L’article suivant est extrait de la Revue du 50e anniversaire de l’Association de Montréal des négociants en obligations (Montreal Bond Traders’ Association). Réalisées par des experts issus du milieu du courtage financier, les analyses couvrent la période qui s’étend de 1927, date de la fondation de l’Association, à 1977.
Les auteurs rappellent que la communauté montréalaise des négociants en obligations regroupait 35 personnes au moment de la fondation de l’Association, en 1927. Retraçant l’évolution du courtage financier à Montréal, Cox et Sheward montrent comment des évènements comme la Dépression (années 1930), les Obligations de la Victoire (début des années 1940) et l’augmentation rapide des emprunts gouvernementaux (années 1970) ont transformé le métier des gens de la rue Saint-Jacques.
Le numéro complet de la Revue du cinquantième anniversaire du Montreal Bond Traders’ Association est disponible au téléchargement ici
THE HISTORY OF THE MONTREAL BOND TRADERS’ ASSOCIATION
By Murray Cox, Investment Dealers’ Association of Canada and Fred Sheward, Tassé & Associés, Limitée.
Prior to the first world war, much of the capital required by Canadian government and businesses was raised in the United Kingdom. The comparatively small proportion sold in Canada was purchased by institutions as the individual investor was not only unsophisticated but facilities to service him were quite limited. Two basic changes occurred in the decade prior to 1920. Firstly, interest rates in Britain rose steadily while the rise in Canada and the United States was comparatively quite moderate with the result that the United Kingdom no longer constituted an attractive source of funds while Americans became willing lenders to Canadian borrowers, a situation which still prevails. Secondly, at the same time, Canadian investors became interested in increasing their ownership of new Canadian securities issues. This development as largely brought about by the establishment of a huge selling organization to distribute nationally to the public, the 1917 War Loan issue. Planning of this operation was co-ordinated by the Bond Dealers’ Association (predecessor of the Investment Dealers’ Association of Canada) at the request of the Minister of Finance. The last three War Loans in 1917-1919 attracted unprecedentedly large demand despite a bond market which had suffered serious deterioration. For example, orders for the 1918 issue exceeded $690 million from over 1,000,000 subscribers. An important and interesting corollary was that no part of these issues was acquired directly by the chartered banks. Canadians had become bond buyers and bond dealers expanded their operations to enable them to underwrite Canadian securities and distribute them to Canadian individual and institutional investors. From their inceptions, the Montreal and Toronto Exchanges had listed bonds and such trading as occurred was on the exchange boards on an agency basis. Bond and debenture underwriting activity in Canada expanded rapidly as the economy prospered in the 1920′s and direct dealing between bond dealers and investors became increasingly important with an « over-the-counter » market replacing bond trading on exchanges the volume on which became insignificant. The bond market developed quickly as dealers recognized individual investors’ interest in trading War Loans for other new Canadian securities issued by provinces, municipalities, utilities and corporations. The combination of underwriting and principal trading within investment firms resulted in a solidly based trading community by 1927 and much greater liquidity in debt securities. Undoubtedly, the basis for the growth of a secondary bond market was the War Loan issues. Andy Armstrong was a· young man in his twenties when the War Loans were distributed. « Canadians were not really investment-minded in those days, » he recalled. « More than any other vehicle ever before, the selling of War Loan bonds taught the Canadian people how to invest. » Later, the 1931 « conversion » of these War Loans brought about a further stimulus to bond trading.
