A Look into the Future of Trust Business The future promises to be uncertain in many things, and especially in business stability and advancement. It would be dangerous, if not presuming, to prophesy what the next year or years may bring forth. It is definitely certain, however, that a time of business readjustment and credit deflation is near us. New trust business may not be so plentiful as it has been in the past. Greater care and caution will be required of us in the administration of our present affairs. Yet it is safe to say that we will be as little disturbed as any other class of financial institutions. In the nature of things, a trust is little affected by transitory political or business changes. Unless these take on the character of political revolutions or socialistic experiments, our business will not seriously change. On the contrary, such eras of uncertainty and evolution cause material accretions to certain classes of trust business. In times of storm many people seek the security and protection of a trust company, whose solid organization and expert service is well suited to care for property interests in just such emergencies. In the coming days it will be a good time to develop executorships and "living" trusts. With radical ideas rampant, and experiments in socialism world-wide, it would seem a most auspicious time not only for the aged, the retired, the weak and the inexperienced to come to trust companies for guidance and protection in their financial affairs, but for the captains of industry, business men and others having property interests, to segregate and safeguard at least a part of their capital in a "living" trust with some good corporate trustee. Discretion and caution should counsel this as a wise, if not a necessary business act. THIRD ANNUAL MEETING OF TRUST COMPANY SECTION, CALIFORNIA BANKERS' ASSOCIATION The Trust Company Section of the California Bankers' Association which holds the blue ribbon among State organizations of trust companies for co-operative achievements, held its third annual meeting June 10th at Lake Tahoe. The annual address by Chairman L. H. Roseberry, which is published elsewhere in this issue of TRUST COMPANIES, reviewed the progress made during the past year in connection with the use of standardized trust forms which were formulated by a special committee and also dwelt upon the need of increasing the schedule of fees for trust service. The chairman emphasized the development of amicable relations with lawyers. A committee created one year ago to report model or improved plans for internal organization and administrative systems for trust companies rendered its report through Chairman Erle M. Leaf, trust counsel of the Title Insurance & Trust Company. The remainder of the meeting was devoted to discussion of subjects of practical interest to trust company men. Among the topics discuss were the following:. (a) What has been the most fruitful single source of trust business, where did it originate and how is it developed? Discussion led by R. M. Simms, trust officer. Mercantile Trust Company, San Francisco. (b) What form of publicity has yielded the most concrete results? Discussions led by Judge W. R. Hervey, vice-president, Los Angeles Trust & Savings Bank, Los Angeles. (c) Is it ethical or more productive than other means to engage in the personal solicitation of certain kinds of trust business? Discussion led by J. Veenhuyzen, trust officer, Guaranty Trust & Savings Bank, Los Angeles. (d) Should trustors be encouraged to reserve the right of revocation in "living" or "voluntary" trusts? Discussion led by D. A. Bulmore, trust officer, Oakland Bank of Savings, Oakland. (e) Should the trustee encourage unlimited administrative powers over the trust estate, or should it seek limitations on these powers? Should it seek to limit, by contract, its statutory or legal liabilities? Discussion led by J. C. Hughes, trust officer, Savings Union (g) Which is the better practice: to specify in the instrument the exact trustee's fees or to provide therein for the payment of “a reasonable compensation?" Discussion led by R. W. Blair, trust officer, California Trust & Savings Bank, Sacramento, Cal. (h) Advantages of handling certain classes or assets or business operations under Power of Attorney rather than under "living" or "voluntary" trusts. Discussion led by C. H. English, trust officer, Union Trust Company of San Diego, San Diego. (i) Should any of the schedules of fees be increased over those set forth in our standard list, and if so, how much? Discussion led by J. H. Coverly, trust officer, Title Insurance & Trust Company, Los Angeles. PRICE OF MONEY AND RELATION TO SUPPLY OF FUNDS LEGAL RATES OF INTEREST VERSUS MARKET RATES President Susquehanna Trust and Safe Deposit Company, of Williamsport, Pa. (EDITOR'S NOTE: While the price of money has risen in common with other commodities, the legal rates of interest or so-called usury laws of the different states continue arbitrarily on the pre-war basis. Mr. Reading, in the following address before the Trust Company Section of the Pennsylvania Bankers' Association on June 17, 1920, shows clearly the adverse effect of such legal rates in diverting the employment of banking and trust company funds from essential community requirements.) We are confronted with a condition, not a money itself is a commodity and that its theory-a condition which is a very serious price has risen with all other commodities. one for the community, and one which gravely And we must also recognize that the desire affects our business. For we understand, as to secure the larger returns upon investments, the general public does not, that we have a by individuals as well as banks, is not cupiddefinite duty to the public to perform. While ity, but is a necessity imposed by the very we are not, of course, in business for our conditions we are considering. The cost of health, yet the banker of today acknowledges every detail of the business of banking is a responsibility to the whole community, sec- advancing in even pace with all others, and ond only to his duty to his depositors and we