Victorian London - Publications - Etiquette and Advice Manuals - Guide to the Unprotected in Every-day Matters relating to Property and Income, by a Banker's Daughter, 1874 - Chapter IV - Shares - Loans - Mortgages

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WHEN a new undertaking, such as a Canal, Railway, Gas, Water-works, &c., is about to be commenced, the first thing is to raise money or Capital to meet it, which is generally done by offering Shares to the Public, say of 100 or 50 each. If 1,000 is wanted, the Company may offer ten Shares of 100 each, or twenty Shares of 50 each.
    At the end of each year, the sum which has been received by the Company, after paying all necessary expenses of management, keeping in repair, &c., is divided equally among the Shares. Suppose 500 is cleared at the end of the [-94-] year and there are one hundred Shares, there is sufficient to pay a Dividend of 5 on each Share.
    As the traffic is not always the same, so the Dividends are not always the same, but vary; and should a second Canal or Railway be made, more convenient to the Public, it would, of course, materially reduce the traffic, and consequently the Dividend, of the first; and that would lower the value of the Shares. This is one reason why Shares are less desirable than Bonds, Loans. &c., which do not vary in their value.
    The Shares are sometimes turned into Stock, which has this convenience: You may buy any quantity, large or small, but you cannot buy a part of a Share.

    Premium.  If the Railway or Canal is prosperous and the Dividends are good, the price will he regulated accordingly, and purchasers will have to give more than 100 for 100 of Stock  say 102; this is called being at [-95-] 2 premium. If the market price be exactly 100, it would be "at par."

   Discount. On the other hand, the Railway or Canal Company may not pay a good Dividend, owing to the want of traffic, or there may be a want of confidence in the management, or the fear of competition. The Shareholders may take fright, and wish to get out of the concern, and be willing to part with their Shares or Stock for an amount under the 100 say 97; this is called being at 3 discount.

    The price of Shares is influenced by many other causes than the above. Shareholders should not therefore be alarmed, every time the Shares go down, and sell out, but be advised by some competent man of business before selling out at a loss.

    Preference Shares. A Company sometime wants to increase its Capital. Perhaps the Rail-[-96-]way or Canal requires lengthening, to reach some other town, and money is wanted for the purpose. One plan is to create Preference Shares; thus, the Company first gives to its existing Shareholders the option of taking Preference Shares, of an amount the Company may fix viz. 10, or 20, or 50 Shares, and those they do not take are then offered to the Public. The Dividend upon these Shares is fixed, say 4 or 5 per cent., and is paid in preference, i.e. before the Dividend upon the original Shares.
    The advantage of these Preference Shares is, that even if the concern should not be flourishing, still the Dividend on them will be paid, as long as the net annual income is sufficient, even if there is nothing left to pay anything to the ordinary Shareholders.

    New Shares and Calls Another way adopted by a Company to increase its Capital, is, by creating new Shares. It offers to each Shareholder as many new, as he has original Shares, [-97-] or in such proportion as the Company may choose to offer them.
    Suppose you have two old Shares, it offers you two new ones of 20 each; on which it "makes a Call" of 2 a year, or at such intervals as it wants money, till the 20 is all paid up. You pay the 2 when called for, and for that you are paid at the same rate of Dividend as on the old Shares, unless otherwise agreed upon. Should the Company be prosperous, you may sometimes sell them immediately, at a premium there are cases when you may sell the Share on which you have paid only 2, for 5, viz. 3 premium. You should always accept these promising Shares when offered, if you hear they can be sold at a premium, because you may sell them and make money, or you can keep them yourself, and pay the Calls when they become due. These Calls are useful to those who save money, as a mode of investment for small sums, as no expense attends the investment.

     [-98-]  Bonus. Sometimes when a Company has a large accumulation of profits remaining, after the usual dividend has been paid, the surplus is divided among the Shareholders, and is called a bonus. Most of the Insurance Offices adopt this plan. They keep a good surplus in hand, instead of dividing the whole profits, to enable them to meet unusual and unexpected calls, and this surplus, when it increases above a certain sum, is divided among the Shareholders as a Bonus.


     Another way which Companies have of raising money, is by Loans on Debentures or Debenture Bonds. They want perhaps a large sum at once, to make some great improvement, which they hope by degrees to pay back. They then offer to receive Loans from anybody, either for a certain term of years, or subject to a six months' notice, paying a certain interest, which varies [-99-] according to the then state of the Money Market, perhaps 3 or 4 per cent., which careful people arc glad to accept, because of the safety of their principal.
    The more unsafe the concern, the higher the interest it offers, in hopes of catching the reckless and unwary; but an inexperienced person should consider, that if money can be borrowed by safe concerns for 4 per cent. no Company would offer 5 or more, unless they knew their credit was not so good. This high interest is often paid out of the capital, as long as it lasts, and when that is gone, the whole concern comes to an end, and the lender may be ruined. Where the concern is good, and the interest fair, a Loan on Debenture Bond is one of the safest and best ways of investing money; as at the end of the term you have the whole of your money back, and the interest on Loans is paid before the dividends on Preference or other Shares.



