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Some trust companies handle a large amount of business in the reorganization or financing of corporate enterprises of different kinds. This field is one concerning which a wide difference of opinion exists among managers of trust companies as well as among the general public. There are companies which devote themselves to this business very largely, while others abstain from it absolutely, believing it not a proper field for companies which handle funds in trust.

In the consideration of the problem much depends upon the character of the financing that is to be undertaken. No well-informed person will deny that there is a field for services in this line whose legitimacy is beyond question, and whose performance involves little risk. It is likewise evident that there is a class of operations so risky that no corporation which handles the funds of others ought to undertake them. The temptation to step from one class of operations into the other is sometimes great; and this fact doubtless accounts for the prejudice that exists in some quarters against trust companies undertaking corporation financing of any kind.

When it becomes necessary for any reason to reorganize a corporation having outstanding securities, the trust company offers exceptional facilities for the work. The plan of reorganization must first be determined. If new securities are to be issued the old ones must be called in and temporary receipts given. When the new securities are ready they must be distributed among the receipt-holders in the proper proportions-the determination of which may require careful computation. At the same time an assessment may have to be collected, or a cash or stock dividend be distributed. Fractional shares or bonds may need to be purchased or sold.

When a new corporate enterprise is proposed in any community some one in whom the public has confidence must investigate and report, or else each prospective investor must make investigation for himself. Some one must see that the new corporation actually owns the property which it claims to have; that its title is good; that the securities which it offers to the public are correctly prepared, and that they give the purchaser a real lien upon the property; in short, that the whole proposition is legitimate and made in good faith. The services here outlined appear to be perfectly legitimate, and to involve no risk to the trust company undertaking them other than the risk assumed in accepting any responsible trust.

These services, however, constitute only the preliminary steps in the financing of enterprises. The securities are ready for sale; they must now be sold. It is at this point that the most serious differences of opinion arise regarding the attitude of the trust company. In placing the securities upon the market, the trust company may act, if it acts at all, as a mere agent for the sale and delivery of same; or it may set the

stamp of its approval upon them to the extent of recommending them for purchase to its group of customers, or to the extent of purchasing same, in its capacity of trustee, for some of its trust accounts; or it may purchase a portion of the issue for its own account. Here the trust company is clearly treading upon ground which may or may not be dangerous, according to circumstances, but which in any event requires the highest degree of honor and integrity and business judgment of the finest type.


Some of the States empower trust companies to undertake the business of fidelity insurance and of title insurance, but comparatively few trust companies undertake these duties. As a rule, where they do undertake them, they make such work a specialty, and confine themselves mainly to the specialty. The larger part of fidelity insurance business is done by independent bond or surety companies.

Fidelity insurance consists chiefly in becoming surety for or guaranteeing the honesty and fidelity of employees, officers and other persons holding positions of trust and responsibility. Bonds for this purpose were formerly signed by friends of the person holding such position, but the practice is rapidly growing of having such bonds executed by companies who make it their business. Beyond any question the new plan is better than the old, whether from the standpoint of the person bonded, the one signing the bond, or the security afforded the beneficiary named in the bond. The person who is required to give bond feels, or ought to feel, a delicacy about asking his friends to go on his bond. If he does ask a friend to do so, that friend must, if he complies with the request, assume for himself and his heirs a responsibility whose degree is not determinable, which may last for a number of years, and which may involve himself and family in ruin. To the beneficiary under the bond, the individual is not satisfactory as a surety, because, among other reasons, his financial ability is not always determinable with accuracy, and it may be ample to-day and nothing to-morrow. On the other hand, the company which makes a business of fidelity insurance receives compensation of a reasonable annual premium for its services, assumes the risk as a business proposition on the same general principles as the life or fire insurance company, and protects the beneficiary by a capital and financial responsibility that are known. Fidelity insurance companies are also often called upon to sign bonds guaranteeing the financial responsibility of individuals, partnerships and corporations.

A title insurance* policy is "an agreement under which the company agrees to defend, at its own expense, all litigation directed against the title insured by it, and if attacked successfully, it will pay the parties guaranteed the amount of the loss up to the full sum insured for." In short, it is an ordinary certificate of title, with insurance of the title added. This is a comparatively new business, the oldest companies hav

*See Chapter XII.

ing existed only about twenty years, but it is one which is growing rapidly. For its successful performance, a special and elaborate equipment is



As already noted, trust companies very generally conduct safedeposit departments. For this purpose the best companies have speciallyconstructed vaults in the preparation of which the greatest care is used to insure that they shall be absolutely proof against fire, burglars, mobs and water. In addition guards are on duty twenty-four hours a day, and there are usually automatic alarms to give notice of any trouble. For the keeping of money and valuable papers individual boxes within the main vault are rented, access to which may be had only by the renter or his authorized deputy in company with the vault attendant. For the storage of larger articles of value, vaults are provided in which space is rented by the cubic foot or yard. Many companies maintain delivery wagons, and call for or deliver valuables entrusted to their care. Coupon rooms are provided, where each customer may cut his coupons or examine his papers in absolute privacy. The large companies also provide other conveniences, such as toilet-rooms, reading-rooms, parlors, committeerooms, etc.

