New-York tribune., 1922-03-24
How Shall the
Banker Know!

ana inc ISOf1d F1OuSc must pass
on the safety of proposed
ISSUE OF Bonds OF Stocks. What
IS the criterion? What facts
ought he to know?
So far, the Banker has not
always been right. He has been
Sponsor for some issues, which
did not pan out at all as We
were le q TO expect
Bankers have their methods of
deciding You hear about the
tWo-for-onc statement. An
nouncementS are made that the
required charges on the new
issues have been earned several
times over for years back. Yet
they have guessed wrong, Could
this have been avoided, if they
had looked further?
Recently firm discussed
their marketing With US, telling
Us that a Bond House was con-
sidering selling an issue Of Bonds
for them. They showed us
report, which a firm of engineers
had made for the Bankers.
Much emphasis was laid on
the potential capacity Of the
mill The cost accountants
showed What profits the mill
would make, if it were run at
capacity Nothing was offered
as to whether the mill would be
able to sell its capacity. Really
the mill had operated at one
half capacity for q year.
We were told that about all
the mills in that industry were
running on that basis. Yet, We
found another Of the same sort
running foil time and six weeks
Ochind on its orders. We think
nc found the reason why.
The mil whose Bonds We're
being considered had no brand
reputation and sold on price.
This Bono House is depending
almost entirely in the making Of
its decision on the firm S financial
statement and the report Of the
engineers. Quite properly the
engineers can make no comment
as to the ability of the firm to
property sell lis product. They
can Only report as to the manu-
featuring and as to how the cost
1glrc5 would look, if full opera
tons arc carried on.
During the past decade. when
the trend of prices was upward
and often the demand was
greater than the supply, it was
probably almost right to Judge
a firm S possibilities and pros
pcri,y by the amount Of its raw
materials and plant capacity.
In this new cycle with it's
trend OF declining prices, the
Banker might in substance ask
How we'll and easily do your
goods sell How much demand
90 YOU control? Over how many
minds have YOU favorable con
rrol 1t may seem strange for
Banker to discuss whether his
customer has an intangible asset
known as Consumer Mind Con
troll. Yet, in some of the recent
bad business brcak-ups, this
same Consumer Mind Control "
has been the one remaining mar
ketable asset which brought
enough money to pay the value
of the Bonds or Stocks.
The balance sheet and the
engineers report are absolutely
necessary as a guide, but in our
judgment the Bankers and Bond
Ftouses should make the appli-
csnts for new capital prove
through competent outside
nrm that they are properly doing
what should be done to secure
and to hold a demand for their
product from the court of last
appeal, the consumer who uses it
1t is possible and practical to
have the marketing policies of d
firm passed on bymen who know.
1t is possible to have surveys
showing what the wholesale and
retail trade think of a firm and
its product. 1t is possible to
find out what the consumer
thinks. Finally, the condition
Of an industry as a whole can
be determined.
Before anybody goes into a
new enterprise they should, we
believe, have an investigation
made of the marketing condi-
tions and possibilities of that
business. Many times when we
have made such studies, we have
advised our customer not toenter
l.