Evening Star Newspaper, December 31, 1936, Page 16

FINANCIAL. B2 "~ FINANCIAL. _THE EVENING STAR, WASHINGTON, D. U, THURSDAY, DECEMBER 31, J93. m NEW BOND PEAKS CREATE PERPLEXING PROBLEMS FOR INVESTORS, HOLDERS PLAGUED BY LOW YIELDS Threat of Higher Interest Rates Fails to Curb Strong Demand. BY AARON M. JONES, Cambridge Assoclates Staff. 1t is hardly possible to characterize 1937 in the market as anything but a “boom” year. High-grade corporate, municipal and Government obliga- tions which seemed at dizzy heights at the end of 1935 have proved in their persistent upward movement through 1936 that supply and demand alone, and not the precedent of history, are the determining factors in fixing min- imum price levels. Today individual and institutional buyers, loaded with funds, though worried about the high level of bond prices, are nevertheless competing with each other for allotments of bonds affording only nominal yields on short-term issues, and hardly 3 per cent on prime long-term obligations. Of course, all borrowers, with even a fair credit standing, have in 1936 had thelr field day. Bonds have been called and refunded at savings up to 50 per cent to the borrower. Bond- holders are suffering from income mal- nutrition though their portfolio mar- ket values are the fattest in history. Opportunities Remain. In the lower grades of bond listings, on the other hand, there were in 1936, and there still appear to remain for the future, opportunities for reason- ably secure commitments at good re- turns with some promise of principal enhancement. In the railroad, indus- trial and utility groups of medium- grade issues, careful buying is likely to continue to be rewarded, providing the general trend toward business im- provement persists in 1937, as is now snticipated. But the purchaser of high-grade, long-term, low-coupon bonds at pres- ent levels is hardly in an enviable po- sition, even though there is no nearby prospect that his position will be im- paired materially. Looking beyond the immediate fu- ture, and ignoring the expressed de- termination of the national adminis- tration to maintain cheap money and Jow interest rates, one can safely as- sert that the present yields on long- term bonds are far lower than those formerly prevailing over long periods of our business and national history, and that therefore we may expect interest rates in the longer future to increase from present levels to the more normal levels prevailing in the pest. llustration Given. To illustrate: If & high-grade bond now selling at 101, to yield 3.1 per cent, bearing a 314 per cent coupon and maturing 30 years hence, were o afford a return of about 42 per cent, as it did in 1929, it would have to decline into the low 80s in price. All this without any change in the rating or security of the issue in question. Indeed, assuming prosperity ahead, it is possible to envisage a paradox whereby the intrinsic values—earn- ings, assets, etc.—behind high-grade, long-term bonds greatly increase, yet those bonds decline materially in mar- ket value. Nor is this threat of higher interest rates over a term of years the only threat to holders of premium high- grade, long-term bonds today. Even if present dollar prices for high-grade bonds are maintained, a rising price level, whether the results of normal prosperity forces or deliberate infla- tionary tinkering, will effectively re- duce the real value of high-grade bonds under these future conditions. There is small consolation in having the same number of high-grade bond dollars five years from now if in the interim those dollars have lost a con- siderable portion of their present buy- ing power in terms of the essentials of life—food, clothing and shelter. As ‘Thomas F. Woodlock summed up the situation recently: “Either we shall have & continuation of recovery in business, which means rising commod- ity prices and higher interest rates (lower bond prices), or we shall not have recovery, in which case low in- terest rates (high bond prices) will continue.” HARRIMAN HAILS 1936 ACHIEVEMENTS Former U. S. Chamber Chief Points to Rising Prices, Output and 4,000,000 New Jobs. BY the Associated Press. BOSTON, December 31.