It might perhaps have been expected that our exports to these localities would have shown a much greater increase, but it should be borne in mind that buying in most of the countries has been restricted to necessities. This was especially the case in South and Central America for months after the war started. The pinch was more severe there than in this country, and the recovery has been much more slow. Taking all the circumstances into consideration, I think we have done very well so far, although I think we are going to do much better in the future. Employing Surplus and Liquid Capital before the war started. British investments in other countries had reached a total of perhaps $17,500,000,000, of which $4,000,000,000 were held in South American countries. French foreign investments totaled $8,000,000,000, of which something like $1,000,000,000 represented the attention French investors had paid to South America. German capital to the extent of $5,000,000,000 had been distributed abroad, somewhat more than 20 per cent. being invested in South America, probably the total amount of European capital invested in South America was close to $7,000,000,000. The amount of South American securities held in the United States was insignificant when compared with this figure. No attempt had ever been made to sell large quantities of such securities in this country. Attention cannot be too often called to the fact that Europe is no longer pouring capital into these newer countries, and that if the im-. provements that were planned before the war started are to be carried out, American capital must be supplied. And if American capital is supplied in sufficient quantity, the benefits that will eventually accrue to this country will go a long ways toward taking up the slack when war orders cease. In some quarters it is urged that our capital should be invested at home; that we have room for it all right here at home. A little study of our trade balance and our gold holdings will serve to prove that we have not only reached the point where it is possible to put money into foreign enterprises, but where it is imperative that we put it there. The table I give below shows the growth of the excess of exports over imports since the war started; the figures for December are preliminary, but fairly accurate I think: Monthly Trade Balances for 1914 and 1915 1914 Months. But while nearly all are agreed that foreign investments are necessary if our foreign trade is to grow as it should, very few have studied foreign investments in detail. That is one of the big difficulties. In the past, Canadian and Mexican securities have been the only active offerings on the New York Stock Exchange, and these only because the neighboring countries were not considered really foreign. We understood conditions next door about as well as we understand them at home and were not afraid to turn over the money. It seems more difficult to go to far-off countries and study June. conditions until we know them as well as we August do in Canada and Mexico, but in reality the September. problems are very similar. It will take additional time and patience, but in the end we shall be as familiar with industrial and financial conditions in a dozen countries as we now are in two. Whereas the United States has put very little money into foreign investments, certain of the European countries have exported tremendous amounts of capital. It is thought that the creditor nations of Europe loaned capital abroad at the rate of $1,500,000,000 annually January.. July October November December.. 1915 January. June. 157.605.140 268.547.416 110,852,276 September.. 151.236.026 300,676,822 149.440.796 October. 149.172.720 328.030.281 178.857.552 November. 155.496.675 331141.527 175.647.852 Estimated. $11,209.544 2.548.896 457.406 5.538.344 19.400.396 Preparing for Peace and International The excess of exports over imports, then, for the calendar year 1915 amounted to no less than $1,785,896,000, as compared to say $550,000,000 for an average normal year. The net imports of gold for the year probably exceeded $400,000,000, bringing our gold holdings to $2,200,000,000. It has been estimated that this means an addition of more than 20 per cent. to the gold holdings of the country during a period of twelve months. So far as can be seen at present this flow of the precious metal to our shores is not likely to be interrupted for some time. As a matter of fact it may be expected to increase in the near future. Now, it is possible that this great accumulation of gold will be handled wisely and be the means of saving us from a very sad experience after the war is over. If so handled there will be a goodly reserve in the banks when peace is declared, to meet the inevitable demand from Europe, and there will be a really impressive total invested in the more undeveloped foreign countries, principally in South America and the Far East. If it is not wisely handled, it will all be poured into expansion here at home, in spite of the fact that labor is already fully employed. This will result in increased wages, but also in a proportionately increased cost of living. Nobody will be the gainer, and when the war is over costs of production here will be much higher than in Europe and we shall lose not only the great war trade, but much of that which in the meantime we have laboriously worked up in non-belligerent countries. In voicing such opinions I have not been at any pains to say something new or startling. I think the situation is pretty generally understood by our leading bankers, manufacturers, and traders. I think they know where