FACTS FOR INVESTORS.
UNDERWRITING BUSINESS,
SOME OF ITS WEAKNESSES,
The collapse of the Hatry group and the unfortunate consequences have drawn attention to the pitfalls attendant upon those who place implicit reliance in underwriting concerns. There are many of these in the Dominion nowadays, and it is as well to remind investors that their existence, while of undoubted convenience in many instances, provides an additional reason for caution. Where a new issue is floated the guarantee of an underwriting firm, which is frequently given nowada3"s to help the new venture to float, is only as good as the personnel of the underwriters and their resources. Sometimes both interest and principal are guaranteed, but in every case the intending investor owes it to himself to carefully inspect the position of the guarantors as well as the particular proposition he is considering. Long before the Hatry exposure • come London financial journals warned the investing public of the dangers of placing too much reliance upon underwriters. The "Investors' Chronicle," on July 27, remarked: —"Experienced observers of last year's wild new issue boom felt convinced that there would be many instances of new companies coming to grief, as a result of underwriting contracts being entered into with people who could not possibly fulfil them. The lack of discrimination shown by many boards in this connection deserves strong condemnation. In the last month or two there have been several examples of new companies failing owing to the default of underwriters. Once or twice we have drawn attention to the utterly reckless manner in which unstable undertakings', many of which called themselves 'trusts,' engaged to find underwriting for extremely speculative propositions. Real underwriters are ready to take up the shares they engage ito subscribe and to hold them. Some of the recent underwriting, however,, was clearly based on the assumption that the shares would never have to be taken up by the underwriters, owing to the speculative fever which had assailed the public." The "Chronicle" gave an instance of a "trust" whose affairs had been gone into by an Official Receiver, that had started with a capital of £500 and had accepted underwriting contracts involving liabilities of £450,000. In this particular case some of the promoters were described by the "Chronicle" as "'remarkably impudent," and the "trust" was afterwards engaged in share-pushing episodes to get rid of shares with which it had been landed as underwriters.
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Bibliographic details
Auckland Star, Volume LX, Issue 243, 14 October 1929, Page 4
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400FACTS FOR INVESTORS. Auckland Star, Volume LX, Issue 243, 14 October 1929, Page 4
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