200. Commercial Credits, - The Financing Of Exports And Imports

During the past ten years there has grown up a system of interrelation between the import houses and the bankers which is entirely different from anything that has ever been seen before. Due, probably, to our territorial expansion and the great gain in our foreign commerce, there has been an enormous increase in the amount of banking capital used in mercantile business and a corresponding cementing of the ties between the merchant and the banker.

Twenty years ago the financing of imports and exports at any given commercial center was concentrated in the hands of two or three bankers who understood the business and made a specialty of it. To-day there is hardly a leading banking house which does not engage in foreign exchange business and hardly a foreign exchange manager who is not doing some sort of a commercial letter of credit business. At a point like New York, for instance, there has been a complete change within ten years in the personnel of the banking fraternity which is backing the operations of the import and export houses. The private banker has given way entirely to the institution. Even the trust companies are engaging in this business on a large scale.

Commercial credit business has come to play so important a part in the operation of the up-to-date bank, and is so little understood even by many of those well informed in most other departments of banking, that it is well worth while to pause and look carefully into the principles on which the business is grounded. A description of all the various forms in which it is being worked would require a volume in itself; but there is one main operation around which the system is built, a clear understanding of which will make it easily possible to grasp the more complicated forms of the business.

Credit No............................. (Copy)

£..........................Sterling

Guaranty Trust Company Op New York

New York,..........................................................191....

To the Guaranty Trust Company of New York, 33 Lombard Street,

London.

Gentlemen:

At the request and for account of........................................................

we hereby authorize........................................................................................................

or any other parties whose drafts you may be directed by........written order, or by us, to accept under this credit, to value on you at....................................for any sum or sums not exceeding in all................................................................................

Pounds Sterling (say £....................Sterling) to be used as............ may direct for........................................invoice cost of....................................................................

to be purchased for account of....................................................................................

and to be shipped to a................port in the United States........................................

The Bills must be drawn in................................................................................

............................................prior to the first day of....................................................

and advice thereof given to you in original and duplicate, such advice to be accompanied by Bill of Lading filled up to order of the Guaranty Trust Company of New York (with copy of invoice) for the property shipped as above.

All the Bills of Lading issued, except one sent to us by the vessel carrying the cargo, and one retained by the captain of the said vessel, are to be forwarded direct to you. Copy of invoice, properly certified by the U. S. Consul to be forwarded to us by the vessel, also advice of each Bill drawn.

And we hereby agree with the drawers, endorsers, and bona fide holders of Bills drawn under and in compliance with this credit, that the same shall be duly honored on presentation at your office in London.

We are, Gentlemen,

Your obedient servants, Guaranty Trust Company of New York, by

....................................................

...............................................

Manager.

N. B. Bills drawn under this credit must be marked Drawn under Guaranty Trust Company of New York

Letter of Credit No.....................dated................................

for£................................................

Insurance in order at........................................................

New York,..........................................................191...

To the

Guaranty Trust Company Op New York

Gentlemen:

Having received from you the Letter of Credit of which a true copy is on the other side, I / we hereby agree to its terms, and in consideration thereof I/we agree with you to provide in New York, twelve days previous to the Maturity of the Bills drawn in virtue thereof, sufficient funds in cash, or in Bills on London, satisfactory to you, at not exceeding sixty days' sight, and endorsed by me/us, to meet the payment of the same with................................per cent. commission and interest as hereinafter provided, and I/we undertake to insure at my/our expense, for your benefit, against risk of Fire or Sea, all property purchased or shipped pursuant to said Letter of Credit, in Companies satisfactory to you.

I/we agree that the title to all properly which shall be purchased or shipped under the said credit, the bills of lading thereof, the policies of insurance thereon and the whole of the proceeds thereof, shall be and remain in you until the payment of the bills referred to and of all sums that may be due or that may become due on said bills or otherwise, and until the payment of any and all other indebtedness and liability now existing or now or hereafter created or incurred byme / us to you on any and all other transactions now or hereafter had with you, with authority to take possession of the same and to dispose thereof at your discretion for your reimbursement as aforesaid, at public or private sale, without demand or notice, and to charge all expenses, including commission for sale and guarantee.

Should the market value of said merchandise in New York, either before or after its arrival, fall so that the net proceeds thereof (all expenses, freight, duties, etc., being deducted) would be insufficient to cover your advances there against with commission and interest, further agree to give you on demand any turth security you may require, and in default thereof you shall be entitled to sell said merchandise forthwith, or to sell "to arrive" irrespective of the maturity of the acceptances under this Credit, I / we being held responsible to you for any deficit, which I/ we bind and oblige myself / ourselves to pay you in cash on demand.

It is understood that in all payments made by me / us to you in the United States. the Pound Sterling shall be calculated at the current rate of exchange for Banker's Bills in New York on London, existing at the time of settlement, and that interest shall be charged at the rate of five per cent. per annum, or at the current Bank of England rate in London if above five per cent.

Should I/we anticipate the payment of any portion of the amount payable, interest is to be allowed at a rate one per cent. under the current Bank of England rate.

In caseI/we should hereafter desire to have this credit confirmed, altered or extended by cable (which will be at my / our expense and risk), I/we hereby agree to hold you harmless and free from responsibility from errors in cabling, whether on the part of yourselves or your Agents, here or elsewhere, or on the part of the cable companies.

This obligation is to continue in force, and to be applicable to all transactions, notwithstanding any change in the composition of the firm or firms, parties to this contract or in the user of this credit, whether such change shall arise from the accession of one or more new partners, or from the death or secession of any partner or partners.

It is understood and agreed that if the documents representing the property for which the said Credit has been issued are surrendered under a trust receipt, collateral security satisfactory to the Company, such as stocks, bonds, warehouse receipts or other security, shall be given to the Company, to be held until the terms of the credit have been fully satisfied and subject in every respect to the conditions of this agreement.

It is further understood and agreed in the event of any suspension, or failure, or assignment for the benefit of creditors on my / our part, or of the nonpayment at maturity of any acceptance made by me/us , or of the nonfulfillment of any obliga-tion under said credit or under any other credit issued by the Guaranty Trust Company of New York on my / our account, or of any indebtedness or liability on my / our part to you, all obligations, acceptances, indebtedness and liabilities whatsoever shall thereupon, at your option then or thereafter exercised, without notice, mature and become due and payable.