles it. It might settle it so far as Mr. Mitchell is concerned, I
make no allegation that it is true, Senator Keed; but you know that
that belief does prevail. It may be entirely unfounded. If it is, I
do not think the public ought to be left with any ground on which,to
base such a suspicion.
Senator SHORTRIDGE. Mr. Mitchell, may I ask this question: Do you
regard as confidential the holdings of foreign bonds by American
banks and their several amounts? Is that the information which is
considered as confidential ?
Mr. MITCHELL* It would be confidential; ves; and I think it would
probably be unwise to have that become public property. I have no
objection to giving this committee as it sits to-day the position of
the National City Tiank with regard, let us say, to German Government bonds. I think it would perhaps be unwise to ask all of the
banks for their holdings and have that become public property.
Senator SHORTRIDGE. I fully agree with Senator Gore that it would
be wise to disabuse the public mind as to the holdings of the several
banks.
Senator JOHNSON. Why would it be unwise, Mr. Mitchell!
Mr. MITCHELL. If you would permit me just to make this statement: The holdings of the National City Bank of German Government bonds to-day aggregate $1,556,000, and the holdings of the
National City. Co. of German issues of every name, nature, and
description aggregate a par . value of $631,000.
Senator SHORTRIDGE. That information would not be hurtful to the
bank or hurtful to the holders of like bonds; would it.<
Mr. MITCHELL. No, indeed; and I am of the opinion that with respect of these large banks whose portfolios are so often talked of
lightly and carelessly by the rumor-mongers, perhaps it will not do
them any harm to have some of these things known. The amount
that is held by large New York banks, for instance, is in no case
enough to influence their judgment with respect to cancellation of
debts one iota; .nor is the amount that is held by them of such a size
as in any way to affect their essential liquidity or their soundness.
Senator JOHNSON. Then, what is the objection to telling it ?.
81
SALlE OF FOREIGN; BONDS OR SECURITIES
Senator SHORTRIDGE. That is what I want to develop. Why consider it as confidential?
Senator GEOKGE. A S an illustration, what are the resources of the
National City Bank?
Mr. MITCHELL. I think our last statement showed about one billion
eight hundred and odd million.
Senator GEORGE. And your German holdings are only a million and
some?
Mr. MITCHELL. That is as stated.
Senator CONNALLT. With reference to foreign bonds, you are like
the saloon keeper who never drank. His whiskey was made to sell,
not to drink.
Air. MITCHELL. With respect to bonds generally, we are merchants.
Senator CONNALLY. Thnt is what I mean.
Mr. MITCHELL. We are merchants.
Senator CONNALLY. And the bonds of these foreign countries are
to sell, and not to keep?
M r . MITCHELL. Y e s , s i r .
Senator GORE. And the German
Government, of course, owes our
Government nothing.
Senator JOHNSON. Do I understand, then, that such objection as
has been voiced here as to the publicity of the amount of German
securities held .by New York banKS you do not concur in?
Mr. MITCHELL. Obviously, I have no objection to it from our own
standpoint. I should hesitate to speak on the general subject of the
properties. I think your committee is quite able to determine that
without my assistance.
Senator JOHNSON. That is not the point. The point is, it has been
suggested here that the matter ought to be kept secret and ought not
to be divulged because, I presume, of the effect that it would have
upon certain banks. I understood you first to confirm that view, but
subsequently I took it that you reached a different conclusion.
Mr. MITCHELL. Senator Johnson. I thought that the first question
had to do with the making public or the portfolios of banks generally.
I think that would be unfortunate.
Senator JOHNSON. Why? I mean as to German securities. I am
not speaking of anything else. Why would it be unfortunate?
Mr. MITCHELL. I was speaking to the question of their entire
portfolios. With respect to their German securities, I do not think
it would be harmful; and if your committee were to conclude that
it would be helpful—which I think is a very real problem for you
to determine—then I can not see any objection on the part of the
banks, because, in my opinion, they have nothing to hide.
Senator JOHNSON. All right. Then I can not understand what the
object is of the discussion.
Senator BEED. It ought to Be very plain, it seems to me, Senator
Johnson, if I may say so. I think this committee ought to see the
figuresfirstbefore it decides whether it is going to make them public
or not. If it will not do any harm to make them public, then let
us make them public.
Senator JOHNSON. I do not want to rest upon the statement that
the figures can do no harm, and that is the situation we are in now.
This gentleman says, and doubtless accurately, from his information,
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SALlE OF FOREIGN; BONDS OR SECURITIES
thai there is .not anything , the disclosure of which publicly would
affect anybody.
The CHAIRMAN.-As far as his institution is concerned.
Senator JOHNSON. N O ; he says so far as all banks are concerned.
If he be correct in. that,-then there is not any use of our pussy footing
in respect to the particular proposition as to whether the amounts
should be made public or they should be asked concerning them.
I want to be just as delicate concerning the banking situation as
anybody at this table; but when a gentleman qualified to speak, as
Mr. Mitchell is, says there are not any such amounts of securities as
would affect any kink at all,tljen we ought to know the facts.
The CHAIRMAN. Senator Johnson, Mr. Mitchell has already reported his; so let us go on.
Senator GORE. I think the matter of German bonds is least important, because they do not owe us anything.
The CHAIRMAN. Then when we'reach- the others^ we can decide.
Senator COUZENS. The Senator from Oklahoma is mistaken about
Germany not owing us anything.
Senator GORE. Oh, $250,000,000 for the army of occupation; yes,
and I think we ought to remit that.
Senator BARKLEY. I should like to ask Mr. Mitchell, in that connection, whether any banker or any witness coming here can testify
as to the portfolio of any bank except his own.
M r . MITCHELL. H e c a n n o t .
Senator BARKLEY. SO that
in order to get that information we
would have to bring,all the bankers;in the country here ?
Mr. MITCHELL. That is quite truel
The CHAIRMAN. Proceed, ,Mr. Mitchell.
Mr;MITCHELL. Let me see. Where were we?
The CHAIRMAN. You may go on . to another subject, because the
one we had is already settled.
Mr. MITCHELL. The Senator calls my attention to the fact that we
had concluded with the issues of which ;the National City Co. was
manager.
Senator COUZENS. At that point, let me ask you this question:
You were not manager for any of the Italian loans, were you ?
Mr. MITCHELL (after a pause). We were not; no. I take this time
for thought because there was one industrial issue that I am inclined to think J. P. Morgan & Co. did bring out, and that perhaps
was not on Mr. Lamont?s list, and I thought we might be the ones
that brought that out; hut it is possible that it was brought out by
another company and we participated.
Senator COUZENS. You were not the original managers of any
British loans?
Mr. MITCHELL. N O ; we were not, Senator Couzens.
Senator COBZE^S. And you were not the managers of any German loans?
Mr. MITCHELL. Not any . German Government loans.
Senator ;COUZENS.I That is what I mean. ; So that so far as this
committee is concerned, we can understand that Mr. Lamont gave
us the testimony with, respect, to the bringing out of the,Italian
and British and German loans?,
• Mr. MITCHELL.? That is correct.
Senator COUZENS. And French loans?
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SALlE OF FOREIGN; BONDS OR SECURITIES
Mr. MITCHELL. SO far as he handled them. Of course, there were
many corporate issues.
Senator COUZENS. But I mean as to governmental loans; and you
were not managers of any French loans?
Mr. MITCHELL. We were not managers of any French Government loans.
The CHAIRMAN. What else is there to ask this witness?
Senator JOHNSON. Have you any short-term credits of Germany?
Mr. MITCHELL. In the National City Bank?
Senator JOHNSON. Yes.
Mr. MITCHELL. Yes. Senator Johnson; we have*
Senator JOHNSON. In the past six months, have any of your shortterm credits been paid ?
Mr. MITCHELL. Oh, 37es. We are having some payments right
along, Senator Johnson.
Senator JOHNSON. Do you know the amount of short-term credits
that have been paid by Germany in the past six months?
Mr. MITCHELL. I can not give you that with any accuracy.
Senator JOHNSON. I speak in approximate figures only. I do not
expect absolute accuracy.
Air. MITCHELL. I am speaking now for the short-term credits that
are under the stillhalten agreement.
Senator SHORTRIDGE. Government loans?
Mr. MITCHELL. NOJ I refer to that group of short-term loans that
were put under the stillhalten agreement last August.
Senator SHORTRIDGE. Paid by the government !
Senator GEORGE. Are they industrials?
Mr. MITCHELL. No; they are not all industrials.
Senator SHORTRIDGE. Wnat are they?
Mr. MITCHELL. They are bank loans and short loans of varied
character maturing within a period of six months; and the agrees
ment was for six months, and with respect thereto all nations came
into that so-called stillhalten agreement.
Senator COUZENS. But none of them were governmental ?
M R ; MITCHELL. NO; I think that none of mem were governmental*
There are outstanding some of the Gold Discount Bank*s short notes*
As of course you know, that is a governmental bank. They- are not
the obligation of the Reich directly, however.
Senator SHORTRIDGE. That is the point I want.
Senator JOHNSON. That is the obligation of the Keichbank, is it
not.?
Mr. MITCHELL. These particular obligations I speak of are obligations of the Gold Discount Bank. That is different still.
Senator JOHNSON. Can you state approximately how much of those
short-term credits have been paid in the last six months?
Mr. MITCHELL. In America, roughly, I think, Senator Johnson,
15 per cent
Senator JOHNSON. Well, what is the outstanding amount of ^the
short-term credit?' Oh, just approximately* I do not ask you for
accurate figures or do not want to give you the trouble of going
through your detail there.
Mr. MITCHELL. Well, between $600,000,000 and $700,000,000.
Senator J O H N S O N Between $600,000,000 and $700,000,000 ?
M r . MITCHELL,Yes* sir.
84
SALlE OF FOREIGN; BONDS OR SECURITIES
Senator JOHNSON. HOW much of short-term credits do you hold?
Mr. MITCHELL. YOU understand, I had to get up this data very
rapidly. Here are the lastfiguresI have, which, incidental^, were
as of the 1st of November.
Mr. Chairman, here again is data that I have a feeling should be
confidential with this committee.
The CHAIRMAN. That is, it does not refer to your bank?
Mr. MITCHELL. If I understand correctly, the question is asked of
me at this moment as to how much our bank has in short-term
credits, coming under the stillhalten.
Senator SHORTRIDGE. What does that term .mean—"short5' ?
Mr. MITCHELL. Those credits are all due within a 6-month period:
some of them have become due and been renewed. They are, for the
most part, revolving credits. To the extent of, generally, I would
say, 80 per cent, they are self-liquidating in character.
Senator SHORTRIDGE. I do not know what that means.
Senator COUZENS. That means bills that were due.
Mr. MITCHELL. I mean this: When a merchant in Germany ships
a lot of Christmas bulbs to this country, an X corporation here, the
importer, owes him for them, and that is represented in a bill that
is drawn for, say, 90 da^s and accepted, and we become. holden to
collect; we are the collecting bank as it comes due. Now, when that
is paid, the amount comes to us and the account is wiped out.
Senator SHORTRIDGE. That is called self-liquidating?
Mr. MITCHELL. Yes; that is called a self-liquidating credit.
Under the stillhalten agreement, however, there was a provision
that where a lender had on September 1 outstanding and in use a
line of credit to a borrower in Germany Aggregating, say, $100,000,
the borrower should be permitted for the: 0-month period of the stillhalten to use the credit to the extent of that full amount of $100,000,
regardless of any payments on account in the interim. If by payments it is reduced, let us say, to $80,000 at any time, the borrower
has the right to replace all matured items to the extent of $20,000
during this 6-month period, or even to run an overdraft in such
amount, so that he has available to him a credit line throughout of
$100,000. Even where covered by bills which are matured and paid
during that time, they can be replaced. Do I make myself clear (
Senator SHORTRIDGE. I think I understand you.
Senator JOHNSON. Now, I repeat my question, and you may make
your statement to the chairman^ if you care to.
How much of short-term credits does your banking institution
hold; German short-term credits?
Senator COUZENS. Mr. Chairman, I understand the witness dofcs'
not desire to answer that, and I suggest that we give him the same
courtesy that we did to Mr. Lamont, and let him file it with the
committee.
Mr. MITCHELL. I would be very glad to do that.
The CHAIRMAN. Will that be satisfactory, Senator Johnson ?
Senator JOHNSON. I A w sorry, Mr. Chairman, I did not hear it*
The CHAIRMAN. To extend the same courtesy we extended to Mr.
Lamont, to allow him to file it with the committee?
Senator SHORTRIDGE. And it remains with the committee to determine hereafter what is to be done with the information.
The CHAIRMAN. YOU can do that, can you, Mr. Mitchell?
SALE OF FOKKIGX BONOS Oil SECURITIES
85
Mr. MITCHEUL. Yes; I can do IT, and will be glad to do it; or, if
you desire me to, Mr. Chairman, I should be willing to make the
statement at this time*
The CHAIRMAN. I think we had better follow the same course we
did with Mr. Lamont*
Senator CONNALLY. I do not want to interrupt, Mr. Chairman, but
Mr. Lamont said he did not have the information available. I do
not want to press it, but why should we not go through with it now
and get the information?
The CHAIRMAN* It will do if we get it later, will it not, Senator?
Senator CONNALLY. Some of the Senators may want to crossexamine Mr. Mitchell about it. I am not interested in it myself, but
Senator Johnson may want to cross-examine on it; If we are to
have it, why not have it now?
Senator SHORTRIDGE. I think they should all be treated alike.
Senator CONNALLY. Mr* Lamont did not have the information
available* Mr. Mitchell has the information.
Senator JOHNSON* I think you have forgotten what Mr. Lamont
said. He said his bank did not have any short-term credits. He
spoke of another bank, and he said he did not think it should be told
concerning that bank. That was his statement
^ Senator SHORIRIDOE. He did not want to speak of the other bank.
The CHAIRMAN. I would like to follow the same course as we did
with the other witness.
Senator JOHNSON. If the chairman would like to let it pass, I do
oot lvant to press it. I think it is important.
Did you read Mr. Dawes's statement the other day?
Mr. MITCHELL. I have read several statements of his. Senator
Johnson.
Senator JOHNSON, Did you read his statement that GermanV had
paid $260,000,000 of short-term credits?
IU
Mr. MmniEix. I do not remember the statement, but I think that
is about correct
Senator JOHNSON. YOU think that is about correct?
M r ; MITCHELL. Y e s , s i r .
Senator JOHNSON. We forgave
Germany $ 2 4 6 , 0 0 0 , 0 0 0 by our moratorium, did we not ?
The CHAIRMAN. That was an extension of time.
Mr* MITCHELL. You have delayed the payment of it.
Senator JOHNSON. Extended the payment of it; and short-term
credits that'was held in banks was paid; presumably, in practically
the amount we forgave.
Mr* MITCHELL. You have raised a question which, I think, it is
only fair to me to give me an opportunity to answer to a greater
length than by yes or no*
Senator JOHNSON. I am very glad to give you the opportunity to
answer it, because I want simply the facts and nothing more; and
what the facts show, whether one way or the other way, is perfectly
satisfactory to me.
Mr* MITCHELL. I think that the words " cancellation " and u priority," which your question involves, are extremely unfortunate and
misleading* If we were to speak of the foreign debt of the United
States being something that should be canceled and were to include
in that, all of the debt of individuals and corporations, of every kind
86
SALE ' OF 'FOREIGN = BONDS OB SECURITIES
and: description, we would be following-a course, similar to that
which we follow when, in - our thinking, we talk about German debts
as one global thing. Business differentiates as to the character of
credit and the shade of . merit of the borrower with respect to his
credit position. For instance, it is just as though ;we were to take
the city of Washington and talked about its debt as something that
is global- It might be that the city is not paying its debts, but we
have corporations, good,< >bad, and indifferent,.that, regardless of
what may happen to the city itself are not affected and the best of
theni are going to pay their debts. We have, let us say, a little
trader down:on Pennsylvania Avenue. It may;be that he has a
debt created for goods that he is putting on liis shelf to-day and
is going to sell to-jnorrow. That is a commercial debt that is good.
It may be he has a little mortgage on his establislmient. That debt
may be slow but it is probably good. We can view German debts
and business debts in that same way. Commercial debts,- which
constitute the bulk of these short-term debts, are mostly incurred in
the operation of German economy. Now, . German economy is, if
I may use the expression, "the goose that lays the golden e*g."
That is what will produce the. profits, that, is what'will produce
materials by which other debts of other characters can be paid.
How can we talk about priority? "Priority " was introduced in
common parlance as a word having to do with transfers, and it is
too often now. in our daily conversation, used as a word applicable
to the debt itself. I feel that it is a great mistake to view all of
these debts as global, or to attempt to treat them as global, or to
break them down into classes by some rule of priority. Of course,
commercial debts have to go on. We have millions of dollars that
good and the obligation is represented by commercial credits and
we want them to revolve. We are prepared to extend new credits
as the amounts come due, because the debtor is good. The so-called
political debts, reparations, if you please, are in a different category.
Whether it is desirable or undesirable that the creditor forces the
debtor to pay, is something that has to do with the political Or international situation as it may exist from time to time. That is
something you gentlemen in Congress must determine, and you will
determine it on the basis of what is best for the American people.
That is the only yardstick you can use in connection with this matter. This applies to England and France and any other government that owes money to the United States Government. But I
have faith that in the ultimate you will do that which will mean a
continuation of the healthy economy of the countries of those debtors, and if I am right in that faith, then these short-term commercial debts that are so much the discussion of the day are good,
provided the debtor himself is a good risk.
Senator JOHNSON. Is not the whole discussion abroad to-day full
of priority talk?
Mr. MITCHELL. That, too often* is the discussion. If you tell me
that the; political debt of Germany must be paid before anything
is paid on her commercial debts, I will tell you that you have a closed
German economy, and if you have a closed German economy, then
87
SALlE OF FOREIGN; BONDS OR SECURITIES
you have a closed English, a closed French economy, and you have
a situatioii iii America that is very nearly closed, if not closed.
Senator JOHNSON. NOW I am not going to attack that subject
with )'ou at all, but that is exactly the position that France takes,
is it not?
Mr. MITCHELL. N O W , Senator Johnson, should I be brought into
a discussion of that?
Senator JOHNSON. N O ; I do not think you should, but you
brought yourself in, if you will pardon me. *
Mr. MITCHELL. I brought myself into a discussion of this because
you have attempted, in your question, to link short commercial
credits made to German industry with the question of other reparations payments on which there was a moratorium given, saying
that the money
Senator JOHNSON (interposing). I have done that solely because
Germany and France have done it, and that is the subject of conversation abroad.
Let me ask you the question, and you can answer it or not, as you
please. Are you in favor either of scaling down the debts that are
due us from foreign governments, or in favor of a cancellation direct ?
Mr. MITCHELL. That is a question that I am prepared to leave
absolutely in the place where it belongs for its settlement, which is
the United States Congress. I do not believe in cancellation, as
that word is generally used. I believe that those debts should be
forced in payment, or should be scaled, as seems best in the minds
of Congress,* actuated always by what is best for the American
people.
Senator SHORTRIDOE. Certainly.
Mr. MITCHELL. And I am inclined to believe that here and there,
at least, it will be determined that there should be some scaling.
Where and how much is a matter I feel I can not say. It will
depend 011 circumstances. That is a matter that will need serious
consideration of the men who are elected to determine those things.
Senator SHORTRIDGE. We scaled down, did we not, over 50 per
cent? Now take these little countries. I think we loaned little
Latvia, on the Baltic, $5,000,000. Latvia said she would pay. We
gave her a long time. Now if we stand, not unkindly, but firmly,
relying on the legal obligation, is it not your opinion that Latvia,
which represents a high state of civilization,, will pay us? There
is no necessity of scaling, or cancellation, or anvthmg of the sort.
Mr. MITCHELL. Senator, I am a banker, and t would like to tell
you how we figure it. Bankers figure it on the basis of what is best
for themselves.
Senator SHORTRIDGE. Certainly.
Mr. MITCHELL. And very often we take a credit that perhaps we
could force the full payment of and adjust it in one way or another,
believing that it is in our interest to do so; believing that we will get
more out of it by taking some other course than by forcing the full
and complete payment of the obligation. And I assume that in the
ultimate you are going to do just exactly that with these interallied
debts to America*
88
SALE ' OF 'FOREIGN = BONDS OB SECURITIES
Senator SHORTRIDGE.' I have ^ never known:, any: bankers to scale
down anything that I owed him. But I am on the gold basis, you
understand.'
Senator HARRISON. May I ask a question?
Mr. MITCHELL. Certainly.
Senator HARRISON. Is it your opinion that the extension of these
large credits to foreign countries has in any way influenced the, contraction'of credit by the American bankers to the American people?
M r . MITCHELL. A t no'Stage. I ;think I might enlighten you on
that, if I can lay m y hands on some figures.
Senator GORE. While he is looking for that may I say that I think
Mr. Mitchell is right when he says Germany is the goose that lays
the golden egg. The question is, who is going to get the yellow of
the egg. That is the point.
,
Mr. MITCHELL. If I may address: myself to your question, Senator Harrison, the sales of the National City Co.—and I think it is
only fair that I take out all those acceptances and other things than
securities proper—in 1927y out of a total of $2,068,000,000, the direct
security sales that would be applicable to this question were $1,412.000,000. That year we sold all together $356,000,000 of foreign government and foreign corporation securities.
Senator HARRISON. What- year was that?
^
Mr. MITCHELL. 1927.i
j
Now the next year-^-^ *'
Senator HARRISON (interposing). I mean up to date* there is some
contraction of credit^ a great many people believe, in the country by
the American bankers. Have these large outstanding foreign credits
influenced that condition in this country?
Mr. MITCHELL. We have been going through a period where lack
of confidence and fear was controlling. The' public, skeptical of the
banking situation as a whole, and fearful perhaps of particular
banks, have withdrawn! deposits in volume, and as they have withdrawn those deposits there has been less money for banks to loan*
and therefore-there has been a contraction that has incensed the
public and made them more fearful. It is one of those vicious circles.
Now, so far as the; new security issues during this period are concerned, there have been-practically none.
Senator HARRISON; You mean foreign issues?
Mr. MITCHELL. Foreign or domestic.
Senator BARKLET. Has this contraction been any greater than IT
would .have been if the foreign nations did not owe us this money ?
Mr. MITCHELL. Only in that the American public, having'bought
to the extent that they did of foreign securities, have become to a
certain extent internationally minded, and when there is trouble in
this or that part of the world they feel it; it attacks their confidence
and it plays its part, of course, in the development of this great
destructive force that puts fear in the king's seat.
The ^CHAIRMAN. That applies to our own country as well as other
countries?
Sir. MITCHELL. Certainly. It is simply by reason of our people
having become to a great extent internationally minded.
Senator HARRISON. What is about the approximate amount of foreign credits outstanding; do you know?
Mr. MITCHELL. Foreign credits in this country?
89
SAI*E OF FOREIGN BONDS OR SECURITIES
Senator HARRISON. Yes. How much American money is invested
abroad and how much at home? I have seenfiguresstating as much
as $14,000,000,000 or 15.000,000,000.
Mr. MITCHELL. Now, you are taking foreign securities that are in
this country plus foreign credits plus investments in foreign corporations. I would hesitate to guess at that figure. We know that
in securities it amounts to $7,800,000,000. We know that the amount
invested by American corporations abroad is about $150,000,000, or
it is so estimated. I have that estimate here.
The CHAIRMAN. It is more than that.
Mr. MITCHELL. $125,000,000. Now, to that you have to add the
amount that is invested by banks and financial institutions in the
exchanges and in the short-term credits of one sort or another that
they hold covered by the stillhalten. Then you have an amount in
excess of that that is not covered by the stilllialten, because there are
short credits that are maturing beyond the 6-montli period of the
stillhalten.
The CHAIRMAN. It is understood as between $14,000,000*000 and
§15,000,000.000.
Senator SHORTRIDOE. That includes what?
The CHAIRMAN. Evervthing.
Senator SHORTRIDGE. Henry Ford, for instancet is building automobiles in Ireland, is he not?
Mr. MITCHELL. I understand that he is. Incidentally I have here,
and you would be interested to see the Irish Free State loan, which
we managed, and which. I am glad to say, has enjoyed one of the
finest positions of credit in this market.
Senator SHORTRIDGE. I am glad to hear you say that. Take Ireland, for example, what is her outstanding government debt, if you
know?
Mr. MITCHELL. It is very small. She hesitated to borrow from
England; she preferred to borrow from America.
Senator
SnoirniiDGE. She is quite right.
Mr. MITCHELL. Senator, Mr. Lamont said to-day that which is
quite true, that most of these government loans depend upon the
good faith of the people of the country that is borrowing the money.
There is something more than good faith, however* There is tlie
character of the people: their ability to work; their ability to produce; their insistence upon production. It is not only good faith.
It is that desirable kind of a people that we find in the German
workman*
Senator SHORTRIDGE. Well, you find it in other places, too?
Mr. MITCHELL. And we find it in many other places.
Senator SHORTRIDGE. Have you data showing the amount of Irish
bonds that have been disposed of here in America?
Mr. MITCHELL. Yes: I have.
Senator SHORTRIDGE* I would like to know that.
Stenrftor BARKLEY^Well, is Ireland asking for any moratorium?
Senator JOHNSON. Yes; she asked England for a moratorium, and
was declined.
Senator SHORTRIDOE. I am asking that for an interest I have, and
do not want to disclose*
Senator JOHNSON. Mr. Mitchell, did your institution float the
Polish loan?
90
SALlE OF FOREIGN; BONDS OR SECURITIES
Mr. MITCHELL. N O , sir; we have never had anything; to do with
Poland,
ri
'
Senator JOHNSON. Could you tell me who.did?
Mr. MricHELL. I think it was Dillon,. Reed, & Co.
Senator JOHNSON. Could you state the amount of German acceptances that are held in Federal reserve banks, approximately?
Senator SHORTRIDGE. D O not lose track of that question of mine.
Mr. MITCHELL. I can not; no, Senator Johnson.
Senator JOHNSON. Can you give me any idea ? I do not care for
?
figures.
the accurate
Mr. MITCHELL. No; I can't do that. I can do a quick calculation
on it, but it would not necessarily be accurate. [After a pause.] No,
Senator, I regret that I can not tell you, because the Federal reserve
take in these bills, and they are. sold with their guarantee to foreign
governments who have deposits with the Federal reserve bank, and
what proportion of those bills have actually been sold into the market and got into the hands of the Federal reserve bank as against the
portfolios of the commercial banks and then what portion has been
sold by them to foreign government accounts is too much of an
enigma for me to work out. I regret that I can not given you even
roughly the information that you ask.
Senator HOWELL. Mr. Mitchell, you started to give us the total,
and you have already, but if you* would repeat it—the total of the
foreign securities that are held in this country—seven billion eight
hundred and some-odd million.
Mr. MITCHELL. That is correct, sir.,
Senator HOWELL. Then you gave us the amount of money invested
in foreign corporations by Americans, $ 1 2 5 , 0 0 0 , 0 0 0 ?
M r . MITCHELL. $ 1 2 5 , 0 0 0 , 0 0 0 .
Senator HOWELL. $ 1 2 5 , 0 0 0 , 0 0 0 .
Now, then, you were about to give
us approximately the amount of short-time credits. Could you give
the total of the short-time credits?
Mr. MITCHELL. I can not do that. I know what came in and
probably is in the stillhalten agreement. But there are other short
credits that did not mature during the 6-month period of the stillhalten, and just how much those are I do not know. Those are
figures that will come into the so-called Wiggin report when that
committee, which is now sitting in Berlin, has completed its task.
Senator HOWELL. Would you give us your opinion as to what the
short-term; credits would approximate?
Senator COUZENS. Probably a billion dollars. Is that not right?
Mr. MITCHELL. I would not think it would be very far from that,
Senator Couzens.
;
Senator HOWELL. Then,as I see it. we would have about $ 8 , 9 2 5 , 0 0 0 , 000, the sum of those three: items, that represents the foreign investments of Americans; is that correct? ,
Mr. MITCHELL. Xou still have some itenisj one of which I think of
forthwith.. You, *will bear in mind that the Federal reserve bank,
for instance, has a credit to the ReichsbankJ. A matter that is public
knowledge. . That would not be in my figures! There still might be
isome other items that, would throw thefiguresoff somewhat.
Senator HOWELL. Another billion?
Mr; MITCHELL, >Oh, no ; Ii do not think any such sum;
91
SAI*E OF FOREIGN BONDS OR SECURITIES
Senator HOWELL. N O
M r . MITCHELL. N O .
Senator HOWELL. In
such sum ?
other words, that would be about something
over nine billion ?
Senator COUZENS. H O W long are 3*ou going to run, Mr. Chairman?
The CHAIRMAN. W E are through now.
Senator SHORTRIDGE. Before we adjourn I would like to have my
question answered.
Mr. MITCHELL. The Irish Free State, Senator, borrowed from us
$15,000,000 in December, 1027. Now the larger part of those bonds
have been bought back by the Irish people. So that there is owned
in this country to-day a small amount. If I were to guess I would
say probably not more than two or three million of those bonds are
held in America now.
Senator SHORTRIDGE. And her credit is good ?
Mr. MITCHELL. I beg your pardon ?
Senator SHORTRIDGE. ller credit is good ?
Mr. MITCHELL. Her credit is very excellent.
The CHAIRMAN. Mr. Mitchell, can you be here at 10 o'clock in the
morning?
M r . MITCHELL. I c a n .
Senator SMOOT. I wish
you would. It may take us a little time,
though, before we want you to go on the stand, as I want to bring
the moratorium legislation up tomorrow morning. I can not tell
you how long that would be, but if it will not inconvenience you we
would like to have you here at that time.
Mr. MITCHELL. It won't at all, Senator.
The CHAIRMAN. The committee will stand adjourned until 10
o'clock to-morrow morning.
(Thereupon, at 5.05 p. m. Friday, December 18,1931, an adjournment was taken until 10 o'clock a. m. the next day, Saturday, December 19, 1931.)
SALE
OP
FOREIGN
BONDS
UNITED
OE
SECURITIES
IN
THE
STATES
S A T U R D A Y , D E C E M B E R 19, 1931
UNITED STATES SENATE,
COMMITTEE ON FINANCE,
Washington^ D. C.
The committee met at 10 o'clock a, m-5 pursuant to adjournment
on Friday, December 18, 1931, in the committee room, Capitol, Senator Keed Smoot presiding.
Present: Senators Smoot (chairman), Watson, Keed, Shortridge,
Couzens, Thomas of Idaho, Harrison, King, George, Barkley, Connally, and Gore.
Present also: Senators Johnson and Howell.
The CHAIRMAN. Mr. Mitchell, we closed last night while you were
testifying, and beginning at that point I would like very much now
if you would proceed, and we will get through as quickly as we can;
TESTIMONY OP CHARLES E. MITCHELL, CHAIRMAN NATIONAL
CITY BANK, NEW YORK, N. Y.—Resumed
Senator JOHNSON. Mr. Mitchell, have you these statements that
were put in the record before you there? tOr do you have them,
Mr. Chairman?
Mr. MITCHELL. Senator Smoot took these last night. Senator
Johnson, and he has just handed them back to me. Last night by
telephone I asked that these statements be completed, because they
do not include the Canadian and Cuban issues, which we did not
class in the foreign list, and I judged from the discussion of the
committee yesterday that they would prefer to have these submitted
by countries rather than chronologically. If that is desired, I can
have these reshaped, and Canada and Cuba added, and have them
back here in the committee's hands bv Monday morning.
The CHAIRMAN. I think that wTould be the proper thing and the
best way to do, and then we can have them printed as an appendix
to the report so that they will all be together.
Senator JOHNSON. Yes. The only reason I was speaking of them,
Mr. Chairman, was that I was going to take the lists before me and
indulge in some examination or cross-examination concerning them.
Now, I will await the convenience of Mr. Mitchell, or as the chairman may wish ill that regard.
The CHAIRMAN. If you are going to do it, I would like to have
you do it now.
Senator JOHNSON. Yes* Let me have the papers then.
02928—31—PT 1-—-7
93
94
SALE OF FOREIGN BONDS OR SECURITIES
Mr. MITCHELL. These are the issues in which we were manager,
Senator Johnson [handing a sheet to Senator Johnson], and these
are the issues in which we were participants [handing another sheet
to Senator Johnson].
Senator JOHNSON. All right, sir. Have you the total, Mr. Mitchell,; of ;the (amount ,of profit or remuneration that you received;m
regard'to these1 various loans? I do not. mean as to specific items,
but a general total?
Mr. MITCHELL. I think that the totals are drawn off here, sir.
Senator JOHNSON. Net profit? Follow me on this, if you will,
please.
Mr. MITCHELL. Maybe I can help you to clarify this whole thing
in another way, Senator [referring to a third sheet]. There are all
the German issues, South American issues, and all others simplified.
Would that help you?
Senator JOHNSON. Well, first I am reaching now the total net
profit of the issues for which you were the agent embraced in these
two pages that you have just given me, being the first of the stater
ments that have been handed to the chairman by you. I see a total
there of $13,392,502.21. Is that correct?
Mr. MITCHELL. That is correct, sir.
Senator JOHNSON. That was the net profit on those particular
issues that are thus tabulated by you?
Mr. MITCHELL. That is correct ; yes, sir. And represents the
profit.
Senator GEORGE. That is, in which the National City Co. was
manager; is that correct ?
Mr. MITCHELL. That is true.
Senator COUZENS. That does not include the overhead expense?
Mr. MITCHELL. That does not include the overhead expense.
Senator JOHNSON. Well, it deducts the general, expense here, does
it not?
Mr. MITCHELL. I explained to the committee yesterday, Senator
Johnson, that that was the general expense incident to these particular issues that could be charged to these particular issues.
Senator JOHNSON. Exactly.
Mr. MITCHELL. It does not cover our expense of
Senator JOHNSON. Doing business?
Mr. MITCHELL (continuing). Our expense of doing business.
Senator JOHNSON. I realize that. But you have here an item of
general expense, $2,378,398.68.
Mr. MITCHELL. That is the item that is specifically charged against
these items, and is not an item that enters into our general expense
that I gave you yesterday, that is, the City Co.'s expense of op:
eration.
Senator JOHNSON. And the item of net profits, $ 1 3 , 3 9 2 , 0 0 0 , is, as
its name indicates, net profits after the deduction of that expense,
$2,378,000?
.
;
Mr. MITCHELL. It is
*
the profit as best we can figure it on these
particular issues, but does not cover our general expenses of operating our business, nor any of our sales expenses.
Senator JOHNSON. All right, sir. . .
The CHAIRMAN. Those amounts1 should be deducted from the
$13,000,000?
95
SALlE OF FOREIGN; BONDS OR SECURITIES
Mr. MITCHELL. Well, we can not definitely allocate.
The C H A I R M A N . Well perhaps you can not definitely allocate, but
what I wanted to know was: Does that cover all your expense in
every form ?
Mr. MITCHELL. N O : it does not.
The C H A I R M A N . That is what I wanted to know.
Mr. MITCHELL. N O ; it does not.
Senator JOHNSON. Well, you do a great deal more business than
merely the representation of these particular issues, do you not?
Mr. MITCHELL. Quite so.
Senator JOHNSON. Why. of course.
The C H A I R M A N . If they did not, Senator, there would not be any
credit there at all, because of the fact that the expenses are more
than that.
Senator JOHNSON. I realize that. But I thought it was perfectly
plain. Let us have no mistake about it. Here is a statement that
shows certain expenses connected with certain bond issues or issues
of securities, and which shows certain net profits in connection with
these security issues. Now the expenses are stated here in relation to
each, and the total amount of expenses thus stated is deducted from
the gross profits, and the net profits are as stated in this particular
statement.
Mr. MITCHELL. May I amplify it to this extent, Senator? The
expenses that we show here as general expenses are such expenses
as counsel expense on these particular issues. Expenses of telegrams
and cables that go out not only as the issue is originated, but go out
as the issue is distributed to various syndicates and groups. It
would cover the expenses of particular negotiators that were sent out
on any particular issue. Their traveling expenses. And study by
the experts in connection with any particular issue. They are the
expenses, in other words, that apply only to that particular issue.
And in that item of general expenses is not, for instance, any part
of the expense of the organization for my employment, for instance,
for tlie employment of those officers who are overseeing this business,
or for the expenses of our clerical organization.
Senator GEORGE. Nor taxes?
Mr. M I T C H E L L . Nor for the expenses of our rents nor taxes nor the
salaries of our sales organizations.
Senator COUZENS. Just as vou said, that run anywhere from
$6,000,000 to $10,000,000?
M r . MITCHELL. Y e s , s i r .
Senator GEORGE. In other
words, that general item there goes into
your general profit and loss account to be further affected by all of
your Business?
M r . MITCHELL. Y e s .
Senator GEORGE. General business?
M r . MITCHELL. Y e s .
The C H A I R M A N : Just the same as
with the interest on a note.
Senator J O H N S O N . Why, no; not the same as with <the interest
on a note, because you do not charge up to the interest on a note
the expenses of maintaining a^ business.
>
,
,:/
The C H A I R M A N . Well; the interest that is collected there is all
credited to the profits, and expense attached to that and all ^the
other incidetnal expenses of the bank are charged against ; that, as
96
SALE ' OF 'FOREIGN = BONDS OB SECURITIES
against the profits. What I want to do. Senator, is to find out
definitely whether the $13,000,000 here was clear profit or not.
That is all I wanted to develop. Now it is clear profit as far as
the expense connected with the certain work required to place this
amount of loans here in the different parts of the country, or to
sell it to the different institutions. But what I wanted to find out
was this: Was the rent account, the taxes, the expenses of the
president, the expenses of the clerks included in that amount, or
its proportion?
Senator COUZENS. The witness testified to that.
Senator HARRISON. It is all very clear.
Senator GEORGE. He went oyer that fully yesterday.
Senator JOHNSON. Take this specific item, Lautaro Nitrate Co.
(Ltd.). Do you recall that?
Mr. MITCHELL. Yes, Senator.
Senator JOHNSON. On that particular item I observe the expenses were $181,541.16. Have you it before you, or do you wish
this statement?
Mr. MITCHELL. NO; I do not care for that. But I would like
to refresh my mind on the issues. If you give me the date, I can
refer to it here.
Senator JOHNSON. June 18, 1929.
Senator COUZENS. $32,000,000. J'
Mr. MITCHELL. I have the record.
Senator JOHNSON. All right, sir. Turn if you will to the item,
" Expense, $181,541.16."
S i r . MITCHELL. Y e s , s i r .
Senator JOHNSON. Your net
M r , MITCHELL. Y e s .
Senator JOHNSON. Yes; sir.
profit is stated to be
$809,485?
Can you tell me what that issue was
originally taken for and what subsequently it was sold for?
Mr. MITCHELL. The cost price of that, issue was 9 3 % . The offering price was 99. On original terms there were three associates.
The spread for that group was 1 per cent. The City Co. participated to the extent of $21,600,000 in the issue. There was an
intermediate group consisting of five dealers, with a spread of
1 per cent. The City Co. participation in that group was
$26,000,000. There was a banking group of 7 6 dealers? having a
spread of three-fourths of 1 per cent. The participation of the
City Co. was $18,357,000. There was a selling group of 4 8 8 dealers.
The spread to that group was 2% points. The City Co. participated to the extent of $24,684,000. The sales made by the City Co.
numbered 5,032. These sales are all retail sales. There "were
$1,000,000 of the bonds sold in Europe.
Do you wish me to go on to give the purposes of the loan, or anything of that sort, Senator Johnson?
Senator JOHNSON. Well, not for the moment, unless you wish to.
Mr. MITCHELL. NO. I merely wish to satisfy your inquiries.
Senator JOHNSON. First, the profit of your institution was $809,485.
That is net?
M r . MITCHELL. Y e s , sir.
Senator JOE^NSON. The
expense, $181,000. That is practically
$1,000,000 gross. I will take round numbers. It is $990,000, but
practically $1,000,000 gross profit
97
SALlE OF FOREIGN; BONDS OR SECURITIES
Mr* MITCHELL. Yes. The gross profit before the- discount that
came off was $1,059,000. There was $68,000 discount.
Senator JOHNSON. That was the profit alone of your particular
establishment?
M N MITCHELL. Y e s , s i r .
Senator JOHNSON. How
man}* others were interested and profited
by that transaction ?
Mr. MITCHELL. I thought I had made that clear. I can not tell
from this record how much duplication, but there were 488 dealers.
There were 76 in the bank group, 5 in the intermediate group, and
3 on original terms. There are some duplications in those items.
Senator JOHNSON. Did the three that were on the original terms
make a profit commensurate with yours?
Mr. MITCHELL. They made a 1 per cent spread 011 the amount in
w hich they participated.
Senator JOHNSON. Pardon me. That was not what I asked.
•What I asked was, Did they make a profit commensurate with your
profit?
Senator COUZENS. May I suggest, Mr. Mitchell, that it was in
relation to the volume, was it not J
Mr. MITCHELL. Entirely to the volume.
Senator COUZENS. If they took half as many 1 bonds as you have,
why, they probably would make half as much profit.
Sir. MITCHELL. \Vell^ the larger profit here came through our Selling organization. I11 other;words; we had a jrross profit here in the
selling of these at retail through our organization of $466,000. Now,
of course, to obtain that selling profit we 'had to have all o f the
expense of our own selling staff, our officers, our telegraph wires,
our overheads everywhere, our traveling expenses, and so forth.
So, while that appears as $466,000 as our profit in selling, out of that
has to come our entire so-called overhead. Regular expenses. Which
would include taxes and every conceivable kind of ex]?ense.
Senator JOHNSON. All right. Now, what I am driving at is: I
want to find out what was the gross profit of the whole transaction
to everybody.
Mr. MITCHELL. The gross profit to everybody would be the difference between the cast price of 93% and 99, less the expenses
directly chargeable, and the discounts that they jret.
Senator JOHNSON. Can you state approximately the gross profit
to all of the houses concerned in that particular issue?
Mr. MITCHELL. I can figure it, Senator.
Senator COUZENS. Mr. Mitchell, would it not roughly be 5 per cent
on $32,000,000?
Mr. MITCHELL. Yes, roughly.
Senator COUZENS. About $1,500,000.
Mr. MITCHELL. It is 5y4 per cent on $32,000,000.
S e n a t o r COUZENS. Y e s .
Mr. MITCHELL. That is the gross. I am just multiplying it out
here for the benefit of the Senator. Total, $1,679,000.
Senator JOHNSON. That was the gross profit accruing to everybody?
Mr. MITCHELL. Accruing to everybody before any expenses of
any name or nature had been deducted.
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SALlE OF FOREIGN; BONDS OR SECURITIES
Senator JOHNSON; Yes. Was your profit larger, than that of any
of your associates ?
Mr: MITCHELL. It was larger than any of :our associates, for two
reasons. One, the risk that we accepted in these intermediate syndicates, and because we sold through our organization by all odds the
largest portion of the bonds.
Senator JOHNSON. Well, what are the expenses of $ 1 8 1 , 0 0 0 going
to ? You rather minimize them in what you say.
Mr. MITCHELL. Senator,. I do not mean to minimize anything.
And expenses of lawyers I have never been able to minimize.
. Senator JOHNSON. WellJ you are-very fortunate. Few of them
can collect their accounts these days.
Mr. MITCHELL. Lawyers' expenses, study of the operations on the
ground, telegrams
Senator COUZENS. Negotiators?
Mr. MITCHELL. Negotiators.
Senator SHORTRIDGE. Lawyers are generally underpaid, are they
not?
Mr. MITCHELL. They usually say so.
Senator JOHNSON. By the way, where is the Lautaro Nitrate
Co., Ltd., located?
Mr. MITCHELL. That was incorporated under the English Companies Acts.
Senator JOHNSON. Well, it was a British corporation?
Mr. MITCHELL. It was a British corporation. But it had to do
with——
Senator COUZENS. Where are its physical operations?
Mr. MITCHELL. In Chile. It has to do with nitrate.
Senator SHORTRIDGE. They produce products which come into
competition with American-produced products? Doesn't that company produce products vhich come into competition with Americanproduced products?
Mr. MITCHELL. Yes; it produces nitrates which are sent the world
over. It is the largest producer of natural nitrates in the world.
And Chilean nitrate has been standard the world over for
Senator SHORTRIDGE. Yes; I know that. It has" been imported
into our country extensively.
Mr. MITCHELL. Yes ; it has been imported into our country extensively.
M.
Senator KING. Used by the farmers.
Senator HARRISON. Mr. Mitchell, do you have a loan, that was
made to the American I. G.1;
M r . MITCHELL. Y e s .
Senator HARRISON. The
American' I . G; is a subsidiary of the
German I. G., is it not?
Mr. MITCHELL. The control of the stock of the American I. G.
in the hands of the I. G. Farbenindustrie of Germany.
Senator HARRISON. And how much was loaned on this list to the
American I. G.? ; i
Mr. MITCHELL. I will have to look, that up.
Senator HARRISON. Well, was that money used in this country
j or was it used in Germany?
' . ;
b
Mr. MITCHELL. It is used quite completely in this country. They
started to use it for the building of plants in this country. It is
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SALlE OF FOREIGN; BONDS OR SECURITIES
used in part in two or three properties operating in this country.
In addition they have a very liquid position. Before that company
really got into operation with respect to this country the depr^sion
started, and their liquid position has been very largely maintained
as the result thereof.
Senator HARRISON. But you do loan money to the German I . G.
also?
Mr. MITCHELL. If I remember, we have never floated any loan for
the I. G. Farben. It is a company that we have relations" with and
have had over a long period or years.
Senator COUZENS. Well, why would they, the American I . G . , appear on this list? They are not a foreign company.
Mr. MITCHELL. They would not appear on this list.
Senator COUZENS. NO.
Mr. MITCHELL. YOU are guite right.
Senator HARRISON. I understood you to say that they did appear
on this list.
M r . MITCHELL. NO.
Senator COUZENS. NO
Senator HARRISON. I
; he said he was mistaken.
was under the impjfession that this money
was loaned to the American I. G., but perhaps used by the German
I. G. in the making of products, as suggested by Senator Shortridge,
and sold in competition with the American-manufactured products.
Mr. MITCHELL. Senator, they may have at the present time—I
can not say with positiveness—they may have money loaned in one
way or another to I, G. Farbenindustrie of Germany subsidiaries
or "direct. As I said, they are in a substantial cash position, and
ihey are lending their money where they can obtain substantial rates
011 it.
Senator HARRISON. Well, are you in a position to have knowledge
of that fact, if money was loaned to the American I. G., say, and
then the American I. G. loaned it to the German I. G.? If that was
done, would you know about it?
Mr. MITCHELL. Yes, sir; I would, because I happen to be a director of the American I. G. But it is not a particularly active company. It is a holding company. It holds the securities of two or
three chemical and allied industries in America in which the I. G.
is interested. Their reports are quite complete, and I would be
glad to furnish you with a copy of their latest statement, if you
desire to see it.
Senator HARRISON. Well, now, carrying out that idea—money
loaned to Germany. Have you any knowledge of Germany within
the last two years loaning to Russia some $400,000,000?
Mr. MITCHELL. Well, I do not personally have any direct knowledge of specific loans, but it is common understanding that the
Germans have made advances to Russians.
Senator HARRISON. And in all probability that was done on the
credit that they received in America ?
Mr. MITCHELL. Well, it is very difficult to trace the credits."
«; Senator HARRISON. Yes; but it had its influence, of course ?
4
' Mr. MITCHELL. Undoubtedly had some influence; Though the
amount that they have loaned I am of the impression is not large
m the light of the whole economy of Germany.
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SALE OF, FOREIGN .BONDS. OR SECURITIES
Senator HARRISON. I understood^ was $400,000,000. I thought
perhaps you could, pnswer that.
Mr!. MITCHELL. J can not .answer that.
Senator HOWELL. I understood they were private loans.
Senator HARRISON; Well, I do not know. I have seen something
about it in the papers.
Senator HOWELL. I understood they were private loans.
Senator KING. Would you have any knowledge, Mr. Mitchell,
whether or not German industrialists had made loans to Russia
with the view of securing trade in Russia?
Mr.; MITCHELL J think, Senator, that they have made the same
character of loan, if you wish to call it that, that has been made
by so many of the American companies. They sold goods with
some advance payment and accepted deferred jpayments for .the
balance. It is the common practice not only of German companies
but of many American companies as well.
Senator KING. D O you think that any of the loans which may
have been made to private corporations in Germany, if any have
been made through your bank, or by Americans, in turn were loaned
to Russia by the German industrialists ?
, Mr. MITCHELL. That is a very difficult question for me to answer.
I would concede the possibility, in this way. Just as the General
'Electric Co. in the United; States has sold to .Russia on terms of
part qash and-part deferred payments, so the Allegemeine Elk.tricitat (Jesellschaft, which is the General Electric Co. of Geripany,
generally known as the A. E. G., which we have financed to some
jextenjtj has made similar arrangements in Russia. Now, I can not say
that none of the money that we have loaned to the A. E. G. has not
found its way thus in one way or another into those smaller credits
to Russia; It may have.
' The CHAIRMAN. Mr. Mitchell, was there anything else that you
.desired to submit to the committee?
Mr. MITCHELL. Nothing at all. I am completely at the pleasure of
the committee.
. .Senator GEORGE. Mr. Mitchell, you did not take up the second list
.there yesterday. Did you cover that?
The CHAIRMAN. I think he covered that.
Mr. MITCHELL. The second list being the list in which we participated ?
Senator GEORGE. Yes.
Mr. MITCHELL: NO. I submitted it with the other list, that is all.
;Senator GEORGE. The second list is the list in which the National
City Bank participated ?
Mr. MITCHELL. NO, sir; the National Citv Co.
Senator GEORGE. The National City Co.?
Mr. MITCHELL. Yes. In which the National City Co. participated
where others than the National City Co. were the managers.
Senator GEORGE. I see.
Mr. MITCHELL. For instance, *you will find in that list, I think,
practically all of the loans mentioned by Mr. Lamont yesterday.
It will show exactly pur interest in those particular loans. I ^ ^
submit it or not as the committee elects.
The CHAIRMAN. Well, those were all shown in the companies submitted by Mr. Lamont yesterday.
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SALlE OF FOREIGN; BONDS OR SECURITIES
M r . MITCHELL. Y e s .
The CnAnoiAN. That is, your interests in them were all shown in
his report?
Mr. MITCHELL. NO; they are not shown in his report, Senator
Smoot. He did not show in his report what the interest of any
other banking house was. This shows completely what our interest
was in each one of the Morgan issues, for instance. And what our
interest was in other issues that were managed by others.
The CHAIRMAN. In other words, you are showing all of your transactions in detail?
Mr, MITCHELL. Quite so.
Senator BARKLEY, Mr. Mitchell, has there been any default on
the part of either the nations who owe money to your institution
or other banking institutions, or to the industries, or others that
you know of, during the last year?
Mr. MITCHELL. Are vou speaking of the Germans ?
Senator BARKLEY. tfo; 1 am speaking of all of the debtor nations.
But I will, for the moment, limit it to Germany.
Mr. MITCHELL. A S to Germany no default.
Senator BARKLEY. In other words, they have kept up their payments on all these private loans?
M r . MITCHELL. Y e s .
Senator BARKLEY. T O
what extent has there been any default—
I do not mean by default the mutual arrangements to renew an
obligation, like most of us have to do these days, outside of you
gentlemen in New York
Mr. MITCHELL. We ask 110 exception.
Senator BARKLEY. Whether there has been any default, as we
understand that term, 011 the part of either the industries or the
Government of Europe that owe the United States money, and to
-whom this moratorium will apply?
Mr. MITCHELL. NOW you are speaking of Europe?
Senator BARKLEY. Yes, sir.
Mr. MITCHELL. We have had no defaults from Europe.
Senator BARKLEY. YOU speak of " we " Do you mean your institution, or do you mean generally the banking institutions of this
country?
Mr. MITCHELL. Well. I am speaking of our institution. Whether
there havq been defaults on some issues with which I am not
familiar—some of these municipal or other issues—I can not say,
Senator, but with respect to our own experience, no defaults.
Senator BARKLEY. This moratorium is supposed to apply for only
one year and it expires on the 30tli of next June, at which time
the status quo will be resumed unless some further action is taken,
except that this period of payment is to be spread out over ten
years and paid with the payments under the annual contracts. Are
you able to say, or are you willing to express an opinion' whether
the nations of Europe will be able to pick up and go on at that
point without further extensions from us? Or will we be faced
with the same conditions at the end of next June that we were
last June and are now?
Mr. MITCHELL. O F course, I could have but an impression at best,
Senator, and my impression would be that this is a matter upon
which you, very likely, may conclude it wise, in the interest of
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SALE ' OF 'FOREIGN = BONDS OB SECURITIES
America, to make some further extensions or adjustment; but, as
I tried to make clear yesterday, it is not the kind of thing regarding which I would care to express an opinion without the careful
study that you gentlemen are bound to give it.
Senator BARKLEY. Of course, the rapidity and the shortness of the
space of time in which the status quo might be resumed under the
debt arrangements will depend largely on the situation in the future,
economically, in this country and the countries of Europe.
Mr. MITCHELL. Of course, I think we have plenty of signs before
us as to the trend.
Senator JOHNSON. If you will permit me, Mr. Chairman, I will
run very hastily over these matters.
Senator GORE. Senator Johnson, if you will permit me to ask one
question. Will you indicate your idea of the trend, if yoU do not
object?
Mr. MITCHELL. The trend is not good, Senator Gore, or so it
seems to me. We have had no political or economic happenings in
the last few months in Europe that have been particularly
encouraging.
Senator BARKLEY. In other words, it would be a miracle if within
the next six months there would be a sudden change^ in the trend
which would lead us to hope that at the end of that time we might
not have to do this same thing over?
Mr. MITCHELL. I think I will agree with that.
Senator KING. Are you through, Senator?
Senator BARKLEY. Yes.
Senator KING. Mr. Mitchell, have you been sufficiently in touch
with the loans that have been made and the credits extended to know
whether they are applied for the benefit of the State—I am speaking
of Germany—or whether some of those loans were used in their
military operations in strengthening the army of 100,000 soldiers,
or arming them, or building 10,000-ton battleships, or any other
naval craft?
Mr. MITCHELL. With respect to the issues that we have made, we
have;been meticulous in analysis prior to the issue that those issues
were for productive purposes. And for your information, so long
as Mr. Parker Gilbert was in Berlin, a man who held to the principle
that America should not loan except for productive purposes, to the
best of my knowledge and belief we never proceeded with an issue
until we had informally talked with Mr. Parker Gilbert, if lie was
available.
Furthermore, as you doubtless know, Doctor Schact has beenJ#as
a German, an exponent of Germany accepting loans from foreign
countries only as that money was used for productive purposes. And
so far as it was possible for us to do, we submitted to Doctor Schact
the proposed business and acted only as we had his favorable opinion.
Now as we made these loans, we demanded regular reports from
these companies. We have men in Germany who are in touch with
officials ^ox these companies, and I think I can say* without fear of
contradictionj th«& the-moneys that we have given to German industries and have been covered by our loans to v a r i o u s entities, have
been used for the purposes set forth in our prospectus.
1 Senator KiNG. ^Iaye you any; information as to the disposition
^jiich wpuldJfe made of the several hundred million dollars which
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SALlE OF FOREIGN; BONDS OR SECURITIES
would be paid if there were no moratorium; the disposition which
would be made of that by Germany? That is to say. if Germany
has a moratorium under \vhich she is freed from the payment for
one year of her obligations under the reparations, have you any;
information as to the use which Germany would make, assuming she
has the money, of that money which would not go in reparations?
Mr. MITCHELL. I have no positive information on that, SenatorSenator K I N G . Has Germany made any indication as to whether
or not she desires to use any of that money, if she has a moratorium
and if she has the money—has she indicated for what purpose she
wants to use it?
Mr. MITCHELL. Not so far as I know.
Senator K I N G . Did France make any indication with respect to
the utilization of the money if the moratorium were granted ? That
is, use by Germany?
Mr. MITCHELL. I am not in touch with the French Government.
Senator K I N O . Then, so far as you know, it is no purpose of the
German Government to be freed from the payment- of the $400,000,000 or $500,000,000 to use that for military purposes?
Mr. MITCHELL. I have no knowledge of that at all. Senator.
Senator K I N O . Have you any information—and I concede that it
would be only a guess or prophecy—as to the effect of granting the
moratorium;*that is to say, do you think it will encourage Germany
to lisk a further moratorium? Will she in the future regard this as
a breakdown of the wall, so that at the end of the year she will ask
for a further breaking down of the wail?
Mr. MITCHELL. I do not know, of course, Senator.
Senator K I N G . No.
Mr. MITCHELL. But I think we should all recognize that possibly
there was set up by the original Dawes Commission a principle
that since has been violated by all nations, ^ principle that appealed
to me then, and still appeals to me, to be a sound one. to wit, that
debts created as a result of the war should be established in such
airtount as can be paid by that nation operating under all of the:
burdens that their creditors may be operating under during the life
of that generation that had to do with the wdr. Now the Dawes
Commission established that in the most direct way that they were
permitted to, it seeiiis to me, under the limitations that were upon
them, by setting up 35 years as the term of payment for the railway,
and industrial debentures which secured the first Dawes loan.
Now that 85-year period became 62 years when the English came'
hererand with their laudable' prid^ said to; America • " We owe so
much, and England always pays her debts and to pay this it will
take us 62 years." Therefore, 62 years became the general yardstick,
instead of 35 years, if you please,'by which we measure the capacity
to pay and the ability to transfer of these various nations.
1 may seem to be going a long way around, but I am stating this in
order to come back to your question directly, because my mind operates from these basic facts. Here we have m Germany to-day young
men going into the universities of Germany Who were*not born%vhen
the great war started. Those young men see that not only must they
pay but their progeny, and the progeny of their progeny must pay
and go on for these generations in paying a debt for which they, as
individuals, were not responsible* They feel: that they are under a:
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heavy yoke, and my impression is that there is growing, as a result
thereof, rebellion against the payment of the debt. I think it is
something that is readily understandable, and if you ask me if it is
my opinion that Germany will go through this entire period and
pay off the amount of debt that has been set up under these various
plans for her to pay, I can not conceive it to be possible, because I
think that it will bring rebellion.
Senator KING. Then this moratorium is permitting the camel to
put its nose under the tent, and it will force itself into the tent, and
it will result in a further demand for the complete extinguishment
of the obligation; is that your philosophy?
Mr. MITCHELL. I would not go so far as to say that, but all of this
leads me to the conclusion that nationally the countries involved in
this question have found a problem that is political and psychological and that they must so consider and handle it. I do not believe
that it can be taken quite on the simple base that the debt was contracted, and the debt must be paid.
Senator SEED. May I ask you at that point, Mr. Mitchell. Were
you through, Senator King?
Senator KING. Just A moment, please, Senator Reed. I was about
to observe, Mr. Mitchell, that some—and I am not sure that I am
not in - that, category-r-would be willing to help Germany and vote
for this, moratorium Jibuti if itis merely, to be a foundation upon
which Germany will build a psychology or another mentality that
will demand the extinction of the debt in the future, then some of
us would hesitate to vote for this moratorium itself.
Mr. MITCHELL. I am not preaching Senator, in what I am saying,
any doctrine of cancellation. I want that to be clear, I am trying
to develop a thought as to the psychology of the people that may
have a direct bearing upon this question.
Senator WATSON. Would not that apply to every other nation
that owes us debts? Would it not apply to France and England
-who .owe this debt and who are to pay during the 62 years, quite as
much as to Germany?;
Mr. MITCHELL. Yes; I would say so.
Senator WATSON. It has been currently stated that Germany has
not directly taxed herself to raise reparations but has borrowed all
the money to pay, and mostly in this country. How true is that?
Mr; MITCHELL. Germany has been under a severe tax—German
individuals and industry. I think a study will show that all of those
taxes, in return, have not been sufficient to build up and keep healthy
her economy and at the same time pay these reparations. That
would seem to be an obvious fact
Senator WATSON. HOW much has she borrowed to pay reparations; have you any way of telling?
Mr. MITCHELL, i do not carry thatfigurein mind.
Senator BARKLEY. I understand that outside of the two Dawes
and Young loans, they have not borrowed any money.
Senator GORE. I would like to ask Mr. Mitchell, if I may be permitted, whether a distinction does not exist as between the two
characters of obligations; The reparations now being paid by
Germany are in the nature of afinefor an alleged war guilt; they are
punitive payments. The allied debts owing to the United States
are for money had and received find represent value that passed
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SALlE OF FOREIGN; BONDS OR SECURITIES
from this country to those countries. Does not that distinction
exist both in law and in morals?
Mr. MITCHELL. I should say that it did. Senator Gore. At the
same time. I think if reparations were not received by those allied
countries who owe us, that we would have developed the same
character of thought and argument, to wit. that these interallied
debts are debts which, in reality, resulted from the war.
Senator GORE. That is just the point. There is 110 legal and
moral identity between the two. but in a practical way I get your
point, that others, and France at least, makes a very definite act,
her act ratifying the Mellon agreement, and made statements to
the effect that she would not pay her debts owing to the United
States unless she collected the deots owing her from Germany. I am
inclined to agree with you that there is nothing more fatuous than
the thought that these governments will be paying 50 years from
now. I think that is fatuous, and a dream.
Senator COUZENS. Why not let the witness testify?
Senator GORE. I am sony. I apologize
Senator REED. In the first place, Mr. Mitchell, the Dawes plan
was 25 years ? Was it not, 1049 ? A 25-year term ?
Mr. MITCHELL. Yes; I think so. My recollection is that. But my
recollection is distinctly that the railway debentures and the industrial debentures that were built up by the Dawes Commission to
secure any loan that might be made, were 35 years in term. The
25-year term was not one, if I recall, that was established by the
Dawes Commission.
Senator REED. The Dawes plan was made, however, for 25 years,
and secured by these debentures, and the German liability was fixed
at that time as 25 years, and not 35. That is the question.
Mr. MITCHELL. Yes. But I am trying to get at what I regard
as an attempt upon the part of the Dawes Commission, which
made a very exhaustive study of this situation, to set up a principle which they were not permitted, by virtue of the limitations
which were upon them, to set forth in words, but I have always,
myself, considered that they did set that principle forthwith by
the term of the railway and industrial debentures which were developed to secure the reparations payments of Germany.
Senator REED. Yes. All right Now yoh say that there is growing up in Germany a psychology on tlie part of the younger people
which leads them to want to accept all of the benefits created by
preceding generations, without any of the obligations. That is
understandable. Young people enjoy getting benefits and do not
enjoy bearing burdens. But is it not reasonable to think that the
same psychology will grow up over here that very large war debts
were created, and that this money is going to be paid by a generation of Americans that had nothing to do with this war ? Now, why
should the progeny of Americans who had nothing to do with the
war, the progency of Americans who were not even alive, pay this
war debt, and the progeny of the people who started it go scot
free i I confess I can not see that, Mr. Mitchell.
Mr. MITCHELL. I grant writh you, Senator Reed, that that is quite
unanswerable as an argument within- itself.
^'
Senator REED. Then why is not the psychology that fe jgoingi to*
grow up in this country by refusing to cancel? these debts going to
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SAI*E OF FOREIGN BONDS OR SECURITIES
a complete checkmate to the psychology abroad that wants to have
these debts forgiven?
Mr. MITCHELL. It is an impasse that will retard the time of world
recovery with respect to economy and exchanges and understandings
for a long time to come.
Senator KEED. DO you not think that the repeated speeches of Mr.
Wiggin, of the Chase Bank, advocating the complete cancellation,
make the task of this Government very much harder in collecting
these eminently just debts?
Mr. MITCHELL. I have not any question but that Mr. Wiggin, in
making that expression, feels that that is the only way out. I think
that any expression of that sort makes it more difficult for governments to sit down and view this question in all of its phases and
reach an answer that, in itself, is sound. That is why I say to
you, as I said yesterday, that I am not in favor of a cancellation
program. Our institution has never taken the standpoint that we
-were for cancellation.
Senator REED. I hope it never will do that.
Senator JOHNSON. I want to emphasize one fact. Why mention
Mr. Wiggin alone? Are you not aware that Mr. J. P. Morgan has
said that he believes in the cancellation of these debts?
Senator REED. I mentioned Mr. Wiggin alone.
Mr. MITCHELL. I meant the speech in which he cited it.
Senator JOHNSON. I understand. But are vou aware of that
fact?
Mr. MITCHELL. I do not not know that I recall exactly Mr. Morgan's statements.
Senator JOHNSON. All right.
Senator SHORTRIDGE. Do you hold to the theory that future generations in a given government may rightfully repudiate the legal
obligations of an indebtedness previously incurred? Do you hold
to that theory?
M r . MITCHELL. I d o n o t .
Senator SHORTRIDGE. Well,
is there any intelligent, civilized man
in the world to-day that would hold that a given government may
repudiate the debts legally incurred by their predecessors? Is there
any man who holds to that doctrine?
The CHAIRMAN* I would like Senator Johnson to proceed.
Senator JOHNSON. If you will give me 15 minutes, I can conclude
with this witness.
Senator GORE. Mr. Chairman, one question.
The CHAIRMAN. It is 5 minutes past 11 now. Senator Johnson
can have 15 minutes.
Senator JOHNSON. That is all I ask.
Senator GORE. Mr. Chairman, with the consent of the Senator
from Michigan, I would like to say I am not for cancellation. Thank
you.
Senator JOHNSON. I am reading to you now and calling your
attention to certain items which are on the sheet which you "filed
with this committee, sheet No. >1, in: which the National City Co.
was manager. The first item I call your attention to is an item
under date of January 26, 1925, the A. E. G. (General Electric Co.
of Germany ) , the amount of issue was $10,000,000, and the profit
upon which, according to that sheet, is $222,236.83.
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SALlE OF FOREIGN; BONDS OR SECURITIES
Mr. MrrciiELL. Yes, sir.
Senator JOHNSON. That is correct?
M r . MITCHELL. Y e s , s i r .
Senator JOHNSON. The next
one I direct your attention to is the
Central Bank for Agriculture, Germany, October 16, 1925, in which
the issue was $25,000,000. and upon which your pront. according to
the sheet, was $354,516.58.
Mr. MITCHELL. Correct. But it is September 16.
Senator JOHNSON. YOU are correct. It is a " 9 . " September 16,
1925.
Mr. MITCHELL. Profit, $354,516.58.
Senator JOHNSON The next one is Rhine Westphalia Electric
Power Corporation, November 12, 1925, a $10,000,000 issue, upon
which your profit ivas $236,521.04.
Mr. MITCHELL. Correct.
Senator JOHNSON. The next one, if you please, is A . E. G.—General Electric Co., Germany—December 9. 1925, an issue of $10,000,000, upon which your profit was $292,231.43.
Sir. MITCHELL. Correct.
Senator JOHNSON. The next one is Saxon State Mortgage Institution, January 15, 1926, an issue of $5,000,000, upon which your
profit was $150,551.16.
Mr. MITCHELL. Correct.
Senator JOHNSON. The next one is the Ilseder Steel Corporation,
April 29, 1926, an issue of $7,500,000. upon which your profit was
$225,964.96.
Mr. MITCHELL. Correct.
Senator JOHNSON. What is the location of that particular steel
corporation?
Mr. MITCHELL. In Germany.
Senator JOHNSON. The next is Saxon Public Works (Inc.), June
30, 1926. an issue of $15,000,000, upon which your profit—hare you
it there ?
Mr. MITCHELL. The profit was $250,834.75.
Senator JOHNSON. Correct. Thank you. The next one is the
Saxon State Mortgage Institution
Mr. MITCHELL (interposing). What is the date of that?
Senator JOHNSON. November 2 2 , 1 9 2 6 , an issue of $ 4 , 0 0 0 , 0 0 0 , upon
which your profit was $ 1 0 8 , 0 1 5 . 9 6 .
Mr. MITCHELL. Correct.
Senator JOHNSON. NOW, this is outside of Germany, but I call
your attention to it because of our interest in copper—Chile Copper
Co., December 13, 1926, an issue of $35,000,000, upon which your
profit was $273,480.18?
Mr. MITCHELL. Correct.
Senator THOMAS of Idaho. Senator Johnson, where was that copper company located?
Senator JOHNSON. Chile.
Mr. MITCHELL. This is a subsidiary of the Anaconda Copper Co*,,
and this represents the only outstanding public debt of the Anaconda group.
"'••'
Senator JOHNSON. The next is the Central Bank for Agriculture,
Germany, July 17, 1927, an issue of $30,000,000, upon which your
profit was $223,631.92; is that correct?
108
SALlE OF FOREIGN; BONDS OR SECURITIES
Mr. MITCHELL. Correct.
Senator JOHNSON. The next is Rhine Westphalia Electric Power
Corporation, August 1 0 , 1 9 2 7 , an issue of $15,000,000, and the profit
w a s $210,788.45?
Mr. MITCHELL. Correct.
Senator JOHNSON. The next is Saxon State Mortgage Institution,
September 8 , 1 9 2 7 , $2,000,000, upon which your profit was $ 4 9 , 2 8 3 . 2 6 ?
Mr. MITCHELL. Correct.
Senator JOHNSON. The next is Central Bank for Agriculture,
Germany, October 14, 1927, an issue of $50,000,000, upon which
your profit was $359,279.93?
Mr. MITCHELL. Correct.
Senator JOHNSON. The next one is Chile
Mr. MITCHELL (interposing). What is the date of that?
Senator JOHNSON. January 2 4 , 1928. It is a refunding debt, I
assume?
Mr. MITCHELL. Yes; it is a railway refunding loan, called railway
refunding sinldng fund 0 per cent gold external bonds.
Senator JOHNSON. Your profit was $547,957.63?
Mr. MITCHELL. YOU failed to state the amount.
Senator JOHNSON. The amount of the issue was $ 4 5 , 9 1 2 , 0 0 0 . And
the profit I stated correctly, did I not?
Mr. MITCHELL. Correct.
Senator JOHNSON. . Now, the next is Central Bauk for Agriculture, Germany, May 2 , 1928, an issue of $25,000,000.
Mr. MITCHELL. That is correct.
Senator JOHNSON. Will you state the profit on that?
Mr. MITCHELL. Profit of $137,740.32.
Senator JOHNSON. Thank you. General Electric Co. of Germany,
May 22, 1928, an issue of $10,000,000, upon which your profit was
$187,557.38.
Mr. MITCHELL. Correct.
Senator JOHNSON. General Electric
1928
Mr. MITCHELL (interposing). Wait a
Co., Germany, June
7,
minute. Is that the same
one?
Senator JOHNSON. That is a second one. The first one is $ 1 0 , 000,000, and the next one is $5,000,000.
Mr. MITCHELL. Let me have the date.
Senator JOHNSON. June 7 , 1 9 2 8 .
Mr. MITCHELL. I will have to take that from your record.
Senator JOHNSON. Well, that is $5,000,000 here* It says "See
above " at one place, and that is the only place it says " See above,"
and it gives you a profit of $134,803.31.
Now, the next one of Rhine Westphalia Electric Power Co., September 2 6 , 1 9 2 8 , $20,000,000, and gives you a credit of $ 2 2 7 , 7 4 5 . 9 3 .
Mr. MITCHELL. Correct.
Senator JOHNSON. What is "R. W. E. Common Stock"?
Mr. MITCHELL. That is the Rhine; Westphalia Electric Power
Corporation.
Senator JOHNSON. Another of these Ilseder Steel Corporation issues, October 31, 1928, an issue of $10,000,000, upon which there is
a profit of $117,814.89.
SALE OF .FOREIGN BONDS OR SECURITIES
109
Senator JOHNSON. That is correct. That is the Ilsedcr Steel
Corporation.
Senator JOHNSON. Yes. I see another Chile loan here of September 4 , 1 9 2 8 . Do you remember what that was?
Mr. MITCHELL. September 4 ?
Senator JOHNSON. Yes.
Mr. MITCHELL. $ 1 6 , 0 0 0 . 0 0 0 , The profit was $ 1 7 0 , 1 3 4 . 6 2 . I do
not know whether you have covered that before or not, Senator.
Senator JOHNSON. I do not think I did.
Mr. MITCHELL. I do not recall.
Senator JOHNSON. Another is City of Antwerp, December 1 0 ,
1928, an issue of $ 1 0 , 0 0 0 , 0 0 0 , and a profit of $ 8 4 , 2 5 4 . 0 1 .
Mr. MITCHELL. Correct
Senator JOHNSON. And the Rhine Westphalia Electric Power
Co., March 2 0 , 1 9 3 0 , an issue of $ 2 0 , 0 0 0 , 0 0 0 , and a profit of $ 2 2 6 , 5 8 2 .
Mr. MITCHELL. Correct.
Senator JOHNSON. The next one is the Republic of Chile, an issue
of $ 2 5 , 0 0 0 , 0 0 0 , April 2 4 . 1930, upon which there is a profit of
$218,071.25.
Mr. MITCHELL. Correct.
Senator JOHNSON. The next one is Saxon Public Works, July 3 0 ,
1930, an issue of $ 1 0 , 0 0 0 , 0 0 0 , and a profit of $ 6 8 , 1 4 9 . 8 7 .
Mr. MITCHELL. Correct.
Senator JOHNSON. The next one is Februarv 2 0 , 1 9 3 1 , Rhine Westphalia Electric Power Co.. an iVsue of $ 7 , 5 0 0 , 0 0 0 , with a profit of
$8,205.
Mr. MITCHELL. Correct.
Senator COUZENS. Arc they guaranteed by the German Govern-
ment i
M r . MITCHELL. NO.
Senator JOHNSON.
Were any of these loans that were loaned to
German companies, the obligations of the Government?
Mr. MITCHELL. They were not.
Senator JOHNSON. They are all the obligation of the particular
corporations to whom you made the loans?
Mr. MITCHELL. That'is true.
Senator JOHNSON. Have you in your possession any of the circulars
or advertisements that yon sent out with reference to these loans?
Mr. MITCHELL. I have" here all the circulars having to do with each
and every one.
Senator JOHNSON. Will you leave, say, with the chairman certain
of the advertisements, two or three, that you sent out in regard to
the German power lines?
Mr. MITCHELL. When you speak of advertisements, I suppose you
refer to the usual circular?
Senator JOHNSON. The usual circular that is sent out under those
circumstances.
Mr. MITCHELL. I w ill be glad to.
Senator JOHNSON. T W O or three sorts, if you please.
Mr. MITCHELL. Very well. .
Senator JOHNSON. Yon say here, of course, in your list that certain others have participated finally in the distribution. Were those
banks to whom or to which were allocated parts of the list ?
02928—31—PT1
8
SALE OF .FOREIGN BONDS OR SECURITIES 114
Mr. MITCHELL. Those, for the most part, are dealers. They may
be banks that have distributing staffs who were distributing some
one or another of the issues.
Senator JOHNSON. Did you select those dealers or those distributors?
M r . MITCHELL. Y e s , sir.
Senator JOHNSON. And
when you select them do you allocate to
them certain specified parts of the loans?
Mr. MITCHELL. We handle them in different ways. Sometimes we
make it a participation of a set amount; sometimes, under a different
plan of syndication, we ask them how much they would like; we do
it both ways.
Senator JOHNSON. That is, you follow one plan in which you allocate the sum, and another in which you ask them how much they
would like?
Mr. MITCHELL. That is right.
Senator JOHNSON. Can you leave a form of letter in which you
allocate specific sums to specific banks?
Mr. MITCHELL. I. have not any here.
Senator JOHNSON. Can you send one?
Mr. MITCHELL. Decidedly.
Senator JOHNSON. I wish you would.
Senator REED. Is that very often done by telephone, Mr. Mitchell ?
Mr. MITCHELL. Yes; it is very often done by telephone, but the
confirmation would be of a general type.
Senator BARKLEY. Where you make allocations, to what extent is
there any compulsion connected with it, or any pressure brought to
bear to force the bond house, or whatever it may be, to take the full
sum allocated?
Mr. MITCHELL. There is no pressure whatsoever. O f course, I
heard the questioning of Mr. Lamont yesterday. My answer would
be exactly his, absolutely no compulsion. You realize, however, that
a merchant does the largest amount of business with those who can
be regarded as best customers, and it is only natural for a merchant
in securities, who is a wholesaler, to allot generally to specific dealers
* who are his best and most constant customers.
The CHAIRMAN. You do not force him to do it?
Mr. MITCHELL. NO forcing at all.
Senator JOHNSON. YOU would not continue your c o r r e s p o n d e n c e
long if he declined to buy?
Mr. MITCHELL. He would not be a good customer.
Senator JOHNSON. I am hastening through in order not to delay
the committee and you, Mr. Mitchell. I refer now simply to the
sheets you furnished where you were not managers, but were a part
of a syndicate, when foreign securities were sola in this country, and
I ask you if there the amount of net profit to your house in this
second list, where you were not managers but merely a part of the
syndicate, is shown to be $11,363,501.26.
Mr. MITCHELL. That is correct.
The CHAIRMAN. All of the reports in all the sheets, then, are correct, are they?
SALE OF .FOREIGN BONDS OR SECURITIES
111
Mr. MITCHELL. Yes. sir. I call your attention, as I did yesterday,
that I still have to add here the Canadian and Cuban loans, which,
in making up these sheets, I did not include as foreign.
Senator THOMAS of Idaho. Mr. Mitchell, you have given the committee the operations over a period of years" What is the period of
years; do you remember?
Sir. MITCHELL. It starts with 1919, if I recall rightly. You have
the chronology there.
Senator JOHNSON. It starts with June 1 2 , 1 9 1 9 , and on the other
list it began on February 18, 1919.
Senator THOMAS of Idaho. And runs to 1930?
Mr. MITCHELL. It inns to date.
Senator THOMAS of Idaho. And do you recall about how many
loans altogether you have made?
Mr. MITCHELL. They are on the list. I have not counted them up.
Senator THOMAS of Idaho. The total amount.
Mr. MITCHELL. The total amount is stated here. I can give you
that from a sheet I have here. The issues listed here in which we
were the sole managers aggregate $1,171,955,000. The other list, of
syndicates in which we participated but which were managed by
others, ran to a total of $3,260,407,000.
Senator THOMAS of Idaho. Now, every loan listed here, furnished
the committee, shows a profit; is that correct?
Mr. MITCHELL. N O ; I think there are one or two in the syndicates
managed by others that show red figures.
Senator THOMAS of Idaho. Then you have really never made a
loss in theflotationof any one of these loans?
Mr. MITCHELL. I should say by and large that was so. We have
had, naturally
Senator THOMAS of Idaho (interposing). Is that an unusual
record for a bonding house to show or a usual record?
Mr. MITCHELL. I do not think I would care to generalize on that.
Senator THOMAS of Idaho. The public certainly made a lot of
losses.
Mr. MITCHELL. The public made A great many losses, as they have
in all bonds and securities of any kind, Senator. But in this connection I woud like to call your attention to the fact that the public
has also made very large profits. I have here a group of 22 issues
of foreign bonds which have been retired. These issues ran to the
aggregate of $425,000,000 principal account; they were sold to the
public for $416,015,000. In return, upon redemption, the holders
received a total of $460,550,000, or a net profit of $44,535,000, equivalent to 10.705 per cent upon their original investment; and while
they held that investment, as long as those issues were outstanding,
they had a weighted average return of 7.85 per cent in current interest, which was punctually received by those investors. In other
wordsj we must not get the idea that investors in those foreign
bond issues have universally made losses.
Senator THOMAS of Idaho. But they are now making losses.
Mr. MITCHELL. Just as they are with respect to domestic bonds.
Senator THOMAS of Idaho. "Any greater losses ?
112
SALE ' OF 'FOREIGN = BONDS OB SECURITIES
Mr. MITCHELL. I would be glad to give you some comparisons here
of the shrinkages.
Senator GEORGE. Are they greater or less, Mr. Mitchell ?
Mr. MITCHELL. By and large I would say they were less in foreign
bonds than they were on domestic bonds. But if you care for quotations, I have quotations here I will be glad to give you.
Senator THOMAS of Idaho. Mr. Mitchell, I do not care to take up
the time of the committee to go into that. I am wondering about
the policy of your bond house. Those bonds, whenfloated,are then
put on the exchange and have a daily quotation and market. Do
you do anything to support that market in times of distress?
Mr. MITCHELL. N O ; generally speaking, the practice is never to
support. Of course, many of those so-called sinking funds are what
we term market funds. In other words, the amounts payable into
the sinking fund are used for the purchase pf bonds in the market at
anyfigurethat the market offers below par or below the call price.
Senator THOMAS of Idaho. Who gets the profit made on the purchase of the. bond below the call price, the sinking fund or the
banking house ?
Mr. MITCHELL. Neither. The borrower gets that.
Senator THOMAS of Idaho. The borrower gets it?
Mr. MITCHELL, The borrower gets that.
Senator THOMAS of Idaho. I did not know whether that had been
brought out clearly or not.
Senator GORE. Mr. Chairman, I wish Mr. Mitchell would print in
the record the comparative list of bonds that he mentioned a moment
ago, including a list of all defaulted bonds.
The CHAIRMAN. That lias already been ordered to be printed in
the record.
Senator GORE.. The comparison between the foreign bonds and
domestic bonds?
The CHAIRMAN. NO, not that, but the bonds which have been referred to to-day by Senator Johnson, and also others that tfe did
liot refer to.
Senator COUZENS. Senator Gore wants the list put in the record
that Mr. Mitchell has just said he could make up, showing the comparison of decrease in value in domestic and foreign bonds.
Senator GORE. Yes, I would like for him to include a list of defaulted bonds too.
The CHAIRMAN. HOW soon could you furnish that list?
Mr. MITCHELL. Well, of course, l ean give you quotations on any
particular bonds that you wanted. Bear in mind that to .date you
have not asked me to. give the comparison of the prices of domestic
and foreign bonds. I will be glad to give you that.
The CHAIRMAN. You can send it and have it here, by Monday,
can you not?
MJV MITCHELL. L e t me ask you if this will satisfy the c o m m i t t e e .
Here is a representative list of foreign bonds; also a list of d o m e s t i c
bonds, which shows the high for 1 9 2 9 , 1930, 1931, and the p r e s e n t
price.< If the committee would glance at this and see if that would
satisfy, I would be glad to submit it at this time.
The CHAIRMAN. I think that is just what the Senator is asking
for, and that will be ordered printed in the record.
SALE OF .FOREIGN BONDS OR SECURITIES
113
Senator (MIRE. That is what I wanted, and you could put in the
record later a list of defaulted bonds, Mr. Mitchell. Could you do
that (
Senator KINCS. Do you mean defaulted on the interest or defaulted
in any. part of the payment?
Senator GORE. Either or both.
Mr. MITCHELL. Of course, this involves quite a lot of study. You
are referring now to the entire list, Senator Gore, are you, so far
as I can follow you, of foreign bonds that are in default?
Senator GORK.* Yes. We can probably obtain that otherwise.
M r . - M I T C H E L L . I would be very glad indeed to develop it for you
if I can save you that trouble.
(Senator GORE. Mr. Chairman, perhaps that is unnecessary. I see
this morning a schedule of those bonds, and I think it ought to be
in the record, and I will consult with the chairman about printing
it in this record.
The CHAIRMAN. I want to say to the Senator and members of the
committee that all of these requests that lists be put into the record
would be best answered by appending them to the hearing so they
will be all together. I wrill instruct the Public Printer to do that.
(The lists of representative domestic and foreign bond issues furnished by Mr. Mitchell will be found at the end of this day's proceedings.*
~
,
Senator THOMAS of Idaho. Mr. Mitchell^''just one other question.
You state that you think that the depreciation in domestic bonds
has been more than in foreign bonds. Do you care to answer the
question as to what your judgment will be as to the ultimate payment
of the foreign bonds, as to whether the foreign bonds will have a
better chance to be 'paid than the domestic bonds?
Mr. MITCHELL. !So; I would not care to make a comparison. It
would be unfair to attempt to make such a comparison.
Senator THOMAS of Idaho. I wondered what your judgment was.
Senator JOHNSON. Can you tell whether any members of the Federal reserve banks have any of these securities that we have read
off that were included in your list; foreign?
MR* MITCHELL. Yon mean member banks?
Senator JOHNSON. Yes, sir.
Mr. MITCHELL. Oh, yes; of course they have. They have many.
Of coutse, the* Federal reserve banks ;therselves-have none.
Senator JOHNSON. I mean member banks.
Mr. MITCHELL. Member banks?
Senator JOHNSON. Yes, sir. There are about 8 , 0 0 0 member banks?
Mr. MITCHELL. I think so.
Senator JOHNSON. H O W many that are not members?
Mr. MITCHELL. I can not recall, but I should say there are perhaps
Senator K I N G . Y O U have stated that
Senator JOHNSON. There are about, I think, 2 0 , 0 0 0 nomnembers,
but I am not clear on that.
MR* MITCHELL. The figure has escaped me for the moment.
Senator JOHNSON. But many of the banks that are members of
the Federal reserve have the securities that are in your list that
have been submitted here?
114
SALE ' OF 'FOREIGN = BONDS OB SECURITIES
Mr. MITCHELL. Most decidedly.
Senator GEORGE. Mr. Mitchell, I was about to ask you the same
general question that had about the same purport. Take, for instance, thefirstissue of bonds there, the National City Co.; I believe
it is the Swedish Government.
M r . MITCHELL. Y e s .
Senator GEORGE.; The banking group here is listed under No. 422?
Mr. MITCHELL., NO. That means that the number of dealers
Senator GEORGE. Yes ; exactly.
Mr. MITCHELL. Participating in the banking group were 422.
Senator GEORGE. Were they banks of deposit, any of them?
Mr. MITCHELL. There would be, yes; a number of banks of deposit.
Senator GEORGE. In that group?
M r . MITCHELL. Y e s .
The CHAIRMAN. If there are no other questions, Mr. Mitchell, you
may be excused.
I would like to have the committee now take up Joint Resolution 38.
Senator REED. We better go into executive session.
Senator CONNALLY. Mr. Chairman, may I ask the witness one
question, very briefly?
T h e CHAIRMAN. Y e s .
. Senator CONNALLY. Mr. Mitchell, has your company handled any
Cuban Sugar bonds?
Mr. MITCHELL. Yes, Senator.
Senator CONNALLY. Are any of those bonds now in default that
you know of ?
Mr. MITCHELL. Yes; the Cuban-Dominican sugar bonds went into
default, and there has been a reorganization.
Senator CONNALLY. Were those sold out over the country in the
same method that you pursued with reference to these other issues?
Mr. MITCHELL. Same way; yes.
Senator CONNALLY. Banks and others?
M r . MITCHELL. Y e s .
Senator CONNALLY. HOW
long have they been iir default, do you
remember?
Mr. MITCHELL. My recollection would be that they went into default in the early spring. There has now been a reorganization,
which I think has been completed.
Senator CONNALLY. Well, is that covered in the list that you have
submitted?
Mr. MITCHELL. Yes. It will be. You see, I have omitted Cuba
and Canada, but they will appear;
Senator CONNALLY. They will appear?
Mr. MITCHELL. Yes* sir.
Senator COUZENS. Is this in executive session?
The CHAIRMAN. It will be just as soon as we are readv.
(Thereupon, at 11.35 o'clock a. JUL, the committee proceeded to
executive session.)
115
SALE OF .FOREIGN BONDS OR SECURITIES
DOMESTIC BONDS
High
Security
1929 1*30
American Rolling MIlls
1W3
Alleghany Corporation 5*5, 1944
Alleghany Corporation .Vs, 1049
Alleghany Corporation 5's, 1950
American A Fore'cn Power deb. 5's, 2030
Associated Oas A Electric conv. 4Hi's 1948
Associated Oas A Electric conv. 5's, 1950
Baltimore A Ohio conv. 4t$*s. 1900
Canadian Pacific coll. 4^4's, 1900
Central of Georgia Ry. ref. and gen. Vs, 1959.
Chesapeake Corporation coll. 5's, 1947..
Chicago A Eastern Illinois 5's. 1951.,
Chicago A North Western conv. 4*£fs. 1949.
Chicago, Rock Island A Pacific sec. 4H% 1W2
Chicago, Rock Island A Pacific convertible i H % 1900..
ChilcConpcr Co. 5's, 1947
Central States Electric 5's. 1948
Cities Service Co. convertible 5's, 1950....
Denver A Rio Grande ref. and imp. 5's, 1978
Erie R. R. ref. and imp. 5's, 1967
Florida East Coast 5's, 1974
General Theatre Equip. 6>. 1940
Goodrich Co., E. F., 6's., 1945
Great Northern Ry. gen. 4H's, 1977.
Gulf States Steel 5H's, 1942
.
Hudson Coal 5's, 1962
International Match convertible 5's, 1941
International Match convertible 5't, 1947
International Paper ref. 6's, 1955
International Telephone 4H's, 1952
International Telephone 5'», 1955
.
Middle West Utilities, conv. 5% 1933
Middle West Utilities, conv. 5% 1934....
Middle West Utilities, conv. 5'st 1935
.
Paramount Famous Laaky fl's, 1947
—
Paramount Publlx htf*, 1950
Pan American Petroleum of California 6'«, 1940
*
Philadelphia A Reading Coal A Iron 6's, 1949
Phlllipm Petroleum
Postal Telegraph A Cable Co. 5'S, 1953
Remington Rand
1947
St. Louis A San Francisco 4V$'st 1978
St. Louis Southwestern First term. 5's, 1952
Seaboard Air Line ref. 4's,
Seaboard Air Line 6*s, 1945
Seaboard All Florida 6's. 1935..
Skelly Oil Co. 5H'«. 1W9
Wabash R. R. ref. * H % 1978. t
Wabash R. R. 6's, 1976.—
Wabash R. R. .Vs, 1980..—.
Warner Bros. Pictures 6'«, 1939
Waldorf Astoria Hotel 7% 1954
Warren Bros. conv. 6's,
Western Union Telegraph 5's, 1951*..*.
Western Union Telegraph 5*«,
Youngstown Sheet A Tube 6's, 1978
112
U1M
Present
1931
101
mi
87
&M
104 H
100
0
101H 1
lOlfi
100K
8
4
S5H 96
*4
nH
BOH
10oHt
97 V
103
101 \
»s
95* ioi
M
"97
90H
128
95
97 Ji
-
61H
iooU
99
-
98H
S4
—
&
73
95&
*
m
mi
mi
03Jii
I00*i 3mi
98 H
no
97H
90H
101
95H
102
flOM
79
72
99H
WU\
102U1
100H IOBH!
lMHi
'mil 104 \ i
mm
mu\
92
-
116
SALE'OF'FOREIGN=BONDS OB SECURITIES
Representative
list of foreign
Issue
Austrian 7's, 1923-1943
~
Belgian 7's, 1925-1955
Denmark 6's, 1922-1942
Finland 5^'s, 192&-1958
French 7's, 1924-1949
Paris-Lyons Med. R.r.fl's,1922-1958.
German 7's, 1924-1949
Berlin 6's, 1928-1958
—
Dutch East Indies 6's, 1922-1947...
German Central Bank for Agriculture 6's, 1927-1960.
Japanese 6H's, 1924-1954..
Chile 6's, 192&-1960
Argentine 6's, 1923-1957___
Australian 4lA% 1928-1956—^
Italy 7's, 1925-1951...
Peru 6's, 1927-1960
Brazil 6)6% 1926-1957
Hungary 7&'s, 1924-1944
bond issue*
Approximate
amount outstanding
1939
high
$19,506,000
47,397,000
30,000,000
14,468.000
74,741,000
38,958,000
81,960,000
14,512,000
38,367,000
48,380,000
134,321,000
40,440,000
36,545,000
49,738,000
91,373,000
48,585,000
9G, 921,000
7.646,000
105
IJO
104J6
92
113 X
102
108
92
104H
88
103
. 94
101
mi
97 H
90
96 h
101 h
S A L E OF FOREIGN BONDS OB S E C U R I T I E S I N
UNITED
THE
STATES
MONDAT, DECEMBER 21, 1931
UNITED STATES SENATE,
COMMITTEE ON F I N A N C E ,
Washington, D. C.
The committee met at 10 o'clock a. in., pursuant to adjournment on
Saturday, December 19, 1931, in the committee hearing room in the
Senate Office Building, Senator Reed Smoot presiding.
Present: Senators Smoot (chairman), Watson, Reed, Shortridge*
Couzens, Bingham, La Follette, Jones, Harrison, George, Walsh ot
Massachusetts, Barkley, Connally, Gore, and Costigan.
Present also: Senators Johnson and Brookliart.
The .CHAIRMAN. The committee will come to order, and we will
proceed with the hearing.
Mr. Kahn, will you be sworn, please?
TESTIMONY OF OTTO H. KAHN, MEMBER OF THE BANKING HOUSE
OF KUHN, LOEB & CO., NEW YOBX, N. Y .
(The witness was duly'sworn by the chairman.)
T h e CHAIRMAN. M r . Kahn, have you read the resolution authorizing the investigation?
Mr. K A H N . Yes, Senator; I have.
Senator JOHNSON* For the purposes of the record, will you state
just exactly what house you represent, and whether it is a corporation
or a copartnership ?
Mr. IVAHN. I am a member of the house of Kuhn, Loeb & Co.,
which is an unlimited copartnership.
Senator JOHNSON. In business where?
Mr. K A H N . In business in New York.
Senator JOHNSON. , And the character of its business, if you,please,
sir?
Mr. K A H N . The character of the business is primarily wholesale
investment banking.
Senator JOHNSON. Pardon me, AIR. Chairman. How long has it
been in business there if you please?
Mr. K A H N . About 60 years.
The C H A I R M A N . Have you a statement of the foreign loans that
you have made within the last few years?
Mr. K A H N . Yes, sir; I have such a statement. Owing to the shortness of the notice given, it is not exactly in the shape in which I
would like to file it with the committee, but it contains all essential
facts, and I am in position from it to give you all the facts
117
118
SALE ' OF'FOREIGN=BONDS OB SECURITIES
you might wish to inquire into, but I should like the permission
of the committee to get it in a little more presentable shape and have
it checked before it is placed on the records of the committee. I ask
that permission merely owing to the fact that my notice was so short.
I only' heard, Saturday forenoon, wheii the office was about to close,
that I was wanted here on Monday.
The CHAIRMAN. Will you take up'each loan and tell the committee the amount of the loan, the rate of interest, and any other
information that you have in relation to the same? And I would
like to have you follow it up with each of the loans that your company has made.
Mr. KAHN. Thefirstloan is a Swedish Government loan amounting to $25,000,000, made on the 11th of June, 1919. I should like to
say, with respect to that, that quite possibly the same loan was
mentioned by Mr. Mitchell, of the National City Bank, as being
among his loans. Amongst the loans which I am going to read
there are three as to which we really joined with other houses, but we
were the managing issuing house, and that, is why they appear in
this list,.although it is quite possible that those particular three loans
which I shall desijgnate may also have appeared in the list of Mr.
Mitchell or may appear in the list of, the Guaranty Trust Co., thus
constituting an apparent duplication.
This particular loan was $25,000,000. The price paid to the Government was 96y2. The issue price was 99%. The purpose of the
issue was the purchase of commodities in the United States.
that all you rwish me to say on each issue?
" The CHAIRMAN. Yes ; at this time.
Senator JOHNSON. In order to shorten the examination, may I ask
you just what profit your establishment made out of that loan?
Mr. KAHN. Yes; the originating group—and I believe my predecessors have explained what the term " originating group " means; it
means the originating banker or leader of the issuing group, the
manager of the issuing group, and the house that is primarily
responsible toward the Government with which this particular transaction is made——
Senator JOHNSON. Your house was the originator?
Mr. KAHN. Our house was the originator, the leader of this particular issuing group, and, as I said, primarily responsible both in
dealing with the Government and in having the responsibility for this
loan in case we should not be successful in forming an underwriting
group, and i n case the underwriting group should not have s u c c e e d e d
m forming the distributing group. As you know, there is usually a
tripartite affair : First, the originating, issuing, a n d m a n a g i n g
banker who frequently associates other bankers with him; s e c o n d l y ,
the underwriting group; and, third, the distributing group.
Senator JOHNSON. In this instance you. were the primary issuing
house?
Mr. KAHN; We were the primary issuing house. The compensation of the originating associates was 1 per cent,
\ *;
Senator JOHNSON. That is, there was a profit of 1 per cent to the
primary issuing house?
;
f/
Mr. K A H N . Yes,sir. '
.
"
' Senator JOHNSON. And that was Kuhn, Loeb &
Mr. KAHN. That was for Kuhn, Loeb & Co. and associates.
SALE OF .FOREIGN BONDS OR SECURITIES
119
Senator JOHNSON. What associates?
Mr. K A H N . There were several other houses associated with us.
The National City Bank was principally associated with us; there
was quite a long" list of coissuers, but the leading associates were
Kuhn, Loeb & Go. and National City Co., followed by the First
National Bank, the Guaranty Trust Co., and a number of others.
Senator JOHNSON. They were the primary distributers, then, of
this particular loan?
Mr. K A H N . They were primary underwriters.
Senator JOHNSON. I thought you said that your establishment was
the first or primary house in dealing with the issue.
Mr. K A H N . We and, in this instance, the National City Co.
Senator JOHNSON. YOU and the National City Bank dealing with
the particular loan, then, then transfer or take into partnership, however you wish to designate it, a larger group ?
Mr. K A H N . Yes, Senator.
Senator JOHNSON. YOU and the National City Bank, being the primanr individuals dealing with the loan, received 1 per cent?
M r . KAIIN. Yes.
Senator JOHNSON.
Then when you formed your first syndicate,
if it may be so termed, at what price were the bonds given to them?
Mr. I { A H N . One per cent advance.
Senator JOHNSON. What was it that you took them at?
Mr. K A I I N . We took them at 9 6 % and we passed them on to the
underwriting group at 97%.
I should like to make plain, Senator, if I may, that the function
of the originating house is not merely that of managing a syndicate,
but it actually does stand in the breach as toward the government
or corporation with which it deals until it has succeeded m forming
an underwriting syndicate; the reason for that being that a corporation or a foreign government when wishing to place a loan here can
not afford to say. "Will you try to form a syndicate? " They must
be assured that the loan they are negotiating to place is actually
taken, because if it were not their credit would be greatly affected.
If they failed, if they hod to go from one to another and did not
succeed in one case and tried it in another case, it would be highly
detrimental to their credit. They must be sure when dealing with a
banking house that in the first instance the loan which they wish to
place is actually and responsibly contracted for, as far as they are
concerned, without waiting for distributing groups to be formed.
Senator JOHNSON* Do you guarantee that in the first instance?
Mr. KAHN. Yes.
Senator JOHNSON. Suppose you were unable to place it?
Mr. K A H N . Then we are stuck*
Senator JOHNSON. YOU are stuck for the loan?
M r . KAHN* Y e s .
Senator JOHNSON* S O you started in this instance with a $25,000,*
000 loan at 90%, you and the National City Bank?
Mr. KAHN. Y e k
Senator JOHNSON.
City Bank,first?
You received
Mr. KAHN. Yes.
Senator BARKLEY. I S
1
per cent, Vou and the National
that 1 per cent the net profit, 6r out of that
is there anything to be taken ?
