Evening star., 1939-07-20
New Study Opposes
Strong Drive for
Competitive Bids
Horrimon Ripley & Co.
Defends Practice of
Direct Negotiation
BY the Associated Press.

NEW YORK, July 20.-A thrust
from the investment banking side
of Wall Street yesterday enlivened
the controversy in the financial
community over the question of
putting new corporate securities on
the auction block for sale to the
highest underwriting bidder.
A 73-page printed study under
the name of Hartman Ripley &
Co.. Inc, leading investment
banking house, was tossed into the
dispute in defense of the tradi-
tional practice of direct negotiation
between the corporation issuing Sc
curities and the investment bank
ing house with which 1t has estab-
lished connections.
The study, written by Franklin
T. McClintock, research economist
of Hartman Ripley & Co., concluded
the custom now under fire from
some quarters produces the best re-
suits for the investing public and
for capital-seeking corporations.
Some observers have attempted to
read into the dispute, recently CEN
tered on certain railroad issues and
a Southern Bell Telephone loan, an
important struggle in Wall Street
power politics" directed in part at
breaking the hold of outstanding
underwriting houses on financing
Of leading American corporations.
Headed by Morgan Firm.
Topping the Wall Street under
writing field have been Morgan
Stanley e. Co.. underwriting off,
shoot of J. P. Morgan e. Co., and
Kuhn, Loeb & Co.
A recent S. E. C. study indicated
five firms centered in Wall Street
accounted for nearly one-third of
all underwriting participations and
managed so per cent Of a total of
745 issues surveyed
Dramatizing the contest have been
successful campaigns for COMPETE
tive bidding in several railroad is
sues by Robert r. Young, chairman
of the Allegheny Corp, and opposi-
ton to competitive bidding by Nor
gan Stanley e. Co.
The fight for the auction block
method was taken up by others un-
successfully in the Southern Bell
Telephone bond issue, carrying it
to the door of one of the greatest
corporate security issuers, Ameri-
can Telephone e. Telegraph.
The Hartman Ripley study-the
rpoSt copoprebepciva Jofapro frono
the investment banking citadels
since the struggle came out in the
open in recent months-noted COM
petitive bidding has been required
for years in many States for sale
OF municipal securities, and that
the Interstate Commerce Commits
sion since 1926 has required it in
the sale of railroad equipment trust
certificates.
Conclusions Outlined.
Hartman Ripley e. Co., it was
noted. alone or in association with
others, bought more than $l,OOO,-
600, 900 Of new issues of State and
municipal bonds, mostly in competi-
tive bidding the last five years.
On basis of this and other data
the study advanced a number of
conclusions. including:
l. Competitive bidding would tend
to concentrate distributions of COR
porate securities in hands of rela-
lively small group of dealers and
threaten many small dealers
throughout the country who now
take part in syndicates managed
by the larger firms.
2. The open market method fire.
quently produces either unwar-
rantedly high prices, which are un-
fair to the investor, or low prices,
which. are unfair to the issuers."
3. Competitive bidding does not
tend to broaden the market for a
security"
The study held investment bank
ing in fact was definitely COM
petitive in the sense that issuers are
free to terminate underwriting re-
lationships and take their financing
to other underwriters.
Some investment bankers say the
dispute largely is reflection of the
great surplus of idle funds and low
money rates which have intensified
the struggle for business. AS soon
as this condition passes. they argue.
the issue should drop out of sight
again
From the other side some cham
pions of open bidding see Federal
and State regulatory authorities
coming their way to assist in end
ing what they call strange hold
by large underwriters on certain
corporations.