New Ways to Get More

Institutions are so money-hungry that the U.S. is likely to face a chronic shortage of capital throughout the new decade. The pent-up demand for funds --to finance hospitals, schools, airports, highways, pollution control, business enterprises and especially housing--presages a tidal wave of borrowing in the years ahead. Last week the demand reshaped the patterns of saving and borrowing money in two ways.

Something for Savers. To help banks and savings-and-loan associations stem a worrisome outflow of funds, the Government raised the maximum interest rates that they can pay to depositors. On ordinary savings accounts, the ceiling went up from 4% to 4 1/2% for commercial banks and from 4 3/4% to 5% for S & Ls. At the same time, Washington perpetuated a dubious double standard by which the rich can earn more with their money than can citizens of modest means. Banks and S & Ls were empowered to pay up to 7 1/2% interest on certificates of deposit of $100,000 or more held for a year or longer. For smaller sums, the Government authorized a complex array of rates varying from 4 1/2% to 6%.

The moves were intended to help thrift institutions snare some of the funds that have been going into such enticing outlets as commercial paper (8 1/2%), Government bonds (8%) or Eurodollars (9 3/4%). The chief effect is likely to be a small rise in passbook savings, though such accounts still do not pay enough to make up for the erosion of inflation.

Bell Ringer. Even the executives of the world's biggest company figured that they might have some trouble in raising all the funds that their firm needs from its usual source, the bond market. American Telephone & Telegraph Co., therefore, broke with recent tradition in an effort to secure $3.1 billion for the expansion and improvement of its rapidly deteriorating service. Ma Bell offered its giant family of 3,100,000 stockholders a total of $1.57 billion of 30-year debentures, plus warrants entitling them to buy some 31 million A.T. & T. shares. At last week's closing price of 481, the warrants, when exercised, would bring the company another $1.53 billion.

The Bell package, the largest corporate financing in history, intrigued Wall Street for several reasons. Though the interest rate on the $100 debentures has not yet been set, A.T. & T. made it clear that the return will be enticing to little savers who are disenchanted with the yields available from savings accounts. The debentures may pay interest in excess of 8%. Because A.T. & T. is the dowager queen of the investment world, its action promises to make warrants a more popular and respectable way for blue-chip companies to raise money. For years, the New York Stock Exchange has barred trading in warrants on the ground that they are too speculative; the Big Board may now liberalize that policy.

Despite the 6% dilution of A.T. & T. stock that the deal may cause, it was ingeniously devised to minimize its effect on the A.T. & T. common, which has been mired for months at a price some 35% below its 1964 peak of $75. Each $100 debenture will come with a warrant usable from six months to 41 years later to buy two A.T. & T. shares, thus stretching the dilution far into the future. As Bell officials must have hoped, the stock lost only a fraction of a point after the big news last week, even though the stock market as a whole slumped.

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