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CROWN AGENTS' ENQUIRY COMMITTEE:

FIFTEENTH DAY.

Monday, 27th July, 1908.

At the Colonial Office, Downing Street.

PRESENT:

* Sin RALPH MOOR, K.UM.G. (in the absence of Colonel SEELY), in the Chair.

Sir ALBERT SPICER, Bart., M.P.

H. J. GIBBON, Esq., C.B.

R. BAILEY, Esq., "3. V.O., 1.8.0.

S. M. LEATHEs, Esq. C. A. HARRIS, Esq., C.B., C.M.G.

Mr. J. A. MULLENS, called and examined.

3702. (Chairman.) You have had a letter, I think, detailing approximately what evidence the Committee would like you to give?—Yes.

3703. Will you tell us first for how long your con- nection with the Crown Agents has extended?—It has Len for a great number of years; 1 really cannot say how long, but ever since I have been in the City. For perhaps 50 years there has been a connection with my

firm.

3704. What has been your personal connection with the business?-About 20 years.

3705. With regard to the extent of the business you do with them, could you give us the details?-Our busi- ness connected with the Crown Agents is not very large. but we are joint brokers with another firm in connec tion with issuing fresh loans. Our usual business with the Crown Agents simply consists of purchasing and selling Consols or other Government securities; but in the event of a Crown Agents' new loan coming out we are consulted as to the details jointly with Messrs. Scrimgeour, the other brokers.

3706. With regard to the purchases and sale of Con- sols and other securities, do you know what those pur- chases and sales are for or on whose account? No, they do not tell us.

3707. It is purely a mechanical business?-It is not at all large and a purely mechanical business.

3708. With regard to new loans, what is your posi- tion with the Crown Agents in those issues?—There we discuss the price with the other brokers and the different formalities are settled between us, when the stock is to be issued, at what price, and so on.

3709. Then you practically advise as to the moment when the loan should be issued ?—Yes, we advise as to the detail.

3710. And the state of the money market, whether suitable or otherwise, for the issue?—Exactly.

3711. That is yourselves, the Messrs. Scrimgeour and the Crown Agents?—Yes, between us.

3712, Then the practice, I take it, is that you really form a sort of committee to decide as to the issue of a loan?—It does not go quite so far as that, but Messrs. Scrimgeour generally go to the Crown Agents and see them, and then we discuss it more or less informally together; they come down to our office and the thing is settled. There is no committee appointed exactly. but all the details are gone into.

3713. Yourselves and Messrs. Scrimgeour are in the position of the experts advising as to the state of the market, the price of the issue, and the general condi tions?-Exactly; we are the financial experts.

3714. (Mr. Leathes.) Is it that Messrs. Scrimgeour advise the Crown Agents and you advise Messrs. Scrimgeour-If you like to put it in that way, but it comes to practically the same thing; Messrs. Serim- geour are more in touch with the Crown Agents over the loan than we are.

3715. (Chairman.) The next point was how far the Crown Agents in issuing Colonial loans obtained good terms for their employers, the Colonial Governments; I think from what you have told us probably the answer is evident there?—I could go a little further to throw right on that point; I should say my answer to that would be that the terms obtained by the Crown Agents are quite as good as those obtained by the self- governing Colonies; and as a case in point, the two

A. J. HARDING (Secretary)

large recent issues have been five millions of Straits Seulements in April, 1907, of which loan the guaran- tors or underwriters had to take up 45 per cent., prac- tically half the loan, and in May of this year an issue of three millions Southern Nigeria Loan, of which the underwriters or guarantors had to take up 95 per cent., which was practically the whole loan, and that shows pretty clearly that the loans could not have been issued on better terms.

3716. That is a proof as to the terms, but it is rather against the popularity of the loans with the public and the terms of tho issues?—Possibly; but 1 mean to say that shows that they could not have obtained any higher price.

3717. (Mr. Harris.) Would you mind explaining how -The loan was issued at a certain price, and all loans nowadays have to be underwritten or guaranteed. The Southern Nigeria Loan was issued at £99, and to enable the loan to be issued at £99, you have got to get the financial houses and people to guarantee it, that is to say, that if the public do not take it the guarantors are left with it.