—“The year 1936 has been most momentous. It has seen & real return of prosperity, with prices rising and production nearly, if not «quite, at the 1929 level,” says Henry 1 Harriman, for- mer president of the Chamber of ‘Commerce of the United States. “It has seen a great reduction in the number of unemployed. At least 4,000,000 CONSOLE SETS HOLD LEAD IN RADIO SALES Gap Cuoses Bmufi Hi SeconpARY Bono GRADE AND ICES 35 30 25 20 15 CLOSED BANKSPAY QIIOND.L Next Important Dividend Expected From Federal- " American National. # (By Cambridge Associates.) Six of the 21 closed banks of this city paid to depositors during 1936 a total of about $2,399,900, with pros- pects that the next important divi- dend will come some time early .next year from the big Federal-American National Bank & Trust Co. No date has been definitely fixed for payment of the Federal-American dividend, nor has it been announced what the size of the dividend will be. The bank, which closed along with 12 other institutions in March, 1933, has paid so far one dividend of 50 per cent to depositors, amounting to $4,- 177,900. Cary A. Hardee is receiver. ‘What will be forthcoming from any of the other closed banks in the form of dividends in 1937 cannot be esti- mated. Some others may pay; others no doubt will not pay any more dur- ing this new year. ‘The total amount paid so far to de- positors of all 21 closed banks of this city, according to a survey by The Star, is about $23,640,000. Fidelity Closed During Year. In addition to the 21 closed banks, which were being liquidated during the last year, the Fidelity Building & Loan Association was closed July 18 by the controller of the currency, whose receiver, James H. Nolan, now is in charge. About 3,000 members of the association have not yet filed their claims with the receiver. Preliminary survey of the institution by the Federal Home Loan Board has been made, but the way has not been cleared as yet for formal examination by the examining division of this board, looking for possible assistance from this quarter. The Fidelity had five branches. Details of the condition of the institution have not been dis- closed by the Treasury Department. A decision is yet to be made as to whether it can be reorganized or will have to be liquidated. Among the six closed banks which made payments to depositors here last year the largest amount of money was disbursed by the District National Bank, of which Justus 8." Wardell is receiver. This bank paid an addi- tional dividend of 25 per cent, amount- ing to about $1,000,000. This brings total District National Bank dividends up to 75 per cent, with total payment of about $2,937,100. : Bank Pays 100 Per Cent. ‘The Chevy Chase Savings Bank pald during the year its final dividend of 20 per cent to depositors, amounting to about $133,000, bringing the total to 100 per cent, or about $678,388. Paul Sleeman has been elfcted stock- holders’ agent, and, as soon as his ap- pointment can be officially approved by the Treasury Department, will take over from Receiver Hardee remaining assets for liquidation for stockholders, who advanced sufficient funds te pay off depositors in full. The Commercial Nationaj Bank, Robert C. Baldwin receiver, paid s dividend of 10 per cent this year, amounting to about $500,000, bringing total payments from this institution to 60 per cent, or about $3,364,110. The Franklin National Bank paid two dividends during the past year through the Franklin Liquidating Trust, of which Samuel M. Thrift is secretary. The two dividends amount- ed to 50 per cent of the amount due depositors, which was 17% per cent of Buwk LargEr FOLIOS "TOTAL OF m 40 %o v I SccumiTies Banking Outlook Is Best in Years, A.B. A. Chief Says By the Associated Press. ST. LOUIS, Mo, December 31.— ‘Tom K. Smith, president of the Amer- ican - Bankers' Association and head of the Boatmen's National Bank, in 8 year-end statement calls “the bank- ing outlook more encouraging than it has been for some time.” ,‘ “Consderable progress already has been made in eliminating the points of weakness in the banking strueture which became apparent during the last few years,” he said. “With the present spirit of co-operation and de- termination on part of Government officials and the banks further prog- ress is certain. “The base of the recovery is gradu- ally broadening. The durable goods industries are showing greater activ- ity and, although the volume of pro- duction in these lines is still far be- low pre-depression levels, further ex- pansion seems in prospect.” © This bank paid out a total of 40 per cent, amounting to $800,000, when some of its assets were taken over by the City Bank of Washington. The trustees of the liquidating trust re- port that liquidation of the remaining assets are “reasonably satisfactory” | and that the proceeds from these as- sets have been used to pay off the Reconstruction Finance Corp. loan of $850,000, which