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The San Francisco call. [volume] (San Francisco [Calif.]) 1895-1913, February 23, 1913, Image 19

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Home Capital for Development Projects
Coast Enterprises Fostered by Far Seeing Financiers
INVESTMENT BANKING IS
BOON TO SAN FRANCISCO
Nine Concerns In City Able To Handle Gigantic Bond
And Stock Issues Independent of Eastern Houses
One of the most striking monuments
to Han Francisco's banking power is
the expansion in the city of investment
banking. The importance of this ad
junct to a city's banking power can
not bo overestimated and here it is one
of the principal factors —a sort of
apotheosis of the thrift of the people.
Ten years ago no project of any
magnitude, involving the development
of the city or the interior, could be
wholly financed in San Francisco.
Kastern money was depended upon,
either In whole or in part, and, there
fore, the east was depended upon to
underwrite the state's prosperity. A
change for the better began eight or
nine years ago; three years ago the
state began to throw off the yoke; to
day home capital is waiting for the
projects of the future.
In New York, Boston. Philadelphia
and Chicago investment banking is
one of the principal features of the
financial conditions. It is to these cen
ters that the rest of the United States
turns when it has bonds or stocks in
big things for their sale. It is to these
communities California, the rest of the
Pacific coast and Nevada have had to
turn when money in large amounts
was wanted. The region west of the
Rocky mountains now can turn to San
Francisco with the knowledge that
whatever of money is wanted for legit
imate development can be found here
or brought here for distribution from
this point.
NOT "FISCAL AGENTS"
'The investment banker is an iden
tity distinct from that of the bogus
"promoter" or "fiscal agent." The for
mer does not sell his wares upon com
mission—he buys them outright and
stands back of them. The promoter
and the fiscal agent sell whatever they
can find going begging for a purchaser,
and the worth of their stock in trade
is measured only by their own con
m :ence.
There are nine investment banking
concerns represented in San Francisco,
seven in Los Angeles and two in Saera
niento. The majority of these are east
ern firms, which maintain branches here
for the purpose of building up a Pacific
i oast clientele. Others are financed
locally, but all depend to a great degree j
upon Pacific coast capital. Unlike other j
states, California does not allow these
houses to designate themselves as "in
vestment bankers," and they are known
here, therefore, as dealers in stocks and
bonds. They are, however, in the ma
jority of instances, as reliable in their
dealings with their patrons as the
banking institutions, of which they are,
in effect, separated subsidiaries.
MONEY AT HOME
The nine houses in San Francisco
which come within the field of legiti
mate investment banking, are respon
sible for many new enterprises which
might not have been floated success
fully had they depended upon eastern
verdicts. Others in process of forma
tion or contemplated, and still others
to spring up, will find their financial
wants taken care of at home with more
dispatch and satisfaction than they
could have expected five years ago. It
is estimated that these houses sold to
their California customers during 1912
$25.000,000 worth of securities, the ma
jority of which had intimately to do
with western development projects.
The advantage to the city of the
growth of investment banking is ap
parent when it is realized that this sys
tem brings to the people and their
financiers safe means of investment in
place of the questionable offerings of
the shady "promoters" and "fiscal
agents." The investment banker sells
no bonds or stocks which he has not
first bought himself. This is a guaran
tee that he, with all his resources of
investigation, has passed upon the proj
ects he has helped to finance from the
standpoint of the investor before he.
offers their stocks or bonds to his
patrons. If the securities prove ques
tionable, the loss is mainly upon his
shoulders, as such a denouement de
stroys the confidence of his customers
and impairs the future of his house.
Securities offered by the San Francisco
investment bankers are. therefore,
usually as good as their face value.
INVESTIGATIONS THOROUGH
Conservative speculation is the key
note of the legitimate investment
banking business. The investor who
once has intrusted his money to con
cerns whose securities are handled by
the investment banker and finds that
promises and prospectuses have been
THE SAX FRANCISCO CALL, SUNDAY, FEBRUARY 23, 19.13.
iived up to does not hesitate to invest
more money at the advice of tho house
with which his dealings have been so
satisfactory. This situation tends tq
keep investment money at home and is
the secret of San Francisco's inde
pendence of eastern money markets.
The issues of stocks or bonds which
may be purchased from the promoter
or fiscal agent usually are of such a
character that the investment banker
could not recommend and, therefore,
would not handle them. When a stock
qr a bond issue Is offered to an In
vestment banking house with the re
quest that it underwrite the issue the
prospective underwriter subjects the
company, its assets and liabilities, Its
future and its field to a close scrutiny.
Often this investigation covers periods
of one or two years. If it is a land,
power or irrigation project, the bank
er's engineers scan the properties as
closely as if they were intending pur
chasers. The company's claims are
checked up, one by one, and If they
are found wanting the proposition is
turned down and must reach the pub
lic in less satisfactory channels. The
probable future of the company, the
integrity and ability of the men be
hind it, the prospects of its expansion
and its competition, all enter into the
investment banker's investigation. If
he considers after his Investigation is
completed that the issue is worth his
own investment he then buys the is
sue, at a discount from par, and re
sells it to his patrons at an advance.
