Should Loan Companies Extend Their Powers?

February 15 1921

Should Loan Companies Extend Their Powers?

February 15 1921

Should Loan Companies Extend Their Powers?


A DISCUSSION which has been proceeding in Ontario financial circles of late is so fundamental in its origin as to be of interest to the whole Dominion. This has to do with sources of capital for loan companies, to be used by them for investment in mortgages. Murmurs of difficulty in this direction have been heard for upwards of a year; in fact, ever since Great Britain, in common with the rest of the world, began to feel its capital inadequate for its needs. If we look back to the period before the war, we find that for some years up to 1913 three-quarters of the Canadian bonds sold each year were placed in Great Britain, the figure in 1913 being 74.24 per cent. In 1914 this dropped to 68.14,in 1915to 14.18, in 1916 to 1.55, and since then the proportion has been annually less than 1 per cent. On the other hand, the percentage placed in the United States has greatly increased, although not regularly. In 1911, it was only 6.58 per cent., in 1916 it was 64.89, for the next three years it dropped during the flotation of large Victory Loans in Canada, and in 1920 the percentage was 68.18.

The position of the loan companies has been aggravated by the depression in sterling exchange and by the high rates of interest prevailing in Great Britain. Canadian loan companies have borrowed $80,000,000 in Great Britain by the sale of debentures during the past thirty years, and this source of capital c ame so established that little other means of raising the money were even considered. When interest rates rose to 6H and 7 per cent, in the Old Land on the highest securities, lenders who had money in Canada on debenture were naturally prone to seek repayment whenever possible, because of the high premium on the Canadian dollar. Thus, the rates paid by Canadian loan companies for British money steadily rose until 5M became the prevailing figure, with even 6 per cent, in some cases. One large company which raised its rate to 6 last year, was able to renew nearly all of its maturing debentures, while another one holding to the 5t£ rate could only renew about_50 per cent.

How Can Money be Raised?

IT WAS not unnatural under these conditions that an agitation should develop, having for its object some other means of raising capital for loan companies at a time when the demand upon them for mortgage money has been exceedingly heavy. No one can deny the important part played by loan companies in the settlement and development of Canadian farm and town life, and it is desirable that that work should goon. How best to raise the money is now the issue. A request has been presented to the Ontario Government for the widening of the powers of loan companies, so that their limit of deposits may be four times their paid-up capital and reserve, instead of only the equivalent of their capital and reserve as at present. Along with this is an understanding that inspection shall be rigid, and a goodly percentage of the companies’ assets shall he kept in readily convertible securities. Taking the position of thirty companies which accept deposits in Ontario, reporting at the end of December, 1919, it was represented that debentures amounted to $48,000,000 and deposits to $26,000,000, while capital and reserve amounted to $55,000,000.

A sturdy criticism of the proposed extension of loan companies’ powers has been raised by several companies, chief among them the Canada Permanent Mortgage Corporation, which points out that loan companies have far from exhausted their means of raising money under existing legislation. The claim is made that no less than $90,000,000 additional money

could be raised by way of deposits and debentures, if the present unused borrowing powers were fully taken up. The question will be fought out in the Ontario Legislature, and in a general way it might be said that loan corporations will be called upon to depart somewhat from the conservatism of their past management. Many of them had their roots in Old Country financial connections, and business was carried on from year to year with little or no interruption or uncertainty. They may find it necessary, just as the Dominion Government did, to go out to the people and present their case in a more aggressive manner than in the past. Their position is but another instance of the disturbance caused to Canadian finance by the war, and initiative and aggressiveness will be required to bring them into new settled levels.

Prospects Not Unfavorable “ T WELL remember occasions when I have ■l resented the persistenceof life insurance agents, but I take off my hat to them for their business organization,” said a financier the other day, after he had attended some of their annual meetings. His observation was well-founded at a time when life insurance companies are faced with a new set of conditions following the tremendous boom of the past two or three years, which has enabled practically every one of them to roll up glorious records of new business and generally find profit and pleasure in their vocation. When the dollar entered upon its shrinking process, a great many thinking people realized that their insurance was insufficient and thereupon took out new policies and aided the companies in making the great showing of that period. A little past the middle of 1920, however, there came a change in the business world, and the degree of increase shown by insurance companies in new business, when compared even with 1919. began to fall off.