was obtained by the Mount Vernon Savings Bank in order to pay the 40 per cent distribution to depositors. The trustees reported further that by the terms of the “trust indenture” by which they operate no funds can be borrowed to pay & dividend to the depositors. Conse- quently, proceeds of liquidation of as- sets will have to be accumulated in an amount that will be reasonably pro- portioned to the cost of distribution. Many depositors have failed Jo call for their dividend checks in ‘almost every one of the closed banks. still come in from time to time for checks. Consequently, the amounts paid out by the receiverships actually increase, although the dividends de- clared remain in percentage the same. Payments by Other Banks. ‘The latest figures on disbursements on the other closed banks of the city are shown as follows: Departmental Bank, 80 per cent, amounting to $617,144. North Capitol Savings, 25 per cent, amounting to $235,122. Potomac Savings,. 632 per oent, amounting to $1,262,257. Park Savings, 25 per cent, amount- ing to $760,030. This bank is in Mti- gation, which may be settled during SeVenth Street Savings, 80 per cent, amountjng to $845,188. ‘Woodridge-Langdon Savings & Com- mercial, 100 per cent, $400,000. Washington Savings, 80 per cent, $279,015. Potomac Savings, 62% - per cent, $1,282,257. The Continental Trust Co., which merged with the Commercial National Bank long before the latter, went into receivership, also is in the hands of a receiver and in complicated litiga- tion in its relations both with stock- holders and the Commercial Bank, It has paid no receivership dividends. The Industrial Sévings Bank, col- ored institution, paid 35 per cent, amounting to $192,000, to depositors reorganized into the Indus- their original deposits, or about $500,- 1 cent, amounting to about $2,500,000. The Northeast Savings Bank paid s dividend of 10 per cent in 1936, 6, and attempts now are to collect & stock assess- lders. EMERSON DRUG Dividend Paid, 1936—$2.00 CARPEL CORP. Dividend- Paid, 1936—$2.00 REAL ESTATE MTG. AND GUAR. PFD. Dividend Paid, 1936—70c BROADSTREET INV. NATIONAL PRESS BLDG. ® Ist Mtg. Bonds—1950 COMPLETE: DETAILS UPON' REQUEST | WaceAmaN, Buwnn | #Co. Ie. 1700 Eye N:W. * ME-3860 BONDS COMMAND PREMIUM PRICES Lowest Yields and Highest Quotations in Generation Mark Senior Securities. Lowest yields and the highest prices for high-grade bonds in this genera- tion characterized the 1936 bond mar- ket, Thomas C. Montgomery, presi- dent of the Washington Bond Clyb and vice president of Waggaman, ... Brawner & Co., sald today in summing up the year's activities activity and ris- ing stock and £ bond markets have been largely due to the fact that money has been both plenti- ful and cheap, he added. Continu- ing, the clul president said: “To one who entered the business in early 1920 and then saw Pennsyl- vania Railroad 7s and Standard Oil of New York 6%2s offered at 100 and Atchison General 4s (now around 115) as low as 68 (not to speak of Lib- erty 4%s as low as 82), it seems a little strange to see American Tele- phone & Telegraph 3%s, offered at 102, go at once to a® premium. It makes me wonder about what will happen to the prices of high-grade bonds when, as and if money rates &0 up. Holds 1937 Outlook Good. “Prospects for 1937 are very good. ‘The forces of recovery are now evi- dent in heavy industry and affiliated lines which have been rather backward until recent months. Evidence indi- cates that the coming year will see a broader degree of prosperity than 1936 with a strong possibility that the 1930 level for business will be de- cisively exceeded. Replacement needs from obsolescence, expansion and modernization programs made neces- sary by increased business should con- tinue to push business actively up- ward. Labor troubles may in some cases tend to hold down expansion of earnings but labor difficulties are an- other of the signs of recovery. “A good many people are keeping & weather eye on Europe, the possi- bility of war being® the one serious threat to 1937 prospects. However, &s compared with 1914, we are now 8 creditor country and, in the event of war, the United States wquld be the safest place for money. There- fore, the best opinion seems that the outbreak of war would cause a sud- den reaction in our securities markets followed by recovery and higher prices, *“With the administration com- mitted to a cheap money policy and apparently more worried about theé possibilities of & boom than of a business recession, I look for a con- tinuation of low interest