TESTIMONY OF FREDERICK STRAUSS, OF J. & W. SELIGMAN & CO., NEW YORK CITY (The witness was duly sworn by the chairman of the committee.) The CHAIRMAN. Mr. Strauss, whom do you represent? Mr. STRAUSS. J. & W. Seligman & Co., New York. The CHAIRMAN. Your house has dealt quite extensively in foreign loans, I take it? Mr. STRAUSS. Our house has dealt to some extent in foreign loans, but not as extensively perhaps as some other houses. The CHAIRMAN. Do you have with you a record of all those foreign loans? Mr. STRAUSS. We have it here, yes, Mr. Chairman. The CHAIRMAN. Senator Johnson, you may proceed. Senator JOHNSON. Mr. Strauss, if you have a statement of the foreign loans that you have made we would like to take that and insert it in the record first. Mr. STRAUSS. We will be glad to furnish such a statement to you, but first I might give you a summary, if you wish. Senator JOHNSON. If you have a copy of your statement that could be given to the committee reporter and be inserted in the record, I should be glad. Mr. STRAUSS. I will turn these over to you. Senator JOHNSON. I do not want to take the only one you have, if that is the fact. Mr. STRAUSS. Oh, no. We have duplicates. Senator JOHNSON. All right. I thank you. Mr. STRAUSS. We have here every one of the foreign loans we were connected with, in detail, and also a summary. The CHAIRMAN. Have you copies of those statements, Mr. Strauss? Mr. STRAUSS. Oh, yes. The CHAIRMAN. Just furnish them to the committee reporter and they may be made a part of the record at the end of Mr. STRAUSS. Very well. your testimony. Senator JOHNSON. I am now looking at the summary which you have furnished the committee, if you please, for the statement that I now interrogate you about: I see that there were 13 issues originated by your establishment. Mr. STRAUSs. That is correct. Senator JOHNSON. Now if you will follow me, please, Mr. Strauss. Mr. STRAUSS. Senator Johnson, do you wish me to answer each time that it is correct? Senator JOHNSON. Yes, I will put the query in the form of a question, and will do it as rapidly as possible if you have no objection. Mr. STRAUSS. Oh, certainly. Senator JOHNSON. In your summary furnished for the committee you have under "Business Originated" 13 issues, the principal amount of which were $144,958,000, and I will now use round numbers only, showing $6,000,000 retired by sinking fund, with principal amount now outstanding $138,000,000, and the total gross profit of J. & W. Seligman & Co. being $1,003,192.51. Mr. STRAUSS. Yes. I & CO., mittee.) foreign n loans, ll those t of the that and t to you, ment that d in the you have, loans we -. Strauss? porter and testimony. which you ement that sues origi Ir. Strauss. nswer each form of a u have no e committee Le principal round num th principal Oss profit of Senator JOHNSON. You were the members of the original group, I see by this summary, in 11 different instances, the principal amount being $83,000,000, of which there has been retired by sinking fund or total redemption $63,000,000 in round numbers, and leaving principal amount now outstanding $19,000,000, with a total gross profit to J. & W. Seligman & Co. of $116,371.15. Is that correct? Mr. STRAUSS. That is correct. And may I say this at this point? Senator JOHNSON. All right. Mr. STRAUSS. When we say we were members of the original groups that means members of groups which were led by other houses than ourselves and we merely participated as original members along with them. Senator JOHNSON. That is my understanding of the situation. But in 13 instances, as shown by this summary, you yourselves were the original sponsors of the securities. Mr. STRAUSS. Yes. Senator JOHNSON. And in 11 instances you were yourselves members in a secondary capacity along with groups handling securities sponsored by others. Mr. STRAUSS. That is correct. Senator JOHNSON. In addition to that you appeared as "Members of Appearing Group" in the case of issuance of securities in connection with 17 issues; is that correct? Mr. STRAUSS. That is correct also. Senator JOHNSON. The principal amount of which loan was $2,288,494,000, and from which your total gross profits were $201, 702.01. Mr. STRAUSS. That is correct also. Senator JOHNSON. The total amount of your profits, therefore, as