Document N2KLdOdNGvj0NEMQL0vxpLeLR

Forbes Opportunity, Thy Name Is Pollution Legislated out of the underwriting business by the New Deal, the com mercial banks hope to use the pollution crisis as a way of getting back in. President Nixon has dropped a sweeping 37-point antipollution pro posal onto the bargaining table while the Democrat-controlled Congress is wrestling with its own antipollution measures. No matter which plans be come the law of the land, the poli ticians have gotten the message and are almost certain to commit the U.S. to a $30-billion-plus attempt at clean ing up its own backyard. In this rush to remedy an already dangerous situation, the nation's com mercial banks think they see an open ing. Legislated out of the security un derwriting business back in the De pression days, when the nation was stunned by bank failures, the com mercial banks would like to get into the act by gaining the right to under write water and sewage bonds. The commercial banks had already managed to get part way back in, but mainly in the sale of so-called "gen eral obligation" municipal bonds backed by the full faith and credit of the government unit or agency that is sues them. They were not allowed to underwrite revenue bonds, the fastestgrowing segment of the municipal market. Even before Congress gets around to mulling President Nixon's new en vironmental financing scheme, it will consider the role of the banks. Right now. House and Senate conferees are attempting to iron out the differences on their respective versions of the Clean Water Bill, which passed both houses of Congress last year. In the FORBES, MARCH 1, 1970 Tommy The Cork One of FDR's bright young men, Thomas G. Corcoran never let his Phi Beta Kappa key and Harvard law degree dull his Irish political instinct. His great New Deal coup --aside from bouncing up often enough to earn his nickname from FDR--was the hard politicking needed to make Congress set up the Securities & Exchange Commission. Now 69, he's still bouncing--as a high-priced Washington lawyerlobbyist on such jobs as getting commercial banks the right to deal in all kinds of municipal securities (see story). Judging by his success in 1968 with "dormitory" bonds and his progress today with pollu tion bonds, he has lost little politi cal clout since New Deal days. Senate version, at the last possible moment Senator William Proxmire, Democrat of Wisconsin, quietly insert ed a pet amendment of his. It allowed commercial banks to underwrite water and sewer revenue bonds. The traditional Wall Street under writers, represented by the Invest ment Bankers Association, don't like this one bit. Once before they were caught by surprise, on another "social issue" bit of legislation. Back in 1968 an amendment was added to the Om nibus Housing bill allowing commer cial banks to underwrite dormitory bonds, also a "revenue type" issue. That was the foot in the door. This time the stakes are even high er. Sewer and water bonds account for about one-third of the $3.5 billion in revenue bonds that were marketed last year. In the office of the Comp troller of the Currency, a legal expert commented: "If the banks get into pollution bonds, there won't be a heckuva lot of bonds left they can't underwrite. "This is an economic fight between two important portions of the indus try," he. points out. "It isn't a moral right or wrong thing." He implies that these things have a way of snowball ing. For instance, when the banks were allowed to get in on selling dormitory bonds, it was assumed that this was a step toward helping hard-pressed educational institutions raise needed funds. "There were a lot of Congressional objections later that the banks should have been restricted ' T \ 21 DSW;552128 \ STLCOPCB4090545 just to college housing," he says. "One of the first requests I got was from a state that wanted to issue this type of bond for a `dormitory' for prison guards." He turned down the request. Senator Proxmire, a political liberal and fiscal conservative, explains why he wants to let the banks in on anti pollution financing: "The projections of future municipal financial needs indicate that state and local govern ments will continue to be heavy bor rowers in the capital markets. . . . Most of the increase is expected to take place in bonds for water and sew er systems and for transportation." To ________________________] t-_l_ 1_____l.'i-j___ more ijilis aim. neiy luuimue.** u# sell these bonds at the lowest possible interest cost, Proxmire concluded that commercial banks must be allowed in. Of course, the investment bankers don't see it that way. Says a New York investment banker who also has held a top Treasury job and worked for one of the leading big city banks: "I don't have a doubt that letting com mercial banks in would supply capital, but it wouldn't add much to distri bution unless the banks take the bonds themselves for their own portfolios." Obviously, the IBA is worried lest the banks be trotted out as a source of fi nancing anytime a costly domestic problem comes up. Figuring the Odds Will the banks get what they want? One of Senator Edmund Muskie's top "taxticians," who is attempting to shepherd the Maine Democrat's own water bill through the conference com xiuu.cc, iimucd uu_ 1u^ ,,uiica d,,uuut ruUic^ f,,,,t lcmji that he'd gladly sacrifice the commer cial banks' participation in his water- pollution bill if he sensed it was creat ing too much flak as the revised bill came up for final vote. But the Muskie bill counts more on federal grants than on borrowing, so that the banks aren't all that important to it. President Nixon's proposed sewage program, on the other hand, depends mainly on the bond market approach. The way he sees it, the Federal Gov ernment would make grants of $4 bil lion, and the states and localities would have to come up with $6 billion in the four-year fiscal period starting July 1. Nixon would set up a new agency, the Environmental Financing Authority. It would buy up any bond issues the locals couldn't sell; for its own source of funds, the EFA would in turn sell a new taxable bond to the public. The Treasury would .pay EFA a subsidy to make up the difference 1.1, ,, ;,,4.