120
SALE ' OF'FOREIGN=BONDS OB SECURITIES
Mr. K A H N . Out of the 1 per cent ordinarily there is nothing to be
taken but our overhead, our natural and actual expenses. Sometimes
in rather rare cases expenses are incurred on the foreign side'which
must be taken out; in instances where you engage a lawyer or other
intermediary to help along in the negotiationsSenator- BARKLEY. In that case can you give the actual net profit
in dollars to these two banks ?
Mr. K A H N . In 'this case I have not got the actual percentage of
Kuhn, Loeb & Co.'s interest as compared with the National City
Bank's interest, but between us the actual profit would be $250,000.
Senator JOHNSON, That is, on the 1 per cent ?
M r . KAHN. Yes.
BINGHAM.
Senator
at 971/0?
You sold the issue to the underwriting group
M r . KAHN. Yes.
Senator BINGHAM.
What price did the underwriting group, in
, selling it to the distributing group, receive ?.
Mr. KAHN.; One and a quarter per cent profit for its service**.
Senator BINGHAM. And they sold it to whom ?
Mr. K A H X And they sold to the underwriting group at 9 8 % .
Senator BINGHAM. And #the underwriting group then, sold it to
the public?
Mr. K A H N , At 99y2. .
Senator BINGHAM. Making a little.less than
Mr. K A H N . The total commission being 3 per cent.
Senator BINGHAM. Making a little less than 1 per cent?
Mr. K A H N ; Yes. The total commission as between the manufacturer, in this case, the Government, and the public to whom the
bonds are ultimately offered, being a spread of 3 per cent ; that is to
say, as between the raw product and the completed article by the
; time it reaches the public. r
Senator BINGHAM. Was the reason why the final distributor received such small percentage f the relative ease of ;selling Swedish
bonds to the public ?
M r . KAHN, Yes.
The CHAIRMAN. Take
Mr. K A H N . The next
up t]ie next loan, please.
loan was also a Swedish Government loan,
a 30-year loan, at
per cent; the amount being $30,000,000. The
price paid by the originating bankers was 96% and 1 per cent, or
96.62, on the 22dtof October, 1924. We paid 96.62. The issuing
^price to-the^public^ was, 99*4, which means a total- spread-of * 2%
per cent. The originating bankers made a commission of one-halt
of 1 per cent. The underwriting syndicate made three-eighths of 1
per cent. The selling commission was 2 per cent.
Senator JOHNSON. In all of those profits your house participated ?
Mr. KAHN. Our house participated in the originating banker's
profits, meaning the originating responsibility; yes. In the underwriting syndicate usually—not necessarily always, but usually*—*11
the distributing syndicate sometimes, and sometimes not. My house
is;not a distributing house. It is a wholesale house, and as a rule the
distributing syndicate consists to the largest extent of r e t a i l e r s or
houses that are in contact with the public and have their salesmen
all over the United States.
Senator JOHNSON. Who selects those houses?
SALE OF FOREIGN BONDS OB SECUIUTIES
121
Mr.. K A H N . We select them on the basis of our experience/ on the
basis of activities in the field of investment, and we know pretty
well which are the desirable houses to deal with.
Senator JOHNSON. Do you select the amount that will be allocated
to each of those houses?
Mr. K A H N . That varies. Sometimes we telegraph or telephone
them that we have reserved for them such and sucn an amount of
dollars of participation—" Do you wish to take them? " Sometimes
we say,M We are about to make such and such1 an issue. Will you
telephone or telegraph us how much you would like to have? "
It is a matter of psychology, how eager we think they are going
to be to participate.
Senator JOHNSON. And you anticipate their eagerness at times?
Mr. K A H N . I hope, frequently.
Senator JOHNSON. Can you say in dollars and cents, Mr. Kahn,
what was the amount of profit derived by Kuhn, Loeb & Co. on
these two Swedish loans, either or both?
Mr. K A H N . As I said before^ Senator, I am not quite sure from
this list, which w as gotten up in a hurry, what wTas the exact proportion of our interest in the originating group's commission, and,
therefore, I am not able to say precisely what our definite profit was.
In the case of the second loan, to which I have referred, our
originating margin w as one-half of 1 per cent, which means that our
profit was $150,000.
Senator BINGHAM. That is not net profit; that is your commission
out of which you must pay all your expenses?
Mr. K A H N ' When I say 44 profit" the more correct word would
always be " spread " or * margin," inasmuch as this is all our business feeds on. We have no other business except the business of buying and selling securities. Therefore all our overhead, all our expensive staff, all our taxes have got to come out of that spread.
Senator BINGHAM. You used the word " manufacturing " a while
ago. There is this difference between the manufacturing business
and your business, that the manufacturer, when he charges a 10 per
cent profit writes off all his costs and then adds 10 per cent?
Mr. KAHN. Yes.
Senator BINGHAM.
Whereas in your business, with a 3 per cent
commission you do not write off anything. All your expenses have
to come out of the 3 per cent ?
Mr. K A H N . Yes, Senator.
Senator BINGHAM. I notice that Mr. Lamont was very careful not
to use the word " profit" because it was misleading.
Mr. K A H N . Yes; it would be misleading, inasmuch as primarily
we have no other business but the buying and selling of securities.
Therefore, against everything that comes to us in the way of compensation we must set off our total expense.
Senator REED. Can you tell us whether either of these issues has
been (paid off ?
Mr. K A H N . The first issue has been paid off. The $25,000,000
issue has been paid off. The second issue is due in 1954. The purpose of the issue was capital expenditures for railways, posts, telegraphs, telephones, and for agricultural aid.
Senator BEED. Has it been reduced by a sinking fund at all?
122
SALE ' OF'FOREIGN=BONDS Ob SECURITIES
Mr. KAHN. I am afraid that my list does not show it. It is not
callable until 1934.,
Senator COUZENS. Are you trustees under the sinking fund?
Mr. KAHN. No; the National City Bank is the trustee under the
sinking fund.
Senator COUZENS.. Do you at times act as trustee for the bonds that
you issue or underwrite?
Mr. KAHN. We never act as trustee.for the bonds we issue; no.
Senator COUZENS. Do you or not handle the sinking fund?
Mr. IVAHN. We do sometimes, in fact, not infrequently, handle the
sinking funds, if our clients so desire. After all, the handling of
the sinking fund means nothing, Senator, but the buying of bonds in
the market and the cancelling of them, and the publishing of lists
as to bonds that have been drawn. It is purely a ministerial function* It involves no discretion on the part of the bank or banker
who administers the sinking fund. It also involves no particular
profit to him. It does save to the government or corporation concerned the necessity of paying a commission to a trust company
for handling this particular function which, as I say, involves no
dicretion on the part of the sinking fund administrator.
Senator COUZENS. You have no discretion as to whether you will
go on the market and buy up these securities or whether you will
draw them by lot?
Mr. KAHN. NO. That is determined by the provisions of the
sinking fund instrument.
Senator BARKLEY. Is your bank in the ordinary sense a bank of
deposit?
Mr. KAHN. NO, sir ; we are not. We are essentially an issuing
house, purehr and simply.
Senator COUZENS. Do you not receive any deposits from any one
at all for safe keeping for investment purposes?
Mr. KAHN. In the ordinary sense, no. It happens from time to
time that in transacting a negotiation for a corporation or for the
Government some money is left over for which they have no immediate use and they ask us to keep it until it is used, in which
case we are perfectly willing and glad to do so. But we do not
solicit deposits. We have no private deposits and are not a bank
of deposit.
Senator WALSH of Massachusetts. Do you issue a prospectus on
every one of those issues of foreign securities?
Mr. KAHN. Yes, Senator.
Senator WALSH of Massachusetts. Is that the form of prospectus
used among the trade [handing a paper to the witness]? This
prospectus refers to an issue of 1*5,000 American shares for common
stock of the North German Lloyd. It has several subtitles, such as
"American shares," "Agreement," " Business and properties," " Purpose," and then the offering and by whom offered; these particular
shares being offered November 16, 1928, at $69 per share.
M r . KAHN. Y e s .
Senator WALSH of'Massachusetts.
Then it also has a memorandum
of the earnings of each of the companies for which stock and securi-;
ties are issued. Then there is a general statement.
Several hundred of such memorandums have been handed to me,
giving the names of various banking houses that handled these
SALE OF FOREIGN BONDS OB SECUIUTIES
123
securities. Can you not give for the committee a memorandum or
a prospectus which you have issued on all the foreign securities that
have been handled l>y you in this country?
Mr. K A I I N . Certainly Senator. We have them here, but inasmuch
as I am not quite sure "that they are entirely complete, and inasmuch
as in some instances they are the only ones we have left, I would like
to be permitted to send you photostatic copies rawer than the
originals.
Senator W A L S H of Massachusetts. Who are the Bankers Bond
Digest, of 206 Fulton Street. Xew York?
Mr. IVAIIN. I am told by my associate that it is a statistical service
that reprints those prospectuses.
Senator W A L S H of Massachusetts. These must be available for
anybody who wants them, of course?
Mr. IVAIIN. Surely.
Senator W A L S H of Massachusetts. And they are issued each time
a foreign or domestic security is placed on the market i
Mr. IVAIIN. I presume so. Of course, that is not an official organization. They are doing this. I understand, purely as a statistical
service.
Senator W A L S H of Massachusetts. They perhaps formulate this
from the prospectus which you yourselves prepared.
Mr. K A H N . Oh, yes; no aoubt.
Senator W A L S H of Massachusetts. Will you let the committee have
a copy of all the prospectuses you issue?
Mr. ICAHN. I shall be very glad to do so.
Senator JOHNSON. Will you let us have the particular paper,
Senator Walsh, concerning which you are examining the witness, so
that it may be put into the record?
Senator W A L S H of Massachusetts. There are several hundred, almost a thousand, indicating that there have been a tremendous number of securitiesfloatedin this country in the last two or three years.
(The prospectus referred to and submitted by Senator Walsh of
Massachusetts is here printed in full, as follows:)
1 7 5 , 0 0 0 AMERICAN SHAKES FOE COMMON STOCK NORTH GEHMAX LLOYD
DEUTSCIIER XILOYD) BREMEN
(NORO-
American shares will be issued by Guaranty Trust Co. of New* York as
depositary under a deposit agreement dated November 25, 192$. each such
American share representing 200 reiehsmarks (Bin. 200) par value of the
common stock of the North German Lloyd (Norddeutseher Lloyd) Bremen,
deposited thereunder.
AGREEMENT
The company has agreed, among other things, that dividends after deduction
of German income tax (Kapitalertragsteuer) now* amounting to 10 per cent
will be remitted by the company to the depositary at tlie cable rate for dollars
current in Berlin "on the day of payment of the dividend; such dividends or
any other distributions due to the shareholders will, after deduction of the
depositary's fees and expenses as set forth in the deposit agreement, be paid to
the registered holders of American shares by check in dollars.
Tihe deposit agreement will provide that after .Tuly 1, 1920. or'prior thereto*
with the consent of Ktihn, Loeb & Co. and Lee, Iligginson & Co., as depositors,
any owner of common stock may deposit it at the agency of the depositary in'
Bremen and receive therefore from the depositary in New York an equivalent
amount of American shares and vice versa, the holder of American shares may
deposit them with the depositary in X e w York ami receive from the agency
124
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
of the depositary in Bremen in exchange therefor the amount deposited with
the depositary in New York, under the terras of and upon payment of the
charges set forth in the aforementioned deposit agreement.
BUSINESS AND PROPERTIES
The North German Lloyd, incorporated in 1857, operates through Its own
vessels and those of subsidiary companies 31 different passenger and freight
lines serving more than 200 ports in all parts of the world. As of November
1, 1928, the aggregate tonnage of the 132 ocean-going vessels of the company
and its wholly downed subsidiaries was over £94,000; gross registered tons including such well-known ships as the Columbus, Berlin, Dresden, Murwhcn, and
Stuttgart These 5 ships, in addition to 18 other smaller vessels, constitute
the company's present passenger and freight service between New York, Boston,
other United States and Canadian ports, and Bremen, Germany, and the
English, Irish, and French ports which the company serves. The company's
tonnage devoted to the North Atlantic passenger service will be practically
doubled in the spring of 1929 by the entry into this service of two of the
newest and fastest liners in the world, the quadruple screw, turbine driven,
oil burners, the Bremen and the Europeeach of about 46,000 gross registered
tonnage.
PURPOSE
Provision having already been made for the cost of construction of the
Bremen and the Europa, none of the proceeds of the sale of these shares will be
required for this purpose. The proceeds will be used to reimburse the company's treasury for expenditures heretofore made for other construction, for
further additions to the company's fleet including 6 first-class, modem, cargo
Uners, 2 of which are of about 8,000 gross registered tons each and the remaining 4 of about 6,500 gross" registered tons each, for the payment of
the purchase price of substantial interests in other shipping companies recently
acquired and for other corporate purposes.
EARNINGS
For the year ended December 31, 1927, the net earnings of the company,
after payment of or provision for all charges, as certified by its auditors, Fides
Treuhand Aktiengesellschaft, Bremen, amounted to Km. 26,701,691 ($6,357,500),
out; of which Rm. 13,681,954 (§3,257,600) were set aside for at least G per cent
depreciation of the original cost of the vessels and Rm. 1,985,837 (8472,800) for
depreciation on buildings, shops, furniture, and fixtures, leaving a balance of
Bm. 11,033,900 ($2,62T7,100) available for dividends. After payment of 6 per
cent on its fully paid preferred stock such balance was equivalent to about 8.71
per cent on the company's Rm. 125,000,000 par vulue of common stock outstanding as of December 31, 1927.
Incident to the building and handling of its previously mentioned two new
lines which are not yet in service and from which, of course, no revenues have
yet been received, the company has been meeting, out of ts current earnings,
heavy charges such as for advertising, increase of personnel, enlargement and
expansion of its service bureaus in Ntw York, Paris, and other cities, ,and the
increase of its dock facilities. As a partial result thereof, despite its gross
revenues for the six months ending June 30, 1928, having been Rm. 100,730,000
($25,411,000) as compared with Ilm.. 96,005,000 ($22,858,000) for the same
period of 1927, Its net income for that period declined slightly from Bm.
14,743,000 ($3,510,000) for the first half of 1927 to Km. 13,995,000 ($3,332,000)
for this period of 1928. That the company's income is growing steadily due to
its increasing tonnage is attested by the fact that its gross income in 1925 was
$29,300,000, in 1926 was over $33,000,000, in 1927 was approximately $45,400,000 and for the first nine months of 1928 was approximately $40,000,000.
It is most conservatively { estimated that the entry of the Bremen and the
Europa into active service in the spring of 1929 will increase the company's
gross income by approximately Bm. 40,000,000 ($9,523,000) or about 20 per
cent, and, inasmuch as our own experience as well as that of other companies
has shown the increasing profitableness of de luxe liners of this type, the
company's net income should be proportionately Increased^
Of special interest to American investors will be the fact that of the company's gross revenues for 1926 approximately $10,000,000 were received in
SALE OF FOREIGN BONDS OB SECUIUTIES
125
United Suites currency and more than 4.000,000 pounds ($10,400,000) in
sterling while for 1027 approximately $12,500,000 and 5,000,000 pounds ($24,333,000) were received, thus automatically providing ample foreign balances
for the company's foreign commitments. Tluis, for the year 1020 almost 00
per cent of the company's revenues were received in these two foreign currencies alone and for 1027 over SO per cent.
GKNKLIAI,
Application will he made in due course to list these American shares on the
New York Stock Exchange.
All conversions in this letter from German into United States currency lmve
been made at the rate of 4.20 relchsmarks to the dollar.
Offered November 30, 1028, at
per share.
(These American shares are entitled to all dividends hereafter declared,
including the dividends for the full year 102S.V
I i y K u u x , Ix>eii & Co.
LEK, IIIGGIXSOX & CO.
Although tlie.se statements are not guaranteed, they have been obtained from
sources we believe to be reliable.
Published by Hankers Itond Digest, 200 Fulton Street, New York.
Senator B I N G H A M . I understand that these arc not originals issued
by the banking houses, but only a digest prepared by an independent and not necessarily responsible organization, 'therefore I ask
the Senator from Massachusetts, why have it put into the record?
Senator W A L S H of Massachusetts. It is a perfectly legitimate organization? There is nothing wrong with it, is there?
.MR. KAIIN. No. IT is a reputable organization.
Senator COUZENS This only represents foreign loans ?
Senator WALSH. All that I have.
Mr. KAHN. We will be delighted to furnish them to this committee.
Senator BINGHAM. IS this an American stock issue?
Senator W A L S H of Massachusetts. North German Lloyd Co.,
common stock.
Mr. K A H N . The next loan was the city of Christiana, Norway, now
called the city of Oslo. At that time it was called the city of Christiana, in October, 1020. $5,000,000. The price paid was 03. The
issue price to the public was 99.
The CHAIRMAN. What rate of interest?
Mr. K A H N . Eight per cent.
Senator SHORTRIDGI:. What city was that?
Mr. K A H N . It was then called Christiana, in Norway, and now
called Oslo. The price paid was 03. The issuing price to the public
was 00.
I should like to explain both in respect to the high rate of issue
and to the high rate of margin or spread that 1020, with the shadow
of 1921 being cast ahead, was a very difficult j'ear; that the city of
Christiania was not well known here; that the amount involved was
a very small one, but the work involved was measurably comparable
to what it would have been if the amount had been a large one,
and that therefore the proportionate amount of expense as applicable
to a $5,000,000 loan justified and, m fact, necessitated, a larger
allowance in the way of spread than if it had been a currently known
city and if the; amount had been larger.
92928—31—FTl
9
126
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
The originating group received 2 per cent. The underwriting
margin was 2y2 per cent. The selling commission was 1 y2 per cent.
The purpose of the loan was electrical works, harbor, and housing.
Senator BINGHAM. Did the underwriting group have such a hard
time selling them to the distributing group as to justify that spread?
I thought you said it was difficult to sell to the public. Therefore,
I suppose the larger amount of spread was necessary?
Mr. ICAHN. The amount was small. If you form an underwriting
group and a distributing group, you have to put the whole vast
machinery into motion, and they do not like to move for nothing.
The machinery and the putting into motion of that machinery require
little less effort for a $5,000,000 loan than for a $50,000,000 loan. Of
course, the actual physical effort of salesmen is greater in the case of
placing a $50,000,000 loan than a $5,000,000 loan; but the getting of
the machinery to work is not so very much less of an effort, in the
case of a small loan than in the case of a large loan. Therefore,
you have got to make your compensation somewhat larger, relatively,
when the loan is small than when the loan is large.
Secondly, at that time the city of Christiania was very little known
here, and a {jreat deal of work had to be done in explaining it, in
sending out literature, and so forth.
Senator COUZENS. YOU do not mean to say that a large house like
Kuhn, Loeb & Co. would have to create all that machinery for a
simple $5,000,000 loan?
Mr. KAIIN. It would not have to, perhaps, Senator, but it so happens that in addition to being what you have been good enough to
say is a large house, we are also a very conservative house, and we
have learned the wisdom of liquidity, which we find to be one of the
essential if not
Senator COUZENS. That means unloading fast?
Mr. KAHN. If you choose to use the word " unloading "—perhaps
it would be better to say not to load yourself too heavily, rather than
unloading.
Senator COUZENS. There is not much distinction, is there?
Mr. KAHN. There is in sentiment, if not in fact, and there is A
distinction in principle.
Senator SHORTRIDGE. What was the term of those bonds '?
Mr. KAHN. Twenty-five year bonds at 8 per cent. They have all
been repaid.
Senator CONNALLT. What was the total spread?
Mr. KAHN. The total spread was 6 per cent; and the reasons for
that unusually large spread I have endeavored to explain.
Senator CONNALLT. Yes; I caught that.
Senator COUZENS. Was there a sinking fund set up for that ?
Mr. KAHN. I have no doubt that a sinking fund was set up; and
the reason it was paid off so fast was that after a while the credit of
Norway improved, became better known, and people realized the
intrinsic value of the bonds of these Scandinavian nations.
Senator GORE. Was your house the sole originating or managing
house in connection with that sale?
Mr. KAHN. Yes, Senator.
Senator GORE. YOU guaranteed the city of Christiania that you
would dispose of the entire issue?
M r . KAHN. Yes.
SALE OF FOREIGN BONDS OB SECUIUTIES
127
Senator GORE. When you organized this underwriting syndicate
did yon pass that guaranty on to them, and did they assume that?
Mr. K A H N . They assumed the part of the guaranty which we did
not retain, the purpose of an underwriting syndicate being to
relieve the originating banker of the responsibility which he has
incurred or to reduce such responsibility.
Senator Gone. With respect to that guaranty?
Mr. K A H N . With respect to the loan. If we deal with the city of
Christiania and say, 44 We will buy from you a $6*000,000 loan,"
whether or not we* succeed in forming an underwriting syndicate,
they know they are going to get their money as long as we are solvent.
If they do not get their money, we are 110 longer solvent.
Senator GORE. If you assume the losses, does the underwriting
house share that loss with the originating house?
Mr. K A H N . From the moment that we form an underwriting syndicate our responsibility is reduced pro tanto. It is reduced to that
extent.
Senator GORE. D O you have a written contract concerning this
issue i
M r . KAHN. Y e s , sir.
Senator GORE. Can you put that into the record ?
Mr. K A H N . I have no doubt we could; yes.
Senator GORE, D O you have a written contract with
this underwriting house or is that
Mr. K A H N . That is a written agreement; yes.
Senator GORE. I wish you would put that in also. That would be
typical particularly of those agreements?
Mr. K A H N . Yes,"Senator.
Senator COUZENS. Mr. Kahn. recently we had a reference to the
matter of sinking fund. You state that the makers of these loans
usually—in fact, all the time—fix the provisions of the sinking fund I
Mr. KAHN. Yes.
Senator COUZENS.
In that connection I now draw your attention to
the circular for an issue in Brazil in 1918, November 1, in which it
has the following concerning sinking fund:
The semiannual cumulative sinking fund calculated to be sufficient to retire
all the bonds by maturity is to be applied to the purchase in the open market,
at or below par, or to drawings at par, not callable until November, 1928, except
from the sinking fund.
Mr. KAHN. Yes.
Senator COUZENS.
That is not in accordance with your previous
statement that you do not have any option as to how you may use
$he sinking fund.
Mr. K A H N . I beg your pardon, Senator, I think it is, because
that option would not be exercised by the issuing house, but would
ibe exercised by our clients, who would give us directions as to how
they wished tlie sinking fund to be used. That is their privilege
and. responsibility and not the privilege or responsibility of the
issuing house.
Senator COUZENS. Well, t h e n you do have to await instructions
Irom the maker of the securities?
Mr. K A H N . Yes; unless the sinking fund specifically provides, as it
Usually does, how it is to be used.
Senator COUZENS. And in this it does not
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SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
Mr. KAIIN. If there is any discretion to be exercised, the discretion
is exercised by the maker of the bond, and not by the issuing house.
Senator COUZENS. IF the issuing house had the discretion it would
be possible, under the provisions stated in this circular, to buy those
bonds at par for the sinking fund.
M r . KAHN. Y e s .
Senator COUZENS.
Mr. KAHN. Well.
Kegardless of what the market might be.
Senator Couzens, I should think it would be a
fraudulent transaction, if such a thing were done.
Senator COUZENS. Well, I don't know. If you had the option of
doing either, I do not know that it would be a fraudulent transaction, unless, of course, you knew exactly what the market was at
the time.
Mr. KAHN. If I might respectfully suggest, it is the business of
the issuing house to know the market and to advise its clients as to
what the condition of the market is.
Senator COUZENS. If you can have that privilege, certainty.
Mr. KAHN. Well, isn't the issuing house in the position of a kind
of continuing trusteeship as to its issues?
Senator COUZENS. Well, that is what I tried to bring out with
Mr. Lamont. that to have the issuing house also trustee is, in my
opinion, against public policy.
Mr. KAIIN. I am not referring now so much to actual trusteeship
as to what I m i g h t call a moral trusteeship. In other words, I feel,
and I think other reputable bankers feel, that if a c o r p o r a t i o n or a
government deals with a particular firm, that particular firm is in
the position o f moral trusteeship toward its constituents or clients,
and it has got to give to it to the best of its ability its advice and its
service as long as that loan is outstanding.
Senator COUZENS. Does that same obligation exist with respect to
purchasers of securities ?
Mr. KAHN. I do think so; yes.
Senator COUZENS. What I was trying to bring out is whether your
obligation to your customers or to persons to whom jfou sell these
securities is the same as to the maker of the obligation/
Mr. KAHN. Distinctly so, as far as that is possible. It is naturally
limited by financial possibilities. But I do think that an issuing
house has that responsibility, that continuing responsibility, as to its
constituents from whom it bought the issue on the one hand, and on
the other hand to the public to whom it sold the issue.
Senator COUZENS. And let me ask in that connection, if there IS
default in either principal or interest, what does the issuing house
consider to be its responsibility?
Mr. KAHN. The issuing house considers it its responsibility to DP
,everything in its power to reconstitute and reestablish the solvency
and the good credit of the property, to protect the bondholders
against any undue exactions that might be demanded of them, to
work out the best possible plan of reorganization, to give advice to
the bondholders concerned, to give its efforts, its experience, its ability fairly and properly to deal with the stiuation which a default has
created.
Senator COUZENS. And sometimes you are required to set tip bondholders'protective committees?
M r . KAHN. Y e s .
SALE OF FOREIGN BONDS Oil SECURITIES
129
Senator COUZENS. In such a case do you act on bondholders'
committees?
Mr. K A H N . Sometimes yes and sometimes no. But \vc always keep
in touch with bondholders' committees, and sometimes the members
are appointed in consultation with the issuing; bankers.
Senator COUZENS. When you act on bondholders committees, in
other words, as a protective committee for the bondholders, you get
a fee for that also, do you not i
Mr. K A H N . We rarely get A fee for acting on a protective committee. We get no fee as bankers for acting on a protective committee.
Senator COUZENS. But your officials may go on such a conmiittcc
and receive a fee for so serving, as I understand?
Mr. ICAHN. Such a fee, if so received, would be a very moderate
one. It may be a few thousand dollars, but it is not a "fee of any
exorbitant dimensions.
Senator COUZENS* I see many of these protective committee circulars in which they solicit depositors of bonds and carrying a substantial percentage of the bonds for the service of the committee. I do
not know, of course, how that is divided up as between attorneys and
bankers, but I wanted to bring out an answer to the question if you
do not get it both coming and going.
Mr. ICAHN. Senator Couzens, generally speaking, it is safe to
assume that an issuing banker serving on a protective committee
would as such receive no more than any other member serving on the
committee, if any fee at all; that the compensation of the men serving
on such a committee is by any standard a moderate one; that the
expenses involved in the way of lawyers' feet, and expenses of various other kinds, such as accountants', engineers', and trustees' fee,^?
are heavy ill comparison with and over and above any compensation
which are received, as a rule, by the several members of a protective
committee. Sometimes the issuing banker does not serve and sometimes he does, but such compensation as he receives would primarily
and principally be for services not on the protective committee but
for evolving, negotiating, and sponsoring a plan of reorganization,
for giving his time, effort, experience, responsibility, and prestige,
his placing power, his advice, his best effort to such reorganization.
The CHAIRMAN. Mr. Kahn, in the last 20 years how many defaults
have you had in the matter of payment of interest?
Mr. K A H N . Well, Senator Sinoot, I am happy to say that the
number of defaults in our case is very limited.
The CHAIRMAN. YOU have had one or two defaults, have you?
Mr. K A H N . Oh, yes; there have been some, but the number has
been a very limited one.
The CHAIRMAN. In connection with foreign countries or local
loans?
H Mr. K A H N . In connection with the loans of foreign countries there
is only one to which I will come later on, and that is a mortgage
bank/which is the only default we have had in a foreign country.
In the case of domestic loans there is, of recent date, one railroad
.with which we as bankers are connected that has gone into receivership, unfortunately, as you gentlemen probably know. That is the
Wabash Railway.
I Senator GORE. Let me ask on one other point right there: Mr.
Kahn, you stated in connection with the Christiania loan that
130
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
when you took over the bonds at a fixed price the transaction was a
sale; that you became the purchaser of the bonds and not the agent
of the city.
M r . KAHN. Y e s .
Senator GORE. Now, when your
house is the managing house, allotting those issues to various underwriting houses, would that transaction be a sale? In other words, would they become purchasers or
agents of yours?
Mr. KAHN. That is more or less a legal question which I do not
feel quite competent to answer in a legal sense. The fact is that
from the moment they underwrite it they become responsible toward
us and to that extent one responsibility is extinguished, except as
toward the city or government or corporation concerned. As toward
them, we are solely responsible for the solvency of our underwriters
or distributors. Our responsibility ends only when the city, government, or corporation concerned have actually received the money
which we have contracted to pay to them.
Senator GORE. When the underwriting houses allot bonds to distributing houses is that transaction a sale? Do they become purchasers of the bonds or merely agents of the underwriting house?
Mr. KAHN. Again I should say that is a legal distinction which I
hardly feel competent to deal with.
Senator GORE. Suppose a distributing house does not dispose of its
allotment to the public, does it still have to account for its allotment
to the underwriter?
Mr. KAHN. Yes; for its share, and pay for them.
Senator GORE. All right, Mr.'Kahn, that is an answer to the point
Mr. KAHN. But, Senator Gore, the originating house remains responsible until the money is paid over. In other words, it guarantees the solvency of the distributor.
Senator GORE. You are responsible for it to the issuing government ?
Mr. KAHN. The originating house guarantees the solvency of the
underwriting houses and the distributors, and it is not relieved of its
responsibility until the money is paid over.
Senator GORE. You undertake to pass that responsibility on to the
distributing house?
Mr. KAHN. Yes; but we can not relieve ourselves of it absolutely.
The CHAIRMAN. Now. if there are no other questions on this
point, let Mr. Kahn go forward with his testimony.
Senator GORE. Mr. Chairman, I should like to have Mr. Kahn fite
a list of the members of his partnership in the record.
Mr. K A H N . All right.
The CHAIRMAN. YOU may proceed, Mr, Kahn.
Mr. KAHN. The next loan was made
Senator JOHNSON (interposing). While on that point I should
like to have asked Mr. Lamont to furnish a list of the partners of
J. P. Morgan & Co.
Senator GORE. I made that request, Senator Johnson.
Senator JOHNSON. Has that been done?
Senator GORE. Yes.
Senator JOHNSON. Pardon me. I did not recall it.
The CHAIRMAN. YOU may proceed, Mr. Kahn.
SALE OF FOREIGN BONDS Oil SECURITIES
131
Mr. K A H N . The next loan was to the city of Christiana again, a
30-year 6 per cent loan issued in September of 1924 for only $2,000,000. The price paid to the city was 94, and the issuing price 98, and
the total margin was 4 per cent, of which the originating group
retained 2 per cent. There was no underwriting group, the amount
bein£ so small. There was only a distributor's group, which also
retained 2 per cent. The purpose was, again, for electric works, for
harbor improvements, and for housing.
After that we come to the city of Oslo, which is the same city under
a different name, a loan made in October of 1925, 30 years, 6 per
cent sinking-fund loan due in 1955. The amount was $8,000,000, and
the price paid to the city was 97, and the issuing price was 99^» to
the public, leaving a total margin of 2% per cent. In that case
there was no originating group participation, but that was merged
with the underwriting group participation, and the underwriting
group and originating group together received three-quarters of 1
per cent, and the selling commission to the distributors was 1%
per cent. The purpose was the same as before, for harbor improvements, housing, and electric works.
Senator CONNALLY. If I might interject a question right there,
Mr. Chairman?
The CHAIRMAN. Certainly.
Senator CONNALLY. Mr. ICahn, why was it that the credit of the
city of Christiana or of Oslo improved so much between those years,
the bond bringing 3 per cent more, and of course you sold them for
a higher figure, I take it?
Mr. K A H N . Between the year 1 9 2 0 and the year 1 9 2 5 , what one
of my predecessors on the stand here has called international mindedness of the American public proceeded apace and it was perhaps
at its apogee in 1925.
Senator CONNALLY. But as I understood it you rend about a
loan a while ago made in 1924 and then you read one in the next year.
Mr. K A H N . Xo, I think you did not get that quite right It
was
Senator CONNALLY (interposing). A loan of $S,000,000.
Mr. K A H N . The one for $2,000,000 was a 6 per cent loan—we
started with an 8 per cent loan in 1920, and we came to a 6 per cent
loan in 1924. and then we came to another 6 per cent loan in 1925.
Senator CONNALLY. That was the one I was asking about, the
one you purchased at 94 and the other at 97.
Mr. K A I I $ . Yes, but in the meantime the demand for foreign
investments in this country had greatly increased, and the credit
of the Scandinavian countries and Scandinavian cities, had become
:a favorite form of invesement. And you will understand that the
price is not based upon our own estimate but upon our best judgment
as to what the investing public will be willing to pay.
Senator CONNALLY. I can understand how that might come about
over a period of years, and yet here was one issue in one year and
.another issue the next year and there was a difference of 3 per cent
in the price.
I Mr. K A H N . YOU will understand that in the course of six months
.sve have seen a difference of vastly more than 3 per cent in the
.value of our railroad bonds,.
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SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
Senator CONNALLY. Yes, but that is hardly comparable with government bonds, and
Mr. K A H N (interposing). And we have seen
Senator CONN ALLY (continuing). That was under the present
administration, but I am talking about normal times.
Mr. K A H N . Senator Connally, we have seen in the course of three
months that United States Government bonds can decline very
materially.
Senator CONNALLY. In making these rates when these governments
come to you, do you usually fix the rate of interest or is it done
under your advice?
Mr. K A H N . We advise them what is the best rate of interest
obtainable.
Senator CONNALLY. And you tell them what you can market the
bonds at?
M r . KAHN. Yes.
Senator CONNALLY.
They have not much option on that. They
have to take your price and your terms.
Mr. K A H N . Oh, no. They are entirely free to act as they please.
Senator CONNALLY. I know, but they have to sell them through
your advice, and therefore they have to follow your advice.
Mr. K A H N . That is rather putting the cart before the horse. They
first ask our advice and if they think we are right and if they think
our price is right they deal with us. If they think we are wrong
and they can do better by going to somebody else, then they do so.
Senator CONNALLY. And do they do that, even to the point of
going around from onefirmto another?
Mr. K A H N . Very few governments, just as you would not ordinarily go to a different doctor every month or every year, change
from one banking house to another, although some governments do.
For instance, the Argentine Government has often rotated in this
matter, and are apt to go from one banker to another.
Senator CONNALLY. Do you mean after they have dealt with one
banker or before?
Mr. K A H N . After they have dealt with them often. They are apt
to try one banker and then another. But usually a government
sticks to the banker it has once picked out, as long as they get satisfaction. Of course, if they think they can do better elsewhere, then
they go elsewhere.
The CHAIRMAN. We must hasten along, as it is now 5 minutes to 11Senator JOHNSON. Mr. Chairman, might I ask: Arc 'you going to
hold the hearing after 12 o'clock to-day?
Senator COUZENS. Oh, we can not do that.
The CHAIRMAN. Well, we can not take up the moratorium until
2 o'clock.
Senator JOHNSON. But we have to be on the floor at 12 o'clock.
I was asking merely for information.
The CHAIRMAN. I should like to run along now until 2 o'clock,
right straight through if we can. We can recess for a few minutes
in order to go over and answer the roll call.
Senator JOHNSON. That is rather A difficult thing. Of course, I
have no control over the matter and am merely making a suggestion.
But I do hope you will conclude the hearing to-day oy 12 o'clock,
SALE OF FOREIGN BONDS Oil SECURITIES
133
however far we may have gotten by that time. The situation is such
that I feel I must be on the floor at that time. I do not know what
is going to transpire; at any rate, I want to be ready for anything
that may occur on thefloor,and at best I can only suggest that action
which I think ought to be taken.
Senator HARRISON. Why not recess at 12 o'clock?
Senator SHORTRIDGE. Let us go along for the present anyhow.
The CHAIRMAN. Let us go along and get through as soon as we
can. If Senators do not feel it necessary to ask too many questions,
I am sure that we can go along now and make a little better time.
Senator COSTIGAN. Mr. Chairman, before Mr. Kahn proceeds with
his statement let me ask a question.
The CHAIRMAN. Certainly.
Senator COSTIGAN. Mr. Kahn, with reference to the funds you last
mentioned, were they used, in part at least, for the construction jot
municipal-owned-and-oporatcd electric light and power plants?
M r . KAHN. Yes.
Senator COSTIGAN. And you regarded those as good investments?
M r . KAHN. Yes.
Senator JOHNSON. Those investments were abroad?
Mr. KAHN. Yes.
Senator SHORTRIDGE. Let me ask right there: Mr. Kahn, was there
any arrangement or understanding to the effect that any of the
material to be used in the work contemplated by the city of Christiana or of Oslo should be purchased here, and was any of it pur-t
chased here in America?
Mr. K A H N . I am not sure that I can answer that question without
having to investigate it first. I doubt whether there was such an
understanding from the point of view of a definite obligation. But
I think it is considered generally not an obligation but a matter of
usual practice and fair consideration other things being equal or
substantially equal, that the lender will buy such stuff as he has to
buy in the country which gave him the money.
Senator SHORTRIDGB. I purposely used the word " understanding,"
to be followed by the question wliether or not in point of fact any
material to be used in the city mentioned was purchased from any of
our manufacturers or producers here in America. But if you do not
know you may pass on.
Mr. K A H N . 1 am unable to answer that question; but, as I have
said, that is not specifically required in this country as a rule. It is
sometimes in other countries. For instance, France rather makes it
a habit to do so. But American bankers do not insist upon it as a
general practice.
Senator GORE. Mr. Kahn, have you made any investigation to
ascertain or have you had any reports as to whether any number of
individual investors take any particular amount from those distributing houses?
Mr. K A H N . Yes, roughly speaking, I should say it would be safe
to count on an average of §3,000.
Senator GORE. If you have made any particular study of that
matter, I wish you would attach a statement in one or two issues to
your testimony.
Mr. KAHN* I will see if I can do that.
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SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
Senator GORE. NOW, in the placing of these bonds and securities
do theyfindlodgment in the hands of individual purchasers throughout the country?
M r . KAIIN. Y e s .
Senator GORE. Isn't
it pretty much true in England, too? It is
a. large creditor country, and I believe owns some $20,000,000,000 of
securities. Do you know whether the securities are largely distributed among the English people or are they more held by trust companies and bankers than in this country?
Mr. KAHN. They are largely distributed among the English people.
At the same time I think to a greater extent, relatively speaking, than
here the English trust companies and English insurance companies
and English investment houses particularly, and particularly again, I
will say, the Scottish investment companies are permanent holders of
bonds.
Senator GORE. Of foreign bonds.
M r . KAHN. Y e s .
The CHAIRMAN. YOU may proceed, Mr. Kahn.
Mr. KAHN. The next loan is the city of Oslo again,
20 years, 5 %
per cent, issued in January of 1926. The purchase price was 94,
and the issue price was 97. The margin was 3 per cent. Again the
originating group and the underwriting group were merged, the
amount being so small, and the originating and underwriting groups
together received
per cent, and the distributing group received
also 1% per cent.
Senator JOHNSON. YOU did not state the amount of that loan.
Mr. KAHN. It was $4,000,000.
The CHAIRMAN. Senator Johnson, would it be just as satisfactory
to you to have that statement put into the record, all these details
about these loans, which would save a lot of our time ?
Senator JOHNSON. Mr. Chairman, it is time that it takes a long
time to get these matters in this way. At the same time it is the
only way that the committee can familiarize itself with exactly what
these loans were. When you put a bulky tome into the record it,
of course, saves time, but I fear that the committee, like myself,
would have little knowledge of what the loans have been made for.
I think it a profitable inquiry to proceed as we are with Mr. Ivahn.
The CHAIRMAN. YOU may proceed, then, Mr. Kahn, but make it
as brief as possible.
Senator BARKLEY. Mr. Chairman, I was called away, and while
it may be that this question has already been asked and answered I
should like to be sure: Mr. Kahn, in your case, as in the case of
every managing house, to what extent, if at all, are these bonds held
by you or them, if any of them are held back by the managing
house ? Or are they all passed on the the public ?
•Mr. KAHN; They are in principle all passed on to the public.
As I have said beiore, an essential virtue of the banker, and particularly the private bankers, must be that of liquidity. If that
were not so he would very soon find himself so locked up with the
issues negotiated by him that he could not continue. Consequently
his effort is to buy bonds and sell them. He is a merchant He is
a merchant to that extent, and so much so that in England the,
ordinary application of such a banker still in use is that of merchant banker. He does not call himself a banker but a merchant
SALE OF FOREIGN BONDS Oil SECURITIES
135
bunker, unless he is a house of deposit, which we are not. The
essential interest of the private banking business, the issuing business, is that the banker buys securities of such a nature that he
feels reasonably confident he can sell them to the public. And having sold them he is then free to go on with other business. If he
locks himself up by retaining his own goods, he will very soon be
so locked up that his usefulness as a banker will have ceased.
Senator BARKLEY. After you have passed the bonds on to the public you are free of course then to look out for other customers, for
other business, and have you any further interest in those bonds?
Mr. K A H N . We have an interest in those bonds until they are
repaid according to their due date. We consider that we are under a
permanent moral liability to do what we can for the protection of
those bonds.
Senator BARKLEY. And in event there is default
Senator COUZENS (interposing). Senator Barkley, I went over
that. You will find that in the record, those questions being asked
and answered while you were out.
Senator BARKLEY. "ALL right.
Mr. K A H N . And I might add that we have frequently made it our
business, a contingent part of our obligation, that if there is an undue
or unjustifiable decline in bonds, if there is not a fair market for the
bonds, we have more than once gone into the market in order to
afford apportunity to such people as may want to sell, or as are com1jelled to sell, within the limit of proper prudence and within the
imit of our ability, for them to do so.
Senator BARKLEY. If this question has already been asked and
answered, all right; but to make sure I should like to ask: Mr. Kahn,
to what extent does this moral obligation that you feel under, and
likewise does it apply to other houses which manage the distribution
of bonds; to what extent does that moral obligation actuate you or
any other houses, in the hope or wish or in your advocating tfiat the
payment of these Government obligations be lightened up to the extent that it may make it easier for those bonds which have been distributed by your house and other houses, to be paid promptly ?
Mr. K A H N . If I properly caught your question, Senator. I should
say that to define the extent is almost an impossible undertaking. Wc
are human, and being human, I suppose we are actuated by ordinary
human motives*, one of the motives being to do what we can to discharge our moral obligations; and another motive, I hope? being not
to discharge them at the expense of somebody else. I think that is
just as strong and decent a human motive as tlie other. Another one
is to do what we can as American citizens to be helpful in the existing
distressful situation, which is one that concerns not only the banker
but as well the farmer, the working man, the consumer, tlie producer;
in short, all of us. We are in the same boat. If ever a banker was
called upon to divest himself of any banking prejudices, and to give
the best, the most unbiased, the most impartial advice he is capable
of, that time is now. I am quite sure we all feel it. I am quite sure
£hat in advising to the extent we may be called upon to advise as to
the attitude 01 our Government in economic and financial affairs
>*here the banker's interest is indirectly involved, we are honestly
peeking to divest ourselves of our banking prejudices to the extent
that they may exist.
136
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
Senator JOHNSON. Mr. Kahn, conceding that to the full—and there
is no disposition on my part to question it in the slightest—nevertheless there is the banking prejudice that you described by which
the securities you put out you want to see retain the value at least
that you sold them for to the public, I take it.
Mr. KAHN. Very naturally.
Senator JOHNSON. And if legitimately and within your duties as
you have described them, you can maintain the price of those securities as you put them out, of cours you do it.
Mr. KAHN. Yes; but may I amend my assent to this by saying,
not maintain the price but maintain the value.
Senator JOHNSON. Maintain the value.
Mr. KAHN. Yes. Those bonds are held by hundreds of thousands of American citizens. They are not held by banks mainly;
they are not held by rich men mainly; but they are held by hundreds of thousands and probably by millions of American citizens.
Senator JOHNSON. Could you tell me what banks, if any, hold
foreign securities at the present time?
Mr. KAHN. I do not know. Not having access to the portfolios
of the banks, I am unable to answer that question definitely, but 1
will say that I do not think many foreign bonds are held by our
principal banks. I think they are very widely distributed.
Senator JOHNSON. All right. Now, would that apply to longterm and short-term foreign credits?
Mr. KAHN. It would not apply to short-term foreign credits. I
doubt whether there are any great quantity of long-term foreign
credits in existence.
Senator JOHNSON, DO I understand you to say that so far as your
knowledge extends the banks are not holding short-term foreign
credits?
Mr. KAHN. Indeed, they do; yes.
Senator JOHNSON. YOU say they do?
M r . KAHN. Y e s .
Senator JOHNSON.
And they hold them to a very large extent,
do they not?
Mr. KAHN. "Very large" is a relative term. I think the total of
the short-term credits which have been extended abroad is not
relatively—and,, by "relatively5' I mean in relation to the total
resources of the country—a very large sum. I stated this morning in coming down here, if I may be permitted to make a remark
of that nature, that if the World War had continued one month
longer than it did—and we all expected it to continue five or
months longer, for the best authorities thought the war was going
to end in the spring of 1919 instead of in the autumn of
the war had continued one month longer we would have spent as
much and probably more in that one month than the entire amount
which we have placed in Germany in bonds and credits.
Senator COUZENS. I have seen in an article by Mr. Frank Simonds
the statement, and I believe it was on yesterday, that there W®
$2,800,000,000 of securities that Germany had out in all countries.
M r . KAHN. Y e s .
Senator COUZENS. And that it was much larger than it was generally considered to be;
SALE OF FOREIGN BONDS Oil SECURITIES
137
Mr. K A H N . That is in all countries. That seems to me perhaps
an additional justification for what the American banks did m
making short-term loans and in giving credits to Germany. England
was living right across the street so to speak from Germany. She
had an age-old prestige for judgment and wisdom in the matter of
international financial borrowings. We were perfectly justified in
following in our judgment of what was reasonable banking practice
the example of a wise old nation like England, being right there,
and of a wise old nation like Holland, being next door to Germany,
who in proportion to their resources gave larger short-term credits
to Germany than America did.
Senator JOHNSON. NOW, right there, Mr. Kahn, will you state how
much short-term credits arc held in America?
Mr. K A H N . M V estimate, Senator Johnson, is that it is somethingin excess of $000,000,000.
Senator JOHNSON. Exactly ?
Mr. K A H N . Which I do not consider an exorbitant sum for a great
creditor nation to extend as an accommodation to an intelligent,,
hard-working European nation of the magnitude, ability, and proven
and tested capacity of Germany. It may be locked up for a while,
yes; but that is the ordinary risk of the business. And the granting
of credits for the purpose of facilitating trade and thereby stimulating the entire economic life of all the world, a repercussion of
which is bound to rebound to the advantage of America, the granting
of such credits is a legitmate, natural, old-established bankingfunction.
Senator GORE. Let me ask right there: Mr. Kahn, is there any
essential difference in the character of the security taken by Holland..
England, and the United States with respect to short-term credits?
Mr. K A H N . I beg your pardon, Senator, but I did not catch that
question.
Senator GORE. Was there any substantial difference as to the kind
of security taken in the case of England, Holland, and the United
States with reference to these short-term credits?
Mr. K A H N . None so far as I am aware. It is exactly the same
thing, and we had-—•
Senator GORE (interposing). And the same risk.
Mr. K A H N . Yes: our banks were engaging in the same practices
as they for giving short-term advances and credits. They had the
experience of generations and generations of world traders back of
their action, and I think we were justified in following their example.
And we were justified on behalf of America as a creditor nation
to extend to Germany accommodation within reasonable limits in
order to stimulate trade and to enable them to participate in the
economic life of the world.
Senator JOHNSON. But France did not extend short-term credits
to the same extent, nor long-term credits either, did she?
Mr. K A H N . Well, I think the reason why France did not is of a
political nature, which did not enter into our consideration of the
matter.
Senator COUZENS. Let me ask right there: Mr. Kahn, what would
be the effect of all these short-term and long-term securities if Germany should go off the gold basis?
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SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
Mr. K A H N . Well, that is rather a difficult subject. We have the
case of England, off the gold basis, where thus far that has not affected any foreign obligation of the British Empire. To what extent Germany, if it had to undergo the additional shock of going off
the gold basis, especially after the horrible experience which its people underwent during the period of inflation, to what extent the German nerves would break completely if that additional blow fell, I
am unable to say.
Senator JOHNSON. YOU spoke a while ago to the effect that England's going off the gold basis did not particularly affect the governmental debts.
M r . K A H N . NO.
Senator JOHNSON. I
ask you now what effect Germany going off
the gold basis would have on short-term obligations.
Mr. K A H N . Senator Johnson, England going off the gold standard
has had no effect up to date upon private obligations of the British
Empire in a general way. They are meeting their obligations as
they did before.
Senator JOHNSON. With the reduced pound or the same standard
dollar?
Mr. K A H N . With the gold standard dollar to the extent that the
obligations call for it.
Senator JOHNSON. But these short-term loans made by American
bankers to Germany are payable in gold marks.
Mr. K A H N . N O ; payable in gold dollars, all of them, as far as
I know.
Senator JOHNSON. So that if Germany were to go off the gold basis
your contention is that these short-term credits extended to commercial houses and banks in Germany, would not affect our loans
to them.
Mr. K A H N . I did not say that, if you will pardon me, but
Senator JOHNSON (interposing). I got that impression by your
reference to Great Britain.
Mr. K A H N . I did not wish to convey that impression. Great Britain^ nerves and Great Britain's economic situation are very different from the German nerves and the German economic situation;
and what Great Britain can stand is very different from what Germany can stand. As a matter of fact, Germany to all intents and
purposes is not on the gold basis now, because the essence of the
gold basis is a free flow of gold, which does not exist in Germany.
Senator JOHNSON. Then, that is true of Canada, too.
Mr. K A H N . It is true of Canada for the time being to a limited
extent, yes.
Senator JOHNSON. It is still said that Canada continues on the
gold basis when as a matter of fact she is not on the gold basis
so far as a free exchange of gold is concerned,
Mr. K A H N . They still say that Germany is on the gold basis,
when as a matter of fact Germany is on the gold basis for the
purpose of measuring values, but is not on the gold basis for the
purpose of internationality for the time being. What would be
the effect if Germany slid "off the gold basis I am not prepared to
-say.
Senator JOHNSON. It would not be helpful to American credits.
M r . K A H N . NO.
SALE OF FOREIGN* BONDS OR SECURITIES
139
Senator BARKLEY. The psychology of the situation would be bad
to say the least.
Mr. K A H N . Yes; particularly as to the possible psychological
effect upon the German people themselves if they look back at the
horrible times they went through when they were off the gold
standard before.
Senator COUZENS. But isn't that the difference between what they
call control of paper currency and what happened in Germany
where it was a case of uncontrolled paper currency?
Mr. IVAHN. The question is. To what extent can you control paper
currency?
Senator COUZENS. Well, it has been demonstrated that some
of these countries are controlling paper currency, otherwise they
would not be getting on as they are since they went off the gold
basis.
Mr. K A H N . Well, one of the countries, the principal one, indeed,
being England, which is particularly distinguished by steady nerve,
by stability, by coherence of its population: a tight little island
where you can get a message and establish contact and direction
around* the whole of England, Scotland, and Wales in a very
short time, it is relatively easier for Great Britain, with her racial
qualities and her position and condition, to manage a paper currencj*
than any other country.
Senator COUZENS. 1)O you think America could manage a paper
currency ?
Mr. IVAHN. I think America has pretty well demonstrated in the
past that she can deal with any necessary task that she is called
upon to face. She has met great difficulties, and she has met them
and faced them well, and I have every confidence that, if she had.
to face that difficulty, she would face it as well as England is facing
it. But it is a very difficult and hazardous thing to manage a paper
currency.
The very purpose of a gold currency is to make it as difficult as
possible to get undue inflation, by establishing a medium, long
tested in the history of the world for its suitability and relative
stability, by which the volume and value of currency are regulated
automatically, something which Sir Kobert Home recently termed
" a metal anchorage.9'
Of course, it does haye itsfluctuations,nevertheless—indeed too
much so—and it is worthy of serious consideration what can and
should be done to preserve greater stability of values as measured
by ^old. But when you have a paper currency, the only definite
limitation that I know of is the self-restraint of the people and
the governments. I know of nothing which has been tested in
actual experience that has power, in the case of a paper currency,
positively to safeguard the people against the hazards and the almost inconceivable evils of an excessive use of the printing presses
for currency, as we have seen in the case of the inflation period in
Germany some years ago.
The subject is very much alive now, especially in England. They,
or some other country, may conceivably succeed in inventing a safe
and fool-proof " managed " currency, but it remains to be proven.
Senator COUZENS- Is it not conceivable to you that with the pres
140
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
ent high value of the gold dollar these debts will never be paid on
that basis?
Mr. KAHN. It is conceivable. That embraces, of course, the entire
question as to what should be done with these debts, both in the
wav of reparations and of debts due America.
Senator COUZENS. Well, outside of that, take our domestic debts;
the Federal Government, the State and municipal debts, in my
judgment, they can not be paid off at the present high value of the
gold dollar. And I am wondering whether you believe they can
can be paid at the present high value of the gold dollar?
Mr. KAHN. "Never" is a long time, Senator. Most debts are
not paid off, but renewed. Nature has a way of adjusting things,
and by the time these debts have to be paid cff or renewed presumably the extraordinary tension will have passed away.
Senator COUZENS. I understand that many, many debtors are unable to get extensions; the banks are unable or unwilling to give
extensions. That is one of the difficulties, that the credit of the
debtor is being impaired by the high value of the gold dollar that
he owes, and the creditor is trying to get liquidation at the present
time at the high value of the gold dollar.
Mr. KAHN. That is where the great advantage comes in of a corporation in the nature of the War Finance Corporation, which is
essentially a device to protect the debtor. And rightly so; rightly
so. I think the debtor is entitled at this time to all the protection
that the Government and the moral sense of the community can
throw around him. I think it is a wicked thing to compel the debtor
in extraordinary times like these, in the face of which he stands
helpless to deal with them, it is a wicked thing to go to extreme
measures, but it should be made possible for him to tide things over.
That can be done most effectively by the temporary aid of the Government. It should be done, as far as possible, bv everybody else.
It should be done to the extent that that is possible by the banks.
And the public can and should aid, amongst other ways, by refraining from putting an unreasonable strain on the banks. I think the
names of men who wantonly hoard money and thus make the problem
of the banks still harder ought to be publicly announced in these
times. I think we all must stand together to prevent the whole
country from being unduly damaged by the extraordinary emergency
which, I am wholly confident, can be and will be overcome, but
which, for the time being, no one individual is capable of dealing
with, and no debtor ought to be called upon to deal with alone, as
far as his own affairs are concerned.
Senator COUZENS. If you do not care to answer this question, I
will not press you for an answer. Is it your opinion that Germany
can ever pay off the enormous amount of money she has borrowed
for her Government, her municipalities! and her industries)
Mr. KAHN. In the long run, Senator, I think almost anything can
be done where there is a will. Germany has demonstrated in the
past such an extraordinary capacity for hard work, for mastery
of difficulty, arid for self-control, that unless she is driven to a point
where her nerves crack, to the point of helplessness and despondency
I think she will ultimately pay her debts. By paving her debts, 1
mean the private debts, the municipal debts, the (Government debts
that the Government owes to private individuals.
SALE OF FOItEIGN BONDS OH SECURITIES
141
I do not wish to be understood as making any forecast in the way
of reparations, for (hat opens up an entirely different chapter; that
opens up. among other things, the chapter of the allied debts to
America.
Senator COUZENS. Yes; but would you feel it was a good loan
now? Would your house underwrite another loan to Germany now?
Mr. KAHN. At this moment; no.
Senator COUZENS. YOU would not?
Mr. KAHN. At this moment we would feel that our responsibility
to those who look to us for investment guidance would not justify us
in making another loan to Germany until this present economic turmoil has been adjusted and straightened out.
Senator COUZENS. Could you estimate the good that was done to
Germany by this one year's moratorium proposed by_ the President?
Mr. KAHN. I believe it was an absolutely vital thing at the time.
Senator COUZENS. You say at the time?"
Mr. KAHN. A t the time; yes.
Senator COUZENS. Did it accomplish its purpose?
Mr. KAHN. It accomplished some of its purpose.
Senator COUZENS. It did?
Mr. KAHN. It avoided a complete and unexpected financial collapse. It gave time for the world to adjust itself to a situation
which is serious enough as it is, but which would have been infinitely
more serious if it had broken with such catastrophic suddenness
Senator BINGHAM (interposing). Mr. Kahn, if .you will pardon
me, I am sure you misspoke and used a word you did not intend to
use. You said it accomplished a catastrophic result.
Mr. KAHN. It accomplished the avoidance of the catastrophic
result. I think it did a great deal of good and if it could have gone
through with the prompt and universal^ acclaim and acquiescence
that originally seemed to be indicated, it would have been of incalculable value. As it is, it was of great value.
Senator COUZENS.
June, 1931?
IS
Germany worse off to-day than she was in
Mr. KAHN. Intrinsically, no. Actually,yes; but intrinsically, no.
According to appearances——^
This, perhaps, gives me a legitimate opportunity, Mr. Chairman, to
say one word as to something which was said in another place. I
should like to state very emphatically—probably it is not necessary
to say it—that no member of my firm; no one connected with my
firm, had anything to do whatsoever with the granting of the
moratorium; with any attempt to influence the President to take the
step he did, or with any kina of propaganda whatsoever. No member of my firm is or ever has been, nor is my firm in any contact with
any foreign government, except to the extent—and the extent is
rare—in which we do business with foreign governments. I want
to say it as emphatically as I can that any allegation which connects
ijns in the remotest manner with the conception, the negotiations, or
proceedings concerning the moratorium or with President Hoover's
decision and action in the matter, is utterly and outrageously
unfounded.
The CHAIRMAN. Will you proceed, now?
02928—51—PTl——10
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SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
Mr. K A H N . I would like to add, if I may, one word to deny the
allegation connecting Mr. Paul Warburg with my firm in this matter. Perhaps it may be worth while to mention that Mr. Warburg,
in the last election, supported Governor Smith and not Mr. Hoover.
Senator L A FOLLETTE. Mr. Kahn, before you take up any more of
those loans, and recurring for a moment to the long-time foreign
obligations, if I understood you correctly you said that while you
liad no access to the portfolios of the banks, you were under the impression, from your general information, that the banks and their
investment affiliates did not hold any substantial amount of these
long-time obligations of foreign governments or foreign corporations. I wanted to ask you whether you wanted to include in that
statement the situation of the smaller banks scattered throughout
the country, or whether you were referring to the larger metropolitan
banks to any extent?
Mr. K A H N . I am referring, Senator, to the larger metropolitan
banks, with whose affairs I am more familiar.
Senator L A FOLLETTE. Have you any impression, from your general knowledge, as to whether or not there are any substantial
amounts of foreign securities in the portfolios of the banks not
metropolitan in character?
Mr. K A H N . I have more than a general impression, Senator; I
know that, quite naturally and legitimately, a great many of the
country banks were attracted by the higher rate of interest obtainable
from these foreign loans at a time when money here was very difficult to place, and considering them to be sound and safe investments,
I believe that quite a number of them did buy and still hold a substantial portion of these foreign securities.
Senator L A FOLLETTE. Have you a general estimate—and I realize
it would have to be a very general estimate—as to the total amount
of the securities of foreign governments, or political or civil
subdivisions thereof, and corporations or associations, which have
been floated in this country during the past two years are now in
default?
Mr. K A H N . In the case of Germany there are hardly any in default In the case of South America and Central America, unfortunately the great majority are in default.
Senator L A FOLLETTE. M r . Sloan, of the Standard Statistics Corporation, testified before another Senate committee that in his judgment, and qualifying it by saying that it was a very rough estimate,
in October he estimated that there were $261,000,000; approximately,
of such securities in default that had been sold m this country.
Would you say that that estimate was approximately correct at that
time ?
Mr. K A H N . I should say it was an underestimate.
Senator L A FOLLETTE. What would your best judgment be in
answer to the question ?
Mr. K A H N . That would be guessing, Senator, but I could verv
easilyfindout by making a list of such securities as have been issued
here, and such securities as are paying now.
Senator L A FOLLETTE. Will you furnish that and insert it in your
testimony at this point?
Mr. K A H N . Gladly.
SALE OF FOREIGN BONDS Oil SECURITIES
143
(The statement referred to was furnished by Mr. Kahn. See
appendix.)
Senator REED. Mr. Chairman, I would like to follow up a subject that Mr. Kahn brought upon his own account.
Mr. Kahn, it was stated on the floor of the Senate last week that
you and your firm helped to elect President Hoover. Is that
correct!
Mr. IVAIIN. Some of the firm voted for him. undoubtedly.
Senator BARKLEY. I clo not think any man should be compelled
to incriminate himself.
Senator REED. Let me follow this matter up. I am most serious
about it.
And it was also stated that having helped to elect Mr. Hoover,
that you suggested the moratorium: that the suggestion came from
you. " Is that true ?
Mr. IVAIIN. Senator, that is a falsehood without the remotest
basis in fact whatsoever.
Senator REED. Did you suggest the moratorium?
Mr. K A H N . We never suggested it.
Senator COUZENS. He has already testified to that.
Mr. K A H N . We had no knowledge that the moratorium was
coming. I deny that we suggested it, and I deny every implication
that is attached* to it.
The CHAIRMAN. Mr. lvahu, is it not true that these foreign bonds
purchased by many, many of the banks throughout the country,
were purchased for their customers, and the individual customers
of the bank who originally purchased those bonds are holding them
to-day
Mr" K A H N . Yes, sir. To an extent.
The CHAUIMAX. SO all the bonds that were purchased by the
small banks of the country, they can not be in the banks to-day,
because of the fact that they were purchased by those banks for
their customers ?
Mr. IVAHN. A great many of them. Others were bought by the
banks for their own investment.
The CHAIRMAN. X O doubt there were some.
Mr. K A H N . For a secondary reserve.
Senator LA FOLLETTE. A S a matter of fact, Mr. Ivahn, were not
some of the smaller banks of the country carrying those bonds
as a secondary reserve ?
SIR. IVAHN. That is my impression; yes.
Senator LA FOLLETTE. And my information is that that practice
grew very rapidly prior to the depression because the banks considered them to be very liquid.
M r . KAHN. Yes.
Senator L A FOLLETTE.
And that also, according to my information, in selling those bonds to their customers, the smaller banks
have often loaned money to the customer with those bonds for
security; and under such circumstances, where the individual purchaser has not been able to meet the note the bank has had to take
the bond back for its own security.
Mr. K A H N . I think that is quite correct, Senator.
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SALE ' OF'FOREIGN=BONDS Ob SECURITIES
Senator CONNALLY. Let me ask you this question, Mr. Kahn:
Do you or your institution hold any stock in any banking institution in Germany?
M r . KAHN. NO, sir.
Senator CONNALLY. None whatever?
M r . KAHN. NO, sir.
Senator CONNALLY. It has been reported
that your firm last year
bought an interest in some German banks.
Mr. KAHN. There is no truth in that. I have seen it in the papers
myself. There is no truth in it.
Senator BARKLEY. Mr. Kahn, coming back to the foreign obligations
Senator SHORTRIDGE. YOU mean the European obligations?
Senator BARKLEY. The European obligations which may be involved in the moratorium—I make no assuption, of course—but if we
were justified in assuming from the economic conditions now or in
the future that those public and private obligations could not be paid,
is there any concensus of opinion in the banking world as to which
should have priority; the loans in the United States or the loans in
the governments of Europe ?
Mr. KAHN. Senator, may I sayfirstthat privately held bonds—that
is, loans issued by cities and corporations in the snape of long-term
bonds—are not generally speaking, as yet under any moratorium.
They are paying their interest and sinking fund and have done it
right along. As to whether the governmental claims or private
debts should have precedence, one necessarily can only express an
opinion, which is subject to controversy and subject to error. My
own belief is that the essential thing is to keep the economic life of a
country going, because the Government would very soon find itself
out of funds unless the economic life is going. In order to keep the
economic life of a country going, in order to pay taxes, in order to
enable it to do its daily work, the sanctity of contracts must be protected to the limit of what is possible.
It is of less importance that one government pay another government to the minute and upon the day what it owes, if it can by
mutual consent secure a. postponement, than that the confidence of
the ordinary investor or the ordinary individual dealing in one
country with another individual in another country, or the business
man dealing with another business man should riot be exposed to
profound shock as to the faith and credit of the community in other
countries. And I think the economic life of all countries is so interwoven that the economic prosperity of one country is bound, in one
way or another, to have its repercussions here. It does not necessarily mean that that country will buy goods and chattels here
directly; it does mean that the economic capacity of that country will
be increased iri one way or another in the direct or indirect ways,
and that will favorably react upon the economic condition of Americ, and those repercussions will reach here. It will help her cotton;
it will help her wheat; it will help her copper; it is bound to do so.
Now it seems to me it is a question primarily of expediency; of
figuring out in what way will a postponement, if it is found
necessary—and that is a question of examination; that is a
SALE OF FOREIGN BONDS Oil SECURITIES
145
question of research and of unbiased and hard-boiled judgment—to
what extent will a postponement, if found inevitable, be of least
damage to the United States, to the people of the United States and
to all the world, and to that confidence which is the most essential
thing upon which the trade of the ^world rests. My personal belief
is that the maintenance of the sanctity of contracts between man and
man is an absolutely vital thing for the economic life of every country and that no government can go on and be capable and potent
unless it has behind it a capable and potent and solvent country.
The direct resources of a govcrment are drawn not from the air but
from the labor, the enterprise, and the capacity and the honesty of
the people over which it rules.
Senator JOHNSON. YOU are saying, then, Mr. Kahn, in short,
that you think private debts should take precedence over governmental obligations f
Mr. K A H N . If a choice must be made, I should say they should
either take precedence or they should, at least, be put on something
slightly better than a parity."
benator JOHNSON. We liave listened to all the argument you
have just made, which was very enlightening, of course. Was not
that for the purpose of demonstrating that private obligations should
take precedence over governmental obligations?
Mr. K A H N . I do not say it was for the purpose, Senator. I did
not volunteer any information. I was asked the question, and in
response to that question I gave the answer.
Senator JOHNSON. I am not quarreling with it. I am delighted
to hear the answer. But I take it you were trying to demonstrate
that private obligations should take precedence over the governmental obligations.
Mr. K A H N . I was saying, and I can not say it in any other
way
Senator JOHNSON, (interposing). Are you not able to answer
directly a question of that sort? Do you believe that private obligations should take precedence over governmental obligations?
Air. K A H N . That is putting it in rather a harsh way, Senator,
and I would like to avoid answering it in that way.
Senator JOHNSON. It is putting it in a plain way.
Mr. K A H N . It is a situation that does not now confront us, and
I would like to avoid giving a hypothetical answer as to a hypothetical situation.
Senator BEED. Let me ask you something about a matter that does
confront us. The German (Government owes this country nothing,
except the occupation costs.
M r . K A H N . Y e s , sir.
Senator HEED. The French Government owes us a
Mr. K A H N . DO you see any lack of a capacity
great deal.
in the French
Government to pay its debts to the United States?
Mr. K A H N . I see no such lack of capacity.
Senator REED. Then you do not advocate any cancellation of the
debt that France owes to us, do you ?
Mr. K A H N . I have never advocated the cancellation of the debt.
I have stated in public—and I am on record to the effect—that
146
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
if ever a nation is entitled to get its money back, the United States
from the point of view of justice was entitled to get her war debts
back at the figures mutually agreed upon. We went into the war—
the Allies called us Crusaders—and we did our full share, God
knows. We asked for none of the spoils, and we got what we
asked for—none.
Senator COUZENS. Why do you call them war debts? As a matter
of fact, all the war debts have been canceled, and these are postwar debts.
Senator REED. So far as France is concerned.
Mr. K A H N . Yes, though it has never been so stated and understood in Europe.
Senator REED. I would like to ask .you, Mr. Kahn
Mr. K A H N (interposing). May I finish this. Senator, if you will
pardon me? It seems to me that in plain justice, in ethics, we have
not a thing to apologize for in saying we want our debts paid. We
did our full share. But I do not think that it is merely a matter of
justice; it is now largely a matter of expediency, and I think it
should be dealt with as a matter of expediency. And that, also,
answers Senator Johnson's question. It is what at the moment is
the most expedient or' the wisest thing for America to do. In that
I put America first. I feel convinced that what is best for America
to do is also best for the world. At the present juncture, if ever,
the repercussion of the troubles of one country upon the other is
strong and inevitable: the repercussion o(f the prosperity of one
upon the other is strong and inevitable.
I think what we should do, inasmuch as the question has been
asked, and if I may say so without impropriety, is to ascertain most
diligently in what "way, while maintaining the'justice and the right
of our cause; and without apologizing for what we claim and are
rightly entitled to—in what way can we best serve that interest,
which is both the world's interest and our own ?
That is a very large question. It involves considerations not
merely of afinancialbut of a political nature. It necessarily and
rightly belongs mainly to statesmanship, and with all due respect,
Senator Johnson, I do not believe I should be called upon to answer
it categorically, because it is beyond the province of a banker to
express himself categorically concerning a subject involving so many
elements which are not of afinancialnature.
Senator REED. NOW if I may be permitted to carry 011 the questioning for a moment, I want to ask you some questions that do
come in the province of a banker.
You understand I am not talking about the moratorium of this
year, but the suggestion that has been made so often, that we ou«rht
to abate our claim against France in order to do this thing which
you say is practically necessary and a wise thing, for her to abate
her claims against Germany.
Mr. KAHN. Yes.
Senator REED. NOW
that is wiiat I want to ask your opinion on
as a banker. You say you see no evidence of a realization in Europe
that we have, in effect, canceled all of our war debts in France.
M r . K A H N . Y e s , sir.
SALE OF FOREIGN BONDS Oil SECURITIES
147
.Senator RI;KD. And that what we are claiming from France now
is merely the repayment, in effect, of those advances we made after
the fighting was over.
Mr. KAHN. Yes.
Senator REED. T O
enable her to buy foodstuffs and materials
which constitute her economic life.
Mr. IVAHN. That is true, but they do not know it.
Senator REED. They do not know it abroad?
M r . IVAHN. NO.
Senator R E E D . N O W . Mr. Ivahn. as a banker do you think it is
practically expedient or limvsary for us to make any further surrender to France, in view of her capacity to pay. in order to buy
her to do the prudent anil wise thing toward Germany? I)o you
think that is necessary ?
Mr. K A I I N . Senator, may I not include in NIV answer to that the
general statement that I have made, that from the point of view of
abstract justice I think we have a 100 per cent case—a 200 per cent
case; I think we have been generous beyond precedent, almost. Perhaps I may qualify that general statement somewhat in the case of
England, which country I believe is entitled to have a good word
said for her. They were the first to step up to the captain's desk
and say. " We owe you a debt. Give us the best terms you can."
They have paid us thus far at a much higher rate of settlement than
any other nation, and their attitude toward the whole subject of
liquidating the financial consequences of the war has been broadminded. As a general proposition, I think, as I have said before,
it is purely a question of ascertaining what is the most expedient
thing for us to do, leaving the matter of sentiment, or abstract justice, in abeyance for the time being, and finding a plain and convincing answer to the query: How can the world, including America,
best get out of the mess that it is in now i
Senator REED. The European formula is very simple to get out
of the mess, and that is by laying it on America. You do not subscribe to that, do you?
Mr. K A I I N . I do not subscribe to that, Senator.
If it were possible to find a way by which all these reparations
and war debts, which hang around the neck of the world like a millstone, could be taken out and sunken in the deepest depth of the
ocean, I should welcome it unqualifiedly. But there is no such way
that I can devise or have ever been able to devise, bearing in mind
all the elements of the case. And inasmuch as I do not believe any
one has suggested a feasible way. the next best thing is to very calmly
and with great self-control, and great self-restraint, though with a
little swearing and cussing beneath our breath, to try—without letting ourselves be driven—-to evolve something else which will come
as near as possible to being a really helpful and effective action toward a solution of an almost unprecedented situation, when almost
everybody's nerves are on edge, and some are nearly frazzled. But
that, I am bound to repeat, is not primarily a financial problem,
though, of course, the financial question enters.
Senator SHOUTRIDGE. One question, Mr. Kahn. This country has
outstanding many billions of dollars in debts.
M r . KAHN. Y e s , sir.
148
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
Senator SHORTRIDGE. NO banker or statesman, or alleged statesman,
here or elsewhere, has ever suggested any way by which Uncle Sam
could scale down those debts, nor has any such person suggested
repudiation by our country.
M r . K A H N . NO.
Senator SHORTRIDGE. We propose to pay as we have agreed to pay.
M r . KAHN. Y e s , sir.
Senator SHORTRIDGE. And you hold, as I gather it, others should
absolutely likewise observe their legal and moral obligations?
Mr. K A H N . Certainly, Senator. Anything that may be done in
possible mitigation of those obligations can be done, honorably, only
by mutual consent, based upon the recognition of the existence of
a grave and compelling emergency.
Senator SHORTRIDOE. And by consenting to a year's postponement
of the debts due us from them, there is to be drawn no inference of
any willingness on our part further to extend or cancel the amounts
due or to become due to us under constitutionally executed contracts?
Mr. K A H N . I think we should deal with that situation as and to
the extent that pressing and manifest emergency arises from time
to time.
Senator SHORTRIDGE. But there is no inference to be drawn, by
consenting to a postponement now, that we will not go forward and
expect and ask that payments be made according to contract?
M r . K A H N . NO, s i r .
Senator SEED. And
you do not think a temporary emergency
justifies a permanent reduction of those debts?
Mr. K A H N . I do not, Senator.
The CHAIRMAN. Mr. Kahn, you have explained three loans during
this morning hour. On this afternoon the committee can not meet
to hear your further testimony. If it is not too much to ask, could
you be here to-morrow morning at 10 o'clock?
Senator JOHNSON. Mr. Chairman, will you permit a brief statement on my part in that regard?
T h e CHAIRMAN. Y e s .
Senator JOHNSON. I know
nothing about what the procedure is to
be upon the floor to-day. I do know that there is no disposition
upon my part tofilibusterregarding the moratorium. I do, however,
intend to present my views to the best of my ability; and I know of
others who would like to do likewise. It seems to me, from the
statements I have seen in the press—and I do not know whether they
are accurate or not—they quote Sir. Watson, the Republican leader,
to the effect that we should be kept in continuous session, maybe all
night, and with that in view, I should hope that this investigation
might go over until after to-morrow.
The CHAIRMAN. I shall ask the other two witnesses whether we
can hear them at a later time.
Senator WALSH of Massachusetts. Do you favor suspending until
after the recess?
Senator JOHNSON. I do not favor it, and I am willing to go on.
But, assuming that we meet the situation to-night such as has been
expressed in the press, it is not just to bring us here at 10 o'clock
to-morrow morning under the circumstances.
SALE OF FOREIGN BONDS Oil SECURITIES
149
Senator WAI.SU of Massachusetts. We can not finish with this
witness.
Senator Joiixsox. No. So may I appeal to the committee to let
to-morrow pass bvif The day after that, or the day following,
or the week following, or any time will be agreeable.
Senator GORE. Senator Johnson, are you concerned to have the
investigation go on after the moratorium'is acted upon?
Senator JOHNSON. Oh, yes; I do think the investigation should
go on.
Senator GORE. It will then be largely a post-mortem.
Senator WALSH of Massachusetts. Ilow many days do you think
it will take?
Senator JOHNSON. Four or live days.
The CHAIRMAN. Unless we make better progress than we have
made so far it will take longer than that.
Senator GORE. Yes; I think so.
Senator KEED. I move, Mr. Chairman, that we stand in adjournment until January 4.
Senator JOHNSON. I have no objection to that, so far as I am
concerned.
Senator SHORTRIIXJE. What was the purpose of this investigation?
Senator JOHNSON. Of course, the purpose was to get information
that might be utilized on the <juestion of the moratorium; and also
the effect of foreign securities in this country.
Senator WALSH of Massachusetts. And remove misconceptions
about dealings with them.
^ Senator SHORTRIIX;E. I was in hopes that we couldfinishthe investigation on this resolution before we passed 011 the moratorium.
That was the purpose of the resolution.
Senator JOHNSON. 1 will say to my colleague that was the purpose
of the resolution, or one purpose, but I think the investigation should
go 011. And what are we going to do if we stay in session all night,
as has been indicated in the press?
Senator COUZENS. I suggest, Mr. Chairman, you put the motion.
The CHAIRMAN. The motion is that the investigation be postponed
until January 4.
Senator L A FOLLETTE. Mr. Kahn, have you totaled these sums
on those sheets so that you could give the total before you go? The
total amount floated, and the totai profits
Mr. K A H N . Yes, Senator, as to the total amount floated.
Senator GORE. Would it not be a good idea to have Mr. Kaliirs
statement Printed in full, the whole statement, and have it in the
record, and the Senators can examine it during the recess?
Senator COUZENS. Mr. Chairman, Senator Gore makes the sugfestion that Mr. Kahirs statement be placed in the record and it can
e examined before we come back after the holidays.
Senator L A FOLLETTE. Can you give that before you go?
M r . KAHN. Yes.
Senator L A FOLLETTE. Would you do that before the recess?
The CHAIRMAN. Without objection, that will be done.
Senator SHORTRHXJE. Then I object,! for the time being.
Senator BARKLET. Mr. Chairman, Mr. Kahn was in the act
answering a question, which will take only a little time.
of
150
SALE ' OF'FOREIGN=BONDS Ob SECURITIES
The CHAIRMAN. YOU ma}* answer the question, Mr. Kahn.
Mr. KAHN. My firm issued or participated in issuing a total of
$1,136,000,000 of "foreign investments. We ourselves originated and
managed $557,570,000.
Senator REED. That is included in the first total that you gave us?
Mr. KAHN. Yes; we participated with J . P . Morgan & Co. in the
placing of $559,000,000. That is, in the total amount of $1,136,000,000. Of the $577,000,000 which we originated, about $200,000,000
has already been repaid or called for repayment, leaving outstanding
about $377,000,000.
Senator REED. I call for a vote on the question.
Senator GORE. Have you handled any German bonds this year?
Mr. KAHN. This year? No, sir.
Senator GORE. National, State, or private?
M r . KAHX. NO, sir.
Senator LA FOLLETTE. YOU
were about to make some statement
relative to the second question.
Mr. KAIIN. A S to the profits on that transaction, I have not got
the complete details with me.
Senator LA FOLLETTE. Will you furnish it for the record ?
Mr. KAIIN. I will try to furnish it.
Senator LA FOLLETTE. And will you, also, please furnish for the
record a statement of the general considerations wliich your house
takes into view before }7ou negotiate finally one of these foreign
loans; and also a statement as to the amount of investigation which
you make of their financial condition ?
Mr. KAHN. Yes; I will be glad to.
(The figures and statements were furnished by Mr. Kahn. See
appendix.)
The CHAIRMAN. All who are in favor of the motion
Senator JOHNSON (interposing). Before you put that, Mr. Chairman, I want to say this for the record: I am prepared to go
ahead with this investigation at any time and under any circumstances. I have suggested that these two days be set apart because
of the statements that have been made bv the" Republican leadership
as to the Senate being kept in continuous session after it meets to-day.
I want that distinctly understood.
Senator REED. I call for the question.
The CHAIRMAN. All who are in favor of the motion will signify
by saying aye. Contrary, no. The ayes have it, the motion is
carried.
Senator SHORTRIDGE. Mr. Chairman, I want this to go into the
record, that quite apart from the moratorium, I think it is advisable to resume as quickly as possible and finish this investigation
pursuant to the resolution introduced by my colleague and, therefore I object to a long continuance.
The CHAIRMAN. I would like to say to Mr. A Id rich and Mr.
Kahn and Mr. Dillon, we will expect you here on the morning of
January 4,1032, at 10 o'clock.
(Whereupon, at 12.05 o'clock p. m., on Monday, December 21,1931,
an adjournment was taken until Monday, January 4, 1032, at 10
o'clock a. m.)
APPENDIX
W H O BUYS FOREIGN1 BONDS?
BY DWIGHT W, MORROW, January, 1927)
(Reprinted frum Foreign Affairs, an American Quarterly Review, 25 West 43d Street, New York]
A few months ago I was reading a Chicago Tribune on the train. With some
surprise I found recorded on the financial page the listed priccs of 128 different
italics of foreign bonds. 1 have a great respect for the judgment of the newspaper*. They print the news that they think people are interested in. When I
noticed that this great newspaper which serves the Middle West was recording
daily market transactions in 128 different issues of foreign bonds, it seemed to me
a fact of some significance. I found myself speculating as to the number of
issues of foreign bonds which had been quoted by the Chicago Tribune in the
edition published exactly 10 years before the date of the paper which I was reading.
I subsequently learned from the editor that the number was six. T h e comparision
between the number of foreign issues quoted then and now is an interesting commentary on what has liappened in the field of foreigti*bond investment in the
past 10 years.
Examining that long list of 128 foreign bonds in the Tribune, I discovered that
government, municipalities or corporations of some 30 different countries were
represented—countries scattered all over the world. T h e list included the countries of our own hemisphere, Canada, Cuba, Brazil, Argentine, Chile, Peru, Bolivia,
Uruguay; nations abroad with whom we fought and against whom we fought,
Great Britain, France, Italy, Germany, Austria, Hungary; governments in the
Far East such as Japan and the Dutch East Indies; and cities as widely separated
as Copenhagen and Montevideo, Tokio and Marseilles.
The contemplation of the extent and variety of America's investment in foreign
bonds, gives rise to three questions: W h o buys these bonds? W h y do they buy
them?
What do they get when they have bought them?
Who buys foreign bonds? This may seem to be an easy question to answer,
but it is not. When a foreign loan is offered to American investors, the managing
house in New York, or Boston, or Chicago enlists the cooperation of perhaps
five hundred or a thousand investment bankers scattered all over the United
States.
It is the function of the local investment banker to find the man or
woman with savings and to show that man that it is to his interest to exchange
his savings for the promise of a foreign government. It is this ultimate saver
who really extends the credit to the foreign government. The managing house
rarely meets the ultimate buyer of the bonds; it is to the five hundred or thousand
investment houses that we must go to find his name and characteristics. These
investment houses have developed their own clientele of investors. T h a t clientele
is changing constantly, dependent upon the character and the ability of the
investment house and*the record for successful judgment that it has established.
Moreover, it is considered somewhat impertinent for one to ask an investment
house to whom the bonds are sold, as such information is carefully guarded. The
local investment bankers have tried to teach certain people to save, and they
expect to attract the future savings of these people by selling them more bonds.
They do not want investigators prying into that part of their business without
a very good reason.
In the summer of 1024 when I was asked to speak at Williamstown at the
Institute of Politics, I tried to find an answer to this question of who buys foreign
bonds. Taking two recent foreign government loans t the issue of which had
been managed by the firm of which I have the honor to be a member, we inquired
of three investment houses doing business in different parts of the country as to
the number of persons to whom thev had sold these bonds. The loans were the
$25,000,000 Austrian Government guaranteed loan and the $150,000,000 I m perial Japanese Government external loan of 1924. T h e results of our inquiry
showed that through these three houses 409 people participated in the Austrian
loan, the average investment of these 4 0 9 people being 52,350. Through the
same three houses, 1,741 people participated in the Japanese loan, the average
investment of these 1,741 people being $3,100.
The results of the inquiry as presented to the students of international relations a t Williamstown seemed to be of interest, and later in 1924, at the request
of the president of the Investment Bankers Association, we extended the inquiry
151
152
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
to 24 houses (still covering only the Austrian and Japanese loans, however).
This investigation confirmed, in a general way, the results of the earlier one.
For one thing, it disposed of the idea that offerings of foreign bonds are taken
solely by wealthy individuals or large institutions. It showed, on the contrary,
that these foreign bonds are being bought by large numbers of persons of moderate
means. The 24 houses had 2,965 customers who made an average investment of
$2,994 each in the Austrian bonds. The 24 houses had 8,211 customers who
bought Japanese bonds, making an average investment of S3,905 each.
Finally in the spring of 1926, we broadened the inquiry by obtaining a similar
analysis of their sales of three additional foreign government loans. The results
of the earlier inquiries might perhaps be subject to criticism by statisticians,
because they covered so few bond issues and because, particularly as to the first
inquiry, so small a " s a m p l e " of the investment houses which distributed the
loans, was taken. But in this: latest inquiry five loans aggregating $380,000,000
were covered. Moreover, the 24 houses sold an aggregate amount of $91,031,800
of these five issues, or about 25 per cent of the total amount. These 24 investment houses who courteously furnished us with the sales analysis which we
sought are located in different parts of the country from Portland, Me., to Portland, Oreg., and from Minneapolis to New Orleans. From our own knowledge of
the character and distributing ability of the investment houses of the country,
we feel reasonably confident that these houses selected for analysis constitute a
fairly representative cross section of the entire group of investment houses
throughout the country.
Our analysis of the sales of these 24 houses covered five separate foreign government loans, the issue of which was managed by J. P. Morgan & Co., alone or
with associates. These loans were offered to the American public within the
past three and one-half years: The $25,000,1)00 Austrian 7"s in June, 1923, the
5150,000,000 Japanese 6J£'s in February, 1924, the $110,000,000 German 7's
in October, 1924, the $45,000,000 Argentine 6's in June, 1925, and the $50,000,000 Belgian 7's in June, 1925. The results of this inquiry are shown in the
table printed on the following page.
This table shows, first, the proportion of each issue sold by the 24 houses.
Nest, is shown the total number of sales and the total amount sold of each
issue by the 24 houses, and the average amount of each sale made b y the 24
houses. If we may assume that these houses constitute an adequate " sample,"
we may extend these figures to cover the entire amount of each issue and obtain
the following results:
Distribution of five foreign government bond issues by $4 representative American
bond houses
$150,000,000'
Japanese $110,000,0001
GovernGerman
ment
externa!
external loan 7 per
loan 6H
percent
percent
bonds
bonds
October,
hands,
1921
June, 1923' February,
2924
$25,000,0001
Austrian
Government guaranteedloan
7 per cent
Proportion of entire issue sold by the 24
bouses
per cent..
Total sales:
Number o! sales
number..
Amount sold *
dollars..
Average amount of each sale
do
Sales $100 to $5,000:
Number of sales
.-..number..
Per cent of total number....per cent..
Amount sold......dollars..
Per cent of total amount.. ..per cent..
Sales $5,100 to $10,000;
Number of sales.......
number..
Per cent of total number
per cent..
Amount so!d.__
.
...dollars..
Per cent of total amount
per cent,
Sales over $10,000:
Number of sales
.number..
Per cent of total number
number..
Amount sold.-L . .
^.....dollars..
Per cent of total amountper cent..
i Part of a larger international loan.
35.5
21.4
115,000,000
Govern*
ment of
the Argentine Nation
external
6 per cent
June, 1925
33.0
2,965
8,211
7,654
3.43!
8,876,800 32,269,200 24,428,300 14,872,500
2,994
3,905
3.194
4,335
2,671
6.052
7,265
9a 1
88.4
90.9
5,579,900 14,170, &00 13*099,900
412
62.9
53.6
2,724
79.4
6,351,500
42*7
600
7.4
5,305,300
1615
433
5.6
Zrbii.m
15.8
532
15.5
4,132.500
27.8
346
87
3.0
4.2
1,533,000 12,633,100
17.3
30.3
3.5
7,481,000
30.6
175
5.1
4,388,600
29.5
207
6.9
1,761,900
19.8
153
SALE OF FOREIGN B O N D S Oil S E C U R I T I E S
Distribution of f.ve foreign government bond issues by 24 representative
bond
houses—Continued
Xame of issue
Belgian 7's.
American
Indicated
total
number
of buyers
Indicated
average
amount
of cach
snle
8,350
38,412
34,440
10,3S1
13,130
$2,944
3,905
3,194
4,335
3,80S
The Above figures confirm those of the earlier inquiries as to the large number
of sales made und the moderate average amount of each sale.
The table opposite next shows a classification of the sales of the 24 houses into
three groups according to the size of the sale made. T h a t we arc dealing with a
multitude of small investors rather than with a few large investors is further
demonstrated by this classification of the sales. It will be seen that from 80 to
90 per cent of the number of sales in the case of each issue were made to investors
whose purchases were limited to $5,000 or less. Only from 3 to 5 per cent of the
number of sales for cach issue were made in amounts over $10,000.
It is clear
that in number the large investors were relatively unimportant.
But the consideration of only the number of small and large investors might
present an exaggerated impression of the importance of the small investor. This
is unnecessary, as he is quite important enough without any exaggerating.
There
is, obviously, a difference between a comparison of the number of small and large
investors and a comparison of the aggregate amounts purchased by each group.
The number of small investors might be very great but a few very large sales
might still result in making the large investor the more important factor in disposing of an issue.
Our analysis of the wiles of the 24 investment houses also covered, therefore,
the aggregate amount of bonds sold to investors in each of the three groups, from
which could be ascertained the ratio which the aggregate amounts sold in each
of the groups bore to the total amounts of each issue sold by the 24 houses.
Examining them, we see that a good deal depends upon where the line is placed
between the small and the large investor. If we draw the line at S5,000 it is
apparent that, while the group of large investors taking more than $5,000 each is
relatively small in number, it is by no menus negligible with regard to its aggregate
purchases of foreign loans. Comparing the two groups, both on the basis of
number of buyers and on the basis of the total amounts of the issues purchased,
we have the following summary from the figures:
Name of issue
Austrian 7 V . . .
Japanese
German
Argentine 6's...
Belgian 7'b.*
Percent
the
Per cent of
total
of the amount
of
total
issue
number tbe
purof buyers chased
who took by buyers
$5,000 or who took
less
$5,000 or
less
Pit cent Per cent
62.9
90.1
44.2
88.4
90.9
53.6
79.4
42.7
86.6
51.4
I present all these statistics with some hesitation because they necessarily are
based upon a method of sampling and I well realize how difficult it is to obtain
representative samples for any statistical work, and how difficult it is to draw
proper conclusions from such samples without danger of distortion.
Having
154
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
made such reservations, however, it would seem reasonable to draw the conclusion from the statistics presented, that more than 85 per cent of the people
who bought these foreign bonds purchased them in small amounts ranging from
$100 to $5,000, and that approximately 50 per cent of the total amount of these
foreign issues was purchased by these small investors.
The investment in these foreign loans represents the savings of the person who
spends less than he produces, and thus creates a fund which he is able to turn
over either to a domestic or to a foreign borrower if he is satisfied with that
borrowers promise. These savers live all over the United States. When wc
talk about the person who is investing in foreign bonds we are not talking about
a great institution in New York or Chicago, or Boston. We are talking about
thousands of people living in all parts of the United States. We are talking about
school teachers and army officers and country doctors and stenographers and
clerks. The man who invests in a foreign bond may be rich or he may be poor.
That is all according to our standard. Fundamentally, however, he is a person
who has saved something, who is doing without something to-day in order
that he or his childien may have something to-morrow. Before he in vests in
the bond he has money which gives him a present command over good** and
services. He is willing to transfer this present command over goods and services
to the borrower, thereby giving to the borrower the right to buy goods and
services. Of course, the investor resumes the command of goods and services
at some future time when he is repaid his loan.
The person who invests in foreign bonds is probably the same person who
invests in domestic bonds. All that the investment banker in a large city or in
a small city does, all that an international banker does, is to gather up little
rivulets of savings and put them at the disposition of somebody who needs the
capital and is willing to make a dependable promise to pay interest upon that
borrowed capital from time to time and to repay the principal at the due date.
The answer to the question about who buys foreign bonds is clear. The purchasers are people all over the United States who are investing their savings. If
the investment in these bonds is helping American foreign trade, it is this saver
of money who should be thanked. If the investment in these bonds is helping
the restoration of the rest of the world to a normal condition, it is this sav*r of
money who is entitled to the credit.
Now, the second question, why did these people lend money to Austria, or
Japan, or Germany, or Argentine, or Belgium? Here, statistics are of little value.
Men have not yet found a method of measuring the motives of other men. In
fact, it is difficult enough to know our own motives. Perhaps, however, we may
be helped in answering our question if we ask another question. Why docs
anybody make an investment in one particular security rather than in another?
The considerations in the minds of most investors are, first, the safety of the
principal and, second, the size of the interest yield. It should be borne in mind
that the investor is the man who has done without something. He has done
without something that he might have presently enjoyed in order that, in the
future, his family may have some protection when he is gone, or in order, perhaps,
that a son or a daughter may go to college. This investor wants to be certain
that he will continue to receive income on the bond which he buys. He wants
that income as large as is consistent with safety. Above all, he wants the principal returned to him on the day of the maturity of the bond.
It can not be asserted, however, that sentiment plays no part in our investments. It does. Many men in this country bought German bonds, after the
successful launching of the Dawes plan, not only because the interest rate was
attractive and the principal seemed secure, but because they felt that they were
thus associating themselves in a fine venture to help Europe back on her feet.
But after all proper weight is given to such considerations as these, the question
of safety of principal and of interest, and the attractiveness of the rate of interest,
remain the considerations uppermost in the mind of a man who has done without
the present use of his own money and is investing that money in order to protect
the future of himself and of his family.
If that be true, how is the investor to form an intelligent judgement as to the
safety of his investment? How does the man in the Middle West, who responds
to an invitation from his investment banker to buy an Austrian or a Japanese
bond, know that his investment is safe? If he should be asked this question, I
think that he would put in the very forefront of his reasons for making the investment the fact that he had confidence in the banker who offered him the investment. After all, the people who buy bonds must rely largely upon the judgment
of the offering houses. They must believe that their investment banker'Would
SALE OF FOREIGN BONDS Oil SECURITIES
155
not offer them the bonds unless the banker believed them to be safe. This
throws a heavy responsibility upon the banker.
He may and does make mistakes.
There is no way that he can avoid making mistakes l>ecausc he is human and
because in this world things are only relatively secure. There is no such thing
as absolute security. But while the" banker may make mistakes, he must never
make the mistake of offering investments to his clients which he does not believe
to be good. Moreover, when a banker directs savings into an investment he
should believe that the borrowed money is to be put to a constructive use. To
the cynic that may sound somewhat idealistic. It is, however, just plain common
sence. No banker who wants to stay in business throughout the years wants to
lend money to people who arc not going to use it for a constructive purpose.
The use to which the money is put is a very important factor in determining the
ability of the borrower to pay his interest promptly and to return, at maturity,
the principal.
An attempt has been made to answer the first two questions: Who buys these
foreign bonds and why do thev buy them? There remains what is perhaps the
most interesting question: What does an investor get when lie buys a foreign
bond? In 1024, 40 persons in a western city put $100 apiece into a Japanese
bond maturing in 1054. What did those people get for their money? They got a
promise. And mark you, that promise was the promise of a group of people
associated together on "the other side of the earth. Moreover, so far as the promise
relates to the payment of the principal of the bond, the promise does not mature
in time to be kept by the particular members of the group who originally made
it. It is a promise designed to be kept by the children of men now living. Yet
somehow or other the banker who offers that bond and the investor who buys
that bond rely upon the j>eople of Japan taxing themselves a generation from now
in order to pay back the principal of that loan to the children of the person who
invests in the bonds to-day. At first blush it is a startling idea. It is particularly
startling at this time when so many people are saying that the various nations of
the earth have lost faith in each other. Here we have printed in a middle western
newspaper the record of the day's dealings in 128 foreign bond issues. Individuals,
in America are taking their own money, with its present command over goods and
services, and surrendering that command to nations on the other side of the earth,
and they receive in exchange for it a promise. The question may be asked:
Nothing more than a promise? T o which answer may be made: Nothing less than
a promise.
I remember reading some vears ago a letter of Thomas Bailey Aldrich written
to William Dean Howells. Aldrich is writing of a friend who has just died, and
whose body is resting in " a dismal London burying ground." He says to Howells
that it is not worth three pins to be a great novelist or a great general or a great
anything else. Then he winds up his letter witn this whimsical expression:
11 Yet with a sort of hopeful vivacity I have just bought two 5 per cent railway
bonds that expire in 1967. Who will be cutting off the coupons long before that?
Not I . " There was Aldrich, despondent because of the transitoriness of life,
taking his savings and putting them in railway bonds that matured long after his
life would end. Every day investors arc buying bonds, domestic and foreign,
although thev have every reason to wonder who will collect the coupons. Human
lives stop. Promises go on. The civilized world today is run on the basis of a
belief in promises. Whatever our doubts about the meaning of modern divilization, we may at least take some comfort in the trust which men show in each
other's promises.
It was not alwavs so. Early trading began with physical things. The man
who had something to sell kept a tight hold with one hand upon the thing he was
giving up until he got a tight hold with the other hand upon the thing he was
getting in exhange for it. Little by little men learned to trust one another.
Markets were developed in which men sold by samples. In such a sale the seller
must produce a sample of the thing which he is contracting to seil; the quantity
agreed to be sold is later delivered and the buyer makes payment therefor.
Mutual promises had to be kept to make such a trade effective. Finally, we
have reached the stage of civilization when we buy and sell promises. No man
can play an important part in modern commercial civilization unless he respects
his promises in letter and in spirit. That is true in all of our day to day transactions. W e want no commercial dealings with people who can not or will not
keep their promises. The keeping of the promise is the fundamental virtue of
commercial life. Therefore, when one says that the purchaser of a foreign bond
has nothing more than a promise, the answer can be made in all seriousness that
he has nothing less than a promise.
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
156
I t is apparently believed by some that loans to foreign governments made by
our citizens throw upon our own Government the responsibility of using the armed
forces of our Government for the purpose of collecting the debts. From leading
government officials of both Great Britain and the United States we have had in
recent years quite clear pronouncements upon this question. In a debate in the
British Parliament in December, 1902, during the controversy with Venezuela,
Mr. Balfour, the Prime Minister at the time, said:
" I do not deny, in fact I freely admit, that bondholders may occupy an international position which may require international action: but I look upon such
action with the gravest doubt and suspicion, and I doubt whether wc have in
the past ever gone to war for the bondholders, for those of our countrymen who
have lent money to a foreign government; and I confess that I should be very
sorry to see that made a practice in this country-"
Mr. Hoot, then Secretary of State, speaking in Buenos Aired in 1906. made the
following statement:
' " T h e United States of America has never deemed it to be suitable that she
should use her Army and Navy for the collection of ordinary contract debts of
foreign governments to her citizens. For more than a century the State Department, the Department of Foreign Relations of the United States of America,
has refused to take such action, and that has become the settled policy of our
country. W e deem it to be inconsistent with that respect for the sovereignty
of weaker powers which is essential to their protection against the aggression of
the strong. W e deem the use of force for the collection of ordinary contract
debts to be an invitation to abuses in their necessary results far worse, far more
baneful to humanity than that the debts contracted by any nation should go
unpaid."
