Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 4, 1917
File No. 882.51/763
The Secretary of State to the British Ambassador
Washington , December 14, 1917 .
Excellency: In your note of October 19, 1917 inviting, under instructions received by you from His Majesty’s Government, attention to certain questions which have arisen in regard to the administration of the sinking fund on the Liberian Five Per Cent Gold Loan of 1913 (1912), you inquire whether the United States authorities had any information as to the procedure of the National City Bank of New York in this matter and, if so, whether the course of action adopted by the Bank meets with their approval.
As the Department of State was not found to be in possession of any information on the subject from the National City Bank of New York a copy of your communication was communicated to the Bank with a request that the Department be fully advised in the matter.
I have the honor to enclose herewith the reply of the National City Bank, from which it would seem to appear that the Council of Foreign Bondholders, on whose behalf the Bank assumed your note was written, and with whom the English holders of the bonds had pooled their interests, took no advantage of the opportunity to offer any bonds for purchase for the sinking fund, and that in the purchase of Donds the Bank endeavored to act in fairness to all the bondholders.
I have [etc.]
The National City Bank to the Secretary of State
Sir: We duly received your letter, dated November 23, 1917, relating to the administration of the sinking fund of the Republic of Liberia Five Per Cent Gold Loan of 1912 (not 1913, as stated in the letter of the British Ambassador, a copy of which you enclosed), and take pleasure in submitting to you herewith a statement of the course followed by us in the purchase of bonds for the sinking fund in August, 1916.
As you are aware, the Liberian bonds were issued for the purpose of readjusting the funded debt of the Republic of Liberia. The greater part of the bonds was issued directly to creditors in payment of their claims. In cases, however, where creditors insisted upon cash payment, the money was secured by the sale of bonds to a group of bankers in this city, with whom were associated Robert Fleming & Company, of London, England, Banque de Paris et des Pays Bas, of Paris, France, M. Warburg & Company, of Hamburg, Germany, and Hope & Company of Amsterdam, Holland. All of the bonds were issued in pursuance of a certain agreement for refunding loan, between the Republic and the said banks. The British Ambassador refers in his letter to “publicly issued bonds “and “privately issued bonds,” but we do not understand that any such distinction exists.[Page 897]
The bonds were originally delivered substantially as follows: $225,000 thereof in Germany; $460,000 thereof in Amsterdam; $715,000 thereof in London; and $158,000 thereof in New York, making a total of $1,558,000 of bonds issued and outstanding. Some of the bonds have been listed on the London Stock Exchange; but we understand that they are seldom if ever quoted thereon. The English holders have pooled their interests with a “Council of Foreign Bondholders,” which figures in the correspondence hereinafter referred to. So far as we know, none of the bonds have been listed on any other exchange.
Upon receipt of funds from the Republic of Liberia, in June, 1916, sufficient for the purchase of approximately $43,000 of bonds, we were confronted with the necessity of determining what would constitute an open market within the meaning of the refunding loan agreement. The only market in which the bonds were dealt with at all was the London Stock Exchange, but the bonds listed thereon constituted less than half of the total issue of bonds, and to have purchased the bonds in that market alone would obviously have been unfair to the holders of the bonds in other countries, while at the same time, such a procedure would have resulted in inflated prices which, as fiscal agents of the loan, it was our duty to the Republic of Liberia to avoid, if possible. Accordingly, on June 15, 1916, we wrote to Robert Fleming & Company, of London, England, as follows:
“As fiscal agent of the Republic of Liberia 5% Loan of 1952, we are desirous of purchasing for the sinking fund about $43,500 of these bonds.
“Will you kindly advise us by letter so it may be received by us about August 1, at what price you can purchase any or all of the bonds mentioned for delivery in our hands about August 30, and if your tenders are accepted by us, we will cable you.
“Under the circumstances in taking into consideration the length of time involved, we presume you will not be able to give a very fine quotation. However, that will make no difference, as we will not at this time take account of small margins, so that the price you give us may be more or less an approximate one, Of course, if you can give us a definite price it will suit us much better. The price which you must make to us will be in dollars and cents, the bonds to be laid down in New York free of insurance and all other charges. In other words, your price is to be net to us in New York.”
Similar letters were written on the same day to the Banque de Paris et des Pays Bas, of Paris, France, and Messrs. Hope & Company, of Amsterdam, Holland.
