862.51 R 24/10

The Secretary of State to Messrs. Hornblower, Miller & Garrison

Sirs: I beg to acknowledge the receipt of your letter of January 17, 1928, in further reference to the interest of your clients, The Foreign Trade Securities Company, in a loan of $1,500,000 to the Municipal Gas and Electric Corporation of Recklinghausen, Germany. It is noted that in the opinion of your Berlin office and in that of your Berlin counsel the approval of the Beratungsstelle is not required for this loan under the German regulations.

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. It is a matter of public knowledge 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.

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Moreover, it can not be said at this time that serious complications in connection with interest and amortization payments by German borrowers may not arise from possible future action by the Agent General and the Transfer Committee. In this connection your attention is called to the statement in the report of the Agent General for Reparation Payments of December 10, 1927, that with the one exception of the German external loan, 1924, the Transfer Committee and the Agent General for Reparation Payments have always stated in answer to inquiries that they were not in a position to give any assurance whatever as to the service of loans of the German Reich, the States or the communes, or of German companies or other undertakings that might be 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 you, it believes that in your interest and that of prospective purchasers, careful consideration should be given to this question.

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 state 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.]

For the Secretary of State:
W. R. Castle, Jr.

Assistant Secretary