Concealment Motivation: The 1909 Loan
Concealment Motivation: The 1909 Loan

The Russian 4½% State Loan of 1909 (January 22, 1909)
With the 1904 loan falling due on May 14, 1909, Russia - defeated in war and embattled with her citizens at home - sought to re-finance her war debt, converting the short-term 1904 debt then nearing redemption, to a long-term fifty (50) year obligation. Russia also required additional funds to meet her fiscal budget for 1909. Again, she turned to her French bankers for assistance. The 1909 bond was to be placed publicly. The French Banks, too, wanted to assure payment on the privately placed 1904 bonds that they held - thereby transferring that Tsarist debt from them to the public.

Whether there is, or is not, any sense in the London theory that Germany and Austria have purposely blocked the Russian loan negotiations through their dislike of the entente between England, France and Russia, the fact nevertheless remains

that a loan for $240,000,000 could not advantageously be placed in a market where any serious question remained as to international relations. It must be remembered that this Russian loan has been repeatedly proposed and talked of in the markets, ever since the early months of 1906; it was inevitably postponed, first, on account of the great strain then existing on the whole world's money markets; again, in 1907, because of the well-known panic conditions throughout the financial world. Efforts were made on two or three occasions during 1908 to bring the matter to a head, but were defeated through the circumstances to which we have referred. [recent unrest in the Balkan states]

 Czar Nicholas II

This being the case, it must be clear, not only that the successful flotation of the loan next week would throw a favorable sidelight on the diplomatic situation, but that it would relieve the Russian Government from an embarrassing financial position. ...

Commercial and Financial Chronicle, January, 09, 128:2

It is announced by London and Paris cables that the protracted negotiations over the new Russian loan have resulted in an agreement to effect the emission on or about Jan. 22 of a loan for 240 million dollars 4 1/2% bonds at an issue price of 89.90. A recent report was that the negotiations were retarded because of a recrudescence of disturbances in the Balkins, which report stated that apprehensions of such disturbance were aroused by a speech by the Servian Minister of Foreign Affairs; the influence of this speech has, apparently, been since allayed.

The Commercial and Financial Chronicle, Jan. 9, 09, 71:1.

Engagements of gold for export was the interesting incident yesterday. [January 8, 1909] News that the National Bank of Commerce would send $500,000 to Argentina was followed by the National City Bank's arranging to send $200,000,000 [sic, most likely $2,000,000. See: The January 8th Engagement.] to Paris.
While the warlike talk from Berlin is regarded here as emanating merely from German opposition to the forthcoming Russian loan, it appeared to exert a disturbing influence in London [Emphasis supplued.], reflected in higher discounts and cabled orders to sell stocks in Wall street. The result was a sharp advance in sterling bills. . . .

New York Herald, Jan. 9, 09, 15:1

France has been accumulating gold for months in anticipation of this loan, but is still not over-strong as regards gold holdings. ...

New York Commercial, January 12, 09, 14:5

[Dispatch to the Associated Press]

[Brackets in original.]

Paris, January 12 - The shipments of gold from New York to Paris are destined for the Bank of France, which has arranged for the engagements through various Paris banking houses. The movement is a natural one resulting from a favorable rate of exchange. The gold is probably for assisting in the flotation of the new Russian loan, which is announced for January 21... . The Russian Finance Ministry closed arrangements for this loan with a syndicate including the principal houses of Paris, and the bulk of the issue will be floated there. ... [The loan will be used] for the construction and betterment of railways and for improving the army. ...
This is the largest loan that has been announced in Europe since the Russo-Japanese War, when, simultaneously, Russia and Japan issued loans totaling more than a billion dollars. ... It has been asserted abroad that the continued unsettlement in the Balkan states since last Autumn had been fomented by Austria and Germany to keep financial markets stirred up, and so injure or lessen the chances of the Russian loan.

New York Post, January 13, 09, 1:6; Evening Telegram, January 13, 1909, 15:3; and others.


Paris Announces Terms of the
$240,000,000 Loan and its

Paris, Jan. 13. - The shipments of gold from New York are destined for the Bank of France, which has arranged for the engagements through Paris banking houses. The movement is a natural one resulting from the favorable rate of exchange. The gold is probably for assisting in the flotation of the new Russian loan, which is announced for January 21 at 89 1/4.
The Russian finance ministry has closed an arrangement with a syndicate, including the principal banking houses of Paris, for a loan of 1,200,000,000 francs ($240,000,000) at 4 1/2 per cent. A part of the loan will probably go to other continental countries, but it does not appear that New York will be a subscriber for any part of it.
The loan is under an authorization of the Douma, voted December 11. About $150,000,000 will be applied to the 1906
[1904] existing loan due in May, and out of the remainder the deficit of $76,100,000 in its budget for 1909 will be paid. The Russian government has determined about an extraordinary expenditure of $78,000,000 chiefly for the construction and betterment of railways and for improving the army.

