462.00R296/6013: Telegram
The Acting Secretary of State to the Ambassador in France (Bullitt)
242. Your 689 and 690. In summary the history of the relationship between the German Government and holders of the American tranches of the Dawes and Young loans is as follows:
(1) In 1933 the German Government through Mr. Schacht indicated the intention of ceasing transfer of all service on these loans. [Page 108] On the strong insistence of representatives of the creditors and of the interested governments, full interest service on these loans was continued, while transfer of interest on other German loans was partly suspended.
(2) The Reichsbank convened a meeting of creditor representatives in Berlin in May 1934 to consider the transfer problem. The Dawes and Young loans were definitely excluded from the purview of this conference on the insistence of creditor governments and of the Bank for International Settlements, whose President presided at the Conference. American representation of the other loans was undertaken by the Bondholders Protective Council through Mr. Laird Bell and Mr. Pierre Jay.
During consideration of American creditor representation at the Conference, J. P. Morgan and Company took the position that the Dawes and Young loans rested on international treaties and any change in their treatment must be negotiated among the parties to these treaties, namely, Germany and the reparation creditor governments. Nevertheless the two loans were somewhat involved in the Conference proceedings and at the end of the Conference Schacht announced suspension of all transfer on them effective July 1, 1934. The British Government immediately announced it would introduce legislation authorizing collection of coupons of British residents through compulsory clearing procedure. A compulsory clearing bill was introduced and enacted. Germany thereupon agreed to continue full interest payments to British residents, and similar arrangements were made with respect to other bondholders except those resident in the United States. The United States Government in a series of notes to the German Government, which were immediately published,35 protested against this discrimination and German discriminations on other bonds.
(3) J. P. Morgan and Company as house of issue and fiscal agent for the loans, continued both to protest against nonpayment and to try to persuade Schacht to continue full service. The Department understands that Morgans have never claimed to be acting in a representative capacity. As far as the Department is informed it understands that their aim has always been to secure the best possible treatment for the investors but under the circumstances they had no powers except those of persuasion, and the reduction of interest on the American coupons rests upon the unilateral decision of the German Government and not upon a settlement or agreement negotiated either with Morgans or any other representative of the bondholders.
(4) After a period during which interest on the loans was paid into a deposit account in Berlin, subject to transfer from Germany only [Page 109] through various procedures by individual bondholders involving their selling their coupons at a discount, the German Government, after discussions with J. P. Morgan and Company, undertook in October 1935 to purchase coupons of American holders at reduced rates (corresponding to 4 percent interest on Young loan and 5 percent on Dawes loan), this offer being limited to bonds which were domiciled in the United States October 1, 1935 and which were required to be stamped “U. S. A. domicile first October 1935”. J. P. Morgan and the two German shipping companies have been the agents in this stamping and purchasing procedure.
(5) Apropos Schacht’s assertion “that he had the full approval of Morgan and Company”, the latter firm has in the past informed the Department of their important conversations with Schacht. No recent information of this kind has been received. Nothing known to the Department would confirm Schacht’s statement.
You may within your discretion acquaint the French authorities with this recital of events. In regard to numbered paragraph 5, because of the inevitable element of uncertainty as to precise statements that may have been made by Morgans and the repetition of them by either Schacht or other parties, Department thinks it best that you merely in some general way indicate the substance without making any definite statement.
- See Foreign Relations, 1934, vol. ii, pp. 331 ff., and ibid., 1935, vol. ii, pp. 428 ff.↩