rates and high bond prices during 1937. Many New Issues Forecast. “We shall probably see many more large refunding operations as well as bond and stock offerings for the pur- pose of raising new capital. With the prospect of higher stock prices, I believe it will be necessary for cor- porations to offer bonds and pre- ferreds ‘giving a conversion right or warrant on common stock if they are to attract the individual investor. “The average man today is to a large extent equity minded and wants not only some reasonable probability of increasing his principal but also of protecting it in case of inflation by direct ownership of common stock or the privilege of converting his bonds or preferreds into common stock. “When we consider & few of the pertinent factors, for instance: That United States Steel has not yet got back to a dividend basis and still has arrears on its preferred stock (and this is true of many other important companies); that money rates are low and money is busily seeking em- ployment; that the normal recovery cycle should still have several years to run; it would seem that the broad trend is definitely upward and we can look for 1937 to be a very good year.” D. C. INVESTMENT FIRM SETS NEW PEAK IN 1936 Robert C. Jones, head of the in- vestment house bearing his name, stated in a letter of appreciation sent to all clients that the firm enjoyed the largest volume of business during 1936 of any year since organization. During 1936 the firm expanded its operating territory to include Mary- land, Pennsylvania and Delaware, where representatives have done a substantial amount: of business. ' Mr. Jones is optimistic on the outlook for securities in 1937. Other officers in the firm include T. C. Montgomery. EArnING PowER oF Meney INVESTED iy 8 Gaspe AAA Lone Toart Bonds corvaek Bioves BiLLion DoLLARS oF New Finaneino JOINS ReFUNDING SureE INSURANGE CHIEF HALS BIG GAINS Acacia President Points to Tremendous Forward Strides in 1936. Life insurance made tremendous forward strides in volume during 1936, the amount of insurance in force is | now greatest in the annals of man- kind and reserves and assets of the insurance companies are at their | highest and strongest levels, declared | William Montgomery, president of the Acacia Mutual Life Insurance Co., in summing up business progress dur- ing the past 12 months. Statis- tics reaching many, many mil- lions prove these statements, he plishment made by life insurance companies during the past year, the insurance execu- tive said, was not primarily the ac- celerated rate at William Montgomery. (5t HE ded to its stature, although that is vitally important, but rather the increased interest in which all classes of our people have taken in the whole sub- ject. As never before insurance is becoming an important part in the lives of all Americans. Mr. Montgom- ery continued: Social Security Lauded. “T have been asked whether I think the Federal Government's social se- curity program will hurt the business of the life insurance companies. It is my belief that this program, in- stead of hurting the business of the companies, will help it immeasurably. “Just as the Liberty Loan sales during the World War awakened mil- lons of our people to a new under- standing of the value of thrift and investment saving, so I believe the social security program will emphasize the unique role of life insurance, give it new meaning and new strength, and stimulate it to new peaks of con- structive activity. “It is & source of real pride that the Acacia Mutual Life Insurance Co. was to the very forefront in progress throughout the past year. Acacia concludes 1936 with insurance in force, assets, net income, disburse- ments to living policyholders and ben- eficiaries all at the highest level in the history of the company. A fur- ther indication of generally improved conditions is to be found in the fact that policy loans now have reached the normal, pre-depression level. New Home 1936 High Light. “A high light of Acacia’s year was the dedication of the spacious new home office building at 51 Louisiana avenue. Erection and dedication of this fine building in 1936 symbolizes for us the new era of growth and development which, we feel certain, our country has definitely entered. “On the basis of the things which 1ife insurance as & Whole has accom- plished during 1936, we are looking forward with confidence to that which 1937 will bring forth. “We view the new year with an optimism soundly based upon an im- pregnable financial structure.” ' FORECASTING greater achievement