Spring Financing

Last week U. S. investment bankers were busy night & day manufacturing at least $1,000,000,000 worth of new securities for the spring trade. Very little of this financial excitement reflected any desire on the part of businessmen to build new plants or buy new equipment. With a few exceptions such as the prospective $40,000,000 Jones & Laughlin bond issue, three-fourths of which will go into new steel mills, and the $10,000,000 of equipment trust certificates to be sold by two of U. S. Steel's railroad subsidiaries for the purchase of freight cars, the bulk of corporate financing is still refunding--swapping new money for old.* Interest rates are so low that almost no solvent corporation can resist the temptation to call in old high-coupon bonds, pay them off with cheap funds.

Last week New York Edison was able to market at par a $55,000,000 bond issue with a 3 1/4% coupon--an all-time record for long-term utility financing. More remarkable, Loew's Inc., financially strongest of U. S. cinema companies, but a cinema company after all, sold a $15,000,000 debenture issue maturing in ten years with a 3 1/2% coupon. Part of the proceeds will be used to retire 6% debentures.

Whopping bond issues already filed or under consideration include $60,000,000 for Shell Union Oil; $65,000,000 for National Dairy Products; $90,000,000 for Pacific Gas & Electric; $70,000,000 for Virginian Railway; $92,000,000 for Brooklyn-Manhattan Transit.

Biggest chunk of spring financing will be the Government's. Last week Secretary of the Treasury Morgenthau announced the largest single offering of Government securities for cash in U. S. peacetime history--a $650,000,000 issue of long-term bonds with a 2 3/4% coupon and $600,000,000 in five-year 1 1/2% notes. Demand for these was so brisk that Secretary Morgenthau was able to close his books after the first day. An additional $559,000,000 in bonds or notes were offered in exchange for an issue maturing in April, bringing the total operation to $1,809,000,000. Since $450,000,000 of. the cash proceeds is needed to pay off still other issues, the Treasury will receive only $800,000,000 in new money.

With the Government's financing out of the way, the Federal Reserve Board may be more receptive to suggestions that it do something about the ponderous total of excess bank reserves, which constitute a base for stupendous credit inflation as well as making for cheap money. If the Reserve Board had pulled the control levers by which it can reduce bank reserves, the money market might have stiffened a little, and Secretary Morgenthau would have found it less easy to raise his billions.

*A gross exaggeration is the current business credo, reiterated at a thousand banquet tables, that fear of Administration policies has held up capital expansion. With the possible exception of utilities, any U. S. industry would expand if there were discernible markets for additional products.

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