3718. Supposing you fixed the price unduly high for the public?Then the Crown Agents have obtained financially the best sale they could have effected.

3719. (Mr. Bailey.) What do they pay to the under- writer, do you know ?-The usual 1 per cent. of under- writing commission, and to the brokers one quarter por cent. for obtaining the guarantee, which is usual in first-class securities. I mean, had that issue been fixed at £98 the public would very likely have taken it all, but they could not afford to run that risk. Supposing the public had not come forward and taken the loan at £98, the loan would have been at a heavy discount and practically unsaleable, and their stan- dard of credit would have been depreciated enor- mously.

3720. (Chairman.) For the purpose of issuing such loans, is it not advisable to issue them on such terms as will popularise the loans of the Crown Colony Governments 7-There is something to be said on both sides; but I mean it is not our business to give away other people's money, and we can get a better price for them by issuing them in that way.

3721, (Mr. Harris.) Have you any notion as to the subsequent quotations for the loans?-The stock of that loan at first went to a discount, and now it is at a sinall premium; it has been absorbed by the public. I do not think you need fear that they lose popularity by the public not taking it in the first instance. A big loan must always necessarily (instance the case of the Irish loan the other day or any of those loans) be taken by financial and big City houses first of all before the public take it up. The public have not got time; trus- tees and other people have got to consult together, and the lists are open for such a short time that the in- vestor has not got time to consult with his co-trustees whilst the loan is available, and therefore he misses the opportunity of taking it. It is taken off the mar- ket by the financial houses, and the public invest their money in it afterwards.

3722. (Chairman.) Of course, in considering popu larity of an issue, they have also got to consider very considerably the stability of their own credit for the issue of such loans?—Yes, and that is the first thing to look at from my point of view.

MINUTES OF EVIDENCE.

Mr. J. A. MULLENS.

3723. You regard that as the first factor?-Yes. 3724. Then how far do they carry out the mechani- cal part of the work of issuing and managing loans to the satisfaction of the investing public and the finan cial houses of the City?-That is quite satisfactory; the City do not complain at all as to the way it is car- ried on. There is only the one point that sometimes, possibly on the Stock Exchange settling day, there is an undue crowding in the office for making transfers, but it is of no great consequence, and I do not quite see how you could get over that unless it was done, say, at the Bank of England, who, of course, have a very largo stall for that kind of work.

3725. Would you suggest that it is requisite to make any improvement in that direction?-No, I think it is inconvenient, but it does not amount to very much.

3726. And, generally, the loans are managed to the satisfaction of the public?-Certainly.

3727. The next point is the manner in which the Crown Agents issue loans compared with that adopted by the Dominions, say, New Zealand or the Cape?- It is exactly in the same manner.

3728, Would you describe-shortly the method?— Except that the stocks are registered at the Crown Agents', it is precisely a similar manner; the pro- spectus is issued, the price fixed, and the dividends sent by post, in exactly the same way as other Colo- nial stocks. To all intents and purposes they are worked in exactly the same way.

3720. The two systems are identical ?-Identical, ex- cept that the registration is at different places; that is all.

3730. (Mr. Bailey.) Where is it in the case of the self-governing Colonies ?-Some of them are done at the Westminster Bank, and some at the Bank of England; practically the majority are either done at the Bank of England or at the Westminster Bank, but some of the other banks do part of them. Canada, I think, is done at the Bank of Montreal.

3731. The Crown Agents do for themselves what in the case of self-governing Colonies is done by banks?— Exactly; naturally, of course, not having the same staff, they cannot quite deal with it in the same able manner that those other people do.

3782. (Chairman) Do you suggest that it would be an advantage if they did it through a bank?-It would be a greater facility if they did it at the Bank of England, materially.

3733. (Mr. Bailey.) It would probably cost them more? It would cost them more, I should say.

3734. (Chairman.) They would have practically to pay the usual charges to the Bank of England ?—Yes.

3735. Which now they would receive themselves?— Exactly; they save these now.

3736. The last point is, if the Crown Agents were organised as a regular Government Department, like the India Office, for instance, do you see any reason why they should be less fitted than they are at pre sent to deal with loan work? Are you acquainted with the India Office machinery in the matter of the issue of loans?—No, I am afraid I am not.

