Evening star., 1940-01-15

writer's who have been the target
of attack because of their alleged
control of financing, actually man.
aged only 80 per cent of the total
number of registered bond issues
during the last four years. What is
more they arranged for joint man.
agement with other banking houses
for nearly four-fifthS of the sums
that had been entrusted to them for
underwriting.
Thirty-eight banking houses in
America did the underwriting of all
the financial issues f1oated and not
one banking house did any more
than 80 per cent, so that the Gus
tomary yardstick of measuring what
Is or is not monopoly-anywhe
from 81 to 100 per CENTS here alb
sent.
Perhaps the most interesting fea-
ture of the data is the revelation
that of all the registered bond is
sues, 66 2/3 per cent of the total
amount in dollars was sold to in
vestors in four Eastern States-New
York. New Jersey, Massachusetts
and Pennsylvania. Calculated still
further on a geographical basis,
fully 30 per cent of the securities
sold were taken by customers in 13
States, most all in the East. In
other words, concentration of
financing is in the East because the
customers live in the East, where
fhe wholesalers have direct access
10 them.
Handled First Grade Issues.
Another significant aspect of the
survey is that included in Morgan,
Stanley & Co.'S 80 per cent of the
total registered bond issues sold
were 100 per cent of the so-called
flrst-grade issues of manufacturing
companies, 100 per cent of the first
grade issues of transportation and
communication companies and about
"A per cent of the first-grade bond
issues Of all other issues.
Now it Is inconceivable that any
Arm could by coercion or undue in
fluence command such a high pro-
portion of all the first-grade bond
issues of America. 1t is more plaus-
ible to infer that specialists in first
grade bond issues develop over a
period of years a clientele which has
absolute faith and trust in what the
underwriting house puts out as a
first-grade bond issue. 1t is well
known that first-grade issue re-
uuires much smaller interest rate
than second-grade or third-grade
issue, so it may be said that when
banking house puts it's stamp of
approval on a flrst-grade issue the
Issuing company obtains substan-
tial economy in interest.
Yet, by virtue of the fact that in
vestors do not have the time and
will not take the trouble to analyze
minutely every bond issue, 1t re-
mains for the underwriting house to
express its judgment and belief as
to the interest rate which par
ticular issue of securities will COM
mand. Obviously, if an underwrit-
ing house guesses wrong and several
of its securities 60 sour, the next
issues will not be accepted on faith
and some other banking houses
Judgment and responsibility will be
sought.
Penalty on Leadership.
It is to the credit of Morgan,
Stanley e. Co., which undoubtedly
has inherited much of the prestige
of the firm of j. P. Morgan IL Co.
who now own its preferred stock.
that issue after issue has been sue
cessfully floated for many years,
or else TODAY there would be no con-
fidence in the firm as an outlet for
the distribution of securities. To
come through the four years men,
toned by the T. N. E. C. survey
with a record of having conducted
successful financing is something
the investment banking world looks
upon as a real achievement, but in
the political world this is naturally
disappointing because it has not
afforded more ammunition for at
tack
There are other houses, too. which
have made a notable record ana
which are also specialists in various
types of first-grade issues, houses
such as Kuhn Loeb & Co., Dillon
Read & Co., the First Boston Corp.
Smith. Barney & Co. and Blyth Il
Co., which five underwriting houses,
1t is now revealed. managed a total
amount of registered securities equal
to that managed by Morgan, STAN.
ley & Co.
Not one of these five firms has
been heard to complain of COM
petitor's methods or that improper
influence was used by their rivals
In getting the opportunity to man.
age securities for flotation purposes.
Indeed, these houses frequently
grant certain participation respon-
sibilities in each others issues, so
as to take advantage Of all avail
able first-class outlets.
The trend of the T. N. E. C. in
quiry has been toward the estab-
lishment of competitive bidding for
the issuance of securities and lately
the S. E. c. has manifested also
certain sympathy with a wider geo.
graphical ALLEGATION of security
financing. But the fact remains
that manufacturing companies will
go to underwriting houses they like
Just as individuals go to doctors
that have pulled them through Sc
we're illnesses or lawyers that have
won cases for them in court. There
Is, to be sure, certain penalty Of
leadership in America and a pen
atty on success and that's what the
recent attacks on the successful
specialists in investment banking
really mean.
Released by the North American
Newspaper Alliance, Ine.)