the breakers are and I think they know how to steer a safe course around them. But I also think that preparations for the perilous part of the course should be made as soon as possible and should be made as thoroughly as possible. We should see to it that the fair trade winds we have been enjoying so many months do not lul us into false security. If they do, if we put this thing off too long, the ending of the war is going to bring us as close to disaster as the beginning did. CREDIT FACILITIES AND EXPORT MOVEMENT "If we allow our industries to die down and our wheat and corn to rot for want of a market, who can say that our industrial situation might not result in suffering in this country so far-reaching that it would represent a real calamity? We are in effect supplying the people in belligerent nations with food and clothing and other commodities that they are abundantly able to pay for, and that they have a right to buy. The fact that, because of the war, the production in European countries has fallen off to a point where more of their supplies, which are ordinarily imported, must come from without their countries has nothing whatever to do with our right to sell them goods. Such being the case, the problem before us is merely one of how we shall obtain payment. The only feasible way seems to be through the flotation in this country of foreign loans. While Great Britain, for instance, can, we will say, raise the equivalent of a billion doliars in Sterling in England and deposit that sum with the Bank of England for its credit, and while it could turn that credit over to the account of American shippers for their goods, yet as the credit so obtained could not be sold to anyone in this country for dollars who had need of Sterling credits, nothing but a foreign loan in effect would be the result, although full payment would have been made in Sterling. If the British Government instead of paying the equivalent of the billion dollars into the Bank of England to the credit of American shippers should buy drafts on New York and pay the shippers in American dollars through & credit formed with its banking correspondent in New York City, the American shipper would receive payment in funds that he could use. Under present conditions, however, the British Government is unable to purchase enough dollar exchange with Sterling exchange to meet its requirements, as its exports and other obligations on that side of the balance sheet do not offset the amount of its imports from this country. It therefore has just two ways left to it to create dollar exchange, one to ship gold, and the other to borrow in dollars under an agreement to repay in dollars at a future time. America has more gold now than it requires or desires, and its money market is at a point of stagnation that has never been equaled in its history. Again, it would be harmful to this country with its huge commercial relations with Great Britain to have sufficient gold shipped from England to jeopardize its credit. Our interests, therefore, make the dollar foreign loan the best solution of the difficulty." THE “MOBILIZATION" OF AMERICAN SECURITIES BY THE BRITISH GOVERNMENT ARTHUR J. ROSENTHAL Member of the Firm of Bernhard, Scholle & Co., New York and London There have been very few criticisms anywhere of the way Great Britain has conducted her financial operations in the great crises through which she is passing. In spite of the fact that she has had to finance not only her own stupendous requirements, but also those of her allies, and in spite of the fact that her exports have been materially curtailed on account of the diversion to military needs of vast amounts of her resources, sterling exchange is today within a few per cent. of its normal price and England is today the only country at war of which this is true. Our respect and admiration for what Great Britain has accomplished in a financial way only increase with our consideration of the difficulties she has had to surmount and the problems she has had to face. After the first months of the war when sterling was dropping from unheard of prices to normal rates and below, Great Britain was forced to consider how she would keep sterling from falling to such a point as that it would seriously cripple her foreign commerce and her financial prestige. Methods Adopted to Check Decline in Sterling Rates Three principal methods were adopted to accomplish this end, namely: 1. The sale of American securities by British holders in order to create credit bal ances. 2. Borrowing money from neutral nations in the form of either bank credits or government loans. 3. Shipments of gold in payment of her debts. In considering gold shipments we find that there has been shipped by Great Britain about $500,000,000 without very materially depleting her own gold supplies. Of this amount, it is true, considerable sums were contributed by her allies, but the largest portion was undoubtedly furnished by Great Britain herself. In borrowing money in this market she first did so through credits granted by the leading American banks, trust companies and private bankers, and, later, through a public loan which, for this market, was of unparalleled size. Sale of American Securities by Great Britain and France Of Based upon figures compiled by Mr. L. F. Loree, president of the Delaware & Hudson Railroad, and upon other estimates made by the New York Times, it is probable that the sales of American securities by Great Britain, for the six months ended July 31, 1915, amounted to about $500,000,000. She has also sold considerable quantities of Canadian securities in Canada and