Evening star., 1941-01-01
Promising Outlook
For Insurance and
Bank Stocks Seen
Expanding Commercial
Looms Expected to
Boost Earnings
BY Cambridge Associates.

BY Cambridge Associates.
While insurance stocks should
continue to enjoy the steady long
term growth that has been remark
ably maintained for a half century
or more, bank stocks, tardy con-
yalescents from the dehation of the
early thirties, appear about to re-
ceive their first real lift in earning
power in over a decade.
Apart from the normal compound
ing of earnings due to the conserva-
tive dividend policies Of insurance
managementS, underwriting actlvl-
ties are expected to be stimulated
by the industrial boom resulting
from war abroad and rearmament
at home.
In the fire and marine group, those
companies which accent marine un-
derWritingS are expected to show the
greatest gains because of the reduc-
ton of English competition for this
type of risk.
The casualty and surety COM
panicS also should have better than
average gains in volume as the po-
tcutialitieS of this division of the
business are still largely uneXploited.
Health and accident. liability, work
mems compensation and other risks
underWritten by these concerns have
only begun to be recognized by the
public.
Investment Earnings Up.
Investment returns, on which in
surance dividends are based. should
be we'll maintained as its seems I'M
probable that interest rates will drop
much further. and dividends on
stocks held in insurance portfolios
should at least be maintained at
levels prevailing in 1910.
Underwriters Of life insurance are
in a rather different class The
longer term Of contract which they
write requires an investment policy
of a far more restricted nature, in
VOlving a prepOnderance of mort
cages and long-term. high-grade
bonds. Such a program is of neces-
sitv involved with the problems of
low interest rates and foreclosures.
Furthermore, Federal restrictions
are more likely to affect these COM
panics than underwriters of the fire
and casualty types.
Banks See New Demand.
For the first time in many wears
the banks are able to see evidence
Of an increase in the demand for
idle funds Domestic rearmament
and British orders are expected to
continue to strain the facilities.
both material and financial. Of
Americas industrial plant. Recent
legislation has permitted making
loans against Government contracts.
The results to date have been i'm
pressively demonstrated by the sharp
gain in commercial loans since last
September The favorable trend
should continue.
COncurrertIy banks have been
taking leaf out Of the book of the
specialized financing organizations
and finding a profitable source of
income in newly established small
loan. automobile financing and
lOng-term mortgage and loan de-
partments. In these activities many
bankers have in the past been
strangely inert but are now view
ing this newer type Of credit mer-
ChandiSing with aggressive interest.
Despite the policy recently stated
by R. F. c. Chairman Jones in re-
gard to establishing low rates Of
interest on loans against Govern
ment contracts as a yardstick. the
employment of now idle funds in
this way. even at i. per cent will
mean a considerable increase in the
earning power of the larger banks.
Federal Bonds Watched.
The damage Of sharp decline
in Government bond prices is one
Of vital concern to most investors in
bank stocks With upward Of 30
per cent Of their resources invested
in Federal obligations an mantici-
pated and serious break in this
market would go a long way toward
wiping our surplus and equity values
in many cases. Such a decline does
not seem likely, however in view
of the expanded financial controls
of the Government and the very
obvious community of interest be-
tween the banks and Washington
in this regard.
Thieves are stealing sheep IN
South Africa, shearing them, then
sending the shivering animals back