In 1927, the bond trading community in Montreal consisted of some 35 men who spoke to each other several times a day on the telephone, but who rarely saw each other either socially or in a business capacity. An idea grew that some kind of social organization might be desirable and useful and with this in mind, a meeting was held at the Windsor Hotel in October of 1927. After William Barr and Casey Collier put forth a proposal for organization, a vote was taken and the Montreal Bond Traders’ Association was formed. Officers were elected. William Barr of Royal Securities was the first President and Andy Armstrong, then also with Royal Securities, was secretary. Other officers were Casey Collier of Wood Gundy, Hec Vidricaire of Ames, H.J. Stephenson of Greenshields and Hank Rath of Nesbitt Thomson. As far as can be ascertained, the Montreal Bond Traders’ Association was the first such organization on the North American continent. The New York Securities and Trade Association and the Toronto Bond Traders’ Association were fonned shortly afterwards. Unfortunately, no minutes were taken at the early meetings of the Association, but old timers recall that it was formed originally as an investment trust, an idea introduced by William Barr. Only bond traders could participate. Each member put up $225 and a committee was formed to look after the investment of the funds, which in 1927 totalled some $3,000. The agreement was that members could withdraw their money if they weren’t satisfied with the handling of the funds. In the first few years, the trust prospered, but as markets deteriorated, culminating in the crash of 1929, the inevitable occurred. Membership was limited to individuals rather than firms. This is perhaps unique and somewhat surprising since most of today’s investment dealers (or their predecessors) were operating then. Ames, Beaubien, Bell Gouinlock, Dominion Securities, Greenshields, Leclerc, Mead, McLeod Young Weir, Nesbitt Thomson, Pitfield, Royal Securities and Wood Gundy were among the major firms of the twenties. The list then also included Hanson Brothers, one of the oldest firms which went out of business in the late thirties. The designation « bond trader », an individual, not a company was the criteria and, thus, bond traders from financial institutions were eligible for membership and many joined over the years.
The « Great Depression » had an immense impact on Canadian commercial enterprises and the value of their securities. Most real estate operations – hotels, office buildings, etc. – went into bankruptcy. Times were difficult for most utilities and worse for industrial companies. Especially hard hit were paper companies and railroads. Many of these corporations were unable to meet interest payments on their debt securities – some issued stock in lieu of interest payments – othern simply defaulted. Such bonds were traded fiat with past due coupons attached. Many had two or three pay features and most had first mortgage security. Sorne traded as low as two or three cents on the dollar. Among the more active trading issues were « Abbies » (Abitibi 5′s of ’53), « Connies » (Consolidated Paper 5Ws of ’61), « M & O’s » (Minnesota and Ontario Paper 5′s of ’59) and « Banana Boats » (Canadian National West Indies Steamships 5′s of ’55). Algoma Central was the most active railway issue, with the supply coming from London. Government bonds did not escape unscathed either although interest rates tended to decline during the twenties and thirties. Trading levels for many government issues were affected by uncertainties, interest rates in foreign markets, exchange rates and fears of default. Trading activity, particularly in defaulted corporate bonds was quite active. Investors with the money and foresight to buy these bonds at « bargain » prices and the patience to hold them were handsomely rewarded. One who did was Isaac Walton Killam, a legend in Canadian financial circles, and a millionaire by the time he was 22. William Barr and Andy Armstrong were Mr. Killam’s bond traders. Andy recalls that Mr. Killam got out of the market in 1928, and didn’t buy again until 1932 – at which time he bought millions of bonds. « His understanding of the market and his timing were excellent ». Killam also had a sense of the impact of world events at a time when markets were extremely volatile. » I remember asking him once