Sovereign Debt Crises and Negotiations in Brazil and Mexico, 1888-1914 by Leonardo Weller

Author:Leonardo Weller
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

Brazil Suspends Rothschilds’ Monopoly

The government broke Rothschilds ’ monopoly when it issued four loans in Paris through French banks—Societe Général, Paribas , Crédit Mobilier and Caisse Comercialle —between 1909 and 1911 . The loans were part of the inflow of French capital in Brazil in the 1900s, which included private companies and municipal debt (Abreu 1993). The government borrowed in Paris to pay lower commission. The contracts of the 1908, 1909 and 1910 loans do not mention commission, most probably because the underwriters did not charge it. The latter contract states that the underwriter (Crédit Mobilier) was supposed to pay for all the costs of the loan, except for the printing of bonds, the only expenditure the government covered.5 The 1911 contract is the only one that contains figures on commission : 0.75% on issuing and 0.5% on redemption.6 This is substantially less than what Brazil paid Rothschilds. In 1908 , that bank charged upfront 1.75% on issuing, 1.25% on brokerage, and 1.25% on the underwriting of that year’s loan.7 Rothschilds’ commission increased slightly in 1911, when it charged a total of 4.5%.8

In contrast to Rothschilds , the French banks took the bonds in firm—they held them instead of passing them on to the final bondholders at the issuing price. Instead of charging commission, the bankers expected to gain from the sale of bonds at a higher price on the secondary market, a business that depended on price variations and thus involved risk. Yet the loans were issued at slightly lower risk premium than those Rothschilds underwrote in that same period.9 As contenders, the French banks needed to offer good conditions to convince Brazil to depart from its exclusive association with the world’s top bank.

The managers of Rothschilds were of course not pleased to see the end of their profitable monopoly. In 1908 , Alfred Rothschild wrote to his French cousin that “Société Genéral has absolutely no right to pretend that they are the financial Representatives of Brasil in France .” But the banker did not appear to be surprised. He wrote that “Brazilian finance and public work in that huge country are in somewhat peculiar position just now (…) various banks in the continent are all as you yourself say anxious for new business.”10 The French banks wanted a slice of Rothschilds’ exclusive and attractive Brazilian enterprise, and the government took advantage of that demand. Rothschilds did not retaliate by suspending relation: It continued to underwrite loans after 1908 . It seems that Brazil was so “huge” that there was plenty of space for everyone. Alfred Rothschild recognised that:The Country is quite prosperous in fact more than prosperous. There are £15 million Gold in the Caisse de Conversion, the Coffee crop has yield much more money than was expected and the Cocoa and Rubber crops are bringing in millions. The amount of rubber sold realised £5 million, this year the Coffee will be worth more than £20 million, nearly £25 million, and thanks to the outcry about share grown cocoa , Pernambuco is securing a great and ready market for its chief commodity on Stock Exchange.

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