FINANCE AND INVESTMENT

WAR Loan at 93, New York Exchange at 4.72, and more or less nominal prices in all the more speculative groups of stock markets are a sufficient indication of the City's retreat in face of overwhelmingly superior forces. Thanks to the praiseworthy fortitude of the general body of investors and the skilful control of the financial mechanism the retreat, although it has inevitably quickened in pace, has been an orderly one. Panicky liquidation has been avoided and those who have had perforce to sell have been able to do so, at any rate up to moderate amounts. The remarkable fact has been that the amounts pressed for sale, apart from the offerings of gilt-edged by Continental holders, have been so small. The attitude of the home investor has been one of resignation tinged, one imagines, by lingering, though diminishing hopes that somehow or other the worst will not happen.

Having conmplled a policy of attaining a position of reasonable liquidity for many months past I do not feel like advising investors to throw all their securities over- board, even if this were practicable, so as to hold nothing but cash in the bank (or in the West Country). If the worst should happen, I cannot imagine that British Govern- ment securities—and indeed the whole list of gilt-edged stocks—will cease to pay their interest steadily or that other first-class investments, such as the deposits and shares of the big building societies and most front-rank industrials, will not behave satisfactorily. Such, at any rate, is the only working assumption that investors can make ; if it were to prove unwarranted, it seems to me that conditions would have been reached which made the care of one's money rather unimportant.

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MINIMUM GILT-EDGED PRICES

So far the City has managed to avoid emergency measures to a surprising degree. The open speculative position in stock markets is negligible, the bill position in Lombard Street is as healthy as it has ever been, and the whole set-up is much more trim than in 1914. Nobody will quarrel, however, with the decision taken . by the dealers in gilt- . edged stocks, with the approval of that wise body, the Stock Exchange Committee, to fix minimum selling prices on a day-to-day basis. By Monday evening it had become clear that unless political tension were relaxed, Continental selling, without any counterpart on the buying side, could only result in demoralised conditions and sharply falling prices. Hence the decision to insert a peg and bring some sort of order into what threatened to become chaos.

Minimum prices do not, of course, imply that the would-be seller can automatically deal at the prices fixed but up to the present they have enabled most sellers to do so and have even encouraged modest buying. Their real value is that they have prevented a disorderly slide in the gilt-edged market which is still the king-pin in the investment structure and the basis of collateral in the intricate borrowing arrange- ments which underlie so many of the City's activities.

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• TRANSPORT " C " DIVIDEND

In times like these dividend forecasting is more than usually difficult, but one may safely assume that in most cases where any doubt arises in the directorial mind the company's coffers rather than shareholders' pockets will get the benefit. After all, the money still belongs to shareholders, even though they are not allowed to get their hands on it, and if and when the clouds blow over distribution policy can easily be reversed. The wise shareholder, I feel, will not complain if directors adopt a reasonably cautious attitude towards dividends in these times, disconcerting as this may be to those of us who are in sore need of investment income. Which brings me to what I want to say about the London Passenger Transport Board's dividend problem due for decision next week.

In more normal circumstances I should not have been surprised if the Board decided to make a modest draft on its very ample reserves and pay the full " standard " rate of 54 per cent. on the " C " stock for the past financial year. To judge from the gross traffic receipts and the trend of costs, something less than 44 per cent. has been earned during the year ended June 3oth last, but to pay the extra x per cent. would involve only an additional £270,opo. Against that trifling sum may be set the Board's renewals and maintenance reserves, built up in the short space of five years, of £8,500,00o, and the charge for renewals and maintenance of £2,40o,00o in the year 1936-37 alone.

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THE QUESTION OF RECEIVERSHIP

In paying the " standard " rate the Board would thus be deviating only very slightly from the path of strict finance. They have a further inducement to do so in the clause in the Act which states that holders of at least 5 per cent. of the " C " stock outstanding shall have the right to apply for a receiver in the event of the Board failing in respect of three consecutive years starting from July 1st, 1935, to pay the " standard " rate for those years. As the Board has not yet paid the " standard " rate for any year, this clause obviously means that the right to appoint a receiver will be exercisable if 54 per cent.—the " standard " rate in question— is not paid for the year ended June 3oth last. So far, an interim payment of 1 I per cent. has been made.

One suggestion, more ingenious than acceptable, is that the Board might pay 5i per cent. once every th;ee years and something very much less in each of the other two, thus fulfilling the letter of the Act without over-distributing its earnings. I am inclined to think, however, that the Board will take the view, in current conditions, that the soundest course is to keep each year's distributions within available earnings and, if earnings are below the " standard " rate, to leave stockholders to make up their minds about exer- cising their receivership powers. Frankly, it is hard to see how a manager appointed in receivership could improve the " C " stockholders' position, as he could scarcely hope to achieve any increase in net revenue except by endangering the Board's relations with its workers or the travelling public. This is not to suggest that Transport " C " is not a worth- while holding at 72 ; on the contrary, I think it is very moderately priced in relation both to probable earnings and dividends.

Venturers' Corner Those who pinned their faith to metal shares as likely to stand up well to war threats or even war conditions have so far suffered almost as -heavily as other investors. Even copper shares have fallen quite sharply despite the firmness of the commodity at just- over £4o per ton. Yet everyone must know that if the worst should happen copper will rise, and that if the best is in store, no metal stands to benefit more than copper from the peaceful expansion of the world's trade. A share in this group which I commend to the attention of the speculatively-minded is Messina (Trans- vaal). Earlier this year the price was 18s. 9d. and today's quotation is 12S., the shares being of 5s. denomination. The company is outside the restriction plan and is at present working on an output of roughly 10,750 tons a year.

Costs are roughly £33 per ton, while the average selling price of copper during the company's last financial year, which ended on June 30th, was just under £44. It seems, therefore, that a profit was made of something over £10 a ton on 10;75o tons, giving an aggregate figure of over Doo,000, equivalent to over 4o per cent. on the capital. In July the board paid an interim dividend of 7i per cent., and it would clearly be consistent with prudent finance if the total were brought up to 20 per cent. On that basis the 5s. shares, at 12S., would be yielding over 8i per cent., a generous return in the light of the satisfactory ore-reserve position and the promising outlook for the price of the metal. CUSTOS.

(Financial Notes on page. 542)