what he thought of the market, » recalled Mr. Armstrong, and he said to me « Well, you tell me what President Roosevelt’s going to say, and 1’11 tell you what the market is going to do. » During the depression, the psychological as well as the actual effect of hard times was felt at every level of the economy, from the corner store to the largest banks. Uncertainty and dismay at and lack of confidence in Canadian economic conditions were prevalent. Nevertheless, the major bond houses, although perhaps periodically technically insolven t, withstood the times. Sorne Montreal houses thrived on trade in defaulted securities. Hart Smith and his brother Bunk were heavily involved in this type of trading as was the Kippen organization. Among the more prominent bond traders of the thirties were Casey Collier (later to become president of Collier, Norris and Henderson) and Harry Griffin of Wood Gundy, David Carstairs of Hannaford Birks, Hank Rath of Nesbitt Thomson, Frank Evans of McLeod Young Weir, Hec Vidricaire and Freddy Styles (later controller of sinking funds for the Quebec government) of Ames, Jimmy Henderson of Dominion Securities, Jim Langill of Pitfield, Herb Plow and Andy Armstrong of Royal Securities, Armand Brise bois of Beaubien, Aristide Cousineau of Leclerc, Guy Major of Canadian Alliance, Bert Allman (a former banker who saw the light), Joe Bolton of the Bank of Montreal, Ted Atkinson (later general manager) and Glen Glencross of the Royal Bank, Jack Piper of Ames, Barry Smith of Hart Smith, Albert Ayer of McKenzie & Kingman, Tony Mallon of McLeod, Ted Orde of Fry Mills Spence, Ollie Allman of Collier Norris, Joe Leddy of Wood Gundy, Reg Buzzell of National City Company, Bill Mussell and Tim Brockwell of the Royal Trust. Surviving old timers fondly remember others active in the business including Fred Chapman (« Chappie ») of Ames who trained so many bright young men so well, Reg Dean of Nesbitt Thomson, Percy Baker of Johnston and Ward, John McConnell of Nesbitt Thomson, O.B. Hastings of Hanson Brothers, Amie Domingue of Leclerc, Grahame Johnson of Ames, Elzear McNeil and George Sherwood of Beaubien, Rallie Giroux of the Société Général de Finance and Jules Couture of Desjardins Couture. Also Miss Rita Broadhurst, the first lady bond trader on the street who later was a financial analyst with Beaubien. As the years progressed, the Association established the tradition of holding annual dinner meetings. Another tradition – now discontinued – was to invite a prominent speaker to each dinner. One of the best known was Camillien Boude, who was the guest speaker in 1939, but for some reason was not told that he was to speak until he was at the dais. This didn’t phase the Honourable Mr. Houde, who off the cuff, delivered what is agreed to have been the most outstanding speech given at any of the Association’s fonctions. Not quite as fortunate was a local judge, a gifted imbiber, who fancied himself as a speaker. He delivered an oration of fire and wit. Unfortunately, as he sat down at the end of his eloquent speech he missed his chair, and disappeared beneath the head table. Another colourful tale about the annual dinners of the late thirties is told by Bill Dwyer of Hanson Brothers, who was secretary when Fred Styles was president. « We had arranged to have a floor show corne in from the old Tip Top that used to be on Stanley Street, including a stripper. My job was to take care of the floodlight for this girl. So when the chorus line had finished their bit and the stripper came on, 1 was teeing up my floodlight, when every light in the place went out. I still haven’t been able to explain this event to anyone’s satisfaction, nor to establish my innocence. » Other social activities were started in the decade of the thirties. The Shawinigan Water & Power Company invited the bond traders to Shawinigan Falls where the company entertained with food and drink at its golf course. This marked the beginning of the annual golf tournament, an event which now attracts some of the most incompetent players in Canada. The annual oyster party also had its start in the pre-war years. Literary efforts of the period include a review called the Gyppers which was first published in 1927 and was later replaced by the Financial Roast. By editorial admission both were « entered as lowest class material in any post office anywhere ».