On July 13, 1916, Messrs. Fleming & Company replied as follows:
“Liberia Sinking Fund. On my return to this side I find your letter of 15th ulto. on this subject. You have since, we think, received a letter from the Council of Foreign Bondholders on the same subject.
“On reading the fiscal agreement we judge that you will reject the idea of sealed tenders and will purchase in the open market.
“To meet the views expressed by the bondholders here through the Council of Foreign Bondholders, we would suggest as the best method of adjusting the matter that you should cable us on or about 1st August with authority to buy the $43,500, or any part of same, at a certain limited price. We would thereupon, through the broker most prominent in this loan, make it known that we wanted to buy the given amount of the bonds at the lowest price, and ask him to ascertain at what they could be purchased. If we could not purchase the bonds at or under the limit which you would then give, you would doubtless be able to obtain them in New York and so the matter would be ended.”
That letter was received on July 24, and on July 25 we replied by cable:
“Cannot give price or order to buy we confirm letter June 15 cable tenders.”
The letter of the Council of Foreign Bondholders, to which the letter of Fleming & Company refers, was as follows:
“The Council of Foreign Bondholders has heard with much satisfaction that the arrears of sinking fund on the Liberian 5% Gold Loan of 1913 are to be paid off and the amortization brought up to date, a proceeding which seems to be only in consonance with the high auspices under which the loan was issued.
“We are asked, however, by some of the holders of the bonds to invite your kind attention to the method in which the sinking fund was carried out on the occasion [Page 898] when it was put into operation. We understand that under the loan contract the sinking fund is to be applied by purchases in the open market, but, as far as we are aware, the amount of the loan issued to the public has not been reduced. It appears to us, therefore, that the bonds purchased must have been taken from the portion of the loan not publicly issued.
“The bondholders here strongly urge that the funds available for the sinking fund should be applied as follows at the forthcoming and subsequent amortizations:
“(1) By sealed tenders to be opened on a date to be announced beforehand, or (2) by purchases in the open market where the bonds were issued and are now quoted.
“If any other plan is adopted it seems to us that all the holders do not have an equal chance.
“As we understand that offers to sell are to be submitted by the 1st of August, we should esteem it a favour if you would cable us whether you are prepared to fall in with the bondholders’ views and, if so, Which of the two methods above mentioned you will adopt.”
To that letter we replied as follows:
“We duly received your letter of the 3d instant.
“While it is true that the fiscal agent of the Liberian loan is now in funds, with which to purchase the required number of bonds for the sinking fund, there seems to be no certainty that this condition will continue.
“In purchasing bonds heretofore we have tried to give equal opportunity to all bondholders to dispose of their bonds. It is our desire to purchase the bonds in the open market wherever that market may be, and we know of no better way to do this than publicly to invite all bondholders to make offerings, with the assurance that the bonds offered at the lowest price will be the ones purchased by us, irrespective of who may hold them.
“We should not think it feasible nor in accordance with the terms of the loan agreement to call for sealed tenders, in accordance with your alternative suggestion.”
On July 29, we received the following cablegram from the Council of Foreign Bondholders:
“Referring our letter re Liberia 3d to which no reply yet received we have been requested by principal holders to protest against your proposal to proceed on lines of your letter of 15th June to Robert Fleming and Co. as being contrary to terms of loan agreement and under circumstances we suggest postponement redemption pending satisfactory arrangement. Cable reply.”
to which we replied by cablegram, on August 2, as follows:
“Our letter twenty-first answers fully yours third will defer definite commitment purchase until August 7, can purchase bonds at 85 will buy at lowest price make offer.”
The Council of Foreign Bondholders cabled us as follows, on August 4:
“Your letter twenty-first not yet received Friday holders cannot therefore be informed by Monday 7th, we consider most important therefore definite commitment advised in your cable received yesterday should be further deferred. Please cable reply.”
and we replied thereto on August 5:
“Commitment deferred until fourteenth. Bonds offered at 84½. Cable if our letter has not been received on receipt of this.”
On August 8, the following cablegram was received:
“Letter twenty-first July and marconigram received contrary to desire in third paragraph letter bondholders in England have not been publicly invited to offer their bonds. London certainly open market and we consider you should cable Fleming to publicly invite and accept lowest offers submitted in London by holders up to a given date all offers including American and other holders to be made in London Council Foreign Bondholders.”
to which cablegram we replied on August 9:
“Unwilling to restrict market to London open market is everywhere Fleming requested to invite offers and will advise us any offer submitted. Do you care to offer bonds you control.”
