Omaha daily bee., 1902-05-11

Messrs. J. p. Morgan 4 Co. therefore or
Esniged a syndicate which agreed to supply
s2O0. 600. 900 in cash upon It's being demanded
BY the managers Of the undertaking.
How 60 Get the
1t was obviously impossible for any one
banking house to undertake 70 supply such
q sum Of money. Even had It been pos
sible, the risk Of loss would have been too
great. Hence. while ]. ?. Morgan 4 Co.
themselves subscribed q large amount OF
the sum, the major portion Of it was dis
tributed among a number Of banking es-
Establishments.
The first and only call made for payment
Was for SIS, 900. 900. This sum was paid to
the steel trust. TO be used when necessary
to secure the securities OF subsidiary cor
porstions and to supply working capital.
In return for this payment the syndicate
was paid 649. 9s7 shares Of the new common
and an equal number OF shares Of the new
preferred stock market value about S84,.
600. 0OO). 1t was expected that this payment
OF s25. 900, 900 would be returned, but the
syndicate guaranteed the hotation Of the
entire issue Of securities-some 81, 410, 00O,>
600 in all.
II was never expected that the syndicate
would be called upon TO supply the total
amount Of money subscribed. In fact, such
a call would have been decidedly embar-
rassing. Here is where the value Of the
guarantee came in, however. With such a
guarantee as this, and with such a payment
Of stocks to operate with. the syndicate
managers could 60 to trust companies and
borrow money upon the securities received
as commissions. With this cash the re-
mainder of the deal could be financed. II
could not have been possible without such
guarantee.
The process is to gradually pay on the
loans at the trust companies. sell the Sc
curities and send dividends to the members
OF the syndicate. In the case Of the steel
trust the SIS 900. 600 was returned within a
short time anS It is expected that the total
dividends upon the syndicate's subscrip-
tons will amodnt to about $40, 900, 900. This
will be 20 per cent Of the amount sub
scribed-about 100 per cent Of the amount
paid in.
No such profit as this was ever before
made by such a transaction in this coun-
try. 1t was explained by the managers,
however, that the profit was not abnormal
when the risk undertaken was considered.
The risk might have been said theoret-
ically to be epitomized as follows: The
possibility that all Of the subsidiary COM
-AAS AAAbAA hOl bt NAlt II pObEluAl-
ity OF panic conditions in the market,
which would render the sale OF the COM
mission securities difhcult-the possibility
Of impediments in the hotBtion Of the
company's securities. When it is realized
that the capitalization Of the Steel trust
was about $500, 900. 900 in excess Of the ag-
gregate capitalizations OF the companies
consolidated, the element Of risk in this
last possibility may be seen.
This, then, is the method Of operation
Of the syndicate. Its theoretical purpose
is TO supply such cash as may be needed
its practical purpose 10 TO furnish the
necessary credit. When the necessities OF
the case make It essential to provide cash
and credit. the scheme is not considered so
successful. The profit Of the syndicate
is reckoned as a commission upon it's liza
bility, not upon the amount Of cash paid
in. 1t is an application Of the same prin-
ciple as that upon which bankers make
loans. They agree to furnish money. Az
a matter Of fact, they usually merely fur
nish a book credit, and upon that they
charge interest. AS in the case Of Eyndi-
Gates. the collateral is very much more in
secure, the interest charges are implicitly
very much larger. although there is the
possibility Of there being no gain at all.
First syndIcates.
Syndicates were first organized in Eng
land in about the year 1910. and in floating
all large corporations and joint stock com
panies since that time. they have been ex-
tensively employed. The Bank Of England
itself, in its original organization, was
planned upon very much the same lines as
q bankers syndicate Of today. 1t was char
tered primarily to guarantee a govern
mental loan in the latter part Of the seven
teenth century. The same plan has been
utilized in nearly all large Rotations Of stock
in England since then.
Strangely enough. this method Of floating
securities was not brought over to this
country until 1890, Before that year, is
sues Of capital had been hoated by direct
subscription. There had not existed the
need for a syndicate to provide working
capital or 10 buy up the securities Of com
panies which 1t was desired TO incorporate
in a combination. The trust certificate plan
had served the purposes now served by the
great New Jersey trusts.
After 1890, when the trust certificate plan
had been dislodged by the courts, 1t became
necessary to combine corporations by pur-
chasing their shares. This created the ne
Cessity for enormous capitalizations. and
lOI great euub VI WI Ming capital u dC4GAIN
control Of subsidiary corporations. The
syndicate plan very naturally became in
grated upon the financial machinery Of this
country.
Casuists hgure upon other possibilities OF
the syndicate suggested by the proposed
plan to convert $500, 900, 900 Of shares OF the
preferred stock OF the United States Steel
corporation into bonds. and make an add.
tional issue of $50, 600. 900 in bonds. An I'M
derwriting syndicate has been formed TO
guarantee this deal, and II is to be paid
some So 0O. 600. J. p. Morgan & Co., Of
course, get merely a commission, as man
ayers. in addition TO the profit upon the
sum they subscribe TO the total guarantee.
Owing to the risk involved in these deals
II 10 always considered wisest to distribute
the subscriptions as widely as possible.
II is said that the organizers OF the Steel
trust have as yet not been able to sell their
holdings Of stock in the market. They still
hold control, however, OF the property, and
can vote any action that may be desired. II
is understood that II Is this speculative
interest which is principally concerned with
the conversion. Two possibilities lay in
the conversion, It Ia pointed out.
The FIRST Of these lie that a 5 per cent
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