The question of the first few months of 1921 is, how much reaction will be felt in life insurance. A visit to any of the head offices, however, shows a condition of “tip-toe-ness,” which would do credit to many another branch of business or finance, which is apt to take things for granted instead of going out and doing them. At first thought, it would seem that the existence of less “easy money,” such as has characterized the country during the war boom, would tend to make the insurance man’s lot more difficult, but it is possible that the turning of the average investor to conservative securities, as has been seen for the past month, will likewise benefit life insurance. At any rate, an official of one of the companies said at his annual meeting:

Will Policies be Cheaper?

“I DO not anticipate that the falling off A in general business and the lowering of prices will seriously affect the demands for life insurance. It is a well-known fact that in a falling market men hesitate about buying goods because they think the chance is that delay will bring them still greater bargains. In life insurance, however, there are no slaughter sales, and any person putting off purchasing life insurance in the vain hope of buying it cheaper later on is deceiving himself and will certainly be disappointed. Whether commodity prices go up or down, life insurance remains at the same figure, and is the only article so far as I know that has remained constant in price during the past five years. It appears to me that this should be encouraging to every agent, and enable him to look forward with confidence to the future.”

Whether from motives of a desire to recruit many new policy-holders will ultimately take larger policies, or whether it is the natural evolution following the system of group insurance which has made such headway in the past year, several Canadian life insurance companies have announced that they will issue policies up to $1,000 without medical examination. The idea is not wholly new, having been in force in Great Britain for some time, and having been adopted by a Manitoba company some years ago. Announcement by the Confederation Life that they would issue policies on this plan has been followed by several other companies. The North American Life will adopt it at a time deemed by the management to be appropriate. President L. Goldman, of the latter company, said the decision was “owing partly to the demand on the part of the medical examiners for increased fees.’’ The applicant, however, does not have the opportunity of merely walking into an insurance office and asking for a policy, but has, in fact, to answer a somewhat elaborate series of questions regarding his physical condition, habits and medical record.

The Fort Norman Rush

TO THE usual migration of birds toward the Arctic Circle this spring will be added a new flock which will bring consternation to the natives of the north, human as well as wild. These will be the oil argonauts who will stampede to the Mackenzie River region in search of petroleum, following the spectacular strike by Imperial Oil, Limited, near Fort Norman in August last. In various Can-

adían cities stories are told of waiting adventurers who will go to the north by sw ¡ft aeroplane, or by the more cumbersome bateau of the northern rivers, there to seek their fortune. It all recalls the Cariboo fever of 1869, the rush to the Russland gold fields in 1894 or the stampede to the Klondyke five years later, and will no doubt bring fresh tales of hardship and

heroism. The world is ever seeking new frontiers, and the continent that sent so many hardy and brave spirits to the war can easily furnish a few thousand oil prosj pectors, even though the field is remote and i the chances of success only one in many. ¡ Already the region at Fort Norman has i been taken up for thirty miles on the right ; bank and twenty miles on the left, with i leases secured last year. Imperial Oil, | Limited, holds about thirty thousand ! acres, and a similar area all told is held by a number of other prospectors.

Realizing the course of events in the next few months, the Dominion Government, on the one hand, and various energetic promoters, on the other, have sought to make suitable preparations. It is expected that three aeroplane services will be in operation, and also two services with dirigibles. These will add to the glamor of the experience, and will immeasurably reduce the waste of time hitherto unavoidable in going and coming. It requires three weeks to make the journey of 1,470 miles from Edmonton to Fort Norman by the old rail-and-water route, and six weeks to return upstream. It is said that the journey from rail head to Fort Norman will be made in eight hours by aeroplane, and that the dirigibles expect to make the round trip in twenty-four hours. With these facilities, it is expected that much time will be saved, and the season of operation greatly lengthened, even allowing for the limited freight which may be carried

by air. Last year, the crew's of Imperial j Oil, Limited, had only seventy-three j working days at Fort Norman between arrival in early summer after the ice went | out, and the time they had to leave in the fall to escape being frozen in. It would seem that the greatest fortunes from the oil field will be derived by those who carry the eager ones first to the scene of operations by the air route, and charge frontier rates for so doing.