the United States. the vast amount of securities of other countries which are owned by British holders, the only ones that are at the moment available for sale, or for pledge in the future, as the basis for credits, are securities of the United States and Canada, because securities of other countries have their principal market-in fact, their cnly market-in Britain, or in the other countries at war, and therefore are not now available for sale elsewhere than in England. As America gradually assumes her place in the financial firmament, undoubtedly more and more of the securities of other countries which are now held in Britain will be sold to our banks and investors. A considerable start has already been made by the purchase in the United States of securities of some of the South American countries, notably of the Argentine. Undoubtedly this movement will increase from time to time as our investors become educated to the desirability of placing some of their funds in the securities of other American countries and as we gradually become established as a creditor rather than as a debtor nation. For the entire year of 1915 it is probable that Great Britain has re-exported twice as many securities to the United States as she did during the first six months of 1915. Therefore, using Mr. Loree's estimate as a basis, it is probable that we have re-purchased in the neighborhood of a billion dollars of our securities during 1915. To digress a moment from the consideration of Great Britain's re-sale of American securities to us, it is interesting to note that we have undoubtedly repurchased several hundred millions of American securities held in France, considerable portions of which had been issued in franc denominations. These franc bonds have been resold here either as franc bonds or have been reissued by the companies, whose obligations they are, as dollar securities. The sale of these securities has naturally helped to establish credits for France and thus has lightened the burden which England herself has been forced to shoulder, and by the amount involved has reduced the money which Great Britain has had to provide for the purchase of supplies and munitions for her allies. Most Effective Method for Establishing The sale of American securities by British holders has probably been the simplest way for England to establish credits here and has also probably been the cheapest. Obviously anything that Great Britain can do to facilitate and to increase the resale to us of American seurities is to her advantage and, therefore, little by little, the British Treasury officials, through the Bank of England, have been taking a larger and larger part in this perfectly natural development. At first the treasury officials merely resorted to the expedient of purchasing American securities in large volume through the Bank of England. By buying at a premium of one, two and in some cases, even more per cent., above the current market quotations, they were able to accumulate large quantities of American securities which were shipped to this market for sale or to be used as the basis for future credits. Great Britain could easily afford to lose several per cent. in this operation, because through the purchase of American securities and their subsequent resale in this market she accomplishes the same result that she would through the purchase of gold in Great Britain and its subsequent shipment to her credit here: in either case she obtains dollars and, in the case of the shipment of securities, protects her gold supply. The Plan of "Mobilizing" American Securities When this process ceased to accumulate sufficiently large quantities of American securities, Great Britain appealed to British holders of American securities to sell their securities, on two broad grounds-Patriotism and Profit. The gist of the scheme recently offered by the treasury is that it involves the sale or loan of Ameri can securities by their British holders to the British Government, in exchange either for cash or for 5 per cent. exchequer bonds at par. The British Government has set up a certain standard to which all securities tendered for sale or for loan, under this mobilization plan, must conform. This standard is in many ways similar to that which various of our own States have arranged for savings bank investments. In addition, of course, the usual war condition stipulates that the securities must not have been in enemy ownership since the outbreak of the war and that they must have been in the physical possession of holders in the United Kingdom. In the case of direct sales of American bonds and stocks to the Treasury, the owner has the right to accept, at his option, either cash, or 5 per cent. exchequer bonds maturing December 1, 1920, at par, in exchange for the securities he is selling. In the case of loans of bonds or stocks, such securities are transferred to the Treasury for a period of two years from the date of transfer, against issue by the Treasury of its certificate, the lender to receive all interest and dividends paid on the securities during this time and in addition a payment at the rate of 1⁄2 per cent. per annum, calculated on the face values of the securities. The owner retains the right to realize on such securities during these two years. Sales may be made either through the Treasury, or, at the owner's request, the securities will be released in New York, for cale through the ordinary channels, provided the proceeds are remitted to London in sterling. The British Government reserves to itself the right to sell these securities, should it have need of this privilege, and to