during 1937 . . . . E EXTEND New Year’s Greet- ings to our thousands of pa- trons . . . thanking them for their valued business, and pledging even higher standards of service for 1937. : National Savings ¢ Trust Company 15th Street and New York Avenue Member Federal Deposit Insurance Corporation BRAKES PREPARED BY RESERVE BOARD Three Steps Already Taken Show Determination to Control Credit. BY EDWARD B. HUBBA®D, Cambridge Associates Staff. Over a year ago the country heard, but gave little attention to, the first inconsequential notes of a melody new to American ears. High banking offi- clals, concerned over the tremendous growth of potentialities for expansion of credit, then began to devise meas- ures for the prevention of an uncon- trollable boom. Today, following an edict raising margin requirements on loans by brokers and dealers, a stiff -|increase im requirements for the BANK STOCKS SET EXCHANGE TREND {Shares Advance Sharply Under Increasing Demand on Local Mart. Perhaps the most significant change during the year on the Washington Stock Exchange has been the attitude of Capital investors toward local bank stocks, Y. E. Booker, president of the exchange and head of an investment firm bearing his name, said today as .. he looked at the last 12 months from a financial viewpoint. Shares of all the banks, he said, have ad- vanced sharply under increasing demand, and are quoted today at the highest prices which have pre- vailed since the early days of the . depression. Abundance of Y. E. Booker. 1dle funds, coupled with scarcity of the available supply of high-grade investments, has resulted in further sharp advances during the year 1936 in most ofthe securities listed on the Washington Exchange, President Booker continued. This condition is not peculiar to Washing- ton, but is also true of investment se- curities on all exchanges throughout the country. ‘The relatively small volume of busi- ness on the Washington Stock Ex- change this year has been due to & scarcity of supply rather than to any lack of demand. This is evidenced by the fact that virtually all the highest grade bonds and preferred stocks have for several months been selling well above their call prices, Booker ex- plained. The great increase in the volume of business among the merchants, marked improvement in real estate and unusual activity in building, all have contributed directly toward the pros- perity of the banks. Deposits have been steadily increasing, and despite the prevailing low interest rates, most of the local institutions will show earnings for 1936 well ahead of 1935. ‘The public utility companies are en- Joying the largest volume of business in their history, and the present out- look is that there will be no diminution during the year 1937, the exchange official said. —— amount of reserves to be held against bank deposits, and a “sterilization” measure to prevent imports and ex- ports of gold from expanding or con- tracting the credit base, this melody has become the theme-song of an increasingly anxious Federal Reserve Board, The first measure grew out of s sharp increase in security prices which had carried the standard statistics index of common stocks up more than 50 per cent In the previous eight months (to January, 1936). Although the improvement was obviously not ac- companied by an increase in loans on | securities, and therefore could not be arrested directly by this means, mar- kets underwent a temporary period of correction, beginnirig in March. The top prices of that month were not equaled again until the middle of July. Requirements Boosted. Almost coincident with the forma- tion of & new bull market high, the Federal Reserve Board suddenly gave & month’s notice of a 50 per cent in- crease in reserve requirements on de- mand and time deposits. Excess reserves had reached a peak of $3,300,000,000 in the previous De- cember, a figure rendering useless the ordinary means by which credit is controlled; ie., open market opera- tions. In requiring member banks to | give greater protection to deposits, therefore, the Reserve Board brought excess reserves down to a more tract- able figure, namely, approximately $1,800.000,000. Continued flow of capital across the Atlantic to American shores even after the Prench devaluation and .