The foregoing expressions of Mr. Balfour and Mr. Root are important not only
because of the high official positions that these eminent statesmen held at the
time but also because of the great weight which properly attaches to their personal
opinions upon a question of this kind. But however valuable such expressions
may be, either as a statement of the national thought at the time or as a means of
influencing the public thought of the peoples to whom they arc addressed, such
expressions do not necessarily constitute international law or even a binding rule
of conduct. The declarations of statesmen are perhaps more likely to express
the ideals than the practices of nations. International law, however, is a gradual
growth, based upon custom and conduct. When customs become so well settled
that their violation excites the general disapproval of civilized men, we have a
real basis for international law. Now, he who seeks to know the custom of
nations with respect to the enforcement of contract debts against another government enters a most difficult field. It is hardly surprising that the causes of
war are never fully known to the actors. But the long, painstaking work that
must be done by unbiased historians before an approximation of the truth can be
ascertained must make any candid person almost despair of a complete conviction
as to causes. I have not been able to find a clear case of a nation going to war
for bondholders. I t is only fair to say, however, that contract claims against a
foreign government have often been joined with claims for other injuries, or with
larger questions of political policy, and that so joined they have been made the
basis of armed intervention. I have immediately in mind the military operations
against Mexico in 1861, against Egypt in 1880, and against Venezuela in 1902.1
I have neither the competence nor the desire, however, to discuss from the
point of view of the international lawyer or the historian this alleged practice of
using armed force to collect contract debts. A difference will readily be noted in
the treatment of claims arising out of injuries inflicted upon persons or upon their
physical properties and claims growing out of contracts. Where the wrongful act
of a foreign government inflicts injury upon a person or upon his physical property, the law of nations seems to recognize the propriety of a demand for reparation. Contract claims, however, have not been treated in the same way, though
nations have on occasion made official and unofficial representations regarding
violations of contracts and failure or refusal to pay bonded indebtedness. They
have also broken off diplomatic relations with the delinquent countrv as a means
of enforcing payment. Nations have also repeatedly submitted bond claims to
arbitration. They have also, in rare cases, used measures of force short of war*
such as reprisals and that curious procedure known as pacific blockade.
President
l i f r . TTftrtflfV Withers, fartnprlv oriitvir fit tha Tsmrtnn Pmnnni'tt anru>«ntl«l^lu...ji
th* rift&uit
is in my belief that they might have whistled for their money until the crack of dooff
that their
their ruaime p.mrnMl In with Tmtidnal nnlinv » I n t m a t ^ A i viMtnn* /taiRi. t>. ur
SALE OF FOREIGN BONDS Oil SECURITIES
157
Jackson, in 1834, in conncction with certain damage claims not related to bond
obligations, actually recommended reprisals. And in 1902 Great BritianGermany, and Italy enforced certain demands against Venezuela, which included
the payment of bond obligations, by a pacific blockade. The advancing interest
of civilized governments in this whole question is evidenced by the action taken
at the Second Hague Peace Conference in 1907. That conference adopted a
Convention respecting the limitation of the employment of force in the recovery
ot contract debts the pertinent part of which reads as follows:
" T h e contracting powers agree not to have recourse to armed force for the
recovery of contract debts claimed from the government of one country by the
government of another country as being due its nationals.
" T h i s undertaking is, however, not applicable when the debtor State refuses or
neglects to reply to an offer of arbitration, or after accepting the offer prevents
any 'compromise' from being agreed on, or, after the arbitration, fails to submit
to the award."
This convention seems to assume that there was a right to use armed force to
collect contract debts before the adoption of the convention. Certainly, if
Mr. Root is correct, no such right was ever cxercised by the United States.
What is perhaps more important, the second paragraph seems to imply that a
formerly existing right to use force to collect contract debts is still to survive if
and when the specified conditions are applicable. It is not surprising, therefore,
that very general^ the Latin-American countries in adhering to the convention
made reservations which neaatived their consent to the use of armed force against
them even though the conditions of the second paragraph had come into existence.
Although some critics of this convention have questioned whether the subject
was left in an entirely satisfactory situation, there can be no doubt that the
delegates to the convention were earnestly seeking to put some limitation upon the
use of armed force which had not been accepted by all nations theretofore.
I am writing, however, from the point of view of the investor. Investors, as
much as any group of people in the community, are interested in seeing the
Colicy announced by Mr. Hoot in 1906 scrupulously carried on. Investors who
uy foreign loans are in a position to appreciate what a fruitless remedy for
breach of contract war is. The establishment of the principle that nations are
justified in going to war where the sole issue is the collection of a debt would
be not only most hurtful to the nation at large, but, in the long run, would prove
injurious to the property interests of the bankers who sell and the investors who
buy foreign government loans. Is there any one who thinks that if a man owes
him money and can not pay it, there is profit in going out and killing the debtor?
Entirely apart from the immorality of putting human lives to the hazard of
modern war where the sole issue is a pecuniary claim, there is a conclusive practical
reason against such a source in that war in the great majority of cases does not,
and can not, accomplish the desired result.
Loans are made to foreign governments in reliance upon the capacity and the
good faith of those governments. The intelligent investor recognizes that in the
long run a government which defaults upon its obligations hurts itself even more
than it hurts its creditors. Even in cases where specific taxes or customs are
allocated for the service of a loan, the main reliance of the creditor must be upon
the desire of the debtor government to maintain the particular revenues and
keep them available. Even when a foreign expert is placed in charge of revenues,
the arrangement is helpful only when made with the hearty concurrence of the
debtor government, and with the belief and expectation on the part of the
debtor government that the fiscal arrangement will redound to its own advantage.
If the foregoing be true, how safe are these investments? To my mind that
inquiry is much the same as an inquiry as to the safety of a domestic bond
Some domestic bonds turn out to be good and some turn out to be worthless.
There is no reason to expect that it will be otherwise with foreign bonds. Those
nations who arc borrowing in America because they actually need the money
for a constructive purpose; who have a solidarity of national feeling and a sense
of the meaning and the value of national credit; who are not incurring obligations beyond what may fairly be considered their capacity to handle; all those
nations may be expected to pay their debts. Here again the responsibility rests
heavily upon the investment banker in recommending investments. The banker
must never be lured, eithe^by the desire for profit or by the desire for reputation,
to recommend an investment which he does not believe to be good. But, fundamentally, the reliance of bankers and investors is upon the capacity and, above
all, upon the good faith of the foreign government. The foreign government
must be able to pay, and it must want to pay*
9292&-31—*rl
11
158
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
If it is true that it is upon good faith that lenders to foreign governments
primarily rely, it is no less true that it is upon good faith that lenders rely in
almost all of their domestic dealings. Of course, there is a sanction ultimately
applicable to domestic contracts. The proper legal steps may be taken; the
breach of the contract may be proved; and execution may be issued through
the sheriff. But we do not in practice put much reliance upon the help of a
sheriff in enforcing contracts. We do not willingly deal with one upon whose
property we expect to levy execution. When we need the sheriff to help collect
a loan, we recognize that our venture has turned out a failure. W e are then
simply trying to save some planks from a shipwreck. In the overwhelming
majority of business transactions, we rely upon the ability and the willingness
of the debtor to pay. On no other principle could modern business be conducted.
There is no international sheriff. ' But there still remains our reliance upon
good faith, our reliance upon that law which is older than statute law—the acknowledged custom of mankind. The credit of governments is not easily built
up. It may easily be shattered. And it must never be forgotten that there are
rules of conduct accepted by the silent approval of civilized man, the breach of
which hurts the one committing the breach much more than the one against
whom it is committed. If good faith can not be relied upon it is better that the
loan be not made. The words with which Hugo Grotius closed his great book
more than 300 years ago are true: " N o t only is each commonwealth kept together
by good faith, but that greater society of which nations are the members. If
faith be taken away, the intercourse of men is abolished."
Foreign governmentbonds, J. P . Morgan A Co.
Name of
Date of issue government
Titte of Issue
)'
Amount
Amount of outstanding
issue
Dec. 16*
1031
DisNumber
Number tributing
NumNumbei
of par- syndicate of parber of
Total
of par- Inter- ticipants
ticipants
particicomcomManag- pants Original ticipants
in such
in such mission
mising in such gtoup
in surtt mediate
Issue
interdisgroup
(from
sion
original
com- manag- comprice
com- mediate which I'ibuting
group
or
mission
mission ing
group
syndicate
mission
exrenses
comspread
comcomcomare demission
mission ducted)
mission
mission
/Vr cent
Noitc.
None.
1
2
None.
None.
2
757 3
IM
?
None.
None.
2
«S2 m
IM
2
None.
None.
2
527 VA
None.
m
2
None.
None.
2
cir
None. None.
m
2
None.
None.
2
r>23 3H
/Vr cent
None. None.
Sept. 22,102A
None.
None.
None.
None.
None.
None.
None.
Apr. 32,1926
Sept, 30,1926
Jan. H. 1027
Apr. 28, 1927
July 16, 1925
Aug. 24,1027
May 8,1928
June 11,1923
July
JtUic 1,1U20
JftU, 24,1921
Hept. % 1924
Dec. 18.1024
June 11,1925
6 per cent bonds duo June $45,000,000 $41,735,500 00
L 1950,
6 per ccnt bonds due Oct. 29,700,000 27,42a 500 96H
do
1,1959.
0 per cent bonds due May
20.000,000
18,508.000 OJi
.—do.
1. i m
10,900,000
15.83G.
0
per
ccnt
bonds
due
Oct.
do
mi
1,1060.
0 per rent bonds due Feb. 27,000,000 25,548,000 08 M
lt 1961.
do...
19,997,000 00
6 per cent bonds due May 21,200,000
1, 1001,
73,068,000
75,000,000
Australia
5 per cent bonds due July
00H
15,1935.
do..,
5 per cent bonds due Sept. 40,000,000 38,345,000 08
lf 1957.
50,000,000 49,73S,000 mi
,4H per cent bonds due
May U 1056.
17,950,100 00
25,000,000
7 per cent bonds due June
Austria
1, 1943,
do. . . . . . 7 per cent bonds due July 25,000,000. 21,279,000 05
1, 10.17.
97m
50, 000,000
Belgium
(')
7J$ per cent bonds due
June WW.
100
(')
8 per cent bonds due Feb. 00,000,000
1 1941.
30,000,000 26,737,000 04
do
fiji tier cent bonds due
Sept. 1,1919.
do
— A per cent bonds duo Jan. 50,000,000 37,871,100 87*$
1,195.1.
do
- 7 per cent bonds due June 50,000,000 46,292,000 08
1,1955.
—-
See footnotes at end of table.
JVr cent
2 Vj
2
iillte 2, 1025 Argentina.
per cent
M
7*2
Per cent
1
m
h
1
%
3
14
125
Hi
801 3
H
1
H
3
H
124
m
820
H
1
H
3
h
14
n*
90!
None.
None.
IH
137 None.
None.
3
773 4\i
2H
H
1
11
1
134
2
721V 4
None,
None.
1
4
1
ik
4
hf.2
None.
None.
i
4
1
ik
4
720
Ho
2
1
5
hn
22
2^
g.w
4
4
h
34
3
m
4h
4
H
34
2>4
840 4
"Mooo
H
H
2
2
M
«
(i
Cn
CO
Foreign government bonds, J, P. Morgan <fc Co.—Continued
Name of
Date of Issue government
Title of Issue
NumNumber
ber of
of parparticiAmount
Manag- pants Original ticipants
Amount of outstanding Issue
ing in such group
In such
price com- manag- comIssue
Dee. 15,
original
mission ing
1931
mission
group
comcommission
mission
Percent
Per cent
2
H
7 per cent bonds due Nov. $50,000,000 $47,890,500 94
H
1, 1056.
None. None.
i Canada.... 5 per cent bonds duo May 1001000,000 100,000,000 100
H
1,1052.
93®9ioo None. None.
2,498,000
Manitoba.. 6 per cent bonds due Feb.
O
H
1,1930.
2,850,000
95«Moo None. None. l«Wooo
6 per cent notes due Apr.
V)
1. 1925.
99
None. None. 1
S per cent bonds duo Feb. 21.0CK), 000
,'ChfIe
<*>
1,19U.
None. None.
«Moo
Cuba.—.... tyi per cent bonds duo Jan. 50,000,000 26,452,500 99}i
lflOM.
5,400,000 101.122 •Jiooo
9.000,000
1 "Hooo
....do
5J$ per cent bonds July t,
1928-1037 (1900,000 duo
annually).
100
None. None.
1
A per cent bonds due Sept. 100,000,000
France—
<>)
15t 1945.
None. None.
M
7H per cent bonds due 100,000,000 60,805,500 95
....do....
Juno 1,1941.
2
H
7 per cent bonds due Dec. 100,000,000 70,740,900 04
M
....do....
l t 1949.
1
H
7 per cent bonds duo Oct. 1101000,000 76,759,400 92
M
Germnny.
16. 1949.
1
n
per cent bonds duo 93,250,000 95,670,500 90
M
.do...
June 1.1WW.
"Mooo
1 "Mooo
7 per ixtnt bonds duo Dec. 100,000,000 89,270,100 « H
Italy......
1.1951.
Credit consortium:
2,819,000 mi
4,500; 000
.....do
7 per cent bonds due
M«r. 1,1937.
1
lHo
6,580,000 95)i
7,500,000
7 per cent bonds due
Mar. 1,1917.
1
2
1977 Roma
M
6)4 per cent bonds due 30,000,000 | 27.442,500 91
w
* Apr. 1, \W2.
4
Belgium...
Mat
6
Per cent
H
13
Per cent
2J*
m
Percent
4
H
32
5 None.
None.
m
2
(?)
2H
6 None.
None.
IH
(?)
2»«9<ooo
6 None.
None.
4
GOO 5
8 None.
Nono.
2
813 2«Moo
1 None.
None.
90*1 m
110 l"Mooo
36
4
756 6
50
4
971 6
1
123
3
958 &
10
iM
146
3
1,094 6
11
M
145
m
1,011 4
3
H
127
3
935 4H
3 None.
None.
2)5
290 4
2
742 4
4
4
4
•
DisNumber
Number tributing
of parof parTotal
Inter- ticipants syndicate
ticipants
comcommediate in such mission
in such
misintergroup
dis(from tributing
sion
com- mediate which
or
mission group expenses syndicate spread
comcomare
demission ducted) mission
3
1
M
1
2ft
Feb. U.J024 Japan..
1 OH per cent bonds due t 150,000,00013^093,300 1 92h
/ Feb. I, 105#.
I
AfAy
1030
do - . J 5H bonds due May 1, lOfttJ »50,000,000 71.000,000
Nov. 23.1K6 Yokohama--) fl per cent bonds due Dec. I 19,74a 000
77*000 s
Mar. JTM027
Tolrfo
f UHHJ.
I
5}i pet cent bonds due f
Oct. 1,1001.
I
June
Iftlt Taiwan. . . . . Electric Power Co. SM
per cent bonds due July
I, 107J.
Auy. 1,1023 Bwijzerland. A per cent notes due Aug.
1,19%.
Apr. 1,10*4 . . . d o , . . .
&H per rent bonds due
Apr. 1* 1910.
2 a m 000
23.«»i000
20.000,000
10.437,000 mi
22, MX), C00 »03H
0
30,000.000 •07H
30.000.000
4
i
H
H
Uo
lit
None,
He
ft
125
1
a
2t«
214
000 A
805 4
0A3 4
t
l
H
n
6
n
02
10
1
*Ho
&
H
10
2
540 3b
6
H
13
2
30ft 3H
0 None.
None,
JH
265 2M
None.
None.
3H
m
1
None.
2
n
•Jit
7
3H
* Redeemed,
* in addition to the
000,000. I Jowls publicly offer*! $21,000,000. Bonds wern e\chan»d forftrrmmtof the original group for £3.Sfl0.e*W. fcomts of tlw 4 prr crnt sterling
loan due Jan. 1, m i , under the control of the Imtwrial Japanese Govrrnment. In rtspcet or the *21,OOQ.OOf>. Bonds eichangrd. the total commission waa reducrd from 4 to 2 H per
rent. Olylng effect to this exchange for account of I he original group, the total managing commission amounted to " J i m per cent and the total original group eommtuton amounted
to
per cent.
* Percent.
SUMMARY
Government and municipalities:
Argentina
....
Austria.--.
Australia....
Belgium
..
......
Canada......;...
Chile...
....
Cabe-...,.-.......
....
Franco......
*
Germany
Great Britain-.........*..
...
„
.
Principal
amount of
ofo™1
$150,800,000
60,000.000
1WWOOOO
. OO
mcoo.ooo
105.34^ ono
24,000,000
60,000.000
300.000.000
250,000
None.
Principal
amount of
Government and municipalities-Continued:
Italy-.
"
Japan.*...
Spain
Sw (tier land-
*
Total-..
Retired to Dec.
Outstanding Dec. 16,1031
$142,000,000
2*4.1*0,000
None.
SO. OOP, (300
1.807,578*000
4:b,280. 100
*
*
1.3*0,207,000
o>
SALE OF FOItEIGN BONDS OH SECURITIES 162
Partners in the firm of J. P. Morgan & Co., December 21, 1931: J. P. Morgan,
Edward T. Stotesbury, Charles Steele, Thomas W, Lamont, Horatio G. Lloyd,
Thomas Cochran, Junius Spencer Morgan, jr., George Whitney, Russell Cornell
Leffingwell, Francis D. Bartow, Arthur M. Anderson, William Ewing, Harold
Stanley, Henry Sturgis Morgan, Thomas Stilwell Lamont, Henry Pomeror
Davison, Thomas Newhall, Edward Hopkinson, jr., and Seymour Parker Gilbert.
The following were participants in the original group on the issue of $100,000,000
Government of the French Republic 26-year external gold loan 8 per cent sinking
fund bonds dated September 15, 1920: J. P. Morgan i Co.; Brown Bros. <fc Co.;
First National Bank, New York; the National City Co.
The combined list of the original group, except Austrian, comprised thefirmsof
J. P. Morgan <fc Co.; Bank of Montreal; Bankers Trust Co.: Brown Bros. & Co.;
Chase Securities Coiporation; Credit Suisse; Dillon, Read & Co.; First National
Bank, New York; First National Bank of Boston; Guaranty Co. of New York;
Harris, Forbes & Co.; Kidder, Peabody & Co.; Kuhn, Loeb £ Co.: Lee,Higginson
& Co.; Morgan, Harjes & Co.; the National City Co.; J. & W . Seligman £ Co.;
Yokohama Specie Bank, (Ltd.).
THE NATIONAL CITT BAXK OF N E W
YORK,
New York, December 22, 1031*
MY DEAR SENATOR SMOOT: When on Wednesday last you telephoned asking
me to appear before your committee two days later to test if v on the Johnson
resolution, I immediately requested the officers of the City Co. to prepare for
me statements of all of our foreign issues. The force in the National City Co.
worked day and night, and the long schedules which I had with me before" your
committee were handed to me as I caught my train for Washington. 1 had no
opportunity to question the accountants who prepared these schedules as to
what was meant by expenses of each issue. The reports that I was accustomed
to have come over mv desk as to the profit to the City Co. on an issue of bonds
contained an item of gross profit, an item of expense directly allocable to the
issue, and an item showing the net profit. I, therefore, assumed that in the
schedules handed me the deduction for expenses represented items such as those
I testified to, directly chargeable against the particular issue, and did not include
the general expenses of the National City Co. I took the item of "general
expense" on the schedules to be an item representing the City Co.'s portion o»
the expenses directly applicable to each issue.
To-day I have been checking up these figures and I find that I w as in error in
my testimony. The accountants had deducted from the gross profit figure the
items of expense directly chargeable to each particular issue and the column
headed "General expenses" represented an attempt on the part of the accountants to allocate to the issue a proportion of the genera! expenses of the City CoThere is, of course, no method of accounting which would show with absolute
accuracy exactly how much of the general expense of the National City Co,
should be borne by any particular issue of bonds. An effort was made by the
accountants to determine some basis of allocating expenses by taking the total
general expenses of the company and dividing them by the total number of bond*
sold during the year, thus fixing an arbitrary average cost per bond sold.
If vou will refer to the schedules I have given the committee and take the
column headed "Gross profit" of the National City Co. and deduct therefrom
the succeeding column headed "discounts" the remainder will show the pijjf*
of the National City Co. before general expenses of the National City Co.
testimony at the hearing is applicable to this remainder and should not be app»ie0
to the last column headed " N e t profit."
^
I wish therefore to correct my testimony by requesting that this letter
Inserted as a part of the record of my hearing before your committee.
Very trulv yours,
C. E; MlTCHEttH o n . REED SMOOT,
Chairman Finance Committee,
United States Senatef Washington, £>. C*
Syndicates managed by others
Maturity
Sinking fund Cost
payments
prico
to date
Offering j
prico
Juno % 1925 $45,000,000.00
Sept. 22,1925 29.700,000.00
Apr. 23,1926 20,000,000.00
Sept. 30,192G 16,900,000.00
Jan. 14,1927
27,000,000.00
Apr. 28,1927 21,200,000.00
50,000,000.00
Government of tho Argentino Nation treasury notes..Apr. 10,1930
June 1,1959
Oct. 1,1959
Mar 1,1960
Oct. 1, i960
Fclfc 1,1961
Maf 1,1961
Oct. 1,1930'
$3,264,500.00
2,279,500.00
1,402,000.00
1,063,500.00
1,452,000.00
1,203,000.00
20,000,000.00
J. P. Morgan & Co
Commonwealth of Australia extension lain, G. B_July 20,1925
Aug. 24,1927
Commonwealth of Australia extension loan..
May 8,1928
Juno 3,1930
. City of Brisbano, s"F. "6. B ..
75,000,000.00
40,000,000.00
50,000,000.00
5,000,000.00
July 15,1955 1,000,000.00
Sept. 1,1957 1,655,000.00
May 1,1956
262,000.00
June 1,
100,000.00
J. P^Morgan & Co
June 11,1923
July 15,1930
25,000,000.00
25,000,000.00
June 1,1943
July 1, *—
Jan. 13,1920
June 2,1920
Jan. 24,1921
Sept. 2,1921
Dec. 18,1921
Juno 12,1925
Oct. 26,1920
25,000,000.00
50,000.000.00
30,000,000.00
30,000,000.00
50,000,000.00
50,000,000.00
50,000,000.00
/Jan. 1,1921
(l)
(Jan. 1,1925
(')
June i, 1945
Feb. 1,1941
(<)
Sept. 1,19-19 2,900,000.00
Jan. 1,1955 10,600,000.00
June 1,1955 3,300,000.00
Nor. 1,1956 3,300,000.00
May 22,1926
June 21,1926
Oct. 13,1927
Stat?of Rio Qrande do Sui,~ S .*iVo." B - " " " " - - - J
! uly 11,1928
' Stato of San Paulo, S. F. G. B
Apr. 28,1930
CHILE
Feb. 15,1921
Republic of Chile
June 26,1925
Mortgage Bank of Chile
July 30,1926
Do
—
Dec. 23,1926
Mortgago Bank of Chile (Agr. G. notes)
May 1,1928
Mortgage Bank of Chile
June 27,1929
Do
35,000,000.00
25,000,000.00
41,500,000.00
23,000,000.00
35,000,000.00
Oct. 1,1957
Oct 1,1957
{US
Oct. 15,1957 1,791,000.00
June l, 1968s
None.
Oct. 1,1940 3,500,000.00
21,000,000.00
20, (KM), 000.00
20,000,000.00
10,000,000.00
20,000,000.00
20,000,000.00
Feb. 1,1941
(«)
June 30,1957 1,300,000.00
June 30,1961 1,300,000.00
Dec. 31,1931
None.
Apr. 30,1961
600,000.00
400,000.00
May 1,1962
J. P. Morgan <fc Co..
94H Kulin, Locb & Co....
do
mi
989*
9554
..do
Apr. 1,1951
Oct. 1,1952
96H Kidder, Peabody Co..
96 H
Government of tho Argentine Nation extension
S. P. G. B.
Do.
Argentine Government
Government of tho Argentino Nation.
Argentine Government
.
.1
interest of The National City Co.
O. T. Int. Or.
spread
spread
Intermediate group
S.G.
Banking group •'
Selling group
Number
f retail
sales
spread
Percent
IX
$22,300,000.00
14,850,000.00
10,000,000.00
8,450,000.00
13,500.000.00
10,600,000.00
Chatham IMienix Corporation.
18,750,000.00
15,000,000.00
18,750,000.00
1,875,000.00
Leo Iliggenson & Co—
$5,355,000.00
3,345,000.00
3,000,000.00
2,750,000.00
3,860,000.00
3,510,000.00
137,500.00
105,625.00
151,875.00
145,750.00
70,312.50 $8,000,000.00
66,250.00 6,625,000.00
71,093.75 15,375,000.00
19,671.75
$47,370.33 $7,500,000.00
21,949.89 4,000,060.00
23,586.00 3,500,000.00
19,690,00 3,000,000.00
31,999.40 4,500,000.00
25,903.80 3,800,000.00
10,000.00
$93,600.00
38,840.00
35,000.00
30,000.00
44,960.00
37,600.00
18.75
$436,282.83
199,289.89
106.0S6.00
155,315.00
228,834.40
209,253.80
18.75
$32,967.91 $46,050.00
24,500.00
15,841.33
7,753. 75 21,245.00
18,210.00
23,575.00
24,210.06
16,688.84
20,444.00
9,731.84
167,087.25
113,530.00
187,935.50
179,077.96
8,000,000.00
5,100,000.00
2,500,000.00
1,209,000.00
52,912.50
37,792.50
18,675.00
22,515.00
196,530.07
155,212.80
187,536.87
50,796.75
19,100.50 -49,120.00
15,515.15 ' 27,438.00
10, 443.95 17,610.42
7,048.47
2,342.50
128,309.57
112,259.65
159,482.50
41,405.78
$10,000.00 5,235,000.00
33,125.00 3,305,000.00
67, 265.62 4,150,000.00
1,722,000.00
33,305.07
18,045.30
30,502.50
8,610.00
S9.S5
103,941.2
61,153.1
BELGIUM
. Belgian Government extension, G. B
, Kingdom of Belgium extension, G. B
Do
Do
Do
Do
Do
...
95H
97K
100
BRAZIL
United States of Brazil, G. B
CZECHOSLOVAKIA
Dillon. Reed & Co..
do
do..
White Weld & Co...
Speyer & Co
3,750,000.00
6,250,000.00
6,250,000.00
6,250,000.00
7,812.50
60,514.02
37,500.00
37,500.00
48,437.50
50,000.00
50,000.00
2,155,000.00
5,000,000.00
3,000,000.00
3,000,000.00
5,000,000.00
5,000,000.00
5,000,000.00
• 5,387.50
50,000.00
30,000.00
10,500.00
25,000.00
25,000.00
25,000. 00
240,000.00
3,000,000.00
1,500,000.00
1,500,000.00
3,000,000.00
3,000,000.00
3,000,000.00
67,320.00
31,875.00
12,798.00
46,950.00
33,900.00
28,320.00
691,000.00
1,907,000.00
4,640,500.00
1,814,000.00
2,400,000.00
3,500,000.00
4,000,000.00
3,700,000.00
47,305.00
66,460.62
28,780.00
30,000.00
38,387.50
47.300.00
46,250.00
62,089.00
244,294. 64
128.155.00
90,793.00
158,775.00
156,200.00
149,570.00
9.360.00
4,312.50
7,154.50
7.286.01
3,374.29
15,190.66
10,305.38
15,588.00
27,843.00
1,391.02
10,320.00
15,050.00
24,560.00
22,459.00
212,139.1'
119,608.51
73,191.91
140,350.7
110,449.3
116,805.6:
6,562,500.00
4,687,500.00
7,781,250.00
8,625,000.00
5,308,333.00
119,128.01
135,216.61
152,152.91
8,915.28
91,528.73
6,000,000.00
3,500,000.00
5,500,000.00
6,937,500.00
28,250.00
17,500.00
20,625.00
17.343.75
5,000,000.00
2,800,000.00
5,500,000.00
5,229,500.00
2,712,892.00
32,133.85
33,002.26
48,125.00
19,610.63
15,000.00
7,000,000.00
3,300,000.00
6,000,000.00
4,237,000.00
4,900,000.00
175,000.00
49,500.00
59,880.00
84,740.00
120,335.00
354,511.86
235.218.90
280.782.91
130,609.66
232,863.73
13,352.94
13.616.72
13,272.21
23,998.32
11,500.59
42,490.00
30,031.00
32.280.00
28.515.01
28,507.00
201,571.18
235,230.70
78,096.33
192,790.14
3,012,000.00
2,075,000.00
2,600,000.00
900.000.00
4.000,000.00
2,150,000.00
57,705. 00
35,157.50
56,8S0. 00
8,680.00
80,000.00
47,340.00
157,639.28
45,156.31
56,880.00
8,680. 00
149,017.05
23,051.09
13.996.38
8,473.28
5,873. 22
1,976.25
16.890.39
6,087.21
19,110.04
12,741.50
4,856.00
5,463. 00
26,920.00
15,028. 50
124,532.86
23,941.93
46,150. 78
1,210.75
105,236.66
1,935.38
350,000.00
1,000,000.00
1,033,000.00
5,250.00
10,00a 00
10.330.00
5,250.00
16,957.37
16,256.2-1
370.00
3,133.87
3,461-75
2,124.50
5,390.00
5,919.33
2,755.50
8,433.50
6,875.16
17,090.00
1,000,000.00
5,240,000.00 100,874.89
5,331,000.00 135,031.33
6,500,000.00 106,795.00
5,800,000.00
5, (XX), (XX). 00"'ixHoor
3,190,000.00
2,835.(18
I, KK
. ), (KK). 00 5
23, 155.36
1.300,000.00
8,934,100.00
7,059,000.00
8,500,000.00
3.841,800.00
8,250, (XX). (X)
2,791,000.00
3,
000. (X)
12. 990l 00
170,890.00
102,79."). 50
103,137.50
47,627. (X)
112,135.00
IX, S'.)5.00
55, 107. 50
6,506.00
62, 580. 00 3,82i 09
53,604.60
512, 76-1. 89 31,509.38
44,330.85
52,3-16.07
373,579.83
36,
550. 00
22,867.40
449,932. 50
19,170.58
91.73
2.->, 131.25 44, 715. (X)
17, IIT.'1.7l> 15,113,48
17, I.C. !»7 17,519.90
7.500,000.00 116, m 00
6.000, (XX). 00 57,900.00
100,000.00
375.00
8,000,000.00
6,000,000.00
100,000.00
100.000.00
66,012.50
2,000.00
423,780.00
284,847.50
2,375.00
21,840.88
14,901.88
250.00
34,400.00
36,013.57
673.00
788,300. (X) 3,345.46
1, 154,000. 00 5,030.81
4,060,500.00 106,789.50
15,000, (XX). 00 187,050.00 11,
427,600.00
8,376.30
538,214.50
2,059.16
3v8.465.92
3,933.62
77,81-1.60
1,618
35,332.50
14,575.00
11,275.00
1,463
165.992.51
U, 61 5.00
1,719.09
DOMINICAN REPUBLIC
Apr. 1,1926
Jan. 10,1027
Jan. 27,1928
Dominican Republic
Do
Do
3,300,000.00
5, 000, (XK). 00
5,000,000. 00
Mar. 1,1942
Oct. 1,1940
Oct. 1,1910
597,000.00
820,000.00
820,000.00
FRANCE
Framerican Industrial Development Corporation—Mar. 13,1922
Sept. 7,1920
Government of tho French Republic
A ray 25, 1021
Nov. 21, IWM
Nov. Hi, 1919
Citics°of~Lyons, Marseilles, and" Bordeaux
Miir. 17,1922
Paris, Lyons & Mediterranean It. R. Co
Apr. 19,1922
Jan. -23, 1U22
- Depart men t'of" tho Soine
10, 000, 000. 00
100, 000,TOO.(X)
100,000,000.00
1(X), (XX), 000. 00
•1 (KXI, 000. 00
30,000,000.00
10,000, (XX). 00
25,000,000.00
GKRMANV
Oct. 11,1921 110,000,000.00
German Government
Juno 12,1930 98,250,000. 00
25,000,000.00
Consolidated"" Agricultural Loan of German and Juno 1,1928
Provincial Banks.
North German Lloyd
^
Jan. 1,1912 None.
Sept. 15,1945
()
Juno 1,1941 39,191, 500. 00
Dec. 3,1919 29, 300, (XX). 00
Nov. 1,1931 None.
AU(\
, 15, 1958 1,610, (XX). IX)
do
Jaii!'- 1,1912
J. I». Morgan & Co...
do
do
— .do
Kuhn, Locb it Co...
Kulin, l.(iel) »t Co....
32,000, (KK). (X)
2, (XX), (XX). (X)
9,000,000.00
J. P. Morgan & Co...
Lee iligginson & Co..
Kulin, Loeb <t Co..
s
(•')""
Oct. 15,1919
Juno 1,1965
June 1,1958
GREAT BRITAIN
lfiii(cd Kingdom of Great Britain and Ireland.. fob. 18,1919
Oct. 21,1919
Greek Government
DoDo..
GREECE
HUNGAUY
Kingdom of Hungary.
Jan. 31
June 17,1930
Apr. 29,1931
28,179,000
250,000,000
17,000, (XX)
7,500,000
7,500,000
Italian Credit Consortium
Italian Superpower Corporation
Kingdom of Italy
Pirelli Company of Italy
City of Rome
5,000,000
1,500,000.00
7,500.000.00
20,250,000.00
Jan. 24,1928
Nov. 19, l!'2f> 100,000,000.00
4,000.000.00
Apr. 28,1927
Mar. 29,1927 30,000,000.00
Great Consolidated Electric Power Co. (Ltd.)..
Imperial Japanese Government
Do
Taiwan Electric Power Co., (Ltd.)
City of Tokio
Tokio Electric Light Co. (Ltd.)
City of Yokohama
July 18,1921
July 9,1925
Feb. 15,1924
May 12,1930
June 26,1931
Mar. 21,1927
June 7,
Nov. 23,
15,000,000.00
13,500,000.00
150.000,000.00
50,000,000.00
22,800,000.00
20,640,000.00
70,000.000.00
19,740,000.00
Mar. 25,1920
Juno 28,1928
Mar. 15,1922
Feb. 15,1923
Nov. 8,1923
Apr. 29,1921
Mar. 21,1930
15,000,000.00
10,000,000.00
40,000,000. 00
25,000,000.00
25,000,000.00
40,000, (XX). 00
40,000,000.00
ITALY—Fiat
10,000,000.00
Kingdom of Netherlands
Royal Dutch Co
Apr.
6 " July
6 Mar.
PA Mar.
5'A Nov.
6 Apr.
4 Apr.
1,1925
1,1938
1,1962
1,1953
1,1953
1,195-1
1,1945
Kulin, Loeb & Co
Dec. 10,1920
Mar. 10,1927
Doc. 16,1927
Dec. 21,1927
Oct. 21,1928
8.000,000.00
15,000,000.00
15, (XX), (XX). 00
50, (XX), 000. (K)
25,000,000.00
8 Jan. 1,1931
7 Sept. 1,1959
1
6
6 Dee. 1, I960
6 Oct. 1,1961
J. P. Morgan A- Co
J. AW. Seligmau & Co..
Oct. 22,1923
Nov. 7,1927
Jan. 13,1931
Sept. 20,1928
Mar. 7,1929
Dec. 2,1929
15,000,000.00
50,000,000.00
£0,000,000.00
"500,000.00
50.000,000.00
» 863,960.00
Nov. 1,1913
Nov. 1,1917
Jan. 15,1941
(*>
Alar. 1,1959
(=»)
Government of Switzerland
July
July
Aug.
Apr.
22,1919
6,1920
1,1923
1,1924
30,000,000.00
25,000,000.00
20,000,000.00
30,000,000.00
Aug.
July
Aug.
Apr.
"SVcst^Indies Sugar Finance Corporation..
June 10,1919
Aug. 28,1919
5,000,000.00
3,500,000.00
,260,407,000.00
MMl Lee Iligginson A Co
'JS A
0s)
1,800,000.00
111,000.00
-.-do
SWITZERLAND
1,1929
1,1940
1,1926
1,1946
June 15,1929
> Yearly sinking fund payments received for 1 year; amount, $30,000,000.
»Retired.
> Called June 1, 1930, at 115.
« Called Fob. 1,1931, a07tf.
' Yearly sinking fund payments start Dec. 1, 1932.
• Called Aug. 1, 1928, at 110.
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
93 Ms
95.29
(»)
None. 94.1583
0)
(»)
(»)
9,000,000.00
IK
2.1!)
8,500,000.00
2,500.000.00
2,500,000.00
110,412.00
(*)
11,386.05
4,500,000.00
1,000,000.00
25,000,000.00
1,000,000.00
11,250,000.00
16,925.00
1,400,000.00
375,000
9,500.00
625,000
21,917. M)
'^emm'w "63,276." 25
50,000.00 "8,"666,O66.'("XV "i2S,"io6."(66'
193,750.00 10,000,000.00
400,000.00
4,000.00
1,856.(00
10.0S9.30
400,000.00
30,000.00
24,000.(00 3,000,000.00
91,875.00 ' 8,_575, OOO".00" "85," 750." 66' 3,000,000.00
37,500,000.00
17,000,000.00
5,200,000.00
4,910,000.00
Lee Iligginson A Co..
y p . Morgan & Co—
do
1,000,000.00
1,000,000.00
325,000.00 12,125,000.00
197,056.34 5,011,000.00
42,900.00 3,800,000.00
40,507.50 3,975,000.00
5,000,000.00
3,750,000.00
"*37,~4S6.~O6'
14,371.75
10,000.00 1,000,000.00
7,447.76
800,000.00
10,000.00
118,501.00 15,054,000.00 100,854.72
37,671. (00
25,220.00 5,196,000.00
14,662. !50
17,499.00 1,955,000.00
14,544.36
19.875.00 1.809.000.00
31,250.00 5,000, OGO. 00 31.250.00
22,952. 29
18,750.00 1,803,000.00
~io6,~5oa6o
1,058
3,855
2,526
367,539.12 3,374.00
233,932.05 1,072.00
1.00
1,452.00
52,110.00
2,152.00
16,140.00
2,305. 48
57,909.48
57,879.19
21,917.80
342,601.92
11,075.80
207,510.19
22,500.00
19.725.00
257,077.50
82,500.00
16,500.00
18,770.00
100,000.00
18,000.00
5,114.00
46.871.75
3,711.15
37.172.76
74,217.15
891,407.12
34,198.75
312,447.31
3,665.00
91,501.50
93, 696. SO 5,894.22
12,232.93
162,500.00
3,729.63
97,182.19
4,300.00
8,074.10
75,250.00
32,20-4.92
7,441.50
10,122.00
33,650.00
10,926.00
37,457.75
25,387.51
741,999.97
276,013.67
80,455.00
77,680.64
116,617.02
82,526.56
11,272.50
2,000.00
13, (M0.00
12,750.00
14.580.00
168,516,25
27,187.50
51,727.50
2,750.00
18,891.50
23,974.00
25,801.39
354,917.43
45,9S1.88
2,795,00
72.50
12,315.00
3,250.00
12,410.00
79,798.35
4,881.25
1,509.00
673.00
4,878.00
a 970.00
6,970.00
55,706.50
8,745.00
44,423.50
2,004.50
1,698.50
13,754.00
6,421.39
219,412.58
32,355.63
7,200.00
5,560.00
H
.a
H
iK-tf
tti
A
s/i~A
1,400. (XX). 00 7,000.00
13,641.74
3,000,000.00
7,000.00
2,800,000. (X)
46,349.43
0,999,999.00
15,000,000.00 112,500.00
14,9-17.42
3,500,000.00
1,250,000.00
5,750,000.00
5,000,000.00
7,490,625.00
7,500,000.00
3,937,500.00
6,250.00
57,500.00
14,062.50
24,257.85
252,391.74
21,062.50
382,747.86
22,987.85
211,692.08
21,062.50
174,300.00
127,157.50
2211
,3a 18
6,000,000.00
3,700,000.00
>» 71,100.00
4,000, (XX). 00
19 276,311.00
44,850.00
89,220.00
07,010.00
35,500. 00
41,300.00
2'J8,291.7'J
102,402.50
196,807.43
147,371.77
79,935.91
130,150.31
298,291.79
9,472.25
21,430.00
22,740.15
1,656.50
14,236.25
103,103.33
12,546.00
32,280.00
16,087.00
14,925.15
27,960.00
90,581.18
80,384.25
133,097.43
107,944.62
63,35-1.29
87,954.06
33,607.28
4,774,000.00
2,000,000.00
3,500,000.00
2,—
""
39,9S0.00
41,200.00
16,925.00
24,075.00
12S
' , 646.65
141,907.63
54,436.19
145,058.06
2,232.75
8,393.26
11,321.76
5,509.85
23,822.26
12,000.00
24,395.00
8,600.00
102,591.64
121,514.37
18,719.43
130,883.21
2,812, £00.00
(}, 250,000.00
6,250,000. 00
93,750.00
4,968,750.00
28,125.00
68, 72a 27
54,687. 50
»80,400.00
23,477.34
13,476.56 4,218,750.00
12,312.00
1,000,000.00
6,512, COO. 00 28,859.16
25,6-14.27
5,118,750.00
9,702.10
>» 71,100.00
21,228.00
4,000,000.00
5,074,999.67
4,200,000.00
3,475,000.00
8,962,500.00
31,71S.
15, 750.00
17,375.00
86,000.00
4,348, (XX). 00
1,760,000.00
2,512,000.00
3,423,000.00
« Renewed to May 5,1932.
'»Treasury bills.
» Renewed for 3 months.
i« Called Apr. 1, 1929.
u Called Oct. 1, 1925, at 110.
2,200.00
125,000.00
110.000.00
555,000.00
5,000,000.00
5,625, (XX). 00
4,025,000.00
21,508. tO 7,000,000.00
5,735,625.00
2,137, COO. 00 8,015.63 5,875,000.00
56,9-17.90
30,837.63
20,136.19
34,983.06
1,800,000.00
m Called July 1,1924, at 105.
» 6 months' credit,
w Called Jan. 19, 1925, at 105.
» Certificates,
a American certificates.
37,600.00
39,538.75
Called Jan. 1,1931, at 105.
» Called Aug. 1, 1925, at 100.
» CaUed Aug. 1,1923, at 105.
»Cumulative preferred stock.
, . . .
*» Exchanged in 1924 for Cuban Dominican Sugar preferred stock.
11
92928—31.
(Face p. 162.)
28
1,429
1,319
1,226
29,481.30
2S, 00-4.00
5,000,026.22 14,713,304.39 1,440,272.40
22,731.30
15,10-4.00
2,759,627.81
615,676,706.67
• Called at 110 on Mar. 15,10&
• To be called Jan. 1,1832, at 105.
" American shares for common stock.
•Sold our notes without profit.
1,000,000.00
1,315,000.00
17,500,000.00
5,500,000.00
1,650,000.00
1,900,000.00
5,000,000.00
1,800,000.00
751,500.00
10,455.00
100, (XX). 00
75a CO
900,000.00
5,851.30
11,224.00 1,000,000.00
11,221.39 1,000,000.00
79,901.18 12,955,000.00
18,794.28 1,500,000.00
750,000.00
100,000.00
500.000.00
1,000,000.00
1,000,000.00
9,598,500.00
3,000,000.00
Potter Bios. A Co..
» A n d 24 days* interest.
52,250.91
451,650.91
276,902.91
390,515.10
204,672.96
307,50!). 91
I2S, 607.41
jr,, 0 7!». 93
2.305.4S
2,700.52
69,114.00
65,2S5.00
2,025.81
21,917. SO
435,1S6.25 "40,394.3:"?
15,915.30
2.717.50
231,625.00
7.980.51
1,300,000.00 "15^314.(00
11,850.(00
1,000,000.00
30,000.00
Kuhn, Loeb Co
Dillon, Read & Co.—
S Oct. 1,1945
6 Sept. 1,195-1
Kreuger & Toll
K
reuger & Toll (debentures)
T
ir & Toll
10,000,000.00
....do
I.ce Iliggenson & Co...
Guaranty Co., N. Y...
0)
None.
7,500,000.00
4,600,000.00
2,600,000.00
<">
None.
5,000, (XX). 00
2,000, IKK). 00
lE
' RU
Ccrro Do l'asoc Copper Co
Republic of Peru
IH
91^ Dillon, Read & Co—
86 'j? P. Morgan & Co.."
92H
do
90
do
93H
do
89^
90^ Guaranty Co., N. Y..
J. P. Morgan & Co—
Aug. 1,1914 3,200,000.00
July 1,1950 1,800,000.00
Feb. 1,1951 16,700.000.00
May 1,1965
July 1,1971
900,000.00
Oct. 1,1961
Juno 15,1953 2,500,000.00
900,000.00
Dec. 1,1961
THE NETHERLANDS
Anglo American Oil Co. (Ltd.)
Colon Oil Corporation
Dutch East Indies
[....do
Field, Olore & Co
J. 1\ Morgan & Co
13,750. 00
83,000.00
41,750.00
90,000. (X)
Vi
a-U
None.
Nov. 21,1931
(»)
July i, l!)16 1,779,000.00
/Mar. 1,1937 2,600,000.00
i>2'A
\-Mar. 1,1917
None. <ji>A
9130
Jan. 1,1963
Dec. 1,1951 10,729,900.00
May 1,1952 2,857,000.00
Apr. 1,1952 2,557,000.00
1,375,000.00
8,300,000.00
8,350,000.00
9,000,000.00
$2. 50
Spoycr it Co
100.000
18,750.00
188.000.00
94,000.00
150,000.00
176,311.27
65,912.55
(50,000.00
t
J. P. Morgan & Co...
Feb. 1,1937
'Nov. 1,1922
.Aug. 1,1929
Feb. 1, KXiS
May 5,1931
May 5,1932
2.500,000.00
20,000,000.00
20,000, (XX). 00
20,000.000.00
11,250, (XX). (XI
9,000, (XX). 00
3,000,000.00
No. 1
377
1,031
834
2,347
Canadian and Cuban Issues managed by others
Date offered
Province of Quebec
Canadian Northern Ry. Co.
Canadian Pacific Ry. Co
Canadian National Ry. Co..
Dominion of Canada...
City of Toronto
Grand Trunk Ry. Co
—
Province of Alberta
Canadian Northern Ry
Grand Trunk Ry
Canadian Northern Ry
Grand Trunk Ry
Canadian National Ry...
Dominion of Canada.,
City of Montreal
Canadian National Ry... .
Do":::::::::::::::::::::::::::::
Province of Quebec
City of Montreal
Canadian National Ry
---Shawinigan Water & Power Co
National Transcontinental Ry
Shawinigan Water & Power Co Province of New Brunswick
Canadian National Ry
Canadian Pacific Ry
Province of New Brunswick
Canadian National Ry
Canadian National Ry. Co.
Canadian Pacific Ry
Montreal Metropolitan Commission..
cuba
Republic of Cuba.
Average.
1
Rate
Amount
Maturity
Per cent
Mar.
6
Mar. 1,1920 $3,500,000.00
Mar. 23,1920 12,000,000.00
Mar. 25,1920 12,000,000.00
May 15,1920 15,000,000.00
July 9,1919 75,000,000.00
Nov. 27,1919 2,632,000.00
Oct. 0,1920 25,000,000. 00
Nov. 1,1920 1,000,000.00
Nov. 20,1920 25,000,000.00
Jan. 14,1021 12,000,000.00
July 7,1Q21 25, 000,000.00
Sept. 10,1921 25,000,000.00
Mar. 7,1922 11,000,000.00
Apr. 1922 100,000,000.00
Nov. 1,1922 16,139,000.00
Jan. 8,1921 9,700,000.00
July 28,1924 20,000,000.00
9,375,000.00
do
000,000.00
Sept. 4,1921 26,
000,000.00
Feb. 3,1925 18,
1
7
,
000,000.00
do
5,000,000.00
June 5,1925 7,
0
000.00
Jan. 11,1920 15,000,
00,000.00
Apr. 29,1927 35,000,
000.00
Oct. 5,1927 3,396,0
00.00
Jan. 19,1928 10.
0
00,
00.00
Apr. 17,1928 2,265,0000.
00
Nov. 9,1928 60,
0
00,
0
00.
00
June 17,1929 30,000,000.0
0
Dec. 17,1929 3,358,000.00
Jan. 10,1930 18,000,000.00
Jan. 28,1930 70.000,000.00
Jan. 21,1931 14,250,000.00
Dec. 1,1930
May 5,1931 2,680,000.00
1,1925
5 Dec. 1, 1922-1924
Oct. 1, 1920-1932
May 1, 1935
m August 1, 1924-1929.
m Sept. 1,1920-1919
Oct. 1, 1940
7 Nov.
1, 1930
6
Dcc. 1, 1940
7 Feb.
1936
I,
m
m July 1, 192f>.._
Sept.
1,
1936
6
5 Mar. 1,1925
5 May 1,1052
5 Nov. 1.1942
5 Sept. 1, 1943-1963
4 July 1, 1927...
Julv 1, 1935-1939
4*2 Sept. 15, 1954
m Jan. 15,1930...
4H Feb. 15, 1935
4M Mar. 2, 1950.
4H Feb. 1, 1946
M. May 1, 1928-1942
4 Yi Oct. 1, 1967
4X Oct. 1, 1955
4H May 1, 1968
4H Nov. 15, 1958
5 July 1, 1969
Dec. 1,1954
5 Jan.
15, 1960
5
Feb.
1, 1970...
5
4] Feb. h 1056—
4] June 1, 1931-1945
4H May 1, 1965
Jan. 15,1923 50,000,000.00
July 1,1927 9,000,000.00
5H
Jan. 15,1953
July 1, 1928-1937..
Manager
Our cost Offering Our participa-Our grossOur profit General Net profit Amount of
sales
expense
price price
tion
spread
$95.84
95.57
96.828
99
99.25
97
98.75
Per cent
1.97 $21,836.92
19,393.14
800,000.00 3
7,635.10
480,000.00 2
19,412.47
1,000,000.00
3
[
1
2
0,251.38
[12,750,000.00 ! 2.25
811.12
2.55 22,
i,oi6,ooaoo
96,
682.70
4.50 6,9
2,500,00a 00
28
1.775 33,737.
500,00a 00
40.00
3
2,000,00a 00
1
9
,
1
9
3
.
57
2H
1,500,000.00
35,123.27
3
2,000,00a 00
2 U 29.150.36
2,000,00a 00
. 595 665.82
897,500L 00
19,500, OtXX 00 2.50 245,743.06
2
23,294.02
2,219,00a 00
2.27 9.955.69
1,215,00a 00
. 625 11,528.98
3,275,00a 00
1.27 11.409.37
1,535,00a 00
o
24,356.40
3,040,000.00
7,7&4.48
3,420,00a00
6,941.53
M
i,sos,ooaoo
.965 5,571.89
1,913,50a 00
6,670.78
1.11
1,400,00a 00
.831 6,661.60
2,456,25a 00
110.00
1.5
11,903.53
""Bs^ooaoo 2
1,237. 50
Itt
391.87
1.95 75,
865,000.00
7,588.35
0,930,012.00 1.59
63,
899.25
2,625,000.00 2.50
10,214.52
1,679,000.00 1.65
20,
1
31.56
2,250,000.00 1.41
1.84 70,977.67
8,750,000.00
025.00
1,000,000.00 1. 5731 9,
5.830.70
1.09
1,340,000,00
$93.87
92.57
94.328
96
98.25
94.75
96.20
9 5H
91.10
97
92.65
93J-2
93
99.03
97.50
J. P. Morgan.95
Harris Forbes...
94.14
Dillon Read""
m*
—do
97.35
94
99}*
:::::do:::::::::::::::::::-~ m*
Harris Forbes
96.16
94.14
Dillon Read" .".
9
8
Lee Higginson.94
Dillon Read
96}
£
Lee Higgman
97
First National Bank
9
3
.
3
0
Dillon Read
9a 16
Bank of Montreal
97.50
Harris Foster
98.10
Dillon Read
96.404
Union Trust Title."..:::"... 98Mo
Guaranty
98.91
100
J. P. Morgan & Co.,
do
99.25 10,000,000.00 2.48
U01.122 1,800,000.00 11.122
Harris Forbes.
W. A. Read Co
Guaranty
W. A. Read Co
J. P. Morgan
Harris Forbes
W. A. Read & Co
Harris Forbes
W. A. Read & Co
—do
Dillon Read...
96.77
100
100
92%
100
95.4
9614
99.625
100
97
96. 41
987/8
98.62
96
W*
97?i
97.125
95.25
98.831
05^2
98)-2
98M
95. 25
99.75
100
99.75
99.50
98.25
99.6356
95}*
$1,750,000.00
59,343.75
6,206.25
$8,100.00 $16,736.92 $1,350,000.00
5,046.00 14,347.14 841,000.00
1,140.00 6,495.10 190,000.00
3,480.00 15,932.47 590,000.00
39,156.53 81,094.85 7,8-47,100.00
4,570,84 18,240.28 916,000.00
11,124.00 85,558.70 1,854,000.00
1,128.00 5,809.28 188,000.00
11,172.00 22,56S. 00 1,862,000.00
3,008.12 16,185.45 479,000.00
5,984.84 29,138.43 953,000.00
S, 785.72 20,664.64 1,399,000.00
395,000.00
2,140.90 1.475.08
39,999.60 205,743.46 7,380,000.00
19,837.20 3,459.82 3,660,000.00
6,605.00 3,290.69 1,550,000.00
159,000.00
9,283. 70 2,
45.28 2,
1,254,000.00
5,392.20 6,2
017.17 2,
000,000.00
8,600.00 15,
7
56.
4
0
1,651.66 6,132.82 269,000.00
230,000.00
1,412.20 5,
5
29.
3
3
13,839.56 8t 267.67 2,254,500.00
7,095.83
125.05 1,169,000.00
4,782.82 1,878.78 889,000.00
100,000.00
538.00
50,000.00
3,151. 50 8.7428.00
52.09 595,
00.00
639.35
598.15 1,312,00
00. 00
8,829. 76 3,437.89
32,908.82 44,679.53 4,708,000.00
31,748. 58 32,150.67 4,542,000.00
11.893.20 1,678.68 2,040,000.00
17,198. 50 2,933.06 2,950,000.00
8, 704.30 62,273.37 1,930,000.00
5,771.70
253.30 990,000.00
7,184.43 3,
1, SSS. 73 1,593,000.00
4,256.34 55,087.41
4,29a 62 1,907.63
92928—31.
(Face p. 162.)
612; 100.00
799,000.00
No. 2
The Syndicate
Date oftere<1
Name of issue
Amount of issue
Rate
Tjarly sinking fund payments
Maturity
Sinking fund
payments to
date
Cost
price
Ottering
price
Original terms
Manager
Number
of dealer
Intermediate group
Amount of Number Profit
profit
of dealers spread
Profit
spread
Amount of
profit
The National City Co.
Banking group
Number Profit
of dealers spread
Selling group "
Amount of Number
profit
of dealers
Profit
spread
Original terms
Total expenses
Total net
profit
$124,755.00
210,000.00
175,000.00
$29,22G. 24
25,363. 75
13,317.00
Amount of
profit
Intermediate group
Banking group
Participation
Amount of
profit
Participation
$170,528.76
424,636.25
361,683.00
$3,750,000.00
9,000,000.00
7,500,000.00
$18,750.00
90,000.00
75,000.00
---------------
------..
$3,040,000.00
5,050,000.00
5,750,000.00
12,000,000.00
97,612.50
$13,000,000.00
$57,880.96
Amount of
profit
Amount of
profit
Selling group
r
Gross profit
Discounts
General
expense
Net profit
Number of retail
sales
Participation
Amount of
profit
$11,732.24
39,826.07
49,842.78
$3,270,000.00
2,343,500.00
5,405,000.00
$41,722.50
38,081.88
94,587.50
$72,204.74
167,907.95
, 219,430.28
$7,879.66
4,129.63
14,639.63
$17,592.60
14.717.09
24.295.10
$46,732.48
149,061.23
180,495.55
851
657
1,074
10,200,000.00
91,800.00
8,705,000.00
156,847.83
404,141.29
52,369.92
46,852.90
304,918.47
2,005
.
5,140,000.00
. - 2,475,000.00
28,507.64
33, 759.00
5,278,000.00
2,304,500.00
84,857.50
50,937.50
167,324.31
114,696.50
47,548.36
35,521.94
13,827.00
84,251 01
100,869.50
1,254
cm
Ow
16,706.35
25,337.99
4,941,000.00
4,553,500.00
93,020.00
105,358.18
1G0,777.27
170,855.45
26,121.12
7,611,87
33,252.93
31,828.97
101,403.22
146,638.35
1,172
. 1,575
.. 16,672.58 ..
liW, 147.26
16,584.81
26.310.00
51,895.55
28,777.19
68.773.01
49,942.59.
130,023.40
30,212.84
17,125.50
31,575.28
68,591.00
181,541.16
Participation
australia
City of Brisbane
State of Queensland
Do
.. Mar. 11,102 7
- Oct. 7,192 1
- Feb. 2,192 2
$7,600,000.01
12,000,000.0(
10,000,000.<X
5
7
0
Mar. 1,195'
Oct. 1,1941
Feb. 15,194/ ; E
Nov. 30,1925
30,000,000.0C
6
Nov. 1,1952
. Dec. 10,192&
. Oct. 4,192C
10,000,000. oc
10,000,000.0(J
5
8
Dec. 1,1958
Oct. 1,1927
. Mar. 19,1928
. Sept. 1G, 1920
8,500,000.00
S, (XX), 000.00
OH Mar. 1,1958
Sept. 1,1959
:
;
=
=
2
2
2
National City Co
do
.....do
$372,000.00
1,122,000.00
372,500.00
03H
9 5H
92H
96
99
mi
2 437 f/tfl 00
86.415
00H
H
$37,500.00
120,000.00
100,000.00
.5848
122,812.50
l
l
-
:IIIIII:
IIIIIIIIIIIII;
59
20
19
M
1
1
$37,500.00
120,000.00
100,000.00
290
327
338
1H
lH
1%
105,000.00
63
1
210,000.00
426
2
503,600.00
76,436.20
864,976.30
.
austria
City r>f Vienna
.
r
,_, r
4
8
H
belgium
leginsJune 1,1934
Called Apr. 1, 1924, at 104..
10,000,000.00
90.71
94
94
100
"II._do~
-
brazil
State of Minus Geraes
Do...
-
368,000.00
188,000.00
do
do
93.167
82.33
97fi
87
91%
S7h
93 U
93H
do.
mi
93 M
94 I_...do
do
03*S
91^ II___do
do
96?*
do
99
90H«
96
chilk
. Nov. 0,1922
. Jan.- 24,-192*
Sept. 4, J 928
Mar. 11,1929
Apr. 24,1930
Dec. 13,1926
June 18,1929
18,000,000.00
- -45,912,000.00
16,000,000.00
10,000,000.00
25,000,000.00
35,000,000.00
32,000,000.00
Oct. 27,1925
7
0
G
6
5
6
2,900,000.00
Nov. 1,1942
—1,7fiO, 000.00
.Jan. —lrlQ(U
423,000.00
Hopt. 1, 19<il
210,000.00
Mar. Ifl'J62
255,000.00
May 1,1963
Jan. i, 1947 " iegin ~M ayllB," "l932.11111111
July 1,1954
i42,"6oo."o6"
25,000,000.00
7H
Oct.
Jan. 31,1921
Oct. 22,1920
Dec. 19,1921
15,000,000.00
25,000,000.00
30,000,000.00
8
8
6
Feb. 1,1946
Oct. 15,1945
Jan. 1,1942
Oct. 18,1923
Mar. 19,1925
Sept. 14,1926
Feb. 15,1928
Sept. 28,1928
Oct. 8,1924
10,000,000.00
10,000.000.00
15,000,000.00
15,000,000.00
10,000,000.00
7,000,000.00
6
7
m
5*6
6
m
Sept.
Mar.
Sept.
Feb.
Sept.
Oct.
Jan. 26,1925
Dec. 9,1925
General
Do Electric Co., Germany
May 22,1928
June 7,1928
Am&r.0FL G" cFe'mica'i CoVpIII IIIIIIIIIII Apr. 26,1929
Sept. 16,1925
Central Bank for Agriculture, Germany.. July 11,1927
Oct. 14,1927
DoII.-I.I_™
I I I . . . I . . May 2,1928
Feb. 11,1929
Apr. 29,1926
HarpenSteel
Mining
Corporation..I
Corporation
Ilseder
Oct. 31,1928
Rhine W^tphalia Electric"Power Cor- Nov. 12,1925
poration.
Aug. 10,1927
Do..
Sept. 26,1928
Do.
Oct. 2,1928
Do
Mar. 20,1930
Do
Feb. 20,1931
Saxon Public Works
Feb. 3,1925
Do...
June 30,1926
July 30,1930
Saxon Stete Mortgage Institutionrirri. - . Jan. 15,1926
Nov. 22,1926
Do T I I 'L
IIIIIIIIIII
III Sept. 8,1927
10,000,000.00
10,000,000.00
10,000,000.00
5,000,000.00
30,000,000.00
25,000,000.00
30,000,000.00
50,000,000.00
25,000,000.00
10,000,000.00
7,500,000.00
10,000,000.00
10,000,000.00
7
m
6
6
5H
7
6
6
6
6
7
6
7
1,009,000.00
Jan. 15,1945
4,198,000.00
Dec. 1,1940
May l, 1948 "Begins Sept" 15,1933."""
See above.
May 1,1948
71,000.00
May 1,1949
2,786, COO. 00
Sept. 15,1950 "ILIII
II
IIIIIIIIIII
July 15,1960
3,507,000.00
Oct. 15,1960
6,699,000.00
Apr. 15,1938
1,300,000. 00
Jan. 1,1949
750,000.00
Apr. 1,1946 "Called Apr'. l","i929lIII I1II11 7,500,000.00
Aug. 1,1948
691,000.00
Nov. 1,1950
1,618,000.00
15,000,000.00
20, ooa 000.00
1 8,000,000.00
20.000,000.00
7,500,000.00
15,000,000.00
15,000,000.00
1^000,000.00
5,000,000.00
4,000,000.00
2,000,000.00
6
6
May 1,1952
Aug. 1,1953
761,000.00
646,000. 00
0
Aprl 1,1955"
7
Feb. 1,1936
Feb. 1,1015
7
OH May 1,1951
5
July 15,1932
Dec. 1,1945
OH Dec. 1,1946
Sept. 15,1947
6
364,~O56."OO"
None.
None.
1,001,000.00
Oct. 9,1922
June 30,1925
16,000,000.00
1,743,000.00
6
6
Oct.
Oct.
1,1952
1,1953 ,
4,997,500.00
704,908.78
Dec. 5,1927
15,000,000.00
5
Nor. 1,1960 .
Aug. 12,1924
Industrial Bank of Japan (Ltd.)...
Oriental Development Co. ( L t d . ) . . . . . . . . Mar. 27,1923
Oct. 30,1928
Do . . . . . .
.........
22,000,000.00
19,900,000.00
19,900,000.00
G
6
m
Aug. 15,1927
Mar. 1,1053 Nov. 1,1958
6,000,000.00
6
Republic of Chile
Chil? Copper C o . " ! - _
Lantaro\\itrate Co. (Ltd.)
.... - 6 -
90
"
...
2
G
.79
1H
78,962.22
150,000.00
71
44
%
A
iX
67,500.00
150,000.00
258
123
1X
3
183,627.50
299,750.00
47,278.53
45,400.6-4
282,811.19
554,349.36
7,500,000.001
2,000,000.001
53,959.17
30,000.00
...
4
4
1.58
1.419
134,508.13
113,582.49
3
12
X
63,750.00
46,290.00
83
123
2
2X
189,120.00
179,612.50
94,083. 79
31,434.46
293,294.34
308,050.53
4,016,250.001
3,900,000.001
50,990.92
40,159. 28
—I
1
2
4
3
3
5
3
H
1 -A
1
1
1
1
1
135,000.00
45U,, 190l 00
160,000.00
100,000.00
257,500.00
350,000.00
320,000.00
18
225,000.00
00
378
701
2
90,430.00
225,000.00
262,500.00
232,500.00
459
325
507
488
2
2
2
m
2H
3(0,000.00
U&7, l^K OO
370,870.00
222,940.00
489,50U. 00
471,150.00
979,525.00
234,375.00
6
—
czechoslovakia
Czechoslovak Republic
.
1,19-15
Called Apr. 1, 1928
25,000,000.00
Called Feb. 1,1931
Called Oct. 15, 1925
15,000,000.00
25,000,000.00
4
do
denmark
Danish Consolidated municipal loan
Kingdom of Denmark
95
90H
finland
Republic of Finland
Do
-
Finland Residential Mortgage Baicik
Finnish Guaranteed Municipal Loan-...
germany
1,1945
1,1950
1,1956
1,1958
1,1961
1,1954
-
-
-
--------
2.077,000.00
307,500.00
972,000.00
766.000.00
326,000.00
680,000.00
864.7moo
585,000.00
229,000.00
85
88.417
88.70
oitt
86
88.71
88^
90H
91#
91
88
92
92^
Wtf
85
88.63
88.36
S9H
92
90.458
48.119
am
m*
86.91
95
88.18
92
91
...do
do
do
*Mtt
98
HO . . . . d o — —
94
do
94
do
92 H
I . . . .do.
do
91
_do
do
__,do
95 " ...do
95 I__..do
_„do
93
05 I-I-do
do
95^
do
do
90
do
94
do
92
do
94
.......
.
92.137
81.29
96H
96
12^408,000.00
<U
97
22,000,000.00
3,793,500.00
1,386,000.00
96H
87
m
99X
92
90
260,000.00
94H
98
20,000,000.00
94H
97
100
100
iRELAND
Irich itraa State
.
JAPAH
HOLLAND
flliv nf Rnttflrdaln
Apr* 16,1924
NORWAY
Sept* 28,1920
<Oct* 16,1922
Do
May 1,1964
J
Do.
-<iug* 15,1923
Do
^lug* 5,1924
Norwegian Hydro Electric Nitrogen JSTov» 17,1927
Corporation,
20,000,000.00
18.000,000.00
20,000,000.00
25,000,000.00
20,000,000.00
8
6
6
0
5H
Oct* 1,1940
Oct* 15,1952
Aug, 15,1943 .
Aug, 1,1944 .
]Nov* 1,1957
Called Oct, 1, 1925 at 110
Sinking fund starts Apr* 15, .
1933*
340,000.00
94.27
mi-
do
Jline 25,1928
12,000,000.00
5
1May 15,1963 .
25,000,000.00
None.
MM
96.62
wtt99H-
93
9SH-
SWEDBN
Do
... .........
une 12,1919
. . . C>ct. 27,1924
25,000,000.00
30,000,000.00
6
5H
J une 15,1939 *Sailed June 15, 1929, at 102
1sfov. 1,1954
URUGUAY
Republic of Uruguay
Total
i American shares common stock*
. . . A.Ug. 8,1921
7,500,000.00
1, 071,955,000.00 . .
8
JLug. 1,1940 -
639,00(X00
222,866,908.78 -
1
3
3
3
4
1
1
1
1
IK
—
--
do
.542
1.881
H
1.084
X
1.32
2
2
.863
.97
...
::::::::::::::
... -------
IIII:IIII:
104,000.00
150,000.00
125,000.00
138,125.00
108,371.13
101,265.79
150,000.00
H ""i56,"5o6."oo"
7
2
u
50,066.06"
"*"225,"566."66"
162,500.00
75,000.00
65,833.33
80,000.00
40,000.00
G1
1
215,000.00
380
3
659,280.00
74,549.56
31
34
35
1H
VA
1
187,500.00
375,000.00
300,000.00
412
472
559
2li
2Vi
2
373,975.00
625,000.00
599,990.00
46,129.31
56,647.58
48,301.43
665,345.69
1,193,352.42
1,189,188.57
11,250,000.00
16,188,000.00
15,000,000.00
112,500.00
161,880.00 I M I I I I I I - . I - 168.750. GO
37
37
48
75
71
34
1
1
1
1
H
1
100,000.00
100,000.00
146,542.50
105,000.00
43,500.00
70,000.00
256
180
240
235
238
176
3
3
359,370.00
315,720.00
308,275.00
219,580.00
200,770.00
221,400.00
37,430.10
48,611.38
47,155.79
38,490.03
43,512.12
34,796.99
521,939.90
525,441.95
547,661.71
405,881.63
239,882.88
326,603.01
5,625,000.00
2,531,250.00
3,037,500.00
4,218,750.00
2,936,250.00
3,543,750.00
56,250.00
45,574.22
60,255.48
64,306.57
18,930.39
42,328.13
29
37
78
m
m
1
100,000.00
325
245
285
3
2H
M
284,700.00
250,000.00
191,922.50
88,769.29
36,365.75
59,876.50
399,930.71
513,634.25
357,046.00
10,000,000.00
10,000,000.00
10,000,000.00
104,000.00
150,000.00
125,000.00
79"
58
63
75
89
41
26
58
37
I " ""290,"666166"
499"
456
393
553
485
45
79
224
170
2"
3
in
599,626.66"
633,780.00
414,701.25
784,595.00
469,702.50
95,700.00
150,000.00
239,175.00
226,125.00
209,460Is6"
87,280.65
87,775.44
71,665.67
66,797.44
43,960.37
20,979.08
79,083.22
41,228.80
381
442
32
456
2
2
2
2
285,930.00
320,980.00
1C0,474.00
351,360.00
74,473.55
105,910.14
35,930.42
130,438.49
279"
259
88
58
(>4
37
3""
2H
IX
2H
2
2
450,"666."66" "*123*046."82"
60,056.04
395,575.00
33,247.82
129,825.00
13,248.19
139,850.00
18,127.11
79,000.00
9.541.94
40,000.00
n;o, 000.00
%
H
150,000.00
100,000.00
1
F
lH
201,250.00
100,250.00
216,650.00
187,500.00
40,690.00
78,750.00
69,750.00
136,000.00
5S
90
H
%
61,750.00
123,750.00
82~
H ""133,375.66"
$
H
%
1
m
4
R~
1.00
3
2
2
lit
2H
2
2X
2H
48,721,5!)
.lfW>, 057. 89
111,748.56
71,979,34
76, 237.30
100,126.31
327,087.93
806,278.41
1.737,812.11
579,121.44
341,390.66
895,762.70
983,523.69
1,524,937.07
1,249,105.44
0,250,000.00
78,125.00
411,331.45
497,190.99
225,809.37
504,296.51
15,000,000.00
20, 000,000.00
8,000,000.00
20,000,000.00
8,605,000.00
253,470.00
499,772.72
32,328.79
52,834.70
414,609.23
1,745
7,350,000.00
12,000,000.00
18,425,000.00
83,542.85
170,629.17
169,128.32
4,195,500.00
5,858,000.00
6,034,500.00
87,441.25
134,905.49
113,565.00
283,484.10
467,414.66
451,443.32
20,142.50
15,992.50
18,592.20
26,347.74
35,148.00
44,531.48
236,993.86
416,274.16
388,319.64
786
1,175
1,643
5,010,000.00
2,949,375.00
3,600,000.00
3,660,000.00
2,802,500.00
3,780,000.00
33,468.07
17,636.38
25,532.03
27,967.15
10,509,37
22,346.86
4,242,000.00
2,500,000.00
2,830,000.00
3,450,000.00
2,332,500.00
2,453,000.00
124,440.00
71,250.00
70,750.00
64,687.50
37,333.73
67,947.50
214,158.07
134,460.60
156,537.51
156,961.22
66,773.49
132,622.49
23,060.01
4,803.76
6,092.65
10,294.45
9,638.03
9,235.91
29,616.74
15,350.00
17,178.10
23,118.50
15,697.73
10,647.90
161,481.32
114,406.84
133,266.76
123,548.27
41,437.73
112,838.68
1,499
1,101
743
720
558
701
6,825,000.00
6,525,000.00
40,504.07
77,310.97
42,793.17
4,800,000.00
4,908,000.00
4,817,000.00
5,000,000.00
13,631,000.00
7,000,000.00
6,356,500.00
7,303,500.00
5,501,500.00
2,495,000.00
3,515,000.00
5,215,500.00
5,700,000.00
124,755.00
118,900.00
65,012.25
193,750.00
238,542.50
205,390.00
102,523.11
75,609.66
45,447.01
69,140.00
102,150.00
135,775.00
269,339.07
346,210.97
232,805.42
193,750.00
544,297.23
424,044.22
271,812.41
422,550.94
189,085.76
135,100.34
250.915.33
188,826.25
3,018,832.73
17,630.24
23,841 42
12.829.63
25,296.69
57.916.88
26.547.64
14,082.52
23,978.18
17,786.34
3,456.51
3,614.32
35,911.04
30,333.69
29,472.00
30,135.12
32,418.41
33,650.00
95,280.69
42,980.00
34,097.97
39,292.83
33,559.10
17,440.05
21,336.05
35,100.32
34,978.00
222,236.83
292,231.43
187,557.38
134.803.31
391,099.66
354,516.58
223.631.92
359.279.93
137.740.32
121,152.80
225,964.96
117,814.89
236,52L 04
1,125
1,352
950
594
2,285
1,531
1,700
2,191
1,451
711
1.243
1,890
1,194
6,763.500.00
8,092,000.00
5,798,700.00
8,428,000.00
271,350.37
328,785.74
19,281.86
328,806.13
42,030.00
504,780.55
322,296.36
130,522.66
185.816.34
131,721.62
66,102.54
24,174.29
46.580.65
7,775.25
53.008.89
4,963,000.00
3,424,000.00
2,333,000.00
1,658,000. 00
116,350.37
140,490.00
91,551.07
128,070.00
42,030.00
230,270.05
150,000.00
53,767.66
85,150.00
46,660.00
26,102.54
sSIoiiles33,438.50
14,481.50
9,544.35
7,300.24
36,387.63
54,459.16
39,025.25
49,215.24
33,825.00
66,005.00
36,420.00
28,934.29
20,783.68
14,161.31
9,519.04
210,788.45
227,745.93
146,016.36
226,582.00
8,205.00
438,775.55
250,834.73
68,149.87
150,551.16
108,015.96
49,283.26
1,824
1,457
887
1,078
73
3,739
1.244
314
958
791
465
7, 515,000.00
8,035,000.00
" 10*025,"666i06"
8,~225,~666.~00"
§6,"751 73"
52,404.22
22,536.80
65,629.06
35,351.10
15,213.33
421,164.53
23,015.51
70,224.40
16,875.00
32.424.61
50,"736113"
1,180,000.00
10,750,500.00
118,681.88
15
1
160,000.00
306
1
2H
5
400,000.00
87,150.00
97,494.31
600,585.69
256,257.60
16,000,000.00
1,743,000.00
120,650.00
169,107.60
13,750,000.00
105,398.62
12,960,500.00
1,743,000.00
218,272.50
87,160.00
444,321.12
256,257.60
14,165.94
49,815.51
70,245.91
10,702.02
359,909.27
195,740.07
£925
75,000.00
332
m
275,985.00
78,586.63
422,393.32
7,350,000
73,500.00
5,200,000.00
11,110.78
5,354,000.00
67,797.50
152,408.28
22,375.56
28*804.62
101,228.20
1,106
144
196
102
IX
%
110,000.00
199,000.00
149,250.00
iH
275,000.00
497,500.00
453,420.00
21,595,68
137,359.62
110,538.50
583,404.32
857,640.38
641,381.50
8,800,000.00
11,940,000.00
11,940,000.00
106,150.00
119,400.00
104,475.00
12,150,000.00
12,350,000.00
6,000,000.00
50,390.35
100,004.25
30,154.97
7,922,000.00
10,703,000.00
9,372,000.00
97,325.00
267,575.00
176,745.00
253,865.35
486,979.25
311,374.97
43,400.00
82,965.34
33,780.92
34,064.60
74,599.91
63,073.56
176,400.75
329,414.00
214,520.49
473
768
1,472
m
135,000.00
9,449.88
215,550.12
% 925,000.00
25,781.25 -
5,225,000.00
30,958.25
3,783,000.00
85,117.50
141,857.00
30,417.51
16,266.90
95,172.59
633.00
m
367,115.00
360,000.00
19,294.92
44,179.00
1,130,705.08
495,821.00
6,750,000.00
8,727,355.00
50,625.00
43,636.77 -
2, G55,000.00
6 510,000.00
54,903.31
23,418.26
% ,15,500.00
4,506,0(K).00
41,337.50
79,275.00
194,955.81
146,330.03
13,577.60
15,300.50
16,293.00
24,422.52
165,085.31
106,607.01
1,909.00
888.00
5,081,000.00
7,630,000.00
9.575,000.00
41,043.24
42,164.02
86,175.00
2,544,000.00
4,000,000.00
6,235,000.00
48,700.00
69,212.50
139,345.62
133,519.49
216,691.78
366,614.37
16,488,00
18,488,11
29,690.39
17,801.68
17,200.00
33,544.30
99,229.81
181.003.67
303.379.68
545.00
567.00
1,448.00
13,459.73
4,497,000.00
72,166.25
103,914.09
38,712.24
30,26181
34,937.04
583.00
4,570,000.00
8,470,000.00
49,250.82
31,762.51
5,726,000.00
5,576,00a 00
42,945.00
92,897.48
147,195.82
171,321.99
7,174.83
15,605.24
28,572.74
23,976.80
111,448.25
131,739.95
962
584
33,27a 21
2,693,000.00
53,649.00
218,169.21
20,265.43
16,868.08
181,035.70
610
3,023,872.34 380,924,70a 00 7,348,832.62
17,444/215.94
1,673,265.05
2,378,448.68
13,392,502.21
81,280
H
45,000.00
13
H
45,000.00
92
5
5
r*
H
150,000.00
90,000.00
529
4
2H
H
432,885.00
90,000.00
464
439
1
200,000.00
187,500.00
175,000.00
550
469
395
2
H
%
441,420.00
459,987.50
482,450.00
67,109.15
50,275.42
55,928.59
674,310.85
847,212.08
776,521.41
10,006,000.00
8,963,000.00
13,125,000.00
43,776.25 .
105,315.26 ~
141,093.75 .
1
63, 177. 72
365,343.05. — — 2,4963,121
547,957.63
170,134.02
968
74,230.05
457
218,071.25
671
273,480.18
1,953
809,485.02
5,302
138,0S0.00
169,107.60
4
2
8,225,000.00
5, re,o, 000.00
431,958.22
S83, 128.29
216,932.27
117,665.55
301,542.08
370,848.37
1,059,799.19
1
If
1
.505
.132,640.00
37*. .rnV>. til
7<i, 101.50
42, 275.00
100,724.00
115,650.00
466,024.19
'
132,500.00
50,000.00
75,000.00
39,750.00
1
H
28
12
12
14,098,000.00
18,357, (KM). 00
85,943.22
7,109,000.00
ISO, 319.17 20, 211,500.0»>
•Hi, 370. 77 4,489. .r)00.00
l(i, 390. 55
2,4f:0, <JW). 00
17,318. OS
5, 41t>, 000.00
93, 367.12 11,300,000.00
95,535.00 21,684,000.00
8,125,000.00
"22, 7lf?t '000.00
7,07<J, 000.00
2,478,000. 00
5,600,000.00
701 ,'953." 18*""i5*66or666.~66~ ""225,"666166"
12,000,000.00
630,518.96
130,000.00
8,000,000.00
221,577.18
57,600. 00
5,000,000.00
267,435.14
65,833.33
3,650,000.00
180,622.89
71,250.00
70,458. OG 2 , 0 0 0 , 0 0 0 . 0 0
40,000.00
220,000.00
298,500.00
149,250.00
• 206
-.IIIIIIIIIII:
.
25"
48
61
36
40
""I50,"666i60"
1
i*
105,000.00.
138,125.00
108,371.13 "19,"600," 666.60" """47,~506."66"
101,265.79
150,000.00
4
3
3
1
10,500,000.00
' 5,355,000.00
4,379,000.00
980,159.26" ""30,"000,"666i60" ""156,"oooloo" "17,"2561660.60^ " " " 6 9 , " 6 6 6 i 0 6 " "13,600,"666166"
15,000,000.00
1,003,999.35
7,860,000.00
166,250.00
18,000,000.00
658,688.31
7,785,000.00
146,752.50
30,000,000.00
1,291,574.33
13,620,000.00
238,240.00
12,500,000.00
715,405.06
5,892,000.00
78,125.00
10,000,000.00
166,869.63
1,559,000.00
74,440.00
7,500,000.00
347,381.12
3,750,000.00
139,610.80
10,000,000.00
293.503.52
6,425,000.00
63,660.74
10,000,000.00
416.729.53
5,500,000.00
95,833.33
GO
1*
— -..
18,000.000. (HI1
135,000. (M1l 10,450,000.00 ^ 78,375.00
34.134,000. Of•! ' • :t2i, *_v>:i. r,n
9, <K)0,000. (X(J
ill, -JW. <K)
6,000. 000, 00
59,0(X). 00
15,000,000. (JO 153,500. 00
12,862,500.00
161,831.25
.
21,600,000.00
234,900. 00 *'26,"334; 606.66
263, 340. 00
150,000.00
—
——
215,000.00
1
l
l
1
3
-
1
;
378
97
92
90
88
89
76
3
5
-
1
135,000.00
"~~32O,~66O.~66~
3"
""iso^oooloo"
256,250.00
231,512, 50
i
361,995.00
X
.125,000.00
X
74,440.00
139,610.80 I . .
1.86
63,661.74
.64
95,833.33
.9583
1
1
...
—
1
1.04
m
2
1
2
1
95
do
100,000.00
158,333.33
140,000.00
119,791.66
39,125.00
70,000.00
1
1
1
4
97H
i
1.583
1.03J*
.80
r
2
...
...
do
III.-do
do
3
1
1
1
1
—
do
93
94
90 H
panama
Rennblfr of Panaind
— -
do
2,718,000.00
2,198,000.00
1,093,500.00.
150,000.00
250,000.00
337,500.00
7
4
do
do
96 H
1
1
m
0
5
—-
do-_V5H
do
94
do
51
do
93
...do
97
92 " . . . d o
91H
07H
do
V3H
do97
do
95
2
3
3
5
---
m
94
HAITI
Republic of Haiti
II-
100
H
%
22
96
15
i
200,000.00
36
H
1
2
100,000.00 .
250,000.00 .
175,000.00 .
37
62
*Ut
AM 0«
39
JOf lu4>
58
H
58,000.00
285
m
241,832.50
28,579.10
297,715.72
4,737,500.00
18,288.11 .
422
30
lh
H
312,500.00
112,500.00
341
454
2
X
191,845.00
614,180.00
43,077.5G
72,863.21
711,267.44
805,316.79
5,500,000.00
9,240,000.00
55,000.00
46,662.00 .
75,000.00
163
2
150,000.00
17,918.58
394,581.42
5,625,000.00
56,250.00
250,000.00 .
•ri enA An
151,500.00 • -
75,000.00
19,699,408.87 .
1
0,120,000.00
5,108,000.00
2,800,000.00
2,555,000. 00
4,809,000.00
48.090.00
3,3/6 250.00
49,510." 50*
42,296.36
19.155.00
34.833.01
13.811.62
6,000,000.00
oqo
/
4
1H
112,50a 00
1,287,500.00 -
163
1
8,898,232.50
21,755,840.25 4,030,638.15
37,560,343.47 653,365,105.00
5,000,00a 00
75,000.00
4,295,000.00
6,327,325.02 106,343,00a 00
744,185.96
429,783,125.00
92928—31.
(Face p. 162.)
No. 3
Issues managed by National City Co. covering Canadian and Cuban issues
Date offered
CANADA
City of Toronto
Province of Nova Scotia
Province of Manitoba
Province of Nova Scotia
Province of Manitoba
Province of Saskatchewan
City of Toronto
,
Caqpdlan Pacific Ry
Province of Ontario
Province of Alberta
*
City of Winnipeg—
Canadian Pacific By
Greater Winnipeg Water District
Duke Price Power Co. (Ltd.)
Canadian Pacific RySt. Maurice Paper Co. (Ltd.)
Province of Alberta
Do...?
Canadian Pacific Ry
City of Toronto
—
Province of Ontario
Abitibi Power <fc Paper Co. (Ltd.)
Do
.
Do
Canadian Pacific Ry
Province of Ontario
Canadian Pacific Ry
Province of Ontario
Cityof Toronto
Canadian Pacffic Ry.
Province of Ontario—
CUBA
Cuban American Sugar Co
Cuban Telephone Co
Cuba R. R. Co
—Sugar Estates of Oriente (Inc.)
Camaguey Sugar Co
Vertiente Sugar Co..
Cuba Northern Ry—
Cuban Dominican Sugar Co..
Cuba R. R, Co-—
Edificio La Metropolitana, S, A
Cuba R. R..Co.
Cuba Northern Ry. Co---National Hotel of Cuba Units...
Cuban American Sugar Co.1
Average.
-
Apr. 19.1920
Aug. 6.1920
Mar. 1.1921
Mar. 30.1921
May 15,1921
Aug. 1,1921
Sept. 29,1921
Dec. 20.1921
Sept. 11.1922
Sept. 21.1922
May 29.1923
Oct. 30,1923
Jan. 12,1921
Aug. 1,1924
Aug. 4,1921
Dec. 1,1924
Apr. 15,1925
Juno 15,1925
Sept. 16, 1920
Apr. 5, 1927
Oct. 2GJ927
Apr. 27,1928
May 28,1928
June 28,1928
Nov. 15.1928
May 6,1929
June 28.1929
Dec. 4,1929
Feb. 18.1930
Feb. 21,1930
May 14,1930
July 11.1930
Jan. 13.1931
Mar. 8,1921
Oct. 5,1921
Dec. 7.1921
Sept. 12,1922
Nov. 9.1922
Dec. 12,1922
Mar. 21,1924
July 1.1924
Oct. 23,1924
Mar. 2.1925
Apr. 7.1926
Juno 3.1926
June 2.1927
Aug. 21,1929
Mar. 2,1931
Amount of
issue
Rate
Maturity
Per cent
BH 1920-1950
1, 1928
c Apr.
Mar. 1, 1926
5
Apr. 1,1926
6
May 15,1931
6
Aug. 1,1927
6
July
1, 1925-1951
G
Debenture stock
4
:
5 Apr. 1,1952
Sept. 15,1942
5
5 June 1,1943..
Debenture stock
4
5 Jan. 1, 1929..
July 1,1949
_____
6
Debenture stock
4
Dec.
1,1929
1
5J4
Apr. 15, 1950
5
4M June 15,1945
4]A Sept. 1,19-16
4H Apr. 1, 1928^-1957
VA Nov. 1, 1928-1957
6 Cumulative preferred stock..
do
__
6
June 1,1953
Debenture stock
4
May l, 1959
....
5
5 July l, 1944
Dec. 2,1980
5
Feb. 1, 1930-1959
5 Sept. 1, 1953
Apr. 1,1931-1950
5
4 H July 1,1960
VA Jan. 15, 1932*1971..—
$1,905,000.00
500,000.00
1,000,000.00
1,500,000.00
2,079,000.00
3,000,000.00
10,000,000.00
25,000,000.00
15,000,000.00
3,000,000.00
1,000,000.00
5,000,000. 00
2,030,000.00
12,000,000.00
10,000,000.00
2, COO, 000. 00
3,740,000.00
2,250,000.00
20,000,000.00
8,800,000.00
24, 000, 000. 00
16, 000,000. 00
10,000,000. 00
50,000,000. 00
5,000,000. 00
35,000,000.00
30,000,000.00
30,000,000.00
5,590,000.00
2,000,000.00
13,396,000.00
25,000,000.00
30,000,000.00
10,000,000.00
4,000,000.00
4,000,000.00
6,000, 000 00
6,000,000.00
10,000,000.00
1,6S0,000. 00
4,500,000.00
15,000,000.00
794,000.00
1,200,000.00
20,000,000.00
1,376,000.00
6,250,000.00
1,065,000.00
B
7H
m
7
7
7
m
6
r
7
0
m
6
8
Mar. 8, 1925
Sept. 1,1941
Dec. 1, 1936 !
Sept. 1, 1942
Oct. 15, 1942
Dec. 1, 1942
Mar. 1, 1925/32. •July 1, 1966—
Nov- 1, 1944
July 1, 1952
Jan. 1, 1945
Dec. 1,1936
June 1, 1942
-—
Sept. 1, 1959 (and common)-,
Mar. 15, 1930
-
Cost
price
Offering
price
$94.18
89.80
88.30
91.41
89.15
91.10
96.18
74.00
97.41
97.42
95.79
77.00
97.14
95.00
79.00
95.00
99.16
94.50
94.00
98.35
99.31
97.50
97.50
90.00
85.50
99.15
97.50
100.81
97.60
98.95
100.214
95.50
98.67
$95.25
92.00
89.25
93.375
91.50
92.875
98.54
78.00
99.25
98.045
97.50
79.50
98.50
99.00
81.00
98.75
100.00
96.17
96.50
99.38
100.04
102.00
102.00
94.50
88.00
100.00
99.50
101.50
98.975
100.00
101.18
98.00
100.50
95.00
87.50
93.50
92.00
93.00
92.00
93.50
84.50
90.00
85.00
93.00
96.00
95.50
93.00
+80.61
100.00
95.00
99.50
97.50
97.50
97.50
+198.587
88.50
97.50
87.50
100.00
99.50
98.50
100.00
91.00
Participation Our gross
spread
Opr profit
Per cent
1.07
2.20
.95
1.965
2.35
1.775
2.36
4.00
1.84
.625
1.71
2.50
1.36
4.00
2.00
3.75
.84
1.67
2.50
1.03
.73
4.50
4.50
4.50
2.50
.85
2.00
.69
1.375
1.05
.97
2.50
1.83
$4,221.90
7,407.40
9,500.00
3,139.95
. 7,417.96
13,526.18
48,515.66
159,292.46
32,741.77
18,750.00
; 7.671.00
11,547.38
U, 340.72
210,053.24
33,704.55
25,009.97
12,522.15
8,855.00
103,300.13
1,601.72
19,338.69
195,829.62
99,641.59
448* 501.57
28,000.98
35,821.75
113,375.45
; 9,285.06
7,939.93
1,571.42
14,152.75
117,575.42
§1,021,45
5.00
7.50
6.00
5.50
4.50
5.50
1, 260,000.00+ 15.007
5.00
3,627,500.00
7.50
11,250,000.00
2.50
595,500.00
1,200,000.00 7.00
3.50
1,032,000.00
3.00
6,000,000.00
7.00
4,687,500.00
1,065,000.00 4*10.38
181,531.16
122,957.00
191,308.47
225,492.42
168,875.92
332,316.88
66,275.05
137,672.74
543,376.58
10,008.86
72,715.97
31,158.52
212,554.52
236,031.00
£5,421.07
$635,000.00
400,000.00
1,000,000.00
500,000.00
693,000.00
1,250,000.00
3,333,334.00
6,450,500.00
3,562,500.00
3,000,000.00
500,000.00
1,912,500.00
1,030,000.00
9,000,000.00
2,700,000.00
650,000.00
1,870,000.00
1,125,000.00
6,600,000.00
2,934,000.00
4,800,000.00
7,000,000.00
4,375,000.00
10,750,000.00
2,325,000.00
5,000,000.00
9,180,000.00
6,000,000.00
802,000.00
290,000.00
1,914,000.00
6,825,000.00
5,000,000.00
5,000,000.00
3,000,000.00
3,000,000.00
4,500,000.00
4,500,000.00
7,500,000.00
General
expense
$3,084.00
1,434.00
6,280.00
1,293.68
5,721.08
13,407.80
18,205.72
19.276.46
5,620.54
18,840.00
4,207.88
4,618.32
5,607.20
21.813.90
3,719.50
3,762.50
10,554.66
7,632.02
16,276.71
16,678.00
30.579.92
32,478.98
21,57a 01
76,674.89
10,783.48
20,760.30
21,759.87
33,300.36
7,205.88
1,690.70
12.295.47
27.266.91
24.547.93
Net profit
$1,137.90
5,973.40
3,220.00
1.846.27
1,696.88
118.38
30,309.94
140,016.00
27,121.23
90.00
Amount of
$514,000.00
239,000.00
1,000,000.00
206,000.00
911,000.00
2,135,000.00
2,899,000.00
3,069,500.00
1,037,000.00
3,000,000.00
604,000.00
3,463.12
6,929.06
662,600.00
t ,266.48
1,304,000.00
188,239.34
5,073,000.00
29,985.05
865.000.00
21,247.47
875,000.00
1,967.49
1,719,000.00
1,222.98
1,243,000.00
87,023.42
2,681,500.00
15,076.28
3,100,000.00
11,241.23 5,684,000.00
163,35a 64
4,826,000.00
78,068.58
3,205,000.00
371,826.68
11,393,000.00
17.217.50
1,602,300.00
15,061.45
2,970,000.00
91,615.58
3,113,000.00
2101$. SO 4,764,000.00
734.05
1,236,000.00
119.28
290,000.00
1.857.28
2,109,000.00
4,677,000.00
90.308.51
5,443,000.00
6,473.52
23,772.55
3,665.58
7,945.63
6,886.42
38,951.20
224,958.14
796.02
167,08a 88
112,206.90
109,981.59
205,118.64
143,304.36
291,333.55
59,051.05
126,806.64
519,604.03
6,343.28
64,770.34
24,272.10
173,603.32
11,072.86
24,625.05
92928—31;
(Face p. 162.)
14*450.28
10,750.10
21,326.88
20,373.78
25,571.56
40,983.33
7,224.00
10,866.10
2,301,000.00
1,711,800.00
3,396,000.00
3,759,000.00
4,718,000.00
7,561,500.00
1,680,000.00
2,527,000.00
5,528,500.00
597,000.00
1,309,000.00
1,134,500.00
7,240,000.00
1,584,100.00
176,500.00
No. 4
SALE OF F O R E I G N BONDS Oil S E C U R I T I E S
163
SAMPLES OF CIRCULARS OK GERMAN OFFERINGS
AEG—$15,000,000 ALLCiEMElKE ELEKTRICITATS GESELLSCHAFT (OEKERAL ELECTRIC
CO., GERM ANT) 20-YEAR 6 PER CENT GOLD SINKING FUND DEBENTURES
Debentures dated M a y
192S; due M a y 1, 1048.
Sinking fund beginning September 15, 1933, sufficient to redeem by maturity,
in substantially equal semiannual installments, one-half of the debentures out*
standing on that date.
Interest payable November 1 and M a y 1. Coupon debentures in denominations of $1,000 and $500, registrable as to principal only. Principal, interest,
and^sinking fund payable in N e w York C i t y in united States gold coin of the
?resent standard of weight and fineness, at the National City Bank of New
'ork, trustee, without deduction for any past, present, or future taxes or duties
levied by or within the German Reich. Sinking fund payments m a y be made
either in debentures of this issue or in cash, and any cash so paid w i l l b e applied
to^the redemption of debentures at 100. Issue also redeemable as a whole but
not in part on any interest date on 3 0 days' notice, at 102 up to and including
May 1, 1933, at 101 up to and including M a y 1, 1938, and a t par on any interest
date thereafter.
Trustee, the National Citv Bank of New York.
Principal and interest shall also be collectible, at the option of the holders, a t
the city office of the National City Bank of N e w York, in London, England,
in pounds sterling, at the then c u r r e n t buying rate of the said bank for sight
exchange on New York City.
These debentures will be direct credit obligations of the A E G , which will
covenant in the trust agreement that it will not execute any mortgage upon, or
make any pledge of, any part of its properties or assets without providing for
the security of these debentures, either in priority t o or, at the option of the
company, equally and ratably with the other obligations or liabilities to be secured
by such mortgage or pledge.
The following is summarised from the accompanving letter of Messrs. Bttcher
and PfefTer, managing directors of the Allgcmeine Elektricit&ts Gesellschaft:
The company was originally incorporated in 1883 under the name of the
German Edison Co., to exploit the Thomas A . Edison patents for incandescent
lamps. In 1887 its corporate name was changed to "Allgemeine Elektricitats
Gesellschaft," since known the world over as the A E G .
For many years A E G has enjoyed a cooperative relationship with the General
Electric Co. (America) under a contract which provides for the exchange and
mutual use of patents, technical knowledge, and experience. This relationship
has been a source of strength to both companies.
A E G manufactures all forms of electrical apparatus from the largest turbo*
generator set to a flashlight bulb.
During the fiscal years 1910-1914, inclusive,
total business averaged over $85,000,000 per annum and in some years exceeded
$100,000,000.
In recent years gross sales have increased from approximately
$54,000,000 in the fiscal year ended September 30, 1924, to over $100,000,000 in
the fiscal year ended September 30, 1927, and it is believed that the current year
will show a further substantial increase.
T h e company's products have achieved
a world-wide reputation for quality and efficiency.
Except for the charge or lien in favor of the so-called Dawes debentures, the
capital amount of which has been fixed at the equivalent of $6,115,000, the only
outstanding liens on any of the company's properties are small mortgages to the
extent of about $965,000.
The balance sheet of the company as of September 30, 1927, indicates net
tangible assets, after deducting all liabilities except funded debt, of more than
$73,750,000, as against total funded debt then outstanding of $21,352,232.
The
plant machinery carried at a figure of less than $5,500,000 has a replacement
value estimated* to considerably exceed $50,000,000. All the company's valuable
models, patents and tools, as well as furniture and fixtures are carried in the
balance sheet at less than one dollar.
During the first 3 0 years of its history, the company enjoved a practically
continuous record of prosperity, as indicated in the increase of its capital stock
from about $1,190,000 to the equivalent of $36,890,000 in addition to which its
reserves (surplus) on June 30, 1914, aggregated about $22,776,000.
A t present
quotations the market value of the company's share capital is equal to nearly
$70,000,000. T h e company has regularly increased its dividend during recent
years from 5 per cent for the fiscal year ended September 30, 1924, t o 8 per cent
for the fiscal year ended September 30, 1927.
164
SALE
OF FOItEIGN BONDS OH SECURITIES 164
For the five years ended June 3 0 , 1 9 1 4 , the net earnings available for dividends
after deducting all interest, tax, and depreciation charges, averaged $5,366,885
per annum. In every year, since 1915 the company's operations have shown a
profit. During the four years ended September 30, 1927, the net earnings after
deducting all interest and tax charges except income taxes but before deducting
depreciation, averaged $3,888,973 per annum, and the net earnings available for
dividends after all charges averaged $2,225,917 per annum.
Application will be made to list these debentures on the N e w York Stock
Exchange. Price on application.
THE NATIONAL CITT C o . ,
. National City Bank Building, New Yvth
Fifteen offices in the metropolitan
throughout the world.
district,
Offices in the leading cities
BERLIN, June 5f 1928.
THE NATIONAL CITT Co.,
65 Wall Street, New York, N. Y.
DEAR SIRS: In connection with the issuance of $15,000,000 principal amount
20-year 6 per cent gold sinking-fund debentures of the Allgemeine ElektricitatsGesellschaft (General Electric Co., Germany), we take pleasure in giving you
the following information:
PURPOSE OF ISSUE
The proceeds of this issue will be used partly to reimburse the treasury for
capital expenditures and to provide additional working capital in line with the
increase in the company's business and for other corporate purposes.
SINKING FUND AND REDEMPTION
A sinking fund beginning September 15, 1933, will be provided which will be
sufficient to redeem by maturity one-half of the debentures outstanding on that
date in substantially equal semiannual installments at 100. T h e outstanding
debentures may also be redeemed, at the option of the company, as a whole
but not in part, on any interest date prior to maturity, on 3 0 day's' noticc, at
102 and accrued interest up to and including M a y 1, 1933, at 101 and accrued
interest up to and including May 1, 1938, and at par and accrued interest on
any interest date thereafter.
