FINANCIAL POWER

New Zealand Times, Volume LII, Issue 12037, 15 January 1925, Page 8

FINANCIAL POWER

ACHIEVEMENT OF ENGLAND DESPITE ITS BURDENS. IT CONX tinues lending money. AMERICA’S ADMIRATION. In Australia'was an American directly connected with leading banking interests of the United States, in the person of Mr Pierpont V. Davis. He is a vice-president of the National City Co., of New York, which is a company formed in 1911 by the National City Bank, of that city.. That institution, dates back to 1812, and for many years has had important international finan- ] citl connections, ranging from South America to the East," to Russia, and to London. The bank, the better to develop its investment business, and at the. same time to Collect a separate 'staff of experts able to gauge the mer- , its of flotation proposals from a broad- , er angle than that of, the .commercial banker, created the National City 00, The prestige of the parent institution extended to the company,, and assured for it immediate eminence in bond transactions in Now York.Mr Davis visited Australia ' to acr quaint himself-with the country’s development and resources, and to gauge for himself its standing among the countries of the world. FRIENDLY FEELING. “It must not be imagined,” he declared, “that we. in -the United States have other than: the'Tßndließt feeling financially or otherwise for Great Britain. To us one of the most extraordinary things is the ability of Ehgland to go on making loans as it; does. This is said in view of the responsibilities, and because of, its trade position, the extent of its unemployment, and its dispossession of wealth and ‘overseas securities, due to - meeting' the,needs of the war. V Yet-it continues to go,on lending money to its dependencies and to other parts of- the world. It is a , remarkable thing to be able to do, especially with the heavy load it has to carry. 1 , That is the position asft ! presents itself to bankers in the Uni-1 ted States. They also ieel that ,as a , country like Australia develops; and as ! its need for fresh capital extends, the . time / may come when the Common- , wealth will be glad .to turn to- the . United States, with its wealth, for loans. That eventually can be, be considered without any feeling of wishing to deprive -England ■of business. .. methods o 5 Handling loans. In connection with'such a . movement of borrowing, Mr Davis furnished an interesting description of the difference between the methods of handling loans in London-and New York. In tho first-, named city the issue - is underwritten for a given commission, by principal underwriter and . co-underwriters, . .the issue being offered fur public subscription, at a fixed price. In, New .York houses like the National City Co.- with, financial asociates agree to take up the issue which to a specified ..date they offer -for sale to the investor. Hie. terms allow of a profit to the bonding syndicate. Comparison, Mr Davis asserts, show that the cost to the borrower; under the American plan. „ isusually very little; more thaiv.il: tholoan whre floated in London. The-bet-, (ter the security, the better the termo. Mr Davis added that “-it does not always follow that a borrower in New York does best; for himself if he insists upon exacting too hard terms from the bondingliouses. The United States.investor knoWs fairly well what return he I should receive, so attention has to be j given to what will be his general ,atti-, tude towards a- stock if offered/to him. | Ji DUAL RESPONSIBILITY. J

“This. throws upbn the financial house handling a flotation a dual responsibility. It knows that if, the stock is poorly subscribed for, as was the Victorian loan of £6,000,000 in probably .because: tHe momlbnt. of issue w-as not opportune or the interest rate was too low, it will when a free market is established find prioee probably easing thfee or four points or until they reach a level that will give an attractive return to the investor. Not, only will' the reputation of the house offering: the. loan be affected by such a fall, but the danger will exist that when next the, borrower appears he may have to accept worse terms than if he had conceded a better price to the .bonding house for the first issue. It has to be, understood that when stocks are accepted Tor issue, a full investigation has previously been made as to the standing and reputation, of the borrower. With that satisfactory the obligation passed- to the financial house handling the loan to assure stability in the market for the stock until,,it assumes the rank it should hold. Should renewals have 1 to be , arranged, such work is undertaken as readily as elsewhere. The issuing house knows that default will give it ‘a black eye’ just as much as it will the defaulter.” BACK TO GOLD BASIS?

Speaking nf the international exchange position, Mr Davis said:—“l do think that there is a likelihood of a return by England to gold. Due to the rise of the price level in America, the £1 sterling is/appreciating in terms of the dollar, but whether England can at the moment go upon a gold basis is another matter, for I do not know whether 1 conditions are snch , that fiarity could be maintained. Mr Hartey Withers, in his latest book, urges that the gold standard should he, reverted to, because he believes that: the present British gold reserve ,of £150,000,000 tfould b sufficient to justify the taking of thd risk. What. I can say is that everyone in the UnitedStates would he delighted to see Groat Britain again on a gold basis. . The American banker has the greatest respect for tjie wisdom of the British hanker, and should Great Britain decide to go upon a gold basis it would havo a msot ystimulating effect upon finance.” 9. Referring to the view taken of Australian borrowing. Mr “Davis said that it anpeared to him that New Yolk at the moment anpeared to be lees criti r cal of position of Australia than were some pconle in London. The public debt of Australia was large, but in it was included ■ exDenditure on many nublic utilities’ which would not figure in the per capita debt of a country like tho United States.