must, perforce, receive greater returns on his stockholders. In this, as in all our acts, our investments or fall out of the race. Hence, we recognize mixed motives, but not opposing our funds tend more and more to be diverted standards. Hence the facts which each one from the daily needs of our immediate conof us meets today in his business, call us to stituency because we can, and must, secure pause and consider if we may not do some- the larger returns which the higher rates thing to better conditions. offer. I am not concerned, at this time, to endeavor to seek the cause or causes of the scarcity of funds for legitimate enterprises and for the procuring of homes for the people of our communities. Inflation is a fact, whatever may have caused it. High prices-old H. C. L. in every form, are with us, for how long a stay I am not prophet enough to state. These have caused an expansion of credit, reflected in the enormous increase of loans and the largest issue of paper currency ever seen in our country, as well as in all civilized lands. These high prices extend to money itself, the medium of exchange. So that whoever would secure money must pay for the same a price far in excess of the normal, or, at least, the normal as measured by any past experience. Corporations, which a short time ago were able to finance their needs at a cost of 31⁄2 per cent. to 4 per cent., now must offer from 7 per cent., if of highest credit, to 9 per cent. where the margin of safety is not so great. It does not help the situation to say that this has resulted from the vast expenditures and tremendous loss of values in the great war. Fair Return on Employment of Bank and We are obliged to recognize the fact that This condition then results from the constraint laid upon us by the laws regulating rates of interest, which we usually, or familiarly, call the usury laws. Did the Constitution of the United States confer upon Congress the power of regulating rates of interest, the remedy would be comparatively simple. A general Act of Congress defining usury by fixing rates for and in various lines of business and credit would stabilize conditions throughout the country, and we would know just how and what we could do. But this is one of the reserved powers of the Sovereign States, and the result is a wide difference in legal rates of interest in the several States. We have some forty-eight, more or less, varieties of usury laws; varying in the interest rates, though now not so greatly in the legal or ordinary rate. In many States, however, contract rates within reasonable and defined limits are permitted. This is notably true in the Western and Southern States. It is probable that this liberality has been caused by the desire to attract from the more plethoric East the funds necessary for the development of the natural resources of the newer territories in the West, or to overcome the neglect of such natural resources in the older South. But the net result has been that these more liberal laws enable those sections to meet conditions such as now prevail and which put the more conservative, or less progressive, Eastern sections at a serious disadvantage. Variable Legal Rates of Interest As I have stated, there is a very great variety in the legal rates of interest in the several States, as well as almost as great a variety in the usury laws. For instance, in Maine the legal rate, when nothing is said at the time of making the contract, is 6 per cent. But the parties may contract in writing for any rate they may choose. And there are no usury laws, and no penalties. So, too, in Massachusetts, while the legal rate is 6 per cent., the parties may agree in writing for any rate. And in Rhode Island the legal rate is 6 per cent., but by agreement in writing the parties may agree up to 30 per cent. In Connecticut the legal rate is 6 per cent., but parties may agree in writing to pay and receive up to 12 per cent. But the digest of the laws of Connecticut, which I consulted, seemed to provide that this power to agree for a higher rate than 6 per cent. did not apply to banks and trust companies. In Colorado the legal rate is 8 per cent. and the contract rate limit is 12 per cent., save that when the sole security for the loan is real estate the sky is the limit on the agreed rate. In many States there is the same difference, viz. a legal rate where no rate is stipulated, and a higher rate limit where the contract is in writing, and the higher rate is agreed upon. The legal and contract rates differ very greatly in the various States. Illinois makes the legal rate 5 per cent., but permits a contract rate up to 7 per cent. And Montana makes the legal rate 8 per cent. and the contract rate up to 12 per cent. In like manner the usury laws differ throughout the States. For instance in Arkansas, where the legal rate is 6 per cent. and the contract rate up to 10 per cent., the usury laws provide that, where usury is charged, the lender cannot recover either principal or interest, while in Maine there are no usury laws and no penalties. Rate Situation in Pennsylvania But these conditions in other States do not immediately concern us, save, possibly, to point the way out of our present difficulties. In Pennsylvania the legal rate is 6 per cent., and any amount collected beyond that rate may be recovered by the borrower if suit therefor is brought within six months after payment. But there is no other penalty under the Pennsylvania Statutes. National banks, however, seem to be under the Act of Congress of 1864 and may be penalized by a recovery from them of double the amount of usury paid, if suit is brought within two years of payment. And in either event we must suffer from the opprobrious term "usurer" if we attempt to collect more than the legal rate. And the courts have gone to great length to hold that any attempt to collect by way of commissions, or any other artifice, more than 6 per cent. is a violation of the usury laws. The larger cities in Pennsylvania, where there are stock exchanges, also suffer from the lack of a legal money market. The Act of 1903 provided for the creation of a money market