FINANCIAL CRISIS. VIEWS OF A GREAT BANKER.

Evening Post, Volume LXXV, Issue 09, 11 January 1908, Page 9

FINANCIAL CRISIS. VIEWS OF A GREAT BANKER.

AS OPTIMISTIC STATEMENT. (rKoat oun owjt coim.'isroN'DEKTO LONDON, 29th November. Sir Felix Schuster, President of the Institute of Bankers, delivered Ms inaugural address to the members at. the London Institution yesterday evening. Dealing with the principal events affecting banking and' commerce generally during the past year, the president said that England,' has bpen passing through a period full of interest and full of lessons,' which he hoped would not soon be forgotten. The London money market had been subjected to conditions and to a rate in the value of money that had not been witnessed for 34 years. All the ' European money markets, 'no less than our own, had been influenced by the events that took, place on the other side of .the Atlantic — events which were, not, or ought not, to have been entirely unforeseen, although their magnitude was^ difficult to realise beforehand. He thought they might claim that our market had stood the. test well ; that the fears and tho feeling of nervousness, which not unnaturally rose at times, had not been justified, and that the developments of the future might be awaited with confidence. ■ LOMBARD-STREET AND THE ■ ... STOCK EXCHANGE. Tho great activity of trade throughout the country had, on tho whole, continued. The Board of Trade returns bore a welcome testimony to the fact, showing, as they did, an increase for ten months in the imports of £35,00u,000 or seven per cent, as compared with last year, and in. tho exports of £35,000,000, or 14A per cent.' The roturns of tho London Clearing House, too showed unprecedentedly large, figures, and an increase up to the middle of November of about £72,000,000.- Of course the high prices ruling for commodities were, to a great extent, responsible for the large increases ; but it could be said th 6 country had done a large) and it was to be hoped, profitable trade. ' But what a contrast to the satisfactory factors that prevailed was the existing state of affairs in Lom-bard-street and on the Stock Exchange. A higher bank rate and lower prices than the present generation had ever witnessed ; and pessimism such as wa3 not experienced in^the darkest -days of the South African war. It would bs • too ■ much to say that the* American crisis was entirely to blame for this situation as regarded values on the Stock Exchange. Other causes had contributed ' to the value of money having been for some time past maintained at a fairly high level, and to the low price ■of investment securities. We were at tho present time passing through o period which was the exact antithesis of that of twelve years and a half ago, when the bank rate remained^ upwards of two years nrnd a half at '2 per cent., when the prices of commodities were low, trade slack and deprosscd, and the money, which in normal times would have been employed in our manufactures, helped to raise the price of gilt-edged securities to an extraordinary ' extent. Remarkable activity in trado and high prices for commodities', such as had prevailed all, over the • world, could not do without JJieir effect. This activity, engendered > af, fcer ■ the 1 termination of the South African and- Russo-Japancbo wars, and fostered by speculation, brought about *ah •fibnormsl rise "in the price of raW .titeterTiHs." CJoaJ, copper, ' tin, steel, lead, wool', cottcfa-ralt of, these had sustained jhateriai ■ increases in price during the last year or two, and especially during tha year ended in July last. The consequences to our manufacturers had 'been of great importance. Working expenses had so increased 'that many had been compelled to put) all available profits into their bu6inessj" or to sell investments, or had been forced to borrow heavily. Therehad been such a ' demand for money Trom the manufacturing, and industrial classes* that the amount available for investment purposes had -been much smaller than -in normal times, ; while the creation of new investment securities' had been on so abnormal a scale, although in this country last year had i(vitpessed a considerable diminution in this respect. The condition's thus described had prevailed not 'only in this but \n all industrial .countries. ' PEICE OF CONSOLS. The average price •; of Consols had been steadily, falling since 1897, and tha prices of • commodities had been as steadily rising. To ' give all the reason* why the market in our , premier security should be so far different from w-hatf* is used, tb "be in the old days, when dealings in very large amounts haidly affected the price- at all, they must go back to the time of the con\ersion, which induced a 'great many genuine investors to part with their holding and to invest in, securities paying a higher rate of interest. ; When the investment powers of trustees were enlarged 'so as to include securities, ' the channels of investment wero yet further diverted from Consols ; and wh.>n the turn in the money market came, the character of the holding had entirely changed. Then came the war, the suspension ot tho Sinking Fund, large issu?s of Government Stocks, including tha Irish Land Stock, and simultaneously a vast creation of municipal and" other trustee stock. It was to bo hoped that the permanent investor was nov; again coming in and absorbing quantities of floating stock. The comparative steadiness of the price, indeed, seemed to point in this direction, while at the game time the Sinking Fund was also beginning to make itself felt, and would probably do so to a- larger extent in a very short time. As to the outlook of trade the indications pointed to restriction rather than expansion, not only in this country, but all over the world. A period of extraordinary activity was invariably followed by a. reaction, and signs were not wanting thnfc such a reaction was at hand. Our commerce had done more than held its own, and there seemed no rea-^on to fear that it would not continue to do so, "in fact, he believed altered conditions, especially lower prices of raw materials, would benefit our ti\ide. But hard times elsewhere must make themselves "felt here also. OVER-CONFIDENCE. At, to the crisis itself, like every olher ciisis, it had arisen out of oser-bon-fidonce, brought about by an abnormally prosperous state of affairs. The strain upon European gold resources had been so great as to interfere seriously with the normal course of business, and each nation had, as ifc were, been thrown on its own resources. The • best opinions were that the worst of the crisis was now over, and that the drain of gold from here would bo considerably lessened. The event of this autumn had amply proved that a sudden change, in the money market of any great financial centre might, bring about demands on our stork of gold which rendered such precautionary measures necessary as really hindered our commerce. We ought to be able, if necessary, to spare £5,000,000 or £10,000.000 without having resort to a 7 per cent bank-rate, and feaj» of even, hasher iiatw.. It jvas

true that a situation such as this had not arisen for a great number of years, and onco over was not likely to arise again very soon. Yet it had arisen at a time when the political horizon was clear. Had it not been so, tho ; effect would ihave. been much k more serious, and with the increasing volume of trade, with the great number of countries that , wero now' on a gold basis, with the hoarding which Lord. Cromer told us recently is going on in Egypt, and which wa£ aJ&o going on in India to a large extent, temporary demands on our stock (Of gold were only too likely to occur again. He wanted the freedom of our. gold market to be maintained, but he • would only ask whether that market was quite so free as they would like it to be when two years running at a time of stress, we had had to go across the Channel to borrow a few niillions, for' that was what the tra n^action _ came to. He thought we might have exported five or six millions of gold; which, compared with our volume of .trade, was not a large sum, without hoisting the danger signal so high as' 7 percent.