shown by your summary, was $1,321,265.67, and that was upon issues of bonds or securities included in the three categories? That is, in the case of issues where you appeared as the sponsor, and also as a member of the original group, and also as a subsidiary of the original group, the principal amount of which issues in round numbers was $1,516,000,000. Is that correct? Mr. STRAUSS. That is correct. Of course your question implies the situation, but I want to make it entirely clear, if I may. Senator JOHNSON. You should do so in each instance, please, for if you desire to make any explanation I will be glad to have you take an opportunity to do so. Mr. STRAUSS. That our interest in that principal amount of $1,288,494,000 of securities was a very much smaller sum than that, quite naturally. Senator JOHNSON. From the testimony we have heretofore taken, I think that would be obvious. Mr. STRAUSS. All right, if that is understood. Senator JOHNSON. Now, these issues were constituted as follows: In the business originated by you in Latin America there was a total of $128,233,000. Is that correct? Mr. STRAUSs. That is correct. Senator JOHNSON. Of which you were the original group in $22,000,000? Mr. STRAUSS. No; and may I explain that? Senator JOHNSON. Yes; I will be glad for you to do so. Mr. STRAUSS. The business originated by us aggregated, numbers, $128,000,000. You understand that I am skip odd figures now. Senator JOHNSON. All right. Mr. STRAUSS. We participated in business originated by the extent of $22,000,000. That is, that was not our part but the total group was $22,000,000, and we appeared in a nate capacity in the manner you explained before, in Latin in issues aggregating $77,000,000. Or, in other words, a $227,000,000 in Latin America. Then, the next column is and then you will see Japan. Senator JOHNSON. Now, in Europe the aggregate am $1,099,000,000? Mr. STRAUSS. Comprising all three categories; yes. Senator JOHNSON. The largest of which is as a memb appearing group, $991,000. Is that correct? Mr. STRAUSS. Yes; $991,000,000. Senator JOHNSON. I am sure you can pardon an old ma a little mixed as between millions and billions in an inv of this kind. Mr. STRAUSS. Well, I am still older and perhaps more m self. Senator JOHNSON. All right. I observe here that you we ber of an appearing group in a loan to Japan amounting 000,000. Is that correct? Mr. STRAUSS. Yes; in two issues. Senator JOHNSON. I want to turn first to the dates of y to Japan, if you please. Mr. STRAUSS. All right. Senator JOHNSON. Or, perhaps we can identify them i fashion. Do you know whether one of these was a loan spo J. P. Morgan & Co. just after the earthquake in Japan? Mr. STRAUSS. Yes; in 1924. That is correct. Senator JOHNSON. And that loan was for how much? Mr. STRAUSS. The total of the loan was $150,000,000. Senator JOHNSON. What was your participation in th first, that was in February of 1924? Mr. STRAUSS. Yes. Senator JOHNSON. And that loan was offered at 9212? Mr. STRAUSS. Yes. Senator JOHNSON. What was your participation in tha Mr. STRAUSS. In that loan we had an interest as follow purchase group $300,000, in the distributing group $30 in the selling group a very small interest, of $15,000. Senator JOHNSON. Do you remember what was the ori chase price of that loan? Whet Mr. STRAUSS. Well, I don't know about that. All know would be the price at which we entered. Morgan & Co. got a commission, and, if so, how much, v knowledge. Senator JOHNSON. You entered that loan at 9212? Mr. STRAUSS. The offering price to the public was 921 entered it at 881/2. round ng the hers to pation abordimerica otal of Europe, nt was of the getting tigation xed my = a mem co $220, our issue another sored by t? But, loan? s: In the 0,000, and ginal purwe would cher J. P. we have no 2, and we Senator JOHNSON. So your particular spread was 4 in the case of that loan? Mr. STRAUSs. That is correct. Senator JOHNSON. Now, take the other loan to Japan, in June of 1928. Mr. STRAUSs. In June of 1928? Senator JOHNSON. Yes; $70,000,000. Mr. STRAUSS. That was to the Tokyo Electric Light Co. Senator JOHNSON. The sponsors of that loan was the Guaranty Co. of New York? Mr. STRAUSS. That is correct. Senator JOHNSON, How large was your participation in that $70,000,000 