A NEW ERA
Until quite recently these investiga
tions of California projects *had to be
made from eastern headquarters.
Agents,.were sent here who were not
imbued with the enthusiasm of the far
west. They looked at the California
industries and financial projects with
eyes trained to the sight of greater
competition than California entertains.
In many instances creditable enter
prises which might have meant much
to the state went begging for money
because their preliminary tests were
conducted by hands unfamiliar with
the psychological conditions of the Pa
cific coast. These misfortunes need be
no longer feared since the Investment
banker has opened headquarters here
where he is in touch with the pulse
of California.
BANK CLEARINGS OF
COAST CITIES, 1912
San Diego 9 131,265.154
Oakland 192,711,075
Tncoma 21K,041,8»6
Portland 506^27,185
Seattle 602,430,000
Lm Anffele* 1,167,782.516
San Franelstce 2,077,561,052
PONFIDENCE IN
1913 OUTLOOK
Despite the fear in some quarters of
unsettled conditions contingent upon
the opening of the new administration
at Washington, the general feeling
among financiers in San Francisco Is
one of unprecedented optimism in re
lation to the 1913 outlook.
In many respects California is iso
lated. In a financial way, from the in
fluences which sometimes go topsy
turvy at the beginning of a new presi
dential regime. The east is inclined
to revolve Itself to a great degree
around the political situation at Wash
ington, but, while serious conditions
would in the natural course be re
flected to the Pacific coast, slight un
easiness or pronounced tightness of
the money market does not affect the
situation materially in San Francisco.
This will be more than ever true in
1913, because of the buoyancy wafted
by the coming of the canal.
The year will be, in a way, a season
of preparatory activity presaging the
natural and lasting inflation which will
come with the first Atlantic ship to sail
from its eastern docks to tie up at San
Francisco's wharfs. Circulation of
money attendant upon the exposition,
also will make itself felt in local cir
cles. In this latter connection foreign
exchange will figure prominently, tend
ing to further strengthen San Fran
cisco supremacy from a financial stand*
point.
It is anticipated, and conservatively,
too, that figures having to do with
banking resources, and, hence, banking
power in this city, will show surpris
ing acrobatics as the closing months
of the year approach. A gratifying
phase of this feeling is that the new
records, the new marks, will be the
beginning of just as pronounced and
steady a growth as were the statistics
of 10 or 12 years ago, which have suf
fered no setbacks except during the
rebuilding years of 1907 and 1908.
Predictions as to growth in banking
activities, population and clearings
during the first few years of the canal
are, after all, only predictions. Busi
ness and financial men who are closest
In touch with the city's pulse paint
different pictures of the city's aug
mented prosperity, but they all paint
on a roseate background, differing only
as to detail. All agree, however, upon
the prospect of an increasing tide of
immigration to the interior and a con
sequent rapid increase in the city's
reflection in banking circles, and
prophecies are, in their last analysis,,
merely a choice of figures.
FINANCIAL INSTITUTIONS
AN INDEX TO PROSPERITY
Banks Rise to Their Opportunities and Their Depositors
Thrive in Accordance With This Expansion
questions, always have been popular in
California.
In the whole state there arc approx
imately 757,113 depositors in these
banks. This is virtually one-third of
the population of the state. The av
erage deposit is $540 —greater than the
average in any other state with the
possible exception of New York. It is
these figures which has made Califor
nia attractive to eastern capital, and
they have helped give tempting
melody to the song of California's fruit
lands to the ears of the investors in
agricultural lands. For where there is
a people whose credit balances are on
record in savings banks there surely
is an atmosphere and reality of pros
perity.
STATE COMMERCIAL BANKS
Private banks and branches of
eastern or foreign banks make up
the majority of the state banks
in San Francisco. Out in the
state they are more prominent in the
tables relative to resources, capital and
surplus, but in the city they are ahead
of the national banks in these figures
only because the savings banks, with
their wealth of deposits, are listed
among them. Most of the one time
Important state banks in the city have
been absorbed by national banks or
have nationalized themselves. • Many of
those that remain as purely commercial
banks have a clientele that they have
built up throujrh generations, and which
would remain with them no matter
what the style of the bank's charter.
