Generally these banking houses are not incorporated. Though some have been in corporated in recent years, there is no no ticeable tendency in the direction of incor poration. Usually partnerships of varying size, ranging from two to fifteen or sixteen partners, carry on the business. Some banks, more especially trust companies, have in vestment or bond departments which do the work of investment banking houses in every respect.
These banking houses vary a great deal in the range of work they undertake. Some oc cupy themselves exclusively, or almost exclu sively, with municipal finance. Though they may get into other fields, they are likely to do so as brokers, or as a result of trading, or to carry some other kinds of securities to satisfy the needs of their clients. Such houses do not especially concern us. Other houses make the financing of public-service cor porations, other than steam railroads, their principal interest. Even in the field of pub lic utilities houses may specialize, as in the securities of gas, or of electric light and power corporations, or in the securities of street railway corporations.
While speaking of houses chiefly interested in the financing of public service corpora tions, we should especially mention certain organizations which carry on together the work of engineering and operating concerns and financing houses. They both operate and supply the funds for the corporations they are interested in. Sometimes they orig inally did the engineering work for the con struction of the corporations. Though such organizations are not numerous they are im portant. By reason of special skill and ability in their chosen fields they effect economies in operation and construction. They pur chase plants which have not proved profit able under the existing management and through their special skill turn them into profitable enterprises. Through the magni tude of their operations they can also effect economies in the purchase of supplies. Such engineering-banking organizations specialize in the field of public utilities more than do bankers who are not also engineers. A house of engineering bankers confines itself to gas plants or to electric light properties or to street railways.
Other banking houses concern themselves especially with financing the: steam railroads. Only two or three have the necessary capital and financial connections to handle the larg est issues of railroad securities. Railroads, however, often have smaller issues, as for the construction of branch lines or for the purchase of equipment, within the financial ability of ten or a dozen other houses, and commonly these other houses get the financ ing of such issues. Many houses which do not act directly as bankers for railroads, or seldom do so, still make railroad financing their principal interest by participating in underwriting transactions and acting as dis tributors of the securities. A good many banking houses have refused to go outside of these fields. They take the general ground that only a municipal bond, secured by the taxing power of some governmental agency, or a bond of a railway or other public ser vice corporation, with its relative stability of earning power as pointed out in the chap ter on "Trading on the Equity" in the first volume, afford the proper basis for safety. Further, under modern conditions these en terprises are relatively non-competitive. In spite of franchise difficulties they do not lie as open to attacks tending to a rapid de struction of values. Hence, that especially indeterminate element, the quality of the management, though very important, does not assume the relative importance in a rail road or other public service enterprise as in an industrial undertaking. The general class of public service business makes it more subject to analysis and to the deduction of general principles than is the case with an in dustrial enterprise. Therefore the banker can formulate and apply tests from experience with a greater assurance that his judgment is sound. For these reasons many banking houses interested in the financing of corpora tions have refused to go outside of the public utility field. There is no reason why a bank ing house, recognizing the liability of indus trial corporations to greater fluctuations in earnings, and in other ways the greater busi ness risks involved, should not undertake the financing of industrial enterprises, and many do.