______ u TP TP a ________ 1J _______ : 111 UIC 111 1C 1 Cb L Him W U Lilli ICCCIVC Uli the local bonds and what it had to pay out to sell its own. Paying for correcting generations of / crimes against our environment is going . : to be costly. It may well require ev- / : ery bit of financing aid available. The/ \ banks are ready and willing. They may soon be able. >. . /' /Compromised Compromise The Stock Exchange's proposed-new commission schedules may create more problems than they solve. Securities have been a real growth with the cuts, running to nearly 40% able exchange." He meant a few big industry. Commissions from New York on big blocks. They wanted more. transactions can't make an auction mar Stock Exchange trading alone have They wanted the right to become ket; you need thousands of individual soared from perhaps $500 million in members, themselves. Robert M. Loef- decision-makers, big and small. 1960 to some $1.8 billion last year--and fler, senior vice president of Investors Regan further argued: "A shoe they provide about half of total invest Diversified Services said: "I really manufacturer may lose money on baby ment house income; underwriting, don't want to fight with the New shoes, but if you don't make baby American Stock Exchange, over-the- York Stock Exchange. I want to join shoes, people won't get into the habit counter, mutual funds account for at it." The NYSE proposals did allow of wearing shoes." His firm, he added, least as much more. Wall Street has for some public ownership of mem recently made a study of the 412,000 gone in under a decade from revenues ber firms, but were so framed as to new accounts it opened in 1969. of $ 1-billion-plus to ,$5-billion-plus. exclude institutional investors. "Twenty-nine percent of our new cus Yet Wall Street is singing the blues. It has been unable to control ex The Poor Pay Most tomers are below the age of 29. Fifty percent are under 40." penses, especially on small orders. Some of the loudest complaints con Others, however, felt the overall in Many brokerage firms are in the red. cerned commissions on small orders, crease was too small. Said Harold A. Other problems have been mount raised as much as 115% and more. In Rousselot, chairman of the Association ing. The big institutions that trade in effect, the smaller investor was being of Stock Exchange Firms and a partner blocks of tens and even hundreds of asked 1) to pick up all of the increase of Francis I. duPont & Co.: "A 10% in thousands of shares think they are in overall commissions, and 2) to off crease overall simply won't solve the paying too much for the privilege of set the cost of lower commissions on loss crunch; it merely gives back what using the Stock Exchange. Increasing the big trades as well. was taken away by the [25% or so] ly they have been turning to off-mar In raising commissions so steeply on volume discount of 1968." ket deals {see p. 70). small transactions, argued Merrill Meanwhile, the question of whether Securities firms not members of the Lynch, Pierce, Fenner & Smith, by far brokerage houses should be allowed Big Board complain about being un the biggest Big Board firm. Wall to go public hangs fire. Without high able to share Big Board commissions. Street may well be mistreating the er commissions, many firms just Early in February the New York goose that lays all the golden eggs. wouldn't look attractive to investors. Stock Exchange submitted to the Se Merrill Lynch's attitude was that, Will the higher commissions go curities & Exchange Commission a set although the overall increase of 10% " through? Nobody knows. The Securi of proposals designed to alleviate these could not be called excessive, the ties & Exchange Commission can re complaints. However, the proposals smaller investor had been asked to ject or amend the proposals. The Jus aren't going to have easy sledding. bear much too large a share. tice Department opposes all fixed The National Association of Securities Merrill Lynch President Donald commissions, contending they should Dealers, the organization of nonmem Regan said that the small trader "is be set by competition. The prestigious ber firms, wasn't satisfied with the cut necessary for both the continuity and house of Smith, Barney & Co. lost no offered them: 20% to 25% of the com the liquidity of the market." He ex time in calling for a delay. Commis missions they generate for Big Board pressed the fear that "we might price sions, it insisted, should not be con firms. The NASD wanted a 50-50 split. them out of buying and selling. And, if sidered in isolation but as part of Nor were the institutions satisfied that happened, we wouldn't have a vi Wall Street's overall problems. 22 FORBES, MARCH 1, 1970 DSW 552129 STLCOPCB4090546