EARNINGS
The company's earnings prior to 1914 reflected its steady growth and consistent
prosperity. For the five years ending June 30, 1914, the net earnings available
for dividends, after deducting all interest, tax, and depreciation charges, averaged $5,366,885 per annum. I n every year since 1915 the company's operations
have shown a profit. For the four years ended June 30, 1918, the net earnings
available for dividends (translated into dollars at the approximate rate prevail'
i n g a t the end of each year) averaged $5,307,262.
During the year ended September 30, 1924, the books of the company were
placed on a gold basis, and net earnings for that and subsequent years were as
follows:
Year ending Sept. 30—
Net earnings
after interest Net earnings
Dividend
and taxes ex- for year
rate
cept income available lor
tax but before dividends
depreciation
Percent^
$3,201,107
3,523,779
3,980,452
<850,554
$1,719,143
1,901,520
2.453,005
2,830,000
6
7
9
The gross sales of the company increased from approximately $54,000,000 in the
fiscal year ended September 3 0 , 1 9 2 4 , to over $100,000,000 in the fiscal year ended
September 30, 1927, and orders on hand indicate a very substantial increase i»
business for the current year. The company now employs nearly 65,000 people.
S A L E O F FOREIGN BONDS Oil S E C U R I T I E S
165
Except as otherwise stated German currency in this letter has been converted
into United States currency at the rate of 4.20 reischsmarks to the dollar.
BALANCE SHEET
The balance sheet as of September 30, 1026, as compared with the balance sheet
of September 3 0 , 1 9 2 7 , as approved b y the stockholders, is shown below:
1928
1927
ASSSTS
Real estate, plant and equipment (less depredation)
Stocks of subsidiary and other companies
Other investments
Mortgages
Merchandise and materials
Accounts receivable
Due from branches, subsidiary, and affiliated companies.
Acceptances..*
Cash and with banks (net)
Treasury stock
Bond discount
Due from stockholders on stock subscriptions
Total assets..
Capital stock:
Common....
Preferred....
Preferred B.
$24,669,684
16,527,237
7,664,175
133,021
15,812,478
9,245,878
20^ 219,139
3,587,831
6,361,870
167,411
952,381
5,357,143
91,941,208
110,698,248
28,571,429
4,166,660
4,464,286
35,714,286
4,166,666
4,464,286
37,202,381
3,838,095
1,028,785
10,000,000
7,000,000
3,722,723
966,373
81,853
2,562,104
44,345,238
5,266,667
1,071,429
10,000,000
6,873,000
3,415,786
964,723
98,723
4,984,138
8,537,835
4,214,451
13,522,006
4,391,053
72,482
2,940^717
91,941,208
110,698,248
UlAIUTttfl
Total capital stock
General reserve..
---Welfare reserve
20-year sinking fund 7 per cent gold debentures, due Jan. 15,1945-.
15-year 6H per cent sold sinking fund debentures, due Dec. 1,1940.
Revalorized mark loans
—
Mortgages...
122,129,705
15,154,674
8,038,198
126,190
21,672,368
7,498,305
11,931,934
2,382,733
815,204
774,554
1,357,143
.
Called mark bonds not yet redeemed
Prepayments by customers.*
Accounts payable
—
Balances due on contracts
Due branches, subsidiary, and affiliated companies.....
Savings bank deposits.
Uncollected dividends, Interest, etc...*
—
Profit and loss account
—
Total liabilities.-
6*844,061
7,599,726
2,735,684
8,359,423
All of our valuable models, patents, and tools, as well as our furniture and
fixtures, are carried in the above balance sheet a t a total valuation of less than
one dollar. A11 our machinery is carried a t a figure of less than $5,500,000,
although we are quite prepared t o state that it would cost considerably more than
$50,000,000 to replace to-day.
The capital stock of the company was increased on September 19, 1927. b y an
issue of reichsmark 30,000,000 par value of additional common stock, so that the
total outstanding common stock is now reichsmark 150,000,000, which stock is
now quoted on the Berlin Stock Exchange at about 170 per cent, thus indicating,
together with the preferred stock outstanding, a n equity of nearly $70,000,000.
CHARACTER OF OBLIGATIONS
These debentures will be the direct credit obligations of the company, which
will covenant in the trust agreement securing them that so long as any of the
debentures remain outstanding and unpaid, the company will not execute any
mortgage upon or make any pledge of any part of its properties and assets, either
real or personal, unless such mortgage or agreement of pledge shall provide for the
security of these debentures either in priority to, or, a t the option of the company*
equally and ratably with the bonds, nojtes or other obligations or liabilities, of
whatsoever character, which are t o be secured by such mortage or pledge.
Except for the charge or lien in favor of the so-called Dawes debentures, the
capital amount of which has been fixed at the equivalent of $6,115,000, the only
outstanding liens on any of the company's properties are small mortgages to the
166
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
extent of about $965,000, of which about $660,000 represents mortgages on new
plants acquired in 1926. The company will also covenant in the trust agreement
not to take advantage of the provision of the German law, under which the Dawes
debentures have been created, to register an owner's mortgage in its own name
to the extent that it may at any time have redeemed or repaid such debentures.
The company has outstanding approximately $3,415,786 of reichsmark obligations due over varying periods from 1932 to 1953 which under the revalorization
law (Aufwertungsgesetz) of the German Reich are entitled to interest at 5 per
cent and to certain beneficial annual payments based upon the dividend paid on
the common stock of the company, such total payments now aggregating approximately $208,000 but which in any event would be below $226,000 per annum. *
The company also has outstanding two issues of dollar debentures issued in the
United States in 1925 of which there were outstanding an aggregate total of
$16,873,000 on September 30, 1927.
The trust agreement will further provide that the company will not pay any
cash dividends on its capital stock subsequent to September 30, 1927, except out
of net earnings.
HISTORY AND BUSINESS
The company was originally incorporated in 1883 under the name of German
Edison Co., to exploit the Thomas A. Edison patents for incandescent lamps.
Shortly .thereafter it extended its scope to cover the manufacture of electrical
machines, apparatus and instruments of every nature, and its corporate name was
accordingly changed in 1887 to "Allgemeiiiie Elektricitats Gesellschaft" which
has since become well known the world over as the AEG.
The company was, and has always continued to be, a pioneer in the electrical
industry and through unceasing research and experimental work and by painstaking workmanship and prudent business management the company enjoyed
in the first thirty years of its history a practically continuous record of prosperity,
unsurpassed, so far as we know, by any other company of a similar character
outside of the United States, and its products achieved a world-wide reputation
for quality and efficiency.
During this period the company's original capital stock of about $1,190,000
increased to the equivalent of $36,890,000; in addition to which its reserves
(surplus) on June 30, 1914, aggregated about $22,776,000. In no year during
this entire period did the company fail to pay a dividend upon its capital stock.
The average rate paid was 10.38 per cent per annum, and in no year subsequent
to 1893 was the annual rate less than 8 per cent.
The company's plants are of modern, fireproof construction, equipped with
up-to-date, machinery and apparatus, and in addition to the manufacturing
plants include the necessary warehouses, power houses, administration buildings
and laboratories. In and around Berlin and elsewhere the company owns about
197 acres of real estate, upon 119 acres of which have been loeateel the central
administration and manufacturing buildings containing more than 10,000,000
square feet of floor space.
The company's products include almost every conceivable form of electrical
apparatus and appliances, from an electric locomotive, or a turbo-generator set
capable of delivering 80,000 kilowatts to a pocket flash-light bulb. It manufactures electric and steam-locomotives, steam-turbines, Diesel engines, broadcasting and radio-receiving apparatus, meters and other recording instruments,
motors and generators and all kinds of central-station and substation equipment.
I t not only manufactures and sells, but also undertakes the construction of
electric light and power-transmission systems, central-power stations, electric
railways and electro-chemical works. The company's products are distributed
within Germany through 79 offices and branches, most of which have their own
repair plants and erecting organizations. Abroad it is represented in practically
every country of Europe and also in Mexico, South America, South Africa China
and India.
Our total business for the fiscal years 1910-1914 inclusive, averaged over
$85,000,000 per annum, and in some years has exceeded $100,000,000. While
the year ended September 30,1927 proved to be a record vear for the period since
the war, with sales again exceeding $100,000,000, it is believed that the current
year will show a further substantial increase* At the present time over one-third
of the company's business is done outside of Germanv.
SALE OF FOREIGN BONDS Oil S E C U R I T I E S
167
During the last decade, the development of the company lias necessarily l>cen
along the line of strengthening the cconoinic basis of our business by establishing
closer relations with producers of certain necessary raw materials and unfinished
products. In this connection we m a y state that our company has always been
one of the largest single customers of the American copper* industry. " In the
past year we bought a very large quantity of copper from America, besides
considerable quantities of zinc, silver, oil, benzine, lead, etc.
For many years there has existed between our company and the General
Electric Co., in the United States, a very happy and cooperative friendship.
Under a contract that still has many years to run we have agreed to the exchange
and use of each others' patents, technical knowledge, and experience in the
electric field. W e believe that this relationship has been and will continue to be,
a cource of mutual strength to both companies.
A LLG EM EI X E E LE KTRICITATS-G ESELLSCH A FT,
HERMANN BOCHER,
AUGUST PFEFFER,
Managing Directors*
(The information contained in this circular has been obtained from official
statements and statistics and from other sources which we consider reliable.
W e do not quarantce, but believe it to be correct.)
NEW ISSUE OF 120,000,000
RHINE-WESTPHALIA ELECTRIC POWER CORPORATION
(RUEIN1SCH-WESTFALI8CHES ELEKTRIZtTATSWERK AKTIEN-GESELLSCHAFT)
CONSOLIDATED MORTGAGE GOLD BONDS, 6 PER CENT, SERIES OF 1928, CARRYING
CERTAIN STOCK PURCHASE RIGHTS FOR 41 AMERICAN SHARES1'
Bonds to be dated August 1, 192S; due August 1, 1953.
. Interest payable February 1 and August 1. Principal and interest payable
in New York City in United States gold coin of the present standard of weight
and fineness at the head office of the National City Bank of New York, without
deduction for any past, present, or future taxes or duties levied by or within the
German Reich. Principal and interest will also be collectible at the option of
the holders, at the city office of the National City Bank of New York, in London,
England, in pounds sterling, or a t the Credit Suisse, Zurich, Switzerland, in Swiss
francs, in cach case a t the then current buying rate of the said banks for sight
exchange on New York Citv.
Coupon bonds in denominations of $ 5 0 0 and $1,000, registrable as to principal
only. Redeemable at the option of the corporation as a whole, or in part, at any
time, upon 30 days' notice, at 102 and accrued interest, if redeemed on or
before August 1, 1933; a t 101 and accrued interest, thereafter to and including
August 1, 1943; and a t 100 and accrued interest, thereafter. Also redeemable in
part through operation of the sinking fund, on any interest date, upon 3 0
{lays' notice, a t 100 and accrued interest.
Trustee, the National City Bank of New Y o r k ; co-trustee, Darmstadter und
Nationalbank Kommanditgesellschaft auf Aktie'n.
The following is summarized in part from the accompanying letter of Messrs.
Henke and Schinitz, managing directors of the Rheinisch-Westfalisches Elektrizitatswerk Aktien-Gcsellschaft:
The Rhine-Westphalia Electric Power Corporation with its subsidiaries
comprises one of the largest electric light and power systems in Europe, with
respect to property value, earnings, capacity of power stations and number of
customers. The territory served embraces a large part of the Rhineland, including
the Ruhr district, the most important industrial section of Germany.
This
territory has an area of about 9 , 3 6 0 square miles and a population of over
8,000,000.
The consolidated earnings of the corporation and certain of its wholly owned
subsidiary companies* including only a portion of the earnings of the many
other companies in which the corporation has a substantial and profitable
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
168
interest, for the three fiscal years ended June 3 0 , 1 9 2 5 , 1 9 2 6 , and 1927, respectively,
were as follows:
Fiscal years ended June 30—
Gross earnings, including nonoperating income
Operating expenses, maintenance, and taxes
1027
1935
1026
$24,266,224
16,563,657
$23,6S8, "50
15,165,502
$26,065,563
10,992,064
7,702,267
8,523,1M
9,073,479
Net earnings, before reserves for renewals and replacements
.......
.........
The earnings statement for the year ended June 30, 1928, is not yet available.
It is fully expected that it will show earnings in excess of those for the year ended
June 30,1927, which exceeded all previous years in the history of the corporation
in point of earnings. Indications are that "the current year will set another new
record, output during the past few months having increased approximately 23
per cent over the corresponding period of the previous year. The net earnings of
$9,973,479 for the fiscal year ended June 30, 1927, as shown above, compare with
annual charges of $3,049,985,-constituting interest requirements on the mortgage
debt, including this issue, and estimated maximum fixed charges on industrial
debentures issued under the Dawes plan.
The consolidated mortgaged gold bonds will be secured by direct mortgages
on the operating properties of the corporation, subject to $5,189,524 industrial
debentures issued under the Dawes plan and $24,252,500 (closed issue) direct
mortgage gold bonds. The trust indenture under which these bonds will be
issued will contain conservative restrictions governing the issuance of additional
bonds thereunder. The trust indenture will also provide for a cumulative sinking
fund calculated to retire by maturity over 56 per cent of the bonds of the 6 per
cent series of 1928.
Each $1,000 bond will carry a stock-purchase right, evidenced by an appropriate warrant, nondetachable until January 1, 1929, entitling the holder to
purchase, after January 1, 1929, and on or before August 1, 1931, four American
shares, each issued against the deposit with the trustee's agent in Berlin of 100
reichsmarks ($23.81) par value of the common stock (bearer shares) of the corporation. The price to be paid for each American share will be as follows:
$50 if purchased after January 1, 1929, and prior to August 1, 1929; $52.50 if
purchased on or after August 1, 1929, and prior to August 1, 1930; and $55 if
purchased on or after August 1, 1930, and on or prior to August 1, 1931, after
which date the purchase rights will be void. T h e current market price of the
German shares on the Berlin Stock Exchange indicates a market value for the
American shares of approximately $50 a share.
These bonds are listed on the N e w York Stock Exchange. Price on application.
A substantial amount of these bonds has been withdrawn by Credit Suisse,
Zurich, for Switzerland. Additional amounts have also been withdrawn for
other European markets.
THE NATIONAL CITT CO.,
National City Bank Building, New York.
Twenty-one offices in the metropolitan district.
throughout the world.
Offices in the leading citics
RHEINISCH-WESTFALISCHES ELEKTRIZITATSWERK
AKTIEN-GESELLSCHAFT,
E$sen, Germany, September 36, 1928.
THE NATIONAL CITT Co.,
55 Wall Street, New York City.
DEAR SIRS: In connection with the proposed issue of $20,000,000, principal
amount, consolidated mortgage gold bonds, 6 per cent, series of 1928, of the
Rheinisch-Westfalisches Elektrizitatswerk Aktien-Gesellschaft, hereinafter referred to a s t h e Rhine-Westphalia Electric Power Corporation, we t a k e pleasure
in giving you the following information:
SALE OF FOREIGN BONDS Oil SECURITIES
169
The Rhine-Westphalia Electric Power Corporation has experienced a remarkable growth since its organization in 1S9S, and at the present time, with its subsidiary companies, comprises one of the largest electric light and power systems
in Europe with respect to property value, earnings, capacity of power stations and
number of customers served. The business of the corporation is especially well
integrated. Electric energy is generated in the corporation's power stations
from fuel obtained from tne adjoining coal mines of subsidiary companies, and
is supplied to over 440,000 industrial and residential customers through the
corporation's high tension transmission lines and distribution systems.
The territory served has an area of about 9,360 square miles, and includes a
large part of the Rhincland, extending from the Netherlands frontier on the
north and west, into the Province of Westphalia on the east, and south to the
River Nahe. This area includes the Ruhr district, the most important industrial
section of Germany, and also the so-called Siegerland, known for its iron-ore
deposits. As there are numerous industries of a widely diversified character,
the prosperity of the territory is not dependent on the success of any one business.
Among the more important industries arc included iron and steel works, iron-ore
mines, hardware factories, coal mines, lignite (brown coal) mines, textile plants,
leather factories, electro chemical works, dye works, and oleomargarine plants*
In addition, the territory contains large areas of fertile farm land which produces
excellent crops of many kinds. The communities entirely supplied by the system
have a population of over 8,000,000 and include the cities of Essen, MuhlheimRuhr, Gelsenkirchcn, Grcfeld, Munchen-Gladbach, Wesel, Osnabruck, Rcmscheid, Solingcn, Siegen, Bingcn, Kreuznach, and Ncuss. In addition, the
corporation furnishes electric energy to large portions of the cities of Cologne,
Dusseldorf, Duisburg, Coblcnz, and Oberhausen, and to the extensive plants of
the largest inland harbor of Europe at Ruhrort.
The electric output of 1,650,000,000 kilowatt-hours for the fiscal year ended
June 30, 192S, was the greatest in the history of the corporation; and of this
amount, about 81 per cent was generated in the corporation's power stations.
ttlOPERTtES
The system includes nine electric generating stations with an aggregate capacity
of 700,000 horsepower. The principal station of the corporation, the Goldenberg
lant, is one of the largest and most modem in the world, and has a capacity of
90,000 horsepower. The present construction program provides for a considerable increase in generating capacity, and that of the Goldenberg plant alone
will attain 530,000 horsepower. Its equipment includes four 67,000 horsepower
steam-turbo units. The transmission and distribution systems comprise over
1,580 miles of 110,000-volt steel tower lines and 15,000 miles of medium and low
voltage lines which supply approximately 510,000 electric meters. The above
figures for output and property cover only the inter-connected electric system
of the corporation and its subsidiaries, which does not include the many affiliated
electric companies of whose stocks substantial amounts are owned by the corporation.
The fuel for the corporation's power stations is obtained almost entirely from
coal and lignite mines owned by subsidiary companies and located under or immediately adjoining the stations. Thecoal mines, estimated to contain 75,000,000
tons (of 2,000 pounds), are being mined at the rate of 1,400,000 tons a year.
The lignite mines .are estimated to contain 450,000,000 tons, and the power
stations of the corporation, which are designed to burn this fuel efficiently, consume approximately 4,000,000 tons a year. Although lignite (brown coal)
has a relatively low heating value as compared with coal, it is mined through
surface workings at very low cost because the average depth of the cover of sand
is only about 30 feet, below which the liguite deposit extends for about 120 feet.
The corporation has consolidated its territories by exchanging its half interest
in a company located in central Germany for a majority interest in the Braunkohlen Industrie A. G. " Z u k u n f t " Weisweiler. This enterprise owns lignite mines
near Aachen, Germany, and has an electric distribution system in a territory
situated between the Dutch frontier and the boundary of the corporation's
own territories. During the past year it had sales of 172,500,000 kilowatt-hours,
which are not included in the corporation's sales above mentioned. The line of
this new subsidiary will be connected with the corporation's own high tension
lines.
In order to supply the steiulily increasing demand for current in the vast and
populous territory extending from the Dutch and Belgian frontiers to southern
170
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
Germany and, further, to the boundaries of Switzerland and Austria, a 220,000volt circuit will shortly be placed in operation. This high tension cable will be
connected with hydroelectric power plants in southern Germany and Switzerland
as well as with the power plants in the central German lignite coal district.
Eventually the system will also include a hydro-electric power plant now under
construction near Essen, in the very center of the corporation's territory, which
plant will utilize the off-peak surplus of steam generating capacity of the corporation's own plants and of the steel works and coal mines in the Ruhr district, in
filling a reservoir to a level of 160 meters, the water thus stored serving to generate
current to supply day-time peak requirements. This plant will have a capacity
of 190,000 horsepower with an annual output of 200,000,000 kilowatt hours.
In addition to the electric and coal properties described above, the corporation
owns a modern coke oven plant which supplies gas at wholesale to the city of
Essen. The high pressure gas transmission system connected with that plant
has been ceded to the " R u h r g a s " in exchange for stock of that company. The
latter company was formed to exploit the gas production of practically all the
coal mines of the Ruhr district. The corporation also owns the entire capital
stock of two relatively small electric railway companies, and operates under
lease several municipally owned lines. I t also holds as investments, smaller
stock interests in many other public-utility companies. In respect to both revenue and.physical value, however, the electric and coal properties represent over
9 6 per cent of all properties owned pr controlled.
PURPOSE OP ISSUE
The proceeds from the sale of the present issue of bonds will be used to reimburse the corporation in part for expenditures made in connection with important
property additions, to provide funds for further acquisitions and for other
corporate purposes.
EARNINGS
The consolidated earnings of the corporation and certain of its wholly owned
subsidiary companies, including only a portion of the earnings of the many other
companies in which the corporation has a substantial and profitable interest, for
the three fiscal years ended June 30, 1925, 1926, and 1927, respectively, were as
follows:
Fiscal year ended June 30—
Gross earnings, including nonoperating income
Operating expenses, maintenance and taxes......
1925
1920
$24,266,224
16,563,657
123,688,756
15,165,562
7,702,207
8,523,194
Net earnings before reserves for renewals and replacements-,
1927
m9G3.563
16,992.
The earnings statement for the year ended June 30, 1928, is not yet available.
I t is fully expected that it will show earnings in excess of those for the year ended
June 30, 1927, which exceeded all previous years in the history of the corporation
in point of earnings.
Indications are that the current year will set another new
record, output during the past few months having increased approximately 23
per cent over the corresponding period of the previous year. T h e net earnings
of $9,973,479 for the fiscal year ended June 30, 1927, as shown above, compare
with annual charges of $3,049,985, constituting interest requirements on the
mortgage debt, including this issue, and estimated maximum fixed charges on
industrial debentures issued under the Dawes plan."
VALUE OF PROPERTY
As of June 30, 1928, the book value of the physical properties of the corporation
and its constituent and proprietary companies (hereinafter referred to) was in
excess of $115,250,000, of which properties valued at $87,300,000 are owned
directly by the corporation. These figures are especially conservative.
estimate that it would be impossible to reproduce these properties in Germanv
to-day for less than $145,000,000, and that their cost in the United States would
SALE OF F O R E I G N BONDS Oil S E C U R I T I E S
171
£rcatlv exceed this amount.
Moreover, these figures do not take into consideration the value of the corporation's holdings of shares in many other public utility
and coal mining companies, all of which are also carried on the books at verv
conservative amounts.
STOCK PURCHASE RIGHTS
Each $1,000 bond will carry a stock purchase right, evidenced by an appropriate warrant, nondetachable until January 1, 1929, entitling the holder to
purchase, after January 1, 1929, and on or before August 1, 1931, four American
shares, each issued against the deposit with the trustee's ajrent in Berlin of 100
reichsmarks (approximately equivalent to $23.81) par value of the common
stock (bearer shares) of the Rhine-Westphalia Electric Power Corporation,
fully paid and nonassessable.
T h e price to be paid for cach American share
will be as follows: S50 if purchased after January 1, 1929, and prior to August 1,
1929; $52.50 if purchased on or after August 1, 1929, and prior to August 1, 1930;
and $55 if purchased on or after August I, 1930, and on or prior to August 1,
1931, after which date the purchase rights will be void. T h e current market
price of the German shares on the Berlin Stock Exchange indicates a market
value for the American shares of approximately $50 a share.
The capital stock of the corporation amounts to 155,000,000 reichsmarks, par
value, of which 150,600,000 reichsmarks, par value,, is represented by bearer
shares and 4,400,000 rcichsmarks, par value, b y registered shares. I t is expected
that the capital stock will shortly be increased to 181,000,000 rcichsmarks, par
value, of which 175,600,000 reichsmarks, par value, will be represented by bearer
shares, and 5,400,000 reichsmarks, par value, by registered shares. There also
are outstanding Km. 10,500,000 contingent certificates of indebtedness (Genusscheine) created on or about November 30, 1927.
Dividends have been paid on
the bearer shares of the corporation, as outstanding from time to time, at the rate
of 8 per cent for the fiscal year 1925-1926, and at the rate of 9 per cent for the
fiscal year 1926-27.
After deduction of the German income tax of 10 per cent
on dividends, the dividend of 9 per cent is equivalent to 8.1 per cent.
The American shares will l»e issued by the National City Bank of New York, as
depositary, pursuant to the terms of*a deposit agreement to be entered into
between the National City Co., the said the National City Bank of New York and
the holders of certificates*issued and to be issued thereunder; and such American
shares will be entitled to all dividends and rights accuring from time to time upon
the deposited shares.
American shares (in multiples of four American shares)
will be exchangeable at any time, upon surrender to the depositary and payment
of the necessary chargcs, "for the corresponding par value of deposited shares,
deliverable at the office of the agent of the depositary in Berlin.
The common stock (bearer shares) of the llhine-Wcstphalia Electric Power
Corporation sold on the Berlin Stock Exchange on September 24, 1928, at 2 1 2 per
cent of par (equivalent to approximately $50 per American share).
During the
last six months, the price range of the bearer shares has been 175 per cent of par
low*, and 2 1 5 per cent of par high. The approximate equivalent price range in
dollars of the American snares would be, low, $41,70 a share, and, high, $51 a
share.
SINKING FUND
The mortgage trust indenture will provide for a cumulative sinking fund
calculated to retire by maturitv over 56 per cent of the bonds of the 6 per cent
series of 1928. This'sinking fund is designed to operate semiannually to retire
the bonds of this series, by purchase or redemption, at not exceeding 100 and
accrued interest.
FRANCHISES AND RATES
T h e corporation has franchise contracts with approximately 1,500 communities. In nearly all cases, these contracts have long periods to run, and as
such contracts have expired from time to time in the past, they have been extended for additional long terms. Most of the contracts give to the municipalities the right to purchase the distribution systems within their corporate limits,
but not the transmission lines or the power stations. T h e high tension transmission lines are located either on private rights of way or on properties for
which perpetual easements have been obtained. In the opinion of counsel, the
franchises of the corporation and its constituent companies are valid and sufficient.
The electric rates charged by the corporation automatically vary from time to
time, based on the prevailing'price of coal, and thus assure the continuance of
SALE OF FOItEIGN BONDS OH SECURITIES 172
satisfactory profits through proper correlation of charges for service and fud
costs. The electric rates to all classes of consumers have been reduced, voluntarily, from time to time until now they are among the lowest in Germany.
SECURITY
The consolidated-mortgage gold bonds will be secured, in the opinion of
counsel, by direct mortgages on the operating properties including real estate,
power stations and transmission and distribution systems owned directly by the
corporation, subject to charges securing S5,189,524, present amount of industrial
debentures and to mortgages securing $24,252,500 (closed issue) direct mortgage gold bonds; and by like direct mortgages on the operating properties of
certain subsidiary companies, referred to in the mortgage trust indenture M
proprietary companies, subject to charges securing $337,400, present amount*
of industrial debentures. In addition, the corporation will covenant that if it
should at any time mortgage or pledge any of the properties of certain other
subsidiary companies, referred to in the mortgage trust indenture as constituent
companies, it will make provision for the prior security of the consolidated
mortgage gold bonds. The mortgage trust indenture securing the consolidated
mortgage gold bonds will be executed between the corporation, the National
City Bank of New York, as trustee, and the Darmstfidtcr und Nationalbank
Kommanditgesellschaft auf Aktien, as cotrustee.
In connection with the payment of reparations, the corporation and its constituent and proprietary companies have issued and deposited with the Industrial
Debentures Bank (Bank far Deutsche Industrie-Obiigationcn), in accordance
with the so-called Dawes Plan, industrial debentures in the face amount of
$7,015,595 with respect to which the annual charges on account of interest and
amortization will not exceed $420,935, in the aggregate. In the opiuion of
counsel, the liability of the corporation and its constituent and proprietary
companies for the payment of these sums is secured by a first charge, in many
respects analogous to a tax lien, upon their fixed property. In accordance with a
law which effects a further internal distribution in Germany of the burden of
reparations, the annual payments on account of the industrial debentures w
probably be considerably reduced so that the maximum annual payments, estt*
mated on the basis of present assessments, on account of the industrial debentures of the corporation and its constituent and proprietary companies, is not
expected to exceed $300,000, or less than one-half of 1 per cent of the value of
their physical properties.
ISSUANCE OR ADDITIONAL BONDS
The mortgage trust indenture will provide for the issuance, from time to time,
of bonds of other series having such rates of interest, maturities, sinking fund*
and other provisions, and payable in such places and in such currencies as m*y
be determined by the corporation, (a) for refunding purposes, and (b) to the extent
of 75 per cent of the cost of the acquisition of additional properties by the corpo£
ation and/or its constituent and/or proprietary companies (as these terms will1be
defined in the mortgage trust indenture), when consolidated net earnings ftfwr
operating expenses, maintenance and taxes for 12 consecutive calendar montM
ending not more than six months prior to the date of authentication of *uC?
additional bonds, shall have been not less than three times the sum of the martmum annual fixed charges on the industrial debentures and the annual interest
charges on the outstanding direct mortgage gold bonds and consolidated mor£
gage gold bonds, including the consolidated mortgage gold bonds then to w
issued, or to the extent of 60 per cent of such cost, when such net earnings sww
have been less than three times but more than two and one-half times all sucfl
charges as aforesaid, provided, in each case, that the aggregate of the then owstanding consolidated mortgage gold bonds, including those proposed t o t *
issued, direct mortgage gold bonds and industrial debentures shall not exceed
twice the then paid-in capital of the corporation.
MANAGEMENT
The various municipalities and provinces served, together with the State ^
Prussia and the German Empire, own a substantial majority of the corporation»
stock, thus fostering the good will of the public; at the same time the corporation
is under an independent, business management which permits of all the advan*
SALE OF FOREIGN BONDS Oil SECURITIES
173
tages of efficient private operation. Nearly all of the managing directors have
been with the corporation from 15 to 25 years.
Yours very truly,
RHEINISCH-WESTFALISCIIES ELEKTRIZITATSWERK
AKTIEN-GESELLSCHAFT.
HENKE, Managing Director.
SCIIMITZ, Managing Director.
The earnings statement contained in this circular has been prepared by Messrs,
Haskins & Sells, certified public accountants, from the books of the corporation
and the reports of the constituent companies, in connection with their examination of the books and accounts.
Throughout this circular, conversions into United States currency have been
made at the rate of 4.2 Reichsmarks to the dollar.
The infonnation contained in this circular has been obtained, partly by cable,
from sources which wc consider reliable. We do not guarantee, but believe ti to
be correct.
Preliminary proof—Subject to change.
CENTRAL BANK FOR AGRICULTURE, G E R M A N Y — $ 2 5 , 0 0 0 , 0 0 0 ; DEUTSCHE R E N TENBANK-KREDITANSTALT LANDWIRTSCHAFTLICHE ZENTRALBANK, FIRST LIEN
7 PER CENT GOLD FARM LOAN SINKING FUND BONDS
Dated September 15, 1025; due September 15, 1950.
SINKING FUND SUFFICIENT TO PAT OR REDEEM ENTIRE ISSUE BT MATURITY
Interest payable March 15 and September 15. Coupon bonds in denominations of $1,000 and $500 registrable as to principal only. Principal, interest,
and sinking fund payable in New York City, in united States gold coin of the
present standard of weight and fineness, without deduction for any past, present,
or future taxes or duties levied by or within the German Reich at The National
City Bank of New York, trustee. Such principal and interest shall also be collectible at the option of the holders, cither at the city office of The National
City Bank of New York, in London, England, in pounds sterling, or at Amsterdamschc Bank, Amsterdam, Holland, in guilders, in each case at the then current
buying rate of such bank for sight exchange on New York City, New York.
REICIISBANK, BERLIN, German Supervisory Trustee.
Beginning March 15,192G, a cumulative sinking fund will operate semiannually
to purchase bonds at not exceeding par and interest, or, if bonds are not obtainable at or below that price, by redemption of bonds by lot semiannually at 100,
This fund is sufficient to retire the entire issue by maturity. The issue is also
redeemable in whole or in part, in installments of not less than $2,000,000 each,
upon thirty days' notice, on September 15, 1935, or on any interest date thereafter, at 100 and interest.
The following is summarized from the accompanying letter of Messrs. Kissler
and Lipp, managing directors of the Deutsche Rentenbank-Kreditanstalt:
The organization committee appointed under the Dawes Plan to recommend
detailed provisions in regard to the new bank of issue, suggested that an agricultural credit institution should be formed to which the Rentenbank should
transfer its credit balances and which should supply agriculture with the credits
urgently needed to replace deficiencies in working capital resulting from the
inflation period. The "Central Bank for Agriculture" (Deutsche RentenbankKreditanstalt) has been organized pursuant to this suggestion to act as the
central bank for the existing agricultural credit organizations, some of which
have been in operation more than one hundred years, and through such existing
organizations to use its own resources and loans obtained at home or abroad in
making loans or granting credits for the promotion of agricultural production in
all its branches.
The paid-up capital of the Central Bank for Agriculture amounts to $40,476,190,
which may gradually be increased until the capital and surplus reaches the total
authorized amount of $129,047,619. Such increase is to be effected by the
application of earnings, and through payments to the credit of capital account
made by the Rentenbank by transfer of its assets during the period of liquidation;
92928—31—«
174
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
and also from sums received by the latter from the proceeds off the land-charge
annuities referred to below.
Bond issues are authorized up to six times the paid-up capital but may be
increased to eight times with the consent of the Reichsrat, the upper house of the
German Parliament.
The bonds of this issue are secured by an equivalent amount of mortgages
(or cash in lieu thereof), fulfilling the requirements of the German mortgage
bank law of 1899, constituting first liens on German agricultural, forestal, and
horticultural lands at not exceeding 40 per cent of the official valuation of such
lands, subject only to the original Rentenbank land-charge annuity amounting
to one-quarter of 1 per cent per annum of the official land valuation, and to any
prior existing mortgages for the immediate discharge of which appropriate provision will be niade, and to possible minor charges not of a capital nature for
which due allowance will be made in advances made on such mortgages.
The Central Bank for Agriculture covenants and the German Government
stipulates in its approval of the issue given in conformity with the charter law
that the Central Bank for Agriculture will not issue any other bonds or contract
any indebtedness in any manner sharing in the specific security provided for the
bonds of this issue.
The Reichsbank will act as supervisory trustee in Germany and will exercise
general supervision over bonded agents appointed by it in conjunction with the
German Govenimerit to examine and pass upon the mortgages securing the
bonds and to have the custody of the deposited mortgage documents.
The business operations and policies of the Central Bank for Agriculture are
under the supervision of the German Government. The governing board includes
eleven members appointed by the German Reichsrat and two appointed by the
Government..,,
The purpose "of this issue is to provide funds calculated to increase the productivity of German agriculture. This should exert a favorable influence on German
national economy and on the potential balance of payments available to creditor
nations/ ..;''.,.„
;
T
^ Application will be made to list these bonds on the New York Stock Exchange.
We offer these bonds if, as and when issued and received by us, subject to the
approval of; our counsel, Messrs. Shearman & Sterling, New York City, and
Dr. Ernst Wolff, Berlin. Delivery in temporary form is expected on or about
September 28, ,1925.
i Price 93 and interest, yielding 7.63 per cent.
T H E NATIONAL CITY CO.,
New York City.
CENTRAL BANK FOR AGRICULTURE,
GERMANY,
Berlint Germany, September 12, 1925.
THE NATIONAL CITY CO.,
[ National City Bank Building% New York, N. Y<
GENTLEMEN: In connection with your purchase of $25,000,000, Deutsche
Rentenbank-Kreditanstalt first lien 7 per cent gold farm loan sinking fund bonds
we take.pleasure in giving you the following information:
ORGANIZATION AND PURPOSE
'
. 'The Deutsche Rentenbank-Kreditanstalt,which hereinafter, for the purpose
bf brevity, is referred to as Central Bank for Agriculture, has an authorized
capital and surplus of 500,000,000 reichsmarks ($119,047,619) and a paid-up
capital of 170,000,000 reichsmarks ($40,476,190). It is situated in Berlin, having
been organized under the auspices of the German Government in accordance
with a law passed on July 18, 1925.
This Central Bank for Agriculture is the central institution for German agricultural credit organizations. Its purpose is to use its own resources and the
proceeds of loans obtained at home or abroad in granting through existing agricultural" credit organizations, some of which have been in existence for more
than . 100 years, loans or credits for the promotion of agricultural production m
all its branches.
'
"
, - .
. The governing board is composed of 27 members, of whom 11 are appointed
by the Gennan Reichsrat/2 by the German Government, and 11 by certain
leading agricultural organizations specified in the charter law. These members,
together with the president, who acts as chairman of the board, may elect, by a
two-thirds majority, two additional members who must be .credit expert?.
SALE OF FOREIGN BONDS Oil SECURITIES
175
GOVERNMENT SUPERVISION
According toTthe provisions of its charter and by-laws, the Central Bank for
Agriculture is under the supervision of the German Government and of the
Reichsrat, the upper house of the German Parliament, the members of which
represent the several German States. The Government must approve all
changes in the by-laws, the disposition of assets in liquidation, and the distribution of profits, except when the latter are used to increase the paid-up capital
and reserves to a total not exceeding the authorized amount of 500,000,000
reichsmarks (SI 19,047,019). The Government must furthermore approve all
bond issues and through its commissioners supervise the conduct of the business
of the Central Bank for Agriculture to assure that it is carried on in accordance
with legal and other obligations. The Reichsrat must be kept informed of the
operations and policies of the Central Bank for Agriculture.
SECURtTT
These bonds have the following security:
(1) They are the direct credit obligations of the Central Bank for Agriculture,
secured by its entire resources. Its paid-up capital amounting to $40,476,190
(which may be increased to a total authorized capital and surplus of $119,047,619)
affords an equity of exceptional strength.
(2) There will at all times be on deposit as security therefor mortgage documents evidencing mortgages of an unamortized principal equivalent in gold
marks to the aggregate principal amount of the outstanding bonds or, in lieu of
such mortgage documents, cash of an equivalent amount. r Except for any prior
existing mortgages, for the immediate discharge of which appropriate provisions
will be made in the trust indenture, these mortgages will constitute absolute first
liens on the property covered subject only to the original Rentenbank landcharge annuity for a period in no case extending beyond October 11, 1934,
amounting to 1*4 per cent per annum of the official land valuation, which annuity
is pledged for the redemption of Rentenmark notes remaining outstanding, and
to possible minor charges not of a capital nature for which due allowance will be
made in advances made on such mortgages. These mortgages will not exceed
40 per cent of the official valuation of German agricultural, forestal, or horticultural lands, must fulfil the requirements of the German mortgage bank law
of 1899, will mature not later than the maturity of the bonds and will bear interest
at the rate of at least 7 per cent per annum. Payment on account of the principal
thereof will be collectible by the trustees. The deposit of the mortgage documents
under the trust indenture provides security equivalent to a pledge under German
law. The remedies with respect thereto in case of default are, however, enforceable through an official receiver and not by the trustee directly.
(3) Each of the agricultural credit organizations from which the deposited
mortgage documents are acquired by the Central Bank for Agriculture will be
individually respectively liable with respect to such mortgages to the fuii amount
of the unamortized principal thereof.
The Central Bank for Agriculture covenants and the German Government
stipulates in its approval of this issue, given in conformity with the charter law,
that the Central Bank for Agriculture will not issue any other bonds or contract
any indebtedness in any manner sharing in the specific security provided for the
bonds of this issue.
The Central Bank for Agriculture under present restrictions may not issue
bonds in an amount in excess of six times its capital, which limit may be increased
to eight times its capital with the consent of the Reichsrat.
The valuation of farm lands is officially determined in accordance with the
revised " Wehrbeitrag" assessment, made in 1924, which is based on the average
annual yield that may be produced under average farming conditions and is
made exclusive of all improvements. The official valuation of all German agricultural, forestal, and horticultural lands subjected to the Rentenbank landcharge annuity is now placed at approximately $10,000,000,000, a conservative
valuation, appreciably lower than pre-war valuations. The ratio of official valuation to actual value varies in the different states and provinces, but has always
been kept at a conservative level substantially under the actual value.
The German mortgage bank law of 1899, the basic law governing loans made
by mortgage banks, allows secured loans to be made against first mortgages on
a general basis of 60 per cent of the valuation of the property by such mortgage
banks and bankers and provides that mortgage bonds issued by such banks must
be covered by not less than an equal amount of first mortgages carryihg at least
176
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
the same rate of interest. Such mortgages must be officially registered in the
public realty registers (Grundbucher).
*
,
Loans granted from the proceeds of this issue may be made only against tust
mortgages deposited under the trust indenture not-exceeding 40 per cent of the
official valuation of the property a3 hereinbefore indicated.
A special bond reserve will be established by the Central Bank for Agriculture
and invested in liquid securities determined by the governing board upon recommendation of the managing directors, into which reserve will be paid one-third
of all profits earned until this reserve is equal to 5 per cent of the value of all
bonds issued and outstanding.
The Reichsbank will act as supervisory trustee in Germany and will exercise
general supervision over bonded agents appointed by it in conjunction with the
German Government to examine and pass upon the mortgages securing the bonds
and to have the custody of the deposited mortgage documents.
PURPOSE OP ISSUE
The purpose, of this issue is to provide funds for the making of farm loans calculated to increase the productivity of German agriculture. The consequent
growth in agricultural production in Germany should tend to reduce the import
of food stuffs, thereby exerting a favorable influence on German national economy
and on the potential balance of payments available to creditor nations.
The proceeds of this issue may also be used to retire existing liens on land
which will be mortgaged to secure the bonds of this issue provided that not more
than 20 per cent of the proceeds of this issue can be used to retire such existing
liens. ' Inasmuch as these liens are in a majority of cases in favor of mortgage
banks or other-mortgage credit institutions, such sums as may be repaid in order
that the mortgages securing this issue may have a first lien, will in the main b®
Teloaned for agricultural purposes.
'BUSINESS AND MANAGEMENT
The Central Bank for Agriculture, in the execution of its rdle as a central agricultural credit institution, functioning under government supervision, grants
interest bearing loans for agricultural purposes to the credit institutions designated in its charter and by-laws, to the States, and to organizations designated
by the National or State Governments. These will be mainly long term firp
mortgage loans as described above, made from the proceeds of bonds issued in
its own name, such as the present issue. Under the charter law it may also make
short term loans until December 31, 1930, from its own capital, primarily by
rediscounting the agricultural paper of regional banks.
The Central Bank for Agriculture may purchase and sell exchange as required
in carrying out its business and may invest available cash in short term securities
through the agency of the Reichsbank or other approved banking institutions.
It may facilitate the repayment of outstanding agricultural loans which were
made in Rentenmarks soon after the stabilization of German currency, thereby
aiding in the abrogation of the land-charge annuity, amounting to 1J& percent
per annum of the official land valuation imposed upon German, agricultural,
forestal and horticultural lands to secure the Rentenmark currency, as previously
described. This abrogation becomes effective on or before October 11, 1934.
The conduct of business is in the hands of not less than two managing directors,
elected by the governing board and responsible to the same.
Although subject to Government supervision, the management of the Central
Bank for Agriculture enjoys independent discretion in the conduct of the business
of the institution.
CAPITAL AND EARNINGS
The paid-up capital of the Central Bank for Agriculture at present totals
170,000,000 reichsmarks ($40,476,190) and may be increased from time to time
as indicated in the following paragraph to an authorized total of 500,000,000
reichsmarks ($119,047,619), including the surplus and all reserves except the
special bond reserve.
:
'
Capital increases may be effected from time to time by the application of earnings and through payments to,the credit of the capital account of the Central
of .liquidation and also from sums received in payment of the: larid-charge annuities to the extent that such proceeds are hot designated for the retirement of the
rentenmark notes, in accordance with the provisions of the rentenmark liquids;
SALE OF FOREIGN BONDS Oil SECURITIES
177
tion act of August 30, 1924. The present paid-up capital of 170,000,000 reichsmarks ($40,476,190) of the Central Bank for Agriculture represents the first of
such payments. Moneys receivable from the annuities paid on the land charge
are paid over in sums up to 25,000,000 reichsmarks ($5,952,381) annually and will
cease when the land-charge annuity is abolished upon the final liquidation of the
Rentenbank. This will probablv take place in six years, but in no case later than
October 11, 1934.
In addition to the above accretions to the capital, not less than 25 per cent of
the net profits earned by the Central Bank for Agriculture must be paid into the
legal reserve until the same is equal to not less than 10 per cent of the paid-up
capital. A t least 33K per cent of such net profits must be paid into the special
bond reserve until this reserve amounts to 5 per ccnt of the bonds of the Central
Bank for Agriculture issued and outstanding. The profits remaining may by
resolution passed at the general meeting be added to the capital, to the legal
reserve, or to such other reserves as may subsequently be set up, or they may be
applied to agricultural purposes with the approval of the German Government.
Under certain conditions profits in exccss of those required to be devoted to statutory reserves may be used to expedite the redemption of rentenmark notes
outstanding.
GERMAN AGRICULTURAL CREDITS
Agricultural credit institutions granting both long term mortgage loans and
short term credits have long existed in Germany, many of them cooperative in
character somewhat similar to mutual savings banks and other cooperative
institutions in the United States. Prior to 1914, these organizations did a
flourishing business granting agricultural credits totaling approximately $2,382,457,000 against which were issued bonds secured by farm mortgages to the
extent of $1,357,100,000. These bonds were dealt in on the German stock
exchanges, the majority carrying coupon rates of 3*4 per ccnt and 4 per cent.
The organization committee appointed under the Dawes plan to recommend
detailed provisions in regard to the new bank of issue suggested that an agricultural credit institution should be formed to which the Rentenbank should
transfer its credit balances and which should supply agriculture with the credits
urgently needed to replace deficiencies in working capital resulting from the
inflation period. The Central Bank for Agriculture has been organized pursuant to this suggestion to act as the central bank for the existing organizations
which have previously served German agricultural needs.
The bonds of the Central Bank for Agriculture are not government obligations
or government guaranteed obligations but they are the secured obligations of
a credit institution operating under government charter and under government
supervision on whose governing board there is governmental representation.
Throughout this letter German currency has been converted into United
States currency at the rate of 4.20 rcichsmarks to the dollar.
Very truly yours,
DEUTSCHE RENTENBANK-KREDITANSTALT,
LANDWIRTSCHAFTLICHE ZENTRALBANK.
KISSLER, Managing Director.
LIPP, Managing Director.
(The information contained in this circular has been obtained, partly by cable,
from official statements and statistics and from other sources which we consider
reliable. We do not guarantee, but believe it to be correct. Except as otherwise stated, all figures in this circular have been translated from German makrs
into United States dollars at the parity of 4.2 marks to the dollar.)
SAMPLE OFFERING
LETTERS
ORIGINAL TERMS LETTER SENT AFTER TELEPHONE OFFERING WHICH HAD BEEN
VERBALLY ACCEPTED
SEPTEMBER 1 4 ,
1925.
DEAR SIRS: W e have agreed to purchase subject to issue as planned at 88
er cent and accrued interest, $25,000,000 Deutsche Rentenbank-Kreditanstalt
ondwirtschaftliche Zentralbank (Central Bank for Agriculture, Germany)
first lien 7 per cent gold farm loan sinking fund bonds, due September 15, 1950.
A distributing group is being formed to take over this purchase at 89 per cent
and accrued interest, and It is expected that the bonds will be offered to the
f
178
SALE ' OF 'FOREIGN = BONDS Ob SECURITIES
public at 93 per cent and accrued interest through a sellingjgroup, members of
which will receive a selling concession of 3 per cent on bonds confirmed to them.
W e are pleased to confirm your participation of $7,500,000 on original terms
in this purchase, subject to a management and origination fee of y$ per cent to
ourselves.
Kindly confirm your acceptance and oblige.
Very truly yours,
, Vice, President
DEUTSCHE RENTENBANK-KREDITANSTALT LANDWIRTSCHAFTLICHE ZENTRALBANK
CENTRAL BANK FOR AGRICULTURE, GERMANY—$25,000,000 FIRST LIEN 7
PER CENT GOLD FARM LOAN SINKING FUND BONDS, DUE SEPTEMBER 15,
1950
DISTRIBUTING GROUP
Confidential:
NEW YORK, September 15, 1925.
DEAR SIRS: W e have agreed to purchase, subject to issue as planned,
$25,000,000 Deutsche Rentenbank-Kreditanstalt Landwirtschaftliche Zentralbank
(Central Bank for Agriculture, Germany) first lien 7 per ccnt gold farm loan
sinking fund bonds due September 15, 1950.
W e are forming a distributing group in which we shall participate and of which
we shall be the managers, to take over this purchase at 89 per cent and accrued
interest, which price allows us a profit. W e are pleased to confirm that we have
offered you and you have accepted a participation in this group of $
which ^participation is for your own account and not to be re-offered, subdivided,
or transferred. The gross profit to this group is 1 per cent.
Expenses in connection with the purchase and sale of these bonds will be
charged to this distributing group. W e reserve the right to trade in this issue
and any profits or losses accruing through such trading will be credited to or
charged against this distributing group.
A selling group of which we shall be the managers and in which you will also
be included will be given the privilege to offer these bonds to the public for
subscription, subject to allotment, at 93 per cent and accrued interest and will
receive a selling concession of 3 per cent on face value of bonds confirmed to
them.
The bonds are to be held together for sale under our management for a period
of 60 days from date, with a privilege of extension, unless the account be sooner
terminated by us. W e are to have full control of the account, with power to
sell the bonds and to repurchase and resell them. W e are to make no charge
for our services in managing the account, for, as stated above, a profit is included
in the price at which the bonds are being sold to the distributing group; but, as
members of such group, we shall be entitled to receive the same profit as is allowed
to other members. We, reserve the right to - change the list price and concessions, and to close the account, at any time, without notice.
Kindly confirm your acceptance to the National City Co. and oblige.
Yours very truly,
THE NATIONAL CITY Co.,
HARRIS, FORBES & Co.,
LEE, HIGGINSON & . C o . ,
By THE NATIONAL CITY CO.,
Vice President.
CENTRAL BANK FOR AGRICULTURE, GERMANY—$25,000,000 DEUTSCHE RENTENBANK-KREDITANSTALT LANDWIRTSCHAFTLICHE ZENTRALBANK FIRST LIEN 7
PER CENT GOLD FARM LOAN SINKING FUND BONDS DUE SEPTEMBER, 15, 1950
SELLING GROUP
NEW YORK, September 15> 1925.
j
DEAR SIRS: W e have' agreed to purchase, subject to issue as planned
$25,000,000 Deutsche Rentenbank-Kreditanstalt Landwirtschaftliche ZentraibanK
(Central Bank for .Agriculture, Germany) First Lien 7 per cent gold farm
isinking fund bonds due September 15, 1950. .
' W e are inviting a selected list of dealers, including yourselves, t o participate,
without commitment, in the distribution of these bonds, for delivery, when, as,
SALK OF F011K1GX BONDS OH SECURITIES
179
and if issued to and received b y us and subject t o all nccessary approvals.
The
public offering price is t o be 93 j>er cent and accrued interest.
Subscription b o o k s will be open a t the office of T h e National C i t y C o . , 55 Wall
Street, New York C i t y , on Wednesday, September 10, 1925, and will be closed at
our discretion. Y o u will be allowed a selling concession of 3 per cent o n bonds
confirmed t o y o u , o u t of which n o t exceeding % per c e n t m a y b e rcallowed to
dealers, banking institutions and insurance companies. N o other concessions are
to be allowed b y y o u t o anyone. From the gross selling concession will be deducted such portion of the distributing expenses as we m a y in our discretion
determine.
Inasmuch as a substantial part of this issue has been taken b y European groups,
your acceptance of the terms of this offering letter and subscription for bonds
is with the agreement on y o u r part that offerings of these bonds b y y o u will be
confined t o the United States and Canada.
Payment for bonds confirmed is t o be made a t 92jJ per cent and accrued interest
at the office of the treasurer of T h e National City Co., 50 Wall Street, New York
City, on or a b o u t September 28, 1925, in N e w Y o r k City funds, at which time
temporary bonds o r interim certificates will be delivered.
We reserve the right t o retain the full selling concession on any bonds originally
delivered to y o u (irrespective of the price a t which such delivery is made) which
may be repurchased in the open market a t o r below the list price of 93 per cent
and accrued interest, during the operation of the account, o r we may elect to
require you to take u p such repurchased bonds a t repurchased cost t o us. T h e
balance of the selling concession will be paid u p o n the termination of the account
on or about N o v e m b e r 10, 1925, b u t we reserve the right a t our discretion to
dissolve the group a t an earlier date and also t o extend it f o r any period or periods
not exceeding 00 d a y s in t he aggregate.
We will manage the a c c o u n t with full powers a n d reserve the right t o sell and
repurchase and resell b o n d s in o u r uncontrolled discretion. U p o n written notice
from us we may exclude f r o m all interests and profits f r o m this account anyone
failing to observ e the terms hereof and hold him liable t o repay any concession
which may have been allowed. W e shall make n o charge f o r our services in
managing this account, as w e will be otherwise compensated, b u t as members of the
group we shall be entitled t o receive the same concession as is allowed t o other
members.
Preliminary circular describing this issue is inclosed. Additional circulars our
imprint or in blank will be supplied in reasonable quantity upon request.
Please send your subscriptions o v e r public wires direct to T h e National City Co.,
55 Wall Street*, N e w Y o r k City and confirm b y letter.
Very truly yours,
By
T H E NATIONAL CITY CO.
HARRIS, FORBES & C o .
L E E , HIGGINSON & C o .
T H E NATIONAL CITT CO.,
Vice President.
$ 2 0 , 0 0 0 , 0 0 0 RHINE-WESTPHALIA ELECTRIC POWER CORPORATION (RHEINISCHWESTFALISCHES ELEKTRZZITATSWERK AKTIEN-GESELLSCHAFT)—CONSOLIDATED
MORTGAGE GOLD BONDS, 6 PER CENT SERIES OF 1 9 2 8 (CARRYING CERTAIN
STOCK-PURCHASE RIGHTS FOR "AMERICAN S H A R E S " ) . D U E AUGUST 1, 1 9 5 3
DISTRIBUTING GROUP
NEW YORK, September 25, 1028.
DEAR SIRS: W e have agreed t o purchase subject to issue as planned $20,000,000
Rhine-Westphalia Electric Power Corporation (Rheinisch-Westfalisches Elektrizit&tswerk Aktien-Gesellschaft) consolidated mortgage gold bonds, 6 p e r c e n t
series of 1928 (carrying certain stock-purchase rights for " A m e r i c a n shares") due
August 1,1953, a n d are forming a distributing g r o u p in which we shall participate
ana of which we shall b e the managers t o take o v e r this purchase a t 91 % per cent
and interest, which price allows us a profit. W e are pleased to confirm that we
have offered y o u a n d y o u h a v e accepted a participation in this group of $
which participation is f o r y o u r o w n a c c o u n t and n o t t o b e re-offered, sub-divided f
o r transferred. T h e gross profit t o the;distributing group is % per c e n t .
180
SALE OF FOREIGN; BONDS OR SECURITIES,
I t is planned that the distributing group will m a k e public offering Wednesday
m o r n i n g , September 26, 1928, a t 94 per cent and interest, if, as, a n d when issued
and received b y us and subject to approval of counsel, t h r o u g h a selling group of
which w e shall also b e the managers and in which y o u will also b e included. The
members of this selling group are to receive a selling c o m m i s s i o n of 2 per cent
o n b o n d s confirmed to them. I t is understood t h a t y o u r participation in the
distributing group carries with it 80 per cent thereof in firm b o n d s in the selling
group.
Expenses in connection with the purchase a n d sale of these b o n d s , in excess of
those charged t o the selling group, and selling commissions will b e charged to this
distributing group.'
, .
W e as managers m a y allot bonds of this issue in o u r uncontrolled discretion
a n d m a y trade in these b o n d s and outstanding issues of the Rhine-Westphalia
Electric Power Corporation f o r distributing group a c c o u n t a t such prices and i i
such a m o u n t s as we m a y deem advisable. A n y profits or losses accruing through
such trading will be credited to or charged against t h e distributing g r o u p . Members of the distributing group agree if called upon b y us t o take u p their share of
b o n d s remaining in the distributing group a n d / o r t h e trading a c c o u n t a t the close
o f this account.
W e as managers m a y dispose of any unsold balance of b o n d s remaining in the
distributing group or the trading account t o any g r o u p or g r o u p s and we may
share in such purchase provided the sales price of such b o n d s shall not be less
than the then net cost t o the distributing group.
: .
T h e duration of the distributing group will correspond with t h a t of the selling
group b u t m a y b e extended at our discretion f o r a f u i t h e r p e r i o d n o t to exceed
30 days. W e are t o have full control of the a c c o u n t with p o w e r to,sell the bonds
and to repurchase and resell in our discretion. W e are t o m a k e n o charge for
our services in managing the account for, as stated a b o v e , a p r o f i t is included in
the price at which the bonds are being sold t o t h e distributing g r o u p ; but, as
members of such group w e shall b e entitled t o o u r p r o p o r t i o n a t e share of the
profit in the, group. W e reserve .the right t o change t h e list p r i c e . a n d concessions
and t o close the account at any time w i t h o u t noticer
Nothing herein contained shall constitute t h e ; m e m b e r s of t h e g r o u p partners
with the managers or with one another o r render ;the managers personally liable
f o r any group obligation or for the obligation o f a n y m e m b e r .
W e as managers
shall have authority t o settle all matters connected w i t h t h e purchase of these
bonds including the right, in our discretion, t o agree t o variations in the details
set forth in the circular describing this issue, that, in o u r j u d g m e n t d o not. substantially change the security purchased; a n d w e reserve t o ourseives the right
whether t o complete the purchase or not, even t h o u g h there m a y b e variations
f r o m the statements contained in the circular.
U p o n receipt of this letter please send at o n c e t o T h e N a t i o n a l City, Co., 55
Wall Street, N e w Y o r k City; the duplicate c o p y inclosed herewith duly signed.
V e r y truly yours,
T H E NATIONAL CITT CO.,
, Vice President
THE NATIONAL CITY CO.,
New York, N. Y
'
DEAR SIRS: W e accept the participation of $
b o n d s u n d e r the terms of
Agreement a n d confirm purchase of 80 per c e n t thereof in firm b o n d s .
Name.-__^.
Address _ _
By.—
TWENTY MILLION DOLLAR RHINE-WESTPHALIA ELECTRIC POWER CORPORATION
(RHEINISCH-WBSTPALISCHES ELEKTRIZITATSWERK AKTIEN-GESELLSCHAFT)—
CONSOLIDATED MORTGAGE GOLD B O N D S / 6 PER CENT SERIES OP 1 9 2 8 (CABBTING CERTAIN STOCK PURCHASE RIGHTS FOR "AMERICAN SHARES")*
AUGUST
1, 1953
SELLING GROUP
NEW YORK* September 25,1928,
DEARSIRS: W e h a v e agreed t o purchase, s u b j e c t t o issue as p l a n n e d , $20,000,000
R h i n e - W e s t p h a l i a Electric P o w e r Corporation
(Rheinisch-Westffilisches
Elektrizitatswerk Aktien-Gesellschaft) consolidated mortg;age g o l d bonds, 6pe*
181
SALE OF FOREIGN; BONDS OR SECURITIES,
cent series of 1928 (carrying certain stock purchase rights for ** American
shares") due August 1, 1953, and are inviting a selected list of dealers, including
yourselves, to join a selling group, without commitment, except as provided
below, to offer these b o n d s Wednesday morning, September 26, 1928, when, as
and if issued to and received by us and subject to all necessary approvals at 94
per cent and interest.
We as managers will endeavor to confirm orders as received but reserve the
right to reject any or all orders in whole or in part and t o allot a smaller par
amount than applied for. You will be allowed a selling concession of 2 per cent
on the par amount confirmed to you, o u t of which not exceeding H per cent
may be reallowed t o dealers, banking institutions and insurance companies.
No other concessions arc t o be allowed t o anyone. From this gross selling c o n cession will be deducted such portion of the distributing expenses as we may
determine.
Your acceptance of the terms of this offering letter and subscription f o r bonds
is with the agreement on your part that offering* of these bonds b y y o u will be
confined t o the United States and Canada.
Payment for bonds confirmed to y o u is to he made at 93% per cent and interest
when called for on o r a b o u t October 17, 1928, at the office of the treasurer of
The National Citv Co., 52 Wall Street, New Y o r k City, in N e w York City funds.
This selling group will terminate on November 28, 1928, but we reserve the
right in our discretion t o dissolve the group at an earlier date and also t o extend
it for a period or periods not exceeding 60 days in the aggregate. T h e balance
of the selling conccssion will be paid as soon after the termination of the selling
group as the group accounts can be made up.
With respect to any bonds originally delivered t o y o u (irrespective of the price
at which such delivery is made) which m a y have been repurchased or contracted
for by us at or below the list price during the operation of this account and which
may be delivered t o us for a period of seven days after the termination of this
account, it shall be optional with us (a) t o retain the full selling concession
thereon, or (b) to require y o u to repurchase such bonds a t the repurchased cost
to us. It is understood that bonds delivered t o y o u against such repurchases
need not, in every instance, be identical with those originally delivered to y o u ,
or may not be delivered t o you until after the expiration of this account.
W e will manage the account with full powers and w e reserve the right t o sell,
repurchase and resell bonds in our uncontrolled discretion. Upon written notice
we may exclude from all interest and profits in this account, and hold liable t o
repay any conccssion which may have been allowed, anyone failing t o observe
the terms hereof. W e shall make no charge for our services in managing this
account, as we will be otherwise compensated, b u t as members of the group we
shall be entitled to receive the same concession as is allowed to other members.
As managers we shall n o t be liable with respect t o the validity or value of the
security, or the representations contained in, or the form or validity of, any
letters, circulars, agreements or other instruments executed b y the Rhine-Westphalia Electric Power Corporation, or b v others, nor f o r the delivery of the
security, nor for the performance b y the Rhine-Westphalia Electric Power Corporation, or others, of any agreement on its or their part, nor in any w a y or for
any matter connected herewith, except for lack of good faith in performing o r
failing t o perform the undertakings expressly assumed b y us b y this agreement.
We agree t o cause t o be filed with the department of State at Albany, New
Y o r k , " a notice respecting these securities in the f o r m required b y the general
business law of the State of New Y o r k .
Preliminary circular describing this issue is enclosed. Additional circulars
with our imprint or in blank will be supplied in reasonable quantity upon request.
Please telegraph y o u r orders under above terms over public wires direct t o
The National City Co., 55 Wall Street, N e w Y o r k City, and confirm b y letter.
Very truly yours,
T H E NATIONAL CITY
———,
Co.,
Assistant Vice-President.
182
SALE OF FOREIGN; BONDS OR SECURITIES,
A E G $ 1 0 , 0 0 0 , 0 0 0 ALLGEMEINE ELEKTRICITXTS GESELLSCHAFT (GENERAL ELECTRIC C o . , .GERMANY) 20-YEAR 6 PER CENT GOLD SINKING-FUND DEBENTURES
DUE I M A Y 1, 1 9 4 8
THE NATIONAL CITY . C o . ,
May 21, 1928.
DISTRIBUTING GROUP
DEAR SIRS: W e have, agreed t o purchase, s u b j e c t t o issue as planned,
§10,000,000 Allgemeine Elektricitats Gesellschaft (General Electric Co., Germ a n y ) 20-year 6 per cent gold sinking-fund debentures d u e M a y 1, 1948.
. W e are forming a distributing group in which w e shall p a r t i c i p a t e a n d of which
we shall be the managers, to take over this purchase at 91% p e r c e n t and interest
which price allows us a profit. W e are pleased t o c o n f i r m t h a t w e h a v e offered
y o u and y o u have accepted a participation in this g r o u p of $
— which participation is for y o u r own account and n o t t o be reoffered, s u b d i v i d e d , or transferred. The-gross profit t o this group is 1 per cent.
Expenses in connection with the purchase and sale of these b o n d s in excess of
those charged t o the selling group and selling concessions will b e charged to this
distributing group. W e reserve the right t o trade in this a n d outstanding issues
of the General Electric C o . , Germany, and a n y profits o r losses a c c r u i n g through
such trading will be credited t o or charged against this distributing group. Members o f the distributing group agree If called u p o n b y us t o t a k e u p their proportionate share of bonds remaining in the distributing g r o u p a n d / o r the trading
account a t the close of this account.
It is planned that the distributing group will m a k e p u b l i c offerings immediately
a t 94% per cent and interest if, as, and when issued a n d r e c e i v e d b y us and subject
t o the approval of counsel, through a selling g r o u p o f w h i c h w e shall also be the
managers and in which y o u will also b e included.
T h e m e m b e r s of this selling
group are t o receive a concession of 1% per c e n t o n b o n d s c o n f i r m e d t o them. It
is understood that your participation in the distributing g r o u p carries with it
80 per < cent thereof i n firm bonds in the selling g r o u p .
The distributing group will terminate o n July 25, 1928, unless extended or
sooner terminated b y us. W e are to have full c o n t r o l of t h e a c c o u n t , with power
t o sell the bonds and t o repurchase and resell in o u r discretion.
W e are to make
no charge for our services in managing the a c c o u n t , f o r , as stated a b o v e , a profit
is included in the price at which the b o n d s are being sold t o t h e distributing
g r o u p ; but, as members of such group, we shall b e entitled t o o u r proportionate
share of the profit in the group. W e reserve the right t o c h a n g e t h e list price and
concession and to close the account at any time w i t h o u t n o t i c e .
Nothing herein contained shall constitute the m e m b e r s of the g r o u p partners
with the managers or with one another, o r render t h e m a n a g e r s personally liable
f o r any group obligation o r f o r the obligation of a n y m e m b e r .
T h e managers
shall n o t be liable under any of the provisions hereof o r f o r a n y m a t t e r connected
herewith> except f o r want of good faith; and n o obligation n o t e x p r e s s l y assumed
b y them herein shall be applied herefrom;
.
U p o n receipt of this letter please send at o n c e t o t h e N a t i o n a l C i t y C o . , 55 Wall
Street, N e w Y o r k City, y o u r formal a c c e p t a n c e of this p a r t i c i p a t i o n so that our
records of this account m a y be complete.
Y o u r s very truly,
_ _ —
, Vice President.
AEG $ 1 0 , 0 0 0 , 0 0 0 ALLGEMEINE ELEKTRICITATS GESELLSCHAFT (GENERAL ELECTRIC CO., GERMANY) 20-YEAR 6 PER CENT GOLD S I N K I N G - F U N D DEBENTURES
D U E M A Y . 1, 1948
N E W Y O R K , May 21, 1928.
^
I
SELLING GROUP
DEAR S I R S : ' W e h a v e - a g r e e d t o purchase, s u b j e c t t o issue a s planned»
$10,000,000 Allgemeine Elektricitats Gesellschaft (General E l e c t r i c C o . , Germany;
20-year 6 p e r cent gold sinking-fund debentures d u e M a y 1, 1948.
W e are inviting a selected list of dealers, including yourselves, t o j o i n a s e n m
g r o u p , w i t h o u t c o m m i t m e n t , except as p r o v i d e d b e l o w , t o o f f e r these bonas
T u e s d a y morning, M a y 22, 1928, when, a s a n d if issued t o a n d received by u S
subject t o all necessary approvals at 94H per c e n t a n d interest.
,,
^ [We as managers will endeavor t o c o n f i r m orders a s r e c e i v e d b u t reserve tne
r i g h t t o reject a n y or all orders in whole o r in p a r t a n d t o a l l o t a smaller P a r
183
SALE OF FOREIGN; BONDS OR SECURITIES,
a m o u n t than applied f o r . Y o u will b e allowed a selling concession of 1% per
cent on the par a m o u n t confirmed t o y o u , o u t of which n o t exceeding J4 per
c e n t m a y be rcallowed t o dealers, banking institutions, and insurance companies.
N o other concessions are t o b e allowed t o a n y o n e . F r o m this gross selling con*
cession will be d e d u c t e d such portion o f the distributing expenses a s w e m a y
determine.
Inasmuch Its a substantial p a r t of this issue has been taken b y European
groups y o u r a c c e p t a n c e of the terms of this offering letter a n d subscription f o r
onds is with the agreement o n y o u r p a r t t h a t offerings of these b o n d s b y y o u
will be confined t o the United States a n d C a n a d a .
P a y m e n t f o r b o n d s confirmed t o y o u is t o b e m a d e a t 94& per c e n t a n d interest
when called for o n o r a b o u t June 12, 1928, a t t h e office of the treasurer of the
National C i t y C o . , 52 Wall Street, N e w Y o r k C i t y , in N e w Y o r k C i t y funds.
T e m p o r a r y b o n d s o r interim certificates, exchangeable f o r definitive bonds when
prepared and rcceivcd will IKS delivered against p a y m e n t . This selling group
will terminate o n J u l y 25, 1928, b u t w e reserve the right in o u r discretion t o dissolve the group a t an earlier d a t e and also t o extend it f o r a period o r periods
not exceeding 00 d a y s in the aggregate. T h e remaining selling concession will
b e paid as soon after the termination of the selling g r o u p as the g r o u p accounts
c a n be m a d e up.
With respect to a n y b o n d s originally delivered to y o u (irrespective o f the price
a t which such delivery is made) whicli m a y have been repurchased o r contracted
for b y us at or below the list price of.94H per cent plus interest during the o p e r a tion of this account, it shall be optional with us (a) to retain the full selling c o n cession thereon, o r (6) t o require y o u t o repurchase such bonds at the repurchased
cost to us, even though such b o n d s m a y n o t have been delivered t o us until after
t h e expiration of this account. I t is*understood that b o n d s delivered to y o u
against such repurchases need not, in every instance, be identical with those
originally delivered t o y o u , o r m a y not be delivered to y o u until after the expiration of this account.
W e will manage the a c c o u n t with full powers and we reserve the right t o sell,
repurchase and resell b o n d s in o u r uncontrolled discretion. U p o n written notice
we may exclude f r o m all interest and profits in this account, and hold liable t o
repay any concession which m a y have been allowed, a n y o n e failing t o observe
the terms hereof. W e shall m a k e n o charge f o r our services in managing this
account, as we will be otherwise compensated, b u t as members of the group we
shall be entitled to receive the same concession as is allowed to other members.
As managers we shall n o t be liable with respect t o the validity o r value of the
security o r the representations contained in, o r the f o r m o r validity of, a n y letters,
circulars, agreements o r other instruments executed b y Allgemeine Elektricitats
Gescllschaft, or b y others, nor f o r the delivery of the security, nor f o r the p e r f o r m a n c e b y Allgemeine Elektricitats Gesellschaft, o r others, of a n y agreement on its
o r their part, nor in a n y w a y o r f o r a n y matter connected herewith, except f o r
lack of g o o d faith in p e r f o r m i n g o r failing t o p e r f o r m the undertakings expressly
assumed b y us b y this agreement.
Preliminary circular describing this issue is inclosed. W e are forwarding v o u
under separate c o v e r a supply of circulars with o u r imprint. Additional circulars
with our imprint o r in blank will b e supplied in reasonable q u a n t i t y u p o n request.
Please telegraph y o u r orders under a b o v e terms o v e r public wires direct t o the
National C i t y Co., 55 W a l l Street, N e w Y o r k C i t y , and confirm b y letter.
Very truly yours,
T H E NATIONAL CITT
1
Co.,
Assistant Vice President,
KUIINT, LIOEB <fe C o . ,
New York, December 28, 19$ 1\
H o n . REED SMOOT.
Chairman United States Senate Committee on Finance,
Washington^ D. C.
DEAR SIR: Referring t o our M r . O t t o H. K a h n ' s yesterday's letter t o y o u and
t o his testimony before y o u r c o m m i t t e e when he appeared b e f o r e it o n D e c e m b e r
21 last, we beg "to hand y o u herewith the following, which, as y o u will n o t e f r o m
the transcript of his testimony, he was requested t o file with y o u r c o m m i t t e e :
, J. A m e m o r a n d u m of foreign loans offered b y us since the close of the World
War, together with the requested d a t a regarding these loans.
184
SALE'••OF FOREIGN BONDS ?OR SECURITIES
2. A c o p y or p h o t o s t a t of our official circular describing each of t h e loans set
forth in the a b o v e mentioned m e m o r a n d u m .
A c o p y of the loan agreement covering t h e c i t y of Christiania (Norway)'
municipal external loan of 1920 25-year 8 per cent sinking-fund g o l d b o n d s due
October 1, 1945, and a c o p y each of our underwriting a n d selling g r o u p letters
covering that issue of b o n d s .
4. A list of the partners constituting otir firm.
5. A list o f foreign b o n d s a t present in default here, which has been furnished
t o us b y the Institute of International Finance of 90 T r i n i t y Place, this city.
While w e believe that this list is accurate, w e w o u l d respectfully request that it
be used without responsibility on our p a r t or on t h e p a r t of t h a t institute.
6. A m e m o r a n d u m setting forth matters w h i c h w e take into a c c o u n t in considering the flotation of a n y foreign loan.
"
\
W i t h regard t o the estimate which M r . K a h n stated t o y o u r c o m m i t t e e that
he would endeavor t o h a v e m a d e showing t h e average size of retail sales of foreign
securities/we beg t o say that, as M r . K a h n intimated, i n a s m u c h as w e are-pritmarily wholesalers and n o t retailers of securities, w e d o n o t h a v e at our disposal
sufficient data* upon which w e feel w e could, with a n y degree of a c c u r a c y , base
such an estimate, and regret, therefore, t h a t w e are unable t o furnish y o u with
such data.
W e are, dear sir,
Very respectfully yours,
KUHN, LOEB & C o .
P . S . — T h e r e is also inclosed a c o p y of the official circular (designated inclosure.
N o . 7) describing our offering of American shares f o r c o m m o n s t o c k of the North
German Lloyd; which M r . K a h n was also requested t o file with y o u r committee.
$ 2 5 , 0 0 0 , 0 0 0 SWEDISH GOVERNMENT 2 0 - Y E A R 6 PER CENT GOLD BONDS, DATED
JUNE 15, 1 9 1 9 , D U E JUNE 15, 1 9 3 9 , INTEREST PAYABLE JUNE 15 AND
DECEMBER 15.
C o u p o n bonds in denomination of $ l , 0 0 0 , T e g i s t e r a b l e a s ' t o principal.
Principal and interest p a y a b l e in United States g o l d coin of t h e present standard
of weight and fineness a t t h e National C i t y Bank of N e w Y o r k .
Principal and
interest are e x e m p t froni all present or future Swedish G o v e r n m e n t , municipal;
or other taxes or duties levied b y or within the K i n g d o m o f S w e d e n .
Redeemable as a whole on June 1 5 , 1 9 2 9 , or a n y interest d a t e thereafter, a t 102 a n d accrued
interest on 60 d a y s ' notice.
v
These 20-year 6 per cent gold b o n d s will b e t h e direct general c r e d i t obligations
of t h e Swedish G o v e r n m e n t , whose faith a n d credit are p l e d g e d f o r the prompt
p a y m e n t of principal and interest. T h e y will b e issued u n d e r a u t h o r i t y of the.
Riksdag (National Legislature of Sweden) a n d of the Swedish national debt
f'
office.,
T h e wealth of Sweden, embracing b o t h p r i v a t e a n d p u b l i c p r o p e r t y , was officially estimated in 1917 a t approximately $4,690,000,000, based o n pre-war
prices. Assets owned b y t h e State were valued a t $821,152,000 in 1918. 1 Total
national debt, including b o t h f u n d e d arid u n f u n d e d , w a s $441,020,800, December
31, 1918.
''
'
'
--.n
Sweden has prospered financially, a n d c o m m e r c i a l l y during t h e w a r .
Total
resources of the private commercial banks increased 148 p e r c e n t f r o m March
31, 1913, t o M a r c h 31, 1919. Bank clearings in 1918 were five a n d three-tenths
times those of 1914., T h e total foreign trade h a s increased f r o m $338,233,268
in 1910 t o $591,234,800 in 1918, o r 75 p e r c e n t . T h e t o t a l visible favorable
t r a d e balance f r o m 1914 t o 1918, inclusive, w a s $462,301,778.
T h e fiscal system of Sweden has been established a n d d e v e l o p e d o n a con^
servative basis. F u n d e d d e b t has been issued t o c o n s t r u c t n a t i o n a l enterprises
w h i c h are revenue producing, and substantial a m o u n t s h a v e b e e n raised b y taxat i o n f o r t h e same purposes* Taxes during t h e w a r h a v e been increased t o meet
extraordinary governmental expenditures f o r national defense. S h o r t - t i m e debts
h a v e been incurred during the war t o purchase f o o d , f u e l , a n d r a w materials*;
a n d i t is expected these d e b t s will b e largely liquidated f r o m t i m e t o time a j
the supplies are sold.
'*
Foreign issues headed by Ruhn, Loeb & Co. since November 11,
Amount
Swedish Government 20-year 6 per cent gold bonds, due June 15, 1939
Swedish Government 30-year (external loan) 5% per cent gold bonds, due Nov. 1, 1954..
Total Swedish issues
City of Christiania 25-year 8 per cent sinking fund gold bonds, due Oct. 1,1945
City of Christiania 30-year 6 per cent sinking fund gold bonds, due Sept. 1,1954..
City of Oslo 30-year 6 per ccnt sinking fund gold bonds, due May 1,1955
City of Oslo 20-year 5% per cent sinking fund gold bonds, due Feb. 1,194G
Total Norwegian issues..
$25,000,000
30,000.000
Price paid Issue price
Per cent
9m
90.62
Per cent
99K
99H
Total
^.spread ..
3
0)
None.
Total Danish issues..
Kuhn, Loeb
& Co.'s gross
profit from
originating
Distriband
underutors' •
margin
commis- writing
and
participasion
tion, If any. in
compensation
of distributors' group
OrigiUndernating
writing
group's _ - margin
margin
Per cent Per cent Percent
1
1H
ZA
2H
Vi
2
5,000,000
93
99
0)
6
2,000,000
8,000,000
4,000,000
94
97
94
98
99 K
97
$160,000
480,000
0
4
2H
3
94.29
92.077
97 H
94%
None.
None.
2.90
2.423
None.
4H
m
vNone.
r
•4H
5K
$
2K
35/\
15,000,000
12,000,000
Purpose of issue
$76,553
56,017
Purchase of commodities in United States.
Capital expenditures for railways, posts, telegraphs, telephones, etc.; also agricultural aid.
IH
87,240
2
1%
i y.
22,855
33,092
40,400
Productive purposes (electric works, harbor and
housing).
Do.
Do.
Partly refunding and partly as above.
55,000,000
19,000,000
City of Copenhagen 25-year 5 per ccnt gold bonds, due Juno 1,1952
City of Copenhagen 25-year i}4 per cent gold bonds, due May 1, 1953,.
|
I
46
1.]173
1.
iH
VA
112,372 Refunding and public works and buildings.
GG, 019 Refunding.
in
191,805
M
195, 582 Betterment and extension of transport systems.
355,925 Refunding and other purposes.
308,873
188,656
Purchase of rolling stock, electrification, etc.
Do.
27,000,000
Government of the Kingdom of the Netherlands 30-year 6 per ccnt external sinking fund
gold bonds, due Apr. 1, 1954.
40,000,000
94
98^
Department of tho Seine 20-year 7 per cent external gold bonds, due Jan. 1,1942
Cities of Lyons, Marseilles, and Bordeaux 15-year 0 per cent gold bonds, due Nov. 1,1934...
Paris-Lyons-M'editerranean R. R. Co. 6 per cent external sinking fund gold bonds, due
Aug. 15, 1958
do
25,000,000
45, 000,000
85%
88
90^
92^
30,000,000
10,000,000
7&U
7m
83 [
83M
Total French issues..
(3)
1,610,000
J
IH
m
Redemption of floating debt.
iH
i
VA
2
IH
%
ik'
21M
78,109
Additions and improvements to properties.
2
76,944
Partly refunding of notes, partly construction,
improvements, harbor, bridges, etc.
Construction and repayment of indebtedness
incurred thorefor.
110,000,000
•Arbed" Societe Anonyme des Acieries Reunies de Burbach-Eich-Dudelange 25-year
sinking fund 7 per cent gold bonds, due Apr. 1,1951 (Luxembourg)
--Stale of Hamburg 20-year 0 per ccnt gold bonds, due Oct. 1, 1946
North Gorman Lloyd 20-year 6 per cent sinking fund gold bonds, duo Nov. 1, 1947..
Total German issues..
10,000,000
10,000,000
20,000,000
78C>M
88
90
92H
957,000
OH
2%
91H
None.
3H
3H
1,600,000
4
m
1, C75,800
6H
2
&H
1
m
3
80,688
5
6
1
2H
i
3
2
121,538
158,483
Funding of short term indebtedness.
Construction of electric power station, gas plants,
waterworks, tramways, etc.
H
103, G98
Refunding.
H
113,179
Do.
37,002
Do.
94
30,000,000
Czechoslovak Republics per cent secured external sinking fund gold loan of 1922, due Apr.
Czechoslovak Republic 8 per cent secured external sinking fund gold loan of 1922, series B,
due Oct. 1,1952
Czechoslovak Republic secured external sinking fund gold loan of 1925, series A, 20-year
7yA per ccnt bonds, due Oct. 1, 19-45
City of Greater Prague 7}£ per ccnt mortgage loan bonds of 1922, due May 1, 1952,.
Total Czechoslovakiau issues
Government of the Argentine Nation external sinking fund G per cent gold bonds of 1923,
series A, due September 9,1957„
„
Government of tho Argentine Nation 6-month 5}g per cent treasury gold notes, dated
February 25,1924 (placed with banks only)
Total Argentine issues..
14,000,000
90
90K
9,250,000
91
96H
25,000,000
91
90
7,500,000
8G>£
92H
9&X
99M
84G, 600
0)
992,000
74,711
N
2
w
139,305
55,750,000
55,000,000
40,000,000
20,000,000
92
m
96H
100
0)
4,240,500
0)
m
H
"A-'tt
'M-'m
l
4^
X
H
iff
2H
15
2K
1
4
2
2
Public reconstruction, development of railways,
canals, etc., and repayment of advances in connection therewith.
Do.
115,000,000
Mortgage Bank of Chile guaranteed 5-year 6 per cent agricultural gold notes of 1926, due
Dec. 31,1931.
Mortgage Bank of Chile guaranteed sinking fund 6 per cent gold bonds of 1928, due Apr.
30, 1961.
Mortgage Bank of Chile guaranteed sinking fund 6 per cent gold gonds of 1928, due May
1, 1962.
Total Chilean issues..,
93
97%
99H
98H
1,388,000
4,092,000
None.
20,000,000
20,000,000
10,000,000
HH
20,000,000
91H
95H
647,000
20,000,000
sm
92
418,000
97.67
QOij(
SB
None.
None.
VA
M
IH
120,915
113,839
71,724
59,868
2H
" 21,700
U
3,175
36,854
Mortgage loans.
Do.
Loans secured by agricultural products.
Mortgage loans.
Do.
90,000,000
Province of Ontario 20-year 5 per cent gold bonds, due Oct. 1,1942.
Province of Alberta 30-year 4>£ per cent gold debentures, due Oct. 1, 1956.
Total Canadian issues.
20,000,000
6,000,000
1.58
m
.83
.75
1
Refunding.
26,000,000
Total bonds retired
Total European issues
Total Canadian issues.Total South American issues.
346,750,000
26,000,000
205,000,000
Grand total
577if 7luu,
v i fiflfl
u(
uw
Amount of
loan retired
by sinking
fund, as of
Jan. 1,1932,
or as of the
nearest date
available
1918
* Entire issue repaid.
* Entire issue called for Feb. 1,1932.
* Entire issue called for Jan. 1,1932.
i Issuing group*
' Syndicate.
• For expenses, H per cent
Less H per centforexpenses.
T
178,112,900
•
• Purchase group.
• Selling group.
» Loss.
92928—31.
(Face p. 184.)
No. 1
Foreign issues in which Kuhn, Loeb & Co. participated since November 11,
Name of issue
Amount
Austrian Government guaranteed loan 7 per cent sinking fund
gold bonds 1923-1943.
Austrian Government international loant 1930, sinking fund
7 per cent gold bonds due Aug. 1, 1957.
$25,000,000
Total Austrian Government issues
25,000,000
Syndicate headed
by—
Price
Issue
price
Amount of loan
Origiretired by sinking fund as of Total nating
Jan. 1, 1932, or margin group's
margin
as of the nearest
date available
Per centPer cent
90
J. P. Morgan & Co— S5X
95
91
do
$6,488,900
Per cent Per cent
4X
1918
Distributors'
commission
Underwriting
margin
Per cent
1
Per cent
511,900
Kuhn, Loeb & Co.'s
gross profit from originating and underwriting margin and
participation, if any,
in compensation of
distributors' group
Purpose of issue
$7,429
League of Nations plan of rehabilitation.
26,900
Expenditures for railways, postal and telegraph,
etc.
50,000,000
Ottering Distributing
group syndicate
German external loan, 1924, 7 per cent gold bonds, due Oct.
15,1949.
German Government international h% per cent loan, 1930,
35-year gold bonds, due Juno 1, 1965.
Total German Government issuesImperial Japanese Government external loan of 1924, 30-year
sinking fund GX per cent gold bonds, due Feb. 1, 1954.
Imperial Japanese Government external loan of 1930, 35-year
sinking fund 5H per cent gold bonds, due May 1,1965.
City of Tokio external loan of 1927 sinking fund 5}4 per ccnt
gold bonds, due Oct. 1,1961.
City of Yokohama external loan of 1926, sinking fund 6 per
cent gold bonds due Dec. 1,1961.
Taiwan Electric Power Co. (Ltd.), 40-year sinking fund 5X
per cent gold bonds due July 1,1971.
Total Japanese financing..
Republic of Cuba serial 5% per cent gold bonds due 1928-1937..
Republic of Cuba external loan 30-year sinking fund 5X per
cent gold bonds due Jan. 15, 1953.
Total.
110,000,000
98,250,000
do.
do-
92
31,623,100
86
90
1,982.000
S7H
92Jfi
Per cent Per cent
IX
m
X
\x
IH
109,506
M
101,645
To ensure currency stabilization and financing
deliveries in kind.
Two-thirds for capitalization of a portion of unconditional annuities of Young plan, one-third
for railway, post, etc.
m
445,456
Reconstruction and refunding.
m
230,947
Refunding.
i
i
i
59,382
208,250,000
150,000,000
50,000,000
20,640,000
19,740,000
22,800,000
_.do_
-do..do,
-do...
-do...
90.
86
89
90
263,180,000
9,000,000
50, COO, 000
-do..
100
96.77
89JS
a Average.
16,976,700
5
None.
4
1,167,000
907,000
None.
93
.93H
IX
m
1
1
4
m
i
m
57,230
Reconstruction and refunding.
Do.
71,311
Development and expansion.
* 101.122
3,600,000
23,289,500
WX
i
580,430,000
i To J. P. Morgan, X per cent.
87
1.122
2L4S
0.48
0.372
IX
2,940
4,838
Funding of internalfloatingdebt.
86,546,100
i Total bonds retired.
92928—31.
(Face p. 184)
No. 2
185
SALE OF F O R E I G N ; B O N D S OR S E C U R I T I E S ,
S w e d e n e n j o y s v e r y l u g h c r e d i t . I n n o r m a l t i m e s , its external l o a n s b o r e a rate
of interest f r o m 3 t o
p e r c e n t , a n d sold o n t h e L o n d o n a n d Paris S t o c k Ex*
changes a t a v e r a g e p r i c e s t o y i e l d f r o m 3 . 2 3 t o 4 . 2 8 p e r c e n t . T h e a v e r a g e yield
of f o u r r e p r e s e n t a t i v e S w e d i s h G o v e r n m e n t b o n d s q u o t e d o n t h e L o n d o n S t o c k
E x c h a n g e M a y 19, 1919, w a s 5.31 p e r c e n t .
T h e p r o c e e d s of t h i s l o a n a r e t o b e used f o r t h e p u r c h a s e of c o m m o d i t i e s in
t h e U n i t e d States.
W e o f f e r these b o n d s if, as a n d w h e n issued a n d r e c e i v e d b y us, s u b j e c t t o
prior sale a n d c h a n g e in p r i c e a t 99}$ a n d a c c r u e d interest.
Pending the preparation of definitive bonds, interim receipts exchangeable for
definitive b o n d s will b e issued a g a i n s t c o n f i r m e d sales.
All legal m a t t e r s p e r t a i n i n g t o this issue will b e p a s s e d u p o n b y Messrs. Shearm a n a n d Sterling, N e w Y o r k C i t v .
K u h n , L o e b & C o . ; T h e N a t i o n a l C i t v C o . ; First N a t i o n a l B a n k ,
N e w Y o r k ; Guaranty T r u s t C o . of N e w Y o r k ; Brown Bros. & C o . ;
Kidder, P e a b o d y & C o . ; Lee, Higginson & C o . ; Continental &
Commercial Trust & Savings Bank, Chicago.; Union Trust Co,
P i t t s b u r g h ; M e l l o n N a t i o n a l B a n k , P i t t s b u r g h ; First N a t i o n a l
B a n k , S t . P a u l ; A n g l o & L o n d o n Paris N a t i o n a l B a n k , San
Francisco.
T h e a b o v e s t a t e m e n t s a n d statistics a r e d e r i v e d f r o m official sources o r t h o s e
which w e regard a s reliable.
W e d o n o t g u a r a n t e e , b u t b e l i e v e t h e m t o b e correct.
SWEDEN*
NATIONAL DEBT
T h e per c a p i t a d e b t of S w e d e n , b o t h f u n d e d a n d u n f u n d e d , as of D e c e m b e r 31.
1918, w a s $70.59, c o m p a r e d w i t h S210 f o r t h e U n i t e d States. E v e n w i t h t h e
increased financial r e q u i r e m e n t s o f t h e S w e d i s h G o v e r n m e n t o c c a s i o n e d b y t h e
W o r l d W a r , t h e f u n d e d d e b t h a s increased o n l y 7 5 p e r c e n t since 1913^ T h i s
increase is m o d e r a t e c o m p a r e d w i t h t h o s e o f o t h e r n a t i o n s . All t h e f u n d e d
d e b t has b e e n issued f o r c a p i t a l e x p e n d i t u r e s w h i c h are r e v e n u e p r o d u c i n g , such
as S t a t e - o w n e d railroads, telegraphs, t e l e p h o n e s , h y d r o e l e c t r i c plants, canals,
loans t o aid a g r i c u l t u r e a n d l o a n s t o p r i v a t e o w n e d railroads. I n a d d i t i o n t o
the a m o u n t raised b y l o a n s f o r i n v e s t m e n t i n S t a t e properties, substantial s u m s
h a v e b e e n so i n v e s t e d f r o m o r d i n a r y r e v e n u e s a n d f r o m t a x a t i o n . T h e u n f u n d e d
d e b t representing t o a l a r g e e x t e n t b a n k i n g c r e d i t s h a s b e e n created t o finance
g o v e r n m e n t c o m m i s s i o n s c o n t r o l l i n g f o o d , f u e l , a n d r a w materials. T h e s e c o m missions a r e a l r e a d y l i q u i d a t i n g their affairs a n d t h e c r e d i t s will b e l a r g e l y p a i d
o u t of t h e p r o c e e d s .
T h e following statement furnished b y the national d e b t office shows the national
d e b t of S w e d e n o n D e c e m b e r 3 1 o f e a c h o f t h e last s i x y e a r s :
Funded
1913
1914...
ioia..
1917.....
1918
$1(5* $46,m
1MJ, 483,681
217,779.122
249,298,105
270,412,000
291,101,000
Unfunded
$5,3150,000
11,524,000
9,916,000
15,544,000
37,520,000
149,919,200
Total
$172,208,233
007,061
227,6&\122
264,542,105
307,932,000
441,020,800
T h e $249,298,105 f u n d e d d e b t o u t s t a n d i n g D e c e m b e r 31, 1916, r e p r e s e n t e d
original issues o f $ 2 9 3 , 2 4 1 , 6 1 3 , t h e b a l a n c e $ 4 3 , 9 4 3 , 5 0 8 h a v i n g b e e n retired t h r o u g h
amortization. Of the f u n d e d d e b t of $291,101,600 outstanding D e c e m b e r 31,
1918. $ 1 5 0 , 4 2 8 , 4 0 0 h a d b e e n p l a c e d in f o r e i g n c o u n t r i e s a n d $ 1 4 0 , 6 7 3 , 2 0 0 in
Sweden. T h e f a v o r a b l e e x c h a n g e s i t u a t i o n resulting f r o m large e x c e s s of e x p o r t s
over imports during the war has stimulated t h e repurchase b y Swedish institutions a n d i n v e s t o r s o f a c o n s i d e r a b l e a m o u n t o f S w e d i s h l o a n s p l a c e d a b r o a d .
Thirteen l o a n s issued u n d e r n o r m a l financial c o n d i t i o n s , u p t o a n d i n c l u d i n g t h e
year 1913, b o r e l o w rates o f interest r a n g i n g f r o m 3 p e r c e n t t o 4 % p e r c e n t , w i t h
an average o f 3}£ p e r c e n t .
F o u r r e p r e s e n t a t i v e b o n d issues o f S w e d e n listed o n
the L o n d o n S t o c k E x c h a n g e s o l d a t a v e r a g e p r i c e s t o y i e l d a b o u t 3 . 7 8 p e r c e n t
186
SALE'••OF FOREIGN BONDS ?OR SECURITIES
during the 10-year period f r o m 1904 t o 1913. F o r t h e same period three representative issues sold on the Paris Bourse at average prices t o yield a b o u t 3.67 per
cent.
"
T h e national B u d g e t f o r the fiscal year ending D e c e m b e r 31, 1919, provides
$18,481,823 f o r service of the national debt, of which $16,997,587 is required for
interest and $1,484,236 f o r amortization. T h e total d e b t service will require
o n l y 11.1 per c e n t of the total revenues, of which 10.2 per c e n t will b e required for
interest and 0.89 per cent f o r amortization.
BEVENUES AND EXPENDITURES
T h e receipts a n d expenditures of the G o v e r n m e n t h a v e been officially reported
as follows:
Receipts f
913
:1
1914„i.„.:.i
1915
1916
Expenditures
$81,983,880 $69,973,996
80,394, 90S 72,755,032
111,315,944 110,687,484
140,976,844 116,411,160
Surplus
$12,009,884
7,639,876
628,460
24,565*684
Actual expenditures f o r 1917 and 1918 are n o t available, b u t a c t u a l receipts
exceeded budget estimates b y $70,039,120 in 1917 a n d b y $20,257,271 in 1918.
T h e budget estimates f o r 1917, 1918, a n d 1919 were $185,454,686, $180,900,616
and 166,673,940, respectively. T h e revenues of Sweden are derived f r o m two
sources, taxation and state properties. T h e largest present source of taxation
is the i n c o m e and property tax, which has exceeded c u s t o m s duties during the
I n 1918 the revenues f r o m i n c o m e a n d p r o p e r t y t a x amounted
: past f e w years.
t o $69,476,327, compared with $11,115,885 in 1913, while c u s t o m s duties amounted
t o $9,907,239 in 1918, compared with $18,465,921 in 1913. R e c e i p t s f r o m the
excess profits tax h a v e been v e r y satisfactory, amounting in 1918 t o $81,489,812,
which was a b o u t five times the estimated amount. Excise taxes are levied on
sugar, t o b a c c o , and alcoholic beverages, amounting in 1918 t o $14,368,741.
Other important sources of revenue are s t a m p and inheritance taxes.
State properties contributed an average surplus of b e t w e e n $15,000,000 and
$20,000,000 annually up t o 1918, b u t showed a deficit of $1,570,054 in 1918 on
a c c o u n t of increased operating costs of the State railroads.
MONETARY SYSTEM AND BANKING
T h e Swedish monetary unit is the 10-kronor gold c o i n containing 4.032258
' grams of fine gold. T h e reckoning unit is o n e krona ( c r o w n ) with a gold value
of $0,268 in United. States m o n e y (the rate used in c o n v e r t i n g k r o n o r t o dollars
in this circular). Notes of the Riksbank a n d gold coins are legal tender througho u t the country.
T h e banking system comprises the R i k s b a n k which is o w n e d a n d controlled
b y t h e State a n d is the only bank of issue; ordinary j o i n t s t o c k c o m m e r c i a l banks
with limited liability; unlimited liability (enskilda) c o m m e r c i a l b a n k s ; the
General M o r t g a g e Bank of Sweden and m o r t g a g e societies: P r i v a t e savings
banks and the post office savings bank. M o s t of the j o i n t - s t o c k a n d unlimitealiability banks, also maintain savings departments a n d carry large savings
accounts.
N o t e s of the Riksbank in circulation M a y 3, 1919, a m o u n t e d t o $196,000,000
against w h i c h was a domestic gold reserve of $77,600,000, or 39.6 per cent.
F r o m M a y 2, 1914, t o M a y 3; 1919, the domestic g o l d reserve increased from
$28,150,000 to, $77,600,000, or 176 per centA remarkable development has taken place in Swedish b a n k i n g in t h e last
five years.. Paid-in capital and surplus of t h e j o i n t - s t o c k a n d unlimited-liability
b a n k s h a v e increased f r o m $174,700,000 on D e c e m b e r 31, 1913, t o $250,500,000
o n D e c e m b e r 31, 1917, an increase of 43.4 p e r cent. D e p o s i t s increased from
$453,200,000 t o $862,500,000, or 90.3 per c e n t , a n d cash 116 per c e n t . T h e
surplus of foreign assets held b v the R i k s b a n k a n d t h e p r i v a t e b a n k s o v e r their
foreign liabilities was $33,500,000 on D e c e m b e r 31, 1913, a n d on M a r c h 31, 1919/
h a d increased b y $158,500,000 t o $192,000,000, an increase of 4 7 3 p e r cent. .
, Savings b a n k deposits h a v e also shown unusual g r o w t h . D e p o s i t s in private
savings banks, t h e P o s t Office Savings B a n k , a n d savings d e p a r t m e n t s Of the
187 SALE OF FOREIGN; B O N D S OR S E C U R I T I E S ,
c o m m e r c i a l b a n k s increased f r o m $ 3 0 2 , 0 0 0 , 0 0 0 o n D e c e m b e r 31, 1913, t o
$475,000,000 o n D e c e m b e r 31, 1910, a p e r c a p i t a increase f r o m $04.40 t o $84.50.
T h e p er c a p i t a s a v i n g s a c c o u n t s of t h e p e o p l e o f S w e d e n rank high w h e n c o m pared with t h o s e of o t h e r countries.
AREA, POPULATION, AND GOVERNMENT
Sweden, with an area of 173,035 s q u a r e miles, is o n e of t h e largest countries
of E u r o p e . T h e area is a b o u t 83 p e r cent of t h a t o f F r a n c e o r G e r m a n y in 1913,
142 per c e n t of G r e a t Britain a n d Ireland, a n d is a p p r o x i m a t e l y e q u a l t o the
c o m b i n e d areas of all t h e N e w E n g l a n d States, N e w Y o r k , P e n n s y l v a n i a , N e w
Jersey, D e l a w a r e , a n d M a r y l a n d .
T h e p o p u l a t i o n , as e s t i m a t e d b v t h e G o v ernment in 1910, w a s 5,757,500.
