Evening star., 1933-06-10

| at the conclusion of the Senate
! i Investigation into his banking
firm follows:
As the hearing draws to a close we
desire to thank the committee Tor ltS
patience and courtesy and to make
brief statement upon certain points
i which, we believe, are not yet fully
clear. The first point relates to the
matter of income taxes.
Income taxes-The precise fact as TO
our payment of income taxes seems to
have been misunderstood by portion
of the community. Since 1917 the part
ners of our firm, as stated, paid upward
of S51 900 900 in income taxes. In the
I three years 1927, 1928 and 1929 our IN
come tax payments exceeded $22,O0o,-
| 00O In 1929 alone they were approxi-
mately $11 100000.
| In all these cases a substantial part
of the taxes paid by us were due to net
capital gains which, under the law. had
| to be added for income tax purposes
to our regular income. In the years
| 1880, 1881 and 1882 our capital losses
| (deductible under the law, just as
previously the profits had been added)
were such as more than to wipe out
all our income and leave nothing tax
able. Income taxes are after all pay
able upon income and not upon deficits.
Fail to Realize Heavy Losses.
We trust these facts will now be
clearly understood, because at first
blush there can be no doubt that many
persons, failing to realize that during
prosperous times We had paid heavy
| taxes upon our profits, felt it to be un-
| just that during the last three years
| we have paid no income taxes; again
| failing to realize that our losses had
| more than wiped out our taxable in
| come.
The second point upon which we wish
| to comment relates to our conduct of
| certain features of our security buSi-
| ness.
Investment securities-As investment
bankers we are merchants of securities,
and our normal business in that field
is the bond business. In the postwar
period we have issued upwards of S.
| 900 900 900 of bonds, together with
very few preferred stocks. A third of
! the bonds have already been paid off
and retired. Little more than 2 per
cent thereof are in default, and none
| of our foreign bond issues has defaulted
in payment of interest or principal. We
! issued no loans for Central European
countries except two important interna-
| tional reconstruction loans each for
Germany and Austria. The only out
standing South American loans we is
sued were those for the Argentine Re-
public. Of our domestic issues the
greatest single category consists of
bonds of American railroad companies
/ issued with the approval of the Inter-
state Commerce Commission within
price limits determined by IT.
Have No Statesmen.
Such investment securities we offer
to the general public over our name.
Here we receive limited compensation
averaging approximately "a per cent,
as well as our domestic loans. We have
no statesmen and for the underwriting
and distribution of investment securi-
ties, we enlist the cooperation OF banks
and dealers.
Financing of common stocks. The
whole amount of the common stock
financing done by us during the post
war period does not exceed 1-3 per
cent of the total amount OF invest
ment securities we issued in the period.
Despite, however, the small proper
tion of our securities business which this
type of financing represents, 1t will ap-
pear that these few transactions have
largely occupied the attention of these
hearings.
The provision of the new equity cap
ital, or the distribution of large holdings
of common stock, Is useful and neces-
sary operation. Specifically, we belive
in the future of the Allegheny Corpora
tion( as step toward ultimate CONSOLE
dation of valuable and coherent railroad
properties under the policy laid down in
the transportation act of 1920. We be-
lieve in the United Corporation, as Offer
sx,or nd
ity investment in homogeneous and nom
competitive public utility properties. We
believed in Standard Brands, as fur
nishing logical grouping of products
salable by daily delivery. We believed
in Johns Manville. as an admirable and
tested business, long, well and favorably
known to us.
Invited Individuals to Buy.
However, as merchants of investment
securities of established character, we
do not consider that it is sound prac-
tice for us to offer common stock over
our own name to the general public
through banks and dealers. Consequent
ly, in the few equity operations which
we undertook, we invited to join US,
not primarily institutions and dealers
who distribute investment securities to
the general public, but individuals cap
able of sharing and understanding the
risk, and with one minor exception we
asked them to join us in the stock pur-
chase at the same price that we paid.
1t would not have been prudent bank
ing to keep all these common stocks in
our own portfolio. We wished, there
fore, to sell part of them as business
mans investment to those having
knowledge of business and general con-
ditions, who would understand exactly
what they were buying and who, as
Joint venturers. would share with our
selves the profit and the risk of the
stock purchase.
Prices.-With one minor exception we
offered these stocks at the same prices
at which we had purchased them; that
is to say, at prices which were con-
sidered fair by the corporations and
individuals from whom we purchased.
We, too, considered these prices fair
Speculative market quotations did not
enter into our calculations. AS a mat
ter of fact, in most instances there was
| no stock in existence and no market
| for the stock at the time the sales
price was determined. The narrow
and speculative market existing in one
or two cases formed no basis for fair
valuation. In the Allegheny case much
has been made at this hearing of the
when issued" market, which sprang
up after we had fixed the price at
which we would sell the stock, but
about the time a few of the offers
were made. AS matter of fact, at the
same time 100000 shares of the stock
were offered publicly at $24 a share, a
far better indication of the market
| value of the stock than the narrow
and speculative when issued" market.
Wouldn't Advance Price.
| No responsible banking house would
change the issue price from day to day
to reflect when issued" market quota
tions, or would advance the price
against subscriber because of some
slight delay in his receipt of the offer
of SALE Every successful issuer, from