Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-01-03
INCREASE IN BOND
FINANCING IS SEEN
Movement Against Creation
of New Stock Issues
Gains Impetus.
BY CHARLES F. SPEARE.
pecial Dispatch to The Star.

Special OlSpdICn 10 Inc star.
NEW YORK, January 3.-The recent
announcement by prominent Ameri-
can industrial corporation whose stock
has been conspicuous speculatively that
1t would do its future financing with
bonds rather than with junior securi-
ties emphasizes one of the most radical
differences in the policy of borrowers in
1929 and in 1880.
The movement away from creating
additional stock In order to raise new
capital and toward bonds gained some
momentum in December and is expected
half of this year. Preliminary figures of
new domestic capital issues last month
indicate total OF approximately $475,-
100000, compared with about $3.50, 000,-
600 in November, and with $685., 000, 900
in the final month of 1928. OF this De-
cember total less than $23,000,00 was
Of stocks. OF the latter q considerable
proportion were of the preferred type,
which technically are classified as senior
securities, where there are no mort
cages ahead of them. The falling off in
December, as in November, in new capt.
tai issues by finance companies, which
includes investment trusts and trading
corporations, had a great deal to do
with the small stock total.
New Issues.
Estimated amounts of new stocks and
bonds by domestic corporations for 1929
tional ,300,000,000 in the nature of
municipal loans and around $500, 000, 900
of foreign government and foreign cor
poration bonds and stocks. Separating
domestic corporation securities from do
nestle municipals and foreign issues, 1t
will be found that the output of do
nestle stocks was two and three quarter
times greater last year than that of
domestic corporation bonds and notes
and that this ratio was established in
the nine months to September 80. Sub
sequent to that date the total of bonds
and notes has by large margin sur
passed that of stocks.
There is still available to corporations
that were able to sell their stocks at a
good figure a considerable sum of capt.
tai in the market for call money and
for short-term securities. AS this is re-
quired for capital improvements, 1t will
be drawn down and reflect in a further
decrease in the loans of Others" to
brokers and dealers. The figure Is large
enough to play part in the invest
ment market and to postpone for a
time the necessity of what at this season
of the year would ordinarily be a move
ment toward borrowing in order to take
advantage of the January reinvestment
demand for bonds and easier rates for
money.
This situation has additional sig
nificance. 1t reflects an oversupply Of a
group of stocks that has had an import
ant influence in weighing down the
general market for junior shares. From
a technical market standpoint, it is felt
that this condition will have to be
cleared up before the stock list is again
brought back to a healthy state. While
banks did not accept to any extent
stocks of finance companies as collat-
eral in loans, they did make direct loans
to clients on such stocks and on con-
siderable scale. Gradually such loans
will have to be liquidated.
Sales Problem.
The 18 months era of public preference
for stocks over bonds has had a de-
moralizing effect on the selling organi-
cations of firms and institutions that
had specialized in senior securities for
many years. Heads of sales depart
ments have experienced great difficulty
in the past month in getting their sales
men to forego the So-called price eQua-
ton" of securities and to deal with
them from the standpoint of intrinsic
value. Statesmen have been emphasiz-
ing for so long the probability of an
immediate rise in the type of securities
they have been Offering to the public
that they cannot adjust themselves to a
slower moving form of security which
must be sold on the basis of confidence
in its meeting interest regularly and
paying the principle at maturity. Deal
ers in municipal bonds even have found
their statesmen recently trying to sell
these premier securities on the prospect
that they may go up point or more in
the next 80 days. 1t will require
period of re-education in order to get
from them the best results during the
prospective transition from stock to
bond financing.