A Deal in British Stocks?

When they entered World War II, the British had nearly $5,000,000,000 of assets in the U. S. Of these assets the gold ($2,000,000,000), the marketable stocks ($1,010,000,000) and bonds ($70,000,000) have been steadily turned into bank balances, the bank balances into payments for munitions. Late last fall it was clear that the British were getting close to the bottom of the barrel (TIME, Dec. 2 et seq.). Now spending at the rate of almost $400,000,000 a week, the British will not have enough cash at this year's end to make their 1942 purchasing commitments.

At the very bottom of the barrel lies their least liquid sediment: some $850,000,000 (book value) of "investments in controlled enterprises," the unlisted securities of privately owned corporations. Such companies include giants like rayon-making American Viscose, British-American Tobacco's Brown & Williamson Tobacco Corp. (Kool, Raleigh). They also include many smaller fry: British Ropes, Ltd., J. & J. Cash, Inc. (woven names), Crosse & Blackwell (jam, etc.), Jaeger Co. (knit goods), Oxford University Press, Yardley & Co. (cosmetics), many another. Not listed on U. S. exchanges, stock in such companies is "unseasoned," would probably find an uncertain market.

Last week President Roosevelt asked Congress for power to give the British all the munitions they need, whether they can pay for them or not (see p. 15). But as a matter of practical policy his Government was meanwhile being more hardheaded. To the accompaniment of furious harumphs from some Britons, who tend to resent the war because it is taking their property away, Treasury officials held firmly to one policy: no gifts or loans of munitions until all British assets here are spent.

As tight-lipped T. J. Carlyle Gifford, liquidating agent for Britain's U. S. securities, proceeded to sell block after block of listed issues, one shrewd Wall Streeter watched with interest, figured it would soon be the turn of the unlisted items. How could they be turned into dollars? He had a plan. His name: Cyril J. C. Quinn. His address: Wall Street's $42,590,000 Tri-Continental Corp., an investment trust affiliated with the late Earle Bailie's banking house of J. & W. Seligman.

Fortnight ago, Quinn went to Washington to call on late Boss Bailie's good friend Henry Morgenthau. When he told him about his idea, Morgenthau decided it fell into SEC's bailiwick, called over Jerome Frank, who took along his stock-market regulator, Ganson Purcell, and his investment trust muckraker and regulator, cigar-rotating, handball-playing David Schenker. When Quinn laid the idea on the table, Frank quickly recognized it as one of his fondest.

The idea: a pool of investment trusts to buy some of these British enterprises, perhaps sell them to the public. Quinn pointed to the pool Tri-Continental had formed last spring (TIME, May 20) that bought and later partly distributed the shares of great Newport News Shipbuilding & Dry Dock Corp. But the idea was older than that. When William Orville Douglas was chairman of SEC and Jerome Frank was his running mate, the U. S. economy was stagnating for want of new capital investment. The investment bankers, having no capital to speak of, were taking only seasoned issues they could retail at once. Douglas and Frank figured that the diversified investment trusts, with upwards of $1,000,000,000 in resources, ought to use some of these resources in the job of unfreezing idle money for productive enterprise. When SEC got its investment trust law through Congress last year, this idea became a clause in the act, permitting the industry to form such a pool for risk money.

The Quinn proposal appealed to Frank for much the same reasons. The investment trusts could take over the British stocks at a price based on their earnings, just as insurance companies buy new bond issues ("private placement"). They can sell them later, when the market is right --if they wish. Meanwhile, time being short and the route to a public offering being long, the British would have their cash at once.

Quinn returned to Manhattan to sell the plan to the industry. There he ran into three snags: 1) the jealousy of rival trust men; 2) their lack of ready cash, which might force them to sell their own securities in the thinnest market in years; 3) their fear of being accused of taking advantage of the British, buying them out under duress.

Late last week a committee of worried investment trustmen met with Schenker in Washington, were reassured. They were told that the Government is exploring the pool idea because it fears that the investment bankers won't handle many of these deals. But since bankers, fire-insurance companies and anyone else who wants to are free to compete for the properties, there need be no fear of criticism for taking advantage of the British on price. Another incentive to fair pricing: RFC can always decide what is a "fair" sales price for these properties, lend the full amount to the British in exchange for mortgages.

In comparison with the size of the British holdings, the amount of pool capital discussed last week was chicken feed: $25,000,000 to $75,000,000. Such a sum would have to be revolved several times (as it easily could be) to make a dent on Britain's need. This week, Quinn & friends were back in Wall Street, still discussing. Meanwhile the British were discussing too. Faced with Morgenthau's ultimatum, they were still reluctant to put their properties on this or any other counter.

Germany has sent $300,000 of U. S. currency (probably seized in invaded countries) to New York banks in the last two months--its first sizable shipments in years. Hard to trace, currency is about the only liquid asset of invaded nations which could be shipped to the U. S. without risk of being frozen under Treasury regulations.

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