The second world war brought many changes to the dealer fraternity. Canadian output was directed to the war effort and industrial activity was financed largely by the government. With durable goods, such as automobiles, in short supply, the public was urged to save money. The Canadian government organized the sale of an ideal vehicle which combined saving and patriotism – the Victory Loan Bond. Based upon experience gained with the War Loans of the first war, Victory Loan campaigns became a fine art. The National War Finance Committee arranged for the widest coast to coast coverage ever attained in distributing securities. Corporations, governments, employees, members of the armed forces were all canvassed and a door-to-door campaign was organized. Personnel from investment firms including management, traders, salesmen, secretaries and bookkeepers were « loaned » to operate the campaigns and make them fonction while the firms got along with skeleton staffs in their own offices. Many Montreal bond traders were involved. Casey Collier, Gordie Wilkins, Jimmy Henderson and Tim Baldwin were in Ottawa while others were organizers or team captains throughout the province including Andy Armstrong, Alf Duffield of Wood Gundy, Phil McKenzie of McKenzie & Kingman, Peter Kilburn of A.E. Ames (later C.E.O. of Greenshields), Aristide Cousineau of Leclerc, Paul Brault of Brault Chaput, and Bob Haldenby of Dominion Securities. Andy Armstrong, team captain for Mount Royal Park Extension, recalls that he recruited and trained a group of salesmen from all kinds of business for a door-to-door coverage of the area on a commission basis. « I told my men they could have the commission and pay incarne tax on it, and they said they would sell Victory Bonds without commission. In the end, they were allowed to donate their commissions to charity, without income tax. The donations amounted to almost $40,000 in all, just from Mount Royal ». The Montreal Bond Traders’ Association contributed to the war effort not only in offering financial expertise, but in more personal ways as well. Many bond traders had enlisted at the outbreak of the war, and served all over the world. The Association made efforts to keep in contact with these members, and many remember the packages that arrived from fellow bond traders at home, filled with cigarettes, candy and dry socks. Communications among the bond traders during the war years were often nothing short of 15 remarkable. Bill Dwyer tells the story of one official communique. « I was married in England in 1943. Things were not so easy to corne by in those days, but we did manage to get a reception put together at the Park Lane Hotel in London. During the reception a cable came in from Dent Lewis, who was then president of the Montreal Bond Traders’ Association. 1 opened it, and without thinking read it aloud. ‘Congratulations, and may you always have firm offerings’ . » New faces entered the scene during the forties. Among those were Dent Lewis and Walter Fraser of the Bank of Montreal, Phil Larose of the Provincial Bank, Floyd Innis of the Sun Life, Jack Brookes of Greenshields, Eldred Godwin of McLeod Young, Lyle Keating of Nesbitt Thomson (who after his accident was taken to the office for years by Art McCormick), Pete Martin of the Royal Bank, Eddie Turner of Ames, Trevor Thomson of Molson, Eddie Mulqueen of Mills Spence, Dudley Byers of Kidder, Ralph Tyler of Jenks Wynne, Bob Hills of Royal Securities, Bernie de Breyne and Freddie Senecal of Beaubien, Ernie McAteer of the Bank of Nova Scotia, Jean Ostiguy of Morgan Ostiguy and Jules Lemire of the Banque Canadienne Nationale. After the war, the government and more particularly its fiscal agent, the Bank of Canada were faced with the dilemma that most Canadians held government bonds and wished to sell them to buy all the items they had been deprived of during the war years. It was reasoned that, as in the past, there would probably be a depression in the post-war period as the war effort ground to a halt. To encourage economic stability through increased consumer spending, the Bank of Canada « supported » the market for Victory Loan issues by posting bids every morning. Over a period, these bids rose to substantial premiums over issue prices so all the war time investors had a chance to profitably disinvest. Ultimately, when it became apparent that no depression was going to occur and supplying credit in huge amounts had potential inflationary tendencies, the Bank abruptly stopped calling markets, creating near panic. It was then that bond traders’ expertise became truly valuable through being able to restore orderly markets until the Bank came back in. « I think we were in a position to give the Bank some idea of what markets were » noted Andy Armstrong. It was not long before the Bank of Canada decided to encourage bond traders to call their own markets with the central bank only intervening, for the most part, by responding to dealer markets when it was considered to be necessary or desirable.