by giving, just as New York statutes give, the right to collect any agreed rate upon demand collateral notes, with stock exchange collateral, in sums of $5,000,000 or more. And I do not know why this Act was subsequently repealed. But were this Act in force it would not meet the present need. Of course building necessitates the loaning of funds. These funds, secured upon realty, are so favorably considered that they are included among the securities which may legally and constitutionally be used by trustees for the investment of trust funds. But And trust comparties and private investors have looked upon them as gilt-edged. with a cast iron interest rate of 6 per cent., in these days when so many other, and equally safe investments, are to be had yielding a much greater return, makes mortgage loans in Pennsylvania unattractive. And investors are withdrawing funds from the mortgage market in all our communities and investing them in other investments or in mortgage loans in other States where the rates are higher. And this, too, in spite of the fact that local borrowers would gladly pay a higher rate than 6 per cent., and could well afford to do so with the present higher rent returns. You have all felt the pinch of this condition, and yet you can see no way out unless the Legislature will grant relief. Judging from the interest laws of the various States, Pennsylvania would move out of a very small minority of only ten States and join a very large majority, if it amended its interest laws so as to permit the making of contracts in writing for a larger interest ratesay up to 8 per cent. or 10 per cent.—and it might be well with such change, to put a more highly penal provision for usury in any form above such legal and contract rates. Executor Chartered 1822 Trustee The Farmers' Loan and Trust Company Branch Office, 475 Fifth Avenue Allan Forbes Elected Chairman State Street Trust Company At the recent annual meeting of the State Street Trust Company of Boston, Mr. Allan Forbes was made chairman of the board of. directors, as well as being re-elected president. The chairmanship has been vacant since the death of the late Moses Williams. The vacancy on the board caused by the death of Henry B. Endicott was not filled. Besides Mr. Forbes the following-named officers and directors were re-elected: R. L. Agassiz, Harcourt Amory, Edmund Billings, Ingersoll Bowditch, Allison Burr, Henry B. Cabot, Ashton L. Carr, Eliot C. Clarke, Harry C. Dodge, Henry B. Endicott, J. W. Farley, Allan Forbes, F. Murray Forbes, Robert H. Gardiner, Jr., Robert H. Garritt, John L. Hall, B. Nason Hamlin, Charles M. Holmes, James Jackson, Harris Livermoree. Harold F. Mason, William B. McShimmon, William Minot, John F. Moors, Francis Peabody, Thomas N. Perkins, William M. Prest, William L. Putnam, Malcolm B. Stone, Nathaniel H. Stone, John H. Storer John A. Sweetser, Bentley W. Warren, Samtel D. Warren, Stanwood G. Wellington, Frank S. White, Hendricks H. Whitman, Moses Williams, Samuel. H. Wolcott. Improving Foreign Exchange Rates A. B. Leach & Co., Inc., of New York present some very sound arguments as to the most practical and immediate way to help improve the foreign exchange situation. The remedy lies in purchase of foreign securities which may be bought on a present market basis to provide possible profits ranging from 15 per cent. to over 350 per cent. Attention is also directed to the foreign exchange situation as it affects foreign born who leave this country and the handicaps which confront foreigners who consider emigrating to America who require from 30 per cent to 4,000 per cent. more money, on the basis of $1,000 savings, than before the war. Continental Guaranty Corporation The statistics and "experience tables" published by the Continental Guaranty Corporation of New York in connection with its collateral trust gold notes affords ample evidence as to the liquid and safe character of these securities of which over $87,000,000 have been sold to banks and trust companies in the United States and Canada. The corporation surrounds these collateral trust gold notes with every requisite protection from the buyer, dealer and manufacturer. FIFTH ANNUAL CONVENTION OF THE Financial Advertisers' Association DEPARTMENT OF THE ASSOCIATED ADVERTISING CLUBS OF THE WORLD HELD AT INDIANAPOLIS, JUNE 7, 8, 1920 Anticipations of a "brass tack" convention were realized by the publicity and new business department managers of banks and trust companies who attended the fifth annual gathering of the members of the Financial Advertisers' Association, affiliated with the Associated Advertising Clubs of the World, held at Indianapolis June 7th and 8th. The splendid program prepared by F. D. Connor of the Illinois Trust and Savings Bank of Chicago, as chairman of the Program Committee, was observed throughout and brought forth a wealth of practical suggestions which will aid members in developing their bank and trust company publicity campaigns. The set addresses by John G. Lonsdale, president of the National Bank of Commerce in St. Louis, by Secretary of Agriculture Meredith and others were inspirational in the best sense. ceptional interest was manifested in the symposium of talks on the theme "My One Best Bet" wherein experts told of publicity campaigns which had produced the most profitable results during the past year. Ex The discussion and proceedings were not confined to technical matters of banking and trust company publicity, but embraced the broader aspects of the relationship of bank advertising to the solution of vital economic and banking as well as agricultural and investment problems of the day. Another important feature of the convention was the elaborate exhibit of banking and trust company advertising which was displayed in the spacious corridors of the Indiana State House. New York institutions won the principal prizes. The Guaranty Trust Company of New York exhibit won the silver cup offered by Lewis E. Pierson, chairman of the board of the Irving National Bank of New York for the best complete exhibit. The United States Mortgage & Trust Company of New York was awarded the third |