New-York tribune., 1920-09-13

tion may be regarded as normal, 10
IS evident that the net return to the
mead OF the underwriting syndicate is
equa! 70 che sum Of the commissions
received by all the bond statesmen in
operation. :" '"'
pedore the bond or the temporary
certificate for it ia offered for sale
many prei1m1naries are necessary, The
process begins In the mind of the bor-
rover, who on analysis of the financial
position OF the institution he heads dis
covers he needs fresh capital-posaiblv
1or the carrying out Of new projects.
or Tor the meeting Of maturing obi,
CATION, or for adding a new wing to The
factory: The borrower must satisfy
nlmseif before attempting to borrow
tnat the use FOR the funds will be suffi-
csensly pfofitabie to justify paying the
market rate for money. In connection
with the recent French loan the French
government had to figure what would
be the cheapest way Of meeting its half
OF the Anglo-French loan which ma.
lures on October Is. After the term 9
were laid before French representa-.
tives-probably the stifYest that France
has ever paid-they decided that Il
would be economical to borrow S1OO.-
100000, evidently laying great stress
on their confidence that before the
bonds Of the new loan are retired the
franc will be worth more in terms OF
the dollar than it is to-day.
After the borrower has made up his
mind to start out in quest Of funds he
goes to the investment banker and
makes known his wants. In some cases
the banker may tell the would-be issue1
of bonds that he deems the proposed
operation unwise, in view of the credit
| Of the borrower or Of conditions pre-
vailing in the money markets. He m ay
| suggest that the client wait six months
But, assuming both the borrower and
the banker agree that the loan should
be arranged, it Ia up 10 the investment
banker next to canvass the market and
ascertain when and on what terms the
funds can be raised. The banking firm
must find out whether any other impor-
tant financial operations are pending
whether any maturing obligations are
Immediately ahead, and in general what
competition there y likely to be to the
contemplated new offering. Then he
must size up the state of the market
which depends upon the appetite Of the
ordinary investor.
After assuring himself that an issue
of the borrowers securities could be
sold, he must determine how many
bonds the market would be likely to
absorb. Then he must gauge the taste
of the investor at the moment. Al
present, he knows that the ordinary
potential buyer Of bonds wants a long
term security, bearing a high coupon
rate of interest, and attractive trim
mings," such as sinking fund and re-
demption features.
Because of the dominance of the
small man. the banker must adopt
trimmings" which are not too tech
nical for the untutored to understand
After all this has been considered, in
the case of corporations, the relation
of the new bond issue to all outstand-
ing issues Of the corporation must be
determined, and possibly a new mort
gage arranged. In determining the
character and stability of the bond
the banker must remember that his
new issue will have to compete also
with all outstanding securities.
Out of these complex processes, Sc
curities are created, and the great
mass of citizens, conveniently known
as the public, Is asked to do the rest