Imperial Oil Prospects

FT IS too early to hazard a guess as to the A outcome of the Mackenzie River oil explorations. Only one well has yet been successfully drilled, that of the Imperial, hut the company proposes to drill several more this year. Even the wealthy Imperial frankly admits the well is at present of no commercial value as it would require about $50,000,000 to build a pipe line to carry the oil to the nearest market or refinery. Other prospectors who strike oil will doubtless hope to sell their property to the Imperial or some other large operator, or, failing that, ask the Government to establish a national pipe line which would serve for all producers. The latter proposal is one that could be only justified by rich strikes in oil and by the urgency of the marketing of it through national necessity. Canada is a poor oil producer up to the present, having only an output of about $750,000, compared with a consumption of $30,000,000 per year. There will be many oil stocks on the market in the next few months, hut investors should bear in mind that in nearly every case they are bound to be highly speculative, and under the best of conditions the prospects for an early return on the money are exceedingly re-

What Taxation Changes?

' i 'AXATION continues to be a question A of increasing importance in Canada. It has been brought to the front of late by Sir Henry Drayton, Minister of Finance, who, in speaking to different groups in the industrial and business world, has reminded them of the burden the country must face in meeting its war debt charges and carrying on its necessary business in other ways. In Great Britain the main subject of discontent, so far as business and finance is concerned, is the crushing burden of taxation, and with a somewhat hopeless feeling that theGovernmentis still extravagant in its expenditures. In Canada, the Ottawa authorities have left the question of unemployment relief largely In the hands of the Provinces and municipalities, and have thus escaped a serious load. It must be said for the Minister of Finance that he has his own troubles, because the raising of money even from income tax and customs will be less easy in a period of semidepression than it was up to say the middle of 1920.

What changes may take place in Dominion taxation this year are not yet known, and the Minister of Finance himself pretends to be in the dark on the matter. He did admit to the shoe manufacturers, however, that the excess business profits tax was not a well worked-out system, being born in haste and not entirely fair in its incidence. From what he said, there appeared some hope that this tax would be discontinued. A serious attack on the excess profits tax was made by Sir Edmund Walker, president of the Canadian Bank of Commerce, at the annual meeting of that institution, when he said that, instead of punishing the so-called profiteers, the tax was really killing the goose that lays the golden egg. The tax is passed on to the consumer in most cases, he said, and the profiteer escapes punishment. The most serious part of it, however, according to Sir Edmund Walker, was that it robbed the institutions accumulating profits of capital necessary for the growth of the plant and scope of operations. Sir Edmund joined the group who are pressing for the imposition of a sales tax, an idea which is finding favor in many circles in the United States. “A small tax on the sale of commodities and real property in Canada,” he said, “would hurt so little, would be so fair, would be so easily collected, and would produce such a large sum, that to fail to levy it seems excusable only if it can be shown to be impracticable.” The turnover tax has been strongly urged by some New York financiers, and, as one of them pointed out recently, “fewer objections have been raised to it than to any other known tax, and these objections are gradually dwindling away. No tax has such strong arguments in favor of it.”

While this question is being debated, the people of Canada are reminded that the federal income tax is collected under new regulations this year, in which the onus for seeuringaformuponwhich to make a return of his 1920 income is placed upon the individual himself instead of his being

February 15, 1921

in the position of waiting to be asked to send it in. Different classes of forms are due at the end of March and the end of April respectively, and it will be well for every man subject to this tax to interest himself in his own protection without delay. While on this subject, it might be remarked that the overlapping of taxation in Canada is becoming a serious matter, there being an income tax for all Canada, one in most municipalities, and also one collected by some Provinces. The various taxing authorities of the Dominion should hold a conference and divide up their sources of tax-revenue in such a way as to reduce duplication and consequent irritation.

