862.51 P 95/40
The Secretary of State to Messrs. Sullivan & Cromwell
Sirs: I beg to acknowledge the receipt of your letter of September 20, 1927, stating that your clients, Messrs. Harris, Forbes and Company, are considering the purchase and offer to the public of $30,000,000 principal amount, 6½% Sinking Fund Gold Bonds, due in 1952, of the Free State of Prussia of the German Reich.
In view of the large number and amount of offerings of German loans in the American market, the Department believes that American bankers should examine with particular care all German financing that is brought to their attention, with a view to ascertaining whether the loan proceeds are to be used for productive and self-supporting objects that will improve, directly or indirectly, the economic condition of Germany and tend to aid that country in meeting its financial obligations at home and abroad. In this connection I feel that I should inform you that the Department is advised that the German Federal authorities themselves are not disposed to view with favor the indiscriminate placing of German loans in the American market, particularly when the borrowers are German municipalities and the purposes are not productive.
Moreover it can not be said at this time that serious complications in connection with interest and amortization payments by German [Page 730] borrowers may not arise from possible future action by the Agent General and the Transfer Committee. In this connection, your attention is called to a public statement by Mr. Gilbert on November 11, 1925,17 to the effect that the Transfer Committee is not in a position to give assurances concerning the payment of interest or amortization on German loans floated abroad. While the Department of State does not wish to be understood as passing upon the interpretation or application of the provisions of the Dawes Plan, or upon their effect, if any, upon loans such as the one now under consideration by your clients, it believes that in their interest and that of prospective purchasers, careful consideration should be given to this question.
In addition to the considerations pointed out in the preceding paragraphs, however, the Department believes that in view of the fact that Prussia is a constituent State of the Reich, you should give consideration to the provision of Article 248 of the Treaty of Versailles under which “a first charge upon all the assets and revenues of the German Empire and its constituent States” is created in favor of reparation and other treaty payments, subject “to such exceptions as the Reparation Commission may approve”.
While the foregoing considerations involve questions of business risk, and while the Department does not in any case pass upon the merits of foreign loans as business propositions, it is unwilling, in view of the uncertainties of the situation, to allow the matter to pass without calling the foregoing considerations to your attention. In reply to your inquiry, however, I beg to confirm your understanding that there appear to be no questions of Government policy involved which would justify the Department in offering objection to the loan in question.
I am [etc.]
Assistant Secretary
- See telegram No. 194 from the Ambassador in Germany, Nov. 13, 1925, 4 p.m., Foreign Relations, 1925, vol. ii, p. 182.↩