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Business Environment
Commercial Paper Market
Early Years




As described in an archival document, A. G. Becker & Co., Incorporated, came into existence on July 2, 1894, with a capitalization of 750 shares at a par value of $100 per share, or a total capital of $75,000. The initial shareholders of the new corporation were: Rachel M. Schaffner, 450 shares ($45,000); Kittie F. Becker, 230 shares ($23,000); Monroe J. Friedman, 30 shares ($3,000), and Ocscar J. Friedman, 40 shares ($4,000). Rachel Schaffner was of course A. G. Becker's sister (and widow of Herman Schaffner); Kittie Becker was A. G.'s wife; and Monroe and Oscar Friedman were brothers of Kittie Becker and therefore brothers-in-law of A. G.

It is noteworthy that, although the ownership of the new corporation was kept "in the family," and perhaps A. G. loaned funds to his wife for her purchase, he in fact had no direct stock ownership in the new corporation. This arrangement might well have been suitable in mid-1894, since even at that time A. G. may have been under some cloud of possible financial liability for the Schaffner bank failure, or violation of Illinois banking law.

It is also noteworthy that the Friedman brothers were issued shares of a total value of $7,000, possibly in connection with their having been a source of funding in such amount during the first year of the Becker proprietorship.

Immediately upon incorporation, the organizing document shows that A. G. Becker & Co., Incorporated, purchased "the business of Rachel M. Schaffner" for $45,000. This is very interesting! A. G. Becker must have considered that, from mid-1893 until mid-1894, he was carrying on the business owned by Herman Schaffner's widow. However, this concept and language might well have been adopted for some legal reasons, in light of the unsettled liabilities of A. G. Becker and the Herman Schaffner Estate. It is also noteworthy that the "Rachel Schaffner business" was purchased for $45,000 from Rachel Schaffner, who in turn personally provided $45,000 in capital to the new corporation. Her sole "ownership" of the A. G. Becker proprietorship was essentially exchanged for a 60 percent interest in the succeeding A. G. Becker corporation.

The archival document then goes on to list the assets of the business being purchased at $75,996, consisting of $49,904 of bills receivable (presumably "commercial paper"), $12,355 in stocks and bonds, and the balance in miscellaneous assets, and that liabilities being assumed were $39,543, including $35,000 borrowed from the Atlas National Bank, and the balance in miscellaneous payables. Thus, the new corporation paid Rachel Schaffner exactly $45,000, which is somewhat more than the net asset value of the business being acquired, but equal to the par value of the stock issued to her. It is of course conjecture, but perhaps, in fact, Rachel Schaffner provided A. G. Becker, from some source, say, $50,000 with which to carry forward the commercial paper business of Herman Schaffner & Co., and that prior to incorporation, Mr. Becker was able to repay $5,000 of such advance, turning the balance into a 60 percent interest in the new corporation. We are unlikely ever to know the answer to this enigma.

As mentioned earlier, A. G. Becker was resolved to focus all his energies on the commercial paper business, the area of the Schaffner bank business on which it is believed he spent most if not all of his time. It was noted in the newspapers at the time of Herman Schaffner's disappearance that the bank had recently enjoyed (presumably in 1892) an annual turnover of about $35 million in paper placed. It is interesting to speculate that if A. G. Becker were able in 1894 and forward years to regain, say, 50 percent of that turnover and realize a discount commission of, say, 1/2 percent per annum (which rate was apparently prevalent at that time), the ongoing firm could have realized gross income of, say, $800,000-900,000 per annum. Even after expenses and handsome compensation to A. G. Becker as manager, this could have been quite profitable for shareholders.

In my summary review of the Becker archives in 1981, I found a "statement of the business" dated December 31, 1897, and signed by A. G. Becker. This may have been a statement which A. G. shared with banks, as well as the family shareholders, to communicate how the business had progressed since incorporation, and where the business stood at the end of 1897.

Statement of the Business, December 31, 1897

As can be seen, the company's retained earnings ("cumulative profit and loss") since inception amounted to $78.452, to which should be added $44,250 in dividends paid out over the applicable period, resulting in a total profit for the period of $122,692. This would mean that profits for the 3 ½ year period were somewhat over 1.6 times original capital, or equal to a compounded return on equity per annum of just above 30 per cent. Even though the economic environment during the late 1890s was favorable for the new business, this was still an exceptional achievement.

Finally, as to some hint of the nature of the business being carried on by A. G. Becker from incorporation through the end of 1899, the archives contain a list of 18 companies which appear to have been issuers of commercial paper handled by A. G. Becker & Co. in 1893, and then an additional list of 10 names apparently added in 1894-1900. Another sheet from the archives lists Becker commercial paper issuers in the 1900-02 time frame.

Commercial paper issuers 1893-1900

Commercial paper issuers 1900-02

And a final table (not shown due to illegibility) lists over 150 "bank customers in the early days who are still in business and customers of ours at the present time." Presumably, the total number of banks who were commercial paper customers of A. G. Becker & Co., Incorporated by the early 1900s well exceeded this early base number. It is not clear when these various lists were prepared, but it seems to be in the early 1900s, looking back to the "early days" of the firm

Posted: July 12, 2007


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