The Psychological Aspect

FNESPITE the reputation of the financial A-' world for hardness, there is, after all, a good deal of sentiment in it. The important part played by this intangible element has been seen recently in the subtle increase of confidence in business and finance since the turn of the year. This change could be easily exaggerated, for it is not large enough to justify enthusiasm, but it is sufficient to inspire confidence and lead to a feeling that probably the worst is over. There has been an increase in failures, as was to be expected, but no failure has been of any great dimension. Unemployment has been serious in several cities, but this, too, was expected, and does not seem to be now on the increase. Statistics showing that all but about 50,000,000 bushels of the western wheat crop has been inspected give confidence that better progress was made with the western harvest than had been realized. Accumulating reports of the reopening of factories in the east and of the adjustment of wage questions are favorable developments, even though some of the factories are not working full time. The motor industry being one of the first to suffer last year, is one of the first to revive. A large Canadian industry to recently present an encouraging report was Canadian Car & Foundry Co., the president of which states that the company now has business on its books amounting to $14,000,000. This is not as large as a year ago, when the amount was $26,000,000 but it is known that Canadian railways, especially the National Lines, are badly in need of equipment, and companies like Car & Foundry should have a good year’s business ahead. Similarly, the steel companies will undoubtedly profit by the long delay in building operations as soon as conditions settle.

In the security markets, unexpected strength developed soon after the new year, rolling up large daily turnovers, and advancing the price of stocks and bonds at a rapid rate. This condition seems to have been of a temporary nature, though the strength of the market was not seriously lessened. Victory bonds took the lead in determining the position of securities, and moved up until the return on current prices dropped below 6 per cent, in nearly every case. When this is compared with 7J4 at the beginning of December at the time of the slump following relisting, the change that came over the market will be appreciated. Then came sales of Ontario and Saskatchewan bonds at prices yielding a little over 6 per cent., with absorption so rapid that it appeared a new condition had arisen.

The Embargo Removal

THE removal of the embargo on outside securities was scarcely a market factor for even a day after that important change took place, A few stocks and bonds came out from Great Britain, but they had little or no influence on prices. It was then realized that the market had suffered its last expected blow for the time being, and could then take its natural course. Such conditions of buoyancy in the bond market, however, may bring their own disadvantage through the tendency they will have to induce unnecessary borrowing. Call money is easier, and it is believed that before long the banks will be seeking customers instead of trying to hold them off, as was the case all of last year. Wholesale dealers say that, while trade is still slow, there are steady signs of improvement, and some even report the volume of business almost up to the average for this time of year. Activities in 1921, however, will still wait in many cases on further price recessions. Building to the extent of many millions must be done, and fortunately lumber has come down, though there are yet no signs of better conditions with regard to labor, except that the output per man Is generally increasing.

This is the time of year for annual meetings of the banks, and several held recently have been marked by informing j discussions of financial and public affairs. I It has often been said that Canada possesses a number of bankers of unusual vision and imagination, even though they have come in for their share of criticism, just as have leaders in other pursuits. It may be taken for granted that the Canadian hanks will not have so easy a time in 1921, for it will be more difficult to keep their funds employed, and it will be too much to expect another all-round new record of profits, such as had been reported of late. Sir John Aird, general manager of the Canadian Bank of Com; merce, in fact warned the shareholders of 1 that Bank on this very line. “The conditions which have prevailed in the markets for all staple commodities since the war , ended,” he said, “—the extraordinary de! mand for goods and the high prices—have caused a strong demand for money. Now that the markets are becoming more : normal and prices are falling, that demand ! is sure to lessen. We may, therefore, expect easier money conditions, and a lower level of profits until business becomes more active.”

There have been frequent requests from Western Canada for a more localized hanking system instead of a few banks in the large centres with branches covering the country. It is probable that the large percentage of settlers from the United States has stimulated this sentiment in the West, because of the familiarity of these settlers with the local hank system of the United States. The inauguration of the Federal Reserve System across the border a few years ago, however, giving more unity as well as elasticity to the American system, has been rightly cited as a vindication of one of the cardinal principles of Canadian banking. In the course of his address to the Dominion Bank’s shareholders, C. A. Bogert, general manager of i that Bank and also president of the Canadian Bankers’ Association, replied to the requests from the West for local banks. “Those who favor the local or provincial bank,” he said, “would do well to take a j lesson from the conditions which have arisen in some of the border States. Bank failures have beep numerous, and it has I been clearly demonstrated that institutions with small capital and operating in