T h e p o p u l a t i o n d e n s i t y is 3 3 persons per square
mile, c o m p a r e d with 119 f o r all E u r o p e a n d 170 f o r W e s t e r n E u r o p e .
Since
1860 the p o p u l a t i o n has increased 4 9 p e r c e n t .
Iliiteracv is practically u n k n o w n
in Sweden. T h e t h r i f t y a n d industrious c h a r a c t e r of t h e p e o p l e insures a c o n tinuance o f t h e s t e a d y national p r o g r e s s s h o w n in t h e p a s t .
T h e G o v e r n m e n t of S w e d e n is a c o n s t i t u t i o n a l m o n a r c h y .
T h e Riksdag
(national legislature) c o n s i s t s o f t w o c h a m b e r s w h i c h h a v e e q u a l a u t h o r i t y in
all questions. T h e c a b i n e t ministers are responsible t o t h e R i k s d a g .
WEALTH AND INDUSTRIES
T h e wealth of S w e d e n e m b r a c i n g b o t h p r i v a t e a n d p u b l i c p r o p e r t y w a s officially e s t i m a t e d at approximate!}* $4,090,000,000 in 1917, based o n p r e - w a r
telephones,
rices. T h e assets o w n e d b y the S t a t e , s u c h a s railroads, telegraplis,
ydro-electric plants, c a n a l s a n d forests, w e r e v a l u e d a t $ 8 2 1 , 1 5 2 , 0 0 0 in 1918.
T h e principal industries are m i n i n g , agriculture, m a n u f a c t u r i n g , l u m b e r i n g ,
fisheries a n d shipping.
I m m e n s e iron o r e fields exist in central a n d n o r t h e r n
Sweden, c o n t a i n i n g d e p o s i t s generally r e c o g n i z e d a s of the v e r y h i g h e s t g r a d e .
In 1910, 0,874,018 t o n s of iron o r e a n d 7 2 0 . 7 5 8 t o n s of p i g iron were p r o d u c e d .
Other minerals p r o d u c e d a r c c o p p c r , nickel, m a n g a n e s e , z i n c , g o l d , a n d silver.
I n 1910, 4 8 , 1 0 0 e m p l o y e e s were e n g a g e d in t h e m i n i n g industries. T h e v a l u e
of the 1918 harvest of agricultural p r o d u c t s w a s e s t i m a t e d b y t h e C e n t r a l Statistical Bureau a t a b o u t $ 0 3 2 , 5 9 5 , 0 0 0 . T h e chief m a n u f a c t u r e s in the o r d e r o f their
i m p o r t a n c e a r e : F o o d p r o d u c t s , metals, w o o d , p u l p , p a p e r , textiles, leather,
and chemicals.
I n 1915, 9,828 f a c t o r i e s were in o]>eration e m p l o y i n g 404,074
work p e o p l e . T h e v a l u e of t h e p r o d u c t i o n f r o m these factories w a s $727,087,000.
T h e m e r c h a n t m a r i n e of S w e d e n , J a n u a r y 1, 1919, consisted of 1,209 s t e a m vessels
of 847,054 gross t o n n a g e 3 9 0 m o t o r vessels o f 77,430 t o n s a n d 1,079 sailing
vessels of 124,372 tons, a t o t a l o f 2,084 vessels o f 1,049,450 t o n s .
Sweden has v e r y e x t e n s i v e w a t e r - p o w e r potentialities.
T h i s p o w e r is being
rapidly d e v e l o p e d a n d utilized f o r t h e f u r t h e r d e v e l o p m e n t of t h e natural resources
of the c o u n t r y .
T h e t o t a l a v a i l a b l e s u p p l y has b e e n estimated a t a m i n i m u m o f
0,750,000 h o r s e p o w e r .
F r a n c e is e s t i m a t e d t o possess 5 , 9 0 0 , 0 0 0 : I t a l y , 5 , 0 0 0 , 0 0 0 ;
Switzerland, 1,500,000 a n d G r e a t Britain 1,000,000.
T h e total developed power
in Sweden w a s 1,105,090 h o r s e p o w e r in 1910.
T h e railway mileage o f S w e d e n a t t h e e n d o f 1910 was 9,304 miles o f w h i c h
3,078 miles were s t a t e o w n e d a n d 0 , 2 2 0 miles p r i v a t e o w n e d .
The state-owned
system c o m p r i s e s the m a i n t r u n k lines. T h e total railway mileage has increased
80.7 per c e n t since 1890. T h e d e n s i t v of r a i l w a y mileage p e r 1,000 i n h a b i t a n t s
is t h e lareest of the E u r o p e a n c o u n t r i e s . I t is m o r e t h a n t w i c e t h a t of G r e a t
Britain, F r a n c e , o r G e r m a n y *
E
FOREIGN TRADE
T h e f o l l o w i n g table s h o w s t h e f o r e i g n t r a d e o f S w e d e n , e x c l u d i n g g o l d a n d
silver, since 1 9 1 0 :
Imports
1810..*™
1911..
191 2
1913
1914......
1915.
1916
191 7
1918......
:
......
:
t Partially estimated.
«...
$179,348,639
185,040,267
209,815,578
226,872,068
194.811,310
306,191,331
305,144,800
203,304,800
1229,032, &00
Exports
$158,884,629
177,827,641
203,805,800
219,049,007
206,991,160
352,785,659
417,115,200
361,692,800
1362,202,000
Total
$338,233,268
362,867,908
413,621,378
445,921,075
401.802,470
658,976,990
722,26a 000
564,997,600
1391,234,800
Balance
—$20,464,010
-7,212,626
-6,009,778
—7,823,061
+12,179,850
+46,594,328
+111,97^4(X)
+158,388,000
+ M33,169,2C0
188
SALE OF FOREIGN; BONDS OR SECURITIES,
T h e increase in t o t a l trade f r o m 1910 t o 1918 was 75 p e r c e n t . T h e average
annual surplus o f exports o v e r imports f r o m 1914 t o 1918, inclusive, was $92,460,300. This figure d o e s n o t include the invisible exports such as freights
earned b y the merchant marine. T h e gross earnings of t h e m e r c h a n t marine in
1915 were $75,720,337. T r a d e between Sweden a n d t h e U n i t e d States reached
its high level in 1915 when the total was $87,442,067. O w i n g t o lack of shipping
facilities, trade between the t w o countries declined t o $21,609,598 in 1918, but
has shown a pronounced increase in 1919. F o r the f o u r m o n t h s ended April
' 3 0 , 1919, exports f r o m the United States t o Sweden were $38,149,326.
SWEDISH GOVERNMENT BONDS
N e w issue $30,000,000 Swedish Government 30-year (external loan) 5}4 per
cent gold bonds, dated N o v e m b e r 1, 1924, D u e N o v e m b e r 1, 1954.
Interest payable M a y 1 and N o v e m b e r 1. C o u p o n b o n d s in denominations
o f $1,000 and $500, registerable as t o principal only. Principal a n d interest
p a y a b l e in N e w Y o r k C i t y in United States g o l d coin of t h e p r e s e n t standard of
weight and fineness.
T h e National C i t y Bank of N e w Y o r k , fiscal agent of t h e l o a n .
N o t redeemable f o r 10 years.
Redeemable, as a whole but n o t in part, at the o p t i o n of t h e G o v e r n m e n t on
N o v e m b e r 1, 1934, or any interest date thereafter, a t 100 per c e n t .
T h e credit of Sweden ranks high in the financial m a r k e t s of t h e w o r l d .
Recent
quotations indicate a 5 per cent average yield basis f o r nine representative loans
listed o n the Stockholm Stock Exchange. T h e Swedish G o v e r n m e n t 6 per cent
dollar loan due 1939 n o w outstanding in the N e w Y o r k m a r k e t is quoted to
yield 5.40 per cent t o maturity, and less than 5 p e r c e n t assuming redemption in
1929, the earliest callable date.
For the fiscal year ended June 30, 1924, ordinary r e v e n u e s amounted to
$177,882,835 and ordinary expenditures $166,124,126, leaving a surplus for the
year of $11,758,709. T h e service of t h e d e b t f o r t h e s a m e p e r i o d , including interest
and amortization, totaled $23,849,759, or 13.4 per cent of o r d i n a r y revenues.
W e are officially informed that the proceeds of this l o a n will b e used t o meet,
in part, recent capital expenditures b y the Swedish G o v e r n m e n t , including posts,
telegraphs and telephones, state railroads, hydroelectric d e v e l o p m e n t s , loans in
aid of agriculture, loans t o privately owned railroads, a n d miscellaneous state
enterprises.
Application will b e m a d e t o list these b o n d s on the N e w Y o r k S t o c k Exchange.
W e offer these b o n d s if, as, a n d when issued a n d r e c e i v e d b y us, subject to
approval of counsel. Delivery in temporary f o r m is e x p e c t e d o n or about
N o v e m b e r 11, 1924.
Price 99J4 and interest, yielding over 5.50 p e r cent.
.
K u h n , L o e b & C o . ; First National B a n k , N e w Y o r k - T h e N a t i o n s
City C o . ; Guaranty C o . of N e w Y o r k ; B r o w n Brothers & Co.;
Kidder, P e a b o d y & C o . ; Lee, Higginson & C o . ; Continental
and Commercial T r u s t & Savings B a n k , C h i c a g o ; The Union
Trust C o . of Pittsburgh; Mellon N a t i o n a l B a n k , Pittsburgh;
First National: Bank, St. P a u l ; A n g l o & L o n d o n Paris National B a n k , San Francisco.
( T h e a b o v e information has been obtained, partly b y c a b l e , f r o m official statem e n t s and statistics. While w e d o n o t guarantee w e believe i t t o be correct.
All statistics relating t o foreign m o n e y are expressed in t e r m s of t h e U n i t e d States
g o l d dollar at par of exchange.)
$ 3 0 , 0 0 0 , 0 0 0 SWEDISH GOVERNMENT 3 0 - Y E A R (EXTERNAL LOAN) 5 % PER CENT
GOLD BONDS, DATED DECEMBER 1, 1 9 2 4 , D U E DECEMBER 1, 1 9 5 4
N o t redeemable f o r ;10 years. Interest p a y a b l e M a y 1 a n d November 1C o u p o n b o n d s in denominations of $1,000 a n d $500, registerable as t o principal
o n l y . Principal a n d interest p a y a b l e i n N e w Y o r k C i t y in U n i t e d States goW
coin o f the present standard o f w e i g h t a n d fineness a t t h e N a t i o n a l C i t y ban*
of N e w Y o r k , the fiscal agent o f the l o a n , w i t h o u t d e d u c t i o n f o r a n y present or
f u t u r e Swedish taxes, in t i m e of w a r as well as in t i m e o f p e a c e , irrespective oi
t h e nationality of t h e holder.
SALE OP FOREIGN* BONDS 'Oil'SECURITIES
189
Redeemable, as a whole b u t n o t in p a r t , at the o p t i o n of the G o v e r n m e n t , o n
November 1, 1934, o r o n any interest date thereafter," a t 100 per cent.
Credit.—Of the 12 external loans of the Swedish G o v e r n m e n t a t present
outstanding, 11 were issued prior t o 1914 a n d bear c o u p o n rates ranging f r o m 3
to
per cent. T h e Swedish G o v e r n m e n t 6 per c e n t dollar loan, d u e 1939, which
was offered in 1919 at 99K and which is the o n l y Swedish G o v e r n m e n t issue n o w
outstanding in the N e w Y o r k market, is q u o t e d a t 106 ( O c t o b e r 24, 1924).
At
this price these bonds yield a b o u t 5.40 per c e n t t o final maturity, and, assuming
redemption at 102 on June 15, 1929, the earliest callable date, less thau 5 per cent.
The 3)4 per cent loan of 190S a n d the l \ i per c e n t loan of 1913 are quoted o n L o n don and Paris markets, respectively, a t prices yielding a b o u t 5 per cent.
Nine
representative government issues listed on the S t o c k h o l m S t o c k Exchange arc
quoted at prices giving an average yield o f 5.001 |>cr cent.
Debt and resources.—The total national d e b t as of Septeinl>er 3 0 , 1 9 2 4 , a m o u n t e d
to $135,760,544, of which $160,323,750, o r a b o u t 38 per cent, was external. On
the basis of the present population of 0,005,759, these a m o u n t s represent a total
per capita debt of $72.50 and a per c a p i t a external d e b t o f $27.70. T h i s d e b t has
been incurred, principally, f o r capital exj>enditurcs t especially the development
of means of communication, agriculture, a n d hydroelectric power. I n addition,}
substantial amounts f r o m currcnt revenues have f r o m time to. time been invested
in such undertakings.
The proceeds of this loan will b e used f o r meeting, in part, recent capital
expenditures of the Swedish G o v e r n m e n t f o r posts, telegraphs, and
telephones,
state railroads, hydroelectric d e v e l o p m e n t s , loans in aid of agriculture, loans t o
privately owned railroads, and f o r miscellaneous state enterprises.
As an offset, the G o v e r n m e n t o w u s properties carried o n its b o o k s as of Sep*
tember 30, 1924, at $753,805,834, and additional properties, n o t carried o n the
books, valued in 1918 a t $147,400,000, making total asset* of $901,205,834, most:
of which are revenue producing. Since Anril 1, 1924, the National Bank of
Sweden has been redeeming its notes in gold, and as of September 27, 1924, the
ratio of gold to notes in circulation w a s 42.8 per cent, as c o m p a r e d with a ratio
of 45.5 per cent as of July 31, 1914. Institutions and investors in Sweden have
taken advantage of the relatively f a v o r a b l e position of Swedish exchange during
recent years to repurchase substantial a m o u n t s of G o v e r n m e n t loans originallyplaced abroad.
Revenues and expenditures.—For the fiscal y e a r ending June 30, 1924, ordinary
revenues amounted t o $177,882,835, a n d ordinary expenditures $100,124,120,,
leaving a surplus of $11,758,709. T h e service of the d e b t for the same period,
including interest and amortisation, totaled $23,849,759, o r 13.4 per cent of
ordinary revenues. F o r the period January 1, 1913, t o June 30, 1923, ordinary
revenues exceeded ordinary cxj>cnditurcs b v $86,767,079.
A substantial portion o f the G o v e r n m e n t ' s revenues are derived f r o m direct
taxation, and during the fiscal year ending D e c e m b e r 31, 1922, more than 28
per cent of ordinary revenues were derived f r o m property and i n c o m e taxes.
Other principal sources of revenue are customs, excise duties, s t a m p taxes, and
profits from State-owned enterprises.
Wealth and industries.—The value of real estate alone, as estimated f o r tax
purposes in 1923, totaled $4,040,239,987, o r m o r e than ten times the total national
d e b t Of the a b o v e valuation, $421,053,016, belonging t o the G o v e r n m e n t a n d
municipalities, was tax-exempt.
The iron deposits of Sweden rank a m o n g the m o s t i m p o r t a n t of E u r o p e b o t h
in extent and in richness of orc T while Swedish steel has f o r m a n y years e n j o y e d
an international reputation because of its superior quality. C o a l , c o p p e r ,
sulphur, nickel, manganese, « i n c , g o l d , and silver are also produced. A b o u t 58
per cent of the land area consists o f tracts of valuable timber which furnish an
abundance of material f o r the m a n u f a c t u r e of w o o d - p u l p and paper.
Exports
of paper, wood-pulp, and t i m b e r f o r the five v c a r s 1919-1923 averaged $209,009,426. T h e principal industries are agriculture, mining, lumbering, fishing,
shipping, and manufacturing, ©specially of steel, w o o d - p u l p , and paper.
Total
production of industry f o r 1922 a m o u n t e d t o $995,745,039.
Application will b e m a d e t o l i s t the*o b o n d s oti the N e w Y o r k S t o c k E x c h a n g e .
We offer these b o n d s if, aft, and w h e n issued a n d received b y us, s u b j e c t t o a p p r o v a l
of counsel. Price on application*
92928—-31—it 1
13
190
SALE OF FOREIGN; BONDS OR SECURITIES,
T h e information contained herein has been obtained f partly b y cable, from
official statements and statistics.
While, w e d o n o t guarantee, w e believe it to
b e correct. All statistics relating to. foreign money jure expressed in terms of
the United States gold dollar a t par of exchange.
THE NATIONAL CITY CO.,
National City Bank Building, New York.
$5,000,000
CITY * OF CHRISTIANIA (NORWAY) 2 5 YEAR 8 PER CENT SINKING
FUND GOLD, BONDS, DUE OCTOBER 1, 1 9 4 5
Interest payable April 1 and October 1.
Coupon bonds in denominations of $1J000 and $500 each. Principal, premium
and interest to be payable in N e w Y o r k C i t y in United States gold coin of, or
equal to, the present standard of weight and fineness, a t the office of Kuhn,
L o e b & Co. without deduction f o r any Norwegian G o v e r n m e n t o r other Norwegian taxes, present or future.
.
The city of Christiania is to p a y t o Kuhn, L o e b & Co., as a sinking fund, in
quarterly instalments, the sum of* $220,000 per annum c o m m e n c i n g January 1,
1921, and up to and including October 1,1930, and the sum of $215,000 per annum
commencing January 1, 1931, and until the maturity of the bonds. Prior to:
August 1, 1925, the sinking f u n d is t o be applied towards the purchase of bonds
in the open market, if obtainable, at not more than 110 per cent a n d interest;
any balance remaining unapplied on August 1, 1925, is t o b e applied t o the re^
demption of bonds by lot on October 1, 1925, at 110 per cent.
Commencing
April 1, 1926, and semiannually thereafter, Sinking F u n d p a y m e n t s are to be
applied to redeem bonds b y lot at 110 per cent till October 1, 1930, and at 107)4
per cent thereafter. The entire issue of bonds outstanding is t o be redeemable,
as a whole, on any interest date f r o m October 1,1925, t o O c t o b e r 1 , 1 9 3 0 inclusive,
at 110 per cent, and f r o m April 1, 1931 t o maturity at 107}£ per cent, a n d interest,
on six months* previous notice b y advertisement.
The following information has been received f r o m M r . J- H o e , First Mayor of
the City of Christiania. As it has been received b y cable, it is subject to correction:
" Christiania, which is the capital and the principal p o r t of the K i n g d o m of
N o r w a y , has a population of a b o u t 260,000. Its financial standing has always
ranked very high. Previous t o the war it borrowed abroad a t the rate of 4 to
4}4 per cent. There has never been any default on a l o a n of the city.
" T h e City's total debt, inclusive of the. present issue, is K r . 174,100,000
( K r . 1 = $ 0 , 2 6 8 at gold parity), of which K r . 131,000,000.is f u n d e d debt. Cityowned properties o n June 30, 1919, were valued at Kr. 216,000,000; and, based on
present values, are estimated at a considerably higher figure. City-owned
assets are, therefore, in excess of the total debt, including the present loan. The
proceeds of the present loan will be used f o r productive purposes, such as electric
works, housing facilities and harbor improvements^
\
" T h e estimated income of the population of Christiania is K r . 933,000,000 and
its taxable income K r . 756,000,000.
" T h e budget for the fiscal year t o end June 30, 1921 a m o u n t s t o about Kr.
131,000,000 and provides for, K r . 6,000,000 t o be applied towards redemption of
the unprovided balance of the t w o previous budgets. During and since the world
war, Christiania had t o make considerable expenditures; f o r relief a n d other
purposes connected with the world crisis a n d it affords p r o o f of the conservative
management of the City's finances that during these six years its income from
revenue fully covered the expenditures, b u t f o r the. relatively small aggregate
sum of K r . 9,900,000."
T h e undersigned will receive subscriptions f o r the a b o v e bonds, subject to.
allotment, at 99 per cent and accrued interest, payable in N e w Y o r k against
delivery of temporary receipts, deliverable if, when and as issued.
J
T h e temporary receipts will b e exchangeable f o r the definitive, bonds as
when received b y us.
.
.
T h e right is reserved t o close the subscription at a n y t i m e w i t h o u t notice, to
r e j e c t a n y application, t o a w a r d a smaller: a m o u n t than applied f o r a n d t o
allotments in o u r uncontrolled discretion.
N E W YORK, October 15, 1920.
^ U H N , LOEB & CO.
SALE OF FOHEIGX BONDS Oil SKCUllITIES
191
$2,000,000 CITT OP CHRISTIANIA ( N O R W A Y ) 3 0 - y e a r 6 PER CENT SINKING FUND
GOLD BONDS, D U E SEPTEMBER 1, 1 9 5 4
Interest payable March 1 and September 1.
Coupon bonds in denominations of $1,000 and $500 each. Principal and
interest to be payable in New York City in United States gold coin, of or equal
to the present standard of weight and fineness, a t the office of Kuhn, Loeb & C o .
without deduction for any Norwegian Government or other Norwegian taxes,
present or future.
Beginning September 1, 1929, the city of Christiania is to pay to Kuhn, Loeb
& Co., in semiannual installments, the sum of $80,000 per annum, as a sinking
fund, to be applied toward the purchase of bonds in the open market, if obtainable, at or below par and interest, or, if bonds are not so obtainable, toward
the redemption of bonds by drawings a t par.
The entire issue outstanding is to be redeemable, as a whole, at par, at the option
of the city, on any interest date o n o r after September 1, 1934, on six months'
previous notice by advertisement.
The following information has been received f r o m J. Hoe, first mayor of
the city of Chnstiania. As it has been received b y cable, it is subject to correction:
" Christiania, which is the capital and the principal f>ort of the K i n g d o m of
Norway, has a population of a l ^ u t 260,000. Its financial standing has always
ranked very high. Previous to the war it borrowed abroad at the rate of 4 per
cent to 4)4 per cent. There has never been a n y default on a loan of the city.
" T h e city's total debt, exclusive of the present issue, is Kr. 226,698,000 (Kr.
1«= $0,268 at gold parity), of which Kr. 144,223.000 is funded debt.
Cityowned properties on June 3 0 , 1 9 2 3 , were valued a t a b o u t Kr. 416,000,000. C i t y owned assets are, therefore, largely in excess of the total debt, including the present
loan. The proceeds of the present loan will be used for productive purposes,
such as housing facilities and harbor improvements.
u The budget for the fiscal year to end June 30, 1925, which amounts t o a b o u t
Kr. 100,800,000, b a l a n c e s / '
The undersigned offer the a b o v e b o n d s subject to prior sale at 98 per cent
and accrued interest, yielding a b o u t 6.15 per cent to maturity.
( T h e above bonds arc offered if, when, and as issued and received b y the undersigned and subject to the completion of their purchase and approval of counsel.
Interim receipts, exchangeable for definitive bonds, when prepared, m a y be
delivered against payment in N e w York funds. Application will be made in
due course to list these bonds o n the N e w York Stock Exchange.
K u u x , LOEB & C o .
NEW YORK, October
l$U>
$8,000,000 CITY OP OSLO (CAPITAL OP NORWAY), FORMERLY CITY OF CHRISTIANIA
30-YEAR 6 PER CENT SINKING-FUND GOLD BONDS, D U E M A Y 1, 1 9 5 5
Coupon bonds in denominations of $1,000 and $500 each. Principal a n d
interest to be payable in New York City in United States gold coin of or equal
to the present standard of weight and fineness, a t the office of Kuhn, L o e b & C o .
without deduction for a n y Norwegian Government or other Norwegian taxes,
present or future. Interest payable M a v 1 and N o v e m b e r 1.
Beginning Mav 1, 1930, the city of Oslo is t o pay t o Kuhn, L o e b & Co., in
semiannual installments, a sum sufficient t o retire $320,000 of bonds per annum,
as a sinking fund, to be applied toward the purchase of bonds in the open market,
if obtainable, at or beiow par a n d interest, or, if bonds arc n o t so obtainable,
toward the redemption of tonds by drawings at par.
The entire issue outstanding is t o be redeemable as a whole at par, at the option
of the city, on any interest date on o r after M a y 1, 1035, on six months' previous
notice by advertisement.
The following information has been received f r o m M r . J. H o e , first m a y o r of
the city of Oslo:
. "Oslo, which is the capital and the principal port of the K i n g d o m of N o r w a y ,
has a population of about 260,000. Its financial standing has always ranked very
high. Before the war it borrowed abroad at rates of 4 t o 4^4 per cent. There
has never been any default on a loan of the city.
. " T h e city's total debt, including the present issue, is about Kr. 290,000,000
(Kr. 1 « $0,268 at gold parity), of which about K r . 207,000,000 is funded d e b t .
192
SALE'••OF FOREIGN BONDS ?OR SECURITIES
C i t y - o w n e d properties pn June 30, t 1923, were f valued a t a b o u t K r . 416,000,000.
C i t y - o w n e d assets are, therefore, largely in excess of t h e t o t a l d e b t , including the
present loan. T h e proceeds of- the present loan will b e 7 used f o r ^productive
purposes, s u c h as .the c i t y - o w n e d gas.and electric works, h a r b o r improvements, and
housing facilities.
.. " ' T h e b u d g e t f o r t h e fiscalriyear,to end June 30, 1925, w h i c h . a m o u n t s t o K r .
100,800,000, balances;"
T h e undersigned offer the a b o v e bonds, subject t o prior sale, a t 9 9 % p e r cent an4
a c c r u e d . interest.
:i?Thei a b o v e b o n d s are offered'if, when, and as issued a n d r e c e i v e d b y the under-:,
s i g n e d ' a n d subject t o ,the: completion ,of their purchase a n d a p p r o v a l of counsel:
I n t e r i m .receipts, exchangeable f o r definitive b o n d s when prepared, may be;
delivered against p a y m e n t in N e w Y o r k funds. Application will b e m a d e ; i n due
course *to ; list, these bonds o n the N e w Y o r k S t o c k E x c h a n g e .
NEW Yokk,
April 8, J925.
KUHN, LOEB & Co'.
$ 4 , 0 0 0 , 0 0 0 CITY OF OSLO (CAPITAL OF NORWAY), FORMERLY CITY OF CHSISTIANIA 2 0 - Y E A R 5 % PER CENT SINKING-FUND GOLD BONDS, D U E FEBRUARY
•1, 1946
Coupon b o n d s in denominations of $1,000 and $500 each. P r i n c i p a l . and
interest t o b e p a y a b l e in N e w Y o r k City in United States gold coin o f - o r equal
t o the present- standard of weight-and fineness, a t the office o f Kuhiv, Loeb &f
C o . without deduction f o r any Norwegian G o v e r n m e n t o r o t h e r N o r w e g i a n taxes;
p r e s e n t or future. Interest p a y a b l e February 1 and A u g u s t 1.
Beginning February 1, 1927, the city of Oslo is t o p a y "to K u h n , L o e b & Co.'rin*
quarterly installments, a sum sufficient t o retire $210,000 of bonds p e r annum,
as a sinking fund, t o b e applied 4 toward the purchase of b o n d s j n t h e opeii mark e t , if obtainable, at or,below p a r and interest, or, if b o n d s are not : so obtainable,
t o w a r d the redemption of b d n d s ' b y drawings at par.
T h e entire issue outstanding is t o be redeemable as a w h o l e a t ' p a r , a t the optiph
of t h e city / o n a n y interest d a t e o n o r after F e b r u a r y 1, 1931, o n six months'
previous notice? by* advertisement;'
T h e following information has been received f r o m H o n ! J a k o b Hoe* first mayor
o f the city of Oslo. : A s it lias been received b y cable, it is s u b j e c t t o correction.
" O s l o , which is the capital and the principal p o r t of t h e K i n g d o m o f Norway,
has a population of a b o u t 260,000. I t s financial standing has a l w a y s ranked
v e r y high. B e f o r e the war it borrowed a b r o a d a t rates of 4 t o 4 } i per'cent.
T h e r e has never been any default on-a loan-of the c i t y .
" T h e city's t o t a l d e b t , including the present issue, b u t d e d u c t i n g therefrom
t h e $3,473,000 25-year 8 p e r cent s i n k i n g ' f u n d ' g o l d b o n d s called for redemption
o n A p r i l T , 1926, is a b o u t K r . 271,000,000 ( K r . 1 = $ 0 , 2 6 8 a t gold p a r i t y ) ; of which
•about K r . 216,000,000 is f u n d e d d e b t . C i t y - o w n e d properties o n J u n e 30, 1924,
y e r e valued a t a b o u t K r . 434,000,000. C i t y - o w n e d assets are, therefore, largely
i n .excess of the t o t a l debt, including t h e : p r e s e n t l o a n . Of t h e p r o c e e d s of the
p r e s e n t loan, K r . 11,500,000 will be applied t o w a r d - t h e r e d e m p t i o n , referred to
a b o v e , of the 8 per cent b o n d s n o w outstanding a n d the b a l a n c e of about Kr.
8,200,000 will be used for p r o d u c t i v e purposes, such as t h e city o w n e d gas and
electric works, h a r b o r i m p r o v e m e n t s a n d housing facilities.
" T h e c i t y ' s b u d g e t f o r the fiscal y e a r t o e n d J u n e 30, 1926, w h i c h amounts to
K r . 107,000,000, balances:"
T h e undersigned offer thef a b o v e b o n d s , s u b j e c t t o p r i o r sale, a t 97 per cent
a n d accrued interest,,to yield o v e r 5.75 p e r c e n t t o m a t u r i t y .
T h e a b o v e b o n d s are offered if, w h e n , a n d as issued aiid received b y the undersigned and s u b j e c t t o the completion of their purchase a n d a p p r o v a l of counsel
I n t e r i m receipts, exchangeable f o r definitive b o n d s w h e n p r e p a r e d , will
d e l i v e r e d a g a i n s t ' p a y m e n t in N e w Y o r k f u n d s . A p p l i c a t i o n will b e made in
d u e course t o list these b o n d s o n the N e w Y o r k S t o c k E x c h a n g e :
NEW YORK, 'JANUARY
£7,1926.
KUHN) LOEB & CO.
SALE OF FOHEIGX BONDS Oil SKCUllITIES
$15,000,000
CITY
OF COPENHAGEN (DENMARK)
BONDS, D U E JUNE 1, 1 9 5 2
25-YEAR
5
193
PER C E N T . GOLD
Principal a n d interest p a y a b l e in N e w Y o r k C i t y in United States gold c o i n o f
or ecjiul t o the standard o f w e i g h t a n d fineness existing J u n e 1, 1927, w i t h o u t
deduction f o r a n y D a n i s h G o v e r n m e n t o r m u n i c i p a l o r other Danish taxes,
imposts, levies, o f duties, p r e s e n t o r f u t u r e . C o u p o n b o n d s in d e n o m i n a t i o n s o f
$1,000 and $500. Interest p a y a b l e J u n e 1 a n d D e c e m b e r 1.
NOT REDEEMABLE FOR 10 YEARS
The bonds arc redeemable, at the o p t i o n o f t h e c i t y , in whole, o r in p a r t b y lot,
on June 1, 1937, or o n a n y interest d a t e t h e r e a f t e r , ' a t 100 per c e n t a n d a c c r u e d
interest, on 00 d a y s ' publinhcd notice.
International A c c e p t a n c e Securities &
Trust C o , fiscal agents.
The following i n f o r m a t i o n has l>eej» received f r o m H o n . J . S c h a a r u p ; d i r e c t o r
general of accounts a n d audita of the c i t y o f C o p e n h a g e n ; h i v i n g been t r a n s mitted b y cable, it is s u b j e c t t o correction":
" The city.—Copenhagen
is the capital o f D e n m a r k a n d o n e o f t h e leading
commercial centers of S c a n d i n a v i a . T h e p o p u l a t i o n o f t h e c i t y increased f r o m
506,390 in 1916 t o 5S7,000 fn 1920. Situated a t t h e entrance t o the B a l t i c Sea
on one of the largest harbors in E u r o p e , its i m p o r t a n c e t o shipping has g r o w n
steadily, and during 1926 i n c o m i n g ships totalled 4,984,000 n e t registered tons.
" T h e credit of the c i t y o f C o p e n h a g e n has a l w a y s ranked high, and p r i o r t o t h e
war it borrowed m o n e y ' a t c o u p o n rates f r o m 3 t o 4 p e r c e n t .
" F i n a n c e s . — F o r t h e fisral y e a r 1 9 2 6 - 2 7 , o r d i n a r y b u d g e t receipts of t h e c i t y
are estimated a t $29,319,000* a n d e x p e n d i t u r e s a t ' $ 2 8 , 6 7 6 , 0 0 0 .
F o r the p a s t
three years, ordinary r e c e i p t s h a v e e x c e e d e d expenditures a n d d u r i n g this p e r i o d
the city has m a d e capital e x p e n d i t u r e s totaling S28,106,000, w h i c h w e r e p r o v i d e d
for out of cash balances in the treasury, p r o c e e d s o f loans, a n d sales of municipal
property.
" A s of March 3 1 , 1 9 2 7 , the total f u n d e d d e b t of the c i t y a m o u n t e d t o $107,280,000 and there was n o floating d e b t . T h e assessed valuation o f real estate in t h e
city is approximately $804,000,000 a n d o n M a r c h 31, 1926, the v a l u e of c i t y owned property was e s t i m a t e d a t SI 41,450,000, o f w h i c h p r o d u c t i v e p r o p e r t y
(tramways, water, gas a n d electric works, markets, e t c . ) t o the estimated v a l u e
of $101,840,000 yielded a net i n c o m e o f $ 6 , 7 0 0 , 0 0 0 f o r t h e fiscal y e a r 1 9 2 5 - 2 6 .
" P u r p o s e — T h e p r o c e e d s of this issue will b e used in p a r t t o p a y t h e internal
5 per cent loan maturing in 1928, a m o u n t i n g t o $6,700,000, a n d the b a l a n c e will
be used f o r additions a n d b e t t e r m e n t s t o p u b l i c w o r k s a n d buildings.
" Security.The
b o n d s will b e t h e direct o b l i g a t i o n o f the c i t y o f C o p e n h a g e n
and will contain a c o v e n a n t t h a t if, while a n y of t h e b o n d s are outstanding, it shall
create or issue o r guarantee a n y loan o r b o n d s secured b y Hen on any o f its r e v e nues or assets o r assign a n y o f its r e v e n u e s o r assets as security f o r a n y g u a r a n t y
of any obligation, the present issue o f b o n d s will b e secured equally a n d r a t a b l y
with such other loan o r b o n d s o r such g u a r a n t y .
N o l o a n of t h e c i t y is specifically
secured and the citv has n e v e r d e f a u l t e d o n a n y of its d e b t .
"Application will b e m a d e in d u e c o u r s e t o list these b o n d s on t h e N e w Y o r k
Stock E x c h a n g e . "
Conversions of Danish k r o n e r i n t o U n i t e d States c u r r e n c y h a v e b e e n m a d e a t
gold parity of $0,268 per kroner.
The undersigned will r e c e i v e - s u b s c r i p t i o n s f o r the a b o v e b o n d s , s u b j e c t t o
allotment, a t 9 7 ^ per c e n t a n d a c c r u e d interest t o d a t e of d e l i v e r y , t o yield a b o u t
5.20 per cent t o m a t u r i t y .
The undersigned reserve t h e r i g h t t o c l o s e t h e subscription a t a n y t i m e w i t h o u t
notice, t o reject a n y a p p l i c a t i o n , t o allot a smaller a m o u n t than applied f o r , a n d
to make allotments in their u n c o n t r o l l e d discretion.
The a b o v e b o n d s are offered if, w h e n and as issued and received b y t h e u n d e r signed and s u b j e c t t o thex&pproval o f c o u n s e l . I n t h e first instance i n t e r i m
certificates, exchangeable f o r d e f i n i t i v e b o n d s w h e n p r e p a r e d , will b e d e l i v e r e d
against p a y m e n t in N e w Y o r k f u n d s .
NEW YORK, June 8,
1927.
KutiN, LOEB k Co.
INTERNATIONAL ACCEPTANCE BANK (INC.).
194
SALE OF FOREIGN; BONDS OR SECURITIES,
$ 1 2 , 0 0 0 , 0 0 0 CITY
OF COPENHAGEN (DENMARK) 2 5 - Y E A R 4 % PER CENT GOLD
BONDS, D U E M A Y 1, 1 9 5 3
Principal and interest payable in New Y o r k City in 'United States gold coin of
or equal to the standard o f weight and fineness existing M a y 1, 1928, without
deduction for any Danish Government or municipal or other Danish taxes,
imposts, levies or duties, present or future. Coupon bonds in denominations
of $1,000 and $5,000. Interest payable M a y 1 and November 1.
NOT REDEEMABLE FOR 10 YEARS
The bonds are redeemable, at the option of the city, in whole or in part by
lot, on M a y 1,1938, or on any interest date thereafter, at 100 per cent and accrued
interest, on 60 days' published notice. International Acceptance Trust Co.
fiscal agents.
The following information has been received f r o m H o n . J. Schaarup, director
general of accounts and audits of the city of Copenhagen; having been transmitted b y cable, it is subject t o correction:
"The
Copenhagen is the capital of Denmark and one of the leading commercial centers of Scandinavia. The population of the city increased from
506,390 in 1916 t o 598,400 in 1927. Situated at the entrance t o the Baltic Sea
o n one of the largest harbors in Europe, its importance t o shipping has grown
steadily, and during 1927 incoming ships totaled 5,279,000 net registered tons.
" T h e credit of the city of Copenhagen has always ranked high and prior to the
war it borrowed money at coupon rates f r o m 3 t o 4 per cent.
"Finances.—For the fiscal year 1927-28 ordinary budget receipts of the city
are estimated at $27,122,000 and expenditures at $27,845,000. For the past
four years ordinary receipts have exceeded expenditures and during this period
the city has made capital expenditures totaling $29,158,000, which were provided
f o r out of cash balances in the Treasury, proceeds of loans and sales of municipal
property.
" A s of March 31,. 1928, the total funded debt of the city amounted to $120,332,000 and there was no floating debt. The assessed valuation of real estate
in the city is approximately $843,396,000 and on March 31, 1927, the. value of
city-owned property was estimated at $139,414,000, of which productive property (tramways, water, gas, and electric works, markets, etc.) t o the estimated
value of $101,840,000 yielded a net income of $6,700,000 f o r the fiscal year
1926-27.
"Purpose—The
proceeds of this issue will be applied t o the redemption of the
city's municipal external loan of 1919 25-year 5/2 per cent redeemable sinkingfund gold bonds, due July 1, 1944, which are to be called for redemption on
July 1, 1928.
" Semrity,—The bonds will be the direct obligations of the city of Copenhagep
and will contain a covenant that if, while any of the bonds are outstanding, it
shall create or issue or guarantee any loan or bonds secured b y lien on any of its
revenues or assets or assign any of its revenues or assets as security for any
guaranty of any obligation, the present issue of bonds will t e secured equally
and ratably with such other loan or bonds or such guaranty. N o loan of the city
is specifically secured, and the city has never defaulted on any of its debt.
"Application will be made in due course t o list these bonds on the New York
Stock Exchange."
Conversions of Danish kroner into United States currency have been made at
gold parity of $0,268 per krone.
a The undersigned will receive subscriptions f o r the a b o v e bonds, subject to
allotment, at 9 4 ^ per cent and accrued interest t o date of delivery, t o yield 4.88
per cent t o maturity.
T h e undersigned reserve the right t o close the spbscription at a n y time witho u t notice, t o reject any application, t o allot a smaller a m o u n t than applied for,
a n d t o make allotments in their uncontrolled discretion.
The a b o v e bonds are offered if, when, and as issued and received b y the undersigned and subject t o the approval of counsel. In the first instance interim
certificates, exchangeable for definitive bonds when prepared, will b e delivered
against p a y m e n t in N e w York funds.
NEW YORK, April 24, 1928.
K U H N , LOEB & C o .
INTERNATIONAL ACCEPTANCE BANK
(INC.)*
SALE OF FOHEIGX BONDS Oil SKCUllITIES
195
$ 4 0 , 0 0 0 , 0 0 0 KINGDOM OF THE NETHERLANDS (HOLLAND) 3 0 - Y E A R 6 PER C E N T
EXTERNAL SINKING FUND GOLD BONDS OF 1 0 2 4 , D U E APRIL 1, 1 9 5 4
Interest payable April 1 and O c t o b e r 1. C o u p o n bearer b o n d s in denominations
of $1,000 and $500. Principal and interest p a y a b l e a t the offices of K u h n , L o e b
& Co. and the National C i t y Bank of N e w Y o r k , fiscal agents of the loan, in
United States gold coin of the present standard of weight and fineness, free f r o m
all taxes, present and future, levied b y the G o v e r n m e n t of the K i n g d o m of the
Netherlands, and p a y a b l e as well in time of war as in time of peace, and whether
the holder be a citizen o r resident of a friendly o r hostile state.
A sinking fund is provided beginning April 1, 1925, to retire annually, during
the first five years, one-thirtieth of the original principal a m o u n t of the loan b y
purchases of bonds, if obtainable, b e l o w p a r . T h e unapplied balance of any
installment shall revert t o the g o v e r n m e n t . After 1929 the sinking f u n d shall
retire annually b y drawings a t par o n e twenty-fifth of the aggregate principal
amount of bonds outstanding o n January 1, 19*30.
On April 1, 1929, o r o n a n y semiannual interest d a t e thereafter, the government may, at its o p t i o n , call f o r redemption all the b o n d s of this issue then o u t standing, in whole b u t n o t in p a r t (except as a b o v e provided f o r the sinking f u n d )
at par and accrued interest.
The following statements h a v e beeif a p p r o v e d b y D r . L . A . Ries, assistant
treasurer general of the K i n g d o m of t h e Netherlands; having been transmitted
by cable, they are subject t o c o r r e c t i o n :
" T h e s e bonds are a direct obligation o f the K i n g d o m of the Netherlands and
are authorized b y a c t of Parliament, a p p r o v e d D e c e m b e r 22, 1922.
" H o l l a n d has been f o r centuries o n e of the f o r e m o s t financial a n d commercial
powers of the world, and f o r generations o n e o f the m o s t important markets f o r
United States and other foreign securities. H e r t w o principal cities, Amsterdam
and Rotterdam, t o - d a y o c c u p y a position of great international importance a s
banking and commercial centers.
.
" T h e foreign trade of H o l l a n d — n o t Including that of her colonies—aggregated
in 1923 FL 3,312,000,000, which is $175 per capita a t the present rate of exchange,
as against $73 per capita f o r the United States. Like Great Britain, Holland
always was, and still is, a creditor c o u n t r y , h a v i n g m a d e v e r y large investments
in her colonies and t h r o u g h o u t the world. A s also in the case of Great Britain,
her trade m o v e m e n t in c o m m o d i t i e s proper has even in normal times shown debit
balances which were m o r e than offset b v her i n c o m e f r o m her trade and investments in her large a n d valuable colonial possessions a n d f r o m her shipping a n d
her financial and commercial transactions and investments in nearly every part
of the globe.
" H o l l and's merchant marine t o - d a y aggregates o v e r 2,600,000 gross register
tons and her vessels sail e v e r y sea.
" T h e total funded a n d the net unfunded d e b t of Holland at the close of the
year 1923 aggregated Fl. 3.173,000,000 * ( a b o u t $1,275,500,000). T h i s is at the
rate of a b o u t $182 per capita, a t par of exchange, compared with approximately
$785 per capita f o r Great Britain. Holland's credit position before the war is
illustrated b y the f a c t that her loans were then issued, f r o m t i m e t o time, a t
interest rates of approximately 3J4 and 3 per cent.
" T h e monetary unit of H o l l a n d is the guilder (florin) with a value a t par of
exchange of $0,402 in the United States.
" T h e Bank of the Netherlands ( H o l l a n d ' s o n l y bank of issue), as of M a r c h 31,
1924, had a gold reserve against its circulation of a b o u t 56 per cent.
" T h e proceeds of this loan will b e applied t o w a r d the redemption of floating
debt included in t h e total d e b t as stated a b o v e . T h e dollars realized f r o m this
loan will be sold t o the Netherlands Bank t o b e f r o m t i m e t o t i m e m a d e available
for payments to be effected in the United States f o r purchases and other p u r p o s e s . "
The undersigned will receive subscriptions f o r the a b o v e b o n d s s u b j e c t t o
allotment, at 98J4 per cent a n d accrued interest t o d a t e of delivery, t o yield o v e r
6.10 per cent o n the investment if held t o maturity.
The undersigned reserve t h e right t o close t h e subscription a t a n y t i m e w i t h out notice, t o reject a n y application, t o allot a smaller a m o u n t than applied f o r
and t o make allotments in their uncontrolled discretion.
The a b o v e b o n d s are offered if, w h e n , a n d a s issued a n d received b y the u n d e r signed and subject t o the c o m p l e t i o n of their purchase a n d a p p r o v a l of counsel,
A 1 Thisfiguredoes not
include treasury bills, issued tofinancecertain advances made by the government
to the Government «f t he Dutch East todies agatait which it holds the obligations of the Utter.
SALE OP FOREIGN* BONDS' O i l ' S E C U R I T I E S196
T e m p o r a r y b o n d s or interim receipts exchangeable f o r definitive b o n d s when
p r e p a r e d m a y be" delivered against p a y m e n t in New Y o r k f u n d s . , Application
will b e m a d e in due course t o list the b o n d s on the N e w Y o r k S t o c k Exchange.
KUHN, LOEB & C o .
T H E NATIONAL CITY C o .
NEW YORK, Apnl
28,..1924.
$ 2 5 , 0 0 0 , 0 0 0 DEPARTMENT, OF THE SEINE, FRANCE (COMPRISING PARIS AND ITS
ENVIRONS), TWENTY Y E A R 7 PER CENT/EXTERNAL GOLD BONDS; D U E JANU-
ARY 1,^1942
Authorized under . l a w ' o f September 29, 1919, and b y a decree of t h e president
,of the republic rendered in; Council of State, dated January 14, 1922.
N o t subject'..to r e d e m p t i o n during first 10 years.
R e d e e m a b l e as a whole, upon 90 d a y s ' notice, at t h e o p t i o n of t h e department,
o n January 1, 1932, a t 105 per cent and accrued interest, o r o n J a n u a r y 1 of any
subsequent year at' 105 per cent less Yi per cent per annum f o r each y e a r after 1932.
Interest p a v a b l e .January 1, and July 1. " C o u p o n .bonds, in denominations of
$1,000 and $500.
, F o r further information regarding this-issue, of b o n d s reference is m a d e to the
a c c o m p a n y i n g l e t t e r f r o m Monsieur Aiitrand, prefect o f t h e D e p a r t m e n t of the
Seine.
T h e undersigned will receive^subscriptions f o r t h e a b o v e b o n d s , subject to
allotment, at 90>£ ; por cent, and accrued interest t o d a t e of delivery.
A t the offering price the b o n d s yield 7.95 per. cent t o . m a t u r i t y .
If t h e bonds
are redeemed before maturity the y i e l d increase gradually t o a m a x i m u m of 8%
per cent if redeemed o n January.]!, 1932,; t h e first r e d e m p t i o n d a t e .
T h e undersigned reserve !the right' t o close.'the subscription at a n y t i m e without
notice, t o reject any application, t o allot a smaller a m o u n t than a p p l i e d for and
t o .make.allotments in their ^uncontrolled discretion.
, P a y m e n t f p r b o n d s allotted is.to.be m a d e iii N e w - Y o r k funds, against delivery
o f .temporary b o n d s or certificates, deliverable if, when, a n d as issued a n d received
b y the undersigned and subject t o ' a p p r o v a l of. counsel.
K u h n , L o e b ; & t . C o ^ T h e National City C o . ; G u a r a n t y C o . of Nevr
Y o r k ; Dillon, R e a d & C o . ; Harris, Forbes & C o . ; K i d d e r , Peabody
& ,Co.; Lee, : Higginson & C o . ; B r o w n Bros. & C o . ; Blair & Co.
( I n c . ) ; Cassatt :& Co.;- T h e U n i o n / T r u s t C o . of Pittsburgh.
NEW YORK $ J aniiary 21, 1922.
MESSRS. KUHN, LOEB & CO.,
PARIS. January 15, 1922.
New York.
DEAR SIRS: W i t h reference t o the proposed issue of $25,000,000 20-year 7 per
c e n t external g o l d b o n d s of the D e p a r t m e n t of the Seine, I b e g t o state t h e following for yourinformation.
F r a n c e is divided, f o r administrative.purposes, into. 89 D e p a r t m e n t s .
T h e D e p a r t m e n t of the, Seine is b y far the greatest in p o i n t of wealth and
p o p u l a t i o n of t h e D e p a r t m e n t s of France, comprising t h e c i t y of P a r i s a n d its residential a n d industrial, suburbs.
' T h e p o p u l a t i o n of the D e p a r t m e n t o n M a r c h 6, 1921, the d a t e o f the last
census, w a s 4,411,691.
E a c h D e p a r t m e n t is g o v e r n e d by, a prefect. T h e p r e f e c t is n o m i n a t e d by, the
F r e n c h .Government and exercises certain,powers conferred u p o n h i n x b y latvv
T h e annual b u d g e t of the. D e p a r t m e n t is v o t e d b v t h e general council, and
c o n f i r m e d b y decree of the President of the R e p u b l i c . " T h e general council is an
elected b o d y w i t h considerable p o w e r s of local s e l f - g o v e r n m e n t , including the ,adr
ininistration o f t h e departmental f finances, . N o taxes can, h o w e v e r , b e imposed
o r m o n e y b o r r o w e d b y the D e p a r t m e n t ' w i t h o u t t h e sanction of t h e French
Governments
. ,
T h e general council. !of t h e , d e p a r t m e n t is u n d e r s t a t u t o r y o b l i g a t i o n t o levy
a n n u a l l y such an a m o u n t a s ' m a y b e necessary t o balance t h e Department'^
y e a r l y b u d g e t . ™ T h e service of t h e present l o a n will, of course, b e incorporated in
t h e annual b u d g e t . T h e F r e n c h G o v e r n m e n t c a n i m p o s e a d d i t i o n a l taxes in case
t h e general c o n c i l fails t o m a k e sufficient provision f o r b a l a n c i n g its b u d g e t .
SALE OF
FOHEIGX
BONDS Oil SKCUllITIES
197
The loan which y o u h a v e contracted will b e the direct general obligation of
the Department. T h e service o f the loans of the D e p a r t m e n t is m e t o u t of the
Department's general i n c o m e which is mainly derived f r o m (a) certain G o v e r n ment and municipal subventions and c o n t r i b u t i o n s and (6) the proceeds of taxes
known as " c e n t i m e s additiontiels/* which are levied annually b y the authority of
Parliament and collected together with o t h e r G o v e r n m e n t and municipal taxes b y
the Government tax collectors.
The estimated revenue and expenditures o f the d e p a r t m e n t - f o r 1021 each
amounted t o approximately frs. 350,000,000, the departmental taxes f o r that year
being approximately 44 francs per capita.
The outstanding debt of the d e p a r t m e n t o n D e c e m b e r 31, 1021, a m o u n t e d t o
approximately frs. 984,000,000. T h e greater part of this d e b t has been contracted
with the Credit Foncier d e France, w h o h a v e issued their o w n b o n d s t o the
French public. T h e annual charges f o r interest and amortization of this d e b t
amounted t o approximately frs. 77,870,000, in addition t o which the department
provides for annuities in respect of the newly acquired transport systems a m o u n t ing to approximately frs. 32,520,000 per a n n u m . T h e present issue of $25,000,000
20-year 7 per cent external gold b o n d s in N e w Y o r k and of £3,000,000 30-year
7 per cent sinking f u n d sterling b o n d s sold in L o n d o n (which will constitute the
only. external debts of the department) will increase the total d e b t , at approximately present rates of exchange, b y frs. 450,000,000 approximately, the charges
for interest on and amortiration of which, calculated at approximately the
present rates of exchange, will a m o u n t t o ft further frs. 33,500,000 per annum.
Calculated at approximately t h e present rates of exchange, this brings the total
debt up t o frs. 1,434,000,000, involving a total annual charge for interest o n and
amortization of the d e b t of approximately frs. 144,000,000.
The last official estimate m a d e in 1910 "of the value of the lands and buildings
situated in the department, w a s a p p r o x i m a t e l y frs. 20,718,000,000, while the
annual rental values of such properties, upon which the assessments for taxation
are based, were then estimated a t frs. 1.471,507,000. On present d a y valuations,
these figures would b e verv considerably exceeded.
The $25,000,000 20-vcar 7 p e r c e n t external gold b o n d s t o b e issued b y y o u
and £3,000,000 (equivalent t o a b o u t $12,500,000) 30-year 7 per cent sinking fund
sterling bonds, which have been purchased b y Messrs* Helbert, W a g g & C o .
(Ltd.), London, England, and associates, and are e x p c c t e d t o be issued shortly
in London, are authorized in c o n f o r m i t y with the law dated September 29, 1919,
and b y a decree of the President of the R e p u b l i c rendered in council of state,
dated January 14, 1922.
Both the present loan and the a b o v e - m e n t i o n e d sterling loan are being c o n tracted t o provide funds f o r capital expenditure on the betterment and extension
of the newly acquired transport systems a n d will thus b e entirely utilized for
productive purposes.
The $25,000,000 20-vcar 7 per c e n t external gold b o n d s will be issued in c o u p o n
form, in denominations of $1,000 and $500, will mature on January 1, 1942. and
will bear interest f r o m January I, 1922, p a y a b l e semiannually on January 1 and
July 1 in each year.
Principal and interest, and premium in case of anticipated redemption, y » l b e
payable in gold coin of the United States of America, of, or equal t o the standard of
weight and fineness existing January 1 , 1 9 2 2 , at the office of K u h n , L o e b & C o . , in
the citv of N e w Y o r k , and are e x e m p t f r o m all taxes, s t a m p duties, transfer a n d
other duties o r deductions of a n y nature, present o r future, levied b y t h e G o v e r n ment, the Departments, municii)alites, o r other French authorities whatever they
may be.
The Department reserves the o p t i o n t o redeem all the b o n d s of this loan, b u t
not a p a r t thereof, on January 1, 1932, a t 105 per cent and accrued interest, or o n
January 1 of any subsequent vcar at 105 per c e n t less # per cent per a n n u m f o r
each year f r o m January 1, 1932, t o the redemption date, together with accrued
interest. Notice of such election t o redeem shall b e given t o the holders o f the
bonds,;by publication at least o n c e in each week f o r 12 successive weeks, beginning
not less than 90 d a y s nor m o r e than 100 d a y s prior t o the date of redemption, in
two dailv newspapers of general circulation in t h e city o f N e w Y o r k .
. The D e p a r t m e n t agrees, a n d will p r o v i d e in the bonds, t h a t s o long as a n y of
the bonds of this issue shall b e outstanding, it will n o t create any m o r t g a g e o r lien
or other c h a i s e u p o n a n y o f it* p r o p e r t y o r revenues, unless s u c h mortgage, lien o r
charge shall expressly p r o v i d e t h a t the b o n d s of this issue outstanding shall,
ratably with a n y o t h e r indebtedness which such mortgage, lien, o r charge m a y b e
given t o secure, b e entitled t o the s e c u r i t y a f f o r d e d b y , and b e s e c u r e d b y , such
mortgage; lien, o r ch&rge.
198
SALE OF FOREIGN; BONDS OR SECURITIES,
T h e D e p a r t m e n t has obtained assurance f r o m the G o v e r n m e n t of the French
R e p u b l i c , t h a t while any of the b o n d s of this issue are out-standing, n o obstacle
will be placed in the w a y of the D e p a r t m e n t regarding t h e purchase a n d remittance
of t h e necessary f u n d s to enable the D e p a r t m e n t t o fulfill its obligations in respect
thereof.
Pending t h e engraving of the definitive bonds, t e m p o r a r y b o n d s or certificates,
w i t h one or m o r e coupons, will b e issued. Such t e m p o r a r y b o n d s o r certificates
shall b e exchangeable without expense t o the holders, f o r definitive engraved
b o n d s , when r e a a y , a t the office of the Equitable T r u s t C o . of N e w Y o r k , acting as
b o n d registrar.
Application will b e m a d e t o list the 20-year 7 per c e n t external gold b o n d s on the
N e w Y o r k S t o c k Exchange.
Y o u r s v e r y truly,
AUTRAND,
Prefect of the Department of the /Seine.
( T h e a b o v e letter, having been received partly b y cable, is s u b j e c t t o correction.)
$ 1 5 , 0 0 0 , 0 0 0 OF CITY OF LYONS, $ 1 5 , 0 0 0 , 0 0 0 OF CITY OF MARSEILLES, $15,000,000
OF CITY OF BORDEAUX—15-YEAR 6 PER CENT GOLD BONDS D U E NOVEMBER
1, 1934—INTEREST PAYABLE M A Y 1 AND NOVEMBER 1
C o u p o n bearer b o n d s in denominations of $1,000, $500, a n d $100.
Principal a n d interest p a y a b l e in N e w Y o r k in U n i t e d States g o l d coin witho u t deduction f o r a n y French governmental, m u n i c i p a l , o r other F r e n c h taxes,
present, or future.
T h e undersigned offer the a b o v e b o n d s , s u b j e c t t o p r e v i o u s sale a t 92*4 per
cent and accrued interest t o d a t e of delivery, t e m p o r a r y certificates deliverable
if, when, and as issued. A t this price t h e b o n d s will yield 6.80 p e r c e n t if held
maturity.
P a y m e n t f o r b o n d s purchased is t o b e m a d e a t t h e offices of a n y of t h e undersigned on three d a y s ' previous notice f r o m them. T h e right is reserved to
reject a n y application in whole or in part.
F o r further information as t o this issue of bonds, reference is m a d e t o the
a c c o m p a n y i n g letter f r o m M a u r i c e Casenave, Esq., director-general of the
French Mission in the United States.
Application will b e m a d e in due course t o list these b o n d s on t h e N e w York
S t o c k Exchange.
KUHN, LOEB & C o .
GUARANTY TRUST C o . OF N . Y ,
KIDDER, PEABODY & C o .
THE NATIONAL CITY CO.
HARRIS, FORBES & C o .
W M . A . READ & C o .
CONTINENTAL & COMMERCIAL TRUST &
SAVINGS BANK OF CHICAGO.
NEW YORK, N o v e m b e r 5, 1919.
REPUBLIQUE FRANQAIS,
DIRECTION GENERALE DES SERVICES FRAN^AIS AUX ETATS UNIS,
MESSRS. KUHN, LOEB &
Co.,
New York, November 1, .1919.
New York,, N. Y,
GENTLEMEN: Referring t o the $45,000,000, 1 5 - y e a r 6 p e r c e n t g o l d b o n d s due
N o v e m b e r 1, 1934, $15,000,000 each of t h e cities of L y o n s , Marseilles, and T ord e a u x , which y o u h a v e agreed t o purchase, I state the. f o l l o w i n g f o r y o u r information:
T h e s e b o n d s are being issued t o replace t h e f u n d s used t o r e p a y o n November
1, 1919, t h e b o n d s of these cities remaining o u t s t a n d i n g o f t h e $36,000,000 bonds
originally issued, a n d f o r other purposes. E a c h issue will b e t h e d i r e c t obligat i o n o f . t h e c i t y issuing the same, a n d t h e y will b e t h e o n l y external loans ol
t h e s e cities presently o u t s t a n d i n g .
^
T h e b o n d s will b e issued in bearer c o u p o n f o r m , in d e n o m i n a t i o n s of $1,000,
$ 5 0 0 , a n d $100, a n d will b e a r interest f r o m N o v e m b e r 1, 1919, a t t h e rate of p
p e r c e n t p e r a n n u m , p a y a b l e semiannually o n M a y 1 a n d N o v e m b e r 1.
Pnnci-
SALE OF
FOHEIGX
BONDS Oil SKCUllITIES
199
pal and interest of the b o n d s will b e p a y a b l e in United States gold coin of the
standard of weight and fineness existing on N o v e m b e r 1, 1919, without deduction
for anv present or future French governmental, municipal, o r other French taxes.
The Government of the French R e p u b l i c has agreed t o undertake, in order t o
permit the cities of Lyons, Marseilles, and Bordeaux, o r a n y of them, t o p a y the
interest or principal a m o u n t of the loan in gold in the city of N e w York, t o f u r nish them and each of them, if necessary (in e x c h a n g e f o r b a n k notes o r other
currency), with gold in the a m o u n t needed, a n d authorize its exportation for
said purpose.
As established b y t h e laws of France governing municipalities, the finances of
these cities, and the authority t o b o r r o w m o n e y , levy taxes, and execute the
annual budgets arc under the c o n t r o l and supervision of the French National
Government. Under this supervision the municipal authorities of Lyons, M a r seilles, and Bordeaux have followed a conservative fiscal policy establishing the
credit of the cities upon a sound basis. T h e internal loans n o w outstanding
bear low interest rates.
The three cities are, next t o Paris, a m o n g t h e largest and m o s t important trade
centers of France. Originally established in ancient times on main trade routes
they have grown steadily to" their present-importance, because of natural e c o nomic advantages. Situated far f r o m the zone of hostilities, their industrial
condition, already sound prior t o the war, has been strengthened substantially
since 1914 b y additional facilities p r o v i d e d f o r the extra war traffic they were
called upon to handle, b y their increase in population and the expansion of
business.
Considered separately:
LYONS
Lyons ranks next t o Paris as a center of finance, trade, and manufacturing.
Her chief manufactures arc o f silk, and in the production of these articles she
leads the world. Over 90,000 l o o m s , e m p l o y i n g m o r e than 200,000 hands are
engaged in these enterprises. L y o n s is the capital of the Department of R h o n e ,
and is situated a t the confluence of the R h o n e and Saone, b o t h of which are
navigable and flanked b y several miles of q u a y s . A m p l e railway facilities provide her with outlets t o the interior. Local industries comprise metal works,
chemical and soap factories, d v e works, tanneries, and glassworks.
The population of the citv has k e p t pace with her industries, showing an
increase from 523,796 in 1912 t o o v e r 600,000 (estimated) in 1918. T h e total
internal debt amounted in 1918 (the latest figures available), t o a b o u t Fes.
93,500,000 (at Fes. 5.18, the a p p r o x i m a t e normal value of francs equals
$18,050,000). T o this should be a d d e d the present issue of $15,000,000, making
a total of about $33,050,000.
MARSEILLES
Marseilles, the leading maritime city of the Mediterranean, is one of the greatest
natural sea ports of the w o r l d a n d is the southern terminus of the largest railway
system in France. Situated o n the northeast shore of the Gulf of L y o n s , it
controls all Mediterranean c o m m e r c e a n d sends and receives cargoes through
the Suez to and f r o m India. On a normal basis, 21,000,000 gross tons of shipping
annuallv enter and clear f r o m her harbor. Seven wet d o c k s , § dry d o c k s , a n d
13 miles of quavagc afTord a c c o m m o d a t i o n for 2,000 vessels a t o n e time.
The
traffic in merchandise has increased f r o m 4,372,000 tons in 1870 t o more than
21,590,000 tons a t the present time. Her industries are many and well diversified, among which are metal foundries a n d plants f o r the manufacture of
•
^
.
vegetable oils and soaps.
The population has g r o w n f r o m 550,619 in 1912 t o a b o u t 750,000 (estimated),
in 1918. T h e total internal d e b t in 1918 a m o u n t e d to Fes. 157,074,097 (at 5.18
equals $30,323,184). T o this should b e a d d e d the present issue of $15,000,000,
making a total of a b o u t $45,323,184.
BORDEAUX
Bordeaux is the principal Atlantic p o r t , and has o n e of t h e three finest harbors
in France^ I t is the E u r o p e a n terminus of m a n y lines trading with the Americas,
Africa, and t h e British Isles. Shipbuilding is the chief industry besides which
there are considerable o t h e r manufacturing enterprises* W i n e p r o d u c t i o n in
the surrounding c o u n t r y contributes t o a great extent t o the c i t y t r a d e ; refined
sugar, rope, woolen g o o d s , carpets, paper, and earthenware are p r o d u c e d o n a
largescale.
SALE OP FOREIGN* BONDS' O i l ' S E C U R I T I E S200
Her chief i m p o r t s comprise i m e t a l s , E n g l i s h coal, t i m b e r , grain a n d manuf a c t u r e d articles. She exports: chiefly cloth, chemicals, a n d the products of.
l o c a l industry a n d large quantities of,wine.
T h e pre-war record exhibits a n annual entrance a n d clearance f r o m her harbor
of vessels aggregating 5,228,000 1 tons. T h e extensive additions m a d e t o her
•quayage, a n d warehouse c a p a c i t y t o enable the h a n d l i n g , o f the large traffic
d u r i n g t h e w a r h a v e greatly e n h a n c e d her opportunities f o r a c c o m m o d a t i n g even
m o r e business in the future.T h e population of the city has g r o w n f r o m 261,078 in 1912 t o a b o u t 305,000
(estimated), in 1918.. T h e total internal d e b t in 1918 a m o u n t e d t o Fes. 43,442,650
( a t 5.18 equals S8,386,612). T o ; this should b e : a d d e d .the present issue of
$15,000,000, m a k i n g a total of a b o u t $23,386,612.
Application w i l l . b e m a d e in d u e . c o u r s e t o list these b o n d s on-1 t h e N e w York
S t o c k Exchange.
Y o u r s v e r y truly,
MAURICE CASENAVE,
•Director General of the French Mission in the United States.
$ 3 0 , 0 0 0 , 0 0 0 PARIH-LYONS-MEDITERRANEAN .RAILROAD CO. 6 PER CENT EX-,
TERNAL SINKING-FUND GOLD BONDS, DUE AUGUST 15, 1 9 5 8
Part of an authorized issue of $40,000,000.
C o u p o n bearer b o n d s in denominations of $1,000 a n d $500.
N o t subject t o redemption b e f o r e F e b r u a r y 15, 1932, e x c e p t f o r the Sinking
F u n d as stated b e l o w . T h e entire issue outstanding, b u t n o t a n y p a r t , will be
redeemable at 103 per cent and accrued interest, a t the o p t i o n o f the Company, on
F e b r u a r y 15, 1932, or on a n y interest date thereafter.
The.remaining $10,000,000 b o n d s of this issue h a v e b e e n sold a t 83>2 per cent
a n d accrued interest.
T h e bonds are t o have the. benefit of a c u m u l a t i v e sinking-fund calculated to
redeem the entire issue by. August 15, 1958.. T h i s sinking f u n d will b e g i n August
15, 1929, and is t o operate b y purchases of the b o n d s a t or b e l o w 100 per cent and
interest or b y the redemption o n - A u g u s t 15, 1929, a n d a n y August 15 thereafter,
a t 100 per cent and interest of b o n d s t o be drawn b y lot.-.
F o r further information regarding .this issue of b o n d s reference is made, to the
a c c o m p a n y i n g letter f r o m the Paris-Lyons-Mediterranean R a i l r o a d C o .
T h e undersigned'will receive subscriptions f o r the a b o v e b o n d s , subject, to
allotment, at 83 p e r cent and accrucd interest to date of delivery.
A t the offering price the b o n d s yield about 7.35 per c e n t t o . m a t u r i t y . I n ease
of eailier redemption of the entire issue at 103 per cent, the yield increases gradually i o a m a x i m u m of 8.78 per cent if called on February 15, 1932, the earliest
d a t e on which the entire issue m a y b e redeemed, a n d in case of a n y bonds red e e m e d at 100 per cent b y the sinking f u n d , t o a m a x i m u m of 9.22 p e r cent as to
a n y b o n d s redeemed on August 15, 1929.
T h e undersigned reserve the right t o closc t h e subscription a t a n v t i m e without
notice, t o reject any application, t o allot a smaller a m o u n t than applied for and
t o m a k e allotments in their uncontrolled discretion.
P a y m e n t f o r b o n d s allotted is to be m a d e in N e w Y o r k f u n d s , against delivery
o f t e m p o r a r y certificates, deliverable if, w h e n , and as issued and received by the
undersigned and subject t o the completion of our purchase and to a p p r o v a l of
o u r counsel. T h e temporary certificates will be issued b v the National City
B a n k of N e w Y o r k , . w h o will act as b o n d registrar.
NEW YORK, March
17,1922.
THE'NATIONAL CITY C o .
KUHN, LOEB & C o .
PARIS, March 16, 1922.
M e s s r s . KUHN, LOEB & C o . , a n d THE NATIONAL CITY C o . , ,
New York, N. Y:
DEAR SIRS: R e f e r r i n g t o t h e issue o f $30;000,000 6 p e r c e n t external sinkingf u n d g o l d b o n d s o f this company* d u e - A u g u s t 15, 1958, w h i c h f o r m p a r t of an
a u t h o r i z e d total l o a n o f $ 4 0 , 0 0 0 , 0 0 0 , 1 : b e g t o g i v e y o u t h e . f o l l o w i n g i n f o r m a t i o n :
T h e C o m p a g n i e d e s Chemins de. F c r d e Paris & L y o n e t a l a MediterranGe
( P a r i s - L y o n s - M e d i t e r r a n e a n R a i l r o a d C o . ) w a s organized in 1857. I t is by
SALE OF FOHEIGX BONDS Oil SKCUllITIES
201
far the largest railroad enterprise in Franco, o w n i n g nearly 25 per cent of t h e
French broad gauge lines. T h e c o m p a n y ' s concession expires Dcceml>er 3 1 ,
1058. Its system in France, comprising alx>ut 6,121 miles of road, consists of a
main trunk line f r o m Paris t o L y o n s , the chief industrial center of southern
France, and from L y o n s t o Marseilles, the m o s t i m p o r t a n t French p o r t o n t h e
Mediterranean, with branches and extensions throughout the part o f France
southeast of Paris, through the F r e n c h Riviera and t o the Swiss and Italian f r o n tiers. In addition, the c o m p a n y operates 641 miles in Algeria, of which 412
miles are under lease. T h e c o m p a n v has outstanding debenture b o n d s to the
amount of Fes. 8,065,800,500 and £5,000,000.
N o n e of these b o n d s carries a n y
special security, nor is any part of the system o r its rolling stock mortgaged in a n y
way. The capital stock of the c o m p a n y , originally a m o u n t i n g t o Fes. 400,000,000
has, through amortization to date, l>een reduced t o Fes. 345,101,000. Under the
convention of 1883, between the G o v e r n m e n t of the French R e p u b l i c and t h e
company, the G o v e r n m e n t guaranteed a dividend of 11 per cent t o the holders
of the capital stock of the c o m p a n y .
Before the w a r the c o m p a n y was so successfully operated, however, t h a t d i v i d e n d s In excess of the guaranty were paid o u t o f
earnings.
At the outbreak of the war, the G o v e r n m e n t took control of all the French
railroads in order t o insure efficient coordination f o r military purposes.
A new convention was entered into o n June 28, 1921, between the French
Government and the larger railroad systems, including this C o m p a n y , a p p r o v e d
by the " L a w regulating the great railroad s y s t e m s , " dated O c t o b e r 29, 1921,
revising the status of the railroads. Under "this convention and law there i s
established a " c o m m o n f u n d " f o r the purpose of creating financial solidarity o f
the large companies and t o p r o v i d e f o r t he balancing of the receipts a n d e x p e n d i tures and, in case of need during <any focal year, t o p r o v i d e the companies w i t h
funds for their current treasury needs* T h e railroad c o m p a n i e s shall turn o v e r
to the " c o m m o n f u n d " a n y balance o f their gross receipts available after p r o v i d ing for their operating expenses, interest a n d amortization of their loans, a
variable " p r i m e de g e s t i o n " (operating premium) intended t o encourage efficient
and economic operation, the guaranteed d i v i d e n d s t o the stockholders and o t h e r
charges as established b y the c o n v e n t i o n . If* a t a n y time, the gross receipts of a
railroad should !>e insufficient t o m e e t the charges mentioned a b o v e , there will
be paid to the railroad o u t of the c o m m o n f u n d a n y sums necessary t o make u p the
deficiency*
The Government of the French R e p u b l i c has undertaken t o p r o v i d e the c o m mon fund with a n y sums b y which the receipts of the c o m m o n f u n d m a v fall
short of its requirements; p r o v i d e d , h o w e v e r , t h a t if the Minister of Public W o r k s
so requires, the railroads will issue b o n d s f o r such purposes, the G o v e r n m e n t of the
French Republic guaranteeing the interest, amortisation, a n d actual expenses o f
the service of such b o n d s until paid. T h e c o n v e n t i o n further provides f o r a n
adjustment of tariffs, if necessary, in order t o p r o v i d e tho railroads with sufficient
revenue to meet expenditures. *In regard t o Fes. 1,673,000,000 of b o n d s issued
by the company under Bpeciallaw of D e c e m b e r 26, 1924, t o c o v e r its deficiencies
of Fes. 1,229,000,000 since the beginning of t h e war, the c o n v e n t i o n p r o v i d e s
that the G o v e r n m e n t will reimburse the c o m p a n y therefor b y the p a y m e n t t o
the company of annuities t o c o v e r the service f o r interest a n d amortization o f
these bonds.
The Paris-Lyons-Mediterranean Railroad C o . c o v e n a n t s , a n d the b o n d s will
so state, that it will n o t , while a n y of the b o n d s o f this loan are outstanding, b e
instrumental in, o r g i v e its c o n s e n t to, a n y change in t h e c o n v e n t i o n w i t h the
Government of the French R e p u b l i c , a p p r o v e d b y the l a w dated O c t o b e r 29,
1921, which would curtail a n y security, guaranty, benefit o r a d v a n t a g e a c c r u i n g
to the company in respect of the b o n d s of this loan, o r through the c o m p a n y t o
the holders of the b o n d s of this loan under said c o n v e n t i o n o r said l a w of O c t o b e r
29, 1921.
The railroad c o m p a n y also covenant*, a n d the b o n d s will so state, that, s o
long as any of the b o n d s of this issue shall b e outstanding, it will n o t create a n y
mortgage, lien; o r other charge o n a n y of its properties o r revenues, o r o n a n y o f
the rights,,'l>enefit«, o r a d v a n t a g e s accruing t o it under t h e c o n v e n t i o n d a t e d
June 28; 1 0 2 1 , ' w i t h ' t h e G o v e r n m e n t o f the French R e p u b l i c , a n d the law o f
October 29, 1921, a p p r o v i n g the said c o n v e n t i o n , unless such m o r t g a g e , lien, o r
charge shall expressly p r o v i d e t h a t the b o n d s of this issue outstanding shall,
202
SAXJE OF. FOREIGN BONDS' OR SECURITIES
ratably with any other indebtedness which such m o r t g a g e , lien, or charge may
b e given t o secure, b e entitled t o the security afforded b y a n d b e secured b y such
mortgage, lien, or charge.
I n case of repurchase of the concession of the Paris-Lyons-Mediterranean
Railroad C o . b y . t h e G o v e r n m e n t of the .French R e p u b l i c before the termination
of said concession, said G o v e r n m e n t has undertaken t o i n d e m n i f y t h e company
b y the p a y m e n t of annuities, which will b e sufficient t o p r o v i d e f o r the service
of interest and amortization in respect t o the b o n d s of this loan then outstanding.
T h e railroad c o m p a n y has obtained assurance f r o m t h e G o v e r n m e n t of the
French R e p u b l i c that, while, a n y of the b o n d s of this issue are outstanding, no
obstacle will b e placed in the w a y of the railrad c o m p a n y regarding t h e purchase
a n d remittance of the necessary funds t o enable the railroad c o m p a n y to fulfill
its obligations in respect thereof.
T h e 6 per cent external sinking f u n d gold b o n d s h a v e b e e n d u l y authorized by
t h e budget law of the French Republic dated D e c e m b e r 31, 1931, in accordance
with article 2 of the law regulating the great railroad s y s t e m s d a t e d October 29,
1921, pursuant t o the provisions of Title I I of the c o n v e n t i o n of J u n e 28, 1921,
entered into between the G o v e r n m e n t of t h e French R e p u b l i c a n d the great
French railroad systems, a p p r o v e d b y said l a w . T h e p r o c e e d s of this issue will
b e utilized f o r purchases of rolling stock, f o r t h e electrification of certain lines
and f o r other improvements.
T h e present loan and £5,000,000 6 p e r c e n t sterling b o n d s , of t h e s a m e type as
t h e present dollar issue, quite recently issued in L o n d o n w i t h m a r k e d success at
8 6 per cent, and n o w selling at 9 0 % per cent, f o r m t h e o n l y o u t s t a n d i n g external
long term d e b t of t h e c o m p a n y .
T h e b o n d s of this loan will b e issued in c o u p o n bearer f o r m , in denominations
of $1,000 and $500, will b e dated February 15, 1922, will m a t u r e o n August 15,
1958, and will b e a r interest f r o m February 15, 1922, p a y a b l e semiannually on
.February 15 and August 15 in each year. Principal a n d interest a n d premium in
case of anticipated redemption will b e p a y a b l e in g o l d c o i n of t h e United States
of America of or equal t o t h e standard of weight and fineness existing March 1,
1922, at the office of K u h n , L o e b & C o . , o r a t t h e office of t h e National City
Bank of N e w Y o r k , in t h e c i t y of N e w Y o r k , w i t h o u t d e d u c t i o n f o r a n y French
governmental taxes o r any other French taxes, present o r f u t u r e .
Beginning A u g u s t 15, 1929, t h e loan will b e redeemed t h r o u g h a cumulative
sinking fund b y repurchases if b o n d s are obtainable at o r b e l o w par, o r b y annual
drawings at par if n o t so obtainable, in amounts, sufficient t o retire t h e whole
issue b y August 15, 1958.
In case of drawings, the n u m b e r s of t h e b o n d s t o b e r e d e e m e d shall b e determined b y lot and n o t i c e o f . r e d e m p t i o n , s p e c i f y i n g t h e n u m b e r s o f t h e bonds
designated f o r redemption, shall b e published t w i c e a w e e k f o r a t least three
weeks preceding t h e r e d e m p t i o n date, in t w o newspapers o f general circulation
in the city of N e w Y o r k b y K u h n , L o e b & Co., the fiscal agents f o r the loan.
On F e b r u a i y 15, 1932, for o n a n y interest p a y m e n t d a t e thereafter, the comp a n y m a y at its o p t i o n redeem all the b o n d s of this l o a n then outstanding, but
n o t a p a r t thereof, a t 1 0 3 per c e n t of the principal a m o u n t thereof a n d accrued
interest, p r o v i d e d notice of such r e d e m p t i o n b e published t w i c e a m o n t h for at
least three m o n t h s preceding t h e r e d e m p t i o n date, in t w o newspapers of general
circulation in t h e c i t y of N e w Y o r k .
Application ; will b e m a d e t o list the 6 per c e n t external sinking f u n d gold
b o n d s o n t h e N e w Y o r k Stock E x c h a n g e .
Y o u r s v e r y truly,
ST£PHAKE DERVILL£,
President Board of Directors.
( T h e a b o v e letter, haying been received b y cable, is s u b j e c t t o correction.;
$ 1 0 , 0 0 0 , 0 0 0 UNITED STEEL WORKS OF BUBBACH-EICH-DUDELANGE
(SOCI^K
ANONYME OES ACI£RIES X i O E
BURBACH-EICH-DUDELANGE, GRAND DCCH?
OF LUXEMBURG) "ABBED " 25-YEAR SINKING FUND 7 PER CENT GOLD BONDS
O n e million dollars, of the present offering h a v e been t a k e n f o r issue in I n land b y a g r o u p o f banks headed b y D e T w e n t s c h e B a n k , A m s t e r d a m ; $1,000,00*
h a v e been taken f o r issue in L u x e m b u r g b y the B a n q u e Generate d u Luxembourg
SALE OF
FOHEIGX
BONDS Oil SKCUllITIES
203
and the B a n q u e I n t e r n a t i o n a l e d e L u x e m b o u r g , L u x e m b u r g ; and $500,000 have
been taken f o r S w i t z e r l a n d by n g r o u p o f batiks headed by Swiss Bank Corporation, to be dated A p r i l 1. 1020; to m a t u r e April 1, 1951.
Authorized and t o b e isMKd. $10,OUO,OUO. Coupon bonds in denominations of
$1,000 and $500. Interest p a y a b l e A p r i l 1 and October 1. Principal and interest
payable in N e w Y o r k City, in gold c o i n of United States of America of or equal
to standard o f w e i g h t a n d fineness e x i s t i n g April 1. 11*20, without deduction for
any taxes, Imposts, levies, o r d u t i e s o f a n y nature now o r at any time hereafter
imposed b y the G o v e r n m e n t o f the Grand D u c h y of Luxemburg, or by any taxing authority thereof o r therein. R e d e e m a b l e a s n whole (but not in purt ex*
cept f o r the sinking f u n d ) , o n A p r i l 1, 1030, o r o n any Interest date thereafter,
on CO days' notice, a n d oil 3 0 day** n o t i c e if culled In part f o r the sinking fund,
at 100 per cent and a c c r u e d Interest.
Cumulative sinking f u n d t o m i r e e n t i r e issue by maturity.
GUARANTY TRUST C o . o r NEW YORK,
Trustee.
The a c c o m p a n y i n g letter f r o m Mr. G. Barbanson, president o i the board of
directors, is s u m m a r i z e d by Idm a s f o l l o w * :
T h e c o m p a n y , g e n e r a l l y k n o w n a s A R B E D , Is, with its affiliated companies,
the largest single steel m a n u f a c t u r i n g concern In Europe, having a combined
annual c a p a c i t y o f 2,850,000 m e t r i c turn* o f pig iron ( 1 metric ton=1.102 tons
a v o i r d u p o i s ) , 2.770.000 m e t r i c t o n s o f steel ingots, 2,525,000 metric tons of
finished and semifinished Iron a n d steel products, 3,000,000 metric tons of coal
and 1,500,000 m e t r i c t o n s o f c o k e . It* output, which in distributed through a
world-wide selling o r g a n i z a t i o n , c o m p r i s e s practically every important steel
product.
The c o m p a n y ' * p r o p e r t i e s a r e f a v o r a b l y located in Grand Duchy of Luxemburg in o r near t h e great L o r r a i n e iron-mining district and in the coal regions
of Saur Basin.
A I I B E D also o w n * c o n t r o l l i n g o r tmbstantla! interest* in various companies
in Luxemburg, F r a n c e , B e l g i u m , ami G e r m a n y , producing coal, coke, pig iron,
steel ingots, and finished and semifinished products. Tlie.se companies assure
A R B E I ) o f coal a n d c o k e s u p p l i e s and of a regular and fixed outlet f o r a
substantial part o f Its p r o d u c t i o n .
Both o r e ami e o a ! r<»*ervcs nre sufficient f o r o v e r 100 years.
PVKWmt or i«srfi
Proceeds o f Issue nre f o I** used f o r additions and improvements to properties
of company and its Mibsidlaries. which should result in decreased costs ami
increased earnings, a n d f o r a d d i t i o n a l w o r k i n g capital and general corporate
purposes.
PROVISIONS OF ISSUE
T h e c o m p a n y agree* that s o l o n g a s any o f these bonds are outstanding it
will not mortgage, p l e d g e , o r c r e a t e a n y liens upon any o f its assets, franchises,
or revenues as s e c u r i t y f o r indebtedness, ext-ept purchase money mortgages,
mortgages existing on proj»orfy h e r e a f t e r acquired and temporary oblijiations
secured on materials, supplies, o r receivables. T h e company has at present no
indebtedness s e c u r e d o n m a t e r i a l s , supplies, o r receivables.
FINANCIAL
Except f o r o u t s t a n d i n g unsecured bonds equivalent at current exchange rate
to about $LiM0,029, this issue constitute* company's only funded debt. Properties o f the c o m p a n y a r e f r e e f r o m lien except certain parcels of land which
are subject t o n g o v e r n m e n t chana? o f approximately $428,958 Imposed as a
guaranty f o r p r o p e r c u s t o d y o f e m p l o y e e s ' t e n s i o n and other funds.
Directly o w n e d p r o p e r t i e s a t c o s t less subsequent depreciation thereon, eonverted by Messrs. Price* W a t e r h o u s e & Co. into dollars at gold values of
currency a t the t i m e o f a c t u a l exjienditure. amount to $15,500,000. T h e company
further Owns investments, l i k e w i s e c o m p u t e d b y it in gold values, o f about
SALE OF FOREIGN; BONDS OR SECURITIES,
204
$18,000,000. In addition, net quick assets, a s o f date o f last b a l a n c e sheet,
at the present exchange rate*, including proceeds o f present issue, w e r e equivalent to $12,900,000, m a k i n g total net assets o f $46,400,000.
T h e real value, as asertained by independent engineers' appraisal o f the properties and b y estimate of value o f investments based on c u r r e n t quotations or
on the company's conservative appraisal, is m u c h greater than t h i s figure.
EARNINGS
Net profits available f o r interest, converted t o g o l d values a t average prevailing rates, audited by Messrs. Price, W a t e r h o u s e & Co., f o r p a s t s i x fiscal
years averaged over $2,700,000 p e r annum, notwithstanding the f a c t t h a t these
years include the period o f post-war readjustment w h i c h universally affected
all business. Such net profits f o r past three fiscal years h a v e been a s follows ;
Net profits, available for interesti
after charging depreciation
Y e a r s ended J u l y 31—
1923- i .
—- _„
„
1924
1925—IL —
.
„
,
... Average net profits last 3 y e a r s _ J _ „
....
—
-
—
._Li. ' —
Total interest charges upon completion o f this
J
financing.
and all taxes
-
$2,376,668
3,863,472
13,225,330
3,155,156
. —
1,019,902
Such average net profits; are m o r e than .three and nine-hundredths t i m e s such
total interest charges.
Such net profits f o r last five months o f 1925 w e r e $1,500,000, o r a t , rate of
$3,600,000 a year, o r o v e r three a n d fifty-two-hundredths t i m e s interest charges.
Foregoing net profits d o n o t reflect; any benefits f r o m p r o c e e d s o f this'issue,
which should substantially increase earnings, n o r d o t h e y i n c l u d e t h e effects
of the company's recent acquisition o f a l m o s t the e n t i r e b a l a n c e o f over 75
per cent of tlie outstanding stock of the c o m p a n y ' s m a i n s u b s i d i a r y (now
98y 2 per cent o w n e d ) which, a f t e r ail interest, earned about $1,000,000 i n 1925.
Dividends have been paid in each o f past 14 years, e x c e p t 1915, average for
period having been equivalent to $8.61 per share. T h e last d i v i d e n d w a s equivalent to $6.79 per share, a t the then current r a t e o f e x c h a n g e .
Company's
dividend policy has been v e r y conservative, a l a r g e p a r t o f total profits having
been retained in business i n f o r m o f reserves.
GENERAL
A s a L u x e m b u r g corporation, Arbed h a s the a d v a n t a g e o f f r e e d o m from
reparations and reconstruction burdens.
Its management is recognized as one o f m o s t conservative a n d experienced
on the Continent, its leading figures representing families associated with the
c o m p a n y o r its predecessors since their inception I
Application will be made to list these bonds on the N e w Y o r k Stock Exchange.
Ninety-two and one-half and interest, to yield over 7.67 p e r cent, when, as,
and if issued and received by us and subject to approval o f counsel. AH legal
details to be passed''on f o r the bankers b y Messrs! D a v i s , P o l k , W a r d w e l l ,
Gardiner & Heed, o f New. York, and Me. P a u l Emtle Jnnson, o f Brussels,
Belgium. It is expected that trust receipts o f Guaranty T r u s t Co. of N e w York
will l>e ready f o r delivery on or about April 14, 1926.
GUARANTY C o . OF NEW
,
YORK.
KUIIN, L033 & Co.
Nora:.—AH conversions;of Belgian f r a n c s t o dollars, unless otherwise stated,
h a v e been m a d e a t approximately the current r a t e o f e x c h a n g e , 3.65 cents per
.
, ..
franc.
. . .
W e d o n o t guarantee the statements and figures c o n t a i n e d herein, which in
p a r t have been received by cable, b u t they a r e taken f r o m s o u r c e s w h i c h , we
b e l i e v e to be reliable!!
MAUCH 31; 1926.
Includes $863,780 applicable to the 2 prior years.
SALE OF FOHEIGX BONDS Oil SKCUllITIES
205
U X M U STEEL WORKS OP BURUACU-EICH-DUDELANGE
(S0Cl£r£ ANONYME DES Aci£U!B8 UtVNIE8 PE Ilt-KUACH-ELCH-DUDELANGE)
LUXEMRUBO. March 27, 1!>20.
MESSRS. KUHN, LOEB & Co., AND GUARANTY CO. o r NEW YORK.
GENTLEMEN: I n c o n n e c t i o n w i t h the issue o f $10,000,000 25-year s i n k i n g f u n d
7 per cent gold b o n d s o f the S o d & e A n o n y m e d e s A c i c r i e s K e u n i e s d e B u r b a c h Eich-Dudelunge ( U n i t e d Steel W o r k s o f I l u r b a e h - K I c h - D u d e l a n g e ) , w e take
pleasure in giving y o u t h e f o l l o w i n g in f o r m a t i o n :
HISTORY AND BUSINESS
The company, g e n e r a l l y k n o w n a s A H B H D , is o n e o f t h e l e a d i n g steel c o m panies on the Europcttu c o n t i n e n t . W i t h Its affiliated c o m p a n i e s f t constitutes
the largest single steel m a n u f a c t u r i n g c o n c e r n in E u r o p e . T h e total c a p a c i t y
of the company and its affiliated c o m p a n i e s a m o u n t s t o a b o u t 2,880,000 m e t r i c
tons of pig iron ( 1 m e t r i c t o n — 1 . 1 0 2 tnns a v o i r d u p o i s ) , 2.770,000 m e t r i c tons
of steel ingots, 2,525,000 m e t r i c toils nf tlnishod a n d semifinished i r o n a n d steel
products, 3,000.000 m e t r i c tons o f co.nl a n d J.5U0.000 m e t r i c tons o f c o k e jH»r
annum. A R B E D and i t * affiliated coniiunUtt h a v e a t o t a l o f 04,000 employees.
The company i s well i n t e g r a t e d a n d i u business i s w i d e l y diversified, its
output comprising p r a c t i c a l l y e v e r y i m p o r t a n t steel product. I t has its o w n
selling organization t h r o u g h o u t t h e W o r l d .
The company w a s f o r m e d in O c t o b e r . 1011. a s ft c o n s o l i d a t i o n o f the " F o r g e s
d'Elch, le Gallais-Metz & C o . / ' eHtfthlishfMl 1&47* t h e ** M i n e s d u L u x e m b o u r g et
Forges de Snrrehruck." e s t a b l i s h e d LS5G. a n d t h e
I l a u t s - F m i r n e i m x et F o r g e s
de Dudelange/' established 1882.
RNORERTY AND AFFILIATIONS
The company's p r o i n r t i e s a r e f a v o r a b l y s i t u a t e d in t h e G r a n d D u c h y o f
Luxemburg in o r n e a r the g r e a t L o r r a i n e i r o n m i n i n g d i s t r i c t a n d in t h e c o a l
regions o f the Sanr B a s i n . T h e c o m p a n y ' s m a i n p l a n t s a r e located at D u d e lange, Esch-sur-Alzetti\ DointncJdaiige, a n d E l c h , a l l in t h e G r a n d D u c h y o f
Luxemburg, a n d a t B u r b a eh a n d I l o s t e n b a c h In t h e S a a r B a s i n , w i t h blast
furnaces having an a n n u a l c a p a c i t y o f 1,450,000 m e t r i c t o n s o f p i g iron, steel
works and rolling m i l l s w i t h a n a n n u a l c a p a c i t y o f 1,420.000 m e t r i c t o n s o f
semifinished and finished p r o d u c t s 4 0 0 c o k e o v e n s , f o u n d r i e s , etc. T h e c o m pany owns o r has m i n i n g c o n c e s s i o n s c o v e r i n g a b o u t 2,775 a c r c s in the G r a n d
Duchy o f L u x e m b u r g , 17,000 a c r e s in L o r r a i n e , a n d 2,950 acres^ in the
Meurthe-et-Moselle, w h i c h s u p p l y t h e c o m p a n y ' s e n t i r e i r o n - o r e requirements
and are estimated t o c o n t a i u r e s e r v e s sufficient t o c o v e r t h e c o m p a n y ' s n e e d s
for'over 100 years.
The company o w n s , d i r e c t l y o r t h r o u g h subsidiaries, c o a l - m i n i n g c o n c e s s i o n s
covering 8,580 a c r c s i n B e l g i u m a n d G e r m a n y .
I n a d d i t i o n the c o m p a n y
operates under a long-term c o n t r a c t t h e c o a l fields o f t h e w e l l - k n o w n E s c h w e i l e r
Bergwerksverein o f w h o s e c a p i t a l s t o c k a n i m p o r t a n t p a r t is o w n e d b y A R B E I ) . 1
1 Under this contract enter**! Info In
ARBED guaranteed dividends of 14 per
cent on the capital stock of the Eschwellrr Co. until 1043. when ARBED was to lnivfe'the
option of renewing the contract for 30 yearn by guaranteeing dividend* of 8 per cent per
annum; ARBKD also agreed to buy all Eschweller stock offered to it la 1943 at 250 per
cent.
In connection with thte rernlori«atlon law of Germany* ARBED and Eschweiler have
agreed to a revalorization of the term* of the contract to 60 per cent of the former figures
so that the dividend gu&rantod on the Eschweiler capital stock now amounts to 8.40 per
cent per annum until 1943. when ARKKD shall have the right to renew the contract Tor
30 years with guaranteed dividend* of 4.80 per cent per annum: correspondingly, the
price to be paid for each Eschweiler share offered to ARBKD in r,»43 is 150 per cent.
ARBED ft advi*ed by all legal authorities consulted by it that the court, if appealed
to by any dissenting Eschweiler stockholder, will fountain the foregoing agreement, in
which cage annual dlridends guaranteed on the Eschweiler capital stock would amount
to marks 3.192,000 <|750,Gl«JK If the agreement should not he sustained, which np^
pears extremely unlikely, the amount of dividends to be guaranteed would not exceed
martor 5,320,000 (|l,2fi0.tr»O). A considerable amount of the guaranteed dividends would
revert in any ca«e to ARBED because of Its shareholdings In the Eschweiler Co. Under
the contract any surplus earnings nf K»chwciler remaining after the payment ,of the
guaranteed dividends accrue, to ARBED,
92028--31—rrl—14
206
SALE OF FOREIGN; BONDS OR SECURITIES,
T h e s e fields, located near Aix-la-Chapelle, contain large a m o u n t s o f anthracite,
steam, and excellent coking coal. It is estimated that reserves of coking coal
a r e sufficient f o r the needs of A R B E D and its affiliated c o m p a n i e s f o r at least
a s long as their o w n iron o r e will last. T h e E s c h w e i l e r Co. h a s over GOO
c o k i n g ovens, w i t h complete installations f o r the recovery of by-ptoducts, and
is equipped w i t h blast furnaces, steel plant, rolling mills, and a structural
shop, which a r e capable of producing 110,000 tons of p i g iron and 100,000 tons
o f finished p r o d u c t s per annum.
T h e Eschweiler Co. at present produces
annually 3,000,000 t o n s o f coal and 625,000 tons of coke, Additional coke ovens
a r e under construction and the output o f c o a l could be increased to 5,000,000
t o n s per annum w i t h practically no increase in the present installations other
than the construction o f m o r e workmen's houses in order to provide for
a d d i t i o n a l labor.
A B B E D f u r t h e r o w n s over 98Vj per cent o f the capital stock o f t h e Society
JVIgtallurgique des T e r r e s R o u g e s ( R e d E a r t h Metal C o . ) , a L u x e m b u r g corporation, a n d , directly o r indirectly, practically all o f the shares o f Soci£t6
Mini&re des Terres Rouges ( R e d Earth Mining C o . ) , a F r e n c h corporation,
w h i c h w e r e f o r m e d in 1919 t o purchase f r o m the well-known G e r m a n company
Gelsenkirchen
its properties situated in the Grand D u c h y o f Luxemburg*
o n the l e f t b a n k o f the R h i n e and in France. T h e s e companies o w n extensive
iron-mining concessions and have a n annual producing capacity o f 1,320,000
m e t r i c tons o f p i g iron and 1,250,000 m e t r i c tons of steel.
T h e w o r k i n g relations between A R B E D , the E s c h w e i l e r Co., a n d the Bed
E a r t h Metal Co. a r e so close that, f r o m a n operating standpoint, t h e y may be
considered a single concern. A c o m m o n selling c o m p a n y , the M Columeta
(Comptoir Metallurgique L u x e m b o u r g e o i s ) , w h i c h h a s a w o r l d - w i d e organization, handles exclusively the sale of all t h e metallurgical p r o d u c t s o f the three
companies throughout the markets of the w o r l d .
Moreover, A R B E D and Soci£t6 Metallurgique d e s T e r r e s R o u g e s h a v e recently
entered into an agreement of community o f interest, u n d e r t h e t e r m s o f which
A R B E D is t o manage and operate the T e r r e s R o u g e s plants a n d the profits
of the t w o companies are to be pooled, w h i c h should result in substantially
increased earnings available f o r interest requirements.
I n addition to the foregoing, A R B E D controls the prosperous and wellk n o w n Felton & Guilleaume A . G. ( C o l o g n e ) , and Clouterie & TrSfilerie des
Flandres ( G h e n t ) , and o w n s substantial interests in various other companies
which m a n u f a c t u r e a w i d e line of iron and steel products, including drawn
wire, barbed wire, nails, rivets, w i r e cables, small tools, iron a n d steel pipe,
and long-distance telephone and telegraph cables, and insure t o A R B E D a
regular and fixed outlet f o r a substantial p a r t o f its p r o d u c t i o n .
T h e principal p r o d u c i n g plants o f the c o m p a n y and its affiliated companies
h a v e been well maintained and progressively modernized, excepting, however,
the rolling mills of the plant a t Burbach w h e r e the m o d e r n i z a t i o n h a s just
been started.
PURPOSE OF ISSUE
T h e proceeds o f the present issue are to be used in the modernization of the
rolling mills a t the Burbach plant, including the electrification o f some of the
d r i v e s ; to increase the production o f coal and coke o f the subsidiaries of the
A R B E D - T e r r e s R o u g e s group, which, it is expected, will result in substantial
savings in f u e l costs and in increased e a r n i n g s ; to c o o r d i n a t e still further the
A R B E D and T e r r e s Rouges plants so as to obtain the m a x i m u m return from
the c o m m u n i t y o f interest agreement recently effected between t h e t w o companies, atid f o r additional w o r k i n g capital a n d general c o r p o r a t e purposes.
THIS ISSUE
T h e bonds o f the present issue a r e to be the direct obligations' o f the company/
a n d the c o m p a n y agrees, and the bonds w i l l so provide, that s o l o n g a s any of
the^boiUls o f this issue shall b e outstanding, it will n o t m o r t g a g e , pledge, pr
c r e a t e a n y Hens u p o n any^ of. Its assets^ franchises, o r revenues a s security for
the p a y m e n t of a n y loan o r indebtedness, b u t this shall n o t a p p l y t o purchase
m o n e y m o r t g a g e s , m o r t g a g e s existing o n property h e r e a f t e r acquired; o r teufc
p o r a r y l o a n s o r i n d e m n i t y f o r a period o f n o t m o r e t h a n o n e y e a r incurred i »
the usual c o u r s e o f business secured on m a t e r i a l s o r supplies o r a c c o u n t s or b i l u
SALE OF
FOHEIGX
BONDS Oil SKCUllITIES
207
receivable. T h e c o m p a n y h a s a t p r e s e n t n o Indebtedness secured 011 m a t e r i a l s ,
supplies, o r receivables.