The fact that th£ resources of the
city's state commercial banks were less
at the close of 1912 than they were in
1900 does not indicate a dissipation of
the prosperity of any one or any group
of these institutions. The fact is due
to the lessening number of banks in
this classification. The last bank to
nationalize was the Bank of California,
which took with it into the statistics
of the national banks $49,000,000 of re
sources and $32,000,000 of deposits. It
Is said that two of the remaining state
commercial banks even now are con
templating taking out federal charters
during 1913. In San Francisco there
are 37,222 depositors in state commer
cial banks. In the state there are 523
state banks, as against 232 national
banks. The state banks in the state.
therefore, are a more potent factor in
financial activities than they are in the
two cities Los Angeles and San Fran
cisco-
ton Untied From Pngre 18
It is the national banks in San Fran
cisco that firmly establish the balance
of power on the Pacific coast for their
city. One institution here whose re
sources are in excess of the combined
resources of all the state commercial
banks in the city, Is larger, In its
wealth and power, than any other bank
west of Chicago. Few in that Windy
c?ty can claim equal strength.
In paid up capital the local national
banks, of which there are nine, exceed
all the ether national banks in the
state by $2,000,000. In resources they
are almost equal to the other 213.
The banks here claim $240,847,989.14
against the $259,618,736.70 of the re
mainder of the banks In the state.
Comparisons are odious, it is some
times said, but the national banks of
San Francisco freely court whatever
of criticism there is due them for com
paring their wealth and power with
those of the ambitious city to' the
south—Los Angeles. The nine na
tionals here show a combined capital
and surplus of $43,367,400, while the
nine.located in Los Angeles, in the
last call, displayed a capital and sur
plus of $8,926,000. In deposits the lo
cal institutions showed more than
double those of their associates to the
south, or $97,867,420 to $41,370,719.45.
CLEARING S
Local bankers are proud of the bank
clearings in San Francisco, and yet
these clearings do not represent fully
the magnitude of the commercial busi
ness in the city. Unlike eastern cen
ters there is a habit here of paying
small bills in cash. Also there is a
circulation of gold here that is not
apparent in the older communities
across the mountains. Tradesmen's
bills usually are paid in cash In the
household and many substantial pay
rolls still are liquidated with the lit
tle brown envelopes that stand for
salary day. Many of the wholesale
houses also pay their counter bills In
cash, and all this use of coin brings
down the dally clearing house figures.
It is conservatively estimated that
at least one-fourth of the daily totals
should be added for a correct approxi
mation of the exchange of money in
the city. If this rule is followed the
clearing house report, plus its one
fourth, would indicate that the daily
exchange here equals that of any other
city in the east of comparative size,
if, indeed, it does not exceed it day
by day. There Is, however, a stca<!y
growth In the monthly clearings ap
parent during the last 10 years. Willi
the exception of the two years, 190?
and 1910, each year has shown an in
crease, 1912 totaling more than double
that of 1902.
More than in any other manner may
the growth and expansion of a city's
business interests be judged by the
clearing house reports. It is signifi
cant, in this connection, that San
Francisco shows a wider growth than
does any other city with the exception
alone of New York. Each of the other
eastern • centers have fallen behind.
The whole of California, too, has kept
pace with the city, clearings in the
smaller communities showing a steady
increase for the last decade. Los An
geles has made an excellent showing,
and the growth in the interior is •*•
ipecially noticeable in Stockton and
San Jose.
The following figures »how the de
velopment of the city's state commer
cial banks, with their loss of aggre
gate resources from nationalization
during the last few years:
Date. Resources. I Deposits.
1912—A«. 14 $62,479,183.43 $38,804,904.9 4
1911—Jan. 7 i.. •57.380,449.73 •35.175.004.41'
1909—Nor. 16 116,694,820.91 63.085,260.2.
1908—Dec. 21 116,096,004.80 68,6*6,230.14
1907—Dec. 28 130,631,194.27 70,224,725.20
1906— Dec. 31 157,156,723.44 101,001,tr.n. ss
1905—Dec. 30. 131,400,473.20 80,874.847.:s
1904— Jan. 5 127,374,241.04 71,460,562.21
1903—Jan. 23 117,476,092.25 65.122,974.68
1902—Dec. 31 109,284,865.96 67.853,1*-' ..v.
•On February 5, 1910. the Bank of California
changed from a commercial to a national l.apk
with resources of $49,109,426.84 and deposits oC
$32,038,673.66.
SAVINGS BANKS
The following table tabulates the
growth of San Francisco savings banks
for the last 10 years:
Deposits.
1912— Aug. 14....
1911—Not. 10....
1»10—Oct 1....
1909—Nov. 16
1908— Dec. 21....
1907—Dec. 28....
1906—Dec. 31
1905 —Dec. 30
1905—Jan. 5....
1904—Jan. 23 1
1902—Dec. 31
[194,028,784.02'$177,74e\'!S7.4:
186,758,809.87 168,744.:«9.6
175,088.721'. 87 158.9S6.ly0..'.!
168,235.975.40 1*2,353,933 »'.;
150,876,046.6;; 134.454,54S.4<
163,665.016.0» 147.003,374 4'
175,309,224.27 100.965,128.61
182,355,427.24 109.538.244.1 :
172.1 80,930.5S 160,026,863.1:
166,400,773.6,-. 154.Wi6.7oi w
154,762,790.4S| 144.295.034.:,
19

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