EXCESSIVE BANKERS’ COMMISSIONS
The Pujo Committee was unfortunately prevented by lack of time from presenting to the country the evidence covering the amounts taken by the investment bankers as promoters’ fees, underwriting commissions and profits. Nothing could have demonstrated so clearly the power exercised by the bankers, as a schedule showing the aggregate of these taxes levied within recent years. It would be well worth while now to re-open the Money Trust investigation merely to collect these data. But earlier investigations have disclosed some illuminating, though sporadic facts.
The syndicate which promoted the Steel Trust, took, as compensation for a few weeks’ work, securities yielding $62,500,000 in cash; and of this, J. P. Morgan & Co. received for their services, as Syndicate Managers, $12,500,000, besides their share, as syndicate subscribers, in the remaining $50,000,000. The Morgan syndicate took for promoting the Tube Trust $20,000,000 common stock out of a total issue of $80,000,000 stock (preferred and common). Nor were monster commissions limited to trust promotions. More recently, bankers’ syndicates have, in many instances, received for floating preferred stocks of recapitalized industrial concerns, one-third of all common stock issued, besides a considerable sum in cash. And for the sale of preferred stock of well established manufacturing concerns, cash commissions (or profits) of from 7 1/2 to 10 per cent. of the cash raised are often exacted. On bonds of high-class industrial concerns, bankers’ commissions (or profits) of from 5 to 10 points have been common.
Nor have these heavy charges been confined to industrial concerns. Even railroad securities, supposedly of high grade, have been subjected to like burdens. At a time when the New Haven’s credit was still unimpaired, J. P. Morgan & Co. took the New York, Westchester & Boston Railway first mortgage bonds, guaranteed by the New Haven at 92 1/2; and they were marketed at 96 1/4. They took the Portland Terminal Company bonds, guaranteed by the Maine Central Railroad—a corporation of unquestionable credit—at about 88, and these were marketed at 92.
A large part of these underwriting commissions is taken by the great banking houses, not for their services in selling the bonds, nor in assuming risks, but for securing others to sell the bonds and incur risks. Thus when the Interboro Railway—a most prosperous corporation—financed its recent $170,000,000 bond issue, J. P. Morgan & Co. received a 3 per cent. commission, that is, $5,100,000, practically for arranging that others should underwrite and sell the bonds.
The aggregate commissions or profits so taken by leading banking houses can only be conjectured, as the full amount of their transactions has not been disclosed, and the rate of commission or profit varies very widely. But the Pujo Committee has supplied some interesting data bearing upon the subject: Counting the issues of securities of interstate corporations only, J. P. Morgan & Co. directly procured the public marketing alone or in conjunction with others during the years 1902–1912, of $1,950,000,000. What the average commission or profit taken by J. P. Morgan & Co. was we do not know; but we do know that every one per cent. on that sum yields $19,500,000. Yet even that huge aggregate of $1,950,000,000 includes only a part of the securities on which commissions or profits were paid. It does not include any issue of an intrastate corporation. It does not include any securities privately marketed. It does not include any government, state or municipal bonds.
It is to exactions such as these that the wealth of the investment banker is in large part due. And since this wealth is an important factor in the creation of the power exercised by the Money Trust, we must endeavor to put an end to this improper wealth getting, as well as to improper combination. The Money Trust is so powerful and so firmly entrenched, that each of the sources of its undue power must be effectually stopped, if we would attain the New Freedom.