3737. Could you give us any view upon that point? -No; we always look on the Crown Agents as prac tically the Colonial Office, and I should not think that any difference in the organisation could alter it- in any way.

3738. Have you ever heard any comparison as be- tween their methods and those of the India Office in issuing their loans?-No; of course, they are practi- cally identically the same as the Colonial issues.

3730. Are there any points you think would be of use to the Committee in considering this question ? There is only one point which it appears to me is worth drawing attention to, and that is that on all these stock receipts and prospectuses that are issued by the Crown Agents, the Imperial Government always point out that they in no way guarantee the loans, whereas, virtually, to my mind, although they do not actually guarantee them, they take the responsibility for them. In Committee on the Colonial Loans Bill, in

157

[27 July 1908.

August, 1899, the general position of Crown Colony Loans was described by the Secretary of State as fol- lows: "I have made inquiry into this subject, for I am anxious to distinguish between the responsibility of the Home Government and that of the Colony, and I find that practically no distinction exists, except that under the present system we pay a higher rate of interest than we need. The actual state of affairs is this: Whether we do or do not guarantee a loan, we assume respon- sibility, and we pay a higher rate in the market, be- cause we will not come under terms of a guarantee which really in practice we have

to maintain." Therefore, the guarantee not being given, it means that stocks are issued at a very much lower price than they would be, of course, if there was a guarantee.

3740. (Sir Albert Spierr.) Whose words were those you have just quoted ?—I think it must have been Mr. Chamberlain,

3741. (fr. Leathes.) Is there any case in which the Imperial Government has stepped in to maintain the credit of a Crown Colony?-No.

3742. The Crown Colonies always do manage to pay their way? They have always managed to pay their way, and I do not see how the Treasury or the Colonial Office, or default.

whoever it is, could ever allow them to 3743. (Chairman.) What is it you suggest that the indication that it is not guaranteed by the Imperial Government ought not to be given-They practically assume the responsibility, and yet in all the prospec- tuses and the stock receipts they point out that in no way are they responsible. That is put upon.all of them; I mean, it is not for me to suggest that they should take the responsibility, but, of course, if they did assume it, they could issue these loans in a very much better way.

3744. On better terms?-Exactly.

3745. (Sir Albert Spicer.) What would be the differ- ence?—I should say, roughly, that the difference in interest, would aniount to about per cent., which would make the capital value of the loan about 10 per cent.; that is to say, whereas they issue a 33 per cent. loan now, say at £95, they would be able to issue a 3 per cent. loan at the same price.

3746. These were 3 per cent. loans you referred to in your opening statement, I think?--Yes, except the Southern Nigeria, which was, as matter of fact, 4 per cent. convertible into 3 per cent. They practically are 3 per cent. loans, and the 3 per cent. is a trus tee security. They were issued in short dated bonds, but as a matter of fact are convertible.

3747. And the Straits Settlements, what was that? -The Straits Settlements also was a short dated bond in a similar way, with a conversion into a stock.

3748. Issued at £98, I think you said, or £991- They were both issued at £99.

3740. (Mr. Harris.) You rather implied just now that the City looked upon the credit of the Imperial Government as behind all these loans?-Personally I do; yes.

3750. That is a personal feeling, but you will not go so far as to say that it is the feeling of the City ?- No, it is not, because it is expressly pointed out in everything that they are not liable for it. It appears not only on the stock receipts, but also on all the prospectuses.

3751. (Sir Albert Spicer.) Really, as to those pro- spectuses, the City take up rather a different attitude to what Mr. Chamberlain took up ?-Certainly.

3752. And the public go by that and not by Mr. Chamberlain -The public have to go by what appears on the prospectuses.

3753. (Mr. Leathes.) I see a reference to a Statute, 40 and 41 Vict., Chap. 50: does that specifically require that the Imperial Government should give no guarantee, do you happen to know? No, I cannot

say.

3754. (Mr. Harris.) What your suggestion amounts to is this, that the Imperial Government should under- take to guarantee, instead of allowing the Colonies to 188ue on their own basis?-If they did they would benefit their credit enormously.

1875

PUBLIC RECORD OFFICE

Reference :-

C.O.885

19 PUBLIC RECORD OFFICE, LONDON

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