“gentle- men’s agreement” of September 25, as well as more newly mined and sec- ondary gold from this country brought forth from Board Chairman Eccles and Secretary of the Treasury Morgenthau a statement placing a third finger in the dike. Such a demonstration of ambidex- terity was made possible by the fact that the new problem was closely re- lated to the previous difficulties with eXcess reserves. This so-called “sterilization” move was designed to arrest the growth of reserves at no higher than a still- manageable $2,500,000,000, toward which figure they were rapidly mount- ing. The mechanism was simple, con- sisting of weekly issuance of non- deposit-creating treasury bills to pay for future gold purchases in place of deposit-creating gold certificates. ‘The average banker is comforted by HANDICAPS FAGED BY SAVINGS BANKS Earnings Problem Difficult, Building Expected to Aid in Solution. (By Cambridge Associates.) Contemplating the seventh lean year, but with more hope than at any time since 1929, savings banks are tightening belts and sticking 1t through. Earnings assets of quality sufficient to satisfy the requirements of conservatism are so much in de~ mand that yields have dropped to negligible proportions. Yet liquidity must be preserved to meet the cer- tain demand for mortgages when it comes. - And with 1936 came the first glim- mering ray of hope in the shape of an increase in renovation and exten= sion of present building facilities, and the thawing of many frozen mortgages in banks’ portfolios. To be sure the trend has not yet established itself to & sufficient de- gree to materially affect portfolio ylelds, but increasing national income is paving the way for a surge of new building that will relieve the down- ward pressure on earnings of many savings banks. It is probable that the low point of savings deposit interest rates has been passed. Officers are no more anxious to increase total deposits than they were a year ago, but the revalua- tion of assets too drastically written down during the depression is foster- ing a new attitude toward the po- tentialities for the future. Hardly to be considered as earnings, gains from revaluation do neverthe= less appear as quasi-profits to dise courage further retrenchment. Purthere more, present interest rates are not sufficiently attractive in relation to other types of investment to draw in an undue amount of deposit money. Unquestionably, banks are hoping for and yet fearing an increase in general investment yields. On the | one hand they would improve the re- | turn on new capital invested, but on | the other is the threat of capital | losses on previous purchases of high grade securities at above call prices and, even more important, the pose sible growth of an uncontrolable boom. which would spell nothing but disaster for organizations required to take long-term risks. the thought that something is being done to guard against a repetition in magnified proportions of the credit boom which lead to the crisis of 1929, Meanwhile, he is interested, paradox= | feally, in aiding and fostering the ine | cipient demand for credit which ex- | panded commercial loans by an ap- proximate 28 per cent during 1936. This growth in commercial loans, totaling nearly a billion dollars in 1936, represents the first increase of any magnitude since 1929, and al- though the loans have been written at interest rates far below those of that era, they are decidely more lucra= tive than the short-term, high-grade bonds for which competitive bidding has reduced the yield to record low levels. G. M.P. Murphy & Co. Members New York Stock Exchange 1508 H St. N.W. Washington, D. C. GREATER GAINS ..For US..For YOU Our gains mean more available funds for helping you . .. Greater facilities for serving more and more home and prop- erty owners of Washington. We are grateful to those who Our 46 yeors of progress re- veal gains year after year in funds ° invested and accounts estab- lished. Each year The Na- tiogal Permanent has helped increasing numbers to buy their homes, refinance existing trusts and provided funds for improv- ing and remodeling properties. With total assets at a new high, it is significant that ac- counts of many savings mem- a record of consistent have that Bui ried bers ore also at @ new peck. NATIONAL PERMANENT BUILDING ASSOCIATION 949 9th Street N. W. made -our consistent growth possible, and assure ail the sound principles upon which the National Permanent Iding Association was founded will be faithfully car- on. Member: District of Columbia Building & Loan Leaguwe Officers ROBERT E. BUCKLEY Previdens HARRY M. PACKARD Vice-President MILLARD T. DIXON Trearsrer ROLAND M. BROWN Seoretary JAMES Directoes JOHN B. GEIER JOSEPH P. ZEGOWITZ FRANCES L. NEUBECK ALPHONSE C. HAMMER E COLLIFLOWER Undes Supervision U. S. Treasucy 1 ) |