This department is a valuable, if not a necessary, part of the equipment of a good trust company. An increasing number of depositors feel the need of such accommodations, and much prefer to have them under the same roof as their bank or trust company. While the expense of equipping the best vaults is great, it is not all chargeable to the safedeposit department, since trust companies need large and impregnable vaults for the safe keeping of the securities and other valuables entrusted to them in the other departments of their business.


The advantages which the trust company has over individuals for the performance of the various trust duties outlined in the preceding pages are many. The following are among the most conspicuous of these advantages:

The life of the trust company is perpetual-it will live long enough to execute the trusts that are committed to it. On the other hand, an individual to whom a trust is committed may die on the very day that he undertakes the trust. To install another individual trustee will then involve delay and additional expense-perhaps serious loss. And when it is done, there is no guarantee that he will not die, making another change necessary. Even if the individual lives, he may for various reasons resign the trust, or may become incapacitated through sickness or other cause.

*See Chapter VIII.

The trust company has an established office and can always be found when needed. The individual is sometimes difficult to locate.

The trust company is always at its place of business every business day of the year. It does not take vacations, does not go away on business trips, does not get sick.

The trust company is organized especially for carrying on such work, which is therefore not secondary to its own business, but is a part of its business. If an individual is competent to carry on such work it is because he has had a successful training in looking after his own affairs, and his success is usually due to the fact that he has given his business his undivided attention. If he undertakes the trust it must be as a thing secondary to his own business, or else he must neglect the latter. Finding that he has not the necessary time to look after details, he may turn them over to an incompetent employee.

Being organized for the work, the trust company has all the necessary equipment-officers and clerks trained for the service, conversant with laws and forms and methods of procedure, vaults for the safe keeping of valuables, correct forms for the keeping of accounts, books to keep track of due-dates of securities and times for the payment of taxes, insurance, premiums, etc. It does not forget.

It is the trust company's business to understand the work. It does not make mistakes due to ignorance, and would be responsible if it did. It has the benefit of a large experience in the work it is undertaking. Very often individual trustees or executors, however honest and faithful, make mistakes that are costly or entirely disastrous.

For the making of investments in the name of the trust, the trust company has advantages which few if any individuals have. The matter is determined by a committee of men trained in such work, and with every facility at their command for keeping in touch with conditions and knowing something of intrinsic values. The extent of the company's operations also enables it to buy on better terms than the individual can.

The trust company gives to the trust, without extra cost in ordinary matters, the benefit of the best legal advice. It unites the advantages of the advice of a number of experienced counselors with the promptness in action of a competent individual.

The trust company is, in most States, subject to examination by State authorities. Its books are always open to inspection by the proper persons. They are intelligible and kept up to date. The individual trustee under private appointment is not usually subject to examination; and when he is, his books are often in a tangle.

The superior facilities of trust companies often enable them to administer trusts with far greater economy than is possible to the individual trustee. Expenses are often much less, while the company is usually in position to secure a greater income for the trust than could the individual. The latter must give a bond, the cost of which must be borne by the estate; while the trust company's assets and special deposit with the State protect the trust without extra cost.

Frequently the interests of the estate-perhaps its very preservation. -depend upon temporary advances of money. The trust company is in position to make such advances; few individuals are.

Individuals are often subject to personal prejudices, sympathies or influences which lead them into unwise uses of the property. The trust company is not subject to these things.

The most important consideration of all is that of safety-the absolute safety of the property. Here the advantages offered by the trust company as compared with the individual are unquestioned. Besides the State supervision just referred to, the trust company protects its customers by a large capital and surplus, and in most States by a deposit made with the State officials to guarantee the faithful performance of its trust duties. These things amply insure against loss due to possible dishonesty on the part of the company's officers or employees. The company as an institution cannot possibly be dishonest or unfaithful. It has nothing to gain and everything to lose by such a course. It is to continue in business for a long term of years or perpetually. Its success depends upon its reputation for integrity and faithfulness. At a recent meeting of the Trust Company Section of the American Bankers' Association, it was stated that there had never been a trust fund impaired by a failure of a trust company having control of the fund. Instances of loss to depositors in the banking department there have been, though not many; but the trust funds are so safeguarded that the loss to them is well-nigh impossible. There may be loss to the ordinary creditor of a trust company without in the slightest degree impairing its trust funds, which are kept separate and are not a part of its assets.

On the other hand, losses through individual trustees, executors and administrators have been numerous. How often have the papers told of instances where individuals serving in such capacities have proved unfaithful or fatally incompetent! Men of reputation for unquestioned integrity have been led through speculation or embarrassment in their own affairs to borrow the funds entrusted to them with the full intention of repaying the loan in a few weeks or months, only to find that such restitution is impossible, that they are defaulters, and that the widow and orphan are left penniless through their unfaithfulness. Others, wilfully dishonest, have squandered the funds entrusted to them until every cent was gone and the beneficiaries of the trust were left in dire need. Bonds furnished by these men have often proved worthless; and where ultimately found good, great expense of litigation has been incurred, and the property has been tied up pending settlement of suits.


Trust companies carry on the banking business, and in the great majority of cases this business constitutes the largest part of their duties. The banking department is usually divided into the department

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