Bankers' Reply

Shocked into a state of profound grumpiness were the well-heeled members of the Bond Club of New York a month ago when SECommissioner William Orville ("Bill") Douglas in the course of a luncheon address opined that continuity of relationship between corporation and investment banker was of "unestablished value to anyone except the banker" (TIME, April 5). Equally heretical were other Douglas views. Being more circumspect than some of their industrialist clients, the bankers did not rush to microphone and rostrum with denunciation and alarm.

Instead the Bond Club called upon the logical man to make an authoritative rebuttal, the head of their tight little trade body--President Edward Bigelow Hall of the Investment Bankers Association of America.

To hear Banker Hall--the Hall of Chicago's Harris, Hall & Co.--the Bond Club last week turned out in full force. In a good-tempered reply to the Douglas broadside Banker Hall keyed his speech to the general thesis: "Always it is important not to kill a lot of fine wheat in an effort to stamp out a few weeds."As to the value of long-established banker-client relationships, Banker Hall quoted Britain's famed McMillan Report to the effect that what Old England needed was'not less but more co-operation between finance and industry along U. S.

lines. Read that report: "Effective [banking] support cannot be obtained merely for a particular occasion. It can only be the result of intimate co-operation over years during which the financial interests get an insight into the problems and requirements of the industry in question and the industrial interests learn the value of the support which financial interests can give." As to Commissioner Douglas' proposal for more competitive bidding for certain new issues, Banker Hall cited the Interstate Commerce Commission, which after long study concluded that except on equipment bonds--a highly-standardized type of security--the railroads could do better playing along with their own bankers.

As to Mr. Douglas' idea of segregating the underwriting and merchandising functions of investment banking, Banker Hall cited SEC itself on the somewhat analogous problem of dealer-broker segregation, SEC having admitted in a report to Congress that it did not know enough about the subject to launch a broad reform program.

As to bankers' profits, Banker Hall said ruefully: "Today the market is full of recent bond issues contracted for in the hope of realizing gross profits of 2 1/2% or less and now quoted at 5 to 10 points below their offering prices. ... In other words the profits are limited but the losses are not."As for criticism of banker directors, Banker Hall was frankly "puzzled." He held no brief for greedy managements or "corporate kidnapping." But he had found from experience that the "majority of companies are governed with a conscientious desire to do the right thing for the companies' best interest." If there were a couple of bankers on a board, he could not believe that they could dictate a policy contrary to the interests of the corporation "even if they wanted to."

Having been told just what they wanted to hear, the Bond Club members were delighted. Cracked Financial Editor Carleton A. Shively of the New York Sun: "If it does nothing else, the summary of the case may help to eliminate the defeatist feeling so common nowadays in financial circles."

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