The easy money policy and lower 16 interest rates of the later forties were replaced with a decline in the bond market in the early fifties. However, trading activity was sufficiently solidly based to enable continued liquidity in bond markets. Most of the corporations which went bankrupt in the thirties had been re-organized and new interest paying debt had replaced defaulted bonds. Most municipalities which had been in trouble had also re-organized. The year 1952 will live in infamy as the beginning of that time-honoured bond traders’ tradition: The Great Bun Throw. It was the 25th anniversary of the Association, and to mark the occasion, the planning committee had booked for the annual dinner an act called « The Drunkard », which was playing at the Astor Cafe. The site was the Mount Royal Hotel. Unfortunately, the buns at the tables were in the shape of miniature footballs. As the act progressed, it was apparent that the audience – by this time feeling quite mellow – did not like « The Drunkard ». Someone threw a bun at the stage. It was an act that will take its place in history with the driving of the last spike of the CPR. In a few seconds, the stage was absolute bedlam, with buns flying fast and furiously. The cast of « The Drunkard » beat a hasty retreat back to the Astor. Around that time the Association arranged for a special train with dining car for a trip to Que bec City. On arrival Brig. Gen. Grenier of Grenier Ruel had arranged for cars at the station to give us a tour of the City and we were entertained by the government for cocktails and evening dinner at the Inn on Lac Beauport. The special train arrived back in Montreal at 1 :OO a.m. completing a wonderful day at a cost of $6 per member. Among those appearing in the photographs taken that day were: Bob Telfer, Grahame Johnson, Eric Wright of Crabtree & Co., Harry Cummings and Truman Donnelly of the Royal Bank, Alf Bridges, Jean Lebeau, Brock Tate, Johnny Loudon, Mac MacAtier, Charley Hay, Paul Fisher of Ames, Yvon Leonard and Guy Brunelle of Beaubien, Tim Brockwell, Bill Pepall of Bell Gouinlock, JeanClaude Blais and Gilles Lazard. Sorne others who were prominent in the fifties and may not appear in the picture were Lloyd Garrett of Nesbitt Thomson, Peter Betts of Richardson Securities, Jim McLaughlin of Wood Gundy, Gerry Reilly of Equitable, Howie Neville of Gairdner, Joe Pope of Bank of Montreal (who was very active in the Blocked Sterling market and was also instrumental in having a transfer agent established in Canada for Hudson’s Bay stock). Later in the decade the bond traders took the train to Ottawa to watch the Roughies in action. Arriving in Ottawa they found the bars closed, so they made a sicle trip to Hull to prepare for the game. Later in the afternoon, Walter Fraser was seen in the bleachers throwing a bottle of scotch to Lloyd Garrett as if it were a football. Big Tex Coulter, about 275 pounds of muscle, was playing for the Alouettes that day. The bond traders can still remember little Walter Fraser running across the field and attempting to tackle Big Tex. Among the disasters of the late fifties was the oyster party held at the Molson Brewery in the east side of town. About 100 members had waded through the first few rounds of beer supplied by Molsons when it was discovered that no one had remembered to buy the oysters. Nobody seemed to be too upset at the lack of oysters with the possible exception of Basil Howard who complained quite noisily. October 1953 saw the beginning of the money market and the advent of high volume low-profit trading of various types of short term securities. A great deal of mystery surrounded these activities in the early developing years. Rolf MacKeen of Richardson Securities remarked recently, « I remember that the Bank of Canada would not deal with branch offices in those days, » he said. « They changed that ruling about a year later, however ». Tom Boland, who was for many years chief of the securities department at the Bank of Canada in Montreal (Uncle Tom’s cabin) recalls: « People would telephone us and ask who the money market dealers were, and we weren’t allowed to tell them ». Originally, there were about a dozen money market dealers, who gradually became less anonymous. Also in the early fifties, mining companies required financing. Uranium companies were springing up like mushrooms, and with them the issuance of bonds to finance their development. Big names in that period were: Denison, Gunner, Rio Tinto, Farraday, Stanleigh and Milliken Lake. Most of the issues were fairly short term, ten years or less. Since few were established companies, many issues had bonuses of stock or warrants attached to make them attractive to investors. Peter Betts recalls: « Sorne of them were pretty doggy. We wondered if ail of them were going to be paid off, until we found out that a lot of bonds were being bought by the Vatican ». As the mining market wound down, it was replaced by pipelines financing, most of it very large. Interprovincial Pipelines was one of the first and a junior convertible debenture issue created a furor by trading up to 400 not too long after issuance. Perhaps the nature of pipeline companies was not fully understood at the beginning but trading activity was extremely brisk. After Interprovincial came Westcoast Transmission and TransCanada Pipelines followed by issues