Evening star., 1933-06-28

the prospectus or not" the witness said.
He added the prospectus said the bank
could not have outstanding loans ex-
ceeding it's first mortgages.
Questioning the witness about the
terms on which the first $40, ,000. 900
issue was sold to the public. Pecora de-
veloped the bankers obtained it for 90
and sold 1t for 97ss.
Buttenwieser said there was an inter-
est gain of one-Quarter Of per cent, so
the bankers had a total spread or COM
mission, Of ~ per cent.
The originators, Buttenwieser said.
were the Guaranty Co. and Kuhn.
Loeb, each As per cent. and Lehman
Bros, 10 per cent.
The originators formed q syndicate
OF 800 or 400 retail houses, which got
the bonds for 94l2.
Buttenwieser said this gave the orig
inators a spread Of IA because one-half
Of per cent went to Louis Dreyfus Of
Paris for finding the business.
PROFIT Of S25s,ooo.
This left total profit Of $3.50 900 to
the originator, out OF which expenses
were paid.
The originators then formed a sell
ing group, which obtained the bonds
for 96 and sold them to the public
for 97&s.
Kuhn, Loeb managed both the syndi-
cate and the selling group, Butten-
wieser said
why was it necessary to organize SO
many intermediate groups, each taking
a proft?" Pecora asked.
Buttenwieser said the risk was larger
than the original group wanted to
carry.
aTt L.. ,,.r,, .on1ooo,,. to a ~ jy,e,,ro pco
company that spreads its risk" he
added.
I'VE wanted to diversity the risk"
Buttenwieser,S testimony disclosed
the total gross profit to the bankers on
the $40. .000. 900 issue now In default was
almost 81 900 900
Buttenwieser pointed out Kuhn, Loeb
and the Guaranty company were the
"wholesalers'' who sold the bonds
through intermediates or selling groups.
On June Is, he added. letters were
sent out to the underwriters to share
the risk with US"
Underwriters Shared Risk.
"The underwriters shared the risk,
but didn't part with dollar?" Pecora
asked.
Yes" Buttenwieser replied.
After signing the contract on June
25. Buttenwieser said. the selling group
was completely organized by June 26.
so "a hours after the originating
group committed themselves they had
definite commitments from members of
the selling group?" Pecora asked. You
had succeeded in passing on the risk
in "a hours"
That is correct but We didn't have
the money
when did YOU get the remittance"
July Is. That Is when the distribu
tors paid us"
What were the profits to Kuhn.
Loeb?"
Our profit was s1112o7"
WAS the Sill POT net or gross?" Pc
cora asked.
1T was net, but doesn't include our
overhead" the banker replied.
He added the guaranty company had
obtained a similar profit and Lehman a
10 per cent share.
Bonds Now in Default.
During sharp cross examination OF
Buttenwieser. the banker said the Mort
gage Bank of Chile had been Endorsed
by the Commerce Department In 1925,
the year the first bonds were issued.
A total of 100000 900 OF the banks
bonds floated In this country are now
in default
Pecora asked Buttenweiser about the
period usually fixed by underwriters as
a selling period for bond issues.
Buttenweiser said in the case Of the
Chilean bonds it was so days and dur
ing that time the selling group in effect
took short position.
Pecora read a letter in which the
selling group agreed not to offer the
bonds for the period at less than the
agreed upon price.
DO the prices depreciate as a general
rule at the end Of such period?" Pc
cora asked.
Not as a general thing" Butten-
wieser replied, explaining it depended
upon market conditions.
Pecora developed that during the 60
day life OF the selling group the bonds
ranged from 97sa to 97ia.
Call it what you will, pegging, sup
porting or anything else" Pecora said,
did not the operation result in keeping
the price in the market at the offering
price at 973s or little above that?"
| That was the actual result" Butten-
wieser replied, but We were not the
people who bought at that price"
| Pecora then brought out that during
the time the underwriters supported
the market the selling group had dis
posed of all the bonds to the public.