210. The Three Classes Of International Security Deal-Ings

Out of Europe's interest in American enterprise and constantly growing investment in American securities arises an immense volume of international security dealings. Estimates, as nearly reliable as can be made, place the amount of foreign-held American securities at five billion dollars. The maintenance alone of such an investment makes necessary dealings which run up into the hundreds of millions each year, affording, as well, an opportunity for speculative and arbitrating operations between the markets, the vast extent of which it is impossible even to estimate.

Security dealings between our own and the foreign markets resolve themselves, broadly speaking, into three classes. First, there is the business arising from replacement of maturing investments and the distribution to foreign buyers of new issues. Second, there are the great operations which accompany speculations of an international nature; cases, for instance, where foreign operators or banking houses, working on joint account with parties here, carry large lines of stocks or bonds. Third, there is a great volume of dealings arising from the never-ceasing efforts to "arbitrage" between various markets - to buy something in one city and at the same moment turn around and sell it in some other city at a higher price.

211. Replacement Of Maturing Investments

Taking the first class of dealings, it readily appears how great a volume of trading originates solely from the replacements of maturing bonds. Of the five billion dollars of "Americans" held abroad a considerable part consists of stocks, but it is safe to say that at least two-thirds of the total is made up of bonds. Furthermore, the great bulk of this foreign money went into our American bonds a number of years ago at the time when the development of the West and the construction of its railways was being so largely carried on with foreign capital. Each year a larger proportion of these bonds is coming due, and where renewals are not made, the way is opened for investment in something else.

American banking houses closely in touch with their foreign correspondents know just about what securities their friends and clients on the other side hold. The most careful watch is kept upon the maturity of these investments, and offerings and suggestions are usually governed by what the house here knows of its correspondents' liability to buy. A foreign holder, for instance, of Atchison serial debentures which run off in large amount during the next two years, is apt to have great quantities of various Atchison issues offered him during the time that his old Atchison bonds are maturing. He has shown preference for that kind of a bond, dealers here reason, and so that is the kind of a bond he is apt to want in substitution.

Knowledge of what investments are held by big capitalists abroad is, of course, an extremely valuable asset of the bond dealer here and is very hard to obtain. There are many cases where the foreign and domestic firms are so close to each other that the foreign firm simply sends lists of what it holds and what its clients own, but more often the banker here gets his information from the coupons which are regularly sent him for collection. That is, of course, an infallible indication of what bonds are being held for fixed investment and is a clew which the shrewd dealer here never fails to follow up and use for all it is worth.

Participation in syndicates, too, must be included in this first class of security dealings. More and more, as the financial relationship of our own and the foreign markets has been strengthened and developed have bankers here come to rely upon the participation of their foreign friends in any syndicates which they go into. It has always been the case that when blocks of first-class bonds were underwritten by powerful international houses here, a good part of the underwriting was for bankers on the other side. Now, however, it has come about that issues brought out even by relatively unimportant financial interests are being continually offered and placed on the other side in localities where American bonds not so long ago would not have had any market whatever.