Dec. Dec. Dec. 191.1 1919 1920 Grains and fodders 141 0 344 4 261 1 Animals and meats 188 4 326 4 320 8 Dairy products 166 9 355 2 340.0 Fish . . . . 157 2 242 4 236.5 Fruits and vegetables 130 8 286 6 226 1 Mise, groceries and provisions 111 9 267 3 256.3 Textiles ' 136.6 399 7 3286 Hides, leather, boots and shoes 166 2 377.8 231.8 Metals and implements 113 3 224 7 230 4 Fuel and lighting 114 4 247 6 317.6 Building materials 141 6 338 7 356.5 House furnishings 128 1 352 8 390.2 Drugs and chemicals ill 5 214 4 228 1 Miscellaneous 148 7 576 7 277 5 All commodities 137 1 322 7 290.5

areas restricted cannot successfully carry on during times of stress, when by reason of territorial restrictions they are forced to employ their earning power in the same districts in which it is obtained.” Mr. Bogert. pointed out that notwithstanding the scarcity of money, advances by the Canadian banks to borrowers in the Provinces of Manitoba, Alberta and Saskatchewan alone increased by $90,000,000 in 1920 as compared with the previous year. "This,” he said, “is a striking illustration of the soundness and elasticity of the Canadian banking system under which the banks successfully dealt with a situation which could not possibly have been handled by small local banking corpor-

Banks and Foreign Trade

HOW far Canadian banks should go in their assistance of foreign trade is a matter frequently discussed in manufacturing circles. Some time ago there were expressions of indignation from manufacturers because the banks of the country would not accept bills on Australia, and thus hindered exports to that country.

February 15, 1921

It developed that Australia’s position had become an unfortunate one through the action of the Australian banks in declining t(f negotiate bills in London or to remit promptly for collections sent direct. More recently the position of the banks has been up for discussion through the movement in the L’nited States to revive the War Finance Corporation, with a view to stimulating foreign trade.

At the annual meeting of the Bank of Nova Scotia at Halifax, general manager H. A. Richardson, who is also vice-president of the Canadian Bankers’ Association, referred to the relation of the banks to foreign trade. “Some bankers,” he said, “advocate the establishment of a corporation to foster export trade. I doubt the wisdom of such a movement. Canada is not in a position to make foreign loans, and a corporation designed to stimulate and finance manufacturing artificially would be found to be tantamount in making such loans and would operate to continue inflation, from which we are already suffering As a matter of fact, there are very few countries whose exchange positions enable them easily to make remittance for their imports, for even those countries that prospered most during the war are now suffering the effects of too much prosperity and its resultant inflation. We had better first get to the bottom of our troubles, and then emerge by moderate and natural degrees. Individual banks should be quite able to finance all the legitimate and desirable foreign trade that their customers are able to command.”

Deflation of Prices

STEADY progress appears to be making in the deflation of prices. The curve continues downward, and for the most part at an orderly pace. The degree in which it remains gradual instead of precipitate will mean much for the safety of the situation. Statistics of wholesale prices in Canada published by the Department of Labor, Ottawa, show an index number of 137.1 in December, 1913, 137.6 a year later, and then the long upward climb culminating in May last at 356.6, falling by December, 1920, to 290.5. Examining the changes more in detail the following table is illuminating in its index figures for groups of commodities between December, 1913, and December. 1919, and again in December, 1920:

This drop in commodity prices is beginning to be revealed in the monthly bank statement. For the last three months of 1920, according to statements by the chartered banks of Canada, there were decreases in current loans in Canada for the first time in many months. In fact, the movement was steadily upward for the previous twelve months. A comparison of current loans in Canada monthly during the past two years is an index to price conditions and inflation, as may be seen from the following table:

1919 1920 January. $1,0»0,340,861 $1,226,962,963 February. 1.095,301,791 1,257,015,902 March 1,117,197,446 1,322,267,030 1.107.986.523 1,347,238.230 1,071,447,686 1,349,079,981 1,043,712,932 1,365,151,083 July 1,014,387,206 1,377,276,853 August. 1,011,785.424 1,385,470,153 September.. 1,058,572,202 1,417,520,756 October 1,104,940.160 1,405,401,227 November. 1.189.408.523 1,359,973,118 December 1,207,109,046 1,301,804.342