Chapter 8: AT WORK
Johnnie and Gertie learn the banking business together
When Gertie started going into work with Johnnie, she thought that most of his colleagues at the bank regarded her presence as merely amusing, but Gertie sat in on all his meetings, making herself useful by making notes for her own benefit at first. Johnnie agreed that her note taking and her assimilation of the salient points were every bit as good as his own notes and he encouraged her to take over the note taking as her valuable contribution to the business. As her confidence in the procedures and conduct of the discussions and negotiations grew, and backed up by her notes, she was able to contribute firstly by reminding both parties of what had already been agreed and even make suggestions of her own.
Gertie learned a lot about the corporate banking business, about how businesses come to the bank to arrange finance in different ways. Sometimes the bank will compare the amount of the loans requested through their business plans with what resources the business has to use that capital and then assess the returns that could be expected, balanced against the costs of the development and over what period and at what rate the loans and the interest payable can be repaid.
Once the request for loans has been considered viable the bank will then consider the best way to fund the loan. Sometimes the bank can supply the full loan amount on its own. Sometimes, especially if the sums required are large, the merchant bank will invite other merchant banks to share the loan or to underwrite some of the money required through a series of legal documents, including a prospectus, sale agreements, tie in securities for the loans, create debenture stocks, draw up trust deeds and issue bonds.
Sometimes the merchant banks will have clients who have come into money, either by inheritance, selling off another company or wish to spread their investments across a range of investment possibilities. The merchant bank would then identify companies that need an injection of capital and the bank will act as a broker to bring the parties together and ensure legal agreements and securities between them, for fees from both parties.
Sometimes clients and potential clients re drawn together by the bank with possibilities of combining their borrowing potential for a project in which they have common interests. An example might be a canal construction project abroad, might bring about a consortium of partners, such as civil engineers, a bridge construction company, steel foundry and a shipping company who may form a subsidiary company just for that and similar projects.
The main company preparing to bid for the project may well use a merchant bank to bring the partners together rather than have separate companies bid for various parts of the project; a consortium with experts in their own fields working together would be more efficient and able to outbid companies who were having to sub-contract most of the project.
Particularly in the late 1940s, so soon after the devastating world war, states and countries, some old and well established, with others newly-formed out of peace treaties, independence and or by conquest, were keen to rebuild their industries and restore much of their damaged infrastructure. They would come to the financial market place to borrow capital to invest or through the bank's contacts attract investors who will give the countries what they needed by helping to bring much needed resources to the market that would otherwise remain unusable.
With some projects, the schemes were so well thought out that selling the loans to other banks, in order to spread the risks, they would be taken up more readily than others. Where projects were harder to sell, because the projects were maybe quite large, only marginally profitable, and would take a long time to return profits, such as a gas or oil pipeline, an oil refinery, a railway upgrade or building a luxury liner to take advantage of holiday-makers' post-war prosperity; these projects would need more underwriting by the banks rather than directly attract investors who had more attractive schemes promising short-term returns.
Gertie found it fascinating that banks who were fiercely competitive to fight off other banks to win the leading role in financing a project, would then cheerfully offer the same banks a slice of the action by contributing funds to the project either directly or by underwriting it. In the same way, Standhope Winter would, after due diligence in fact-checking the prospectus, buy in or underwrite other banks' schemes.
Most international merchant banks had firm contacts bordering on friendships with other banks. Most of the bankers were led my men, Gertie found, but the few women who had earned their spurs in the banking business during the war had stayed on and were beginning to make their presence felt. The "old boys network" was beginning to find itself being phased out and the schemes being brought to market were much more rigorously costed and less speculative.
Gertie found it all very interesting and she soon learned how to have a better informed view of how businesses, taxes, international trade, duties, tariffs and revenues helped to make the world go round. In December, as a large holder of shares, who had proved herself capable of understanding the business, she was elected to the board of directors of the bank and the salary that went into her bank account went up significantly. That salary still went largely unspent as Evie insisted on charging everything on her "own" account. Gertie discovered that Mama had set up a separate bank account for "Gertie's Getting Up to Speed", that Evie charged everything to.