N. Y. Evening Mail, January 13, 09, 4:2

... Another proof of the banking power of France is given to-day in the protective measure of the Bank of England in raising its rate of discount from 2 1/2 to 3 per cent. France has had control of the gold market of the world for nearly a year, and has so drained London of gold that the bullion reserve of the Bank of England has fallen to the lowest level in years. Last week the reserve of the bank was down to 36.40 per cent. This fact influenced to-day's change in the rate of discount. It is believed that, with the Russian loan completed and France more willing to share the new arrivals of gold in London with the English market, the discount will be reduced again.
However, those who believe that the Bank of France has been accumulating gold for political rather than for economic reasons, maintain that the yellow metal will go to Paris next month through the creditor position of France just as freely as in the past. It certainly seems as though the increase in the Bank of France gold in twelve months of nearly $200,000,000 (it was to-day $710,000,000 gross) has not been necessary in order to finance the loan in which only about $90,000,000 of new money will be required, and when London and German subscriptions will amount to $30,000,000 or $40,000,000. ...

N. Y. Evening Mail, January 14, 09, 12:2

Russian Loan Consideration.

Foreign exchange rates held decidedly firm, and there was a sharp break in sterling at Paris, which was construed as meaning that further gold exports from New York would be undertaken in the middle of the week. Although no additional gold can reach the French capital from New York in time to be available in connection with the Russian Loan, the fall of 2 centimes in the Paris check on London was believed to indicate that Paris would again be a strong bidder for the fresh South African gold coming into the London market. The fact that Paris bankers are taking such precautions to provide enormous quantities of money against the flotation of the Russian bonds, it was thought, left no room for doubt as to the success of the issue. This action on the part of Paris, however, constituted a double-edged argument. The pessimists said that the apparent necessity for making such elaborate preparations revealed some misgivings on the part of the bankers bringing out the issue least spontaneous subscriptions to cover the amount might not be received, and were consequently taking measures to force the matter. Conservative bankers did not take much stock in this theory, but said that in a matter of such magnitude it was essential to take every precaution calculated to make the issue a big success. [Emphasis supplied.]

NY Times, Jan. 17, 09, 7:1


The prospectus has now been issued of the Imperial Russian Government Four-and-a-Half per Cent. Loan, 1909, for £55,580,000, or 525,000,000 roubles, or 1,400,000,000f., or 1,131,200,200RM., or 669,200,000 florins, in bonds to bearer. "The proceeds of the bonds will be applied to the redemption of the Five per Cent. Treasury bonds of 1904, falling due May 1-14, 1909, amounting to about 800,000,000f., or £32,000,000, and to the requirements of the extraordinary expenses of the Budget for 1909 as provided in the above law." Principal and interest are payable in London in pounds sterling, and abroad in the currency of the respective countries, free from all present and future Russian taxes. The issue in London consists of £5,955,000, for which Baring Brothers and Co. are prepared to receive subscriptions at 33¾, or £88 1s. 8d. per bond of £99 5s. The loan is irredeemable for 10 years (till January 15, 1919), after which time a sinking fund will be applied by means of annual drawings calculated to redeem the entire loan at par by January 15, 1959. The first drawing of bonds will take place not later than October 15, 1919, for repayment on January 15 following. The Government reserves the right at any time on or after January 15, 1919, to redeem the whole or any part of the loan at par by special drawings. Undrawn bonds will be accepted as deposit in contracts with the Russian Government, and also as security for payment of Customs and Excise duties. Issues will be made simultaneously in Paris and the French provinces, and also in Brussels and Geneva and in Amsterdam. The terms of the prospectus, as quoted above, make the amount of fresh borrowing appear larger than it is. At the price of issue, more than 35½ millions of the loan will be required to meet the 32 millions of maturing bonds, and the net amount of new debt is thus about 20 millions. The bonds are an attractive security at the price, but the high rate that they yield is itself a reminder that the finances of Russia, like those of most other Governments, need careful handling and the strictest economy.

The List of Subscriptions will be closed on or before Friday, 22 January, 1909. [Emphasis supplied.]

The Times (London), Jan. 18, 09, 15:4-6 and 16:1

The official prospectus of the new Russian loan was made public in London on Saturday of last week. The amount of the issue is stated as 280 million dollars; the sum heretofore reported was 240 millions. The issue price is 88¾; previous reports placed it at 89.90. The rate of interest is 4½%, which agrees with the original statement. It is further officially announced that the loan will not be disturbed for a period of ten years; after which a sinking fund and annual drawings will be applied to such redemption; it is calculated that the entire loan will be paid at par by Jan. 15 1959 through the process above stated - the application of sinking fund and annual drawings. ...

The Commercial and Financial Chronicle, Jan. 23, 09, 183:1.