     A person wants, perhaps, to raise a sum of money. He does not like to sell his land, therefore he offers a Mortgage upon it. Say he wants 1,000. You, wanting to invest that sum, lend it to him, at the interest of the day say 4 per cent.; and he gives you as security a Mortgage signed by him, and the Deeds of his Estate, which should be to the value of 1,500 at the least, so that, if he fails to pay you back your 1,000 at the time fixed, you can sell his Estate, and, after paying all the expenses of the sale, find a sufficient surplus to insure the repayment of what you lent.
   A good Mortgage is an excellent investment, but much care is necessary, and your own Attorney should always carry out the transaction, and should examine the title and ascertain that there has not been a previous Mortgage raised upon the Estate, and that the person may be depended upon for paying the interest regularly, as you [-101-] would naturally hesitate before having recourse to legal measures to obtain it. Here, as in Loans to Companies where a higher percentage is offered than is given by the Money Market, you may be sure that there is some difficulty in borrowing, owing to the credit or security not being good, as no man will offer more interest than he is obliged. The Borrower always pays his own expenses, as well as the expenses of the Lender, and the Lender's Attorney.
    Buildings, and especially trade buildings, are much less satisfactory securities than land.
    Lending money on Mortgage requires great caution, as well to the security as to the character of the person borrowing. Unsuspecting persons have often been victimised, when all has previously appeared properly done.
    Suppose Lady A. lends money to Mr. B., on the understanding that the whole money is to be repaid, say at the end of seven years, and that 4 per cent. interest is to be paid to Lady A. each year. Now suppose B. neglects to pay interest. [-102 -] Lady A. wants her money; but, too late, she finds that she cannot make a legal title to sell B.'s land. This may go on for years, till poor Lady A. is only too happy to sacrifice all the interest due to her, so that she may get her principal again, which is just the fraud this Mr. B. has meditated upon all along.
    It may be suggested that the Lawyers should see to this. But, in practice, it often happens that Ladies are quite indignant at the suggestion of their Lawyer, as to the character of the borrower, who may be a personal friend or a connection of a deceased husband, and has attracted her partisanship by means of a persuasive tongue.
    A Mortgage should always contain a power for the Lender to sell, in the event of the interest falling into arrear.

    Title-Deeds of an Estate are the visible tokens of the ownership of the person in whose custody they are; and, when buying, or lending money [-103-]  on the Mortgage of an Estate, if you always make a point of employing your own Attorney to carry out the purchase or mortgage, he will be bound to see that they are either given up to you, or that the person, entitled to the possession of the Deeds, enters into proper covenants for their production. You should never part with the Deeds, or allow them to be seen except under the advice of your Attorney.


    Inquiry about a proposed Investment:

Miss G , who wishes to invest about   in a Loan to the Company, presents her Compliments to Mr. A , and will be obliged to him to answer the following questions, and write them down in ink on this paper, and return it to her.
She has left a space for the answers, and enclosed a stamped envelope, ready directed to herself, to save unnecessary trouble.
   [-104-] Can the Company receive the sum of on Loan on Debenture Bond?
When ?
What interest will be allowed?
When is it payable?
Who are the Company's Bankers?
How can the money be sent from the Bank at ?
Is notice required, and if so, how much, previous to withdrawing the money?

    Address to at .

   If anything occurs necessary to mention, Miss G requests Mr.  A to do so.

     (Add date.)

    If the Company say they will accept the Loan, send a cheque for the amount to your own Bankers, and request them to pay it to Messrs., the Bankers of the Company.
    Then write and inform the Secretary of the Company, and request him to send you the Debenture Bond.
    [-105-] When Dividends are in arrear, write

    Gentlemen, Not having received the Dividend due to me for the Share I hold in your Company, I shall be obliged by your forwarding it to Messrs. , Bankers in London, to be placed to the credit of my account at the Banking Company in .

(Sign name ; and date and address.)

    Useful forms of letters to your Banker or your Broker, or the Secretary of a Company:


 (1.) Sir, Can you recommend me a safe investment for about 600. I do not wish to exceed that sum, including all expenses.
                                    Yours faithfully,


(2.) Sir, I wish to invest 1,000 in Railway four per cent. perpetual Debenture Stock. Please say whether your Company has any to allot, and on what terms, and how I am to proceed.

 To the Secretary Railway company.


(3.) I am desirous of investing some money in fully paid up Shares of the Railway Company. The whole sum  not to exceed , including all expenses.

(4.) Sir,  Please to sell for me Six Shares in Company, at the market price (or not under Pounds). Please to pay the amount realized to my credit at   Bank.

 (Name, date, and address.)

(5.) I beg you to inform me what sum I am to pay if I take one of the new Shares offered to me in the B Company.

(6.) I have written by this Post to my Bankers. Messrs.   in Derby, requesting them to re,mzzt to remit to your London Bankers, Messrs. Coutts, the sum of Pounds, for the (two) new Twenty Pound Shares that are allotted to me as Proprietor in the Company.

    I request a receipt for the money.

[-107-]  (7.) I beg that my Dividends may be paid to my account at Messrs. in Derby.

(8.) I am a holder of M Railway 4 Preference Shares (2 paid) and am desirous of paying up the remaining 2 per Share at once. Please to furnish me with the necessary document to enable me to do this.