24 JULY 1941, Page 22

FINANCE AND INVESTMENT

By CUSTOS

HAVING indulged their hopes fairly liberally in selective buying of shares with recovery chances, investors have now relapsed into art attitude of wait-and-see. There is no weakening of con- fidence, but prices have risen to a level at which new buyers feel entitled to a fresh lead before taking the plunge. This, I think, is reasonable enough at a time when the news from the war fronts is, to say the least of it, indeterminate, and industrial earnings are erratic and correspondingly difficult to predict. Gilt-edged are still the king-pin of the markets, and will doubtless remain so for the duration of the war &Fen though other sections may occasionally steal the limelight, and appeal to assume some sort of leadership. As I have often emphasised, the only real threat to gilt-edged is inflation. Most people would feel happier about the inflation risk if the Government showed itself ready to tackle the problem of rising costs with a good deal more determination than has been apparent so far. The main responsibility is no longer with Sir Kingsley Wood, but with Mr. Sevin and Sir Andrew Duncan. Unfortunately, I see verl little in the White Paper on Price Stabilisation and Industrial

Policy to suggest that Mr. Bevin is prepared at last to toe the line. CITY WELCOMES U.S. LOAN •

America's $425,000,000 loan to Great Britain is less important as a piece of financing necessary to cover commitments incurred before the Lease-Lend Act than as the embodiment of the pledging method. It is now clear that there will be no more forced sales of direct investments on the Courtaulds' American viscose analogy which leaves that particular transaction in sorry isolation. British companies whose U.S. assets are now pledged as collateral will remain in control, thus preserving the equity of the businesses in question, and the income "earned will be paid to them in sterling. This is a sound arrangement which should prove satisfactory to all parties.

CHANGES IN BANK FUNCTIONS

One has only to examine the combined statement of the clear- ing banks for the end of June to see that war has brought about profound change in the function of the banking system. At £2,945,877,000 deposits have risen by nearly £500,000,000 since June, 1940, and by over £700,000,000 since June, 1939. For the st time the portfolios of investments have replaced advances as he largest earning asset. Whereas two years ago investments ere L400,000,000 less, and even one year ago over £300,000,000 ss than advances, the rise of over £25o,000,000 since June 30, 1940, flanked by a sharp fall in advances, has lifted investments

o a total which exceeds advances by £3o,000,00o. Investments nd advances together now amount to 59 per cent, of deposits, gainst 65 per cent. in June, 1940, and 72 per cent. in June, 939- If one reads this movement in relation to the huge increase

o Treasury depokt receipts it becomes obvious that the function if the commercial banks as financiers of private enterprise has ren place to that of financing, in one way or another, the needs Government-controlled production and distribution. From the midpoint of earnings these changes imply both credits—from he use of a larger volume of resources and the great reduction bad debts—and debits arising out of a less remunerative dis- si of resources and higher expenses.

G.E.C. RECORD OUTLOOK

A cut from so per cent. to 71 per cent, in the cash bonus of General Electric Company has surprised and disappointed e market. For the year ended March 31st the board is main- ming the " regular " dividend at the io per cent, rate which as been in force for the last six years, but the cut in the bonus rings down the total distribution from 20 per cent. to 17i per nt. Net profit has fallen from £5,892,994 to £5,722,643, the ifference being due entirely to provision for E.P.T. at the full oo per cent, rate compared with 6o per cent. in the preceding ear. It is apparent front the accounts that the General Electric ompany has done a record volume of work.

The depreciation charge has been raised from £395,442 to 444,598, nothing was charged for special depreciation, against toopoo in 1939-40, and war contingencies called for £50,000, gainst nil. Net profit, after making these provisions, was down cm £5,330,557 to £1,153,668. Income tax reserve gets a transfer £65o,000, against £540,000, there is no transfer to general serve against Lioo,000, but this fund now stands at the very equate figure of £4,700,000. In his survey Lord Hirst explains at additional fmahce required for handling a growing volume of Mess has been provided by a further loan of £5,000,000. This ngs up loans, plus accrued interest, to £2,030,000.