The company lias n o o t h e r f u n d e d d e b t o u t s t a n d i n g . c x c e p t Fes. r&,151,500 o f
Belgian f r a n c bonds, bearhr.: 4 jrer c e n t a n d 5 p e r cent; interest, all o f w h i c h
are unsecured, A m o u n t i n g t o t h e e q u i v a l e n t o f a b o u t $1,940,021) at the c u r r e n t
rate of exchange.
The $10,000,000 25-year s i n k i n g f u n d 7 |**r c e n t g o l d b o n d s w e r e authorized
I>y the stockholder* at the g e n e r a l m e e t i n g o f s t o c k h o l d e r s on N o v e m b e r 28,
1925. T h e bonds will bo in eouiKin form, in d e n o m i n a t i o n s o f $1,000 a n d $.300,
will be dated April 1, 1920. will m a t u r e A p r i l 1. 1951, a n d w i l l b e a r Interest at
the rate o f 7 i>er cent p o r a n n u m f r o m A p r i l 1. 1926, p a y a b l e s e m i a n n u a l l y 011
April 1 aiul O c t o b e r 1 o f c : u h y e a r . P r i n c i p a l a n d Interest w i l l be p a y a b l e
in the borough o f M a n h a t t a n . In t h e c i t y o f N e w Y o r k , a t the o p t i o n o f the
holders, either a t the o f l h v o f K u h n , L o e b & C o . o r a t t h e p r i n c i p a l office o f
Guaranty Trust C o . o f N e w Y o r k , in g o l d c o i n o f the United States o f A m e r i c a ,
of or equal to the s t a n d a r d o f w e i g h t a n d fineness e x i s t i n g A p r i l 1, 1926, w i t h out deduction f o r a n y tuxe*. Im)H>*u$, levies, o r d u t i e s o f a n y n a t u r e now* o r
at any time h e r e a f t e r i m p o s e d b y t h e G o v e r n m e n t o f t h e G r a n d D u c h y o f
Luxemburg o r b y a n y t a x i n g a u t h o r i t y t h e r e o f o r therein*
On April 1, 1936, o r a n y Interest d a t e t h e r e a f t e r , the c o m p a n y w i l l h a v e the
light to redeem all b u t not p a r t o f t h e b o n d s a t the t i m e o u t s t a n d i n g a t 100
per cent and a c c r u e d interest, n o t i c e o f s u c h r e d e m p t i o n t o b e given b y a d v e r tisement, the first a d v e r t i s e m e n t t o a p p e a r at least 60 d a y s b e f o r e s u c h redemption date.
SIXKIWQ FOND
The c o m p a n y a g r e e s t o e s t a b l i s h a c u m u l a t i v e s i n k i n g f u n d c a l c u l a t e d to
retire the whole issue by m a t u r i t y . T h e c o m p a n y shall h a v e the right t o m a k e
sinking-fund p a y m e n t * in b o n d s a t p a r in lieu o f c a s h . T o t h e e x t e n t that
sinking-fund installments shall not b e p a i d in b o n d s , a v a i l a b l e m o n e y s a r e to be
applied to the r e d e m p t i o n o f b o n d * a t 100 p e r c e n t o n a n y interest d a t e . N o t i c e
of redemption o f b o n d s d r a w n b y lot is to be g i v e n b y a d v e r t i s e m e n t , t h e first
advertisement to a p p e a r at least 3 0 d a y s b e f o r e each redemption date*
FINANCIAL
Directly o w n e d p r o p e r t i e s a t c o s t less s u b s e q u e n t d e p r e c i a t i o n thereon, c o n verted by Messrs. P r i c e , W a t e r h o t i s e & C o . into d o l l a r s ( a t gold v a l u e s o f c u r rency a t the t i m e o f a c t u a l e x p e n d i t u r e ) a m o u n t t o $15,500,000, w h i l e , b a s e d
on a recent appraisal b y i n d e p e n d e n t e n g i n e e r s , t h e r e p r o d u c t i o n c o s t o f these
properties, less d e p r e c i a t i o n , is m u c h g r e a t e r . T h e s a m e h o l d s t r u e o f t h e
investments in o t h e r c o m p a n i e s . T h e s e , c o m p u t e d a s a b o v e b y the c o m p a n y ,
and including the a d d i t i o n a l T e r r e s R o u g e s s h a r e s r e c e n t l y a c q u i r e d , represent
a gold value o f a p p r o x i m a t e l y $18,000,000, w h i l e t h e i r e s t i m a t e d v a l u e , b a s e d
on current m a r k e t q u o t a t i o n s o r an t h e c o m p a n y ' s o w n c o n s e r v a t i v e a p p r a i s a l ,
is substantially in e x c e * s o f t h i s figure. T h e net q u i c k a s s e t s a s o f t h e d a t e
of the last balance s h e e t a t t h e p r e s e n t e x c h a n g e r a t e , i n c l u d i n g t h e p r o c e e d s
of the present issue, w e r e e q u i v a l e n t t o $12,900,000. S u c h n e t q u i c k a s s e t s a r e
now equal to at least t h i s a m o u n t .
While the total net a s s e t s , c o m p u t e d a s a b o v e , a m o u n t t h u s t o $46,400,000,
they huve, a s stated a b o v e , a real v a l u e m u c h g r e a t e r t h a n t h i s a m o u n t
The properties o f t h e c o m p a n y a r e f r e e f r o m Hen e x c e p t f o r c e r t a i n p a r c e l s
of land which a r e s u b j e c t t o a G o v e r n m e n t eh u r g e in t h e a m o u n t o f a p p r o x i mately $428,958 imposed a s a g u a r a n t y f o r t h e p r o p e r c u s t o d y o f e m p l o y e e s '
pension and o t h e r f u n d s .
The capital s t o c k o f the c o m p a n y c o n s i s t s o f 240,000 s h a r e s w i t h o u t p a r
value.
EAUMNt;*
Net profits o f the c o m p a n y a v a i l a b l e f o r i n t e r e s t a f t e r d e p r e c i a t i o n a n d all
taxes, f o r the past t h r e e fiscal y e a r s , c o n v e r t e d t o g o l d v a l u e s a t a v e r a g e prevailing rates, a u d i t e d b y M e s s r s . P r i c e , W a t e r h o u s e & Co,, h a v e bet>n a s f o l l o w s ;
208
SALE OF FOREIGN; BONDS OR SECURITIES,
Net profits, available for interest, after charging depreciation and all taxe*
Y e a r ended J u l y 3 1 :
1023 „
1924
192 5
$2*870,00$
...
:
1
S63,472
3,225,330
N e t profits available f o r interest, as sliown above, averaged o v e r $3,155,156
per annum. T h i s is equivalent to more than three a n d nine oiie-hundredths
times total animal interest requirements, upon completion o f this financing.
Net profits available f o r interest, a f t e r depreciation and taxes, f o r the five
months ended D e c e m b e r 31, 1925, amounted to a p p r o x i m a t e l y $1,500,000, which
is at the rate o f about $3,000,000 per aiuuim;- or over three and iifty-two oiiehundredths times Interest charges.
Net profits f o r the six years ended July 55V1020 to 1025, on the same bnsis,
converted t o , g o l d values at average providing rates, as shown by an audit of
M e s s r s / Price, W a t e r h o u s e & C o . , averaged over $2,700,000 annually, notwithstanding tlie f a c t that those' years include the period of p o s t w a r readjustment
ivhich' universally affected all business.
T h e foregoing earnings, do not, o f . course,"reflect a n y benefits f r o m the proceeds o f this issue nor. tlie, pooling of the T e r r e s H o u s e s profits o r the effects
o f the company's, recent acquisition o f almost the entire b a l a n c e of over
75 p e r cent o f the outstanding T e r r e s R o u g e s stock, all of which should snlv
stantiaUy increase the amount of earnings available f o r interest requirements.
T h e earnings o f T e r r e s R o u g e s f o r the fiscal y e a r ended Decern her 31. 1925r
a f t e r deducting interest, amounted to a b o u t $1,000,000.
A R B E D has pursued a very conservative dividend policy, a large p : m of
its total profits since its inception having been retained in the business in the
f o r m of depreciation and. other reserves.
Dividends have been paid in each y e a r since the establishment o f tlie company in its present f o r m in 1911, except in 1915, the dollar equivalent having
been not less :thon $5.68 per share {\\i 1923) and a v e r a g i n g $8.01 p e r share
per a n n u m - f o r the period.
T h e - h i s t dividend ; w a s equivalent to $0.79 per
share a t the then current rate of exchange.GENERAL
A s a : c o r p o r a t i o n of the Grand Duchy of-Luxemburg,••ARBED h a s the advantage ..of- being entirely .free f r o m any reparations or reconstruction burdens.
T h e . : G r a m l D u c h y of L u x e m b u r g is an independent sovereign State. In 1921
it entered into an economic union with Belgium w h i c h is to run f o r . 5 0 years.
Which, eliminates c u s t o m s barriers and provides f o r e c o n o m i c reciprocity and
t h e , u s e . o f B e l g i a n currency in L u x e m b u r g . . T h e financial a f f a i r s o f the Grand
D u c h y are; in good order, its public d e b t is-relatively, l o w , and its ordinary
revenues; regularly balance ordinary expenses.
«,!••
i
T h e i relations between A R B E D and its employees: I m v e a l w a y s been very
satisfactory and the company's policy .of carefully looking a f t e r t h e health,
housing, and -welfare o f its employees, aml< their f a m i l i e s h a s been rewarded
by g o o d ,will and confidence on the part of tlie employees iir every-emergency!
T h e management o f A R B E D is recognized as one o f t h e most conservative
and. .experienced on the Continent.
T h e leading figures' represent families
associated ,with the company or;-its predecessors since their inceptiou.
A p p l i c a t i o n w i l l be made to list these bonds on the N e w Y o r k Stock Exchange.
Very, tiruly. y o u r s ,
<5v BAHBAXSOR,
President of tho Board of Directors.
. NOTE.™-All conversions o f : Belgian f r a n c s t o d o l l a r s ; unless o t h e r w i s e stated,
h a v e been m a d e at approximately tlie current rate of e x c h a n g e , 3.05 cents p e r
franc.
$10,000,000 STATE OF HAMUCRG (FRKK AND 1 HANS RATIO CITY OK ITAMBL'KG).,
< GERMANY, 20-YEAR 0 PF/K-CENT Gou> B o x » s , DUE OCTORKU l ; 1940
Coupon bonds in denominations o f $1,000 a n d $500 each.
P r i n c i p a l a n d interest
p a y a b l e in N e w Y o r k C i t y in United States g o l d coin o f o r e q u a l t o t h e present
s t a n d a r d o f w e i g h t a n d fineness w i t h o u t d e d u c t i o n f o r a n y G e r m a n taxes,1
Includes $S63,7S0 applicable to the 2 prior years.
SALE OF
FOHEIGX
B O N D S Oil S K C U l l I T I E S
209
present o r f u t u r e , a m i tmyahle i n t i m e o f w a r u s w e l l a s i n t i m e o f p e a c e a n d
whether the h o l d e r b e a c i t i z e n o r r e s i d e n t o f a f r i e n d l y o r a h o s t i l e S t a t e .
Interest payable A p r i l 1 n n d O c t o l i e r 1. I n t e r n a t i o n a l A c c e p t a n c e S e c u r i t i e s &
Trust Co., fiscal agent*.
The bonds a r e r e d e e m a b l e , at t h e o p t i o n o f t h e S t a t e , In w h o l e o r in p a r t b y
lot, a t 100 per c e n t a n d a c c r u e d interest o n O c t o b e r 1, 1931, o r o n a n y interest
date thereafter on GO d a y s ' published n o t i c e .
T h e f o l l o w i n g letter h a s b e e n r e c e i v e d f r o m H o n . C a r l C o h n , s e n a t o r , p r e s i d e n t
of the finance d e p u t a t i o n o f t h e S t a t e o f H a m b u r g ; h a v i n g been t r a n s m i t t e d
by cable, it Is s u b j e c t t o c o r r e c t i o n :
"The Sfrite.—-The S t a t e o f H a m b u r g ( F r e e a n d H a n s e a t i c C i t y o f H a m b u r g )
is one of the independent S t a t e s c o n s t i t u t i n g t h e f e d e r a t i o n o f the R e p u b l i c o f
Germany. I t includes w i t h i n its t e r r i t o r y o f 100 s q u a r e miles, a m o n g o t h e r
municipalities, the c i t y o f H a m b u r g , w h i c h Is the s e c o n d largest c i t y in G e r many, and the c i t y o f C u x h n v c n .
Both o f these are important harbors, the
port o f H a m b u r g b e i n g In p o i n t o f t o n n a g e t h e l a r g e s t in G e r m a n y , its 1025
cargoes having t o t a l e d 32,044.000 m e t r i c t o n s I n c o m i n g a n d 7,217,000 m e t r i c
tons o u t g o i n g ; f o r t h e first h a l f o f 1920 the i n c o m i n g c a r g o e s h a v e a m o u n t e d
to 5,32.1,000 m e t r i c tons, nnd t h e o u t g o i n g c a r g o e s t o 4,117.000 m e t r i c tons.
The value of the sea-going e x p o r t s f r o m H a m b u r g in 1025 w a s $1,028,088,000.
" T h e Itiver EIIK\ on w h i c h t h e hnrimr o f H a m b u r g Is s i t u a t e d , a l s o c o m m a n d s
an Important Inland c o m m e r c e , toeing n a v i g a b l e f o r a d i s t a n c e o f o v e r 450
miles, well into C z e c h o s l o v a k i a . H a m b u r g is the h o m e p o r t o f several l a r g e
international shipping line**. I n c o m i n g s h i p s In 1025 h a d a n a g g r e g a t e tonnage of 10,raV*4(», e x c e e d i n g b y 2,450,000 t o n s the t o n n a g e o f the i n c o m i n g
ships in 1013. H a m b u r g h a s o v e r IS m i l e s o f p i e r s f o r sea-going vessels.
Among H a m b u r g h 7.700 i n d u s t r i a l e s t a b l i s h m e n t s a r e s o m e o f the w o r l d ' s
largest shipbuilding plants, i n c l u d i n g t h o s e In w h i c h t h e Majestic,
Leviathan,
and B e r a m t n a , the t h r e e l a r g e s t liners afloat, w e r e built.
"According to the latest c e n s u s , t h e S t a t e h a d a p o p u l a t i o n o f 1,17G,17S inhabitants, o f w h o m 1,100.905 w e r e l i v i n g lit the c i t y o f H a m b u r g .
" Purpose.—The p r o c e e d s o f t h e s e In aids a r c to be used f o r the p a y m e n t o f
the State's $5,000,000 1 - y o a r t r e a s u r y n o t e w h i c h m a t u r e s b n M a y 1, 1927, f o r
the construction o f a d d i t i o n a l p i e r s a n d l w r i r a i l w a y s a n d o f a b r i d g e o v e r
the Itiver E l b e a n d f o r t h e I m p r o v e m e n t o f real e s t a t e t o b e u s e d f o r i n d u s t r i a l
purposes.
" Finanecs.-^VhG r e v e n u e s o f t h e S t a t e o f H a m b u r g a r e d e r i v e d f r o m local
dues and taxes, t h e i n c o m e f r o m p o r t - w o r k * a n d p u b l i c utilities, and the allotment o f certain t a x e s c o l l e c t e d b y t h e G e r m a n lieich. T h e S t a t e o w n s v a l u able properties, m o s t l y i n c o m e produeintf. Of w h i c h t h e p o r t w o r k s a l o n e
represent a value o f o v e r $178,000,000. A l s o i n c l u d e d in Its p r o p e r t i e s a r e t h e
Hamburg G a s & W a t e r w o r k s a n d n - s u b s t a n t i a l s h a r e i n the H a m b u r g E l e e t t f c
Works.
" The total external d e b t o f t h e State, Including the p r e s e n t issue, b u t afterdeducting t h e $5,000,000 1 - y e n r t r e a s u r y n o t e t o b e r e p a i d f r o m it* proceeds, 5
amounts to £2,854.178 a m i $10,000,000. T h e S t a t e h a s n o Internal d e b t except"
its liability o n its old nuirk d e b t , a s r e v a l o r i z e d u n d e r t h e l a w o f J u l y 10. 1925,
which must he r e d e e m e d w i t h i n a p e r i o d o f 3 0 y e a r s : a s u m o f relchmarfc*
6,700,000 h a s b e e n p r o v i d e d f o r t h e s e r v i c e o f such o l d debt f o r t h e c u r r e n t
fiscal year. None o f t h e o u t s t a n d i n g l o a n s is s e c u r e d .
" T h e credit o f H a m b u r g r a n k * v e r y high. B e f o r e t h e w a r it issued its l o a n s
at coupbh rates o f 3 t o 4 t**r w i l t T h e StareV-bttdget/tt^rregnting $08,028,5%
f o r the current y e a r , b a l a n c e s . T h e p o r t d u e s a r e collected p a r t l y in actual
foreign currencies a n d even iii t h e t i m e s o f severest in Hat ion w e r e a l w a y s c o l lected on a gold basis. In 1925 these d u e s y i e l d e d o v e r $4,550,000. w h i c h a l o n e
is over t w o a n d o n e - h a l f t i m e s t h e a m o u n t s r e q u i r e d f o r the s e r v i c e o f the
whole external debt,* i n c l u d i n g t h e present is-suc.
** Security,—The bonda w i l l be t h e d i r e c t o b l i g a t i o n s o f t h e S t a t e Of H a m b u r g
and will contain a c o v e n a n t t h a t i f . w h i l e ;iny o f the b o n d s a r e o u t s t a n d i n g , i t
shall create o r i s s u e o r g u a r a n t y a n y loan o r b o n d s s e c u r e d b y lien o n a n y
o f its revenues o r a s s e t s o r assign a n y o f Its revenues o r a s s e t s a s s e c u r i t y
for any guaranty o f a n y o b l i g a t i o n , t h e present issue o f b o n d s w i l l b e s e c u r e d
equally and ratably w i t h such o t h e r l o a n o r b o n d s o r s u c h g u a r a n t y .
" T h e e n f o r c e m e n t o f t h e c h a r g e s t o w h i c h the a s s e t s a n d r e v e n u e s o f t h e
German Keich a n d i t s c o n s t i t u e n t S t a t e s w e r e m a d e s u b j e c t u n d e r a r t i c l e 248
of the Versailles t r e a t y is s u s p e n d e d s o l o n g a s G e r m a n y p e r f o r m s i t s o b l i g a -
210
SALE OF FOREIGN; BONDS OR SECURITIES,
tions under< the • Dawes plan, which provides that certain revenues shall he
specifically pledged as security f o r reparation payments. The public utilities in
Which the State has an interest have to make yearly payments under the Dawes
plan in the same manner and approximately to the same extent as private
enterprises of like character.
"Application will, be made in due course to list these bonds on the Ne\Vt
York Stock Exchange."
The dollar amounts above, where converted, are at the rate of 4.20 German
marks to the dollar.; .... r
An issue of £2,000,000 principal amount of 25-year sinking fund 6 per cent
bonds, due October 1,1951, was sold in London on September 30,1926, by Messrs.
Baring Bros. & Co. (Ltd.), N. M. Rothschild & Sons, and J. H e n r y Schroder
& Co., at93M> per cent and accrued interest.
. The undersigned will receive subscriptions f o r the above bonds; subject to
allotment, at 01% .per cent and accrued interest to date of delivery, to yield
over 0 % per cent to maturity.
The undersigned reserve the right to close the subscription at any time without notice, to reject .any application, to allot a smaller amount than applied
for, and to make allotments in their uncontrolled discretion.
The above bonds are offered if, when, and as. issued and received by the
undersigned and subject to the approval of counsel. In the' first instance,
interim certificates, exchangeable f o r definitive bonds when prepared, will be
delivered against payment in New'York funds.
NEW YORK, October 5, 1920.
KUHN, LOEB & C o .
INTERNATIONAL ACCEPTANCE BANK '(INC.).
BROWN BROS. & C o .
J. HENRY SCHRODER BANKING CORPORATION.
LEE, HIGGINSON & CO.
$20,000,000 NORTH GERMAN LLOYD (NORDDEUTSCHER LLOYD), BREMEN, 20-YEAR
6 PER CENT SINKING FUND GOLD BONDS, DUE NOVEMBER 1, 1 9 4 7
Coupon bonds in denominations of $1,000 and $500 each. Principal and
interest payable in New York City at the option of the holder either at the office
of Kuhn, Loeb & Co, or the principal office o f Guaranty Trust Co. of New. York*
in United States gold coin of or equal to the present standard o f weight and
fineness and without deduction f o r any German taxes, present or future, in time
of? war as well as in time of peace and whether the holder be a citizen or resident.of a friendly or hostile state. Interest payable May 1 and November 1.
Beginning November 1,1929, the bonds are to be retired by a cumulative sinking fund, payable semiannually, calculated to retire the entire issue by maturity,
the company to make sinking-fund payments in cash or in bonds at par, the
cash to be applied to the,redemption of bonds by drawings at par.
On November 1, 1932, or on any semiannual interest payment date thereafter,
the company may, at its option, call f o r redemption all but not a part of the
bonds then outstanding at par and accrued interest on not less than 60 days)
notice by publication. Except f o r the sinking fund, bonds can not be called in
part or before November 1, 1932.
F o r further information regarding the company and this issue of bonds
reference is made to the accompanying letter dated November 8, 1927, from the
North German Lloyd. As it has been transmitted by cable, it is subject to
correction.
The undersigned offer the above bonds, subject to prior sale, at 94 per cent
and accrued interest to date of delivery, to yield about 6.55 per cent to maturity.
The above bonds are offered i f , when, and as issued and received by the
undersigned and subject to| the completion of the transaction as planned and
to the approval of counsel.: In the first "instance interim certificates, exchangeable f o r definitive bonds when prepared, will be delivered against payment in
N e w York funds.
, „
NEW YORK, November B, JB27.
K U H N , LOEB & CO.,
GUARANTY C o . OF NEW* YORK.
LEE, HIGGINSON & C o .
SALE OF FOHEIGX
BONDS Oil SKCUllITIES
Xoum»:t"rt*cm:u
LLOYD
211
(BREMEN),
IlrcmiH, Xmember tf, W27.
Messrs K U H N , I,OEB &
c*«.f and CSrAiiANTY Co.
OK NEW YORK,
Sew York, Ar. 1*
DEAR SIB: R e f e r r i n g t o tlu> $20,000,000 principal amount North German Lloyd
(Norddeutschcr L l o y d ) Bremen, 20-ycar 0 per cent, sinking fund gold bolide,
due Xoveml>er 1. 1947, w h i c h you liave agreed to purchase, we Iwg to state the
following f o r y o u r i n f o r m a t i o n :
Bushiest and piv$Krtic*,—The
North German Lloyd, incorporated in 1857,
operates through it* o w n vessel* and those o f subsidiary companies 17 different
passenger and freight lines s e r v i n g m o r e than 150 jK>rts In all parts of the
world.
As of November l f 1027. the a g g r e g a t e tonnage o f the companyV 123 oceangoing vessels wa^ G21.000 gross registered tons, including such well-known ships
as the CofimrbtM, Berlin, Drrsdcn, ATuenchen* a n d Stuttgart, while there are at
present nnder construction ships a g g r e g a t i n g a n additional 1 0 1 # 0 0 gross regis*
t e m l tons, Including t w o d e l u x e liners to be called the Bremen and the
Eurotx% of 46.000 tons e a c h , w h i c h a r e t o be ready f o r service in April, 1029.
In addition, the c o m p a n y o w n s a p p r o x i m a t e l y 00,000 gross registered tons o f
smaller ships w h i c h p l y w i t h i n G e r m a n territorial waters.
The entire fleet Is m o d e r n , o v e r h a l f o f It h a v i n g been built within the last
eight years, and although It is c a r r i e d In the company's balance sheet as at
June 30, 1927t at mlts. 142,020.000 ($33,057,000). the additions since 1920 alone
represent an e x p e n d i t u r e o f gold inks. 211,322,000 ($50,314,000).
The company also o w n s o r h a s substantial interests in a number o f other
important shipping a n d allied enterprises, Including valuable warehouses and
office buildings a n d long-term leases o n piers and drydocks in Bremen and other
centers, all carried in the balance sheet much b e l o w their actual value.
Purpose.—The proceeds o f these bonds w i l l b e used f o r new construction and
to repay indebtedness incurred f o r construction* and f o r other corporate purposes. Part of the p r o c e e d s w i l l be deposited with the Internationale Bank te
Amsterdam, A m s t e r d a m , H o l l a n d , t o b e released by it only f o r the repayment
of certain Indebtedness m a t u r i n g serially t o 1934, secured by a portion o f the
company's fleet, the payment o f w h i c h indebtedness the company has no right
to anticipate. Upon completion o f the present financing, including repayment
of the above loan, the c o m p a n y ' s total funded a n d floating debt, including the
present issue, will a m o u n t t o o n l y $25,580,000. Included therein is a debt o f
inks. 33,013,000 ($3,100,000) t o the G e r m a n Government, at l o w rates of interest, secured b y real e s t a t e a n d by seven small ships aggregating 28,500 tons,
and certain purchase m o n e y m o r t g a g e s , w h i c h can not be repaid before maturity, amounting t o o n l y $2,112,000 o n ships aggregating 80,000 tons. T h e obligations under the D a w e s p l a n , referred t o hereafter, and current accounts payable,
of approximately $8,117,000. a r e not included in the a b o v e figure.
Capital. T h e c o m p a n y h a s o u t s t a n d i n g Mks. 125.000,000 fully paid common
stock and Mks. 3,906.200 p r e f e r r e d stock ( o f w h i c h Mks. 1,563,000 is 25 per
cent p a i d ) . T h e c o m m o n stock, at the c u r r e n t market price, represents an
equity of o v e r $40,000,000.
Dividends f o r 1926 at t h e r a t e o f 6 p e r cent per annum w e r e paid in June,
1^27, on both c o m m o n a n d p r e f e r r e d stock.
Earnings. T h e net e a r n i n g s o f t h e c o m p a n y a s certified by the company's
auditors, the F i d e s T r e u h a n d Aktiengesellschaft, Iwfore taxes and depreciation, but a f t e r provision Tor p a y m e n t s u n d e r the D a w e s plan, available f o r
interest, f o r the y e a r e n d e d D e c e m b e r 31, 1926, w e r e $5,564,000, or over three
and three-fourths times the net annual interest charges o n the company's
total funded and short t e r m d e b t to b e presently outstanding, including these
bonds.
Such earnings f o r t h e s i x m o n t h s ended J u n e 30, 1927, were $4,132,000 a s
compared with $2,734,000 f o r t h e corresponding period of 1926.
That the c o m p a n y ' s Income Is g r o w i n g steadily d u e to Its Increasing tonnage is seen f r o m the f a c t that Its gross income in 1925 w a s $29,300,000; In
1926 it w a s o v e r $33,000,000, w h i l e f o r the first nine months o f 1927 It r o s e
to approximately $34,500,000. nud the net i n c o m e f o r this period, which can
not yet be definitely determined, will s h o w a s i m i l a r favorable increase.
O f the c o m p a n y ' s g r o s s revenues f o r 1926 approximately $10,000,000 w a s
teceived in United S t a t e s c u r r e n c y a n d m o r e than £4,000,000 ($20,000,000) in
sterling, thus a u t o m a t i c a l l y p r o v i d i n g a m p l e f o r e i g n exchange f o r the c o m pany's commitments.
212
SALE OF FOREIGN; BONDS OR S E C U R I T I E S ,
Balance sheet. T h e balance sheet o f the c o m p a n y a s a t J u n e 30, 1S>27, after
giving effect to the present financing a s certified b y t h e F i d e s T r e u h a n d Ak*
tiengesellschaft, is a s f o l l o w s :
ASSETS
Preferred-stock liability ( 7 5 p e r c e n t unpaid on §372,1*13)
Ocean-going
fleeL
—
—----Payments on account o f ships under c o n s t r u c t i o n
1
!
Coastwise and river steamers, lighters, e t c — — —
Lands, buildings (including leases o f piers a n d d r y d o c k s ) , shops,
furniture and
fixtures
————1
1
Cash on hand a n d b a n k balances *—.
Shares and interests in other companies
_J—
Ship stores at Bremen and B r c m e r h u v e n —
2
Accounts receivable, and suspense i t e m s
——_—
Total
;
r———
—i-
$279,107
33,957,145
11,772,275
118,053
1,490,904
18, 167,043
% 038,179
1,260,182
14,730,196
84,120,314
; LIABILITIES '
Capital s t o c k :
Common™Preferred—
i-f
— — .
$29, 7 6 1 , 9 0 4
930.0-48
Dollar bonds .(present; issue)
—__
;—
Legal r e s e r v e — - — i - ™
- —
Reserve f o r renewals l - i ^
-i
—
— —
Insurance reserve
Revalorized b o n d s — : . — '
'L
Long-term credits.;.,
—
'_-.J_._Sundry creditors
J
i ^ L ^ j ^ ^ l L Suspense accounts ( a d v a n c e passage moneys, p e n d i n g v o y a g e s , a n d
reserves f o r t a x e s ) - — - — - J —
:
—xi
Profit and loss s u r p l u s —
Tqtal—-r
_
- l
•
$30, 691; 932
20,000,000
4,047.619
1,785.714
! 2. 380.952
620, 988
4,356,169
8,720.727
:
8,006.009
3, 510,214
84; 120,344
NOTE.—This bhlfinc'e: sheet does not show Davycs-p jan debentures.
. /
The . c o m p a n y : has riot included in its b a l a n c e s h e e t its. t o n n a g e s e i z e d b y the
United States Government, f o r which c l a i m s a r e p e n d i n g , a n d : i t s property,
seized by the Alien P r o p e r t y Custodian o f the. United
Security.:, T h e , bonds will be. the. d i r e c t o b l i g a t i o n s o f . the c o m p a n y , which
in the agreement under w h i c h t h e b o n d s w i l l b e issued, w i l l c o v e n a n t that if,
w h i l e any o f the bonds are-outstanding, the c o m p a n y o r a n y c o m p a n y in which
it o\yns, directly - o r indirectly, s t o c k h a v i n g 75 p e r cent o f t h e v o t i n g power,
s h a l l . c r e a t e o r Js.sue or g u a r a n t e e a n y indebtedness o r o b l i g a t i o n s secured by
lien on any o f its property (except, liens on p r o p e r t y o t h e r t h a n ships to
secure, current indebtedness or obligations i n c u r r e d in t h e o r d i n a r y c o u r s e ?of
business) or pledge any o f its property, a s s e c u r i t y f o r a n y g u a r a n t e e o f any
indebtedness o r o f a n y obligations,, t h e present issue o f b o n d s w i l l b e secured
equally and ratably with such other indebtedness o r o b l i g a t i o n s or such guar-.
antcHJ^ T h e c o m p a n y m a y , however. ( a c q u i r e s h i p s ' s u b j e c t t o e x i s t i n g mortg a g e s p r o v i d e d t h a t the a g g r e g a t e ; a m o u n t o f , s u c h , m o r t g a g e s e x i s t i n g , a t any
time shall never exceed $500,000., ,j ..
si
D a w e s p a y m e n t s : T h e p r i v a t e G e r m a n shipping c o m p a n i e s , l i k e t h e railroad
and street r a i l w a y companies, h a v e e x e c u t e d a g e n e r a l d e b e n t u r e f o r their
aggregate, provisional, liability f o r ; p a y m e n t s u n d e r t h e D a w e s p l a n . Each
c o m p a n y will i s s u e : i n d i v i d u a l debentures w h e n its l i a b i l i t y h a s b e e n definitely
determined on a reapportionment. On the b a s i s o f p r e s e n t a s s e s s m e n t s i t is
estimated til at the individual D a w e s p l a n d e b e n t u r e s t o b e i s s u e d b y - t h e comp a n y will hot e x c o e d , $3,500,000,; in r e s p e c t o f w h i c h t h e m a x i m u m annual
c h a r g e would, be $210,000. T h e p a y m e n t b y t h e c o m p a n y f o r t h e y e a r ending
September. 1,'1928, isiestimated at-nofc m o r e than $150,000.
k
.
.
..
•
• '••—^
7
^
s1 Not including the?Indebtednessito bcsrepald from the proceeds of this loan* rior per
contra the funds deposited therefor. , .„»,.
- 3 Including $r>,642,760 doe from subsidiaries, and discount on this issue of bonds.
a Including $4,564,507 unallocated funds received from agents.
SALE OF FOREIGN BONUS Clll SECURITIES
24S
Sinking f u n d : Beginning November 1, 1920. the bonds are to be retired by
a cumulative sinking fund, payable semiannually, calculated to retire the
entire issue by maturity, the company to make sinking fund payments in cash
or in bonds at par, the cash to bo applied to the redemption of bonds by drawings at par.
Redemption: On November l f 1032. or on any semiannual interest payment
date thereafter, tho company may, at its option, call f o r redemption all but not
a part of the IKUHIK then outstanding at par and accrued Interest on not less
than CO days' notice by publication In at least two newspapers of general circulation in the Borough nf Manhattan, city of New York. Except f o r the
sinking fund, bonds can not be call ml In part o r before November l f 1032.
General: The bonds will be In coupon bearer form, In denominations of
$1,000 and $500; will JKJ dated November 1, 3027; will be due November 1, 1047, and
the principal
thereof
and
semiannual interest
thereon will be payable In New Y o r k City at the option of the holder,
either at the ollice of Kuhn, I / w b & Co. or the principal office of
Guaranty Trust Co. o f New York In gold coin of the United States of
America of or equal to the present standard of weight and fineness and without
deduction f o r any German taxes pro.sent or future, and will be payable in time
of war as well as in time of pcacc and whether the holder be a citizen or
resident of a friendly o r a hostile state.
Application will IKS made In due course to list these bonds on the Now York
Stock Exchange.
All conversions in this letter f r o m German Into United States currency have
been made at the rate o f 4.20 marks to the dollar.
Yours very truly,
NoftTJi GERMAN LLOYD,
NORDDEUTSCHER LLOYD, BREMEN,
B y CARL JOACHIM SUMMING,
General Director.
B y ARNOLD PCTZET,
Director,
$14,000,000 CZECHOSLOVAK REPUBLIC S TEH CENT SKCCREU EXTERNAL SINKING
FUND GOLD LOAN ov 1022, DUE APRIL 1, 1051
Part of an authorised issue of $50,000,000 or £10,000.000.
Coupon bearer bonds in denominations of $1,000, $500, and $100.
The present issue will consist o f $14,000,000 dollar bonds in New York,
£2,800,000 sterling bonds in London, to be issued by Messrs. Baring Bros. &
Co. (Ltd.), N. M. Rothschild & Sons, and .1. Henry Schroder & Co., and
£500,000 sterling bonds to be issued in Amsterdam by Messrs. Hope & Co.
Interest payable April 1 and October 1. Not subject to redemption before
May 1, 1032, except f o r the sinking fund, as stated M o w . T h e entire issue
outstanding, but not any part, will be redeemable at 10$ per cent ami accrued
Interest, at the option of the Government, after May 1, 1032, on giving three
months' notice. Principal, interest and premium payable in New York City
in gold coin of the United States, o f the present standard o f weight and fineness, without deduction f o r any Czechoslovak taxes o r duties, p r e s e n t o r
future, and payable in time o f w a r m well as in time o r peace, and whether
the holders of the bonds be subjects o f a friendly or hostile State.
The Czechoslovak Republic is one of the succession States o f the former
Austro-Hungarlan monarchy and w a s officially, recognized by the treaties o f
Versailles, S t Germain, and Trianon, which i t signed as one of tlie allied a n d
associated powers.
The bonds are to be redeemable by means o f a cumulative annual sinking
fund of 1 per cent to be applied semiannually t o the purchase o f bonds under
PARLOR to drawings at par should tlie IN aids? b e unobtainable under par, the
tot redemption by lot taking place October Iv 1023. . t
The authorized Issue is secured by a first specific charge on the receipts
from the customs duties and on the net profits o f the tobacco monopoly, which
together in 1021 yielded kr. 1^815,500,000, a n d f o r 3022 a r e estimated to
yield kr. 1,246,000,000, which a t the rate o f 1 % cental is ^equivalent t o
$21,812,000.
214
SALE OF FOREIGN; BONDS OR SECURITIES,
T h e Czechoslovak R e p u b l i c lias undertaken to p a y weekly, f o r remittance
t o Messrs. B a r i n g Bros. & Co. ( L t d . ) , London, at least one fifty-second part
o f the total annual requirements f o r the service o f interest and sinking fund of
the loan. Messrs. Baring Bros. & Co. ( L t d . ) a r e to r e m i t to N e w Y o r k a prop o r t i o n a t e p a r t o f these weekly payments applicable to the d o l l a r bonds.
A l l d r a w n b o n d s and matured coupons shall be accepted by the Czechoslovak
Government a t their f u l l f a c e value at the then current rate of exchange in
p a y m e n t of customs duties.
It is to be provided in a " general bond," which is to be deposited w i t h Messrs.
B a r i n g Bros. & Co. ( L t d . ) , that if at any time It m a y be necessary o r exptnlient
to obtain the sanction of the bondholders in r e s i s t t o any m a t t e r in connection
w i t h the rights of the holders o f the bonds of this l o a n , they m a y , by publication in two London, two N e w York, and t w o A m s t e r d a m newspapers, convene a
general meeting o f the bondholders, to be held in the city of L o n d o n , upon 30
days* notice, and the decision of the holders of a m a j o r i t y in nominal value of
bonds present a t the meeting, either in person o r represented b y p r o x y , shall be
b i n d i n g upon all bondholders, but such m a j o r i t y must b e comprised of not less
than 50 p e r cent of the sterling bonds and not less than 50 per cent o f the dollar
b o n d s outstanding.
T h e above lias been taken f r o m the loan contract and f r o m the accompanying
letter f r o m P r i m e Minister Edouard Benes, to w h i c h letter reference is made for
f u r t h e r information. A s all documents h a v e beeu received by c a b l e the within
is subject to correction.
T h e undersigned will receive subscriptions f o r the above bonds, subject to
.allotment at 0 6 % Per cent and accrued interest to date o f delivery.
A t the offering price the bonds will yield over 8.30 per cent to maturity.
T h e undersigned reserve the right to close the subscription at any time without notice t o reject any application, to allot a smaller amount than applied for,,
a n d to make allotments in their uncontrolled discretion.
T h e above bonds are ottered if, when and as issued and received b y the undersigned and subject to the completion of their purchase and approval of their
counsel. Interim receipts will be delivered against payment in N e w Y o r k funds
f o r bonds allotted pending the receipt of the engraved bonds.
T H E NATIONAL CITY Co.
K U H N . LOEB & C o .
KIDDER, PEABODY & C o .
APRIL 6, 1922.
M e s s r s . KUIIN, LOEB & C o . , KIDDER, PEABODY & C o . ,
a n d T H E NATIONAL CITY CO.,
PRAGUE, A p r / / 5, 1922.
New York City.
DEAR SIRS : W i t h reference to the proposed loan to Czechoslovakia o f £3,300.000
a n d $14,000,000, being p a r t o f a total authorized issue o f £10,000,000 o r $50,000,000, secured by the first specific c h a r g e on the receipts f r o m t h e customs
d u t i e s and also on the net profits f r o m the t o b a c c o m o n o p o l y , I b e g to submit
the f o l l o w i n g information.
. T h e customs receipts specifically charged in f a v o r o f the l o a n : 1920, krone
401,283,878; 1921, krone 750,669,527: 1922, k r o n e 528,000,000, a t exchange 1%
eents, $9,240,000.
T h e net profit f r o m the t o b a c c o monopoly specificallv c h a r g e d in f a v o r of the
l o a n : 1920, k r o n e 449,696,463; 1921, krone 1.064,925,937; 1922, k r o n e 718,428,534,
a t e x c h a n g e 1 % cents, $12,572,000.
T h e state budget s h o w s the f o l l o w i n g figures:
Revenue:
1920
192 1
1922
Krone
10,426,500,794
17,298,916,630
18,884, 209, 544
Expenditures:
1920_„_
1921.1
1922
Krone
15,278,427,032
18, 026,460,144
19,812,960,479
All 1922 figures estimated.
T h i s is in addition to a budget amounting f o r 1922 t o k r o n e 3,263,000,000
f o r capital e x p e n d i t u r e s mainly on railroads, post and telegraph services.
Objects of the loan.—The proceeds of the loan w i l l be applied t o essential
w o r k s o f p u b l i c reconstruction and development, r a i l w a y s , c a n a l s and similar
purposes, and t o repayment o f t e m p o r a r y advances in connection therewith.
SALE OF FOHEIGX BONDS Oil SKCUllITIES
215
Outstanding national debts.—Until the liability f o r the debts of the former
Austro-Hungarian Empire shall liave been settled by the Reparations Commission, It is not possible to state the exact amount o f the outstanding national
debt, but in no case will the debt including the present loan exceed $53 per
liead of population, calculating the exchange a t 1 % cents. As soon as the
liability f o r the debts of the former Austro-Hungarlan Empire shall have
been settled by the Reparations Commission, my Government will immediately
make necessary arrangements to take over definitive service o f such proportion of these debts as may be assigned to them.
Ry the various peace treaties, the State has acquired territory of over
140,000 square kilometers. In area it Is, therefore, nearly as large as England and Wales, with a imputation of over 13,500,000, and In this area are
included about 75 per cent of the principal Industrial centers of the late
Au.stro-Hungarlan Empire.
The Government of the Czechoslovak Republic has the unqualified sovereign
right to pledge its above receipts f o r the service o f this loan. Having been
recognized « s one of the Allied and Associated Powers, It is not subject to
the control which the Reiterations Commission lias the power to exercise over
the state revenues o r assets of ex-enetny countries.
The Czechoslovak Republic Is one o f the succession states o f the former
.Austro-IIungarlan monarchy and w a s officially recognized by the Treaties of
Versailles, St. Germain aiul Trianon which It signed as one of the Allied and
Associated Powers.
Yours very truly,
EDOUARD BENES,
Prime Minister of the Czechoslovak RcfMtbUc.
$0,250,000 CZECHOSLOVAK R m r m . i c S PER CENT SECURED EXTERNAL SINKING
FUND GOT.D I/JAX o r 1022, SERIES B , DUE OCTOBER 1, 1 9 5 2
Balance or an authorized issue o f $50,000,000, o r £10,000,000, of which bonds
to the principal amount of £3,300,000 aiul $14,000,000 due April 1, 1951, were
issued in 1922.
Series B will consist o f $9,250,000 dollar Iwnds in New York, £1,850.000
sterling bonds In Iximlon, to be issued by Messrs* Baring Bros. & Co. ( L t d . ) ,
X. M. Rothschild & Sous, and J. Ilenry Schroder & Co., and £200,000 sterling
bonds to be issued In Amsterdam b y Messrs. Hope & Co.
Coupon bearer bonds in denominations of $1,000, $500, and $100.
Interest payable April 1 and October 1. Not subject to redemption before
May I, 1932, except f o r the sinking fund as stated below. All bonds o f the
-entire loan outstanding, but not any part, will be redeemable at 108 per cent
and accrued interest at the option of the Government after May 1, 1932, on
Hiving three months* notice. Principal. Interest, and premium payable in New
York City in gold coin of the United States, o f the present standard of weight
and fineness, without deduction f o r any Czechoslovak taxes or duties, present
or future, and payable in time o f w a r ns well as In time o f peace, and whether
the holders of the bonds be subjects of a friendly or hostile state.
The bonds of series B are to be redeemable by means of a separate annual
cumulative sinking fund of 1 per cent to commence October 1, 1924; to be
-applied semiannually to the purchase of bonds under par, or to drawings at
par should the bonds be unobtainable under par, the first redemption by lot
taking place April 1, 1925. AH bonds not previously retired by the sinking
fund will be payable October 1, 1952.
The authorized Isaue of $50,000,000, o r £10,000,000, is secured by a first specific charge on the receipts f r o m the customs duties and on the net profits Of
the tobacco monojwly, which together in 1922 yielded Kr. 1,824,795,188, in 1923
Kr. 1,804,880,249 ( a t the rate of 2.1) cents equivalent to $54,081,527), and in
1924 are estimated to yield Kr. 1,543,036,768 ( a t 2.9 cents equivalent to $44.765,446) or ten times the annual requirements f o r interest and sinking f u n d
of the entire loan.
The Czechoslovak Republic has undertaken to pay weekly, f o r remittance
to Messrs. Baring Bros. & Co. ( L t d . ) , London, at least one fifty-second part
of the total annual requirements f o r the service of interest and sinking funds
o f the loan. Messrs* Baring Bros. & Co. ( L t d . ) are to m n i t to N e w York a
proportionate part o f these weekly payments applicable to the dollar bonds.
All drawn bonds and matured coupons shall be accepted by the Czechoslovak
Government-at-their full f a c e value a t the then current rate of exchange in
payment of customs duties.
.SALE OF.,EOKEIQN BONDS Oil SECUBITTIES
It i s to b e p r o v i d e d in, a " general bond," w h i c h is to b e deposited with
Messrs.' B a r i n g Bros.. & Co. ( L t d . ) , f o r the bonds of series B , that, if at any
t i m e it m a y be necessary.or. expedient to obtain the sanction of the bondholders
in respect to any '.matter.'in connection with the r i g h t s o f the h o l d e r s of the
b o n d s o f his loan," they m a y , by publication. in 2. L o n d o n , 2 Now. Y o r k , aiul 2
A m s t e r d a m newspapers, convene a general meeting o f the bondholders, to he
.held in t h e c i t y o f London, upon 30 days' notice, aiul the decision o f the holders
o f a m a j o r i t y in nominal value o f b o n d s present at the meeting, either hi person
o r represented b y p r o x y , shall b e binding upon all bondholders, but such majority
m u s t b e comprised of not less than 50 ,per cent o f tlie sterling b o n d s and not
less than 50 per cent of the dollar bonds .of the first portion o f the loan, outstanding, and a ISO; o f n o t l e s s than 50 per cent o f the sterling b o n d s and not
' l e s s than 50 per cent of the dollar bonds of series B outstanding.
T h e above h a s been taken f r o m tlie loan contract f r o m the accompanying
letter f r o m D o c t o r Pospisil and Mr. Augustine Novak, financial delegates of the
'Republic of.Czechoslovakia, to-which letter reference is 'made.'for f u r t h e r information. A s all .documents .have been received by, cable the w i t h i n is subject
' to correction.
.
'
.
T h e undersigned w i l l ' r e c e i v e subscriptions f o r t h e ' a b o v e b o n d s , . s u b j e c t to
allotment, at 9 0 % per cent and accrued interest-to date o f delivery, to yield
1 !
about 8.30.per c e n t to maturity:
..
Application will be made to list, these bonds on the N e w Y o r k Stock Exchange.
T h e undersigned reserve the right to close the subscription a t any time
w i t h o u t notice, to reject any application, to allot a smaller a m o u n t than applied f o r and to make allotments in their uncontrolled discretion.
Tin? above bonds are offered if. when, and a s issued and received by the
undersigned and subject to t h e completion of their purchases and approval
o f their counsel. Interim receipts will b e delivered against p a y m e n t in New
Y o r k f u n d s f o r bonds allotted pending the receipt o f the engraved bonds.
K U H N , LOKB & C o ,
T H E NATIONAL CITY COMPANY.
KIDDER, PEABODY k C o .
MAY 19," 1024.
PRAGUE, May.
M e s s r s . KUJINY LOEB & CO., KIDDER. PEARODY & Co..
and THE NATIONAL CITY Co., New York
UK
WW-
City.
DKAR SIRS : W i t h reference to the proposed Issue of £2,050,000 a m i $9,230,000
bonds o f the Czechoslovak state loan o f 1922, being the second a n d last portion o f the authorized total o f £10,000,000 o r $50,000,000 secured by a first
specific charge on the receipts f r o m the customs duties and o u t h e net profits
f r o m the tobacco monopoly, the Czechoslovak Government begs t o submit the
f o l l o w i n g items concerning the f i n a n c i a l s i t u a t i o n of the Czechoslovak Republic.
T h e customs receipts and the net profits f r o m tlie tobacco monopoly have
been a s f o l l o w s iii Czechoslovak c r o w n s :
1922
Customs-L
Tobacco-—^-
—__—:
Total—1
--
——
— •
—
Kronen
1UT. 193,301
877,001, S87
JI
—
T
—
1,824.795,1SS
1
!
1923 f
T!
Customs
—
—
L784.8GS. 7S4
T o b a c c o — - - — — — ^ - — : — , — - J — _ — - — 1 , 0 8 0 , 0 1 1 . 4 6 5
Total
i-
i i i M : — i - — 1 1 , 864, 8S0.249
* Equivalent, at 2.9 cents, to $54,081,527.
Customs—
Tobacco
.(
;
:
~
Total
1924:
—
-
'» Equivalent, at 2.9 cents, to $44,705,466.
—
—
5
4
2
,
S)l>5,000
1,000.071,10S
543,636,768
SAI.K OK FOI5E1GX BONUS OU SKCU1UT1ES
217-
The State bbdjrets show the following figures In Czechoslovak crowns •i't <J,
Kroni'Q
1922
1 7 , 7 3 3 . 034, 982
Kevouue—-—..
18, G<>3,898,2GG
Expenditure^-J192:5
Revenue
Expenditure—
-
—
s
Revenue-i
Expenditure
All 1924 figures e s t i m a t e d .
-
1024
-
—
1
0
15,040.205,008
10,540.043.227
T
,
391.293,591
1G, 9 9 3 , 9 7 0 , 9 0 5
Tills is i n a d d i t i o n t o a b u d g e t a m o u n t i n g f o r 19^4 to 2529,230,000 k r o n e n
l o r capital expenditures, m a i n l y o n r a i l r o a d s , p o s t , a n d t e l e g r a p h services. T h e
proceeds of the l o a n w i l l be a p p l i e d to e s s e n t i a l w o r k s o f p u b l i c r e c o n s t r u c t i o n
and development, r a i l w a y s , c a n a l s , a n d s i m i l a r p u r p o s e s , a n d to t h e r e p a y m e n t ,
of temporary a d v a n c e s in c o n n e c t i o n t h e r e w i t h .
.
W e beg to state that t h e C z e c h o s l o v a k R e p u b l i c w a s o r i g i n a l l y recognizedby the treaties o f V e r s a i l l e s St. G e r m a i n , a n d T r i a n o n , w h i c h It s i g n e d a s o n e
of the Allied and A s s o c i a t e d P o w e r s . T h e . R e p u b l i c e m b r a c e s a t e r r i t o r y , o f
140,000 square k i l o m e t e r s .
I t s a r e a Ls t h e r e f o r e n e a r l y a s l a r g e a s t h a t o f ,
England and W a l e s , a n d i n c l u d e s a b o u t 7 5 p e r c e n t o f the p r i n c i p a l Industrial)
centers of the f o r m e r Austro* H u n g a r i a n E m p i r e . T h e p o p u l a t i o n o f C z e c h o slovakia is 13.500,000. T h e n a t i o n a l debt, i n c l u d i n g t h e p r e s e n t issue, Will n o t
exceed $77 i>cr head o f p o p u l a t i o n , c a l c u l a t i n g t h e e x c h a n g e a t 2.90 cents.
The Czechoslovak S t a t e o w n s 13.302 k i l o m e t e r s o f r a i l r o a d s a n d 127,257 k i l o - ,
meters o f telegraph l i n e s a n d 273.391 k i l o m e t e r s o f telephone lines, w h i c h a r e
operated at a profit. T h e g r o s s receipts o f t h e . r a i l w a y s a n d . telegraphs a r e
included in the a b o v e b u d g e t
figures,.
The currency o f C z e c h o s l o v a k i a Is t h e C z e c h o s l o v a k c r o w n , issued i n t h e
form of notes by t h e b a n k i n g office, w h i c h i s specifically p r o h i b i t e d b y l a w
from making a d v a n c e s o f a n y k i n d , d i r e c t l y o r i n d i r e c t l y , t o t h e G o v e r n m e n t .
A s a result o f this p o l i c y C z e c h o s l o v a k i a has b e e n r e m a r k a b l y s u c c e s s f u l i n
maintaining a g r e a t m e a s u r e o f s t a b i l i t y In i t s c u r r e n c y . I n p r o o f o f t h i s it
may be mentioned t h a t t h e . r a t e o f e x c h a n g e o f t h e C z e c h o s l o v a k c r o w n lias
improved f r o m 2 c e n t s a t the t i m e o f t h e Issue o f t h e first p o r t i o n o f t h i s l o a n
to over 2.90 cents a t p r e s e n t , a t . w h i c h a p p r o x i m a t e l e v e l i t h a s remained
stable f o r o n e and o n e - h a l f y e a r s . T h e a m o u n t o f t h e b a n k n o t e s in c i r c u l a tion oh J a n u a r y 1, 1921, w a s 11,2SS,000,000 C z e c h o s l o v a k c r o w n s , a n d this
o m o u n t has n o w been r e d u c e d t o 8 f 19S,000,000 C z e c h o s l o v a k c r o w n s .
T h e Government h a s a l s o b e e n s u c c e s s f u l in a c h i e v i n g a p r a c t i c a l b a l a n c e
in its ordinary b u d g e t s . T h e s p e c i a l b u d g e t r e f e r r e d t o a b o v e r e p r e s e n t s o n l y
capital expenditures, m a i n l y o n t h e p r o d u c t i v e s e r v i c e s o w n e d b y t h e S t a t e . u
The Czechoslovak R e p u b l i c c o n s t i t u t e s a n a t u r a l e c o n o m i c unit, e n t i r e l y
capable o f m a i n t a i n i n g a w e l l - b a l a n c e d e c o n o m i c e x i s t e n c e . T h i s Is e v i d e n c e d
by the soundness at i t s t r a d e p o s i t i o n a s H l u s t r a t e d b y t h e f o r e i g n t r a d e
figures, which f o r t h e last f o u r y e a r s w e r e a s f o l l o w s :
Foreign trade
tin miiikxu of Csecbotlovak crowns)
Year
1820 * • ?. *
1823
Exports
Imports Favorable
balance
Rron&n
Kronen
27, M
27,311
IS, 0*5
12,519
22,433
22,384
12.695
130
Kronan
A13$
3,827
5,390
218
SALE'••OF FOREIGN BONDS ?OR SECURITIES
The decrease in the figures of the foreign trade in the years 1922 and 1923
in comparison with those of the years 1920 and 1921 is due to the improvement of the rate of exchange of the Czechoslovak crown.
Yours very truly,
POSPISIL,
NOVAK,
Financial Delegates of the
Republic of Czechoslovakia.
TWENTY-FIVE MILLION DOLLARS—THE; CZECHOSLOVAK REPUBLIC—SCOURED EXTERNAL SINKING FUND GOLD LOAN OF 1925, SERIES A 20*YEAR 7 % PER CENT
BONDS
Secured by a first specific charge on revenues from excise duties on sugar
and alcohol,, and by a specific charge on customs duties and net profits of the
tobacco monopoly, junior only to the charge created in favor of the 8 per
cent secured external loan of 1922, now outstanding. Part of an issue of
$50,000,000 duly authorized under laws, of the Czechoslovak Republic (LavsNo. 245 of December 14, 1923, Law No. 278 of December 12, 1924, and Law
No. 110 of March 31, 1922).
Dated October 1,1925; due October 1,1945.
Redeemable in whole or in part, at the option of the Government, or through,
the operation o f the sinking fund, on any interest date at 105. The bonds
outstanding at .maturity will be paid at 105 per. cent of the principal amount
thereof. Interest payable April 1 and October 1. Coupon bearer bonds in
denominations, of $1,000. and $500, registrable as to principal only. Principal,
interest, and premium payable in New Y o r k City, at head office of the National
City Bank of New York, fiscal agent, in gold coin of the United States of
America of the present standard o f weight and fineness, without deduction
f o r any Czechoslovak taxes or duties present or future, and payable in time o f
war as well as in time of peace, whether the holders of the bonds be subjects
o f a friendly or, hostile state. Principal; interest, and premium also collectible
at the option of the holders, at the city oifice of Uie National City Bank of New'
York, in London;.England, in pounds sterling, or at the office of Messrs. Hope
& Co., Amsterdam,;Netherlands, in guilders, in. each ease at the then current,
buying; rate of jstich office f o r sight exchange on New York City, N. Y.
Sinking fund, starting immediately, sufficient to pay or redeem entire issue,
in substantially. equal semiannual installments^ either by purchase in thp
market, if obtaiable at or below 105 and;interest,'or,' if not,so obtainable, by
redemption by lot at 105. Drawn o r matured bonds will be'accepted by the
Czechoslovak Government at 105 per cent; of their principal amount, and
matured coupons at their f a c e value, i n ; each pase; at the current, rate of
exchange, in payment of customs duties/
'' 1:
The following summary is based upon the accompanying letter of the Prime
Minister, and the Minister of Finance, of the Czechoslovak Republic :
The Czechoslovak Republic received international recognition by the Treaties,
o f Yersailles, St. Germain, and Trianon, which it signed as one of the allied
and associated powers. Its revenues, therefore, are not subject to control by
the reparations commission and it has the unqualified and sovereign right to1
pledge them f o r the service of the loan of which this issue is a part.
Tlie loan will be secured by first lien upon the sugar and alcohol t^xes, and
by a second lien upon its customs duties and the net profits of the tobacco
monopoly, junior only to the specific charge created in favor of the holders
of the bonds of the Czechoslovak state loan of 1922, now outstanding, the interest
and cumulative sinking fund requirements of which amount to approximately
$4,436,000 per annum. Upon repayment of the loan of 1922, the Czechoslovak
Republic will have the right to secure a new loan, not t o exceed $50,000,000'
in aggregate principal amount, with a lien upon the customs duties and the
net profits o f - t h e tobacco monopoly, ranking equally and ratably with the lien'
created in f a v o r o f this loan. The pledged revenues constitute f o u r of the
most regular and productive items of income of the Czechoslovak GovernmentTheir respective annual yields over the past three years were as f o l l o w s :
SALE OF
FOHEIGX
Sugar tat
1922
1923
1024...
...
219
B O N D S Oil SKCUllITIES
Aloobol Us
a, SSL 540 *iaSU,6S3
4.99&&06
11,1ST, 816
090,425 11,78X97*
Customs
Net profits
tobacco
monopoly
$22,890,382
23,102,873
25,797,411
$21,078,732
31.408,864
31,134,056
Total
70,784,859
73,809,772
Converted on basis of yearly average* of monthly exchange quotations published by the Federal Reserve
Board.
The combined r e v e n u e s o f t h e s u g a r t u x nnd the a l c o h o l t u x a m o u n t e d t o
$16,877,405 d u r i n g 1024, a s c o m p a r e d w i t h $3,750,000, m a x i m u m interest c h a r g e s ,
at 7V& per cent, upon t h e total a u t h o r i z e d a m o u n t o f t h e loan, a n d , w i t h t h e
customs duties a n d net p r o f i t s o f the t o b a c c o m o n o p o l y , y i e l d e d $73,809,772,
as compared with $10,818,000, t h e total o f m a x i m u m interest a n d s i n k i n g - f u n d
charges both on the 8 per c e n t s e c u r e d e x t e r n a l loan o f 1922 a n d o n t h e total
authorlbed a m o u n t o f t h e l o a n o f 1925 ( a s s u m i n g s i n k i n g f u n d r e q u i r e m e n t s
on the unissued b a l a n c e i d e n t i c a l w i t h the present issue o f s e r i e s A b o n d s ) .
The proceeds o f the present Issue w i l l b e applied p r i n c i p a l l y t o t h e f u n d i n g
of Government short-term i n d e b t e d n e s s p u r s u a n t t o a p r o g r a m designed t o
add materially to t h e financial s t a b i l i t y o f the G o v e r n m e n t a n d t o strengthen
the national c r e d i t a t h o m e a n d a b r o a d .
O t h e r o b j e c t i v e s o f t h i s prograkn
have already been a c h i e v e d , i n c l u d i n g t h e b a l a n c i n g o f the b u d g e t a n d t b e
stabilization o f the c u r r e n c y .
Application w i l l b e m a d e t o list t h e s e b o n d s o n t h e N e w Y o r k S t o c k Ex*
change.
W e offer these b o n d s f o r s u b s c r i p t i o n , s u b j e c t to* a l l o t m e n t . I t as, a n d w h e n
issued and received b y us, s u b j e c t t o a p p r o v a l b y o u r c o u n s e l o f alt legal p r o ceedings in connection t h e r e w i t h .
S u b s c r i p t i o n b o o k s w i l l b e o p e n e d a t the
office of the National C i t y Co., 55 W a l l S t r e e t , N e w Y o r k C i t y , a t 10 o ' c l o c k ,
a. m., Tuesday, O c t o b e r 27, 1925, a n d w i l l b e c l o s e d In o u r d i s c r e t i o n . I t Is
expected that d e l i v e r y o f i n t e r i m c e r t i f i c a t e s will b e m a d e on o r a b o u t N o v e m ber 16, 1925. O f the p r e s e n t issue, $3,500,000 has been taken b y Messrs. H o p e
& Co. f o r offering in t h e A m s t e r d a m m a r k e t .
Price 96 and interest, to y i e l d o v e r 8 p e r c e n t .
KUHN, LOSS & Co.
THE NATIONAL CITY Co.
KIDDKB, PEABODY & Co.
LEE, HIGGIKSON & Co.
MARSHALL FIELD, GLOBE, WASD & Co.
The f o l l o w i n g letter h a s b e e n r e c e i v e d f r o m the P r i m e M i n i s t e r a n d
Minister of F i n a n c e o f t h e C z e c h o s l o v a k R e p u b l i c ,
the
THE CZECHOSLOVAK REPUBLIC,
Prague, October 211 1025.
GENTLEMEN: In c o n n e c t i o n w i t h y o u r p u r c h a s e o f $25,000,000, t h e C z e c h o slovak Republic s e c u r e d e x t e r n a l s i n k i n g f u n d g o l d l o a n o f 1925, s e r i e s A ,
20-year 7 % per c e n t b o u d s , d u l y a u t h o r i z e d u n d e r t h e l a w s o f t h e C z e c h o s l o v a k
Republic ( L a w N o , 2 4 5 o f D e c e m b e r 14, 1923, L a w No. 2 7 8 o f D e c e m b e r 12,
1924, and L a w N o . 110 o f M a r c h 31, 1 9 2 2 ) , a n d In a n s w e r t o y o u r s p e c i f i c
questions regarding t h e financial s i t u a t i o n a n d e c o n o m i c c o n d i t i o n s in C z e c h o slovakia, I take p l e a s u r e in giving; y o u t h e f o l l o w i n g s u m m a r y i n f o r m a t i o n ;
The Czechoslovak R e p u b l i c r e c e i v e d i n t e r n a t i o n a l r e c o g n i t i o n b y t h e t r e a t i e s
of Versailles, S t G e r m a i n , a n d T r i a n o n , w h i c h it s i g n e d a s o n e o f t h e allied
and. associated p o w e r s . I t s r e v e n u e s , t h e r e f o r e , a r e not s u b j e c t t o control b y
the reparations c o m m i s s i o n a n d it h a s tlie unqualified a n d s o v e r e i g n r i g h t t o
pledge them f o r t h e s e r v i c e o f t h e l o a n o f w h i c h t h i s i s s u e Is a p a r t
pimrosE or ISSUE
The proceeds o f t h e p r e s e n t i s s u e w i l l b e a p p l i e d p r i n c i p a l l y t o t h e f u n d i n g o f
short-term indebtedness p u r s u a n t t o a p r o g r a m d e s i g n e d t o a d d m a t e r i a l l y t o
220
SALE OF FOREIGN; BONDS OR SECURITIES,
the financial stability o f tlie Government and to strengthen the national credit
at home and a b r o a d . Other objectives o f this p r o g r a m h a v e already been
achieved, including the balancing of the b u d g e t and the stabilization of the
c u r r e n c y . T h e short-term debt, which reached its m a x i m u m a t the end of
1923, w a s r e d u c e d .during-the y e a r 1924 by about 16 per .cent. Tn pursuit of its;
p r o g r a m the' Government h a s determined to • effect• f u r t h e r • consolidation andj
r e d u c t i o n ! o f the" floating debt through the medium o f long-term internal credit'
operations.
PLEDGED ItEVENUES
, , T h e . l o a n , o f . w h i c h the present issue of series A , b o n d s f o r m s a part, is
authorized f o r . ' a ' t o t a l amount limited to $50,000,000, or its equivalent in-other,
currencies, and w i l l ' b e secured b y a specific,lien or charge upon the revenues of'
t h e Republic arising f r o m ' e x c i s e t a x e s . ' n d w ' o r ' h e r e a f t e r levied upon sugar and,
alcohol, w h i c h l i e n , o r c h a r g e shall,be..superior.to any and every .other lien or.
charge n o w .exisfciug.or hereafter created, and, b y a specific lien or charge upon
tlie customs . d u t i e s ' o f - t h e . Republic and upon the net profits of the tobacco
monopoly,, which iieii or charge.,shall.be j u n i o r only to the specific c h a r g e created,'
Jh. f a v o r of tlie holders of the bonds pf, the Czechoslovak State loan o f 1922, now
outstanding, tlie interest and. cumulative sinking f u n d requirements of which,
amount to approximately. .$4,436,Q00 per annum. Upon r e p a y m e n t o f the loan
o f . 1922 the Czechoslovak Republic will have the r i g h t ' t o secure a n e w loan,
riot: to exceed .$50,000,000 in aggregate principal amount, with a lien upon, its
customs duties and the net profits of the toliacco m o n o p o l y r a n k i n g equally and
ratably with the lien created in. f a v o r of this.loan. T h e pledged revenues constitute f o u r of the most regular and productive items o f i n c o m e o f the Czccho-,
slovalc Government, a s r evidenced, by ,their respective annual y i e l d s over the
p a s t three years,, as f o l l o w s : 1
Sugar'
tax.
Year
1022
1923
1924
:-
; - i—.—
Alcohol • Customs Net profits,
' tobacco
tax.'
monoi>oly
Total
i •'
33,881,840 $10,543,883 $22,890,382 $21,078,732 $58,39-1, S37
4,995,306 11,187,816 23,192,873 31,403, S&t .70,734,850
[5,096,426 11,780,979 25,797,411 31,134,956 73,809,772
T h e sugar t a x and the alcohol tux during tlie past three y e a r s h a v e together
yielded an-average, return of approximately $15,828,750. Tlie c u s t o m s receipts
and the net profits f r o m the tobacco monopoly over the same period have averaged approximately $51,834,406. The. revenues specifically pledged, on the basis
o f the past three years, and a f t e r making due a l l o w a n c e f r o m the receipts of
the customs duties and the net profits of tlie tobacco m o n o p o l y f o r the requirements of the 8 per cent secured . external loan o f 1922, w o u l d l e a v e available
f o r the service of the loan $63,227,156 per annum, o r over nineteen times the
m a x i m u m interest and sinking f u n d charges on the present issue of Series A
bonds, which w i l l roach a m a x i m u m during the first y e a r ( n o t e x c e e d i n g $3,191,0 0 0 ) , a f t e r w h i c h t h e interest charges f o r the series w i l l d e c r e a s e materially,
y e a r b y year, through the action o f the sinking f u n d .
T h e 8 p e r cent secured external sinking f u n d gold loan o f 1922; authorizedf o r a total a m o u n t o f $50,000,000, w a s offered simultaneously in N e w York,;
L o n d o n , and Amsterdam, $30,500,000 in 1922 and the b a l a n c e i n 1924, and is
n o w outstanding, approximately, a s f o l l o w s : $23,250,000 in t h e United States,
$23,250,000 in Great Britain, ami $3,500,000 in H o l l a n d . P l e d g e d revenues duri n g t h e l a s t three y e a r s h a v e been equivalent to m o r e than eleven a n d one-half
times interest and sinking f u n d requirements: '
'•<
1 Converted on basis of yearly 'averages of monthly exchange quotations published by
1
the Federal Reserve Board.
• f- "
- •-
SAI-E OF FOIIKIGX 1JOXDS OB
SECURITIES
221
Tlie totnl actual debt o f t h e r e p u b l i c , officially c o m p u t e d a s o f a p p r o x i m a t e l y
July 31, 1925, w a s k c . 30,540,724.334.10. m a d e u p a s f o l l o w s :
Kc.
Consolidated debt
16,045,402,152.50
Short-term debt
0,242,794.000.00
Foreign c r e d i t * —
4,478, 408.181.60
Bank loans
515,000,000.00
Debts in pursuance o f the treatie>
3 , 2 5 9 , (XK), 0 0 0 . 0 0
Total o f all p u b l i c d e b t s
3 0 , 5 1 0 , 7 2 4 , ,334.10
Tills total, equivalent to SSR5,GS1,000, r e p r e s e n t s a p e r capita debt o f $05.06
(1921 c e n s u s ) , and includes C z e c h o s l o v a k i a ' * i n d e b t e d n e s s to t h e V n i t e d States
Government, the prluciiuil a m o u n t o f w h i c h h a s I wen fixed by m u t u a l a g r e e m e n t
at $115,000,000, as o f J u n e 15, 1925.
T h e United States Government has
accorded Czechoslovakia t e r m s o f p a y m e n t generally s i m i l a r to t h o s e g r a n t e d
the British G o v e r n m e n t , w i t h r e t r a i n a l l e v i a t i o n s in t h e s c h e d u l e o f c a s h p a y ments during the e a r l i e r y e a r s w h i c h w i l l protect C z e c h o s l o v a k i a f r o m undue
financial hardships. A s r e g a r d s the d e b t s in p u r s u a n c e o f the t r e a t i e s r e f e r r e d
to above, there remain unsettled o n l y l i a b i l i t i e s c o n c e r n i n g p r o p e r t i e s taken o v e r
from f o r m e r A u s t r i a - H u n g a r y a n d an e v e n t u a l " l i b e r a t i o n * ' Indemnity.
The
government, however., is c o n v i n c e d that these q u e s t i o n s w i l l b e settled in a
manner f a v o r a b l e t o C z e c h o s l o v a k i a .
Of tho al»ove c o n s o l i d a t e d d e b t , a m o u n t i n g t o a p p r o x i m a t e l y $405,318,400,
some $14(1.000.000 represents pre*war d e b t o f t h e f o r m e r A u s t r o - H u n g a r i a n
Empire definitely assumed b y C z e c h o s l o v a k i a , w h i l e a b o u t $299,000,000 represents capital ex]>enditures o f the g o v e r n m e n t d u r i n g the period 1919-1925,
devoted to railroads, telegraphs, telephones, b r i d g e s , r o a d s , p u b l i c buildings, etc.
RKVENITKS AXt) KXPENPITrKKS
Since 1922 there h a s l*een n constant r e d u c t i o n in e x p e n d i t u r e s , a n d d u r i n g
1924, especially, r e m a r k a b l e p r o g r e s s h a s been m a d e in a t t a i n i n g a b a l a n c e d
budget. T h e accounts f o r 1924 s h o w t h a t o r d i n a r y revenues e x c e e d e d o r d i n a r y
expenses by a surplus, applied m o s t l y t o t h e r e d u c t i o n o f g o v e r n m e n t short-term
debt. Budget estimates f o r 11*25 i n d i c a t e a s u r p l u s o f o r d i u a r y revenues.
In 1924 th* net; yield o f t h o m a i n Items o f t a x a t i o n a m o u n t e d to $243,888,021,
as compared with budget e s t i m a t e s o f $221,055,804, and a c t u a l r e t u r n s f o r 1923
of $220,820,600. A c t u a l r e t u r n s f r o m t h e s e s o u r c e s , t h e r e f o r e , e x c e e d e d b u d g e t
estimates b y 10 p e r c e n t a n d t h e y i e l d o f t h e p r e v i o u s y e a r b y 7 % i>cr c e n t ,
reflecting both t h e h e a l t h y c o n d i t i o n o f t h e r e v e n u e s a n d t h e c o n s e r v a t i v e b a s i s
on which budget e s t i m a t e s a r e c o m p u t e d . T h e g o v e r n m e n t Is m a k i n g e v e r y
effort t o reduce total e x p e n d i t u r e , ©specially b y t h e r e d u c t i o n o f personnel, s o
that the proposed relief in t h e m a t t e r o f t h e p r e s e n t h e a v y d i r e c t t a x a t i o n m a y
be realized. O n t h e o t h e r h a n d , a p r o p o s e d i n c r e a s e i n the s u g a r t a x i s estimated to yield a b o u t $9,500,000 a d d i t i o n a l r e v e n u e a n n u a l l y .
CTTRRENCT
The currency Of C z e c h o s l o v a k i a i s t h e C z e c h o s l o v a k c r o w n , issued in t h e
form o f notes b y the b a n k i n g office o f t h e m i n i s t r y o f finance, w h i c h i s specifically prohibited b y l a w f r o m m a k i n g a d v a n c e s o f a n y k i n d , d i r e c t l y o r i n d i rectly, to the g o v e r n m e n t . A s a result o f t h i s p o l i c y C z e c h o s l o v a k i a h a s b e e n
remarkably successful in m a i n t a i n i n g a g r e a t m e a s u r e o f s t a b i l i t y In i t s c u r rency. T h e r a t e o f e x c h a n g e h a s i m p r o v e d f r o m a r o u n d 2 c e n t s a t t h e t i m e o f
the issue o f the first p o r t i o n o f t h e 8 p e r c c n t s e c u r e d e x t e r n a l l o a n o f 1922 t o
over 2.90 c e n t s a t present, a t w h i c h a p p r o x i m a t e level It h a s r e m a i n e d s t a b l e
f o r the past 3 y e a r s . T h e a m o u n t o f S t a t e n o t e s i n c i r c u l a t i o n o n J a n u a r y
1,1921, w a s K c . 11.288,000.000, a s a g a i n s t K c . 7,095,077,000 o n A u g u s t 3 1 , 1 9 2 5 .
Beginning w i t h 1926, a n o t h e r s t e p in a d v a n c e w i l l b e t a k e n b y t h e c r e a t i o n ,
upon the basis o f l a w s aiwsady p a s s e d , o f a n e w c e n t r a l b a n k o f issue, w h i c h
will take o v e r the f u n c t i o n s o f t h e b a n k i n g office o f t h e m i n i s t r y o f
finance,
and will b e k n o w n a s the C z e c h o s l o v a k N a t i o n a l B a n k . T h i s b a n k w i l l b e
charged w i t h t h e legal d u t y o f m a i n t a i n i n g t h e v a l u e o f t h e C z e c h o s l o v a k
crown at the level a t w h i c h It h a s b e e n s t a b i l i z e d a n d w i t h i n c e r t a i n m a x i m u m
92928—31—fTl
15
222
SAXJE OF. FOREIGN BONDS' OR SECURITIES
a n a m i n i m u m relations t o the United States dollar. T h i s b a n k w i l l be independent in its management and privately controlled.
I t will h a v e the sole
r i g h t of note issue.
AREA AMD POPULATION
T l i e Czechoslovak R e p u b l i c comprises the territories o f the ancient Kingdom
o f B o h e m i a ( B o h e m i a , Moravia, and a p a r t o f Silesia) and the Slovak and
Ruthenian p o r t i o n s of f o r m e r Hungary. Czechoslovakia lies almost exactly in
the center o f E u r o p e in the f o r m of a z o n e some 000 miles in length, with a
m a x i m u m width o f 175 miles. I t h a s a total area of 54.S77 square miles and a
population o f 13,613,172, tenth among the countries o f E u r o p e . Prague, the
capital city, has a population of 676,657 ( 1 9 2 1 ) , and there a r e s o m e 25 smaller
cities w i t h populations ranging f r o m 200,(XX) to 20,000. Czechoslovakia in area,
population, a n d density of population is practically identical w i t h t h e combined
a r e a s and populations o f the States o f N e w Y o r k a n d N e w J e r s e y . About 40
p e r cent of the population are engaged in agriculture, 34 per c e n t i n the manuf a c t u r i n g industries, and 11 per cent in trade.
NATURAL RESOUIICES
Czechoslovakia comprises territories w h i c h are relatively r i c h in natural
resources e x c e p t f o r certain r a w materials. T h e s e resources together with a
t h r i f t y and industrious population are the elements w h i c h f o r m t h e basis of
Czechoslovakia's well-balanced agricultural and industrial development. Of
the total area, 42 per cent is arable land, 19 p e r cent m e a d o w s a n d pastures,
and 33 per cent forests. Agriculture is h i g h l y developed a n d intensive farming
is practiced. T h e intensity of the agricultural production is due t o the fertility
o f the soil, the f a v o r a b l e climate, the application o f m o d e r n f a r m i n g methods,
and, further, to a highly developed system o f agricultural education, and to a
carefully constructed network of cooperative societies f o r the purpose o i affording credit t o production, purchase and sale, and the p r o v i d i n g o f agricultural
machinery. T h e characteristic f e a t u r e of Czechoslovak agriculture is the cultivation o f crops which yield greater profits than cereals, n a m e l y , those which
f o r m a basis f o r important agricultural industries, such a s the sugar beet,
barley f o r malting, chicory roots, etc., and other products w h i c h c a n be profit*
ably exported, such as hops, seeds and seed grain, fruits, and vegetables. For
this reason a p a r t o f the national requirements o f cereals a n d f o d d e r must
be imported.
I t is estimated t h a t the f o r e s t areas in Czechoslovakia a r e c a p a b l e of producing annually over 4,000,000,000 board f e e t o f m a r k e t a b l e timber. Exports
o f timber and w o o d w a r e h a v e amounted to approximately $39,266,000 in 1922,
$34,684,000 in 1923, and $36,772,000 in 1924.
Czechoslovakia has deposits of both h a r d coal a n d lignite, the output of
w h i c h is sufficient to meet h o m e requirements and l e a v e substantial amounts
f o r export. T h e m a i n deposits o f hard coal a r e situated i n the g r e a t Silesian
c o a l basin, o f w h i c h Czechoslovakia includes about 273 square miles. Total
production f o r 1924 amounted t o 35,000,000 m e t r i c tons (14,500,000 tons of
h a r d coal a n d 20,500,000 tons o f l i g n i t e ) , m a r k i n g an Increase o f 25 per cent
a s c o m p a r e d w i t h the output o f the previous year. O f the 1924 production
12 p e r cent w a s exported. A m o n g other i m p o r t a n t m i n e r a l resources a r e kaolin
( p o r c e l a i n c l a y ) , graphite, and magnesite, w h i c h are. e x p o r t e d i n substantial
quantities.
INDUSTRIES
Czechoslovakia includes a b o u t , 75 per cent of the principal industries of tlie
f o r m e r A u s t r o - H u n g a r i a n Empire. P r o d u c t i o n o f r a w sugar in the season
1924-25 a m o u n t s to 1,450,000 tons ( e s t i m a t e d ) , a s c o m p a r e d w i t h 1,002,216
t o n s i n 1923-24. D u r i n g 1924, 733,193 tons of sugar w e r e e x p o r t e d , representing
a v a l u e o f a b o u t $70,470,000. ' B y the end o f July, 1925, e x p o r t s o f sugar f o r
t h e current season exceeded 500,000 tons, o f a v a l u e o f a b o u t $40,600,000. Of
importance, too, a r e the efficient malting, brewing, and distilling industries, the
p r o d u c t s o f w h i c h a r e k n o w n the w o r l d o v e r . T h e t e x t i l e i n d u s t r y employs
a b o u t 200,000 w o r k m e n . Cotton and w o o l a r e i m p o r t e d in l a r g e quantities
a n d a r e w o r k e d u p b y s o m e 4,600,000 spindles a n d 150,000 mechanical looms,
besides s o m e 30,000 h a n d l o o m s ; flax is w o r k e d u p b y 285,000 spindles .and
28,000 l o o m s ; h e m p b y 12,000 spindles a n d j u t e b y 36,000 spindles a n d over
XA
metric ton equals 2,204 pounds, and subsequent references are to metric tons.
SALE OF
FOHEIGX
B O N D S Oil SKCUllITIES
223
2,000 looms, w h i l e t h e silk i n d u s t r y h a s o v e r 14,000 looms.
T o t a l exinirrs
of textile manufactures, i n c l u d i n g c l o t h i n g , m i l l i n e r y , e m b r o i d e r i e s , laces,
trimmings, etc., s h o w a v a l u e in e x c e s s o f t o t a l i m p o r t s o f r a w a n d semimanufactured textile m a t e r i a l s .
The country h a s a n a n c i e n t a n d well-develoj>ed Iron a n d steel industry, a
large part of the annual p r o d u c t i o n b e i n g e x p o r t e d In t b c shape o f m a n u f a c tures. T h e engineering i n d u s t r i e s e m p l o y a b o u t 150,000 w o r k m e n , a l a r g e
number being e m p l o y e d in t h e l i r o d u c t l o n o f a g r i c u l t u r a l implements.
The
manufacture o f m a c h i n e r y , e s p e c i a l l y o f l o c o m o t i v e s , passenger a n d f r e i g h t
cars, and o f sugar-rciining m a c h i n e r y , in w h i c h C z e c h o s l o v a k e n g i n e e r s e x c e l ,
is equally Important.
In 1024 t h e e x p o r t s o f iron, steel, n o n f e r r o u s metals,
and manufactures thereof a n d m a c h i n e r y a m o u n t e d to a b o u t $31,000,000.
Bohemia has long been k n o w n f o r its g l a s s w a r e , a n d in recent y e a r s the
glass and porcelain i n d u s t r i e s h a v e m a d e c o n s i d e r a b l e progress.
There are
140 large glass w o r k s . tot-ides s m a l l e r f a c t o r i e s d e v o t e d to s p c c l a l products.
Exports o f g l a s s w a r e in 1024 w e r e v a l u e d a t o v e r $35,000,000, representing
nearly 8 per cent o f t h e total e x p o r t t r a d e . T b e annual p r o d u c t i o n o f porcelain
is estimated a t a v a l u e o f $20,300X00, a n d l a r g e q u a n t i t i e s o f p o r c e l a i n , c h i n a ,
and pottery a r e e x p o r t e d . T h e t i m b e r r e s o u r c e s m a k e p o s s i b l e a substantial
paper industry, t b e a n n u a l o u t p u t o f p a p e r a n d c a r d b o a r d being e s t i m a t e d at
185,000 tons. O t h e r ini[»ortant i n d u s t r i e s a r c t h e m a n u f a c t u r e o f leather a n d
of chemical a
FOREIGX TEA OK
The Czechoslovak R e p u b l i c c o n s t i t u t e s a n a t i o n a l e c o n o m i c unit, c a p a b l e
of maintaining a b a l a n c e d e c o n o m i c e x i s t e n c e . T h i s is c x i d e n c e d b y the f a c t
that its visible t r a d e h a s show*n in a l l r e c e n t y e a r s a c o n s i d e r a b l e e x c e s s o f
exports over imports.
fin millions of Kc]
Year
1920
1921
1922
|
Exports Imports Favorable
balance \
.
27,312
18,080
22,433
12,696
Exports
Year
Imports Favorable
balance
12,573
17,022
]Ct3$7
4,1*5 ! 1923
4,879 ; 1924».
5,390 1025 I
1
10,222
16,862
8,992
2,351
1,160
1,38$
*1024figuresprovisional, 1925figuresforfirst7 months.
The decrease In the f i g u r e s o f t h e f o r e i g n t r a d e s i n c e 1022 i s d u e to the
improvement o f t h e r a t e o f e x c h a n g e o f t h e C z e c h o s l o v a k c r o w n .
Increased
imports in 1924 w e r e d u e l a r g e l y t o r a w m a t e r i a l s , e s p e c i a l l y c o t t o n a n d w o o l .
Larg6 quantities o f r a w c o t t o n , w h e a t , Hour, a n d b a c o n , m i n e r a l oils, c o p p e r
machinery, etc., a r e i m p o r t e d f r o m t h e U n i t e d States. T h e p r i n c i p a l e x p o r t s
in 1924 w e r e textiles, s u g a r , g l a s s a n d c h i n a w a r e , t i m b e r , c o a l , i r o n w a r e a n d
machinery, malt a n d hops, l e a t h e r g o o d s , a n d c h e m i c a l p r o d u c t s . U p t o the
present Czechoslovakia h a s c o n c l u d e d w i t h 2 4 d i f f e r e n t c o u n t r i e s c o m m e r c i a l
agreements p r o v i d i n g f o r r e c i p r o c a l m o s t - f a v o r e d - n a t i o n t r e a t m e n t
Besides
tariff treaties h a v e been c o n c l u d e d w i t h A u s t r i a , Italy, F r a n c e , P o l a n d , a n d
Spain, and mark a serious e f f o r t t o w a r d a s o u n d d e v e l o p m e n t o f i n t e r n a t i o n a l
trade, especially in c e n t r a l E u r o p e .
The Czechoslovak jjeople d u r i n g t h e s e v e n y e a r s o f r e s t o r e d n a t i o n a l i n d e pendence have e x h i b i t e d p o l i t i c a l a n d e c o n o m i c s t a b i l i t y o f a h i g h o r d e r . T h e y
have fully demonstrated t h e i r a b i l i t y t o g o v e r n t h e m s e l v e s , a n d t h r o u g h t h e
trying post-war y e a r s h a v e e x e r t e d a h e l p f u l a n d s t a b i l i z i n g i n f l u e n c e in
Europe.
Unless o t h e r w i s e s t a t e d , C z e c h o s l o v a k c r o w n s h a v e been c o n v e r t e d i n t o
United States d o l l a r s a t t h e r a t e o f 2 . 9 0 c e n t s t o t h e c r o w n .
Yours very truly,
ANTOtfitf SVEUIJL,
Prime Minister of The Czechoslovak
Republic,
I NO.
Minister
BOHDAN
of Finance of The Czechoslovak
BE£KA,
Republic.
The i n f o r m a t i o n i n this c i r c u l a r h a s b e e n o b t a i n e d , p a r t l y b y c a b l e , f r o m
official statements a n d s t a t i s t i c s . W h i l e w e d o n o t g u a r a n t e e it, w e b e l i e v e
it to be c o r r e c t
224
SALE'••OF FOREIGN BONDS ?OR SECURITIES
$ 7 5 0 0 , 0 0 0 CITY OP GREATER PRAGUE ( CZECHOSLOVAKIA)
PEE CENT MOETGAGK
LOAN BO^DS OF 1022, D U E M A Y 1 , 1 0 5 2
Total amount of loan, $7,500,000 dollar bonds and £1,500,000 sterling bonds.
Authorized by the municipal council, under date of May 12, 1922, under acts
of legislature No. 116 of February 6, 1920, and No. 329 of August 12, 1921, and
sanctioned by the Minister of Finance under date of May 27, 1922.
Coupon bearer bonds in denominations of $1,000 and $500. Not subject to
redemption before November 1, 1932, except f o r the sinking fund as stated
below.
T h e bonds are to have the benefit of a cumulative sinking f u n d calculated
to redeem the entire issue by May 1, 1952. This sinking fund will begin in
1923, and i s to operate by purchases of the bonds at or below 100 per cent
and interest or by the redemption at 100 per cent and interest of bonds to
be drawn by lot.
T h e entire issue outstanding, but not any part, will be redeemable at 102
per cent and accrued interest, at the option of the city, on November 1, 1932,
or on any interest date thereafter.
F o r further information regarding this issue of bonds, reference is made to
the accompanying letter from Doctor Baxa, president of. the central administrative commission of Greater Prague.
T h e undersigned will receive subscriptions f o r the above bonds, subject to
allotment, at 9 2 ^ per cent and accrued interest to date of delivery, at which
price the bonds will yield 8.17 per cent if held to maturity.
The undersigned reserve the right to close the .subscription at any time
without notice, to reject any application, to allot a smaller amount than applied
for, and to make allotments in their uncontrolled discretion.
The above bonds are offered if, when, and as issued and received by the
undersigned aiul subject to the completion of their purchase and approval
of their counsel. Interim receipts will be delivered against payment in New
York funds f o r bonds allotted pending the receipt of the engraved bonds.
NEW YOBK, June 5, 1922.
K U H N , LOEB & C o .
PBAGUE, May
MESSES. K U H N , LOEB & C o . ,
22,1922.
New York.
DEAB SIBS: In reference to the city o f Greater Prague (Czechoslovakia)
7 % per cent mortgage loan of 1922, consisting of $7,500,000 dollar bonds to
be issued by you and of £1,500,000 sterling bonds to b e issued in London by
Messrs. Helbert, W a g g & Co. ( L t d . ) , I beg to submit the following information:
The city of Greater Prague w a s constituted on January 1, 1922, under an
act o f legislature dated February 6, 1920, b y inclusion with the older city
of 38 suburbs. I t i s the capital as well as the commercial and financial center
of the Czechoslovak Republic. I t has a population o f about 676,000. The
most important industries o f Czechoslovakia are located in the city and its
vicinity.
T h e total debt o f the city, not including this loan, amounts to K r . 662,569,895,
which, a t the approximate present rate o f exchange o f 2 cents, i s equivalent
to $13,250,000. Of the old loans K r . 11,026,000 are specifically secured by mortgages o n real estate. Including the present loan the per capita debt will be
approximately $41.50 a t present rates o f exchange.
T h e total assets owned by the city have a value o f K r . 297,711,000 gold
($59,500,000). T h e city's total investment in productive enterprises is Kr. 136,468,000, of which K r . 92,179,000 w a s invested at pre-war values, viz, $18,435,000.
T h e loan will b e the direct liability and obligation o f the city and will
further b e secured b y a first specific mortgage on the electric, gas, and water*
w o r k s and tramways owned b y the city in f a v o r o f a trustee f o r the loan
to be approved b y the fiscal agents o f the loan. T h e proceeds o f the loan will,
f o r the greatest part, be utilized f o r the construction o f a n electric power
station, the purchase o r erection o f gas plants, and the extension of the
waterworks and o f the tramways throughout the f o r m e r suburbs, all o f which
will, b e included in the mortgage, and f o r reimbursing the city f o r previous
expenditures effected f o r the same purposes. T h e city undertakes t o credit
the gross receipts o f the pledged enterprises t o a special account, out of
which t h e r e will, be p a i d fortnightly to. an> approved bank i n Prague, for
SALE OF
FOHEIGX
BONDS Oil SKCUllITIES
225
monthly remittance to the fiscal agents o f the loan, o n e twenty-sixth o f the
total amount annublly required f o r tlie s e r v i c e o f interest a n d sinking f u n d
of the loan.
The gross receipts o f the pledged enterprises amounted in 1921 to K r . 285.*
440,000 and are estimated f o r 1022 a t K r . 31$,000,000, which, a t the approximate
present rate of exchange, is equivalent t o o v e r $0,000,000, w h i l e t h e service
of the loan will require n o t o v e r $1,270,000. A l l d r a w n bonds and matured
coupons shall be accepted b y t h e C z e c h o s l o v a k G o v e r n m e n t a t their full f a c e
value at the then current r a t e o f e x c h a n g e in p a y m e n t o f c u s t o m s duties, a n d
by the city o f P r a g u e lit p a y m e n t o f all municipal taxes.
The budgetary estimates o f the city o f G r e a t e r Prague f o r 1022 s h o w revenue
and expenditure cach a m o u n t i n g to Kr.574.210,000. T h e exi*enditure o f Old
Prague in 1021 was Kr.375,751,000. which w a s f u l l y within it* total income.
The value o f Improv<«d real estate within the limits n o w liit'lud<ed in tli*;
greater city w a s estimated in 1015 a t Kr.2.000,000,000 practically a t gold
value ($400,000,000).
The 7J,4 per cent m o r t g a g e loan o f 1022 hns l>een d u l y authorized by tfus
municipal council under d a t e o f May 12, 1022, under a c t s o f legislatures No,
110 of February 0. 1020, and No. 329 o f August, 12. 1021, a m i h a s been sanctioned by the Minister nf F i n a n c e under d a t e <»f May 27, 1922.
Tlie dollar bonds uf the loan will hi* Issued In couimn-bearer f o r m In denominations of $1,000 iind £500, will tK» dated M » y 1, 1922, w i l l mature o n M a y 1,
1952, and will bear Interest f r o m M a y 1. 1922, payable semiannually ou M a y 1
and November 1 In each y e a r . Prlncl)ml and Interest nud premium In case o f
anticipated redemption, will be p a y a b l e In gold coin o f the United States of
America, of or equal to the standard o f w e i g h t a n d fineness existing M a y 1,
1922, at the office o f Kuhn. Jy»eb & Co., fisoil agents o f the dollar bonds, in this
city of New York, f r e e f r o m all taxes, s t a m p duties, t r a n s f e r and other duties
or deductions o f any nature, present o r f u t u r e , whether levied b y the Czechoslovak Government, the c i t y o r other Czechoslovak authorities, and payable in
time of war as well a s in time o f peace, and whether the holders o f t h e b o n d s
be subjects of a friendly o r hostile State.
Beginning with 1923 the loan w i l l be redeemed through a cumulative sinking
fund by purchases at o r b e l o w p a r a n d a c c r u e d interest, or, to the extent to
which purchases shall not have l»eoii SO eflftvted, by annual d r a w i n g s at par
and aqcrued interest, In a m o u n t s sufficient to redeem the whole issue by M a y
1,1952.
In case o f drawings, the n u m b e r s o f the bonds t o lie redeemed shall be determined by lot, and notice o f redemption s p e c i f y i n g the numbers o f the bonds
designated f o r redemption shall be published t w i c e a w e e k f o r at least three
weeks preceding the redemption d a t e in t w o newspapers o f general circulation
in the city of New1' Y o r k b y K u h n , L o o b & Co., the fiscal agents o f the dollar
bonds.
On November 1, 1932, o r o n a n y interest p a y m e n t d a t e thereafter, the city
may, at its option, redeem all the bonds o f this loan then outstanding, but n o t
a part thereof, a t 102 per c e n t o f the principal a m o u n t thereof and accrued
interest, provided notice o f such redemption l>e published once a w e e k f o r 12
successive weeks preceding t h e redemption d a t e in t w o newspapers o f general
circulation in the c i t y of N e w Y o r k . Application will be m a d e to list the dollar
bonds of t h e
p e r cent m o r t g a g e loan o f 1922 on the N e w Y o r k S t o c k
Exchange.
Very truly yours.
DR. BAXA,
President of the Central
Administrative
Commission of Greater Prague.
The above letter having been received b y c a b l e is s u b j e c t t o c o r r e c t i o n .
$55,000,000 GOVERNMENT OF THE ARGENTINE NATION SIX MONTHS 6 PER CENT
TREASURY GOLD NOTKS, DATED SEPTEMBER 1, 1923, D C E MARCH 1 , 1 9 2 4
Principal and interest p a y a b l e i n t h e c i t y o f N e w Y o r k In U n i t e d States g o l d
Coin without deduction f o r a n y A r g e n t i n e t a x e s o r impositions, present o r f u t u r e .
For further i n f o r m a t i o n r e g a r d i n g t h i s issue o f n o t e s r e f e r e n c e Is m a d e t o
a letter received by t h e u n d e r s i g n e d f r o m F e l i p e A . E s p i l , Esq., c l m r g ^ d ' a f f a i r e s
of the Government o f the A r g e n t i n e N a t i o n a t W a s h i n g t o n , c o p i e s o f w h i c h
SALE OF FOREIGN; BONDS OR SECURITIES,
226
m a y b e obtained f r o m , the undersigned, and w h i c h he h a s summarized as
follows:
G e n e r a l : " T h e Argentine ^Republic has an area o f a p p r o x i m a t e l y 1,100,000
square miles o r o v e r one-third o f the area o f the United States, and leads all
South A m e r i c a n countries in v o l u m e of foreign trade. T h e r e a r e to-day 22,855
miles o f railroad. T h e Government itself h a s considerable mileage under
construction."
P u r p o s e : " T h e proceeds o f this issue w i l l be applied to the p a y m e n t of the
$50*000,000 Government o f the Argentine Nation 2-year 7 p e r cent treasury gold
notes w h i c h mature on October 1, 1023, and f o r other purposes."
Gold r e s e r v e :
T h e total note circulation amounts t o 1*1,362.504,000 paper,
which i s covered by a gold reserve o f over SO per cent, one o f the highest ill
the w o r l d . "
F i n a n c e s : " T h e national debt a s o f July 31, 1023, at g o l d parities of exchange, a m o u n t s to ^008,000,000 gold, being equivalent to $9S United States per
capita a s against over $200 per capita f o r the United States. I n addition the
nation guarantees the bonds o f the National M o r t g a g e Bunk, w h i c h is selfsupporting and has a large reserve o f its o w n . "
T h e undersigned offer the above notes, subject to prior sale, a t 9 0 % per cent
and accrued interest t o date o f delivery to yield over 7 p e r cent.
Government of tlie Argentine Nation 2-year 7 per cent treasury gold notes
due October l t 1923, will be accepted in p a y m e n t f o r these n o t e s on a 4 per
cent interest basis, provided that notice o f the amount o f m a t u r i n g notes to
be tendered in payment is given not less than five d a y s p r i o r to the date
fixed f o r delivery o f and payment f o r the n e w notes.
T h e above notes a r e offered if, when, and a s issued and received by the
undersigned and subject t o the completion o f their purchase and approval of
counsel. T e m p o r a r y certificates o r interim receipts e x c h a n g e a b l e f o r definitive
notes when prepared m a y b e delivered against payment in N e w Y o r k funds.
NEW YOBK, September <?, 1923.
K U H N , LOEB & Co.
BLAIR & C o . (INC.).
WASHINGTON, D. C.f September
5,1923.
Messrs. KUHN, LOEB & Co. and
BLAIR & Co. ( I n c . ) ,
New York, N. Y.
DEAR SIRS: R e f e r r i n g to' the $55,000,000 Government of the Argentine Nation six months 6 per cent treasury gold notes due M a r c h 1, 1924, I beg to
submit the f o l l o w i n g i n f o r m a t i o n :
T h e Argentine R e p u b l i c h a s an area o f 1,100,000 square miles, o r over onethird o f the area c o v e r e d b y the United States. I t h a s a population of
9,000,000. T h e capital, B u e n o s Aires, w i t h a population o f 1,670,000, is f a r the
most important p o r t o f South A m e r i c a and o n e o f the largest o f the entire
Western Hemisphere.
I n regard to climate and soil, the country presents the m o s t n e a r l y perfect
area t h e w o r l d contains f o r t h e production o f cereals a n d f o r c a t t l e raising.
T h e cultivated area has increased at a remarkably rapid p a c e in the last
15 years. A m o n g the chief p r o d u c t s f o r exportation a r e w h e a t , corn, linseed;
meat, hides, and w o o l . I n addition, the country a l s o p r o d u c e s alfalfa,, oats,
barley, quebracho, sugar, cotton, tobacco, potatoes, rice, a n d g r a p e s in large
quantities. T h e oil industry, a m o r e recent development, i s attracting considerable interest and m a k i n g v e r y p r o m i s i n g strides. T h e c o u n t r y possesses
vast m i n e r a l resources, w h i c h a r e in the p r o c e s s of development.