... The long delayed Russian loan flotation, which, in connection with certain incidents in the European political situation, led up to the unprecedented accumulation of gold in the Bank of France, passed into history this week, much to the relief of the international world of finance. The French end of the flotation was a great success; in fact one of the greatest successes of modern times. Such a result, however, was practically assured in advance of the issue of the loan. The terms of subscription were highly favorable and the pacification of Russia assures the development of the great resources of that country, which, in itself, is good security for a government bond. But beyond all this, French bankers, who had previously distributed a great mass of Russian bonds among French investors, logically owed a duty to such investors to make the present loan something more than an ordinary success. [Emphasis supplied.] Public interest abroad in the loan will not die out with its successful flotation, as the aftermath is destined to exert considerable influence, one way oir the other, on the European monetary situation. The whole world, in fact, is interested in this aftermath, for the reason that it would seem that important movements of gold must follow.
The piling up of money at Paris in connection with this loan was one of the most remarkable events of financial history in late years. The Bank of France in exactly one year previous to the flotation increased its gold holdings over $180,000,000 to nearly $720,000,000. To accomplish this great task it has absorbed for about five months practically all the South African gold arriving at London, thus shutting out the Bank of England from participation in purchasing any of this gold in the English market, something without precedent. ...

N. Y. Evening Mail, January 23, 09, 15:1


At the close of Friday's stock market session [January 22] there was whispered to some of the habitues of the Bourse that the Russian loan of $240,000,000 had proven a failure. Stocks were hastily sold. Within ten minutes the modest and laborious gains of four and three-quarters hours were wiped out and the prices ended lower than the initial quotations of the day.
Both the rumor and its consequences were foolish. It is only on the exchanges - superstitiously regarded as the ultra astute institutions of the world - where such credulity and its consequences prevail. It would have been impossible for the Russian loan to fail, since that had implied the subversion of three fundamental laws of finance.
These laws, in their relative importance, follow seriatim: 'A financier is he who can borrow money.'
The greatest financier is he who can borrow the most money.
He who has borrowed the most money is sure of enjoying the longest and largest credit.
The rules apply to nations as well as individuals, and the strength of Russia's position is not questioned by students of foreign finance. Russia's demands simply cannot be denied. France principally and Germany secondarily and the Netherlands thirdly are the money lenders who must give what Russia demands for fear of losing all - or, what is about the same thing, for fear of forcing the Czardom into repudiation of a huge debt. Certain empirical people wondered why, with money so unrealthfully plethoric here, part of the Russian loan was not offered in the United States. Foreign houses know better than to lend their names to such a flotation; most of them knew better from the start. The one firm which sold a few of the bonds five years ago now, also know better, so that the knowledge is unanimous.
Banking houses with European connections do not offer even a small part of the Russian loan for the reason that they are not compelled to do so. Collectively, the United States does not participate in Russian finances because it is not a Russian creditor; it is not forced to keep the Romanoffs alive financially.
Other countries face deficits from time to time, but the discrepancies of Russia are not only chronic but they grow year by year, and, worse than all, no effort is made to reform the nation's finances. Any other community would have been declared insolvent - for Russia is virtually broke - but the vastness of the country, and its practically unknown population, appeals to the imagination of the French, who are under the illusion that a big country territorially increases in wealth naturally.
France became Russia's debtor through patriotic zeal. Bismarck had almost isolated France diplomatically. She was stranded for an alliance. Her patriotism overcame her republicanism and she united with Russia - upon the significant stipulation, on Russia's part, that a big loan which Germany and England in turn had refused, would be made by France.
The third Alexander went in person to Paris to complete the negotiations, and while there the loan was heavily over-subscribed. From that day to last Friday France has financed Russia.
After Bismarck's death German bankers were small and intermittent lenders from sheer cupidity. Neither they nor the Dutch could withstand the earlier usurious terms. Having the Russian bear in the trap, they, with the French, must feed him to prevent starvation.
So there was no reason for the incipient alarm shown on the American exchanges Friday afternoon. Without waiting for the 'official confirmation,' one may state that the authentic statement will announce a tremendous over-subscription to the Russian loan.

N. Y. American, January 24, 09, 4 BF 2:3

The development of a disturbing situation in the Balkans was the notable feature in European political circles this week. It seems that the Bulgarian reserves had been mobilized on the Turkish frontier, obviously for offensive operations. This tended to confirm the rumor that had been current and noted by us last week. The rumor was of a possible friction in the Balkans, and contributed much to hasten the completion by the French syndicate conducting the new Russian loan; they sought to perfect their arrangements before any outbreak could occur in this almost always menacing centre.
The mobilization of Bulgaria's reserves does not appear to have been accepted, either at Constantinople or Vienna, as a serious menace, though it caused some apprehension at centres such as London and Paris, where its true significance was understood. ...
[Emphasis supplied.]

The Commercial and Financial Chronicle, Jan. 30, 09, 256:1,2.