The New York Trust Company to the Secretary of State

Honorable Sir: The State Department is undoubtedly familiar with the negotiations between the German and Russian Governments whereby arrangements were made for purchases by Russia in Germany on long credit terms up to a total of 300,000,000 marks.

Various negotiations have been conducted with a view to making this arrangement operative, but until recently it has been impracticable to bring the arrangement into force.

Under the general arrangement German manufacturers selling to Russia under this credit would receive the Russian obligation for the goods sold, but would in addition be guaranteed against loss to the extent of 35% by the German Government, and 25% by the various [Page 908] German states. These guarantees total 60%, making 40% risk to be borne by the German manufacturers.

The principal difficulty has been to provide the actual funds whereby the manufacturer could discount the Russian obligation which he receives, which will bear as well 60% guarantee of the German Government and states.

The German banks are the natural source of such funds, but controversies regarding rates have heretofore prevented the credit coming into operation.

Arrangements have been made recently whereby the manufacturers could discount with a syndicate of leading German banks up to an amount of 120,000,000 marks out of the total of 300,000,000 marks, and the German banks are now endeavoring to arrange the balance.

At the present time easy money conditions prevail in Germany and funds are readily available. Forseeing the possibility of later tighter money conditions in Germany, the German banks seek a plan whereby if they undertake a further portion of this credit, they will have arrangements whereby they can make a portion of their advances liquid by rediscounting the obligations received.

Statutory provisions of the Reichsbank limiting to ninety days the period of its advances makes the paper ineligible at that source, so that to accomplish their purpose, the German banks must seek external credit facilities.

No general plan has been agreed to by the syndicate of German banks concerned, but the leaders, Messrs. Mendelssohn & Company and the Deutsche Bank, are seeking to devise a satisfactory plan.

They have therefore approached us placing the matter in our hands as far as their influence lies, and ask our consideration of the following plan—the terms of the agreement with Russia provide that on sales of German products two and a half years’ credit shall be given with respect to 50% of the purchase price, and four and a half years’ credit with respect to the remaining 50%.

Covering the portion on which two and a half years’ credit is accorded, they propose that we, on behalf of a syndicate of American banks, enter into an agreement which will provide that during a period of two years, we will hold at the disposal of the German banks a revolving credit whereby for such periods as they require during two years, we will agree to rediscount, with the endorsement of the German banks, such portion of these obligations bearing the name of the German seller, and the Russian obligor, if the German banks find it convenient to so rediscount.

With respect to such rediscount, these obligations are to bear the endorsement of the German banks, but it is understood that the endorsement is to apply to that 40% of the obligation which is uncovered by the guarantees of the German Government and states.

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The amount of such revolving rediscount credit has not been fixed, but the discussions vary from twenty million to thirty million dollars, and it is understood that during the period of two years German banks can rediscount with the American banking syndicate for periods of ninety days, and pay off, and again rediscount at their convenience during such two year period.

I am familiar with the fact that the State Department has heretofore given some consideration to this credit, and in addressing you at this time for further consideration of the matter, I am proceeding upon the theory that the proposal before us differs in certain fundamental facts from that originally considered by you.

This credit is not a participation with the Germans in a credit to Russia, but is a revolving rediscount credit extended to the German Banks in which their direct endorsement covers 40% of the risk involved in the underlying obligations, consisting of the Russian State Purchasing Agency in Germany, the name of the German supplier, and in certain cases the obligation of the Russian State bank. The 60%, which the endorsement of the German banks does not cover, is covered by the guarantee of the German Government and states.
It is not contemplated that this credit would be the basis for an offering of securities to the American public. It would be a credit extended by a syndicate of American banks to a syndicate of German banks.
It is not contemplated for the two year life of the agreement that the American banks would be in the position of steadily advancing funds, but rather that such facilities would be extended and paid off as money conditions in Germany require.

The credit is only in process of negotiation to determine if it can be adjusted to our requirements. The syndicate of German banks as a whole have not yet considered this plan, it representing only the effort of the two most influential German bank members of the syndicate to find a satisfactory formula, they having agreed to place the negotiations in our hands to the extent of their ability to control the matter.

We believe that no other American bank or bankers are at present negotiating the matter and understand that one of the German banks whom we are representing is the one which heretofore negotiated with another American banking firm a plan which was placed before you. We recognize that even in the present form some publicity cannot be avoided, which might be construed as a new attitude on the part of the American Government in permitting large Russian credit. We lay the matter before you with a view to determining if in your judgment the fact that we are in this case rediscounting for the German bank makes any fundamental difference in the matter from the standpoint of American public policy.

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We shall in all events be guided by your wishes and endeavor to serve the policy you lay down. We would appreciate your consideration of the matter.

Respectfully yours,

G. Murnane