A r g e n t i n a leads all South A m e r i c a n c o u n t r i e s in the v o l u m e o f foreign
trade. Tlie "figures f o r the last s i x y e a r s in United States d o l l a r s ( a t the
average rate o f e x c h a n g e ) w e r e a s f o l l o w s :
Year
1917
"1918
1919---—
1920
—
—-
—
1922*(provisional figures)
-----—
—
$386,571,000
511,748,000
647.581,000
789,362,000
532,717,000
552,113,000
SALE OF
FOHEIGX
BONDS Oil S K C U l l I T I E S
227
T h e principal i m p o r t s n r e textiles, iron a m i steel m a n u f a c t u r e s , a g r i c u l t u r a l
implements, c h e m i c a l s , ami b u i l d i n g m a t e r i a l s .
There a r e to-day 22,355 m i l e s o f m i l road in Argent ina, o f w h i c h 3,SG5 m i l e s
are Government o w n e d and 1S.400 m i l e s a r e p r i v a t e l y o w n e d . T h e G o v e r n ment has c o n s i d e r a b l e a d d i t i o n a l m i l e a g e u n d e r c o n s t r u c t i o n .
T h e national debt o f the R e p u b l i c a s o f J u l y 31, 1023, a t g o l d parities o f
exchange, a m o u n t s to PtJ08.000,000, b e i n g e q u i v a l e n t to $08 United S t a t e s
per capita, as a g a i n s t o v e r $200 p e r c a p i t a f o r t h e United States. In a d d i t i o n ,
the Argentine N a t i o n g u a r a n t e e s t h e b o n d s o f the N a t i o n a l M o r t g a g e B a n k
These bonds a r e s o m e w h a t s i m i l a r t o t h e United S t a t e s F e d e r a l f a r m l o a n
bonds, and a r e f a v o r e d a s a n i n v e s t m e n t In Euroi>e. T h e N a t i o n a l M o r t g a g e
Bank is self-supjiorting a n d h a s a l a r g e r e s e r v e o f its o w n .
Argentine credit in E u r o p e r a n k s v e r y high. A l a r g e n u m b e r o f p r e - w a r
Argentine loans a r e listed in L o u d o n a n d o n the c o n t i n e n t a l stock e x c h a n g e s o f
Europe, none o f w h i c h c a r r i e s a h i g h e r r a t e than 5 p e r c e n t . T h e A r g e n t i n e
Republic d u r i n g the w a r m a d e l a r g e a d v a n c e s t o s o m e o f the Allies, besides
repurchasing a l a r g e p a r t o f t h e A r g e n t i n e securities p r e v i o u s l y p l a c e d i n
European markets.
The budgetary figures s i n c e 1010 a r c a s f o l l o w s :
Year
1919
1920
1921
1922 (budgetary estimates)
11
Receipts (sold
pesos)*
168,388,000
218,416,000
190,784,000
193.052,000
Expenditures
(gold pesos)*
188,276.000
214,456,000
246,664,000
278,696,000
gold peso equal* $0.96)4 at gold par of exchange.
The above receipts d o not i n c l u d e f u n d s ' r a i s e d t h r o u g h loans, but the e x p e n d i tures d o include capital e x p e n d i t u r e s f o r w h i c h l o a n s w e r e c o n t r a c t e d .
The
capital expenditures f o r 1022 w e r e n o t less than 1*28,000,000 gold.
Budgetary receipts f o r 1023 thus f a r a r e 1*24,000,000 gold in e x c e s s o f those
f o r 1022. F u r t h e r m o r e , a s e x p e n d i t u r e s a r e b e i n g c u r t a i l e d , it is e x p e c t e d t h a t
there will be n o deficit f o r t h i s y e a r .
T h e total note c i r c u l a t i o n o f A r g e n t i n a a m o u n t s t o
tt,302,504,000
paper,
which is covered b y a g o l d r e s e r v e o f o v e r SO p e r cent, o n e o f the highest in
the world.
The proceeds of this issue w i l l b e a p p l i e d to the p a y m e n t o f the $50,000,000
Government o f the A r g e n t i n e n a t i o n 2 - y e a r 7 p e r c e n t t r e a s u r y g o l d n o t e s , w h i c h
mature on October 1. 1023, a n d f o r o t h e r p u r p o s e s .
The notes a r e a d i r e c t l i a b i l i t y a n d o b l i g a t i o n o f the G o v e r n m e n t w h i c h
pledges its good f a i t h a n d c r e d i t f o r t h e p u n c t u a l p a y m e n t o f their principal a n d
interest.
The notes will b e Issued in b e a r e r f o r m , in d e n o m i n a t i o n s o f $1,000, w i l l b e
dated September 1, 1023, and w i l l m a t u r e M a r c h 1, 1024. P r i n c i p a l a n d interest
•will be payable in gold c o i n o f t h e U n i t e d S t a t e s o f A m e r i c a o f o r e q u a l t o t h e
present standard o f w e i g h t a n d fineness, In t h e c i t y o f N e w Y o r k , w i t l i o u t
deduction f o r a n y t a x e s o r i m p o s i t i o n s n o w o r h e r e a f t e r established o r l e v i e d
by or within the t e r r i t o r y o f t h e G o v e r n m e n t o f t h e A r g e n t i n e n a t i o n a g a i n s t
the notes o r the Income t h e r e f r o m o r t h e h o l d e r s t h e r e o f , a n d shall b e p a y a b l e
as well in time o f w a r a s in t i m e o f p e a c e , w h e t h e r t h e h o l d e r b e a citizen o r
resident of a f r i e n d l y o r h o s t i l e s t a t e .
Very truly y o u r s ,
FELIPE A . ESPIL.
Charge d?Affaire* of the Government of the Argentine
nation.
$40,000,000 GOVERNMENT o r THE ARGENTINE NATION EXTERNAL SINKI.NO FUND 6
PEB CENT GOU> BONDS OR 1023, SERIES A, DATED SEPTEMBER 1, 1923, DUE
SEPTEMBER 1, 1057
Principal and interest p a y a b l e in t h e c i t y o f N e w T o r k in United S t a t e s g o l d
coin without d e d u c t i o n f o r a n y A r g e n t i n e t a x e s o r iiniMndtions p r e s e n t o r f u t u r e .
Interest payable M a r c h 1 a n d S e p t e m b e r l . C-oujwn b o n d s in d e n o m i n a t i o n s o f
$1,000 and $500 r e g i s t e r a b l e a s t o p r i n c i p a l o n l y .
Redeemable t h r o u g h t h e o p e r a t i o n o f a c u m u l a t i v e s i n k i n g f u n d c a l c u l a t e d t o
retire the b o n d s o f t h i s i s s u e n o t l a t e r t h a n S e p t e m b e r 1, 1057.
SALE OF FOREIGN; BONDS OR SECURITIES,
228
F o r f u r t h e r i n f o r m a t i o n regarding this issue o f bonds reference is made to
the a c c o m p a n y i n g letter received f r o m F e l i p e A . Espil, Esq., c h a r g e d'affaires
o f the Government of the Argentine Nation a t W a s h i n g t o n , copies of which may
be obtained f r o m the undersigned and which he lias summarized a s f o l l o w s :
G e n e r a l : " T h e Argentine Republic has an area o f a p p r o x i m a t e l y 1,100,000
square miles o r over one-third of the area of the United States, and leads all
South A m e r i c a n countries in volume o f f o r e i g n trade. T h e r e a r e to-day 22,355
miles o f railroad. T h e Government itself has considerable m i l e a g e under construction."
P u r p o s e : " T h e proceeds o f this issue will b e applied t o w a r d the payment of
short-term notes included in the total debt a s stated below.*'
Gold r e s e r v e : " T h e total note circulation o f Argentina amounts to PI,362,564,000 paper, equal to 1*599,528,000 gold, which is covered b y a gold reserve of
1*475,003,000 ( = U . S. $408,300,000) or 79 per cent, one o f t h e highest in the
world."
F i n a n c e s : " T h e national debt as of December 31, lt>23, a t gold parities of
exchange, amounts to f*932,000,000 gold, being equivalent to $100 U. S. per
capita a s against over $200 per capita f o r the United States. I n addition, the
nation guarantees the bonds of the National Mortgage B a n k w h i c h is self-supp o r t i n g and h a s a large reserve of its o w n . "
T h e undersigned offer the a b o v e bonds, s u b j e c t to prior stile, at 9 8 % per cent
and accrued interest to date o f delivery to yield 6V4 per cent to maturity.
Government of the Argentine Nation six months 6 p e r cent treasury gold notes
due M a r c h 1, 1924, will be accepted in payment f o r these b o n d s on a 4 per cent
interest basis, provided that notice of the a m o u n t o f such notes to be tendered
in p a y m e n t is given not less than five d a y s prior to tlie date fixed f o r delivery
of and payment f o r the n e w bonds.
T h e above bonds a r e offered if, when and a s issued and received b y the undersigned and subject t o the completion of their purchase and approval of coansel.
Temporary bonds o r interim receipts exchangeable f o r definitive b o n d s when
prepared m a y be delivered against payment in N e w Y o r k funds.
BLAIR & Co. ( I n c . ) .
K U H N , LOEB & C o .
NEW YORK, January 16, 192//.
WASHINGTON, D . C., January 16,
M e s s r s . KUHN, LOEB & C o . a n d BLAIR & C o . ( I N C . ) ,
192f
New York, N. Y,
DEAR SIRS : R e f e r r i n g to the $40,000,000 Government o f the A r g e n t i n e Nation
external sinking f u n d 6 per cent gold bonds o f 1923, series A , w h i c h you are
offering, I beg to submit the f o l l o w i n g i n f o r m a t i o n :
T h e Argentine Republic has an area o f 1,100,000 square miles, o r over onethird of the area covered by the United States. I t has a population o f 9,000,000.
T h e capital, Buenos Aires, with a population o f 1,750,000, is f a r the most
important p o r t Of South America, and one o f the largest o f t h e entire Western
Hemisphere.
I n regard t o climate and soil, the country presents the m o s t nearly perfect
area the w o r l d contains f o r the production of cereals and f o r cattle raising.
A m o n g the chief products f o r exportation a r e wheat, c o m , linseed, meat, hides,
and w o o l . I n addition, the country produces alfalfa, oats, barley, quebracho,
sugar, cotton, tobacco, potatoes, rice, and grapes in large quantities. T h e country possesses vast mineral resources, w h i c h a r e in process o f development.
Argentina leads all South A m e r i c a n countries in volume o f f o r e i g n trade.
T h e figures f o r the last six years in United States dollars ( a t t h e average rate
o f e x c h a n g e f o r each y e a r ) w e r e as f o l l o w s :
Year
i9i9_
1020„
1021—
:
1922
-
386,571,000
511,746,000
647,581,000
789,362,000
532,717,000
551,308,000
S A L E OF FOHEIGX B O N D S
Oil
SKCUllITIES
229
T h e principal i m p o r t * n r e textiles. Iron a n d steel m a n u f a c t u r e r s , a g r i c u l tural implements, c h e m i c a l s , a n d b u i l d i n g m a t e r i a l s .
There a r c to-day 22.355 m i l e s o f r a i l r o a d In A r g e n t i n a , o f w h i c h 3,805 m i l e s
are Government o w n e d and 18.400 m i l e s a r e p r i v a t e l y o w n e d . T h e G o v e r n ment has c o n s i d e r a b l e a d d i t i o n a l m i l e a g e u n d e r c o n s t r u c t i o n .
The national debt o f t h e R e p u b l i c a s o f D e c e m b e r 31, 1923. a t g o l d p a r i t i e s
of exchange, a m o u n t s t o 1>932.000,000 g o l d , b e i n g e q u i v a l e n t t o $100 U . S. p e r
capita, a s against o v e r $200 p e r c a p i t a f o r t h e United States. In a d d i t i o n , tlie
Argentine Nation g u a r a n t e e s the b o n d s o f the N a t i o n a l M o r t g a g e B a n k . T h e s e
bonds a r e s o m e w h a t s i m i l a r t o t h e U n i t e d S t a t e s F e d e r a l f a r m - l o a n b o n d s ,
and are f a v o r e d a s an i n v e s t m e n t in E u r o p e . T h e National M o r t g a g e B a n k
is self-supporting a n d h a s a l a r g e r e s e r v e o f its o w n .
Argentine credit in Kuroiie r a n k s v e r y high. A l a r g e n u m b e r o f p r e - w a r
Argentine loans a r e list cm! in I-ondmi n n d o n the c o n t i n e n t a l s t o c k e x c h a n g e s o f
Europe, none o f w h i c h c a r r i e s a h i g h e r interest r a t e than 5 p e r cent, D u r i n g
the w a r the A r g e n t i n e R e p u b l i c m a d e l a r g e a d v a n c e s to s o m e o f t h e Allies,
besides repurchasing n large p a r t o f t h e A r g e n t i n e s e c u r i t i e s p r e v i o u s l y p l a c e d
in European m a r k e t s .
The budgetary figures s i n c e 1919 a r e a s f o l l o w s :
Receipts
(gold pesos i)
Year
1919
1920
1921
*
*
168,38$, 000
218,416,000
190,784,000
193,952,000
249,051000
Expenditures
(gold pesos)
188,276,000
214,456,000
246,664,000
278,696,000
292,160,000
* One gold pc5O-$0.96H at pt>1d par of exchange.
' Budgetary estimates lor 1923.
Tlie above receipts d o n o t i n c l u d e f u n d s raised t h r o u g h loans, b u t the e x penditures d o i n c l u d e c a p i t a l e x p e n d i t u r e s f o r w h i c h l o a n s w e r e c o n t r a c t e d .
The capital e x p e n d i t u r e s f o r 1922 w e r e a b o u t 1*28,000,000 g o l d , a n d f o r 1923
about 1*31000,000 gold.
The total note c i r c u l a t i o n o f A r g e n t i n a a m o u n t s t o
302,504,000 p a p e r ,
equal to 1*599,528,000 g o l d , w h i c h i s c o v e r e d b y a g o l d reserve o f F475,003,000
( = U. S. $458,300,000) o r 79 p e r c e n t , o n e o f t h e h i g h e s t in t h e w o r l d .
Tlie proceeds o f this issue w i l l l>c a p p l i e d t o w a r d t h e p a y m e n t o f s h o r t - t e r m
notes which a r e included in t h e a m o u n t o f the t o t a l debt a s a b o v e stated.
T h e external s i n k i n g f u n d 6 p e r c e n t g o l d loan o f 1923 h a s been d u l y a u t h o r ized b y acts o f the N a t i o n a l C o n g r e s s o f t h e G o v e r n m e n t o f t h e A r g e n t i n e
Nation, k n o w n a s l a w s N o s . 11206 a n d 11207. a n d is limited t o an a m o u n t o f
150,000,000 A r g e n t i n e gold p e s o s ( $ 1 0 0 - 1 0 3 . 0 4 g o l d p e s o s a t gold p a r o f e x change) o r the e q u i v a l e n t t h e r e o f in A m e r i c a n d o l l a r s o r p o u n d s sterling o f
Great B r i t a i n .
T h e loan is a d i r e c t l i a b i l i t y a n d o b l i g a t i o n o f t h e G o v e r n m e n t , w h i c h
pledges its g o o d f a i t h and c r e d i t f o r t h e p u n c t u a l p a y m e n t o f t h e p r i n c i p a l a n d
interest thereof and o f t h e Installments o f the s i n k i n g f u n d , in a c c o r d a n c e
with the t e r m s o f the b o n d s , nnd o t h e r w i s e f o r t h e s e r v i c e o f t h e l o a n ; a n d t h e
Government covenants, a n d t h e b o n d s shall s o p r o v i d e that, i f , w h i l e a n y o f
the bonds o f the e x t e r n a l l o a n o f 1923 shall b e o u t s t a n d i n g , t h e G o v e r n m e n t
shall create o r issue o r g u a r a n t e e a n y l o a n o r b o n d s s e c u r e d b y lien on a n y o f
its revenues o r assets, o r a s s i g n a n y o f i t s r e v e n u e s o r assets a s s e c u r i t y f o r
any guaranty o f a n y o b l i g a t i o n , t h e b o n d s o f t h e e x t e r n a l loan o f 1923 shall b e
secured equally a n d r a t a b l y w i t h s u c h o t h e r l o a n o r b o n d s o r s u c h g u a r a n t y .
The bonds o f series A o f t h e l o a n w i l l b e issued in c o u p o n b e a r e r f o r m , r e g i s terable a s t o p r i n c i p a l . In d e n o m i n a t i o n s o f $1,000 a n d $500, w i l l b e d a t e d
September 1, 1923, w i l l m a t u r e S e p t e m b e r 1, 1957, a n d w i l l b e a r interest f r o m
September 1, 1923, p a y a b l e s e m i a n n u a l l y o n M a r c h 1 a n d S e p t e m b e r 1 in e a c h
year. P r i n c i p a l a n d i n t e r e s t w i l l b e p a y a b l e in t h e c i t y o f N e w Y o r k in g o l d
coin of the U n i t e d S t a t e s o f A m e r i c a o f o r e q u a l t o t h e s t a n d a r d o f w e i g h t a n d
fineness e x i s t i n g S e p t e m b e r 1 , 1 9 2 3 , w i t h o u t d e d u c t i o n f o r a n y t a x e s o r i m p o s i tions n o w o r h e r e a f t e r e s t a b l i s h e d o r l e v i e d b y , o r w i t h i n t h e t e r r i t o r y o f , t h e
Government o f t h e A r g e n t i n e N a t i o n a g a i n s t t h e b o n d s o r t h e i n c o m e t h e r e f r o m
o r the holder t h e r e o f , a n d s h a l l b e p a i d a s w e l l i n t i m e o f w a r a s in t i m e o f
230
SALE OF FOREIGN; BONDS OR SECURITIES,
p e a c e and w h e t h e r t h e holder he a citizen o r resident of a f r i e n d l y o r a hostile
state.
Beginning M a r c h 1, 1924, and thereafter semiannually on M a r c h 1 and September 1 in each year, the Government of the A r g e n t i n e N a t i o n will pay to
Kulin, L o e b & Co., B l a i r & Co., and the Chase National B a n k , o f the city of New
Y o r k , t h e fiscal agents of the loan, as a sinking f u n d , in United States gold coin
o f the standard o f w e i g h t and fineness aforesaid, ( a ) an a m o u n t equal to oneh a l f o f 1 p e r cent o f the m a x i m u m principal amount of the b o n d s o f series A
a t a n y t i m e theretofore issued, plus ( 5 ) an a m o u n t equal to the interest accrued
a n d u n p a i d on all b o n d s acquired through the operation o f the sinking fund
t o the date o f each such sinking-fund payment. T h e fiscal agents shall apply
each instalment o f the sinking f u n d t o w a r d the purchase o f b o n d s b e l o w par
t h r o u g h tenders, and t o t h e extent that such instalment shall n o t within a
period of 90 d a y s a f t e r its payment have been so applied bonds shall be drawn
b y lot f o r retirement at par. Notice o f the numbers o f the b o n d s d r a w n for
retirement shall be advertised and the bonds s o indicated shall b e c o m e due and
p a y a b l e on the next interest payment date and shall bear n o interest therea f t e r . Sinking-fund payments m a y be increased b y the government in its
discretion.
A p a r t of the series A bonds of the external sinking f u n d 6 per cent gold loan
o f 1923 m a y be issued as sterling bonds in denominations of £200, £100, and £20,
interest and sinking f u n d payable in London in sterling o f the United Kingdom
o f Great Britain and Ireland, and such sterling b o n d s shall in a l l other respects
b e similar t o the dollar bonds o f series A .
Application will be m a d e f o r the listing o f the dollar bonds o f series A on the
N e w Y o r k Stock Exchange.
Y e r y truly yours,
FELIPE A . ESPIL,
Charge d'Affaires of the Government of the Argentine
Nation.
CONFIDENTIAL
NEW YORK, February
7, J1924.
DEAR SIRS : W e have agreed to purchase $20,000,000 principal a m o u n t Government of the Argentine Nation six months 5*4 p e r cent treasury gold notes
due August 25, 1924, to be issued in bearer f o r m in denominations o f $1,000
and $5,000, principal a n d interest to b e p a y a b l e in United States g o l d coin,
without deduction f o r any taxes o r impositions n o w or h e r e a f t e r established
o r levied b y or within the territory o f the Government o f t h e A r g e n t i n e Nation against the notes o r the income t h e r e f r o m or t b e h o l d e r s thereof. The
proceeds of this issue are to be applied t o w a r d the p a y m e n t o f the $55,000,000
notes maturing March 1, 1924, provision h a v i n g been m a d e f o r the balance of
such notes through the recent sale of $40,000,000 6 p e r c e n t g o l d b o n d s o f 1923,
series A , due September 1, 1957. T h e balance r e m a i n i n g o f t h e proceeds of
these t w o issues is available t o the Government o f t h e A r g e n t i n e Nation f o r
other purposes.
W e h a v e reserved f o r you $—
principal a m o u n t o f these notes at 100
p e r cent and accrued interest to d a t e o f delivery. P a y m e n t f o r the notes is.
t o be m a d e in N e w Y o r k on o r a b o u t F e b r u a r y 25, 1924, against delivery o f
t h e notes o r interim receipts therefor, deliverable if, when, a n d a s issued
a n d received by us and subject to the approval o f counsel.
Government o f the Argentine National s i x m o n t h s 6 p e r c e n t treasury
g o l d notes d u e March 1, 1924, will be accepted in p a y m e n t f o r notes allotted
o n a 4 p e r cent interest basis, p r o v i d e d t h a t n o t i c e o f the a m o u n t o f maturing
n o t e s to be tendered in payment is given n o t less than five d a y s p r i o r t o the
d a t e fixed f o r delivery o f a n d p a y m e n t f o r the n e w notes.
P l e a s e n o t i f y us promptly w h e t h e r y o u desire t o a c c e p t the notes reserved
f o r y o u , and believe us,
V e r y t r u l y yours,
By
CHASE SECURITIES CORPORATION,
— —
, Assistant
p . p . KUHN, LOEB & C o .
Treasurer.
SALE OF
FOHEIGX
B O N D S Oil SKCUllITIES
231
$20,000,000 MORTGAGE BANK OF CUIUS (CAJA DE Cktinrro HIFOTEOAIUO) GU ARANTEED SINKING FUND OVFE PER CENT GOLD BONDS, DUE JUNE 30, 1957
Unconditionally g u a r a n t e e d , u s states! b e l o w , a s t o p r i n c i p a l , interest, a n d
sinking fund, b y i n d o r s e m e n t , b y t b e R e p u b l i c o f C h i l e .
Coupon bearer b o n d s in d e n o m i n a t i o n s o f $1,000 a n d $500 e a c h .
Principal
and interest t o b e p a y a b l e , a t the o p t i o n o f tlie holders, in N e w Y o r k C i t y a t t h e
office of Kuhn, L o e b & C o . o r o f G u a r a n t y T r u s t C o . o f N e w Y o r k , in U n i t e d
States gold coin o f o r equal t o t h e s t a n d a r d o f w e i g h t and fineness e x i s t i n g
June 3 0 , 1 9 2 5 , o r in S a n t i a g o , Chile, a t t h e oflice o f t h e C a j a b y s i g h t d r a f t o n
New Y o r k City, w i t h o u t d e d u c t i o n f o r a n y t a x e s , imposts, levies, o r duties o f
any nature n o w o r a t a n y t i m e h e r e a f t e r imiw.sed b y t h e R e p u b l i c o f C h i l e o r
by any State, P r o v i n c e , m u n i c i p a l i t y , o r o t h e r t a x i n g a u t h o r i t y t h e r e o f o r
therein, and to b e p a y a b l e In t i m e o f w a r a s well a s in t i m e o f peace, a n d
whether the holder b e a citizen o r a r e s i d e n t o f a f r i e n d l y o r a hostile State.
Interest p a y a b l e J u n e 3 0 a n d D e c e m b e r 31.
F o r further i n f o r m a t i o n r e g a r d i n g this Issue o f bonds, r e f e r e n c e Is m a d e t o
the accompanying letter r e c e i v e d f r o m H i s E x c e l l e n c y t h e H o n . B e l t r a n Mathieu, a m b a s s a d o r e x t r a o r d i n a r y a n d p l e n i p o t e n t i a r y o f the R e p u b l i c o f Chile,
and f r o m which t h e f o l l o w i n g is s u m m a r i z e d :
The bonds a r e u n c o n d i t i o n a l l y g u a r a n t e e d a s t o principal, interest, and
sinking fund, b y i n d o r s e m e n t , b y the R e p u b l i c o f Chile, p u r s u a n t to d e c r e e l a w
of the governing c o u n c i l , d a t e d M a r c h 9. 1925, and an e x e c u t i v e decree, d a t e d
June 15, 1925 ( s u p p l e m e n t i n g said d e c r e e l a w ) , issued u n d e r the a u t h o r i t y o f
President A l c s s a n d r i and h i s c a b i n e t , w h o a r e f u n c t i o n i n g a s the G o v e r n m e n t o f
Chile, Congress h a v i n g been d i s s o l v e d in S e p t e m b e r , 1924, p e n d i n g t h e a d o p t i o n
of a new constitution, w h i c h is n o w b e i n g d r a f t e d . T h e g u a r a n t y thus a u thorized is valid and b i n d i n g upon t h e R e p u b l i c o f Chile.
Beginning D e c e m b e r 31. 1925, t h e b o n d s w i l l b e redeemable t h r o u g h a c u m u lative sinking f u n d c a l c u l a t e d t o r e t i r e t h e w h o l e issue b y J u n e 30, 1957, t o be
applied on each semiannual Interest d a t e t o the r e d e m p t i o n b y lot o f b o n d s a t
par. The Caja will h a v e t h e right t o i n c r e a s e the a m o u n t o f a n y s i n k i n g - f u n d
payment f o r the r e d e m p t i o n o f a d d i t i o n a l b o n d s on a n y interest date, a n d in
any such case a p p r o p r i a t e r e d u c t i o n s w i l l b e m a d e in subsequent s i n k i n g - f u n d
payments. T h i s r i g h t is r e s e r v e d b e c a u s e r e p a y m e n t s on t h e m o r t g a g e l o a n s
can be made b y the b o r r o w e r s e i t h e r in c a s h o f in b o n d s o f the C a j a in e x c e s s
of the fixed m i n i m u m a m o r t i z a t i o n p a y m e n t s , and the C a j a is n o t permitted b y
law to h a v e its b o n d s o u t s t a n d i n g in e x c e s s o f t h e m o r t g a g e l o a n s a g a i n s t
which they a r e issued.
The undersigned will r e c e i v e s u b s c r i p t i o n s f o r the a b o v e h<>mk, subject t o
allotment, at 9 7 % per c e n t a n d a c c r u e d Interest t o d a t e o f delivery, to yield
0.70 per cent t o m a t u r i t y .
The undersigned reserves t h e right t o c l o s e the subscription a t a n y t i m e
without notice, t o r e j e c t a n y a p p l i c a t i o n , t o a l l o t a smaller a m o u n t than
applied f o r , and to m a k e a l b t m c n t s in t h e i r u n c o n t r o l l e d discretion.
The bonds and g n a r a u t v a r e , in the o p i n i o n of A m e r i c a n and Chilean counsel,
valid obligations, r e s t i v e l y , o f the C a j a d e C r e d i t o H i p o t e e a r i o and t h e
Republic o f Chile.
The above b o n d s a r e o f f e r e d If, w h e n , and a s issued and received by t h e
undersigned, a n d s u b j e c t t o t h e a p p r o v a l o f counsel.
In the first i n s t a n c e ,
interim certificates o f G u a r a n t y Trust C o . o f N e w Y o r k will b e d e l i v e r e d a g a i n s t
payment in N e w Y o r k f u n d s f o r b o n d s a l l o t t e d , w h i c h Interim certificates willbe exchangeable f o r definitive b o n d s w h e n p r e p a r e d .
Application will be m a d e in d u e c o u r s e t o list these 1KMids on t h e N e w Y o r k
Stock E x c h a n g e .
K U H N , LOEB & C o .
GUARANTY C o . OF NEW YORK.
NEW YORK, JUNE
3925.
WASHINGTON, D . C , J taw 2J,
Messrs. KUHN, LOEB & C o . , GUARANTY CO. o f N e w
W2't.
York,
ATe?r York.
DEAR SIRS: R e f e r r i n g t o t h e i s s u e o f $20,000,000 g u a r a n t e e d s i n k i n g f u n d
OV2 per cent g o l d b o n d s , d u e J u n e 30, 1957, o f t h e M o r t g a g e B a n k o f ( ' b i l e
(Caja de Cr£dito H i p o t e e a r i o , C h i l e ) , I b e g t o g i v e y o u t h e f o l l o w i n g i n f o r m a tion:
232
SALE OF FOREIGN; BONDS OR SECURITIES,
Tlie b o n d s a r e unconditionally guaranteed as to principal, interest, and sink*
ing f u n d , b y endorsement, by the R e p u b l i c of Chile, p u r s u a n t to decree law of
the governing council, dated M a r c h 9, 1925, a n d an E x e c u t i v e decree, dated
J u n e 15, 1925 (supplementing said decree law 7 ), issued u n d e r the authority of
President Alessandri and liis cabinet, w h o a r e f u n c t i o n i n g a s the Government
o f Chile, congress having been dissolved in September, 1924, p e n d i n g the adoption o f a n e w constitution w h i c h is n o w being d r a f t e d . T h e guaranty thus
authorized is valid and binding upon the R e p u b l i c of Chile.
T h e C a j a d e GrSdito Hipotecario w a s created b y l a w of A u g u s t 29, 1855, for
the purpose o f m a k i n g available credit facilities on reasonable terms f o r the
development and improvement o f real property in Chile. T h e b o a r d of directors i s selected b y both legislative chambers o f Chile, and t h e chairman of
the b o a r d , t h e chief counsel, the cashier, the controller and the secretary are
appointed b y the president o f the Republic.
D u r i n g its entire existence of 70 years, the C a j a has operated successfully
and has never failed to meet its obligations. T h e record of its loan collections
is v e r y satisfactory. T h e losses incurred by t h e C a j a on p r o p e r t y foreclosed
under its mortgages h a v e not exceeded $40,000 in the aggregate f o r the last
10 years. In his report, published F e b r u a r y 1, 1924, to the Department of
Commerce of the United States, Mr. Charles A . McQueen, special agent of the
B u r e a u of Foreign and Domestic Commerce o f the department, states that in
the course o f its long existence the C a j a has conducted its a f f a i r s with uniform
safety and success.
T h e C a j a has n o capital stock and is not operated f o r profit. I t has power
to charge a commission to provide f o r its expenses and f o r a reserve fund, as
additional security f o r its bonds, b u t having accumulated a sufficient reserve;
the Caja has n o w discontinued charging such commission.
T h e C a j a issues its bonds only against mortgages registered in its name. It
makes only first mortgage loans. T h e loans a r e m a d e on a conservative basis
end the risk is greatly diversified. On D e c e m b e r 31, 1924, the C a j a had outstanding various issues o f bonds aggregating $84,995,700, a t a p p r o x i m a t e present rates of exchange, against which it liad m a d e m o r e t h a n 9,800 mortgage
loans, being an average o f not m o r e than $9,000 p e r loan. T h e aggregate appraised improved value of the properties mortgaged a s security f o r these loans
amounted to m o r e than f o u r times the amount of the loans. A s f u r t h e r security f o r its bonds, the C a j a h a s accumulated a reserve f u n d o f approximately
$5,118,000, at approximate present rates of exchange.
T h e l a w o f September 10, 1892, authorizes t h e C a j a t o i s s u e b o n d s and to
make mortgage loans payable in f o r e i g n currencies. I t i s t h e p r a c t i c e of the
Caja to make i t s m o r t g a g e loans, against w h i c h bonds p a y a b l e in a foreign
currency are issued, also payable i n the same currency, e x c e p t In cases where
it has obtained a guaranty of the Republic o f Chile f o r any loss resulting from
exchange fluctuations. T h i s w a s d o n e in 1912 w h e n Fes. 58,823,500 gold bonds
w e r e issued ( o f w h i c h t h e r e a r e still Fes. 28,444,500 gold n o w outstanding),
a n d is also being done in the case o f the present issue against $15,000,000 of
which m o r t g a g e loans in Chilean currency w i l l be outstanding. T h e mortgage
loans against the balance of $5*000,000 of this issue w i l l be m a d e a t the request
o f the R e p u b l i c of Chile, f o r special purposes at l o w e r interest rates than the
C a j a is p a y i n g on t h e bonds and the R e p u b l i c h a s agreed to p a y the difference
and to guarantee these m o r t g a g e loans. T b e entire present issue o f bonds will
also b e guaranteed b y indorsement b y the R e p u b l i c o f Chile. N o other issue of
bonds o f the C a j a is indorsed w i t h the guaranty o f the R e p u b l i c .
T h e b o n d s o f the C a j a are legal investments f o r savings b a n k s and trust
f u n d s in Chile.
P r i o r to t h e war, in 1911 and 1912, three issues of 5 per cent b o n d s of the
C a j a , not indorsed with the g u a r a n t y o f the Government, w e r e m a d e in Europe,
at p r i c e s f r o m 9 6 ^ to 99*4 per cent.
T h e present debt o f the Republic o f Chile, including the present a n d all other
obligations guaranteed b y it, aggregates a b o u t $250,000,000, a t approximately
present rates o f exchange. T h e proceeds o f the G o v e r n m e n t l o a n s h a v e been
l a r g e l y u s e d f o r the construction o r i m p r o v e m e n t o f r a i l w a y s , harbors, and
o t h e r p u b l i c w o r k s . T h e G o v e r n m e n t o w n s 3,024 m i l e s o f r a i l r o a d s ; telegraph
lines, and o t h e r p r o p e r t y , o f an estimated v a l u e o f a p p r o x i m a t e l y $650,000,000,
a t a p p r o x i m a t e present rates o f e x c h a n g e , w h i c h is w e l l in e x c e s s o f the entire
a m o u n t o f the debt. I n addition, the G o v e r n m e n t o w n s l a r g e a n d v e r y vain-,
a b l e t r a c t s o f nitrate lands.
SALE OF
FOHEIGX
BONDS Oil SKCUllITIES
233
Chile is a mining and agricultural c o u n t r y . Its mineral pr<Klucts are largely
raw materials f o r essential industries. E x p o r t s consist chiefly of nitrates and
bj*-products of the nitrate industry, copper, b o r a x , wool, and a limited amount
of agricultural products. T h e nitrate deposits arc; the only large natural deposits so far discovered in the world. T h e copper industry has been extensively
developed, largely by American capital.
Tho tcule balance o f Chile is favorable. T h e total foreign trade f o r 1923
(the last year f o r which official figures a r e available) aggregated $318,000,000
at the approximate present rate o f exchange, and the balance o f exports over
imports amounted to $78,000,000. T h e unofficial estimates f o r 1924, both f o r
the total trade and f o r the f a v o r a b l e balance, exceed the results f o r 1923.
Since 1915 imports have exceeded e x p o r t s in only o n e y e a r .
The present currency circulation o f Chile at the present rate o f exchange o f
about 11% cents p e r peso* is equivalent to $35,855,045. P a r t o f this currency is covered b y gold reserves, part b y commodities and p a r t by mortgage
loans and other obligations. T h e total g o l d reserve amounts to approximately
$41,800,000, which is in excess o f the dollar equivalent, as stated above, o f the
present currency circulation.
The $20,000,000 g u a r a n t y sinking-fund G% p e r cent gold bonds of tho
Caja, constituting the loan designated Emprestito o r o C a j a Hipotecaria,
1925, which you have agreed to purchase, will be in coupon bearer f o r m , in
denominations o f $1,000 atul $500, w i l l be dated J u n e 30, 1925, will mature
June 30, 1957, and will bear interest a t the rate o f 6 % per cent per annum
from .June 30, 1925. payable semiannually on .lune 30 and December 31 o f
each year. Principal and interest will b e payable, a t the option o f the holders,
in the Borough of Manhattan, in tlie c i t y o f N e w York, a t the office of K u h n ,
Loeb & Co., o r a t the principal office o f Guaranty T r u s t Co. of N e w Y o r k ,
in gold coin of the United States o f A m e r i c a o f o r equal to the standard
of weight and fineness existnig J u n e 30, 1925, o r in Santiago, Chile, at the
office of the Caja, b y sight d r a f t on N e w Y o r k City, without deduction f o r
any taxes, imposts, levies, o r duties o f any nature n o w o r a t any time hereafter
imposed by the Republic o f Chile, o r b y a n y state, province, municipality, o r
other taxing authority thereof o r therein, and will be paid in time o f w a r
as well as in time o f peacc, a n d whether the holder b e a citiaen o r a resident
of a friendly o r a hostile state.
Beginning December 31, 1925, the bonds will b e redeemable through a
cumulative sinking f u n d calculated t o retire the w h o l e issue b y June 30, 1957,
to be applied on each semianmml interest d a t e to the ledemptioa by lot o f
bonds at par. Notice o f redemption is t o b e given b y advertisement, the first
advertisement to appear at least HO days before o a . h redemp ion date.
The Caja will have the right to Increase the a m o u n t o f any sinking f u n d
payment f o r the redemption o f additional bonds on any interest date, and
in any such case appropriate reductions will be m a d e in subsequent sinking
fund payments. T h i s right Is reserved because repayments on the mortgage
loans can be made by the b o r r o w e r s either in cash o r in bonds o f the C a j a
in excess o f the fixed minimum amortization payments, and the Caja is n o t
permitted by law to h a v e its bonds outstanding in excess o f the mortgage
loans against which they a r e issued.
Application will be m a d e to list the b o n d s on the N e w Y o r k Stock Exchange.
Yery truly yours,
BKLTBAN MATHIEU,
Ambassador Extraordinary and Plenipotentiary
of the Republic of Chile to the United States.
$20,000,000 MoKTnAor, BANK OF CUIUS (Cma m Cntmvo HIPOTEOARIO. CUIUS)
Guaranteed SINKINO-FCKU
I'KH CKNT floui BONOS OF 1920, DUK JUNE
30,1901
Unconditionally guaranteed a s to principal, Interest and sinking fund, b y
indorsement, by the Republic o f Chile.
Coupon-taarer bonds in d e n o m i n a t i o n s of $1,000 and $500 each. Principal
and interest to be p a y a b l e a t t h e option o f the Jiolders. in New Y o r k City, a t
the office o f Kuhn, L o e b & C o . o r o f G u a r a n t y T r u s t Co. o f N e w York, iU
United States gold coin o f o r e u a l - t o the standard o f w e i g h t and fineness e x i s t ing June 30.1926, o r in Santiago, Chile, nt the office o f the C a j a b y sight d r a f t
234
SALE OF FOREIGN; BONDS OR SECURITIES,
o n N e w Y o r k City, w i t h o u t deduction f o r a n y taxes, imposts, levies, or duties
o f any n a t u r e n o w o r a t a n y time h e r e a f t e r imposed by the R e p u b l i c o f Chile
o r b y a n y state, province, municipality, o r other t a x i n g authority thereof or
therein and t o b e p a y a b l e in time o f w a r a s w e l l as in t i m e o f peace and
w h e t h e r t h e holder b e a citizen o r a resident o f a f r i e n d l y o r a hostile state.
I n t e r e s t p a y a b l e June 30 and December 31.
F o r f u r t h e r i n f o r m a t i o n regarding this issue o f bonds, r e f e r e n c e is. made to
t h e a c c o m p a n y i n g letter received f r o m H i s Excellency, t h e H o n . Miguel
Cruchaga, a m b a s s a d o r e x t r a o r d i n a r y a n d plenipotentiary o f t h e Republic of
C h i l e t o the United States, and f r o m w h i c h t h e f o l l o w i n g is s u m m a r i z e d :
T h e b o n d s a r e to be unconditionally guaranteed a s t o principal, interest, and
sinking f u n d , b y indorsement, b y the R e p u b l i c o f Chile, pursuant to the law of
A u g u s t 29, 1855, creating the Caja, a s amended by decree l a w , dated December
1 5 , 1 9 2 5 , and pursuant t o decree l a w , dated M a r c h 9, 1925, a n d to decree of the
P r e s i d e n t o f the R e p u b l i c of Chile, dated July 2 7 , 1 9 2 6 .
Beginning December-31, 1926, the b o n d s will be redeemable through a cumulative sinking f u n d calculated to retire the w h o l e issue b y J u n e 30, 1961, to
b e applied on each semiannual interest date to t h e redemption b y lot o f bonds
a t par. T h e C a j a will h a v e the right to increase the amount, o f any sinking
f u n d installment f o r the redemption of additional bonds on a n y interest date,
and in a n y such case appropriate reductions will be m a d e in subsequent sinking f u n d installments. T h i s right is reserved because r e p a y m e n t s on the
m o r t g a g e l o a n s to be m a d e by the Caja, against w h i c h these b o n d s a r e to be
issued, can be made b y the b o r r o w e r s either in cash or i n b o n d s o f the Caja
•in excess o f the fixed minimum amortization p a y m e n t s and t h e C a j a is n o t permitted b y l a w to have its bonds outstanding in excess o f t h e m o r t g a g e loans
against which they are issued.
Application will be m a d e in due course to list these b o n d s o n t h e N e w York
'Stock Exchange.
T h e undersigned w i l l receive subscriptions f o r .$18,330,000 bonds, subject to
allotment, at 9 9 % per cent and accrued interest t o date o f delivery* to yield
o v e r 6.80 per cent to maturity.
T h e mortgage bank is w i t h d r a w i n g the remaining $1,070,000 b o n d s f o r its
reserve f u n d .
T h e undersigned reserve the right to close t h e subscription a t any t i m e without notice, to r e j e c t a n y application, to allot a smaller a m o u n t than applied for,
and to m a k e allotments in their uncontrolled discretion.
T h e a b o v e bonds a r e offered if, w h e n and as issued and received by the undersigned, and subject to the approval o f counsel. I n the first instance, interim
certificates o f Guaranty T r u s t Co. o f N e w Y o r k w i l l b e delivered against payment in N e w Y o r k f u n d s f o r bonds allotted, w h i c h interim certificates will be
exchangeable f o r definitive bonds w h e n prepared.
NEW YORK, July 29, 1926.
GUARANTY C o . OF NEW
K U H N , LOEB & C o .
YORK,
WASHINGTON, D . U., July 29, 192ti.
^Messrs. K U H N , LOEB & C o . a n d
GUARANTY C o . OF NEW YORK,
New York.
DEAR SIRS: R e f e r r i n g to the issue o f §20,000,000 principal amount o f guaranteed sinking-fund 6 % per cent gold b o n d s o f 1926, due J u n e 30, 1961, of the
M o r t g a g e B a n k o f Chile ( C a j a d e Credito H i p o t e c a r i o , C h i l e ) , o f which you
h a v e agreed t o p u r c h a s e $18,330,000, the C a j a w i t h d r a w i n g the balance of
$1,670,000 f o r its reserve f u n d , I beg t o give y o u the f o l l o w i n g i n f o r m a t i o n :
T h e b o n d s a r e to be unconditionally guaranteed a s t o principal, interest,
and sinking f u n d b y indorsement by the R e p u b l i c o f Chile, pursuant to the
l a w c r e a t i n g the C a j a , a s a m e n d e d b y decree l a w dated D e c e m b e r 15, 1925,
a n d p u r s u a n t t o decree l a w dated M a r c h 9, 1925, and to d e c r e e o f the President o f t h e R e p u b l i c o f Chile dated July 27, 1926.
T h e C a j a d e Credito H i p o t e c a r i o w a s created b y law* o f August 29, 1855,
f o r the p u r p o s e o f m a k i n g available credit facilities on reasonable terms for
the d e v e l o p m e n t a n d i m p r o v e m e n t o f real p r o p e r t y in Chile. T h e board of
directors, the president o f the b o a r d , t h e c h i e f counsel, the cashier, the comptroller, a n d the s e c r e t a r y a r e appointed b y t h e President o f t h e Republic.
SALE OF FOHEIGX BONDS Oil SKCUllITIES
235
During its entire existence of o v e r 70 y e a r s the C a j a has operated successfully and has never failed to meet its obligations. T h e record of its loan
collections is very satisfactory. T h e losses incurred by the C a j a on property
foreclosed under its mortgages have n o t exceeded $40,000 in the aggregate
for the hist 10 years. In his rei>ort, published February 1, 1024, to the
Department of Commerce of the United States, Mr. Charles A. McQueen,
speciul agent o f the Bureau o f Foreign and Domestic Commerce o f the department, states that In the course o f its long existence the C a j a litis conducted its affairs with uniform safety and success.
The Caja has no capital stock aiul is not o|»erated f o r p r o f i t I t lias power
to charge a commission to provide f o r Its cx|x»nses and f o r a reserve fund a s
additional security f o r its bonds, but, having accumulated a sufficient reserve,
the Caja has now discontinued charging such commission.
The Caja issues its bonds only against mortgages registered hi its name.
It makes only first-mortgage loans. Tlie loans are made on a conservative basis
and the risk is greatly diversified.
On December 31, 1925, the C a j a had
outstanding various issues of Iwmds aggregating $100,210,000, at gold par o f
exchange, against which it had m a d e 10,19s mortgage loans, being an average
of less than $10,000 i»er loan. T h e s e loans aggregated less than 25 per cent
of the aggregate appraised i m p r o v e d value o f the pro|»ertles mortgaged as
security therefor. A s further security f o r its bonds the Caja has accumulated
a reserve fund of approximately $5,028,450 at gold par of exchange.
The law authorizes the C a j a to insue l>onds and to make mortgage loans
IMiyable in foreign currencies.
It Is the practice of the Caja to make its
mortgage loans, against which bonds imyable in a foreign currency are issued,
also payable in the same currency, except In cases where it has obtained a
guaranty of the Republic o f Chile f o r any loss resulting f r o m exchange
fluctuations.
T h i s w a s done in 1012 when Fes. 58,823.500 gold bonds were
issued ( o f which there a r c still Fes. 27,982,500 gold n o w outstanding) and
in 1925 when $20,000,000 United States gold bonds were issued in the United
States by you.
The mortgage loans against $5,000.1)00 o f the present issue will be made
at the request o f the Republic nf Chile f o r special puri>oses at lower interest
rates than the C a j a is p a y i n g on the bonds and the Republic has agreed to
pay the difference and to guarantee those mortgage loans. T h e entire present
issue of bonds will also be guarantee*I b y endorsement b y the Republic of Chile.
The bonds of the Caja a r e legal Investments f o r savings banks and trust
funds in Chile.
Prior to the war, in 1911 and 1912. three Issues of 5 per cent bonds o f the
Caja, not indorsed with the guaranty o f the Government, were made in Europe,
at prices f r o m 9 0 % to 9 9 % i>er cent. T h e s e Issues a r e listed on the stock
exchanges of Paris and Berlin.
The present debt of the R e p u b l i c o f Chile, Including the present and all
other obligations guaranteed by it. aggregates about $270,000,000, at gold
par of exchange. T h e proceeds o f the Government loans have been largely
used for the construction o r improvement o f railways, harbors, and other public
works. T h e Government o w n s 3,024 miles o f railroads, telegraph lines, and
other property, o f an estimated value o f approximately $650,000,000, at gold
par of exchange, which is well in excess o f the entire amount of the debt. In
addition, the Government o w n s l a r g e and very valuable tracts o f nitrate lands.
Chile is a mining and agricultural country. Its mineral products are largely
raw materials f o r essential industries.
Exports consist chiefly o f nitrates,
by-products of the nitrate industry, copj>er, b o r a x , wool, and a limited amount
of agricultural products.
T h e nitrate deposits are the only large natural
deposits so f a r discovered in the w o r l d . T h e copjwr industry has been extensively developed, largely b y American capital.
Tlie trade balance o f Chile Is favorable. T h e total foreign trade f o r 1924
(the last year f o r which official figures are available) aggregated $352,000,000
at the present gold parity o f exchange, and the balance o f e x p o r t s o v e r imports
amounted to $86,000,000. Since 1915 imports have exceeded exports in only
one year.
Chile is on a gold basis. Its currency is tlie peso, equivalent to United States
$0.12166. Currency notes a r e Issued b y the central bank of Chile, similar t o tlie
Federal reserve banks o f the United States.
The above-mentioned $20,000,000 principal a m o u n t o f guaranteed sinking f u n d
per cent gold bonds o f 1926 of the C a j a , constituting the l o a n designated
Emprestlto o r o Caja Hipotecaria, 1926, will be in coupon-bearer f o r m , in d e n o m -
236
SALE'••OF FOREIGN BONDS ?OR SECURITIES
i n a t i o n s o f $1,000 and $500, will b e dated June 30, 1926, w i l l m a t u r e June 30,
1961, a n d w i l l b e a r interest a t t b e rate o f 6 % p e r c e n t p e r a n n u m f r o m
J u n e 30, 1926, p a y a b l e semiannually on June 30 a n d D e c e m b e r 31 of each year.
P r i n c i p a l a n d interest w i l l b e p a y a b l e a t t h e option of t h e holders, in the
b o r o u g h o f Manhattan, in the city o f N e w Y o r k , a t the office o f K u h n , Loeb &
Co., o r a t the principal office of G u a r a n t y T r u s t Co. of N e w Y o r k , in gold cola
o f the United States o f A m e r i c a of o r equal to the standard o f w e i g h t and finen e s s e x i s t i n g J u n e 30, 1926, o r in Santiago, Chile, at the office o f the Caja, by
sight d r a f t o n N e w Y o r k City, w i t h o u t deduction f o r any taxes, imposts, levies,
o r duties o f a n y nature n o w o r at any time h e r e a f t e r imposed b y the Republic
o f Chile, o r b y a n y State, Province, municipality o r other t a x i n g authority
thereof o r therein, and w i l l be paid in time of w a r a s well as i n time o f peace,
a n d w h e t h e r the holder be a citizen o r a resident of a friendly o r a hostile state.
B e g i n n i n g D e c e m b e r 31,1926, the bonds will be redeemable through a cumulat i v e sinking f u n d calculated to retire the w h o l e issue by J u n e 30, 1961, to be
applied on e a c h semiannual interest date to the redemption b y lot o f bonds at
par. N o t i c e of redemption is to be given b y advertisement, t h e first advertisem e n t t o appear at least 30 days b e f o r e each redemption date. T h e C a j a will
h a v e t h e right to increase the amount of a n y sinking-fund installment f o r the
redemption of additional bonds on any interest, date, a n d i n a n y such case
appropriate reductions w i l l b e m a d e i n subsequent sinking-fund installments.
T h i s r i g h t is reserved because repayments on the m o r t g a g e l o a n s c a n be made
b y the b o r r o w e r s either in cash o r in bonds of t h e C a j a in e x c e s s o f t h e fixed
m i n i m u m amortization payments and the C a j a i s n o t permitted b y l a w to have
its b o n d s outstanding in excess o f the mortgage l o a n s against w h i c h they are
issued.
Application will b e m a d e in due course to l i s t the bonds o n t h e N e w York
Stock Exchange.
V e r y truly yours,
MIGUEL CBUCHAGA,
Ambassador Extraordinary and Plenipotentiary
of the Republic of Chile to the United States.
$10,000,000 MORTGAGE BANK OF CHILE (CAJA DE CR£MTO HIPOTECARIO, CHILE)
GUARANTEED 5-YKAR 6 PER CENT AGRICULTURAL GOLD NOTES OF 1 9 2 6 r DUB
DECEMBEBK 31, 1931.
UNCONDITIONALLY GUARANTEED, BY INDORSEMENT, BY THE REPUBLIC OF CHILE, AS
TO PRINCIPAL AND INTEREST—NOT REDEEMABLE BEFORE MATURITY
Coupon bearer notes in denomination of $1,000 each. Principal and interest
t o be payable at the option o f the holders, in N e w Y o r k City a t office o f Kuhn,
L o e b & Co. o r o f Guaranty T r u s t Co. o f New Y o r k , in United States gold coin
o f o r equal to the standard o f w e i g h t and fineness existing D e c e m b e r 31, 1926,
o r in Santiago, Chile, a t the office of the C a j a b y sight d r a f t on N e w York
City, w i t h o u t deduction f o r any taxes, imposts, levies, o r d u t i e s o f any nature
n o w o r a t a n y time h e r e a f t e r imposed b y t h e R e p u b l i c o f Chile o r by any
State, Province, municipality, o r other t a x i n g authority t h e r e o f o r therein
a n d t o b e p a y a b l e in time o f w a r a s well as i n time o f p e a c e and whether
t h e h o l d e r b e a citizen o r a resident o f a f r i e n d l y o r a hostile state.
Interest p a y a b l e June 30 and D e c e m b e r 3 L
F o r f u r t h e r i n f o r m a t i o n regarding this issue o f notes, r e f e r e n c e is m a d e to
t h e a c c o m p a n y i n g letter received f r o m his excellency the H o n . Miguel Crucbaga,
a m b a s s a d o r e x t r a o r d i n a r y and plenipotentiary o f the R e p u b l i c o f Chile t o the
U n i t e d States, w h o h a s authorized the f o l l o w i n g statement :
T h e notes a r e t o b e unconditionally guaranteed, b y indorsement, b y the
R e p u b l i c o f Chile, a s to principal and interest, a n d a r e b e i n g issued f o r the
p u r p o s e o f m a k i n g l o a n s secured b y agricultural products o r implements, which
loans, a s p r o v i d e d b y l a w , m a y n o t exceed 50 p e r cent o f t h e e s t i m a t e d value
o f t h e collateral.
T h e undersigned o f f e r t h e above notes, subject to p r i o r sale, a t 9 8 % per cent
arid accrued interest to d a t e o f delivery, to yield a b o u t 6.30 p e r cent a t maturity.
T h e a b o v e notes a r e o f f e r e d if, w h e n , a n d a s issued and, received b y the
undersigned, a n d s u b j e c t t o t h e approval o f counsel. I n t h e first instance,
i n t e r i m certificates o f G u a r a n t y T r u s t Co. o f N e w Y o r k w i l l b e delivered
SALE OF
FOHEIGX
B O N D S Oil S K C U l l I T I E S
237
a g a i n s t p a y m e n t In N e w Y o r k fund** f o r n o t e s a l l o t t e d , w h l e l i i n t e r i m certificates w i l l b e e x c h a n g e a b l e f o r d e f i n i t i v e n o t e s w h e n p r e p a r e d .
K I M I N , LOKD & C o .
CUWUANTY C o . OF NEW
NEW YORK, Dcccmber
22,
W A S H I N G T O N D . C. F
Messrs. KUHN, Lom
YORK.
1926,
December 22, 1926.
& C o . a n d GUARANTY CO. OF NKW YOBK,
Xcw
York.
DEAB SIRS: R e f e r r i n g t o t h e tesue o f $10,000,000 p r i n c i p a l a m o u n t o f g u a r a n teed 5 - y e a r G p e r c e n t a g r i c u l t u r a l g o l d n o t e s o f 1020, d u e D e c e m b e r 3 i , 1031,
of the M o r t g a g e B a n k o f C h i l e ( C a j a d e C r & H t o HijJotecario, C h i l e ) , I b e g
to g i v e y o u t h e f o l l o w i n g i n f o r m a t i o n :
T h e n o t e s a r e t o b e u n c o n d i t i o n a l l y g u a r a n t e e d b y i n d o r s e m e n t , b y the
R e p u b l i c o f C h i l e , a s t o p r i n c i p a l n n d i n t e r e s t a n d a r e to b e Issued in a c c o r d ance w i t h t h e l a w o f t h e R e p u b l i c o f C h i l e , d a t e d A u g u s t 20, l&r»5, establishing
the C a j a , a s a m e n d e d b y t h e d e c r e e l a w d a t e d D e c e m b e r 15, 1025 ( w h i c h
decree l a w w a s d u l y a p p r o v e d b y t h e c o m m i s s i o n a p p o i n t e d f o r t h a t purpose
by both H o u s e s o f C o n g r e s s ) , w i t h t h e l a w N o . 4074, d a t e d J u l y 27, 1020, with
decrees N o . 834, d a t e d N o v e m b e r 17, 1020, a n d N o . 008, d a t e d Deeem»>er 16,
1020, a n d w i t h t h e d e c r e e o f t h e P r e s i d e n t o f t h e R e p u b l i c o f Chile, d a t e d
D e c e m b e r 22, 1020, f o r t h e p u r p o s e nf m a k i n g l o a n s s e c u r e d b y a g r i c u l t u r a l
p r o d u c t s o r i m p l e m e n t s , w h i c h l o a n s m a y n o t e x c e e d 5 0 p e r c e n t o f tlie
estimated v a l u e o f t h e c o l l a t e r a l .
Tlie C a j a d e C r e d i t o I l i p o t e c a r i o w a s c r e a t e d b y l a w o f A u g u s t 20, 18,15,
f o r the p u r p o s e o f m a k i n g a v a i l a b l e c r e d i t f a c i l i t i e s o n r e a s o n a b l e t e r m s f o r
tlie d e v e l o p m e n t n n d i m p r o v e m e n t o f r e a l p r o p e r t y In Chile. T h e b o a r d o f
directors, t h e p r e s i d e n t o f t h e b o a r d , t h e c h i e f c o u n s e l , t h e cashier, t h e c o n troller a n d the s e c r e t a r y a r e a p p o i n t e d b y t h e P r e s i d e n t o f t h e R e p u b l i c .
D u r i n g its e n t i r e e x i s t e n c e o f o v e r 7 0 y e a r s , t h e C a j a h a s o p e r a t e d successfully a n d h a s n e v e r f a i l e d t o m e e t i t s o b l i g a t i o n s . T h e r e c o r d o f Its loan
collections i s v e r y s a t i s f a c t o r y . T h e l o s s e s I n c u r r e d b y t h e C a j a on p r o p e r t y
foreclosed u m l c r i t s m o r t g a g e s h a v e n o t e x c e e d e d $40,000 i n the a g g r e g a t e f o r
the last ten y e a r s .
The Caja has n o capital s t o c k a n d is n o t operated f o r p r o f i t I t has power
t o c h a r g e a c o m m i s s i o n t o p r o v i d e f o r i t s e x p e n s e s a n d f o r a reserve f u n d , a s
additional s e c u r i t y f o r i t s b o n d s n n d n o t e s , b u t h a v i n g a c c u m u l a t e d a s u f ficient reserve, t h e C a j a h a s n o w d i s c o n t i n u e d c h a r g i n g such c o m m i s s i o n .
On D e c e m b e r 31, 1025, t h e C a j a l m d o u t s t a n d i n g v a r i o u s issues o f b o n d s
aggregating $ 1 0 0 2 1 9 , 0 0 0 , a t g o l d p u r o f e x c h a n g e , a g a i n s t w h i c h it h a d m a d e
10,19S m o r t g a g e l o a n s , b e i n g a n a v e r a g e o f l e s s , t h a n $10,000 per l o a n . T h e s e
loans a g g r e g a t e d l e s s t h a n 2 5 p e r c e n t of t h e a g g r e g a t e appraised i m p r o v e d
value of t h e p r o p e r t i e s m o r t g a g e d a s s e c u r i t y t h e r e f o r . A s f u r t h e r security f o r
Its b o n d s and n o t e s , t h e C a j a h a s a c c u m u l a t e d a r e s e r v e f u n d o f a p p r o x i m a t e l y
$5,028,450, a t g o l d p a r o f e x c h a n g e .
The bonds and n o t e s o f the C a j a a r e legal Investments f o r savings banks
and trust f u n d s In C h i l e .
P r i o r t o t h e w a r , i n 1911 a m i 1912, t h r e e tones o f 5 p e r c e n t b o n d s of the
Caja, n o t i n d o r s e d w i t h t h e g u a r a n t y o f tlie g o v e r n m e n t w e r e m a d e in
Europe a t p r i c e s f r o m 9 0 % t o 99*4 p e r c e n t . T h e s e issues a r e listed on t h e
stock e x c h a n g e s o f P a r i s a n d B e r l i n .
T h e p r e s e n t d e b t o f t h e R e p u b l i c o f C h i l e , i n c l u d i n g t h e p r e s e n t a n d all o t h e r
obligations g u a r a n t e e d b y it, a g g r e g a t e s a b o u t $298,000,000, a t g o l d p a r o f
exchange. T h e p r o c e e d s o f t h e G o v e r n m e n t l o a n s h a v e been l a r g e l y used f o r
the c o n s t r u c t i o n o r i m p r o v e m e n t o f r a i l w a y s , h a r b o r s , a n d o t h e r p u b l i c w o r k s .
T h e G o v e r n m e n t o w n s 3.624 m i l e s o f r a i l r o a d s , t e l e g r a p h lines, a n d o t h e r p r o p erty, o f a n e s t i m a t e d v a l u e o f a p p r o x i m a t e l y $050,000,000, a t g o l d p a r o f
exchange.
Chile Is a m i n i n g a n d a g r i c u l t u r a l c o u n t r y . I t s m i n e r a l p r o d u c t s a r c l a r g e l y
raw materials f o r essential industries.
E x p o r t s c o n s i s t chiefly o f nitrates,
by-prodnets o f t h e n i t r a t e I n d u s t r y , c o p p e r , liorax, w o o l , a n d a limited a m o u n t
of a g r i c u l t u r a l p r o d u c t s . T h e l a r g e s t k n o w n c o p p e r d e p o s i t s in t h e w o r l d a r e
in Chile. T h e y o c c u r n e a r t h e s u r f a c e a n d a r e o f e x c e p t i o n a l l y high quality,
resulting i n t h e l o w e s t c o s t p r o d u c t i o n o f a n y l a r g e - s c a l e c o p p e r p r o d u c i n g
92928—31-HPT 1
16
238
SALE OF FOREIGN; BONDS OR SECURITIES,
area in the w o r l d . T h e s e deposits a r e being e x t e n s i v e l y d e v e l o p e d , m a i n l y by
A m e r i c a n capital.
Chile's total f o r e i g n trade f o r 1925 a g g r e g a t e d $376,000,000 at t h e present
g o l d parity o f exchange, and the balance o f e x p o r t s o v e r i m p o r t s amounted to
$78,000,000. T h e average annual f a v o r a b l e t r a d e b a l a n c e f o r the s i x years,
1920 t o 1925, w a s $69,000,000.
Chile is on a gold basis. Its c u r r e n c y is the peso, equivalent t o U n i t e d States
$0.12166. Currency notes are issued b y the Central B a n k o f Chile, similar
to the Federal reserve banks o f the United States.
T h e above-mentioned $10,000,000 principal a m o u n t of g u a r a n t e e d 5-year 6
per cent agricultural gold notes o f 1926 of the C a j a will b e in coupon-bearer
form, in the denomination of $1,000, will b e dated D e c e m b e r 31, 1926, will
mature D e c e m b e r 31, 1931, w i l l not be redeemable b e f o r e their maturity, and
.will bear interest at the rate of 6 per cent per a n n u m f r o m D e c e m b e r 31, 1926,
payable semiannually on J u n e 30 and D e c e m b e r 31 o f e a c h y e a r .
Principal
and interest will be payable at the option o f t h e holders, in the borough of
Manhattan, in the city of N e w Y o r k , at the office o f K u h n , L o e b & Co.. or
a t the principal office of Guaranty Trust Co. o f N e w Y o r k , in g o l d coin of the
United States of America of o r equal to the s t a n d a r d o f w e i g h t a n d fineness
existing December 31, 1926, or in Santiago, Chile, at the office o f the Caja,
b y sight d r a f t on N e w Y o r k City, without deduction f o r a n y taxes, imposts,
levies, o r duties of any nature n o w or at any . time h e r e a f t e r i m p o s e d by the
R e p u b l i c of Chile, ' o r b y any state, province, m u n i c i p a l i t y , or o t h e r taxing
authority thereof or therein, a n d will be paid in time o f w a r a s w e l l a s ia
time of peace, and whether the h o l d e r be a citizen o r a r e s i d e n t o f a friendly
o r a hostile state.
Y e r y truly yours,
MIGUEL CBUCHAGA.
Ambassador Extraordinary
and
Plenipotentiary
of the Republics of Chile to the United States.
$20,000,000 MORTGAGE BANK OF CHILE (CAJA DE CK£DITO HIPOTECARIO, CHILE)
GUARANTEED SINKING FUND 6 PER CENT GOLD BONDS OF 1928, DUE APRIL 30.
1961
UNCONDITIONALLY GUARANTEED AS TO PRINCIPAL, INTEREST, AND SINKING FUND, BY
INDORSEMENT, BY THE REPUBLIC OF CHILE
Coupon bearer bonds in denominations of $1,000 a n d $500 each.
Principal
and interest will be payable at the option o f the holders, i n N e w Y o r k City
a t the office of Kuhn, L o e b & Co. o r o f G u a r a n t y T r u s t C o . o f N e w York, in
United States gold coin of o r equal t o the s t a n d a r d of w e i g h t a n d fineness existing A p r i l 30, 1928, o r in Santiago, Chile, at the office of the C a j a , b y s i g h t d r a f t
on N e w Y o r k City, without deduction f o r a n y taxes, i m p o s t s , levies, o r duties
o f any nature n o w o r at any t i m e h e r e a f t e r imposed b y the R e p u b l i c o f Chile,
o r b y a n y State, Province, municipality, o r o t h e r t a x i n g a u t h o r i t y thereof or
therein, and will be paid in time o f w a r as well a s in time o f p e a c e a n d whether
the holder be a citizen o r a resident o f a f r i e n d l y o r a hostile S t a t e .
Interest payable April 30 and October 31.
F o r f u r t h e r i n f o r m a t i o n regarding this issue of b o n d s r e f e r e n c e is made
t o t h e accompanying letter received f r o m H i s E x c e l l e n c y t h e H o n . Carlos G.
Davila, ambassador e x t r a o r d i n a r y and plenipotentiary o f the R e p u b l i c o f
Chile to the United States, and f r o m which the f o l l o w i n g is s u m m a r i z e d :
T h e b o n d s are to be unconditionally g u a r a n t e e d a s t o p r i n c i p a l , interest,
and sinking fund, b y indorsement b y the R e p u b l i c o f Chile, a n d a r e to be
issued in a c c o r d a n c e with the l a w o f the R e p u b l i c o f C h i l e , d a t e d A u g u s t 29,
1855, establishing the C a j a , a s a m e n d e d b y d e c r e e l a w , d a t e d D e c e m b e r 15,
1925, w h i c h w a s duly approved b y the c o m m i s s i o n a p p o i n t e d f o r that purpose
b y both H o u s e s o f Congress, and w i t h the decree L a w N o . 308 o f M a r c h 9,1925,
and w i t h the decree o f the President o f the R e p u b l i c o f C h i l e , d a t e d January
31, 1928«
,
" B e g i n n i n g October 31, 1928, the bonds will b e r e d e e m a b l e t h r o u g h a cumulative sinking f u n d calculated t o retire t h e w h o l e issue b y A p r i l 3 0 . 1 9 6 1 , to be
applied o n e a c h semiannual interest d a t e t o the r e d e m p t i o n b y tot o f bonds at
par. T h e C a j a will h a v e the r i g h t to i n c r e a s e the a m o u n t o f a n y sinking-fund
S A L E OF
FOHEIGX
BONDS Oil SKCUllITIES
239
installment f o r the r e d e m p t i o n o f a d d i t i o n a l bonds on any interest date, and
in any such cnsa a p p r o p r i a t e r e d u c t i o n s will !>c m a d e in subsequent sinkingfund installm* nts. T h i s right i s reserved b e c a u s e repayments on the mortgage
loans to ht> m a d e b y the C a j a . a g a i n s t w h i c h these b o n d s a r e to be issued, can
be m a d e b y the b o r r o w e r s e i t h e r in c a s h o r in Iwmds o f the C a j a in excess o f
the fixed m i n i m u m a m o r t i z a t i o n p a y m e n t s and the C a j a Is n o t permitted b y
law t o h a v e Its Itomls o u t s t a n d i n g In
o f the m o r t g a g e loans against which
they a r e issued.
" A p p l i c a t i o n w i l l b e m a d e in d u e c o u r s e to list these bonds 011 the New
York Stock E x c h a n g e / '
T h e undersigned w i l l r e c e i v e s u b s c r i p t i o n s f o r the a b o v e bonds, subject to
allotment, a t 95-}J p e r c e n t a n d a c c r u e d Interest t o d a t e o f delivery, to yield
over 6.30 p e r cent t o m a t u r i t y .
T h e undersigned r e s e r v e t h e right t o c l o s e the subscription a t any time without notice, to r e j e c t a n y application* t o nllot a smaller amount than applied
for, and to m a k e a l l o t m e n t s In t h e i r u n c o n t r o l l e d discretion.
T h e a b o v e b o n d s a r e o f f e r e d i f , w h e n a n d a s Issued and received by the undersigned. and s u b j e c t t o the a p p r o v a l o f c o u n s c l . In the first instance, interim
certificates of G u a r a n t y T r u s t C o . o f N e w Y o r k will b e delivered against payment in N e w Y o r k f u n d s f o r b o n d s allotted, which Interim certificates will be
exchangeable f o r d e f i n i t i v e b o n d s w h e n prepared,
KCHN\ LOEB & C o .
GUARANTY CO. OF NEW YOUR.
T H E NATIONAL CITV CO.
NEW YORK. April SO,
IMS.
WASHINGTON, D . C., April SO, 1028.
DEAR SIRS : R e f e r r i n g t o t h e issue o f $20,000,000 principal amount o f guaranteed sinking f u n d 0 p e r c e n t g o l d b o n d s o f 1928, d u e April 30, 1961, of the
mortgage bank o f C h i l e ( C a j a d e C r & l l t o Hipotecario. C h i l e ) , which you have
agreed t o purchase, I lw?g t o g i v e y o u t h e f o l l o w i n g i n f o r m a t i o n :
The bonds a r e t o b e u n c o n d i t i o n a l l y g u a r a n t e e d a s to principal, interest,
and sinking f u n d , b y i n d o r s e m e n t , b y t h e R e p u b l i c o f Chile, and are to be
issued in a c c o r d a n c e w i t h t h e l a w o f the R e p u b l i c o f Chile, dated August 29.
1855, establishing t h e C a j a , a s a m e n d e d b y d e c r e e l a w , dated December 15,
1925, which w a s d u l y a p p r o v e d b y the c o m m i s s i o n appointed f o r that purpose
by both houses o f C o n g r e s s , a n d w i t h the decree l a w No, 308 of March 9, 1925,
and w i t h the d e c r e e o f the P r e s i d e n t o f the R e p u b l i c of Chile dated January
31, 1928.
T h e C a j a d e C r M l t o H i p o t e c a r i o w a s created f o r the purpose o f making
available c r e d i t f a c i l i t i e s 011 r e a s o n a b l e t e r m s f o r the development and Improvement o f real p r o p e r t y In C h i l e . T h e b o a r d o f directors, tlie president of
the board, the c h i e f c o u n s e l , t h e c a s h i e r , t h e controller, and the secretary are
appointed b y t h e P r e s i d e n t o f the R e p u b l i c .
During i t s e n t i r e e x i s t e n c e o f o v e r 7 0 y e a r s , the C a j a has operated successfully and h a s n e v e r f a i l e d t o m e e t Its obligations. T h e record o f its loan
collections is v e r y s a t i s f a c t o r y . T h e losses incurred b y the C a j a on property
foreclosed u n d e r i t s m o r t g a g e s h a v e n o t e x c e e d e d $40,000 in the aggregate
f o r the last 10 y e a r s .
T h e C a j a h a s n o c a p i t a l s t o c k a n d i s n o t o p e r a t e d f o r p r o f i t It has power
to charge a c o m m i s s i o n t o p r o v i d e f o r Its e x p e n s e s a n d f o r a reserve fund, a>
additional s e c u r i t y f o r i t s b o n d s a n d notes, but h a v i n g accumulated a sufficient reserve, t h e C a j a h a s n o w d i s c o n t i n u e d c h a r g i n g such commission.
On D e c e m b e r 31, 1927, t h e C a j a h a d o u t s t a n d i n g v a r i o u s issues of bonds
aggregating $126,846,150 a t g o l d p a r o f e x c h a n g e a n d an issue o f $10,000,000
of notes. T h e C a j a Issues i t s b o n d s o n l y a g a i n s t first m o r t g a g e s registered in
its name. On D e c e m b e r 31, 1927, t h e C a j a had m a d e against its outstanding
bonds 11,754 m o r t g a g e l o a n s , b e i n g a n a v e r a g e o f less than $1,000 per loan,
and these l o a n s a g g r e g a t e d l e s s than 2 5 p e r cent o f t h e aggregate appraised
improved v a l u e o f t h e p r o p e r t i e s m o r t g a g e d a s security therefor. Against its
notes the C a j a h a d o n t h a t (late m a d e 2,572 loans, being a n a v e r a g e o f less
than $5,000 p e r l o a n . A11 i t s l o a n s a r e m a d e on a c o n s e r v a t i v e basis and the
risk is g r e a t l y d i v e r s i f i e d . A s f u r t h e r security* f o r its b o n d s and notes the
Caja h a s a c c u m u l a t e d n r e s e r v e f u n d o f a p p r o x i m a t e l y $5,028,450 a t g o l d p a r
bf exchange.
240
SALE OF FOREIGN; BONDS OR SECURITIES,
T h e l a w authorizes the Caja to issue bonds and to make mortgage loans
payable in foreign currencies. I t is the practice of the Caja to make its mortgage loans, against which bonds payable in a foreign currency are issued, also
payable in tlie same currency, except in cases where it has obtained a guaranty
of the Republic of Chile f o r any loss resulting f r o m exchange fluctuations. This
w a s done in 1912 when Fes. 58,823,500 gold bonds were issued ( o f which there
are still Fes. 25,000,000 gold now outstanding) and in 1925 and 1926 when
$40,000,000 United States gold bonds and $10 000,000 5-year United States gold
notes were issued in the United States by you, and is also being done in the
case of the present issue, against $12,000,000 of which mortgage loans in Chilean
currency „ will be outstanding.
T h e mortgage loans against $8,000,000 of the present issue will be made at
the request of the Republic of Chile f o r construction purposes at lower interest
rates than the Caja is paying on tlie bonds and the Republic has agreed to pay
ihe difference and to guarantee those mortgage loans. T h e entire present issue,
of bonds will also be guaranteed by indorsement by the Republic of Chile.
T h e bonds and notes of the Caja are legal investments f o r savings banks and
trust funds in Chile.
Prior to the war, in 1911 and 1912, three issues of 5 per cent bonds of the
Caja, not indorsed with the guaranty of the government, were made in Europe,
at prices f r o m 96*4 to 991/4 per cent. These issues are listed on the stock exchanges of Paris and Berlin.
T h e present debt of the Republic of Chile, including the present and all other
obligations guaranteed by it, aggregates about $356,000,000 at gold par of exchange. The proceeds of the government loans have been largely used f o r the
construction o r improvement of railways, harbors, and other public works. The
government owns 3,390 miles of railroads, telegraph lines and other property,
of an estimated value of approximately $650,000,000 at gold par of exchange.
Chile is a mining and agricultural country. Its mineral products are largely
raw materials f o r essential industries. Exports consist chiefly of nitrates, byproducts of the nitrate industry, copper, borax, wool, and a limited amount of
agricultural products. The largest known copper deposits in the world are in
Chile. They occur near the surface and are of exceptionally high quality,
resulting in the lowest cost production of any large scale copper producing area
In the world. These deposits are being extensively developed, mainly by
American capital.
The trade balance of Chile is favorable. Tlie total foreign trade for 1927
aggregated $336,000,000 at the present gold parity of exchange and the balance
of exports over imports amounted to $75,000,000. Since 1915 imports have
exceeded exports in only one year.
Chile is on a gold basis. Its currency is the peso, equivalent to U. S. $0.12166.
Currency notes are issued by the Central Bank of Chile, similar t o the Federal
reserve banks of the United States.
T h e above-mentioned $20,000,000 principal amount of guaranteed sinking fund
6 per cent gold bonds of 1928 of the Caja, constituting the loan designated
Emprestito o r o Caja Hipotecaria, 1928, will be in coupon bearer form, in denominations o f $1,000 and $500, will be dated April 30, 1928, will mature April
30, 1961, and will bear interest at the rate of 6 per cent per annum f r o m April
30, 1928, payable semiannually on April 30 and October 31 of each year. Principal and interest will be payable at the option of the holders, in the Borough
of Manhattan, in the city of New York, a t the office of Kuhn, Loeb & Co., or at
the principal office of Guaranty Trust Co. of New York, in gold coin of the
United States of America of o r equal to the standard of weight and fineness
existing April 30, 1928, o r in Santiago, Chile, at tlie office of the Caja, by sight
d r a f t on N e w York City, without deduction f o r any taxes, imposts, levies, or
duties o f any nature n o w o r at any time hereafter imposed by the Republic of
Chile, o r by any State, Province, municipality, or other taxing authority thereof
o r therein, and will be paid in time of w a r as well as in time of peace and
whether the holder be a citizen or a resident of a friendly or a hostile State.
Beginning October 31, 1928, the bonds will be redeemable through a cumulative sinking f u n d calculated to retire the whole i.-sue by April 30, 1961, to be
applied on each semiannual interest date to the redemption by lot of bonds at
par. Notice o f redemption is to be given by advertisement, the first advertisement to appear at least 30 days before each redemption date. T h e Caja will
have the right to increase the amount of any sinking f u n d installment f o r the
redemption of additional bonds on any interest date, and in any such case
appropriate reductions will be m a d e in subsequent sinking f u n d installments*
SALE OK FOliEIGX BONDS 01! SECU1UTIES
241
This right is reserved because repayments on the mortgage loans can he made by
the»borrowers either in cash or in bonds of the Caja in excess of the fixed miniinum amortization payments and the Caja is not ]>ermltted by law to have its
bonds outstanding in excess nf the mortgage loans against which they are issued.
Application will he made in due course to lint the bonds on the New York
Stock Exchange.
Very truly your*.
('ATTLOS G. 1) A VILA,
Ambassador Extraordinary and Plenipotentiary
of the Jtcpubtic of Chile to the United Stales.
$20,000,000 MOIOVAOE BANK OF CHILE (CAJA DK CAFCURRO HIPOTECAIUO, CHILE)
GUABAXTUAI SINKING KUM> 0 PER CKNT GOLD BONDS OP 1 0 2 0 ; D U E M A Y 1 ,
1902
Unconditionally guaranteed as to prlncii>al, interest, and sinking fund, by
indorsement by the Republic of Chile.
Coupon bearer bonds in denomination o f $1,000 and $500 each. Principal
*nd interest payable, at the option o f the holders, in New York City at the office
of Kuhn, Loeb & Co. or of Guaranty Trust Co. of New York, in United States
gold coin of or equal to the standard of weight and fineness existing May 1,
1929, or in Santiago, Chile, at the office o f the Caja, by sight d r a f t on New
York City, without deduction f o r any taxes, imposts, levies, o r duties of any
nature now or at any time hereafter imiwsed by the Republic o f Chile, or by
any state, province, municipality, or other taxing authority thereof o r therein,
and payable in time of w a r as well as in time of peace and whether the holder
be a citizen or a resident of a friendly o r a hostile state.
Interest payable May 1 and November 1,
For further information regarding this issue of bonds, reference Is made to
the accompanying letter f r o m his excellency, Carlos G. Davila, ambassador
extraordinary and plenipotentiary of tbe Republic of Chile to the United States,
from which the following is s u m m a r i s e d :
" T h e bonds a r c to l»e unconditionally guaranteed a s to principal, interest,
and sinking fund, by indorsement by the Republic of Chile, and are to be issued
in accordance with the law of the Republic o f Chile, dated August 29, 1855,
establishing the Caja, as amended by decree law No. 743, dated December 15,
1925, which was duly approved by the commission appointed f o r that purpose
by both houses o f Congress, and with l a w No. 4074, dated July 27, 1920, as
amended by law No. 4327, dated March 20, 1928, and with the decree of the
President of the Republic of Chile. No. 2004, dated June 25, 1929.
" T h e Bonds will be redeemable through a cumulative sinking fund beginning November 1, 1020, calculated to retire the entire issue by May 1, 1002,
to be applied on each semiannual interest, date to the redemption o f bonds by
lot at par. The Caja will have the right to increase the amount of any
sinking fund installment f o r the redemption of additional bonds on any interest
date and in any such case appropriate reductions may be made in subsequent
sinking fund installments.
"Application will be made in due course to list these bonds on the N e w
York Stock Exchange."
The undersigned will receive subscriptions f o r the a t o v c bonds, subject to
allotment, at J«2 per ccnt and accrued interest to date "of delivery, to yield
about 0.6 per cent to maturity.
The undersigned reserve the right to close the subscription at any time without notice, to reject any application, to allot a smaller amount than applied
for and to make allotments in their uncontrolled discretion.
The above bonds are offered if, when, and as Issued and received by the
undersigned and subject to the approval o f counsel. In the first instance,
interim certificates o f Guaranty T r u s t Co. of New Y o r k will be delivered
against payment in New York f u n d s f o r bonds allotted, which interim certificates will be exchangeable f o r definite bonds when prepared.
K U H N , LOEB & C A
GUABANTY CO. OK NEW YOBK.
T H E NATIONAL CITY CO.
NEW YozKf June 20f JV&K
242
SALE OF FOREIGN; B O N D S OR S E C U R I T I E S ,
WASHINGTON, D . C . June 26*, 1929.
DEAII SIES : R e f e r r i n g t o t h e i s s u e o f §20,000,000 p r i n c i p a l a m o u n t o f guaranteed s i n k i n g f u n d 6 p e r c e n t g o l d b o n d s o f 1929, d u e M a y 1, 1962, o f the
M o r t g a g e B a n k o f Chile ( C a j a d e C r e d i t o H i p o t e c a r i o , C h i l e ) , w h i c h y o u have
a g r e e d t o purchase, I b e g to s t a t e t h e f o l l o w i n g f o r y o u r i n f o r m a t i o n :
T h e b o n d s j i r e to b e u n c o n d i t i o n a l l y g u a r a n t e e d a s t o p r i n c i p a l , i n t e r e s t and :
sinking fundT by indorsement, b y t h e R e p u b l i c o f C h i l e aiul a r e t o b e issued in
a c c o r d a n c e w i t h the l a w o f the R e p u b l i c o f Chile, d a t e d A u g u s t 29, 1855, establishing the C a j a , as a m e n d e d b y D e c r e e L a w N o . 743, d a t e d D e c e m b e r 15, 1925,
w h i c h w a s duly a p p r o v e d b y t h e commission/ a p p o i n t e d f o r t h a t p u r p o s e by
both houses of Congress, a n d w i t h L a w N o . 4074, d a t e d J u l y 27, 1926, as
amended b y L a w No. 4327, dated M a r c h 20, 1928, and w i t h t h e d e c r e e o f the
President o f the R e p u b l i c of Chile N o . 2694, d a t e d J u n e 25, 1929.
T h e C a j a d e C r e d i t o H i p o t e c a r i o w a s c r e a t e d f o r t h e p u r p o s e o f making
available credit facilities on r e a s o n a b l e t e r m s f o r t h e d e v e l o p m e n t a n d improvement of real property in Chile. T h e b o a r d o f d i r e c t o r s , t h e p r e s i d e n t o f the
board, the chief counsel, the cashier, the c o n t r o l l e r a n d t h e s e c r e t a r y are
appointed by the President o f t h e R e p u b l i c .
D u r i n g its entire existence o f o v e r 73 years, t h e C a j a h a s o p e r a t e d successf u l l y a n d has never f a i l e d t o m e e t its o b l i g a t i o n s .
T h e r e c o r d o f i t s loan
collections is very satisfactory. T h e losses i n c u r r e d bj- t h e C a j a o n property
f o r e c l o s e d under its m o r t g a g e s h a v e n o t e x c e e d e d §40,000 i n t h e a g g r e g a t e f o r
the last 15 years.
T h e C a j a has n o capital stock a n d i s n o t o p e r a t e d f o r p r o f i t . I t h a s power
to charge a commission t o p r o v i d e f o r its e x p e n s e s a n d f o r a r e s e r v e f u n d , as
additional security f o r its b o n d s a n d notes, b u t h a v i n g a c c u m u l a t e d a sufficient
reserve, which n o w a m o u n t s to a p p r o x i m a t e l y $5,022,900 a t g o l d p a r i t y of'
exchange, the C a j a h a s discontinued c h a r g i n g such c o m m i s s i o n .
On December 31, 1928, the C a j a h a d o u t s t a n d i n g v a r i o u s issues o f bonds
aggregating $143,606,682 a t g o l d p a r i t y of e x c h a n g e a n d an i s s u e o f $10,000,000
of notes due D e c e m b e r 31, 1931. T h e C a j a i s not p e r m i t t e d b y l a w t o have
its bonds outstanding i n an aggregate a m o u n t e x c e e d i n g t h e a g g r e g a t e amounto f loans m a d e b y it. Such loans m a y b e r e p a i d b y t h e b o r r o w e r s i n cash or
in bonds o r notes of the C a j a at p a r . All l o a n s a r e s e c u r e d b y first mortgages
or pledges registered in the n a m e o f the C a j a . T h e y a r e m a d e o n a c o n s e r v a t i v e
basis a n d the risk is greatly diversified. O n D e c e m b e r 31, 192S. the C a j a had
made 11,839 m o r t g a g e loans against its o u t s t a n d i n g b o n d s , b e i n g a n a v e r a g e
of less than $12,130 p e r loan, and these l o a n s a g g r e g a t e d l e s s t h a n 25 per cent
of the aggregate appraised i m p r o v e d v a l u e o f t h e p r o p e r t i e s m o r t g a g e d as
security therefor. A g a i n s t its notes the C a j a h a d on t h a t d a t e m a d e 2,356
loans, being an a v e r a g e of less than $4,250 p e r loan.
Of the present issue of b o n d s $10,000,000, principal a m o u n t , n r e t o provide
f o r loans secured by agricultural p r o d u c t s o r f a r m m a c h i n e r y a n d implements,
which loans m a y not exceed 50 p e t c e n t o f the a p p r a i s e d m a r k e t v a l u e o f such
collateral, and §10,000,000, principal amount, a r e t o p r o v i d e f o r the redemption
of b o n d s of the Caja which it d e e m s a d v a n t a g e o u s to retire.
T h e l a w authorizes the C a j a to issue b o n d s a n d to m a k e m o r t g a g e loans
payable in foreign currencies.
I t i s the p r a c t i c e o f the C a j a t o m a k e its
m o r t g a g e loans, against which b o n d s p a y a b l e in a f o r e i g n c u r r e n c y a r e issued;
also payable in the same c u r r e n c y , e x c e p t i n c a s e s w h e r e it lias obtained a
guaranty of the R e p u b l i c o f Chile f o r a n y . l o s s resulting f r o m e x c h a n g e fluctuations. T h i s w a s done in 1912 w h e n Fes. 58,823,500 gold b o n d s w e r e issued (of
which there are still F e s . 24.360,000 gold n o w o u t s t a n d i n g ) a n d in 1925. 1926,
and 1928 w h e n $60,000,000 United States gold b o n d s a n d $10,000,000 5-year
United States gold notes w e r e issued in t h e U n i t e d States b y ' y o u . and is also
being d o n e in the c a s e o f the present issue, a g a i n s t $10,000,000 o f which
m o r t g a g e loans in Chilean currency w i l l be outstanding.
T h e bonds and notes o f the C a j a a r e legal i n v e s t m e n t s f o r s a v i n g * banks
and trust f u n d s in Chile. I n 1911 and 1912 three issues o f 5 p e r c e n t bonds
of the C a j a , not indorsed w i t h the g u a r a n t y o f t h e G o v e r n m e n t , w e r e made
in Europe, a t prices ranging f r o m 96*4 t o 99*4 p e r cent.
T h e s e issues are
listed on the stock exchanges o f P a r i s , B e r l i n , a n d Z u r i c h .
T h e present debt o f the R e p u b l i c o f Chile, i n c l u d i n g t h e present a n d all
other obligations guaranteed b y it, a g g r e g a t e s a b o u t $460,600,000 at g o l d parity
o f exchange. T h e p r o c e e d s o f the G o v e r n m e n t l o a n s h a v e b e e n l a r g e l y used
f o r the construction o r i m p r o v e m e n t of r a i l w a y s , h a r b o r s , a n d o t h e r public
SALE OF FOREIGN BONUS Clll SECURITIES
24S
works. The Government o w n s 3.390 miles of railroads, telegraph lines, and
other proi>erty, of an estimated vnlne of approximately $050.000.0.0 at gold
parity of exchange.
Chile is a mining and agricultural country. Its luimral products a i e largely
raw materials for essential Industries. Practically the only nitrate dej>osit*
in the world are located In Chile and their exploitation f o r m s its m a j o r industry. The largest known cop|H*r ileiMislt.s in the world are in Chile. They
occur near the surface and are o f exceptionally high quality, resulting in the
lowest cost production o f any large-scale copper pn-.ducing area in the world*
These deposits arc heing extensively t.'evelopcd. mainly by American capital.
Exports consist chieJly o f nitrates, by-products of the nitrate industry, copper,
iron ore, borax, wool, and a limited amount o f agricultural products.
The trade balance of Chile Is favorable. Imports f o r 192S totaled $142.303,0£0
at the pre>em gold pariiv o f e x c h a n g e while exports totaled $239,181,000
resulting in a favorable? trade balance f o r the year o f o\er
800,000. .Since
1915 imports have exceeded e x i x o t s in only o n e year.
Chile is on a gold basis. I t s c u r r e n c y is the peso, equivalent to United
States $0.12100. Currency n«»tes are issued by the Central Bank of Chile,
which is similar to the Federal reserve banks o f the United States. T h e gold
and gold exchange held by the B a n c o Central de Chile on M a y 17, 1929,
amounted to $94,224,000, p r o v i d i n g a ratio o f gold c o v e r to notes outstanding
and deposits of over 9S per c e n t
The above mentioned $20,000,000 principal amount o f guaranteed sinking
fund 0 per cent gold bonds o f 1929 o f the C a j a , constituting the loan designated
"Empresito oro Caja Hipotecarla, 1929," will be in coupon-bearer f o r m , in
denominations of $1,000 and $500, will b e dated M a y 1, 1929, will mature
May 1, 1902, and will b e a r interest a t t h e r a t e o f 0 per cent per annum f r o m
May 1, 1929, payable semi-annually o n M a y 1 and November 1 of each year.
Principal and interest will be p a y a b l e a t the option o f the holders, in the
Borough of Manhattan, in the city o f N e w Y o r k , a t the office o f Kuhn, Loeb
& Co., or at the principal office o f Guaranty T r u s t Co. o f N e w Y o r k , in gold
coin of the United States of America, o f o r equal to the standard o f weight
and fineness existing M a y 1, 1929, o r in Santiago, Chile, a t the office o f the
Caja, by sight d r a f t on New Y o r k City, w i t h o u t deduction f o r a n y taxes, imposts, levies o r duties o f a n y n a t u r e n o w o r at a n y time hereafter imposed
by the Republic o f Chile, o r b y a n y state, province, municipality, o r other
taxing authority thereof o r therein, and w i l l be paid in time o f w a r as well
as in time of peace and whether the h o l d e r b e a citizen o r a resident o f a
friendly o r a hostile state.
The bonds will be redeemable through a cumulative sinking fund beginning
November 1, 1929, calculated t o retire the entire issue by May 1, 1902, to
be applied on each semi-annual interest d a t e t o the redemption o f bonds by
lot at par. Notice o f redemption i s t o b e given b y advertisement, the first
advertisement to appear a t least 30 d a y s b e f o r e each redemption date. T h e
Caja will have the right to Increase the a m o u n t of any sinking fund installment
for the redemption o f additional b o n d s on a n y interest date a n d in any such
case appropriate reductions m a y b e m a d e in subsequent sinking f u n d
installments.
Application will be made in d u e c o u r s e t o list the bonds o n the N e w Y o r k
Stock Exchange.
Very truly yours,
CARLOS G .
DAVTLA,
Ambassador Extraordinary and Plenipotentiary
of the Republic of Chile to the United States.
$20,000,000 PROVINCE OF ONTARIO, DOMINION OF CANADA. 20-VKAR 5 PER CF.NT
GOLD BONDS, NONCALLALUS, DATED OCTOBER 2 . 1 9 2 2 ; Vvk
OCTOBER 1 , 1 9 4 2
Principal and semiannual interest ( A p r i l 1 and Octol»er 1) payable at the
option of the holder at the agency o f the B a n k o f Montreal, New Y o r k , in gold
coin of the United States o f America o f -the present standard o f weight and
fineness, or at the < ffice of the T r e a s u r e r o f the P r o v i n c e o f Ontario, T o r o n t o ,
or at tlie Bank of Montreal. Montreal, Canada. In gold coin of the lawful money:
of Canada. Coupon bond* o f $1,000 each, registerable as to principal only.
Legal opinion: E. G. Long, K . C.. T o r o n t o .
244
SALE OF FOREIGN; BONDS OR SECURITIES,
T h e f o l l o w i n g financial i n f o r m a t i o n has been furnished b y the H o n . C. A.
M a t t h e w s , assistant provincial t r e a s u r e r :
A p p r o x i m a t e assessed v a l u e o f all property witliin the P r o v i n c e
of Ontario
$2,054,212,000
Total funded debt (including present issue)
—
224,693,420
Sinking fund
0,251,640
I n the a b o v e debt a r e included $134,545,470 which are invested in revenue-producing enterprises.
Contingent liabilities, f u l l y secured ( o f which $7,800,000 represents guarantees o f bonds of the Canadian Northern Ontario
Ry.. n o w o w n e d and operated b y the Dominion G o v e r n m e n t ) .
36,882,408
A s s e t s o f the Province, including cash, sinking f u n d s , governm e n t buildings, c r o w n lands, water power, etc
716, 601,479
R e v e n u e f o r last fiscal year, ended Oct. 31, 1921
29,261,477
E x p e n d i t u r e f o r last fiscal year, ended Oct. 31, 1921
I
28,579,6S7
A l a r g e p a r t of the above bonds having been sold, the undersigned offer the
balance, subject to previous sale, a t 99Vi per cent and accrued interest to date
o f d e l i v e r y , a t which price the bonds yield about 5.06 per c e n t i f held to
maturity.
T h e undersigned reserve the right t o r e j e c t a n y application i n w h o l e o r in part.
T h e above bonds a r e offered if, when, and a s issued a n d received by the
undersigned, which is expected to b e on o r about October 18. Pending the
receipt of the engraved bonds, interim certificates will b e d e l i v e r e d against
payment in N e w Y o r k f u n d s f o r b o n d s allotted.
OCTOBEE 13,1922.
K U H N , LOEB & C o .
KIDDER, PEABODY & C o .
WOOD, GUNDY & C o .
HALLOARTEN & C o .
UNITED FINANCIAL CORPORATION (LTD.).
$6,000,000, PROVINCE OP ALBERTA, DOMINION o r CANADA, 30-YEAR 4 % PER CENT
GOLD DEBENTURES, NONCALLABLE, DATED OCTOBER 1 , 1 9 2 6 , D U E OCTOBER 1,
1958
Principal and semiannual interest ( A p r i l 1 and October 1 ) p a y a b l e at the
Imperial B a n k o f Canada in T o r o n t o , Montreal, or E d m o n t o n , or, at the option
o f the holder, in gold coin o f the United States o f A m e r i c a o f the the present
standard of weight and fineness, at the B a n k o f t h e M a n h a t t a n Co. in New
York.
Coupon debentures in $1,000 denomination, registrable a s to principal at the
provincial treasurer's office at E d m o n t o n , Alberta, a t the head office of the
Imperial B u n k of Canada, T o r o n t o , or at the B a n k o f the M a n h a t t a n Co. ii>
N e w Y o r k City.
E x e m p t f r o m any present or f u t u r e t a x e s imposed by the P r o v i n c e of Alberta,
i n c l u d i n g a n y income taxes, a n d - f r o m municipal and school t a x a t i o n in the
Province.
L e g a l O p i n i o n : E . G. L o n g , K . C., T o r o n t o .
T h e f o l l o w i n g i n f o r m a t i o n h a s been furnished b y W . Y. N e w s o n , Esq., deputy:
provincial treasurer:
G e n e r a l : T h e P r o v i n c e of Alberta c o m p r i s i n g over 255,000 s q u a r e miles has
a n estimated present population o f 650,000. I t i s preeminently an agricultural
p r o v i n c e , b u t also h a s large deposits o f coal, natural gas, and petroleum. Its
c o a l r e s e r v e s a r e reputed t o contain 14 per cent o f the c o a l reserves o f the
w o r l d , w i t h an estimated content o f 1,035.629 million tons. I n addition, its
i m p o r t a n t industries c o m p r i s e dairying, w o o l g r o w i n g , nnd s t o c k raising.
I t h a s excellent facilities f o r distributing its products, b e i n g traversed b y two,
transcontinental r a i l w a y s , n a m e l y , t h e Canadian P a c i f i c R a i l w a y and the
C a n a d i a n N a t i o n a l R a i l w a y systems, w h i c h a l s o h a v e a n e t w o r k o f branch
lines. T h e P r o v i n c e also o w n s and operates the A l b e r t a & G r e a t W a t e r w a y s
R a i l w a y , t h e E d m o n t o n , D u n v e g a n & British Columbia R a i l w a y , and the
L a c o m b e & North. W e s t e r n R a i l w a y , all o f w h i c h serve a rich territory.
T h e debentures represented b y the present issue a r e issued f o r general and
r e f u n d i n g p u r p o s e s a n d a r e a d i r e c t obligation o f the P r o v i n c e o f Alberta.
T h e P r o v i n c e has t h e p o w e r t o l e v y direct t a x e s u p o n all t h e t a x a b l e property
w i t h i n the P r o v i n c e t o p r o v i d e f o r principal, interest, a n d sinking f u n d s on.;
SALK OF
F011K1GX
BONDS OH SECURITIES
245
its debentures, b u t o n l y finds it necessary to exercise this taxing power to a
small degree, a s r e v e n u e f r o m oilier s o u r c e s is almost sufficient.
P u r p o s e : T h e s e d e b e n t u r e s a r e b e i n g issued f o r the purpose of providing
f u n d s to r e f u n d $3,000,000 5 % !>er c e n t debentures due November 1, 1920, and
$3,000,000 f o r p u b l i c w o r k s a n d o t h e r public purposes.
Financial
Mutanait
Approximate assessed value o f all land within Province of
Alberta
$505,205,040
Gross f u n d e d debt ( i n c l u d i n g present issue und a f t e r allowance
f o r repayment o f $3,000,000 5V& per c e n t debentures d u e Nov,
1, 1020)
SO, 040,082
In the a b o v e a r c included $28,521,728 which arc invested in
self-sustaining asset*.
In addition, there are upward o f
$7,000,000 invested in assets which a r e revenue producing but
not entirely self-supporting.
Sinking f u n d
2,472,904
Contingent liabilities per last published statement
48,188,854
O f this a m o u n t , $22,530,957 represents debentures of railways
n o w owned und o p e r a t e d by the D o m i n i o n Government under
the Canadian N a t i o n a l R y . system a n d upon which interest is
paid by D o m i n i o n G o v e r n m e n t .
Total provincial a s s e t s
—
174,091,689
Annual dominion subsidy
1,074,435
T h e undersigned oiTer the a b o v e debentures, subject to prior sale, at
per cent and a c c r u e d Interest t o d a t e o f delivery, to yield 4.85 per cent t o
maturity.
T b e a b o v e d e b e n t u r e * a r e offered If, w h e n and as issued and received by
the undersigned. P a y m e n t f o r the delnrnturcs is to l»e made in New York
funds against d e l i v e r y o f permanent debentures.