of distributing companies. It was not until 1954 that the association took out letters patent under the Quebec Companies Act and the incorporation was actually dated the fourth of November, 1954. The people mentioned in the incorporation were associated with the following companies at that particular time – Roger Keast of Dominion Securities, Stan Jeffrey of Gairdner, Gerry Perreault of the Banque Canadienne Nationale, Peter Betts of Royal Securities, John Porter of Ames, Bob Tait of RA. Daly, and Jim Davis of McLeod. No bond trader will forget July 14, 1958 the date on which the Bank of Canada, on behalf of the govemment, announced a conversion offer to all the holders of unmatured Victory Loan bonds. Rudy Casgrain recalls that he was enjoying the summer sun at his cottage when the call came for him to be in Ottawa the next morning, « on a matter of grave national importance. I remember thinking it was some friends playing a joke on me, » he said, « but soon I was on my way to Ottawa. It was the Friday before the big announcement. We were swom to secrecy and the whole plan was unveiled to us. We weren’t allowed to return home or to talk to anyone. » The following Monday, the announcement was made and in the ensuing weeks, over $6 billions of Vic issues were converted. So many people were required for this huge undertaking that most firms cancelled vacations and brought personnel home from their holidays. Rudy Casgrain was on loan to the government for the conversion period and acted jointly with Jack Brookes of Greenshields as liaison with the trading community in the Province of Quebec. Grahame Johnson of Crédit Interprovincial and Dent Lewis of the Bank of Montre al were on loan to the National Committee in Ottawa along with such Montreal expatriates as Bill Robson of Ames, Howard Hunter of Equitable and Murray Cox of Anderson. The ope ration led to a period of great trading activity, particularly in the new « Conversion Loan » issues, viz 3′s of 61, 3 3/4′s of 65, 4 l/4′s of 72, and 4 l/2′s of 83. The surge of activity lasted un tilla te in the year when rising interest rates in the United States depressed enthusiasm in Canada. The 4 1/2′s of 83, of which almost $2 billion are outstanding, has been a bell-wether issue for twenty years.
The More Recent Years
Many will clearly remember their own experiences of recent years so a brief highlighting of a few major happenings will suffice. In the sixties a great deal of activity occurred in finance company securities which generally were considered to be of high quality. The street was shocked when Atlantic Acceptance issued a cheque in payment of maturing paper which bounced. A sober re-appraisal followed which perhaps in the long run has had beneficial side effects. In 1964 most of the remaining private electric utilities in the province were taken over by the Quebec government and became part of Quebec Hydra. The accompanying controversy was less acrimonious than the earlier nationalization of B.C. Power. Bank Act revision in 1967 among other things removed the 6% ceiling on bank loans facilitating rate flexibility. The new Act also enabled the banks to issue term debt, giving rise to many new underwritings and trading activity in bank debentures. Also at the turn of the decade, tax reform was debated at length. In the seventies, huge increases in government spending led to a much larger volume of government financing and trading activity in this area rose sharply. Many new types of short term vehicles were introduced and bond trading became international and more complex and diversified, requiring specialists in some areas. As interest rates rose, the old yield books became obsolete. Computers came into general use, changing the basic modus operandi for many bond traders. One thing remained constant during these years of change and innovation the MBTA annual dinner continued to be a great bash, despite the ending of the stag tradition in 1972 when ladies were first permitted to attend. Preparations and rehearsals for this big event still take place during the week prior to the dinner and the following weekend continues to be a period of recovery. In Retrospect Looking back over the past fifty years, it is clear that there has developed in Canada a remarkably sophisticated and comprehensive financial system and one which is sufficiently flexible to meet the challenges of changing circumstancesBond traders have made major contributions to developing innovations which have improved primary distribution of securities and liquidity in secondary debt markets. Trading in Canadian bond and money markets in 1977 exceeded $173 billions compared with a reported trading peak on the Montreal and Toronto Exchanges in 1919 of $131 millions. Because of their knowledge of and sensitivity to buying preferences of all kinds of investors, bond traders have played their part in devising new types of securities with such provisions as term options, purchase funds, participating interest payment rates, variable coupons and others. But above all, traders continue to be able to trade on the phone just as they always have because of an inherent honesty and trust in one another. Basics have not changed in this respect and perhaps in no other profession is a man’s word so much his bond. Many of these basics originated with the members of Montreal Bond Traders’ Association.