Yorkville enquirer. [volume] (Yorkville, S.C.) 1855-2006, 1905-07-21
HOW GREAT LOANS ARE SOLD.
The Ways of the Underwriting Syn
dicate.

The Ways Of the Underwriting Syn
dieate.
No foreign loan as large as New
york's half of the $50, O0O, 0OO Jap
anese issue placed in the American
ma arket has ever been foated In the
IInitad states. Our subscription 10
the Japanese loans Of 1904 were re-
snectiyely, S25,000,000 and $3O,Ooo,-
nm. last years Cuban loan TOOK
sS6 00O, 900. or Mexico's $11O,OOo'-
o00 loan of 1899 $25,000,O0O was
ofYered here. The successful plac-
ing of $75,0OO,000 I'm the new Jap
anese Al per cents had, tnereIore
an Importance apart from the east
ern war and the credit Of Japan.
II has caused a good deal Of inquiry
as 70 lust what steps a banking house
takes to introduce such loans ana
how II guarantees against failure
of the issue.
The first step of a banking house,
in such an operation, IL to form an
underwriting syndicate. Every great
banking house has wealthy custom
ers and wealthy business connec-
tions. II must confer with them, as
TO the possibility Of floating the new
loan at a given price and must De
assured of their co-operatlon, even
before 1t makes its bid. When the
borrowing government makes lts
award, the successful bidder Is bound
to his contract.
The recent dispute between the
Russian government and the Paris
syndicate seems to have been possi-
bic because no formal bid and no
award had been made; there was
only a general understanding. The
underwriting syndicate obligates IT.
self to take its contracted percent
age of the loan, II the investing
public does not dc so. Each men,
her of the syndicate gives a
pledge in writing for a definite
amount, which he may be called up
on to advance In cash pending the
sale of the securities. A member
of the Japanese bond syndicate VINO
participates to the extent OF $l,0oo'-
600 Is liable to be called upon lot
all or any part Of that amount at
the option of the managers. In the
same way, he coHld be required to
take 81. 900, 900 of the bonds at the
syndicate price II the securities
could not be placed elsewhere. Thus
there Is always a risk attending the
venture. ..f..
IT often happens that several syn
dicates are formed In competition
when an attractive bond offering Is
at hand. Last April, when Cuba,s
s35,OOO,000 loan was under negod-
alton, three or four strong New
York banking houses had represen-
tatives in Havana. Each put In a
| bid, and the. contract was almost
closed with one group Of bankers
when a rival syndicate overbid 1t at
the last moment and secured the
L
syndicate did its best to secure the
Japanese loan. It was said to have
bid a higher price than the success
full syndicate, and Berlin undoubt-
edly expected to get the loan. But
the fact that Japan's two previous
loans had been successfully f1oated In
London and New York had, no
doubt, a great deal to do with the ac-
ceptance of the English and Ameri-
can bid. Japan, too, 1t has been ex-
planned, was willing that the Lon
don and New York bankers who had
stood by 1t in the issuance OF the
previous loans should clear a hand
some profit on this one, and conse-
quently agreed to the terms with
very little haggling.
The chief underwriting syndicate
often organizes smaller syndicates OF
|
market for the securities with their
own clients, or buy them outright
for a rise. Sometimes these smaller
syndicates get held up" with the
bonds after the original syndicate
has disposed of them. This happen
ed recently with a s75,000,00O rail-
way bond issue. 1t was over-sub-
scribed at the start. Expecting to
find a quick market for the bonds
numerous small banking firms put
in large bids, and then had diff
Guilty in caring for the allotments.
In the rush to realize on these hold
ings, the bonds, which had gone to
a premium, soon declined below the
subscription price, with heavy loss to
the holders. But It Is through the
loss Is finally lodged with actual in
vestors, the chief syndicate adver-
tising the issue and securing as many
Individual subscriptions as possible.
Generally, a syndicate is paid a
percentage on the selling price of
the entire issue, but In the case of
Il one recent offering an ingenious de-
vice was resorted to whereby the
members received a commission for
only a portion of the loan, the mana
gers taking the rest. AS the bonds
went to a premium almost immedi-
ately. the managing bankers made
large profits by this unusual stipu-
lation.
Some syndicates have never paid a
dollar, but 1t is customary for the
managers to call for or 10 per
cent of the subscriptions to defray
preliminary expenses or make initial
payments to the borrowers. The
nroft nn these underWritings varies
according to the securities and terms
of the syndicate agreement. The
bankers who took the Japanese loan
will in all probability receive $780,
900 for the underwriting alone. This
is per cent on the $75,000,000 un-
derwritten.-From the New York
i Euanin0 Post