For the same reasons commercial banks calculate the yield of bonds differently from savings banks. To a savings bank a 5-year bond yielding 5 per cent payable semiannually, if bought at 95, would yield 6.2 per cent; to a commercial bank, which disregards the time element, such a bond would yield 5.26 per cent and be entered in the per cent rate, as the rates are usually figured in divisions of 14 per cent. This yield is obtained by dividing the amount invested into the annual income received (5 ÷ 95 = 5.26). A book is kept to show the average daily yield on all securities carried by the bank; at the close of the day's business the average yield is computed and the figures are sent to the general bookkeeper to be used in ascertaining the average daily income from all investments.
Other Books of the Bond Department Other books commonly kept in the bond department are the number book, the vault book, and a separate journal for each ledger. No description of transactions needs to be given in these journals, since each ticket can be entered under the number assigned to it and the transactions traced in this way. The bond journal would then be ruled with columns for ticket num ber, par value, principal and interest; and the United States bond journal with columns for ticket number, par value, and premium.
The numbers and denominations of all bonds purchased or sold for the bank's own account are recorded alphabetically in a number book, wherein the number of the purchase or sale ticket also may be the means of identification. When purchases or sales are made for customers through a broker, the numbers of the bonds may be recorded on the back of the sales ticket, instead of in the number book.
As a precaution against wrong action, it is commonly required that two men be present when securities are withdrawn from or placed in the vault. Each morning the securities to be with drawn are listed in the vault book, and at the close of the business day those received by the department and not delivered are entered in the same book. Every item in this book is checked against the journal tickets. In addition, the disposition of every bond must be accounted for, either by delivery against payment, as in the case of brokers, against a receipt from either the pur chaser of the securities or from the customers' securities depart ment, or against the affidavit of the registered mail or express letter.
All bearer securities are shipped by registered mail and in sured, unless specific instructions are received to forward them in some other manner.
A careful examination of all bonds received by the department is of the utmost importance, to see that they are properly signed and sealed, and, if registered, that a power of attorney, properly executed and guaranteed, accompanies the bond. If the bonds are in coupon form, it is essential that the next maturing coupon be attached.
Syndicates, Participations, and the Distribution of Original Issues As explained in Volume I, Chapter XI, in the flotation of large blocks of securities it is customary for a banking house or group of banking houses to contract with the issuing corporation to underwrite the issue. The agreement, of course, varies with
conditions. The contract may provide simply that the banking house or group of banking houses guarantee the sale of the whole issue within a given time at a minimum price; or in case the corporation handles the sale and does not succeed in selling the whole issue at the agreed price, the banking house or houses will take over the securities remaining unsold. The agreement may provide that the sale of the securities be conducted by the bank which took the initiative, the other members agreeing simply to take their proportion of the securities not so sold. The agree ment between the syndicate and corporation may be practically a joint purchase of the issue, the securities to be distributed at once among the members; or a single banking house may contract with the corporation to handle the sale of an issue of securities, forming a syndicate and allotting to other houses certain pro portions of the risk and profit.
Though syndicate operations are largely conducted by bond and brokerage houses, national banks and state banks and trust companies in the financial centers are often members of syndicates and participate in syndicate allotments. The securities are taken by the banks for their own permanent account or for sale to their customers and correspondents.
Commercial banks are prohibited bylaw from owning corporate stocks, and there are legal limitations to their dealings in bonds. The Comptroller of the Currency has sought to dissociate such banks from the bond business. For business reasons it is expedient that they carry only readily salable assets. As the syndicate operations of commercial banks are thereby much circumscribed, some of the larger banks have organized affiliated bond houses to take over their bond business, the shares of which are trans ferable only with shares of the bank. The control and profits of the bond house therefore belong to the bank stockholders, but the risk to the bank is lessened, while the bond house enjoys greater freedom in its operations in securities than does the bond department of a bank. Examples of such bond houses are the National City Company affiliated with the National City Bank of New York, the Chase Securities Corporation affili ated with the Chase National Bank of New York, the Shawmut Corporation with the Shawmut National Bank of Boston, the Guaranty Company with the Guaranty Trust Company of New York, etc.
No commercial banks maintain organizations for selling bonds through the country by personal salesmanship or by mail or other advertising. Most banks carry some bonds which they offer to customers and correspondents on application, and some banks sell small quantities of bonds to applicants over the counter.