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When Kidder, Peabody & Co. Went International…

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Expansion and diversification of Kidder, Peabody's domestic financial and investment services were matched by a similar widening of the firm's international operations. The quarter- century following the end of World War II witnessed a huge outflow of American capital overseas. Between 1950 and 1970 direct private investments in Europe grew by more than 6.2 times, from nearly $11.8 billion to about $78.2 billion, while during that same twenty-year period private long-term portfolio investments increased 41 times, from $5.7 billion to $26.6 billion. Servicing the needs of American companies and investors throughout the world and particularly in Europe provided investment houses with widening opportunities. It was only natural that Kidder, Peabody with its long tradition in international finance-for nearly the first fifty years of its history the firm advertised itself and was generally classified by contemporary compilers of financial institutions as a foreign and domestic banking house-should be among the first securities concerns to revive and strengthen its overseas operations.

Until June 1956 when Kidder, Peabody opened its first international office at London, the firm had conducted its foreign business through correspondents, some of which, such as Barings and Hope & Co., were houses with which ties dated back to the immediate post-Civil War decades. Kidder, Peabody continued to maintain some of these old relationships, but as American business activities abroad expanded in the 1950s, the partners decided to develop independent international strength by expanding the firm's foreign operations to include a comprehensive range of financial and investment services, duplicating overseas the structure of representative and branch offices that had been implemented in the United States. "We wanted to provide throughout the world," said a partner, "the same range of services to individuals, corporations, institutions, and governments that we supplied our American clients."

Expansion and restructuring of the firm's international operations started early in 1960 with the organization of Kidder, Peabody & Co., Limited, a wholly-owned and controlled Swiss holding company with administrative offices in Zug, Switzerland. Several considerations dictated the organization of this subsidiary. It provided the New York partners with important tax benefits and allowed them to use retained earnings to build the firm's capital base in Europe. By organizing its own wholly  owned subsidiaries, the holding company also served as the vehicle through which to administer Kidder, Peabody's international operations and reaffirm forcefully the firm's commitment to international business and finance.

The Swiss company started expanding almost at once. In 1960 it organized its first subsidiary, Kidder, Peabody S. A. (Paris), to operate in France, and opened a representative office in Hong Kong. That year it also took over the New York firm's London office, making it a branch of its own. The Swiss company's growth continued rapidly. By the end of the decade it had established subsidiaries at Geneva (Kidder, Peabody Geneva S.A) and Johannesburg (Kidder, Peabody [Pty] Limited), opened a branch in Cairo to concentrate on Arab investment problems, and organized its own wholly-owned Swiss company (Kidder, Peabody Securities, Limited). This subsidiary, with administrative offices at Glarus and a branch in London, was set up to trade in Eurobonds, particularly those denominated in Eurodollars. The London office's trading department, with twenty-one employees at the end of 1969, was a miniature version of the one at Kidder, Peabody's main New York office. Early in 1972 the Swiss holding company formed still another wholly-owned subsidiary, Kidder, Peabody International Limited. The purpose of this company, the only Kidder, Peabody company organized in Great Britain, was to originate and manage underwritings outside the United States.

Kidder, Peabody's network of foreign subsidiaries cooperated closely with the firm's international group in New York, which was substantially strengthened in the 1960s by the addition of several experts in international finance from commercial banks and businesses with overseas operations. Improved ties with European institutions together with an enlarged and experienced staff made it possible for the international group in New York to provide the firm's network of foreign subsidiaries with the investment and research services they required to respond effectively to the impact of changing economic and political conditions on the needs of the firm's foreign and American clients. Private telephone and telex lines connected the offices in London, Paris, Geneva, and Hong Kong with Kidder, Peabody's New York headquarters, which supervised and managed the firm's entire international operations.