loan? Mr. STRAUSS. We had in the first group $1,000,000; in the second group $950,000, and in the third group $965,000. Senator JOHNSON. And your purchase price in the case of that loan was what? Mr. STRAUSS. We went into the group at 87. What the commission, if any, was that was charged by the Guaranty Co. of New York prior to that we have no knowledge. Senator JOHNSON. Your offering or sale price was 9012? Senator JOHNSON. Can you state the purpose of that loan? Mr. STRAUSS. I can not now. We have circulars here for all issues of our own, those in which our name appeared, but we have not this Tokyo Electric Light Co. circular. Senator JOHNSON. I presume that is because the loan was negotiated by the Guaranty Co. of New York? Mr. STRAUSS. Yes. Senator JOHNSON. All right. Now, let us take your list here and very rapidly go through it, if you please. We start with the Province of Lower Austria, $2,000,000. Mr. STRAUSs. Yes. Senator JOHNSON. And your points as shown here were 11.5; is that correct? Mr. STRAUSS. Yes, sir. Senator JOHNSON. Does that mean spread? Mr. STRAUSS. That means spread. Senator JOHNSON. Out of that what was your profit? Mr. STRAUSS. Our total profit, of all kinds, in connection with that matter was $39,152. Senator JOHNSON. Why should that be so with a spread of 11.5 points? Mr. STRAUSS. The expenses in connection with the selling of a small loan necessitate a wider spread. Senator SHORTRIDGE. What did the Government get for the bonds in that case? Mr. STRAUSS. The Government got 87 for the bonds. Mr. STRAUSS. They were sold at 9812. Senator SHORTRIDGE. You may go on. Senator JOHNSON. That was one of the issues that you originated, was it not? Mr. STRAUSS. Yes. Senator JOHNSON. It was originated by this house, Mr. Chairman, and the gross spread as shown by the statement submitted was 11.5 points. The CHAIRMAN. I suppose they had just about as much expense attached to that loan as they would have had in the case of a $50,000,000 loan. Mr. STRAUSS. More proportionately. Senator JOHNSON. I have no idea about that. The CHAIRMAN. I suppose the expense of advertising and all that is exactly the same? Senator JOHNSON. But with a spread of 11.5 points I was inquiring of Mr. Strauss why it was that his house made a profit of only between thirty and forty thousand dollars. Mr. STRAUSS. Well, we subdivided participation with the people who brought the loan to us. And for any more details I am afraid I shall have to ask my associates here what was the situation. On my left is Mr. Henry C. Breck and on my right is Mr. Lionel Stahl, of our house. Senator JOHNSON. Of course you may do that whenever you wish. There is no objection. Mr. STRAUSS. My associate, Mr. Breck, calls my attention to the fact that the expenses alone in the case of that loan amounted to $87,000, which was equal to 434 points spread. Senator JOHNSON. Very well. Any explanation you may desire to make in reference to that spread, and the small amount of your profits, I will be very glad to have you make. Mr. STRAUSS. My associate here calls my attention to the fact that our interest in the final selling group was very small; that the securities were sold through other houses to whom commissions were allowed. Senator JOHNSON. You started the sale, did you not? Mr. STRAUSS. We initiated the business, or we led the business. Senator JOHNSON. And your first step-up price was what? Mr. STRAUSS. There was a step-up price of 8 points. Senator JOHNSON. You took an 8-point step-up price to begin with in the case of that loan? Mr. STRAUSS. And that amounted to $160,000. Senator JOHNSON. All right. Now, we will take the next loanMr. STRAUSS (interposing). One minute, if I may, Senator Johnson. Senator JOHNSON. Certainly. Make any explanation you deem proper. Mr. STRAUSS. From that sum there was deducted, and which the group did not get, $87,000 of actual expense, leaving the net revenue or profit $72,000, or about 3.6 points. Senator JOHNSON. What is the figure on the statement that you have furnished us in the third column, $230,000, in relation to that loan? What does that mean? Mr. STRAUSS. That is what the spread times the principal amount of the issues gives if carried out in that way. Senator JOHNSON. That is simply figuring on the gross spread? |