Non-Competitive Victory

Until last week old-style investment bankers led by Manhattan's Morgan Stanley & Co. relied on argument and an attitude of dignified disdain to discourage competitive bidding for corporate securities. Their argument: competitive bidding disrupts the banker-client relationship ("You might as well get bids on an appendectomy").

Last week, in addition to theory, Wall Street had a case to back its contention that competitive bidding is not all it seems. Surprising even to Wall Street, the case had a turn that no advocate of noncompetitive bidding had dared to suggest as an argument for his side.

In February, Chicago Union Station Co. decided to float a refunding issue of $16,000,000 in 3 1/8% first mortgage bonds, called in its banker, Manhattan's Kuhn, Loeb & Co., to handle the financing. As Morgan Stanley and the other noncompetitive firms would have done, Kuhn, Loeb withdrew when ICC suggested that Union Station should open the issue to competitive bidding.

When Union Station called for offers, only one bidder appeared, Chicago's big Halsey, Stuart & Co., which works both sides of the street, does a fat business in noncompetitive business (principally utilities issues) while it pops up elsewhere with competitive bids.

Last week, having scrutinized the "competitive" offer, Union Station rejected it, made an announcement that provided Morgan Stanley & friends with their best argument yet against competition. The $16,000,000 issue was sold at $99.43 to Kuhn, Loeb's syndicate. Kuhn, Loeb's bid, made before the issue was thrown open to competition, was better than Halsey, Stuart's offer. Wall Street joyfully ticketed the case as a hard wallop to competition. It showed that "noncompetitors" can and will make bids as high as competitors.

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