The Swiss company's subsidiaries, with their branches and representatives in key financial centers throughout the world, turned Kidder, Peabody into an international investment banking house, equipped to provide its foreign clients-both institutional and individual-with a range of services similar to those available to its American customers. Demand for the firm's worldwide brokerage, investment banking, and financial advisory services increased rapidly. By the end of the decade foreign operations accounted for some 12 percent of Kidder, Peabody's gross annual income. Most of the firm's foreign revenues came from brokerage, trading in Euro-securities, with underwriting and direct sales becoming increasingly more important later in the decade. In April 1962 Kidder, Peabody placed with institutions in the United States $25 million of fifteen year, 64 percent notes of the Kokusai Denshin Denwa Co., Ltd. of Tokyo, which used the funds to finance most of the construction costs of a new submarine cable between Japan and Hawaii. The next year in June 1963 Kidder, Peabody also placed with institutional investors $13.5 million of convertible debentures for the Mitsubishi Electric Corporation, the first time this Japanese company borrowed abroad. Private placements usually exceeded the number of the firm's public offerings by about two to one, with the total annual dollar value of the two types of transactions often about equal. Kidder, Peabody's offerings, both public and private, were issued in various currencies: pounds sterling, deutsche marks, Swiss francs, French francs, as well as United States dollars (both domestic and Eurodollars). The volume of these transactions grew steadily, from nearly $71.6 million in 1967 to more than $268.1 million in 1969. Some of the largest public offerings headed by Kidder, Peabody in the later 1960s were for the government of New Zealand. These issues, five in all-two each in 1967 and 1968 and one in 1969 amounted to almost $98 million of which only one loan of $20 million was issued in United States currency. The balance was offered in deutsche marks, with one issue denominated in both deutsche marks and pounds sterling. Most of the firm's other large public offerings were for foreign corporations and American companies doing business abroad, among them Gulf & Western International and the Dreyfus Offshore Trust.

In addition to providing foreign corporations and governments with traditional investment banking services, Kidder, Peabody often was asked to act, on a fee basis, as financial consultant and adviser. In July 1958, for example, the government of Venezuela appointed the firm and Kuhn, Loeb & Co. as its financial advisers. The two houses were assigned the task of establishing the country's "credit in the international investment market. The appointment," The New York Times commented, "is believed to be the first time in many years that a foreign government has formally designated private bankers as financial counsel."

Probably Kidder, Peabody's most unusual and complex foreign transaction occurred in Beirut, Lebanon. It involved saving from liquidation the country's largest bank, the Intra Bank, with assets of $500 million. Some of its largest depositors included the government and royal family of Kuwait, the government of Qatar, an independent sheikdom on the Persian Gulf, and the United States Commodity Credit Corporation. The latter had extended the bank a credit of some $22 million to finance purchases of surplus American wheat.

Several considerations contributed to Intra Bank's difficulties. Some of its depositors, attracted by high European interest rates, moved their funds out of the bank, and large withdrawals by oil-rich Arabs from neighboring countries helped weaken Intra still further. Perhaps even more important was the fact that the bank's officers had used deposits to invest in the equities of companies in and out of Lebanon. Intra soon found itself unable to meet the demands of its depositors. Knowledge of its troubles led to a run, and in October 1966 the bank was forced to close its doors. After several proposals to salvage the bank had failed to win the approval of all parties, Kidder, Peabody on its own initiative and with no previous connections with Intra advanced a plan in October 1967.

Kidder, Peabody's interest in salvaging the embattled bank originated with the firm's international group in New York. Convinced that Intra could be refloated, the firm sent representatives to Beirut to study and report on the situation. They, together with outside experts hired by Kidder, Peabody, analyzed the bank's assets and sought and won the cooperation of its major depositors. It took Kidder, Peabody almost fourteen months of delicate negotiations, with several of its executives shuttling back and forth between New York and Beirut, to prepare a plan that was satisfactory to all parties. The rescue package was designed largely by Richard F. Coons, an experienced investment banker who, at the time, co-managed Kidder, Peabody's corporate finance department. Coons' plan called for dividing the bankrupt Intra Bank into two institutions, an investment company to be called Intra Investment Company, and a commercial bank owned by the investment company and to be named the Bank al Mashrek. The depositors in the collapsed bank were to be paid in cash and in the stock of the new company. The completed plan was approved, according to The New York Times, "almost literally at the 11th hour." An official of the Commodity Credit Corporation in Beirut described the situation as the old bank's creditors waited anxiously for all sides to approve Kidder, Peabody's rescue plan. "We're sitting here with bated breath waiting for somebody to come in and save us," he said.

Kidder, Peabody collected a substantial fee for its work in Beirut. But more important than its compensation which, according to some accounts was at least a million dollars less than the firm originally had asked, was the fact that salvaging Intra opened new opportunities for Kidder, Peabody in an increasingly important part of the world. "We saw the growing importance of the Middle East," said a Kidder, Peabody officer, "and we wanted to become established there." The transaction also yielded the firm enough new business to justify its Swiss affiliate to set up a subsidiary in Beirut, Kidder, Peabody & Co. (S.A.L.), opened in 1973 and closed less than three years later. Arab investors with their bulging coffers of petrodollars preferred to invest their funds with bankers in New York, London, and Zurich. With its own foreign subsidiaries operating in these and other world financial centers, Kidder, Peabody no longer found it necessary or profitable to maintain an office in Beirut.
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