On the same day we instructed Robert Fleming & Company, the Banque de Paris et des Pays Bas, and Hope & Company, to advertise in the newspapers of their respective cities for offers of bonds to be submitted on August 16. On August 11, Fleming & Company cabled us as follows:
“We advertise as follows: Under Liberian heading the National City Bank of New York, fiscal agent for the loan cable us to receive offers till sixteenth August inclusive of the above bonds to absorb monies now in hand applicable to sinking fund and request us to cable on that day of any offers received, offers must be at a net flat price in dollars deliverable and payable in New York on thirtieth August nineteen sixteen.”
Meanwhile, on July 25, we received a letter from the Banque de Paris et des Pays Bas, of which the following is a translation:
“We are in receipt of your letter of June 15, 1916, by which you ask us to inform you, for August 1, 1916, and as exactly as possible, the net price (all expenses included) at which we would be able to deliver into your hands at New York, all or part of this: $43,500—capital nominal loan 5%, 1912, Republic of Liberia, which you propose to buy back, in view of the amortizement of the loan.
“We have noted that you will advise us by cable, in case the propositions we may submit should be accepted.
“In reply, we wish to inform you that we have, up to the present, no offer to transmit to you in view of this transaction; we shall hasten, of course, to let you know what propositions we shall be able to get ready at the desired time.
“We add that we have communicated your said letter to our agency at Geneva, asking it, so as to avoid delay, to address you its propositions direct, if occasion arises.”
On July 28, we received the following letter from Hope & Company:
“We beg to acknowledge receipt of your letter of the 15th ult., informing us that you, as fiscal agents of the Republic of Liberia 5% loan of 1952, are desirous of buying $43,500 of these bonds for the sinking fund.
“We are much obliged to you for having approached us in this connection, regretting that the very difficult means of communication with your side as well as the impossibility of having securities shipped thither are an impediment to act in this matter, so that we, under these circumstances, prefer not to act upon your suggestion as to making you an offer of the said bonds.”
Neither the Banque de Paris et des Pays Bas, nor Hope & Company, ever submitted any bonds in pursuance of our request.
On July 11, Mr. Dunning, our representative in London, cabled us as follows:
“Cable eleven offered any part fifty thousand Liberia eighty-eight seven-eighths net New York.”
to which we replied on July 12, as follows:
“Liberia offers must be made Aug. 1. See our cable 66.”
On July 27, Fleming & Company cabled:
“Responsible broker offers fifty thousand dollars Liberia eighty-six half terms your letter fifteenth June.”
As bonds had meanwhile been offered to us at 85 we cabled Fleming & Company on August 2:
“Will defer definite commitment purchase until August seventh can purchase Liberia bonds at eighty-five will buy at lowest price make offer.”
A similar cablegram was on the same day sent to Mr. Dunning.
On August 3, Fleming & Company:
“Liberia cable received broker now reduces price to eighty-four and half New York flat terms your letter fifteenth June presume may expect final reply eighth August.”
On August 4, Mr. Dunning cabled:
“Liberia bond holders here have pooled holdings and offered direct hence market bare.”
On August 7, we cabled Fleming & Company:
“Commitment deferred until fourteenth can you do better than eighty-four and one-half?”
On August 16, we received the following cablegrams from Fleming & Company:
“Liberia received offers fifty thousand dollars eighty-three and half five thousand ninety will cable later today if further received.
“Second cable. Liberia beyond fifty-five thousand dollars no further offers received.”
On August 17, we cabled Robert Fleming & Company:
“Liberia bonds offered here eighty-three flat. Can you do better.”
and, on August 18, we received the following answer:
“Liberia offer of fifty thousand reduced to eighty-two three-quarters flat.”
On August 19, we received an offer from holders in this country to sell bonds at 823½, which we considered advisable to accept, and we accordingly cabled Robert Fleming & Company on that day as follows:
“Have purchased Liberian bonds required for sinking fund at eighty-two and one half.”
From the foregoing, it appears that the Council of Foreign Bondholders, on behalf of whom we assume the British Ambassador is writing, took no advantage of the opportunity of offering any bonds for purchase for the sinking fund.
The offers seem to have been made through a broker acting for an undisclosed principal, and when it became apparent that no firm offer was forthcoming, we felt it incumbent upon us to put an end to what was becoming an undignified bickering by accepting the lowest price offered, which was six and three-eighths points lower than the original offer by the English broker, and by so much more to the advantage of the Republic of Liberia.