FINANCIAL POWERS (U.S.A. SECURITIES) BILL (Hansard, 29 July 1941)

§ THE LORD CHANCELLOR (VISCOUNT SIMON)

My Lords, I beg to move that this Bill be read a second lime. I shall ask the House to take the subsequent stages of the Bill also at this sitting. The Bill was carried in another place at a single sitting, and the matter is one of urgency. The Bill, as your Lordships will have noticed, is to confer on the Treasury powers necessary to carry out the most important agreement under which the Treasury receives a loan of 425,000,000 dollars against collateral security, consisting largely of so-called direct investments and the like, from the United States Corporation referred to in the Bill. "Direct investments" is a phrase not used by everybody. It means securities in companies incorporated in the United States, of which the whole or the great majority of the shares are owned by parent companies in this country. I might instance the relation between some of our great insurance companies and subsidiary companies in the United States, and other instances will occur to many noble Lords.

The House is aware how important it was from the very beginning of the war to make the best possible use of our dollar resources. We mobilised British-owned investments in the United States. We acquired marketable securities saleable for dollars, by giving their owners sterling instead, and we did our utmost to arrange that their re-sale in New York should provide us with a full dollar equivalent. But all who studied the subject were fully aware—the authorities at the Treasury had better reasons to know it than anyone else—of the drawbacks to selling direct investments (for example, of selling the shares in a subsidiary American company held by an English insurance company), because of course that operation is calculated to force valuable property on an unwilling market and to interfere with existing channels of business, channels which will be all the more needed in the years to come. Indeed, some of these direct investments it would be almost impossible to sell at the present time.

These American subsidiaries may be merely selling agents for the parent companies 935 here at home, or their ties with the parent companies may be so close that, in the severence involved in selling, the subsidiary company would lose much of its value. There was also to be considered the operation of American antitrust legislation, which might interfere and cause a most likely purchaser not to be a buyer at all. Nevertheless, some way of raising dollars by dealing with these direct investments had to be found. The passage of the Lease-Lend Act did not put an end to the need of solving this question—not at all. Indeed it was more than ever necessary to make the fullest use on our part of these direct investments as a response to the unparallelled effort and assistance given to this country in its struggle by the enactment of the Lease-Lend Act. Besides, we had to find dollars to meet commitments for armaments and other supplies incurred before the Lease-Lend Act was passed. As I have said, the great difficulty was that so long as borrowing, whether with or without collateral, was impossible owing to American legislation, it was very difficult indeed to find an alternative to out-and-out sale.

This Bill is being promoted and rapidly passed because, with the assistance of the authorities in the United States, a way out of this difficulty has now been found, and indeed the difficulty is surmounted. Thanks to the ready and willing cooperation of the United States and the unsparing efforts of Mr. Henry Morgen-thau, Secretary of the United States Treasury, and of Mr. Jesse Jones, the Federal Loans Administrator, in combination with our own administrators and representatives, to whom we owe a great debt, this agreement has been reached between the British Government, on the one hand, and what is called the Reconstruction Finance Corporation of America on the other. The Reconstruction Finance Corporation is an organ of the American Government. It raises its funds from the American Treasury, and then lends them on security to the British Government. The loan, "as I have said, is for 425,000,000 dollars at 3 per cent. interest for a term of fifteen years with an option on certain conditions to extend it to twenty years. The loan is secured by collateral, and it is provided that the income produced by the collateral shall 936 be devoted wholly to providing for the interest and repayment of the loan.

What is this collateral? It is fully listed in the schedule to the agreement which is being published as a White Paper. It consists of the more important of British direct investments, like these subsidiary insurance companies of which I have spoken. These will remain the property of, and under the control of, their present British owners. They include British insurance interests in the United States whether in the form of subsidiary companies incorporated in the United States or in the form of branches which are operating there. In the former case where you have an American subsidiary company, the shares of the subsidiary companies form the collaterial. In the latter case—that is to say, where the British insurance company has a branch in America—it is the income of the branch that is assigned to the lender. The former holders will, of course, receive from the Treasury the sterling equivalent of the income which would otherwise be receivable, whether as dividends of the American subsidiaries or as remittances from the profits of its American branch. In addition there is included as collateral a block of marketable securities which have been acquired by the Treasury and a further block still in the hands of British owners.

I hope I have made plain the objects of the Bill to this House and that I shall be excused for the few minutes I have occupied, for this is one of the most important transactions in the history of the country. Now the important thing to observe about this arrangement is that in place of trying to sell these British assets to American buyers, they are being used as security for this large loan. That makes an immense difference. The annual service of the loan—3 per cent. on 425,000,000 dollars—is 12,750,000 dollars to which must be added a sinking fund of 7,500,000 dollars a year, giving a total of 20,250,000 dollars to find annually. The estimated yield from the collateral security and from the insurance companies' branches is 36,000,000 dollars annually, so that the loan is fully covered as to capital and the loan service is amply assured as to income. Moreover, the dollar income available from the deposited securities and from the insurance branches affected is sufficient, at its 937 present level, to repay the whole loan at maturity in fifteen years' time.

Your Lordships will, I think, share the opinion which has been generally expressed in the City and in other places that this is a very satisfactory piece of work, which does great credit to our own negotiators, and also illustrates the determination of the United States to help us in our struggle by methods far more satisfactory than the forced realisation of these British interests. Under this arrangement your Lordships observe there will be no change in the control or management of these direct investments including insurance companies. Their strong financial position—and there is no body of insurance effort which stands in a stronger financial position than that of this country—and their stability will continue quite unaffected. And the result of the loan will be to provide this country with dollar exchange to the immense sum I have mentioned to be used towards paying for war supplies contracted for prior to the enactment of the Lease-Lend Act.

This Bill, which I trust the House will consent to take through all its stages today, is urgently needed. It will not be possible to rely upon the powers of the Emergency Powers Act, for these powers will, in the ordinary course, expire, at the and of the war, whereas we want powers which will extend for fifteen years. The agreement which has already been signed will not come into full force and effect and the loan will not be made until the British Government are in a position to satisfy the lender as. to the powers which we are taking in this Bill. Regulations authorised by the Bill will be necessary, and indeed the first set of regulations has already been published in draft form for the information of all concerned. Having, I trust, satisfied the House both as to the importance and the urgency of this Bill, I now move its Second Reading.