NEW YOHK, Octohcr 4, JMG*
K U H N , LOE» & C o .
$25,000,000 AUSTRIAN GOVFUXUENT GUAKANTEED LOAX, 1023-1043, 7 PES CENT
S I X K I X G - K U X D GOI.D BONDS
Dated June 1, 102:1. Interest l i v a b l e J u n e 1 and Decerning 1. Due June I ,
1943.
Subject to redemption at p a r a s a w h o l e mi any interest date after June
1,1934, and in p a r t t h r o u g h the sinking f u n d in any year.
Coupon b o n d s in d e n o m i n a t i o n s of $1,000, $500, and $100.
Principal and interest p a y a b l e in New Y o r k at the office o f J. P. Morgan &
Co., in United States gold c o i n o f the present standard o f weight and fineness,
without deduction f o r a n y A u s t r i a n taxes, present o r future.
Guaranteed severally a s t o principal, interest, arid redemption payments, in
the proportion stated b e l o w , b y t b e Governments o f Great Britain, France,
Czechoslovakia, Italy, Belgium, Sweden, Denmark, and Holland.
Before each issue f o r m i n g part o f the loan is made, every guarantor state
will deposit with tlic National B a n k o f Switzerland in the name o f the trustees
its own bonds o f like tenor a n d c u r r e n c y to cover the amount o f its guaranty
in respect o f s u c h Issue. T h u s , d o l l a r bonds o f the several states by which
the service o f this issue i s guaranteed w i l l be held by the National Bank o f
Switzerland in the n a m e o f t h e trustees.
These bonds a r e p a r t o f an international loan to be issued in Great Britain,
Prance, Italy, Switzerland, Belgium, Holland, Sweden, Austria, and the United
States o f America In b o n d s o f v a r i o u s denominations and in various currencies
f o r amounts sufficient to y i e l d in t h e . aggregate an effective sum equivalent
to 030,000,000 Austrian g o l d c r o w n s , o r about $120,(XX),000. They are to be
secured by a first charge, a s stated below, on the gross receipts o f the Austrian
customs and t o b a c c o monoi>oly. S u c h receipts f o r the first five months of
1923 have l>een a t the rate o f 150,000,000 Austrian gold crowns (about $30,000,000) per annum. Interest c h a r g e s and sinking f u n d sufficient t o amortize
the loan by m a t u r i t y will not e x c e e d 07,000,000 Austrian gold crowns (about
$13,600,000) p e r annum.
246
SALE'••OF FOREIGN BONDS ?OR SECURITIES
T h e Austrian Government covenants to p a y during the l i f e of the- loan a
fixed annual sum which, a f t e r deducting tlie annual interest oil the bonds at
the time outstanding, is to b e sufficient to redeem the entire loan in annual
installments by maturity. T h e quota available f o r amortization o f the Americ a n issue, increasing f r o m about $600,000 in the first y e a r to about $2,200,000
in the last year, will be use:! in the redemption o f b o n d s o f the American issue
by l o t at 100 per cent and r corned interest, or, if the A u s t r i a n Government
shall so elect, i n the purchase Ojl bonds in the market, if obtainable at less
than 100 per cent and accrued interest.
A s to particular features of the loan and the security therefor, the following s u m m a r y has been prepared b y D o c t o r Zimmerman, f o r m e r l y burgomaster
o f R o t t e r d a m , appointed as commissioner general of Austria in connection with
the plan f o r Austria's financial rehabilitation :
( 1 ) T h e bonds of this issue (including an existing Czechoslovakian advance
o f n o t e x c e e d i n g 13,500,000 Austrian gold crowns, about $2,700,000), and any
loan w h i c h the Austrian Government m a y raise to p r o v i d e f o r the redemption
a f t e r J u n e 1, 1934,. of the outstanding balance o f any particular issue forming
part of this loan, are secured by a first c h a r g e on the gross receipts of the
customs and tobacco monopoly of Austria.
Such receipts f o r the first five
months of 1923 were at the rate of 150,000,000 A u s t r i a n g o l d c r o w s (about
$30,000,000) per annum. No f u r t h e r charge on the said receipts and properties
m a y be created ranking in priority to, o r pari passu with, the a b o v e charges.
( 2 ) B y tlie concerted action of the principal nations of t h e w o r l d , including
the United States of America, claims against A u s t r i a f o r relief bond charges
h a v e been subordinated to this loan, and claims f o r r e p a r a t i o n charges have
likewise been subordinated by the reparations commission.
( 3 ) A protocol has been signed b y the European Governments directly interested, including the neighboring States o f I t a l y and of Czechoslovakia, insuring
the economic and political independence of Austria.
( 4 ) T h e hypothecated revenues pass directly into an a c c o u n t controlled by
the commissioner general, whose first duty is t o see that sufficient sums are
retained f o r the service of the loan b e f o r e releasing a n y s u m s f o r the uses of
the Austrian Government.
T h e commissioner general w i l l a l s o control the
expenditure of the proceeds of this loan.
G u a r a n t i e s : O f the total authorized loan, bonds to the a m o u n t required to
yield an effective sum equivalent to not m o r e than 585,000,000 Austrian gold
c r o w n s ( o f which the present issue o f guaranteed dollar b o n d s f o r m s part) are
guaranteed as t o principal, interest, and redemption p a y m e n t s by the undermentioned States to the extent in each case o f the p r o p o r t i o n s t a t e d :
I'cv cent
Great Britain
France
Czechoslovakia
Italy
Belgium
Sweden
Denmark
Holland
Total
J
;
_
V
...
:
Ill
I.-
24Vi
24%
24%
20%
2
2
1
1
UK)
I n addition to the sum o f 585,000.000 Austrian gold c r o w n s thus obtained, a
f u r t h e r amount of upwards of 45,000,000 A u s t r i a n gold c r o w n s w i l l be made
available through advances' to be m a d e b y the Swiss and Spanish Governments
a s part o f the authorized total of this loan. T h e s e amounts together are now
estimated to he sufficient; f o r the requirements of the A u s t r i a n Government
T h e a d v a n c e s above described will rank equally on the pledged revenues, but
will not h a v e the government guarantee.
W e o f f e r t h e above bonds, subject to prior sale, at 90 per cent accrued interest,
t o yield o v e r 8 per cent.
A l l o r d e r s will be received s u b j e c t t o the issue and delivery to u s o f tlie bonds
a s planned, and t o the approval b y o u r counsel o f their f o r m and execution.
T h e r i g h t i s reserved t o reject a n y and all applications, a n d also, in any event,
t o a w a r d a smaller a m o u n t than applied f o r .
S A L E OF
FOHEIGX
BONDS Oil SKCUllITIES
247
Amounts due on a l l o t m e n t s will 1H» p a y a b l e a t t b e office o f J . P . M o r g a n & C o .
m New Y o r k f u n d s t o t h e i r o r d e r . on o r a b o u t J u n e 20, 1023. T r u s t receipts
will be delivered ]>endfng t b e p r e p a r a t i o n o f t b e definite b o n d s .
J . P. M o r g a n & C o . ; First N a t i o n a l B a n k , N e w Y o r k ; G u a r a n t y C o .
of N e w Y o r k ; Kidder, Peubody & C o . ; Harris. Forbes & C o . ;
K u h n , L o e b & C o . ; T h e N a t i o n a l C i t y C o . ; B a n k e r s T r u s t Co.,
New Y o r k ; Lee, lligginsou & C o . ; Dillon, R e a d & Co.
JUNE 11, 1923.
The f o l l o w i n g statement h a s t>eeii f u r n i s h e d by D r . A l f r e d Z i m m e r m a n , f o r merly burgomaster o f R o t t e r d a m , w h o is the c o m m i s s i o n e r general f o r A u s t r i a
iu connection with A u s t r i a ' s financial a n d e c o n o m i c rehabilitation.
TIIE NEW
AUSTRIA
The Republic o f A u s t r i a , w i t h its n e w political f r o n t i e r s , h a s an area o f
about 33 250 square m i l e s aiul a imputation o f a b o u t (1.500,000 people. In a r e a
the new Austria is n e a r l y three t i m e s a s l a r g e a s B e l g i u m , a b o u t t w o and a
half times as large a s H o l l a n d , a n d m o r e than t w i c e a s l a r g e a s S w i t z e r l a n d .
Its population is a p p r o x i m a t e l y e q u a l to t h a t o f H o l l a n d a n d a b o u t 75 p e r c e n t
greater than that o f S w i t z e r l a n d .
The new Austria lias l a r g e d e p o s i t * o f i r o n ore. sufficient to s u p p l y the e n t i r e
needs of its i m p o r t a n t m e t a l - w o r k i n g i n d u s t r y , w h i c h in n o r m a l times is
capable o f p r o d u c i n g a t least 1,000,000 t o n s o f p r o d u c t s a n n u a l l y . T h e finished products Include m a c h i n e r y , r a i l w a y r o l l i n g stock, a u t o m o b i l e s a n d other
vehicles, and electrical a p p a r a t u s . T h e f o r e s t s o f A u s t r i a c o n s t i t u t e o n e o f
its chief resources a n d a b o u t 38 p e r c e n t o f the t o t a l a r e a Is w o o d e d . T h i s
large supply o f t i m b e r p r o v i d e s t h e basis f o r a h i g h l y d e v e l o p e d w o o d - w o r k i n g
industry, which p r o d u c e s l a r g e l y f o r e x p o r t , and f o r a c o n s i d e r a b l e paper
industry. One o f t h e principal s o u r c e s o f t b e c o u n t r y ' s w e a l t h consists in the
hydraulic f o r c e s f u r n i s h e d b y t h e I n n u m e r a b l e m o u n t a i n s t r e a m s a n d c a t a r a c t s
that abound In n e a r l y e v e r y p a r t o f t h e t e r r i t o r y . A u s t r i a , possessing little
coal, the d e v e l o p m e n t o f this n a t u r a l w e a l t h w i l l l a r g e l y c o n t r i b u t e t o m a k i n g
the country Independent o f an e x p e n s i v e I m p o r t w h i c h w o u l d w e i g h uiwm the
trade balance. E v e n in the p e r i o d o f t h e w o r s t financial depression, w o r k s
have been started t o m a k e t h i s p o t e n t i a l p o w e r a c t i v e . T h e electrification o f
the railways is m a k i n g p r o g r e s s , and b y t h e c o o p e r a t i o n o f g o v e r n m e n t ami
private capital c o n s i d e r a b l e w o r k i s n o w b e i n g c a r r i e d o n to m a k e the w a t e r
powers serviceable t o i n d u s t r y .
In V i e n n a there is a well-organized c l o t h i n g
industry, the p r o d u c t i o n o f w h i c h is sufficient t o meet t h e e n t i r e c o n s u m p t i o n
of the territory f o r m e r l y c o m p r i s e d In Austria-Hungary a n d still l e a v e u
surplus f o r e x p o r t t o o t h e r m a r k e t s .
The basis o f a g r e a t c o m m e r c e i n t e r c h a n g e i s l a i d in the g e o g r a p h i c a l s i t u a tion o f the c o u n t r y . N a t u r a l l i n e s o f d i s t r i b u t i o n , w h i c h the r a i l w a y roil res
now f o l l o w , e x t e n d i n g f r o m t h e n o r t h o f E u r o p e to the s o u t h ; f r o m w e s t e r n
Europe t o eastern E u r o p e , R u s s i a a n d t h e N e a r E a s t ; and f r o m C z e c h o s l o vakia to the A d r i a t i c , all c r o s s A u s t r i a , i n t e r s e c t i n g a t the c i t y o f V i e n n a .
T h e Danube, flowing t h r o u g h n e a r l y t h e w h o l e o f c e n t r a l a n d e a s t e r n E u r o p e ,
also provides an i m p o r t a n t h i g h w a y f o r c o m m e r c e .
In consequence, V i e n n a f o r c e n t u r i e s p a s t h a s been o n e o f the c h i e f c o m mercial cities of the w o r l d , a m a r k e t - p l a c e w h e r e the p r o d u c t s , o f E u r o p e a n d
those of the Near East meet a n d a r e e x c h a n g e d , a n d a d i s t r i b u t i n g c e n t e r f o r
the entire s u r r o u n d i n g t e r r i t o r y o f c e n t r a l E u r o p e . T h e g r e a t b a n k s , t r a d i n g
concerns, and industrial c o m p a n i e s o f V i e n n a h a v e been t h e g r o w t h o f g e n e r a tions of e c o n o m i c e x p e r i e n c e , a n d t h e o l d c o n n e c t i o n s t h u s e s t a b l i s h e d h a v e
proved, In the m a i n , t o o s t r o n g t o b e p e r m a n e n t l y d i s t u r b e d b y t h e n e w p o l i t i c a l
frontiers. T h e Services r e n d e r e d b y the i n d u s t r i a l , c o m m e r c i a l , a n d
financial
organization? in V i e n n a a r e i n d i s p e n s a b l e t o t h e e c o n o m i c l i f e o f c e n t r a l
Europe. T h e y g i v e t o A u s t r i a invisible e x p o r t s w h i c h g r e a t l y lienefit t h e
trade balance.
CONDITIONS LEADING TO THE ADOWION OF TIIE TI-AN
During the p e r i o d f r o m t h e a r m i s t i c e t o t h e a u t u m n o f 1922, w h i l e A u s t r i a
w a s struggling t o e s t a b l i s h i t s n e w d e m o c r a t i c f o r m o f g o v e r n m e n t o n a w o r k ing basis a n d t o a d j u s t i t s e c o n o m i c l i f e t o t h e c o n d i t i o n s a r i s i n g f r o m t h e
248
SALE'••OF FOREIGN BONDS ?OR SECURITIES
disruption o f a n e c o n o m i c unit w h i c h h a d been in e x i s t e n c e f o r centuries, gov*
e r n m e n t finances n o t unnaturally steadily deteriorated. A l t h o u g h Austria was
t h e r e c i p i e n t o f relief c r e d i t s and g i f t s of supplies f r o m a b r o a d on a l a r g e scale,
a l l o f t h e e x p e n d i t u r e h a d been consumed f o r current needs, w i t h o u t any im j
p r o v e m e n t i n the c o u n t r y ' s financial position. .Inflation continued t o increase
and the p a p e r c r o w n steadily declined in value, due 'to the c o n t i n u o u s issue of
u n c o v e r e d currency. T h e unsound currency situation had strongly deterrent
effects o n the revival o f industry, which in turn reacted u n f a v o r a b l y o n the^
g o v e r n m e n t ' s budget receipts; 'in b r i e f , Austria w a s in the g r i p o f a vicious
c i r c l e o f c a u s e and effect f r o m w h i c h it m i g h t h a v e proved a l m o s t impossible
f o r h e r to e x t r i c a t e herself unaided.
T h e e n d o f this, period is marked b y September, 1922, when, at the request of
A u s t r i a , a c o m p r e h e n s i v e plan f o r the financial and economic rehabilitation of
A u s t r i a , f o r m u l a t e d b y the L e a g u e o f Nation?, w a s adopted b y the representatives o f the chief countries o f - E u r o p e .
THE PLAN OF REHABILITATION
T h e basis f o r the plan i s the political integrity and e c o n o m i c independence
o f Austria a n d the declaration (protocol No. 1 o f October 4, 1022) designed to
maintain it. Aided by t h e confidence which this declaration h a s created, the
A u s t r i a n Government h a s instituted a p r o g r a m o f r e f o r m in o r d e r to ensure
t h e balancing o f its budget b y the end of 1924.
T h i s p r o g r a m o f r e f o r m includes—
( a ) T h e reduction o f . ministries, s i m p l i f y i n g their organization and eliminating overlapping. T h i s measure i s in, an advanced state of execution.
(&) Reorganization o r eventual transfer to p r i v a t e management o f State industrial enterprises.
( c ) T h e reduction in the number o f State employees, the number of whom
w a s r e d u c e d by about 36,500 between Oetolnn* 1, 1922, and M a y 2C, 1923, a s part
o f t h e p r o g r a m f o r the release of 100,000 employees p r i o r to J u l y 1, 1924.
( d ) T h e enactment o f legislation providing f o r increased revenues f r o m indirect taxation, customs duties, and duties o f other kinds, a n d t h e introduction
o f a t u r n o v e r tax. These measures h a v e been introduced w i t h success.
I n t h e meantime, during this period o f transition, the e x c e s s o f the Government's expenditures o v e r the revenues available f r o m n o r m a l resources, estimated a t n o t to exceed about 500,000,000 Austrian gold c r o w n s , w i l l be met
f r o m the proceeds o f the Austrian Government guaranteed loan 1023-1JM3. In
addition, a d v a n c e s f r o m several f o r e i g n governments, a g g r e g a t i n g about
130,000,000 Austrian gold c r o w n s and m a d e in 1922 in anticipation of t h i s loan,
a r e t o be r e f u n d e d w i t h bonds o f the loan, issued in the c u r r e n c i e s o f the
respective lending countries.
NEW INDEPENDENT BANK OF ISSUE
Inflation through n o t e issues f o r the Government's a c c o u n t definitely stopped
on N o v e m b e r 1 8 , 1 9 2 2 ; since then additional notes h a v e been issued only against
c o v e r in g o l d or in f o r e i g n balances in stable currencies. A b a n k o f issue,,
independent o f Government control a n d . h a v i n g t h e sole p o w e r o f note issue, has
been established, with capital of 30,000,000 A u s t r i a n gold c r o w n s subscribed in
A u s t r i a , a n d h a s been functioning since J a n u a r y 2, 1923. A t t h e 23d o f May,
1923, its r a t i o o f reserves (gold and f o r e i g n e x c h a n g e b a l a n c e s ) t o n o t e circulation ( t h e l a t t e r i n p a p e r c r o w n s b e i n g calculated in gold c r o w n s , a c c o r d i n g t o
the statutes o f the bank, a t the a v e r a g e rate o f the p r e c e d i n g h a l f y e a r ) was
m o r e than 3 5 p e r cent.
A s a result o f the monetary m e a s u r e s taken, the A u s t r i a n c r o w n h a s been
s t a b i l i z e d ; its e x c h a n g e value, d u r i n g the past seven months, h a s deviated
h a r d l y a t a l l f r o m the level established in October, 1922.
THE LOAN AND ITS GUARANTIES
T h e A u s t r i a n G o v e r n m e n t guaranteed loan 1923-1&43 is t o b e an International
loan t o b e issued in G r e a t Britain, F r a n c e , Italy, Switzerland, B e l g i u m , Holland,
S w e d e n , A u s t r i a , a n d t h e United States o f America* in b o n d s o f v a r i o u s denominations a n d in v a r i o u s currencies f o r a m o u n t s sufficient to y i e l d in the^aggreg a t e a n e f f e c t i v e s u m equivalent to 030,000,000 A u s t r i a n g o l d c r o w n s , o r about
$126,000,000.
SALE OF
FOISKIGX
I I O X D S 01?
SKCUHIT1ES
249
Of tbe total a u t h o r i z e d loan, b o n d s to the a m o u n t required to yield an effect i v e s u m o f n o t e x c e e d i n g 585,000,000 A u s t r i a n g o l d c r o w n s ( o f w h i c h the
present i s s u e o f g u a r a n t e e d d o l l a r b o n d s f o r m s p a r t ) a r e g u a r a n t e e d a s to
principal, i n t e r e s t , a n d r e d e m p t i o n p a y m e n t s b y t b e u n d e r m e n t i o n e d States, to
the extent, in each ease, o f t h e p r o p o r t i o n s t a t e d :
Tor ccnt
Great B r i t a n
France
Czechoslovakia
Italy
Belgium
-
.
24^
24
24 %
-
20%
2
Per ccnt
Sweden
Denmark
Holland
Total-
!
2
1
1
300
I n a d d i t i o n t o t h e s u m o f 5S5.000.000 A u s t r i a n g o l d c r o w n s t h u s o b t a i n e d , a
f u r t h e r a m o u n t o f u p w a r d o f 45.000,<K)0 A u s t r i a n g o l d c r o w n s will b e m a d e
a v a i l a b l e t h r o u g h a d v a n c e s U* b e m a d e b y t h e S w i s s a n d S p a n i s h G o v e r n m e n t s
as p a r t o f t h e a u t h o r i z e d t o t a l <»f t h i s l o a n . T h e s e a m o u n t s t o g e t h e r a r e n o w
estimated t o b e tuitticieiit f o r t h e r e q u i r e m e n t s o f t h e A u s t r i a n G o v e r n m e n t
T h e a d v a n c e s a b o v e d e > e r i b w l w i l l r a n k e q u a l l y on the p l e d g e d revenues, but w i l l
not h a v e t h e G o v e r n m e n t g u a r a n t i e s .
B e f o r e e a c h i s s u e f o r m i n g p u r r o f t h e l o a n is m a d e , e v e r y g u a r a n t o r S t a t e will
deposit w i t h t h e N a t i o n a l B a n k <«f S w i t z e r l a n d , in t h e n a m e o f the trustees f o r
the loan, i t s o w n b o n d s o f l i k e t e n o r a n d c u r r e n c y t o c o v e r t h e a m o u n t o f its
g u a r a n t y in r e j e c t o f s u c h issue. T h u s , d o l l a r b o u d s o f t h e s e v e r a l States b y
w h i c h t h e s e r v i c e o f t h i s issue Is g u a r a n t e e d w i l l be held b y t h e N a t i o n a l B a n k
of S w i t z e r l a n d in t h e n a m e o f t h e t r u s t e e s . S h o u l d f u n d s f o r the p a y m e n t o f
tiny c o u p o n s o r o f a n y s i n k i n g - f u n d i n s t a l l m e n t s o f t h e l o a n n o t be in the hands
o f the t r u s t e e s 3 0 d a y s 1m'fore t h e d a t e d u e , t h e s e l»onds a n d c o u p o n s are, a t the
instance o f t h e t r u s t e e s a n d w i t h o u t a n y a c t i o n b y t h e bondholders, to b e
immediately p a y a b l e b y e a c h o f t h e g u a r a n t e e i n g G o v e r n m e n t s t o the e x t e n t
provided b y its g u a r a n t y .
T h e A u s t r i a n G o v e r n m e n t c o v e n a n t * t o p a y d u r i n g t h e l i f e o f t h e loan a fixed
annual s u m w h i c h , a f t e r d e d u c t i n g t h e a n n u a l Interest o n t h e b o n d s a t t h e time
outstanding, i s t o l>e sufficient t o r e d e e m t h e e n t i r e l o a n in a n n u a l installments
by m a t u r i t y . T h e q u o t a a v a i l a b l e f o r a m o r t i z a t i o n o f t h e A m e r i c a n issue,
increasing f r o m a b o u t $000,000 in t h e first y e a r t o a b o u t §2,200,000 in the last
year, will b e u s e d In t h e r e d e m p t i o n o f b o n d s o f the A m e r i c a n issue b y l o t a t
100 p e r c e n t a n d a c c r u e d i n t e r e s t , o r , if t h e A u s t r i a n G o v e r n m e n t shall s o elect,
in the p u r c h a s e o f b o n d s in t b e m a r k e t , if o b t a i n a b l e a t less than 100 p e r c e n t
and a c c r u e d I n t e r e s t
SKCttHITY FOR Tlllt LOAN
I n a d d i t i o n t o b e i n g d i r e c t o b l i g a t i o n s — i n r e s p e c t o f t h e p a y m e n t o f principal,
interest; a n d s i n k i n g f u n d o f t h e F e d e r a l B e p u b l i c o f A u s t r i a — t h e b o n d s o f t h i s
loan a r e s e c u r e d b y a first c h a r g e o n t h e . g r o s s . r e c e i p t s o f t h e c u s t o m s a n d the
tobacco m o n o p o l y o f t h e A u s t r i a n G o v e r n m e n t . T h i s c h a r g e e x t e n d s a l s o t o an
existing a d v a n c e f r o m t h e C h e c h o s l o v a k i a n G o v e r n m e n t o f not e x c e e d i n g
13,500,000 A u s t r i a n g o l d c r o w n s a n d t o a n y l o a n w h i c h t h e A u s t r i a n G o v e r n ment m a y r a i s e t o p r o v i d e f o r t h e r e d e m p t i o n , a f t e r J u n e 1, 1034, o f t h e o u t standing b a l a n c e o f a n y p a r t i c u l a r i s s u e f o r m i n g p a r t o f t h e l o a n n o w t o b e
contracted. N o f u r t h e r c h a r g e o n t h e s e r e v e n u e s m a y b e c r e a t e d r a n k i n g i n
priority t o , o r p a r i p a s s u w i t h , t h e a b o v e c h a r g e s .
T h e g r o s s r e c e i p t * f r o m t h e c u s t o m s a n d t h e t o b a c c o m o n o p o l y d u r i n g t h e first
five m o n t h s o f 1923 h a v e b e e n a t t h e rate o f 350,000,000 A u s t r i a n g o l d c r o w n s
(about $30,000,000) p e r a n n u m .
I n t e r e s t c h a r g e s a n d s i n k i n g f u n d sufllcient t o
a m o r t i z e t b e l o a n b y m a t u r i t y w i l l n o t e x c e e d 07,000,000 A u s t r i a n g o l d c r o w n s
(about $13,600,000) p e r a n n u m .
I f f o r a n y r e a s o n n o w u n f o r e s e e n t h e g r o s s r e c e i p t o f t h e c u s t o m s a n d the
tobacco m o n o p o l y p l e d g e d a s s e c u r i t y f o r t h i s l o a n , s h o u l d n o t a p p e a r t o b e
sufficient, in t h e m s e l v e s , o t h e r revenues a r e t o b e h y p o t h e c a t e d o n t h e a c t i o n o f
a committee representing t h e interests o f t h e g u a r a n t o r States.
T h e h y p o t h e c a t e d r e v e n u e s pass* d i r e c t l y i n t o a n a c c o u n t c o n t r o l l e d b y the
c o m m i s s i o n e r g e n e r a l , w h o s e f i r s t d u t y i s t o s e e t h a t sufficient s u m s a r e retained
f o r t h e s e r v i c e o f t h e loan* b e f o r e r e l e a s i n g a n y s u m s f o r t h e u s e s o f t h e A u s t r i a n
G o v e r n m e n t A l s o , t h e p r o c e e d s o f t h i s l o a n w i l l p a s s i n t o a n a c c o u n t o f which
the c o m m i s s i o n e r g e n e r a l h a s a b s o l u t e c o n t r o l .
250
SALE OF FOREIGN; BONDS OR SECURITIES,
THE COMMISSIONER GENERAL'S CONTROL
Since D e c e m b e r 15 o f l a s t year the commissioner general h a s been functioning. I t i s his d u t y n o t only t o see t h a t the necessary r e f o r m s a n d economies
in the administration a r e carried through, b u t also t h a t the expenditure of the
State d o e s n o t exceed t h e limits w h i c h the G o v e r n m e n t h a s agreed to and
w h i c h h a v e the balancing o f the budget f o r o b j e c t .
T o guarantee t h a t t h e annual budget sanctioned b y P a r l i a m e n t and authorized b y the commissioner general is n o t exceeded, t h e Government has
t o submit the budgets f o r the expenditure of e v e r y m o n t h to t h e approval of
the commissioner general and these monthly budgets m u s t b e reduced when
h e is o f opinion that either the total o r individual items a r e t o o high. He
keeps in the closest and daily contact with t h e m o v e m e n t s o f the Treasury,
because the Government requires his authorization f o r disposing o f the amounts
passed 011 the accounts already mentioned. I n giving this authorization he
must a l w a y s see that the sums f o r the service o f the loan remain available.
Tl?e commissioner general states with satisfaction that the monthly budgets
h a v e kept within the limits laid d o w n f r o m the beginning and that even a
surplus has been obtained.
SUBORDINATION OF OTHER LIENS
T h e Reparation Commission, by their decision dated F e b r u a r y 20, 1923, have
suspended f o r the purpose o f the guaranteed loan, f o r the p e r i o d of 20 years
and f o r such f u r t h e r period a s m a y be necessary until the f u l l repayment of
the loan, the lien f o r reparation charges o n any revenues w h i c h m a y be
pledged as security f o r this loan.
B y the concerted action o f the principal n a t i o n s 6f t h e w o r l d , including the
United States of A m e r i c a b y a j o i n t Resolution o f Congress a p p r o v e d April
6, 1922, liens against Austrian assets created a f t e r the a r m i s t i c e i n respect to
relief credits, have also been postponed f o r the period o f 20 years.
RELATIONS WITH OTHER EUROPEAN GOVERNMENTS
A protocol has been signed b y the E u r o p e a n Governments d i r e c t l y interested,
including the neighboring States o f I t a l y a n d o f Czechoslovakia, to insure the
e c o n o m i c and political independence o f Austria. Under the t e r m s o f this Protocol No. 1, dated October 4» 1922, the signatory States d e c l a r e d : " T h a t they
will respect t h e political independence*, the territorial Integrity a n d the sovereignty o f A u s t r i a ; t h a t they w i l l n o t seek to obtain a n y special o r exclusive
economic o r financial a d v a n t a g e calculated directly o r i n d i r e c t l y to compromise
that independence."
T h e Government o f the Federal R e p u b l i c o f A u s t r i a on i t s p a r t " undertakes,
i n a c c o r d a n c e w i t h the terms o f article 88 o f the treaty o f St. Germain, not
to alienate its independence; i t w i l l abstain f r o m a n y n e g o t i a t i o n s o r from
any e c o n o m i c or financial engagement calculated directly o r indirectly to
c o m p r o m i s e this independence/'
T h e guaranty w h i c h h a s been given w i t h respect t o the b o n d s of this loan
on behalf o f eight of the principal nations o f E u r o p e g i v e s these nations a
very definite interest in assisting i n the m a i n t e n a n c e o f . A u s t r i a ' s political
and e c o n o m i c position.
$ 2 5 , 0 0 0 , 0 0 0 AUSTRIAN GOVERNMENT INTERNATIONAL LOAN 1 9 3 0
7 PER CENT GOLD BONDS, AMERICAN TRANCHE
SINKING FUND
B o n d s d a t e d J u l y 1, 1930; d u e J u l y 1, 1957. i n t e r e s t p a y a b l e J a n u a r y i and
J u l y 1: B a n k f o r International Settlements, trustee.
A c u m u l a t i v e sinking f u n d computed t o b e sufficient t o r e t i r e t h e entire
a m o u n t o f t h e b o n d s o f the A m e r i c a n tranche a t o r b e f o r e m a t u r i t y I s t o be
applied t o t h e p u r c h a s e o f b o n d s a t o r ^ b e l o w 103 p e r c e n t a n d a c c r u e d Interest
i f obtainable, o r o t h e r w i s e t o the redemption o f b o n d s d r a w n b y l o t
r
R e d e e m a b l e a t 103 per c e n t and accrued interest, u p o n n o t l e s s than 6 0 days'
published notice, as f o l l o w s : F o r the sinking f u n d , on J a n u a r y 1, 1932, and
y e a r l y t h e r e a f t e r ; at t h e option o f t h e government a s a w h o l e o n J u l y 1, 1935,
o r o n a n y interest p a y m e n t date thereafter.
^
Coupon b o n d s in d e n o m i n a t i o n s o f $1,000, $500, and $100.
SALE OF
FOHEIGX
BONDS Oil S K C U l l I T I E S
251
Principal and interest p a y a b l e in N e w Y o r k a t t h e office o f J. 1\ M o r g a n &
Co., in United States g o l d c o i n o f the s t a n d a r d o f w e i g h t a n d fineness e x i s t i n g
on July 1, 11)30, w i t h o u t d e d u c t i o n f o r a n y A u s t r i a n taxes, present o r f u t u r e .
Dr. Otto Juch, Federal M i n i s t e r o f F i n a n c e o f the K c p u b U c o f A u s t r i a , has
furnished us with the f o l l o w i n g s t a t e m e n t r e g a r d i n g the A u s t r i a n G o v e r n m e n t
international loan 1930. a m o r e c o m p l e t e s t a t e m e n t being printed w i t h i n :
The loan.—The b o n d s o f t h e A u s t r i a n G o v e r n m e n t international l o a n 1030
now to be issued a r e to p r o v i d e a n e f f e c t i v e s u m e q u i v a l e n t t o o v e r $55,000,000
anil form part o f an international loan limited t o a n a m o u n t sufficient to yield
in the aggregate an e f f e c t i v e s u m o f 723,000,000 s c h i l l i n g s ( e q u i v a l e n t to a b o u t
$102,000,000) and issuable in the f o r m o f b o n d s o f v a r i o u s c u r r e n c i e s all o f
equal rank. Concurrently w i t h the present i s s u a n c e o f the A m e r i c a n t r a n c h e
iii the United States o f A m e r i c a , o t h e r t r a n c h e s a r e b e i n g issued in the f o l l o w ing-named countries in t h e f o l l o w i n g p r i n c i p a l a m o u n t s : G r e a t B r i t a i n , £3,000,000 sterling; Holland, £500.000 s t e r l i n g ; S w e d e n , 10,000,000 k r o n o r ; S w i t z e r land, 25,000,000 S w i s s f r a n c s ; I t a l y , 100.000,000 l i r e ; A u s t r i a , 50,000,000
schillings.
Purpose of f>#f/r.—The b o n d s o f t h i s loan, w h i c h lias lieen a p p r o v e d b y t h e
committee of control c o n s t i t u t e d in 1923. a r e issued t o p r o v i d e f o r capital
expenditures incurred a n d t o Iwi i n c u r r e d f o r i m p r o v e m e n t s u p o n t h e A u s t r i a n
railways and the p r o p e r t i e s o f t h e postal a n d telegraph a d m i n i s t r a t i o n .
The
investment program c o n t e m p l a t e d exi>enditures, f r o m 1028 t o 1932 inclusive,
aggregating the e q u i v a l e n t o f a p p r o x i m a t e l y $102,000,000, o f w h i c h a b o u t 55
per cent will he p r o v i d e d b y the n e t p r o c e e d s o f t h e b o n d s of this loan b e i n g
issued presently.
Security.—The b o n d s o f this l o a n a r e t h e d i r e c t a n d u n c o n d i t i o n a l o b l i g a tions of the. Austrian G o v e r n m e n t a n d a r e s e c u r e d b y a c h a r g e upon the g r o s s
receipts of the customs and o f t h e t o b a c c o m o n o p o l y o f A u s t r i a , s u b j e c t o n l y
to the charges in f a v o r o f t h e A u s t r i a n G o v e r n m e n t guaranteed loan 1923-1943,.
herein referred to a s the 1923 loan, a n d t h e A u s t r i a n G o v e r n m e n t Czechoslovakian conversion loan I I . N o f u r t h e r c h a r g e o n the a b o v e - m e n t i o n e d revenues
may be created r a n k i n g iu p r i o r i t y t o o r e q u a l l y w i t h t h e c h a r g e s o f this loan
except that the A u s t r i a n G o v e r n m e n t r e s e r v e s t h e r i g h t t o s e c u r e ratably w i t h
the bonds o f this loan the b o n d s o f a n y f u t u r e l o a n issued to p r o v i d e f o r redemption prior to m a t u r i t y o f t h e b o n d s o f a n y p o r t i o n o f t h e 1923 loan o u t standing a t the time o f such r e d e m p t i o n .
The gross receipts o f t h e c u s t o m s a n d o f t h e t o b a c c o m o n o p o l y f o r the y e a r
1929 were a p p r o x i m a t e l y 000,000,000 A u s t r i a n s c h i l l i n g s ( o r a b o u t $84,400,000).
The charges f o r interest a n d s i n k i n g f u n d o n the 1923 loan and t h e a b o v e mentioned Czechoslovakian l o a n , t o g e t h e r w i t h t h e c h a r g e f o r interest a n d
sinking fund on the total a u t h o r i z e d a m o u n t o f the A u s t r i a n G o v e r n m e n t international loan 1030, c o m p u t e d f o r t h e e n t i r e a u t h o r i z e d l o a n o n the s a m e basis,
as the present issues and a t p a r o f e x c h a u g e , is e s t i m a t e d n o t to e x c e e d a p p r o x imately 177,100,000 A u s t r i a n s c h i l l i n g s ( o r a b o u t $24,900,000) p e r a n n u m .
The pledged revenues a r e p a i d b y t h e A u s t r i a n G o v e r n m e n t , a s , a n d w h e n
collected, directly into an a c c o u n t u n d e r tlie c o n t r o l o f the t r u s t e e s o f t h e
1923 loan, who, a f t e r p r o v i d i n g e a c h m o n t h f o r t h e s e r v i c e o f t h a t loan a n d
the Czechoslovak loan in a c c o r d a n c e w i t h t h e i r t e r m s , a r e t o release t h e b a l ance to the trustee f o r this l o a n , w h i c h , a f t e r reserving e a c h m o n t h o n e twelfth o f the a m o u n t r e q u i r e d f o r t h e c u r r e n t a n n u a l s e r v i c e o f t h i s l o a n ,
will release the balance t o t h e A u s t r i a n Government*
An agreement h a s been m a d e b e t w e e n A u s t r i a a n d t h e p o w e r s c o n c e r n e d ,
subject in the case o f F r a n c e t o r a t i f i c a t i o n b y t h e l e g i s l a t u r e , b y w h i c h the
amounts payable in r e s p e c t o f r e l i e f b o n d s h a v e b e e n f u n d e d f o r g r a d u a l p a y ment over a p e r i o d o f 4 0 y e a r s f r o m 1929 t o 19GS. T h e c h a r g e u p o n t h e a s s e t s ,
and revenues o f A u s t r i a b y w h i c h t h e r e l i e f b o n d s a r e s e c u r e d h a s been
subordinated t o the c h a r g e in f a v o r o f t h e p r e s e n t l o a n . B y a n a g r e e m e n t
entered into a t T h e H a g u e , d a t e d J a n u a r y 20, 1930, b e t w e e n A u s t r i a a n d ail
the European c r e d i t o r i m v e r s , J a p a n , a n d o t h e r s i g n a t o r i e s , t h e
financial
obligations o f A u s t r i a t o w a r d t h e s e p o w e r s a r i s i n g u n d e r t h e a r m i s t i c e o f "
November 3, 1918, a n d the t r e a t y o f Sr. G e r m a i n , -atid a n y t r e a t i e s o r a g r e e ments supplemental t h e r e t o , w e r e finally d i s c h a r g e d a n d t h e first c h a r g e in,
favor of these p o w e r s o n alt t h e a s s e t s a n d r e v e n u e s o f A u s t r i a c r e a t e d by
the treat}* o f St. G e r m a i n h a s c e a s e d t o b e operative*
SALE OF FOREIGN; B O N D S OR S E C U R I T I E S ,
252
T h e a b o v e b o n d s a r e o f f e r e d f o r s u b s c r i p t i o n , s u b j e c t t o t h e c o n d i t i o n s stated
below, a t 95 p e r c e n t a n d a c c r u e d interest, t o y i e l d o v e r 7.40 p e r c e n t tomaturity.
S u b s c r i p t i o n books, w i l l b e o p e n e d a t t h e office; o f J . P . M o r g a n & Co., a t
10 o ' c l o c k a. m . T u e s d a y , J u l y 15, 1930, a n d c l o s e d i n t h e i r d i s c r e t i o n . The
r i g h t i s reserved to r e j e c t a n y a n d all a p p l i c a t i o n s , a n d a l s o , i n a n y case, to
a l l o t a smaller a m o u n t than applied f o r . A l l s u b s c r i p t i o n s w i l l b e received
s u b j e c t t o t h e f o r e g o i n g a n d t o t h e d u e issue a n d d e l i v e r y t o u s o f the bondsa s p l a n n e d and t o t h e a p p r o v a l b y c o u n s e l o f t h e f o r m a n d v a l i d i t y of the.
bond9 a n d o f the relevant p r o c e e d i n g s and a u t h o r i z a t i o n s .
T h e a m o u n t d u e o n a l l o t m e n t s w i l l b e p a y a b l e a t t h e o f f i c e o f J . P . Morgan
& Co., in N e w Y o r k , f u n d s t o t h e i r o r d e r , a n d t h e d a t e o f p a y m e n t ( o n or
a b o u t J u l y 28, 1930) will be stated in the n o t i c e s o f a l l o t m e n t .
Interim
certificates, e x c h a n g e a b l e f o r definitive b o n d s w h e n r e c e i v e d , a r e t o b e delivered.
J. P . MORGAN & C o .
FIRST NATIONAL B A N K .
GUARANTY CO. OF NEW YORK.
KIDDER, PEABODY & C o .
HARRIS, FORBES & C o .
BANKERS CO. OP NEW YORK.
NEW YORK, July
K U H N , LOEB & C o .
T H E NATIONAL CITY CO.
CHASE SECURITIES CORPORATION.
LEE, HIGGINSON & C o .
DILLON, READ & C o .
15,1930.
STATEMENT REGARDING AUSTRIAN
GOVERNMENT INTERNATIONAL LOAN,
1930
(Furnished b y D r . Otto Juch, F e d e r a l M i n i s t e r o f F i n a n c e o f the R e p u b l i c of
Austria)
The loan.—The Austrian G o v e r n m e n t i n t e r n a t i o n a l l o a n , 1930, i s a loan of
a total authorized a m o u n t sufficient t o y i e l d i n t h e a g g r e g a t e a n e t effective
sum not exceeding 725,000,000 Austrian schillings ( $ 1 0 2 , 0 1 2 , 1 0 1 ) .
T h e loan
may b e issued in v a r i o u s countries a n d c u r r e n c i e s in b o n d s o f s u c h denominations and c a r r y i n g interest a t such r a t e s a n d r e d e e m a b l e a t s u c h price as
m a y be fixed by the terms o f issue, the final m a t u r i t y d a t e i n a l l c a s e s being
J u l y 1, 1957. T h e bonds o f t h e loan a r e the d i r e c t a n d u n c o n d i t i o n a l obligation of the Austrian Government, a n d all r a n k p a r i p a s s u .
P r i n c i p a l and
interest a r e payable w i t h o u t deduction f o r a n y A u s t r i a n t a x e s , present or
future.
T h e present issues, c a r r y i n g interest a t t h e r a t e o f 7 p e r c e n t p e r annum
and redeemable a t 103 p e r cent, a r e b e i n g m a d e in t h e f o l l o w i n g nominal
a m o u n t s : United States o f A m e r i c a , $25,000,000; G r e a t B r i t a i n , £3,000,000;
Holland, £500,000; Italy, 100,000,000 l i r e ; S w e d e n , 10,000,000 k r o n o r ; Switzerland, 25,000,000 Swiss f r a n c s ; and Austria, 50,000,000 A u s t r i a n schillings.
Purpose* of issue.—-The loan h a s been a u t h o r i z e d f o r t h e p u r p o s e o f meeting
a program o f capital expenditures incurred a n d to b e i n c u r r e d f o r productive
investments upon the Austrian r a i l w a y s a n d p o s t a l a n d t e l e g r a p h administration, not exceeding in the aggregate 725,000,000 A u s t r i a n s c h i l l i n g s ($102,012,?
1 0 1 ) . T h i s program w a s submitted t o the c o m m i t t e e o f c o n t r o l , representing
the v a r i o u s European Governments w h o c o o p e r a t e d In t h e p r o g r a m o f Austrian
stabilization in 1923, w h o s e a p p r o v a l o f t h e l o a n h a s b e e n o b t a i n e d . T h e net
proceeds o f the present issues w i l l p r o v i d e a p p r o x i m a t e l y 5 5 p e r c e n t o f these
expenditures. T h e balance o f the loan m a y b e issued f r o m t i m e t o time to
p r o v i d e f o r completion o f t h e p r o g r a m ,
"
Security.—In addition t o b e i n g the d i r e c t a n d u n c o n d i t i o n a l obligation of
the Austrian Government, t h e b o n d s o f t h e l o a n a r e s e c u r e d u n d e r a general
bond in f a v o r o f t h e B a n k f o r International S e t t l e m e n t s a s t r u s t e e b y a charge
upon the gross receipts o f the A u s t r i a n c u s t o m s a n d t o b a c c o m o n o p o l y , together
w i t h a n y additional, security w h i c h m a y b e p r o v i d e d f o r t h e Austrian Government guaranteed loan, 1923-1943, and the A u s t r i a n G o v e r n m e n t Czechoslovakia*
Conversion L o a n H such c h a r g e b e i n g s u b j e c t o n l y t o t h e c h a r g e i n favor of
t h e t w o last-mentioned loans. N o f u r t h e r c h a r g e o n such r e c e i p t s a n d securities
m a y b e created r a n k i n g in p r i o r i t y t o o r p a r i passu w i t h t h e s e c h a r g e s , with
t h e exception t h a t , t h e A u s t r i a n G o v e r n m e n t r e s e r v e s t h e r i g h t t o secure pari
passu w i t h the bonds o f t h e l o a n any f u t u r e l o a n issued t o p r o v i d e f o r redemption p r i o r t o m a t u r i t y o f the b o n d s o f a n y p o r t i o n o f t h e g u a r a n t e e d loan,
1923-1943, outstanding a t the t i m e o f such r e d e m p t i o n . T h e g r o s s receipts of
SALE OF
FOHEIGX
B O N D S Oil SKCUllITIES
253
the customs and t o b a c c o m o n o p o l y f o r tlie five y e a r s e n d e d D e c e m b e r 31, 1929,
have been a s f o l l o w s ( e x p r e s s e d in m i l l i o n s o f A u s t r i a n s c h i l l i n g s ) :
Years ended Dec. 31—
1925
Customs.
Tobacco
1937
192S
1929
.
196.0
268.6
314.0
28XS
24 L1
290.9
259.3
304.8
285.5
314.1
Total
Deduct interest and sinking fund on the guaranteed
loan. 1923-1943, and tbe Ctechoslovaklan Conversion T/ftti 11......
....
464.6
497. S
S3Z 0
£64.0
599.6
*
„
1938
Balance.....
.
103.6
98.6
101.7
10L1
101.8
36L0
39S.7
43a 3
462.9
497.8
The annual c h a r g e f o r Interest a n d s i n k i n g f u n d o n t h e t o t a l a u t h o r i z e d
amount o f the A u s t r i a n G o v e r n m e n t i n t e r n a t i o n a l l o a n , 1930, c o m p u t e d o n the
basis of the present issues a t p a r uf e x c h a n g e w o u l d a m o u n t t o a p p r o x i m a t e l y
68,600,000 schillings ($9,052,455).
The pledged revenues a r e p a i d b y tlie A u s t r i a n G o v e r n m e n t a s a n d w h e n
collected directly i n t o a n a c c o u n t u n d e r t h e c o n t r o l o f the trustees o f t h e g u a r anteed loan, 1923-1943, w h o , a f t e r p r o v i d i n g e a c h m o n t h f o r the s e r v i c e o f that
loan and t h e ' C z e c h o s l o v a k ! a n C o n v e r s i o n L o a n I I , In a c c o r d a n c e w i t h t h e i r c o n ditions, a r e to release the b a l a n c e t o t h e trustees f o r litis loan, w h o , a f t e r
reserving each m o n t h o n e - t w e l f t h o f tlie a m o u n t required f o r t h e a n n u a l s e r v i c e
o f this loan, will release tlie b a l a n c e t o t h e A u s t r i a n G o v e r n m e n t
In the event that in a n y y e a r t h e receipts o f the pledged revenues a r e less
than 150 per cent o f tlie a g g r e g a t e a m o u n t required f o r t h e s e r v i c e s o f t h e
guaranteed loan, 1923-1943, a n y loan issued t o r e f u n d the s a m e a n d r a n k i n g
pari passu with this loan, t h e C h e c h o s l o v a k i a n C o n v e r s i o n L o a n I I , a n d this
loan, the G o v e r n m e n t u n d e r t a k e s t o f u r n i s h s u c h f u r t h e r s e c u r i t i e s a s t h e
trustee m a y require, s u b j e c t t o t h e c h a r g e in f a v o r o f the g u a r a n t e e d loan,
1923-1943, and the C z e c h o s l o v a k ! a n C o n v e r s i o n L o a n I I .
An agreement h a s been m a d e b e t w e e n A u s t r i a a n d the p o w e r s c o n c e r n e d ,
subject in the c a s e o f F r a n c e t o r a t i f i c a t i o n b y t h e legislature, by w h i c h t h e
amounts payable in r e s p e c t o f r e l i e f b o n d s h a v e been f u n d e d f o r g r a d u a l p a y ment over a period o f 4 0 y e a r s f r o m 1929 t o 190S. T h e c h a r g e u p o n t h e
assets and revenues o f A u s t r i a b y w h i c h t h e r e l i e f b o n d s a r e s e c u r e d h a s been
subordinated to the c h a r g e in f a v o r o f t h i s l o a n .
By an agreement e n t e r e d i n t o a t T h e H a g u e , d a t e d J a n u a r y 20, 1930,
between Austria a n d a i l t h e E u r o p e a u c r e d i t o r p o w e r s , J a p a n , a n d o t h e r
signatories, the financial o b l i g a t i o n s o f A u s t r i a t o w a r d these p o w e r s a r i s i n g
under the a r m i s t i c e o f N o v e m b e r 3 , 1918, a n d t h e t r e a t y o f S t G e r m a i n , a n d
any treaties o r a g r e e m e n t s s u p p l e m e n t a l t h e r e t o , h a v e been finally d i s c h a r g e d ,
and the first c h a r g e In f a v o r o f t h e s e p o w e r s o n a l l t h e a s s e t s a n d r e v e n u e s o f
Austria created b y t h e t r e a t y o f S t G e r m a i n h a s c e a s e d t o b e o p e r a t i v e .
Loan scrvice.—The A u s t r i a n G o v e r n m e n t c o v e n a n t s t o p a y d u r i n g the l i f e o f
the loan in respect o f e a c h s e p a r a t e Issue a fixed a n n u a l s u m w h i c h , a f t e r
deducting the annual interest o n the b o n d s o f such Issue a t t h e t i m e o u t s t a n d ing, is computed to b e sufficient t o r e d e e m a t i t s r e d e m p t i o n p r i c e s u c h e n t i r e
issue by maturity.
In respect o f the p r e s e n t issues t h e f u n d s a v a i l a b l e f o r r e d e m p t i o n w i l l b e
used in the p u r c h a s e o f b o n d s , i f o b t a i n a b l e , a t o r b e l o w 103 p e r c e n t a n d
accrued interest, o t h e r w i s e t o t h e r e d e m p t i o n a t 103 p e r c e n t o n t h e 1st d a y
of January o f each y e a r o f b o n d s d r a w n b y l o t , t h e A u s t r i a n G o v e r n m e n t r e serving the right to r e d e e m a t 103 i>er c e n t a n d a c c r u e d interest t h e w h o l e o f
the ciutstihhding a m o u n t o f a n y s e p a r a t e p r e s e n t issue o r issues o n J u l y 1, 1935,
or any interest d a t e t h e r e a f t e r u p o n g i v i n g n o t less t h a n 9 0 d a y s ' p r e v i o u s
notice to the T r u s t e e a n d p u b l i s h e d n o t i c e in a c c o r d a n c e w i t h t h e b o n d s o f t h e
respective issues.
General.—The y e a r s i m m e d i a t e l y f o l l o w i n g t h e a r m i s t i c e o f 1918 w e r e
marked by the difficulties w h i c h A u s t r i a h a d t o e n c o u n t e r i n t h e a d j u s t m e n t
of her economic l i f e t o t h e c o n d i t i o n s a r i s i n g f r o m h e r n e w p o l i t i c a l f r o n t i e r s .
92928—-31-HPT 1 — — 1 7
254
SALE OF FOREIGN; BONDS OR SECURITIES,
I n September, 1922,. the Austrian Government, w i t h the cooperation of the
L e a g u e of Nations, adopted a definite scheme o f reconstruction w h i c h included
a precise p l a n o f budget r e f o r m , the organization o f the National Bank of
A u s t r i a a n d the stabilization of the Austrian currency. T h e successful issue
of t h e guaranteed loan, 1923-1943, played an i m p o r t a n t p a r t in the consumm a t i o n of this scheme.
T h e effective w o r k i n g of the scheme has enabled A u s t r i a to maintain a
stabilized currency. On July
1930, the reserve ratio o f t h e National Bank of
A u s t r i a , including all foreign exchange holdings, w a s 80.13 per cent as.,eonk
pared w i t h a legal requirement o f 24 p e r cent. T h e scheme h a s also enabled
Austria, a s shown below, t o establish a budgetary equilibrium, the Government's current revenues having been consistently in e x c e s s o f i t s ' c u r r e n t
expenditures f o r the past five years.
T o t a l receipts and expenditures of the G o v e r n m e n t a s s h o w n in the completed
accounts; ( a m o u n t s expressed in millions of Austrian schillings)
Years ended Dec. 31—
1925
Current receipts
Current expenditures
Balance,
i
;
Capital expenditures not included above.
-
1926
1927
1928
1929 (provisional).
913.fi .
746.4
985.5
882.2
1,122.9
1,012.2
1,174.3
1,045.9,
1,197.0
1,037.2
167.1
sa 6
103.3
135.6
110.7
195.7
128.4
212.5
159.8
1207.9
i Thisfigureincludes capital expenditures covered by short-term credits given by Austrianbankers.
NOTE.—In the above letter a s received f r o m the Federal M i n i s t e r o f Finance
the approximate dollar equivalents o f the amounts originally expressed in
Austrian schillings have been inserted in brackets a f t e r the schilling figures
converted a t the rate o f 7.107 Austrian schillings to $1 United States gold.
$110,000,000 GERMAN EXTERNAL LOAN, 1924, 7 PER GENT GOLD BONDS, INTEREST
PAYABLE APRIL 15 AND OCTOBER 1 5 ; DATED OCTOBER 15, 1924; DUE OCTOBER
15, 1949
Nonredeemable p r i o r t o maturity, except f o r the sinking f u n d .
Sinking f u n d f o r this issue, $4,620,000 a year, p a y a b l e monthly, beginning
November 15, 1924; sufficient to r e t i r e annually one-twentyfiftli o f the issue
a t 105 per c e n t ; b o n d s to be retired through t h e Sinking F u n d b y purchase, if
obtainable at or below 105 per cent and accrued interest, o r i f n o t s o obtainable,
by redemption by lot a t 105 per cent a n d accrued interest, such accrued interest
i n either case to be paid otherwise than o u t o f t h e sinking f u n d . T h e bonds
a r e to be redeemable, f o r the sinking f u n d on October 15 o f e a c h year, commencing October 15, 1925.
Coupon bonds in denominations o f $1,000, $500 a n d $100.
Principal and interest p a y a b l e in N e w Y o r k C i t y a t t h e office o f J. P. Morgan
& Co. in United States gold c o i n o f t h e present standard o f weight and fineness,
w i t h o u t deduction f o r any German taxes, present, o r f u t u r e .
D o c t o r Luther, F i n a n c e Minister of Germany, has p r e p a r e d , and t h e Reparat i o n Commission and Owen D . Y o u n g , agent-general f o r r e p a r a t i o n payments,
h a v e approved, t h e f o l l o w i n g summary, f r o m his statement dated October. 10,
1924, printed w i t h i n :
-THE LOAN
T h e s e b o n d s a r e p a r t of an international loan t o be issued f o r t h e purpose
o f c a r r y i n g into e f f e c t the p l a n o f t h e first c o m m i t t e e o f e x p e r t s appointed by
the R e p a r a t i o n Commission, f o r t h e double purpose of ensuring currency
stability in G e r m a n y and of financing, especially, deliveries in k i n d during the
p r e l i m i n a r y period of e c o n o m i c rehabilitation. T h e loan i s t o b e issued in Great
B r i t a i n , F r a n c e , Italy, Switzerland, H o l l a n d , Belgium,. Sweden, Germany* and
the U n i t e d States o f A m e r i c a , in b o n d s o f v a r i o u s currencies, a n d f o r an .amount
estimated t o be sufficient t o yield in the aggregate a net s u m equivalent, at
c u r r e n t rates o f exchange, to a p p r o x i m a t e l y 800,000,000 g o l d m a r k s (approxim a t e l y $190,400,000).
SAUK OF FOREIGN
BONDS Oil SECUH1T1ES
255
fiKCrutTY
The service of interest a n d a m o r t i z a t i o n o f tlie loan i s ;
(1) A direct a n d u n c o n d i t i o n a l o b l i g a t i o n o f t h e G e r m a n G o v e r n m e n t c h a r g e Able on all the assets a n d r e v e n u e s oi that G o v e r n m e n t .
(2) A specific first c h a r g e o n a l l p a y m e n t s p r o v i d e d f o r u n d e r t h e D a w e s
plan to o r f o r the a c c o u n t o f the a g e n t - g e n e r a l f o r r e p a r a t i o n p a y m e n t s , such
charge being prior t o r e p a r a t i o n a n d o t h e r t r e a t y p a y m e n t s , w h i c h in turn
have a specific p r e c e d e n c e o v e r tlie e x i s t i n g G e r m a n debt.
( 3 ) A first c h a r g e b y w a y o f c o l l a t e r a l s e c u r i t y o n the " c o n t r o l l e d r e v e n u e s , "
I. e., the gross r e v e n u e s o f t h e G e r m a n G o v e r n m e n t d e r i v e d f r o m tlie c u s t o m s
and from the t a x e s o n t o b a c c o , b e e r , a n d s u g a r , t h e n e t r e v e n u e o f the G e r m a n
Government f r o m t h e s p i r i t s m o n o p o l y a n d s u c h t a x ( i f a n y ) , a s m a y hereafter be similarly a s s i g n e d b y t h e G e r m a n G o v e r n m e n t i n a c c o r d a n c e with
the terms of the final p r o t o c o l o f t h e L o n d o n C o n f e r e n c e . T h e 41 controlled
revenues " a r e e s t i m a t e d a s a m o u n t i n g a n n u a l l y t o n o t less than 1,000,000,000
gold marks ( a p p r o x i m a t e l y $240,000,000). T h e G e r m a n G o v e r n m e n t m a y not
create any f u r t h e r c h a r g e u p o n t h e c o n t r o l l e d r e v e n u e s r a n k i n g p r i o r to o r
equally with the c h a r g e c r e a t e d in f a v o r o f t h e b o n d s o f the loan.
LONDON* PROTOCOL
In the London P r o t o c o l , A n n e x I V , a r t i c l e 3 , t h e g o v e r n m e n t s o f B e l g i u m ,
Great B r i t a i n ( w i t h t h e g o v e r n m e n t s o f C a n a d a , A u s t r a l i a , N e w Z e a l a n d ,
South A f r i c a , a n d I n d i a ) , F r a n c e , G r e e c e , I t a l y , J a p a n , P o r t u g a l , R u m a n i a ,
and Yugoslavia, a g r e e d a s f o l l o w s :
" In order to s e c u r e t h e s e r v i c e o f t h e l o a n o f 800,000,000 g o l d m a r k s c o n t e m plated b y the experts* plan, a n d in o r d e r t o f a c i l i t a t e t h e issue o f t h a t loau
to the public, the s i g n a t o r y g o v e r n m e n t s h e r e b y d e c l a r e that, in c a s e s a n c t i o n s
bave to be Imposed In c o n s e q u e n c e o f a d e f a u l t b y G e r m a n y t h e y w i l l s a f e guard any specific s e c u r i t i e s w h i c h m a y b e p l e d g e d to the s e r v i c e o f t h e l o a n .
" T h e signatory g o v e r n m e n t s f u r t h e r d e c l a r e t h a t t h e y c o n s i d e r the s e r v i c e
of the loan a s entitled t o a b s o l u t e p r i o r i t y a s r e g a r d s a n y r e s o u r c e s o f G e r m a n y
so far as such r e s o u r c e s m a y h a v e b e e n s u b j e c t e d t o a g e n e r a l c h a r g e In ffcvor
of the said loan, a n d a l s o a s r e g a r d s a n y r e s o u r c e s t h a t m a y a r i s e a s a result
of the imposition o f s a n c t i o n s . "
A t the L o n d o n C o n f e r e n c e , t h e a l l i e d g o v e r n m e n t s a d o p t e d a resolution
reading a s f o l l o w s :
. " T h e allied g o v e r n m e n t s , d e s i r i n g t h a t t h i s l o a n s h o u l d b e s u c c e s s f u l l y raised,
and contemplating t h a t t h e l o a n w i l l b e a first l i e n o n t h e s e c u r i t y p l e d g e d
thereto, will invite t h e c e n t r a l b a n k s i n t h e i r r e s p e c t i v e c o u n t r i e s t o u s e their
good offices to f a c i l i t a t e t h e p l a c i n g o f t h e l o a n / '
In connection w i t h t h i s r e s o l u t i o n , a n d a t tlie request o f the g o v e r n m e n t s o f
Great Britain, F r a n c e , a n d B e l g i u m , J . P . M o r g a n & Co., In a s s o c i a t i o n w i t h
the undersigned, h a v e u n d e r t a k e n t h e issue o f t h e A m e r i c a n p o r t i o n o f the
loan.
The bonds a r e o f f e r e d f o r s u b s c r i p t i o n , s u b j e c t t o t h e c o n d i t i o n s stated b e l o w ,
at 92 per c e n t and a c c r u e d i n t e r e s t , to y i e l d o v e r 7.70 p e r c e n t t o m a t u r i t y .
All subscriptions w i l l b e r e c e i v e d s u b j e c t t o t h e i s s u e a n d d e l i v e r y t o u s
of the bonds a s p l a n n e d a n d t o t h e a p p r o v a l b y c o u n s e l o f t h e r e l e v a n t
documents and p r o c e e d i n g s .
Subscription b o o k s w i l l b e o p e n e d a t t h e office o f J . P . M o r g a n & Co., a t
10 o'clock a. m., T u e s d a y , O c t o b e r 14, 1924. T h e r i g h t Is r e s e r v e d t o r e j e c t
any and all a p p l i c a t i o n s , a n d a l s o , i n a n y c a s e , t o a w a r d a s m a l l e r a m o u n t than
applied f o r .
The amounts d u e o n a l l o t m e n t s w i l l b e p a y a b l e a t t h e office o f J . P . M o r g a n
& Co., in N e w Y o r k f u n d s t o t h e i r o r d e r , o n o r a b o u t O c t o b e r 30, 1924, a s
called f o r , against t h e d e l i v e r y o f i n t e r i m r e c e i p t s e x c h a n g e a b l e f o r d e f i n i t i v e
bonds when p r e p a r e d a n d received*
X P. Morgan & Co., K u h n , L o e b & Co., First National Bank, T h e
National C i t y C o . G u a r a n t y Co. o f N e w Y o r k , Bankers Trust
Co., N e w Y o r k , H a r r i s , F o r b e s & Co., L e e , H i g g i n s o n & C o . ,
K i d d e r , P e a b o d y St Co.. D i l l o n , R e a d & C o .
NBW YORK, October U,
192*.
SALE OP FOREIGN* BONDS' O i l ' S E C U R I T I E S256
STATEMENT—GERMAN EXTERNAL LOAN 192-1
A r r a n g e m e n t s have been made f o r portions o f the loan to be issued in Great
B r i t a i n , t h e United States o f A m e r i c a , Belgium, F r a n c e , H611and, Sweden, Switzerland, a n d Germany. T h e loan will b e issued i n the f o r m o f bonds to bearer
c a r r y i n g interest a t 7 p e r cent per annum a n d repayable w i t h i n 25 years by
m e a n s o f a sinking f u n d t o b e applied to the p u r c h a s e a n d / o r d r a w i n g of bonds
o f t h e issue in t h e manner set f o r t h in the prospectuses r e l a t i n g t o the several
issues. B o n d s issued i n t h e United States o f A m e r i c a a n d the interest thereon
-will b e expressed a n d b e payable i n United States d o l l a r s ; b o n d s issued else
w h e r e and the Interest thereon w i l l b e expressed a n d b e p a y a b l e in sterling
o r in t h e currency o f the country of issue, a s m a y be p r o v i d e d i n t h e relative
prospectuses. T h e loan is issued f o r the p u r p o s e o f c a r r y i n g i n t o effect the
plan proposed t o the S e p a r a t i o n Commission b y t h e first c o m m i t t e e of experts
( t h e " D a w e s c o m m i t t e e " ) f o r the discharge o f the reparation obligations and
o t h e r pecuniary liabilities of Germany u n d e r the treaty o f Versailles, which
plan w a s confirmed b y the various governments concerned and b y the Reparation Commission a t the L o n d o n 1 Conference o f August, 1924. T h e German
Government has undertaken to a d o p t all appropriate measures f o r carrying
i n t o effect the said p l a n and f o r insuring its p e r m a n e n t operation. T h e loan
is intended t o serve t h e d o u b l e ' p u r p o s e o f insuring c u r r e n c y stability in Germ a n y a n d financing, especially, deliveries in k i n d during t h e preliminary
period:of economic rehabilitation/
' .
T h e rervice o f interest and amortization 1 o f t h e l o a n i s :
.7 ,. (f ,
( 1 ) A direct and* unconditional obligation r, of the - G e r m a n Government
chargeable on all the assets and revenues o f t h a t Government.'
( 2 ) A specific first charge on* aU payments p r o v i d e d . f o r u n d e r " t h e plan t of
the D a w e s committee to o r f o r the a c c o u n t of the agent-general f o r reparation
payments, such charge being .prior t o reparation and' o t h e r treaty payments,
which in turn have a specific precedence 1 o v e r t h e ' e x i s t i n g Gerjnari debt.
' ;1
( 3 ) A , first charge b y w a y of collateral security on t h e : " controlled revenues," il e.. the gross revenues o f the German Government d e r i v e d f r o m the
customs and f r o m the taxes on t o b a c c o ; beer, and sugar- the n e t revenue of the
German Government f r o m the'spirits monopoly : i and such ; t a x ^ ( i f a n y ) as inay
h e r e a f t e r b e similarly assigned b y the German Government i n - a c c o r d a n c e with
the terms o f the final protocol o f the L o n d o n Conference.
T h e Reparation C o m m i s s i o n h i i v e " p o s t p o n e d in f a v o r o f t h e c h a r g e s created
in respect of the loan r all reparation and other charges u p o n t h e payments
I to the agent-general' f o r reparation' payments, 5 including c h a r g e s , in respect of
'deliveries in" kind 1 or payments therefor, 1 whether direct o r through 1 the ! Operation o f - a n y reparation recovery a c t o r decree.
' ' i
T h e annual sum required f o r - t h e Berviee-of'interest and' amortization o f the
'loan, on the basis o f present exchange rates, will n o t - e x c e e d about, 91,500,000
g o l d marks. The payments to the agent-general f o r reparation payments have
been fixed at- 1,000,000,000 gold m a r k s f o r the first y e a r a n d ' a re* expected-to
increase thereafter until they reach 2,500,000,000 g o l d m a r k s f o r the fifth
a nd subsequent yea i'S. The annual gross l receipts o f t h e controlled revenues
are estimated a t not less than 1,000,000,000 gold marks. T h e German Government m a y hot Create any f u r t h e r charge upon the controlled revenues ranking
in p r i o r i t y ' t o or pari passiv w i t h t h e c h a r g e created i n f a v o r o f the bondholders o f tlii* issue.
T h e G e r m a n - Government lias executed a general b o n d w h e r e b y S. Parker
Gilbert ( t h e agent-general f o r reparation p a y m e n t s ) , K D . J a y , and
ter Meulen h a v e been a pointed-trustees f b r the b o n d h o l d e r s o f the loan. 'In
the event o f the termination o f the appointment o f a trustee, o t h e r than the
agent-general f o r reparation payments, t h e p o w e r o f appointing a n e w trustee
is vested in t h e remaining trustees.
' *
T h e G e r m a n - Government h a v e agreed J that,' 1 5 d a y s p r i o r to the d u e date'of
a n y installment o f interest and 15 d a y s p r i o r to'the d u e d a t e o f any redemption
m o n e y s , t h e r e shall be paid t o the trustees t h e w h o l e o f t h e f u n d s required
to m e e t the. service o f such interest and redemption. W i t h a v i e w to carrying
into e f f e c t this provision, arrangement is m a d e f o r t h e p a y m e n t t o the trustees
b y the agent-general f o r reparation p a y m e n t s o n the 15tli d a y o f each calendar
m o n t h o f a sum equivalent to a t least one-twelfth of the v amount necessary
t o m e e t t h e service o f the loan f o r o n e y e a r .
^
T h e R e p a r a t i o n C o m m i s s i o n considers i t desirable that t h e agent-general f<>r
r e p a r a t i o n payments should, e x officio, b e o n e o f t h e t r u s t e e s f o r the bond-
SALE OF FOHEIGX BONDS Oil SKCUllITIES
257
holders. In onlcr to Insure, if ttosslble, tlie continuation of this arrangement,,
the Reparation Commission will, in the event o f the |>ost of agent-general becoming vacant, consult with the remaining trustees with a view to appointing t o
the vacant post a person satisfactory to them as representing the bondholders.
For the purpose of providing the necessary foreign currencies for the service
of the loan, the German Government, the Reparation Commission, the transfer
committee, and the agent general f o r reparation payments have agreed that
fuuds required to be sent abroad f o r that purpose shall have an absolute right
of remittance, which right shall have priority over the remittance of funds
required to be remitted In discharge o f reparation payments or other liabilities.
Article 3 of Annex I V of the final protocol of the London Conference, dated
August-16, 11)24:
" I n order to secure the service of the loan of 800,000,000 gold marks contemplated by the experts* plan, and in order to facilitate the issue o f that loan to
the public, the signatory governments hereby declare that in rase sanctions
have to be imposed in consequence of a default by Germany they will safeguard
any specific securities which may be pledged to the service of the loan.
" T h e siguatory governments further declare that they consider the service of
the loan as entitled to absolute priority a s regards any resources of Germany
ho far as such resources may have been subjected to a general charge in favor
of the said loan and also as regards any resources that may arise as a result
of the lmiK>sition of sanctions.'*
DOCTOR LUTHEK.
MinUtcr of Finances of the German Reich.
OCTOBER 10, 1024.
REPARATION COMMISSION.
Paris. October 10,
mi.
Dr. LLTTHETT,
Minister of Finances of the German Reich.
Sm: I am directed to inform you that the Reparation Commission has taken
note of the statement signed by you which i s appended to the prospectuses about
to be issued in connection with the German external loan, 1024, and that they
have taken the neecssary action to enable the .service of the loan to be fully
secured under the charges referred to In that statement.
I am, sir,
Your obedient servant,
S . A . AEMITAOFWSMITH.
Secretary General.
OCTOBER 10. 1U24.
J. P. MORGAN & C o . ,
New York,
Y., United States of Atnerica.
DEAR Sras: Having read the letter addressed to you by the German Finance
Minister regarding the loan to produce 800,000,000 gold marks and having noted*
the security to be pledged by tlie German Government therefor, such pledgebeing made effective by action of the Reparation Commission. I am glad to
advise you that, a s agent general, I consider the pledge as made to be effective?
and the action taken by t b e Reparation Commission, the transfer committee,
the agent general, and otherwise such a s to insure the carrying out of the loan
service.
Yours very truly,
OWKN D . YOUNG,
Affcnl General for Rcpuration
Payment*.
$98,250,000 GERMAN GOVERNMENT INTERNATIONAL 5V& 1*KK CENT LOAN. 1 0 3 0
(35* YEAR GOLD BONDS)—UNITED STATES o r AMERICA I A SITUS, DATED JUNE 1 ,
1030; DUE JUNE 1 , 1 0 0 5 ; INTEREST PAYABLE JUNE 1 AND DECEMBER 1 — B A N K
FOB INTERNATIONAL SETTLEMENTS, TRUSTEE
A cumulative sinking fund, computed to be sufficient to retire the entire issue
at or before maturity, is to be applied to the purchase of bonds at or below 100
per cent and accrued interest if available, o r otherwise to the redemption at that
price of bonds drawn by lot.
258
SALE'••OF FOREIGN BONDS ?OR SECURITIES
R e d e e m a b l e at 100 p e r cent a n d a c c r u e d interest u p o n n o t less than 45 days'
p r e v i o u s notice, on June 1 of a n y y e a r t h r o u g h the s i n k i n g f u n d , a n d on June 1,
1935, a n d yearly thereafter in a m o u n t s o f n o t less than $7,500,000 principal
a m o u n t at t h e option o f the G o v e r n m e n t
C o u p o n b o n d s i n denominations of $1,000, $500, and $100.
P r i n c i p a l and interest payable in N e w Y o r k City at the office o f J. P . Morgan
& Co. in United States gold coin o f the s t a n d a r d o f w e i g h t and fineness existing o n J u n e i , 1930, w i t h o u t deduction f o r a n y German taxes,, present o r future.
D r . P a u l Moldenhauer, Minister o f F i n a n c e s o f the G e r m a n R e i c h , has furnished the f o l l o w i n g f a c t s regarding the G e r m a n Government international 5%
per cent loan, 1930, a m o r e complete statement being printed within :
T h e payment o f the principal, interest, and sinking f u n d o f the loan Is the
direct a n d unconditional obligation of the G e r m a n G o v e r n m e n t t o the bondholder, f o r w h i c h the f u l l f a i t h and credit o f the G e r m a n Government are
pledged.
" P r i n c i p a l and interest of b o n d s o f the U n i t e d States o f A m e r i c a issue are
p a y a b l e in dollars. P a y m e n t m a y , however, a t the option o f the holder, be
effected on any f o r e i g n m a r k e t w h e r e a n y o f the bonds o f t h e l o a n a r e quoted
in the currency of that market at, t h e then current rate o f exchange, as set
f o r t h in the general bond of the loan.
" T h e s e bonds constitute part o f the German Government international s ^
per cent loan, 1930, which is to provide an aggregate e f f e c t i v e ' a m o u n t equivalent to approximately $300,000,000 b y the issuance of portions of the loan (in
b o n d s of various currencies, all o f equal r a n k , without priority o f any bond
over any other as to the payment of principal, interest, o r sinking f u n d ) in the
f o l l o w i n g countries and in the f o l l o w i n g principal a m o u n t s : United States of
America, $98,250,000; France, 2,515,000,000 f r a n c s ; Great B r i t a i n , £12,000,000
sterling; Holland. 73,000,000 florins; Sweden, 110,000,000 k r o n o r ; Switzerland,
92,000,000 Swiss f r a n c s ; Germany, 36,000,000 r e i c h s m a r k s ; Italv, 110,000,000
l i r e ; Belgium, 35,000,000 belgas.,
"
" Two-thirds of this loan represents the capitalization o f a portion of the
unconditional annuities payable by Germany a c c o r d i n g t o the n e w plan^ and
the proceeds thereof will b e paid to the B a n k f o r International Settlements* for
the account of the creditor p o w e r s concerned. T h e r e m a i n i n g one-third of the
proceeds o f the loan will be utilized by the German Government to provide for
requirements of the German R a i l w a y Co. and the G e r m a n Post Office and
Telegraphs.
" T h e German Government international 5 % per cent loan, 1930, is authorized
by l a w of March 13, 1930, and by l a w of M a y 30, 1930, enacted b y the German
R e i c h . T h e loan is issued in c o n f o r m i t y w i t h the n e w plan adopted by The
H a g u e agreement and with the mobilization agreement, b o t h o f January 20,
1930, between Germany and the signatory c r e d i t o r p o w e r s , w h i c h agreements
w e r e ratified by the above-mentioned l a w of M a r c h 13,1930. and, f o r the purpose
of issuing the bonds of this loan, the German G o v e r n m e n t has executed its
general bond to the Bank f o r International Settlements a s trustee. T h e Hague
agreement, between Germany and the signatory creditor p o w e r s , ' s t a t e s ' t h e new
plan is definitely accepted a s a complete and final settlement, s o f a r a s Germany
is concerned, of t h e financial questions resulting f r o m the w a r . "
F o r f u r t h e r particulars, r e f e r e n c e ' i s m a d e t o the m o r e detailed statement
printed within. T h e B a n k f o r International Settlements h a s taken note of such
statement and h a s agreed t o a c t as trustee f o r the bondholders.
T h e a b o v e b o n d s a r e offered f o r subscription; subject t o the conditions stated
below, a t 90 per cent and a c c r u e d interest, to yield 6.20 p e r c e n t t o maturity. .
Subscription b o o k s will b e opened a t the office o f J. P . M o r g a n & Co., at 10
o ' c l o c k a. m . Thursday, June 12, 1930, and closed in their discretion. T h e right
i s reserved to reject a n y and all applications, a n d also, i n a n y case, t o allot a
smaller amount than applied f o r . A l l subscriptions w i l l b e received subject to
t h e d u e issue and delivery t o u s o f t h e b o n d s a s planned a n d t o the approval
b y c o u n s e l o f the f o r m and v a l i d i t y o f t h e b o n d s a n d of t h e r e l e v a n t proceedings
a n d authorizations.
SALE O F
FOHEIGX
The amounts d u e on a l l o t m e n t s
& Co., in N e w Y o r k f u n d s t o t h e i r
June 26, 1930) will b e stated in
exchangeable f o r definitive b o n d s
BONDS
Oil
SKCUllITIES
259
will be p a y a b l e a t t h e office o f J . P . M o r g a n
order, and the date o f payment ( o n or about
tlie n o t i c e s o f a l l o t m e n t .
I n t e r i m receipts,
w h e n r e c e i v e d , a r e t o b e delivered.
J. P. MORGAN & C o .
K U H N , LOEH & C o .
GUARANTY CO. OF NKW YORK.
HARRIS, FORIIES & C o .
KIDDER, PEABODY & C o .
FIRST NATIONAL B A N K .
BANKERS CO. OP NEW YORK.
T i n s NATIONAL CITY C o .
CHASE SECURITIES CORPORATION.
LEE, HIGGINSON & C o .
DILLON. READ & C o .
NEW YORK, June 12, 1030.
STATEMENT REGARDING GERMAN GOVERNMENT INTERNATIONAL 5ft PES CENT LOAN, 1930
(By D o c t o r M o l d e n h a u c r , M i n i s t e r o f F i n a n c e s o f the G e r m a n G o v e r n m e n t )
Arrangements h a v e been m a d e f o r p o r t i o n s o f t h e loan t o b e issued in B e l gium, France, G e r m a n y , G r e a t B r i t a i n , H o l l a n d , I t a l y , S w e d e n , S w i t z e r l a n d ,
and the United S t a t e s o f A m e r i c a . T l i e l o a n will b e issued in t h e f o r m o f
bonds to bearer, w h i c h m a y l>e o f v a r i o u s d e n o m i n a t i o n s a n d c u r r e n c i e s c a r rying interest a t 5 % p e r c e n t p e r a n n u m , r e p a y a b l e in 3 5 y e a r s b y m e a n s o f a
cumulative annual s i n k i n g f u n d to b e a p p l i e d in the p u r c h a s e a n d / o r d r a w ing of bonds in the m a n n e r s e t f o r t h in t h e p r o s p e c t u s e s relating t o t h e s e v e r a l
issues. T h e G e r m a n G o v e r n m e n t r e s e r v e s t h e r i g h t o n o r a f t e r the 1 s t o f
June, 1035, to redeem a t p a r ( 1 0 0 p e r c e n t ) a n d a c c r u e d interest, the w h o l e
of the outstanding b o n d s o f the l o a n o r a n y p a r t t h e r e o f , b e i n g the e q u i v a l e n t
of approximately $30,000,000 ( U n i t e d S t a t e s ) , o r m u l t i p l e s t h e r e o f , in the
manner prescribed by t h e g e n e r a l b o n d .
,Thaibonds will b e e x p r e s s e d a n d p a y a b l e in t h e c u r r e n c y o f t h e c o u n t r y o f
issue a t the equivalent o f i t s p r e s e n t g o l d value* B o t h p r i n c i p a l a n d interest
will b e payable in t h e r e s p e c t i v e c o u n t r i e s o f issue, b u t p a y m e n t m a y b e
obtained in any f o r e i g n m a r k e t w h e r e a n y issue o f t h e l o a n is q u o t e d in the
currency o f that c o u n t r y a t t h e c u r r e n t r a t e o f e x c h a n g e . A n y f u r t h e r p a r ticulars will be p r o v i d e d in the r e l a t i v e p r o s p e c t u s e s .
The various p o r t i o n s o f t h e l o a n w i l l b e f o r a m o u n t s sufficient t o y i e l d in
the aggregate a n e f f e c t i v e s u m , e q u i v a l e n t t o a p p r o x i m a t e l y $300,000,000
(United S t a t e s ) , a f t e r p r o v i d i n g f o r the e x p e n s e s o f issue, o f negotiations, a n d
of delivery.
Under the n e w p l a n a d o p t e d b y T h e H a g u e a g r e e m e n t b e t w e e n G e r m a n y
and the creditor p o w e r s signed o n 20th J a n u a r y , 1030, the right is r e s e r v e d
to capitalize the u n c o n d i t i o n a l ( n o n p o s t p o n a b l e ) a n n u i t i e s p a y a b l e t o t h e
creditor p o w e r s by G e r m a n y in p u r s u a n c e o f tlie plan. T h e u n c o n d i t i o n a l
annuities: amount to 012,000,000 r e l o h s m a r k s ($145,778,400), t o g e t h e r with
the sums required f o r t h e s e r v i c e o f the G e r m a n e x t e r n a l loan, 1924, a n d a r e
payable,by G e r m a n y t o t h e B a n k f o r I n t e r n a t i o n a l Settlements in f o r e i g n c u r rencies on a gold o r g o l d e x c h a n g e s t a n d a r d . O f t h e p r o c e e d s o f tlie loan,
two-thirds represent the c a p l t a l i z a t i a n o f a p o r t i o n o f the u n c o n d i t i o n a l a n n u ities payable to the c r e d i t o r p o w e r s b y G e r m a n y a c c o r d i n g t o t h e n e w p l a n ,
and such amount will b e p a i d to t h e B a n k f o r I n t e r n a t i o n a l Settlements, f o r
the account o f the c r e d i t o r p o w e r s c o n c e r n e d . T h e r e m a i n i n g one-third o f
the proceeds o f t h e l o a n w i l l b e p a i d t o the B a n k f o r I n t e r n a t i o n a l S e t t l e m e n t s
for the account o f the G e r m a n G o v e r n m e n t , a n d w i l l b e u t i l i z e d t o p r o v i d e
f o r the requirements Of t h e G e r m a n R a i l w a y Co. a n d t h e G e r m a n P o s t Office
and Telegraphs.
The payment o f t h e p r i n c i p a l , Interest, a n d s i n k i n g f u n d o f t h e l o a n i s t h e
direct and u n c o n d i t i o n a l o b l i g a t i o n o f the G e r m a n G o v e r n m e n t t o the b o n d holder, f o r which t h e f u l l f a i t h a n d .credit o f tlie G e r m a n G o v e r n m e n t a r e
pledged.
The sums required f o r t h e s e r v i c e o f the l o a n w i l l b e p a y a b l e b y e q u a l
monthly Installments o n t h e 15th d a y o f e a c h c a l e n d a r m o n t h t o the B a n k f o r
International Settlements, w h o a s t r u s t e e f o r t h e b o n d h o l d e r s w i l l place 1 t h e
said sums in a single a c c o u n t e x c l u s i v e l y a n d s o l e l y r e s e r v e d to tlie service* o f
the loan. T h e s e s u m s w i l l c o m p r i s e :
i(a) As t o two-thirds, c u r r e n c i e s o n a g o l d o r g o l d e x c h a n g e , s t a n d a r d , t h e
equivalent o f a p p r o x i m a t e l y 63,800,000 r e i c h s m a r k s ($15,197,160), b e i n g p a r t
of the unconditional a n n u i t i e s t o b e p a i d t o t h e B a n k f o r I n t e r n a t i o n a l Settle*
260
SALE OF FOREIGN; BONDS OR SECURITIES,
m e n t s b y G e r m a n y and distributed b y the b a n k in a c c o r d a n c e w i t h the terms of
the n e w plan.
\
( b ) A s t o one-third, currencies on a gold or gold e x c h a n g e standard, the
equivalent o f approximately 31,900,000 reichsmarks ($7,598,580), to be paid by
the G e r m a n Government out of its general revenues.
B y T h e H a g u e agreement the n e w plan w a s definitely accepted a s a complete
and final settlement, in so f a r a s Germany i s concerned, o f the financial questions resulting f r o m the war, thus carrying to a conclusion t h e w o r k initiated
by the adoption of the D a w e s plan in 1924. T h e n e w plan c a m e into f o r c e on
the 17th o f May, 1930. T h e German Government h a s a d o p t e d all appropriate
measures f o r securing its continued operation and the B a n k f o r International
Settlements has been f u l l y constituted, and has undertaken to c a r r y out the
duties assigned to it under the plan.
T h e n e w plan provides f o r , payment by German to the creditor powers of a
series of unconditional annuities and postponable annuities out o f her general
revenues. These annuities increase f r o m 1,041,600,000 reichsmarks ($391,029,120) in the year ending M a r c h 31, 1931, to 2,352,700,000 r e i c h s m a r k s ($560,413,140) in the y e a r ending March 31, 1966. T h e r e a f t e r , the annuities are
reduced to considerably smaller annual payments, ending i n the y e a r 19S8.
T h e w h o l e o f the annuities under the n e w plan a r e payable to tlie Bank for
International Settlements which is charged with the duty o f paying and distributing therefrom in accordance with the provisions of the n e w plan and
subject to the service o f the German external loan, 1924 ( w h i c h averages app r o x i m a t e l y 76,500,000 reichsmarks ($18,222,300) annually till 1949), first, the
amounts o f the unconditional annuities, including the service of bonds issued
in capitalization thereof, and next, the a m o u n t s o f the postponable annuities
referred t o nbove.
E x c e p t in connection with ah issue o f bonds f o r the capitalization of part of
the unconditional annuities f o r the purpose o f the internal conversion of the
national debt o f a creditor p o w e r w h i c h can b e quoted o n l y on t h e market of
issue, no f u r t h e r issue of bonds f o r capitalization can b e m a d e e x c e p t through
the B a n k f o r International Settlements, acting as trustee f o r t h e creditor
powers, i f and in so f a r as is deemed opportune b y the b a n k : such f u r t h e r loans,
whether f o r the purpose of internal conversion or not, will r a n k as .to payment
pari passu with the present loan.
B y w a y of guaranty f o r the service o f the annuities, the German Governm e n t has, in accordance with t h e n e w plan, created a fixed annual direct tax
of 660,000,000 reichsmarks ($157,212,000) on the German R a i l w a y Co. for 37
years, such tax e n j o y i n g p r i o r i t y o v e r any t a x n o w o r h e r e a f t e r t o be levied
on the r a i l w a y company. Under the n e w plan, the G e r m a n Government has
f u r t h e r undertaken, w i t h o u t prejudice to the securities f o r the G e r m a n external
loan, 1924, t o reserve, f r e e f r o m any charge f o r any o t h e r loan o r credit, the
proceeds o f the customs, tobacco, beer, and alcohol ( m o n o p o l y , administration)
duties, s a v e with t h e consent o f the B a n k f o r International Settlements, and
then, only subject to the priority i n f a v o r o f t h e annuities a s provided f o r ia
the n e w plan.
U n d e r the D a w e s plan the standard a n n u i t y in 1928-29 amounted to
2,500,000,000 reichsmarks ($595,500,000), w h i l e u n d e r the n e w plan the maxim u m a m o u n t payable during the first 10 y e a r s t o t h e c r e d i t o r powers is
1,938,100,000 reichsmarks ($461,655,420).
T h e a v e r a g e increase in the budg e t a r y contribution during the first 20 y e a r s is a p p r o x i m a t e l y one-fourth of !
per cent o f the total revenues o f the budget o f the German R e i c h , w h i c h f o r the
fiscal y e a r 1929-30 w e r e just below 10,000,000,000 reichsmarks ($2,382,000,000).
Minister
JUNE 10, 1930.
D r . PAUL MOLDENHAUER,
of Finances of the German Reich.
T h e B a n k f o r International Settlements h a s taken note o f the contents of the
f o r e g o i n g statement and has agreed to act a s trustee f o r t h e bondholders of the
G e r m a n G o v e r n m e n t international 5 % p e r c e n t loan, 1930.
BANK
BASLE, June 10,
1830.
FOR INTERNATIONAL
BY GATES W . MCGARRAH,
SETTLEMENTS, ?
President
NOTE.—In the a b o v e letter a s received f r o m : the Minister o f Finances the
a p p r o x i m a t e dollar equivalents o f the a m o u n t s originally expressed in reichsm a r k s h a v e been inserted In parentheses a f t e r the r e i c h s m a r k figures. On®
r e i c h s m a r k equals $0.2382 United States gold.
SALE OF
FOHEIGX
BONDS Oil SKCUllITIES
261
$150,000,000 IMPERIAL JAPANESE GOVERNMENT EXTERNAL IXJAN OF 1024, 30-YEAR
SINKING FUND
PER CENT GOLD BONDS, DATED FEBRUARY 1, 1934, INTEREST
PAYABLE FEBRUARY 1 AND AUGUST 1. DUB FEBRUARY 1. 1054, NONREDEEMABLE
FOB 15 YEARS
Principal and interest payable in Now York City, in United States gold coin
of tbe present standard o f weight and fineness, without deduction f o r any
^Japanese taxes, present o r future. Coupon b o n d s in denominations o f $1,000,
$500, and $100. Redeemable as a w h o l e o r in part, a t par and accrued interest,
at the option of the Government, upon 00 days" notice, on o r a f t e r February
1, 1939.
Monthly sinking-fund payments at the f o l l o w i n g annual rates, commencing
August 1, 1024. and continuing while any o f the dollar bonds are outstanding,
will be used to purchase such bonds, in the market a t not exceeding 100 per
cent and accrued interest: F r o m August 1, 1024, to July 1, 1920, inclusive,
$5,000,000 per a n n u m ; f r o m August 1, 1020, to July 1, 1934, inclusive, $4,000,000
per annum; from August 1, 1034. to maturity, $3,000,000 per annum.
The following statement concerning the Iwnds has been prepared f o r us by
Mr. Kengo Mori, special finance delegate o f the Imperial Japanese Government:
Authorized issue: T h e Imperial Japanese Government external loan of 1924
is to be an international loan to b e Issued in the United States o f America.
England, and Holland, a s f o l l o w s :
United States and Holland
England
$150,000,000
£25,000,000
The bonds of this loan are t o b e direct external obligations of the Imperial
Japanese Government. B o n d s o f the American and Dutch issue ure to be
payable in United States gold coin or, at the option o f the holder, in London
in sterling at an exchange r a t e o f $4.8005 to the pound sterling. Bonds of the
English issue are to b e payable in sterling only. T h e issue in Holland will be
made by Messrs. H o p e & Co. and their associates, at the same price as in New
York. The issue In England will be o f 35-year 0 per cent bonds t o be offered
at 87% per cent and Interest, yielding about 0.90 per cent b y the Westminster
Bank (Ltd.), Hong K*mg & Shanghai Banking Corporation, Yokohama Specie
Bank ( L t d . ) , Messrs. Baring Bros. & Co. ( L t d . ) , Messrs. Morgan GrenfeU &
Co., Messrs. N. M. Rothschild & S<»ns, und M e s s r s J. Henry Schroder & Co.
Special provisions: T h e Japanese Government covenants that if, while any
of the bonds of this loan a r e outstanding, it shall secure any loan by a lien
or charge upon any of its specific revenues o r assets, it will secure the bonds
of this loan equally and ratably with any obligations secured by such lien
or charge.
Sinking f u n d : T h e Japanese Government covenants that, commencing August
1, 1924, and continuing while any o f the dollar bonds a r e outstanding, it will
deposit in New Y o r k with the Y o k o h a m a Specie Bank ( L t d . ) , its fiscal agents,
in equal monthly installments the f o l l o w i n g sums t o be used a s a sinking
fund to purchase such dollar b o n d s in the market at not exceeding 100 per cent
and accrued interest, viss.; F o r each of the five years f r o m August 1, 1924, to
July 31, 1929, $5,000.000; f o r each o f the five years f r o m August 1, 1929. to
July 31, 1934. $4,000,000; and annually f r o m August 1, 1934, t o maturity,
$3,000,000.
If in any month bonds are n o t obtainable a t o r under 100 per cent and
accrued interest, the unused portion o f the monthly sinking f u n d payment
at the end of the month will revert to the Japanese Government. A separate
sinking fund will apply t o the English Issue.
Purpose of issue: T h e proceeds of this loan a r e to be used, in part, to retire
the outstanding balance o f the Imperial Japanese Government
per cent
sterling loan, first and second series, d u e February 15, 1925, and July 10, 1925,
respectively, and, in part, to purchase materials and supplies f o r tlie reconstruction necessitated b y the earthquake and fire o f September, 1023.
Of the above-mentioned 4 % p e r cent sterling loan originally issued in the
aggregate amount o f £60,000,000, a b o u t £25,000,000, or 40 per cent, has already
been retired by tlie Japanese Government through purchases in the market*
leaving outstanding such b o n d s o f a p a r value equivalent, at the fixed r a t e o f
exchange named in the bonds, t o approximately $170,500,000. T h e Japanese
Government is to call these outstanding b o n d s f o r redemption o n October 1,
1924, at par ($974 p e r £200 b o n d ) together with a c c r u e d interest t o that date,
ia accordance with its right o f redemption expressed in the bonds.
262
SALE OP FOREIGN : BONDS-.DR SECURITIES
T h e Government's reconstruction p r o g r a m calls f o r an estimated expenditure
b y the Government o f about $700,000,000, o f w h i c h it i s expected that about
$300,000,000. will b e spent in .purchases outside o f Japan. T h i s l a t t e r suni; is
t o b e m a d e available f r o m the proceeds of this l o a n and f r o m existing funds
n o w a t the disposal o f the Japanese Government in N e w Y o r k and in London.
I t is t h e intention o f the Government that the r e m a i n d e r o f the funds for
reconstruction purposes shall be raised in J a p a n .
T h i s loan, together with the existing f o r e i g n balances mentioned, will, theref o r e , p r o v i d e not only f o r the retirement o f substantially the w h o l e of the
Japanese Government's external debt maturing p r i o r to 1931, b u t also for
the J a p a n e s e Government's entire estimated financial requirements in foreign
m a r k e t s f o r reconstruction w o r k .
P r e v i o u s i s s u e s : T h i s l o a n i s . t h e first direct external issue m a d e by the
I m p e r i a l Japanese Government i n the A m e r i c a n market since 1905, the year
of the Russo-Japanese W a r . I n M a r c h and in J u l y of t h a t year, part of the
4 % p e r c e n t sterling loan, a b o v e referred to, w a s offered to yield about 5.32
p e r cent, and, in November, part o f an international 4 per. cent loan, maturing
in 1931, w a s offered to yield approximately 4.67 per cent. T h e s e offerings in
the United States aggregated about $137,500,000 p a r value o f bonds..
W e o f f e r the above bonds f o r subscription, subject t o allotment, at 9 2 $
p e r cent and accrued interest, t o yield 7.10 p e r cent to maturity.
A l l subscriptions will be received subject to the issue and delivery to us of
the bonds a s planned and to the approval by o u r counsel of their f o r m and
validity.
Subscription books will be opened a t the office o f J. P . M o r g a n & Co., at 10
o'clock a. m., F r i d a y , F e b r u a r y 15, 1924. T h e r i g h t is reserved t o reject any
and all applications, and also, in any case, t o a w a r d a smaller a m o u n t than
applied f o r .
T h e amounts due on allotments will b e payable a t the office o f J. P., Morjiati.
& Co., in N e w Y o r k f u n d s to their order, o n o r a b o u t M a r c h 3, 1924, a s callea
f o r , against the delivery of interim receipts o r , t e m p o r a r y bonds, pending the
preparation o f definitive bonds.
.
P a y m e n t s f o r bonds allotted m a y b e m a d e in the bonds of the Imperial
Japanese Government 4 % per cent sterling loan o f 1905, first and second series,
due, respectively, F e b r u a r y 15, 1925, and July 10, 1925, with u n m a t u r e d coupons
attached, which will be accepted at prices equivalent to a 4 % per c e n t interest
yield basis computed f r o m the date o f p a y m e n t o f subscriptions to October. 1,
1924, the date as o f w h i c h the 4 % per cent bonds a r e to be called f o r redemption
as a b o v e stated.
T h e par value o f all Japanese Government bonds quoted on the N e w York
Stock E x c h a n g e i s $974 per £200 bond.
J. P . , MORGAN & C o . ,
K U H N , LOEB & C o . ,
T H E NATIONAL CITY CO.,
FIRST NATIONAL BANK,
NEW YORK, February
New
11, 1924.
York.
T h e f o l l o w i n g information concerning the Imperial Japanese Government,
e x t e r n a l loan of 1924 and the general resources of Japan, h a s been furnished
b y M r . K e n g o Mori, special finance delegate o f t h e Imperial Japanese Govern-,
ment. Conversion o f yen into dollars, w h e r e m a d e , has been figured at two
yen t o t h e dollar, as against p a r i t y o f 49.S5 cents per yen.
THE LOAN AND ITS PURPOSE
T h e I m p e r i a l Japanese Government external loan o f 1924 is to be an international loan to b e issued in the United S t a t e s - o f . A m e r i c a , < England.: and
Holland, as follows:
*
fUU n i t e d States a n d H o l l a n d —
E n g l a n d . - -
—
—
1
£
2
5
,
0
0
0
,
$150,000. 000
0 0 0
T h e b o n d s o f this loan a r e to b e direct external obligations o f t h e i m p e r i a l
Japanese Government.
B o n d s o f the A m e r i c a n and D u t c h i s s u e a r e to be
p a y a b l e , b o t h as t o principal a n d interest, in United States g o l d c o i n ? of\ the
SALK OF F011K1GX BONDS OH SECURITIES
263
present standard o f weight a n d fineness In New Y o r k City at the office of the
Yokohama Specie Bank ( L t d . ) or, a t the option of the holder, in London, In
sterling at an exchange rate of $18605 to t h e pound sterling., Such payment
of principal and interest, whether in dollars o r in sterling, is to be m a d e
without deduction f o r a n y t a x o r taxes n o w o r a t any time hereafter imposed
by the Imperial Japanese Government, o r by a n y taxing authority thereof or.
thereunder. T h e Japanese Government will require s i r months' notice of the
intention of bondholders to present their bonds f o r payment a t maturity in
sterling or two montlis' notice f o r suchi payment pursuant to any call f o r
earlier redemption. Bonds o f the English issue are to be payable in sterling
only. h
The issue in Holland will be made by Messrs. H o p e & Co., the Nederlandsche
Handel-MaatschupplJ, Messrs. Lippman, Rosenthal & Co. a n d the T w e n U c h e
Bank, at the same price as in New York. T h e issue in England will be o i
35-year 6 per ccnt bonds, to be offered a t 87*6 per cent a n d interest, yielding
about 6.06 per cent t by the Westminster B a n k ( L t d . ) , H o n g Kong and Shanghai
Banking Corporation, Yokohama Specie Bank ( L t d . ) , Messrs. Baring Bros. &
Co. (Ltd.), Messrs. Morgan Grenfell & Co., Messrs. X . M. Rothschild & Sons,
and Messrs. J. Henry Schroder & Co.
The proceeds of this loan are to bo used, in part, to retire tha outstanding
balance of the Imperial Japanese Government 4 % per cent sterling loan, first and
second series, due February 15, 1025, a n d J u l y 10, 1025, respectively, and, i n
part, to purchase materials and supplies f o r the reconstruction necessitated by
the earthquake and fire of September, 1023.
Of the above-mentioned 4 Mi per cent sterling lo
@FedFRASER