812.51/794
The Alternate Chairman of the International
Committee of Bankers on Mexico (T. W. Lamont) to
the Secretary of State
New
York, September 23,
1921
[Received September
24.]
My Dear Mr. Secretary: I should prefer that you
should receive directly from the oil men such information as they may
have, but in order to acquaint you beforehand with the view of the
bankers in the matter, may I be permitted to explain to you, in
confidence, that the proposition which (as explained to us) the Mexican
government authorities made to the oil producers was, in effect, that
the oil producers should organize a syndicate of bankers to buy up, in
the open market, at 40% of par or thereabouts, a large amount of the
Mexican government’s external obligations and then to make these
available for the oil men to turn in at par in payment of their taxes.
In this way the Mexican Government might make an actual remission of the
oil taxes to the extent of 60%, yet it might be able to state that it
was receiving full value in taxes, accepting its outstanding bonds in
payment at par.
The attached draft of our letter to the oil producers explains the
impracticability of this plan. Mr. Teagle and the other oil executives
[Page 500] fully understand our point
of view, and, I may say, are in accord with it. The letter attached is a
first draft and may be subject to a slight alteration but nothing
material.
Looking forward to seeing you on Monday at twelve o’clock noon,
I am [etc.]
[Enclosure]
Draft of Letter from the Alternate Chairman of
the International Committee of Bankers on Mexico (T. W. Lamont) to the Chairman of the Committee of Oil
Executives (W. C.
Teagle)
[New York,] September 19,
1921.
Dear Mr. Teagle: Referring to the
conferences which I have been holding with you and the other members
of your Committee who recently visited Mexico, I beg to state that I
called together representatives of leading financial houses, a
number of whom in past years were active in the issuance of the
Mexican government’s external obligations; and I laid before them,
in confidence, your plan with reference to the outstanding Mexican
government bonds.
The matter was discussed at length and it was agreed that it would be
impossible to undertake such a plan as you proposed. I think you are
familiar with the reasons that make this plan, from the point of
view of the banks and banking houses, impracticable.
- First: I would explain that the bankers
hold exceedingly small amounts of these securities. At the time
the external loans of the Mexican government were offered for
subscription only a limited part of these loans was taken in
this country. Moreover, an examination of the total amount of
money which was remitted to this country to be used in paying
interest in the year 1913—the last year in which full interest
payments were made on the external loan bonds—indicates that the
percentage of such loans owned in this country at that time was
relatively small. The bonds were widely distributed to
investors, and we are convinced that there are no concentrated
holdings in this country. It would therefore be quite impossible
to secure these bonds in any considerable blocks.
- Second: the bankers whom I consulted
felt that they might properly be criticized by their clients who
look to them to protect their interests, if they made an attempt
to secure such bonds at the present nominal market quotations,
in view of the general conviction that such external loan bonds
are entitled to be recognized in full at par and accrued
interest, and that security was pledged to cover such payment
which, even today, is probably in excess of the amount necessary
to cover the complete debt service on these bonds. The fact is
that, inasmuch as banking houses and banks have, in years past,
[Page 501] distributed these
Mexican government obligations widely and have represented them
as a sound investment, they have become, in effect, trustees for
the many investors who, relying upon their judgment and
recommendation, have put their savings into such
securities.
While the foregoing represents the primary reason for the feeling on
the part of the bankers that they are unjustified in recommending
the sale by clients at the present levels, they also expressed the
view that the floating supply of bonds at present prices was only
nominal and that an attempt to secure bonds in large volume would be
unsuccessful.
Again, if the oil companies should buy bonds with the intention of
using them in paying their taxes, they would be confronted by the
fact that the taxes in question are pledged, equally and proratably,
for the payment of the interest and principal of almost all of these
issues of external bonds, and other bondholders, those who have no
taxes to pay but are interested in seeing the revenues applied
without preference or priority, would doubtless object to this plan
or method, since its result would be the absorption of the revenue
and the retirement of certain specific bonds, leaving the others
outstanding.
We now trust that it will be clear to you why—as a matter of good
faith, chiefly, but of expediency as well, it is impossible for the
leading financial houses and banks of this city and country to
undertake the plan you have proposed to them. These bankers whom I
consulted and who are largely represented upon the International
Committee of Bankers on Mexico earnestly desire to co-operate in any
way possible, and they wish, if possible, to be of service in
assisting Mexico to a wise solution of some of her perplexing
problems. It is in that spirit that I have been glad to accept the
very gracious and flattering invitation that President Obregon’s
administration has extended to me; and to all of us it is a source
of gratification, but not of surprise, to learn from you that you
found all the members of the Mexican government with whom you came
in contact frank and straightforward, reasonable and earnest in
their endeavor for their country.
Sincerely yours,
