Financial and Investment Notes

STOCK MARKETS IRREGULAR.

Aurnoucli the general undertone of the Stock Markets remains firm, price movements during the past week have been somewhat irregular. At one time transatlantic shares were dull on the somewhat cryptic references by President Roosevelt to the desirability of taking measures to check the inflow of foreign money into the United States. High-class investment stocks have also been a little quieter, and in some of the speculative markets there has been a certain amount of profit-taking. Industrial shares on the whole, however, remain very active, and the outstanding feature of the week has of course been the great jump in Woolworth's shares on the share bonus announcement.

NEW GOVERNMENT LOAN.

At the moment of writing comes the announcement of a new Government Loan for £100,000,000 in 21 per cents. at the price of 24. the Loan running for a minimum period of fifteen and a maximum period of twenty years. The Loan, which is designed to fund maturing obligations and a certain amount of Treasury Bills, should appeal especially to the banking community, and I expect to be able next week to record the success of the issue.

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BANKING NORTH OF THE TWEED.

That Scotland has taken its share in the improved financial and economic conditions of the past year is evident from the annual report just published of the Royal Bank of Scotland. That report also again reveals the steady progress which is consistent with sound and even conservative manage- ment. It is now some years since the dividend was raised to 17 per cent., but while both the area of the bank's opera- tions and its size, and importance have increased; the object of the management has manifestly- been to_ strengthen and consolidate the position of the bank in every particular.

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A STRONG POSITION.

The present report shows that the total of deposits, which now stands at £66,801,000, has risen by nearly £3,000,000, (Continued on page xviii.)

Financial and Investment Notes

(Continued from page xvi)

and against that, advance there has been a proportionate rise in the assets and particularly in the liquid assets, the cash in hand and money at call now standing at nearly 115,000,000. In common with all banking institutions there has been a further rise in British Government securities, for although in consequence of improved trade advances have risen from 121,787,000 to £22,412,000, the growth in deposits and the low rates for money in Lombard Street constitute a perpetual force making for an increase in the holding of investments. In the matter of its advances, the Royal Bank of Scotland in its balance-sheet separates its loans to trade, &c., from those on stocks and securities, and it is indicative of the restraint shown by the bank in financing Stock Exchange activity that in spite of abnormally active conditions on the Stock Exchange during the year, the rise in loans on stocks and securities is under £80,000. Altogether the balance-sheet is a model of liquidity, while in these days of meagre returns on investments shareholders may well be congratulated on the steady maintenance year after year of a 17 per cent. dividend.

* * * E.M.I. '

At the recent min lal meeting of Electric and Musical Industries, Ltd., the Chairman, Mr. Alfred Clark, made a most interesting speech in the course of which he was able fully to explain the moderate decline in profits for the past year. He told the shareholders how the direction of the company's business had changed during recent years, pointing out that the principal product of companies now merged in E.M.I. was now the radio receiving set, and a record number of sets was sold during the past year. On the other hand, the lower selling price was responsible for the greater part of the decline in profits, since over-expansion of the industry had become very apparent during the year. Sales of radio- gramophones and records were both down, though in the better-class records -sortie increase was noticeable. With regard to television, Mr. Clark expressed the opinion that it was destined ultimately to play a conspicuous part in the field of home entertainment, and he referred in particular to the success of the emitrott " camera, which could pick up direct scenes of both outdoor and indoor events. Raxi.wAv Palos' CHARGE STOCKS.

Investors in British railway stocks should find considerable encouragement in the moderately hopeful opinion of railway prospects expressed by -Sir. Robert Horne at last .week's luncheon of the Railway Stockholders' Union. As chairman of the Great Western Railway,- Sir Robert speaks with an expert knowledge of railway affairs, and his speech suggests that some of the railway prior charge stocks carry a wider margin of security than is indicated by their Stock Exchange prices. Quotations for ,such stocks as a _whole have improved since attention was last drawn to them in these Notes, but the market still presents some price difference which should be noted by investors. Some of these differences arise from the fact that the Great Western directors have retained the Trustee status of the company's prior charge stocks by main- taining the ordinary dividend at 3 per cent. throughout the depression. This rate has been maintained only partially by earnings, and has been provided largely from withdrawals from reserves and from profits on investment realisations. Maintenance of the dividend has conferred benefit on holders of the company's prior charge securities, which, being available for Trustee investment, command a higher price than most other railway stocks of similar calibre. Thus Great Western 4 per cent. debenture stock stands at 115f, offering an investment return of £3 10s. per cent., while London Midland and Scottish 4 per cent. debenture, since it is not a Trustee stock, is priced at only 110f, and the yield is £3 13s. per cent. The difference is not large, but since the margin of earnings behind the two stocks is approximately the same, the L.M.S. debenture is relatively attractive to the investor who is not bound by the Trustee Act.,

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L.M.S. PREFERENCE STOCKS.

The 4 per cent. first preference stock of the L.K.S. stands at 91f and offers a return of £4 8s. per_ cent.. Interest on this stock absorbed £4,756,350 in 1935, and its payment left a margin approaching half as much again. Another popular L.M.S. stock is the 1923 preference" , which is quoted at about 80 and returns fully 5 per cent. This stock received its full dividend in 1935 for the first time in several years, and earnings left only a small margin after the payment, but gross receipts of the company have improved very considerably this year, and in spite of the increase which must be anticipated in wages and other expenses, the market is expecting, in view of the improved rating prospects of the railways, that the company will make a small return on its ordinary capital fo'y 1936. Since prices of railway preference stocks are partly dependent- on the general level -of investment values, they might be adversely affected- if continued trade improvement were to raise long-term interest rates. But this factor would be offset to the extent that trade improvement itself benefits the railways, thereby increasing the security enjoyed by their prior charge stocks.

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BANKING IN AUSTRALIA.

Although better financial and commercial conditions now prevail in Australia, these are at present scarcely giving to the banks the degree of participation in recovery which they will doubtless in time receive, and certainly deserve, by reason of the extent to which they have aided the general 'reedVery of the Commonwealth. For the moment the low level of money rates and the tendency for advances made during the period of depression to be repaid, and also the pressure of taxation, necessarily affect the profit-earning power of the banks. The latest report of the English, Scottish and Australian Bank, however, is a thoroughly satisfactory one, and shows steady recovery even in profit-earning power. The net profit for the past year was £257,460 against £243,580. The directors con- tinue to pursue a conservative policy in the matter of distri- buting profits, the dividend remaining at 5 per cent. This distribution is after placing to Bank Prentises Account £25,000, while the Staff Provident Fund receives £10,000 against £5,000 a year ago. * * * *

A GOOD BALANCE-SHEET.

One of the conspicuous features of the balance-sheet of the English, Scottish and Australian Bank is its great liquidity. The deposits have only risen moderately ' • that is, from a little over £32,000,000 to about £33,000,000, but the cash has risen by more than £2,000,000 and now stands at 18,412,009. Advances show a small increase of about £300,000, and it is clear that the Australian banks will have to- wait until trade activity produces not only repayment 'of any'frozen advances but results in a material expansion of.tbe aggregate amount. Thanks, however, to the good management and the conser- vative policy adopted by the English, Scottish and Australian Bank, the institution is well prepared with liquid' resources to serve the interests of any trade revival in Australia..

A. W. _K. •