pay the proceeds in sterling to the owners. It is also the present understanding that the certificates issued by the British Government in exchange for the loan of these securities will be negotiable in form, and that arrangements will be made for their listing on the London Stock Exchange. It may occasion comment that in where a British holder lends securities to the British Government for a period of two years, the Treasury officials should retain the right to sell these securities in case of need. It is of course obvious that we cannot lend on American securities if we do not have the right to sell the securities of the pledgor, in case of need. Of course, any such contingency is extremely unlikely. Ready Absorption by Domestic Market It is probably that only a part of the vast amount of American securities still remaining in Great Britain will be lodged with the Treas ury officials for sale or as a loan, and it is quite probable that of the amount loaned to the Treasury, a very considerable proportion will never be sold in this market, but will be used merely as the basis of future credits by the British Government. In spite of the sale by Great Britain of large amounts of American securities, thus far, the stock and bond market here has not only been able to absorb them without trouble, but prices both for bonds and for stocks have advanced materially during this period of liquidation. The present mobilization, however, should lead to an orderly sale of securities in this market and should remove any danger of indiscriminate liquidation. In the various Treasury circulars it is clearly pointed out that even in cases where securities do not come under such category as to be available for purchase or loan to the Government, the owner may still "contribute materially towards the achievement of the object aimed at in the scheme by selling his securities in the open market and reinvesting the proceeds in British Government securities." It therefore seems most likely that enough securities will be available under this mobilization scheme to enable Great Britain not only to control the price of sterling to such an extent as to compel the cessation of all gold exports during the continuance of the war, but to maintain sterling at such rates as seem best for the interests of commerce. Bankers' Trust Company of New York As the second largest trust company in the United States the Bankers Trust Company of New York has increased its deposits during 1915 from $142,530,404 to $269,330,179. At the same time total resources increased from $166,738,374 to $297,571,070. The capital is $10,000,000, and surplus fund $10,000,000. The item of undivided profits was increased during the past twelve months from $2,451,483 to $4,694,097. Calculated on market value the surplus and undivided profits amount to $14,694,097 as compared with a book value of $12,850,619. The company reports acceptances of drafts payable at a future date and commercial letters of credit amounting to $3,147,692. The past year was one of the most prosperous in the history of this ably managed trust company. "Working With a Will" "All Lawyers like to take a rest, Wisconsin Authorities Hold That Only Trust Companies May Exercise Trust Powers Following the announcement of a decision by the Illinois Supreme Court upholding the State Auditor in refusing a certificate of authority to the First National Bank of Joliet to exercise trust powers State Bank Commissioner A. E. Kuolt of Wisconsin issued a statement that he will ask the Attorney-General to bring suit against any National bank in that State which attempts to do business as trustee, executor, administrator or registrar of stocks and bonds in consequence of permission granted by the Federal Reserve Board. The Attorney-General of Wisconsin has advised the State Banking Commissioner that the action of the Federal Reserve Board in conferring trust powers upon National banks, in accordance with provisions contained in Section 11, paragraph k of the Federal Reserve Act, does not confer any State authority upon such banks. Both the State Attorney and the Bank Superintendent are agreed that the clause of the Federal Reserve Act in question is unconstitutional. Under the laws of Wisconsin the only corporations authorized to act in the enumerated fiduciary capacities are trust companies chartered under the laws of the State. Despite the advice of counsel for the Federal Reserve Banks of Chicago and Minneapolis that the granting of such powers would be in contravention of Wisconsin laws, the Federal Reserve Board has given permission to six National banks in that State to engage in trust business. Up to the present time none of these National banks has made any effort to avail themselves of such privileges. Fxtra Dividend by Union Trust Co. of At the annual meeting of the directors of the Union Trust Company of Detroit, Mich., the regular quarterly dividend of 11⁄2 per cent. and an extra dividend of 2 per cent., were declared. This makes a distribution of 8 per cent. for the year on its capital of $1,000,000. It was also voted to transfer $100,000 from undivided profits to surplus, bringing that item to $500,000. John N. Stalker, an assistant secretary, was made a vice-president, and Merrill C. Adams and Harry D. Slater were appointed assistant secretaries. Trust Company Absorts National Bank Arrangements have been consummated by the stockholders of the Industrial Trust Company of Providence, R. I., for taking over the assets and deposits of the United National Bank, the stockholders of which, it is understood, will receive $210 a share for their holdings. |