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832.51 Sa 6/111 : Telegram

The Secretary of State to the Ambassador in Brazil (Morgan)


WASHINGTON, May 3, 1928–5 p. m. 15. With reference to report No. 105, April 7, 1928, from Consul Cameron regarding vicinal bonds of the Itararé-Fartura Railway, the bankers are convinced that the State of São Paulo is under legal obligations to carry out its agreement with them. The bankers state, however, that they will not take the case into court, since they realize that years will be required to get a final decision. They say that even if such a decision were to be in their favor—and they consider this certain—an appropriation by Congress would still be necessary. The Department has been informed by the bankers that if the State of São Paulo will not agree to make a settlement which will be satisfactory to the American interests concerned, influence will be brought to bear by these American interests on bankers' associations both in the United States and in Europe to prevent the flotation of future loans by the State of São Paulo, on the ground that the State of São Paulo does not live up to its financial obligations.

With the information at its disposal, the Department is not prepared to pass on the merits of the controversy between the State of São Paulo and the bankers; nevertheless, because of the serious consequences which may result if this matter is not settled in a way which will be mutually satisfactory to both parties, it is the belief of the Department that you would be justified in discussing this matter informally with President Washington Luis, whose influence with the State Government of São Paulo, according to the bankers, is considerable. You will express the hope that for the best interests of all concerned a satisfactory settlement may be reached. The bankers are willing for you to use any information transmitted herewith with regard to their intentions and views as you see fit, and in such a manner as you may think most likely to produce a favorable effect. You will take care not to appear to be making any threats on behalf of the bankers.


832.51 Sa 6/118

Speyer & Co. to the Assistant Secretary of State (Castle)

NEW YORK, June 19, 1928.

[Received June 20.) Sir: Referring to the Department's request that American bankers furnish information regarding loans that they may be negotiating with foreign governments, we beg to submit the following concerning a loan to the State of San Paulo, Brazil.

*Not printed.

The State of San Paulo proposes to issue about $25,000,000 principal amount of its Forty-Year 6% Sinking Fund Gold Bonds, being part of an international loan to be known as either the “External Refunding Loan of 1928” or the “External Loan of 1928” of an authorized amount of about £10,000,000. We are negotiating with London bankers for the above $25,000,000 Bonds, being the American tranche.

Of the remaining bonds constituting this loan, about £5,000,000 principal amount are being negotiated in London by Messrs. J. Henry Schröder & Co., Baring Brothers & Co., Ltd. and N. M. Rothschild & Sons.

A sinking fund will be provided sufficient to retire all of the bonds at or before maturity. The bonds will be the direct and unconditional obligation of the State of San Paulo, and will be payable in Pounds Sterling and in United States gold, free from all Brazilian taxes. The State will covenant that if in the future it shall guarantee any loan, or issue a loan secured by a lien on any of its assets, it would give first to this loan adequate security approved by the Fiscal Agents.

We are advised that approximately $15,350,000 of the proceeds of this loan will be used to pay by July 1, 1929 the outstanding $7,920,000 Dollar Bonds and A1.14,240,000 Guilder Bonds of 8% External Loan of 1921, about $7,500,000 for additions, betterments and extensions to the water supply and sewerage systems of the City of San Paulo, and the balance of the proceeds for the extension of the Sorocabana Railway from Mayrink to the port of Santos.

We trust that the Department of State will find no objection to the flotation in this country of the American part of the above loan, and shall be obliged if you will so advise us at your earliest convenience. Respectfully yours,


832.51 Sa 6/121

The Secretary of State to Speyer & Co.

WASHINGTON, June 21, 1928 . SIRS: I beg to acknowledge the receipt of your letter of June 19, 1928, regarding your interest in a loan of about $25,000,000 to the State of São Paulo, Brazil.

• See Foreign Relations, 1922, vol. 1, pp. 556 ff.

In reply to your request for an expression of this Department's views, I beg to state that, in the light of the information before it, the Department of State offers no objection to this financing.

You of course appreciate that, as pointed out in the Department's announcement of March 3, 1922, the Department of State does not pass upon the merits of foreign loans as business propositions nor assume any responsibility in connection with such transactions, also that no reference to the attitude of this Government should be made in any prospectus or otherwise.

The Department would be glad to learn in what manner the proposed public works and railroad construction will be carried out. In this connection, the Department hopes that American firms may be afforded the freest opportunity to compete for such work on equal terms, and assumes that the proposed contracts and the procedure in connection therewith will not in any way interfere with such free opportunity. I am [etc.]

For the Secretary of State:

Assistant Secretary

832.51 Sa 6/123: Telegram

The Ambassador in Brazil (Morgan) to the Secretary of State

RIO DE JANEIRO, June 23, 1928–3 p.m.

[Received 4:30 p. m.] 26. Department's 22, June 22, 4 p. m. Although I have twice visited São Paulo in relation to the Itararé-Fartura Railway matter it is difficult to secure reliable information for the interested firm on account of the antagonism which their peremptory methods have developed among the members of the São Paulo Government described in Consul Cameron's despatches, the accuracy of which I confirm. Further antagonism has been developed by the statement in the bankruptcy proceedings that the bankruptcy has been wholly caused by the failure of the State Government to fulfill its obligations. The illness of President Washington Luis has prevented conferences with him but I should hesitate to hold them until I was persuaded that the action of the State Government is unjustified.


Foreign Relations, 1922, vol. I, p. 557. 'Not printed.

832.51 Sa 6/126 : Telegram

The Secretary of State to the Ambassador in Brazil (Morgan)

WASHINGTON, June 29, 1928noon. 23. Your 26, June 23, 3 P. M., last clause. The instruction of May 3, 5 P. M., you will remember stated that the Department is not prepared to pass on the merits of the controversy. Neither does it expect you to decide whether the action of the state government is justified. However, the Department believes that as soon as the President's health permits you should, very informally, of course, take the action suggested in the last paragraph of the instruction cited.


832.51 Sa 6/127

Speyer & Co. to the Assistant Secretary of State (White)

NEW YORK, July 10, 1928.

[Received July 11.] SIR: Referring to our letters of June 19th and June 22nd 8 regarding the negotiation for the above loan, we now beg to advise you that the plan of refunding the American and Dutch portions of the 8% External Loan of 1921 has been abandoned, and that the total authorized amount of the loan has been reduced to an American portion of $15,000,000 (instead of $25,000,000, as stated in the above letters) and an English portion of £3,500,000 Sterling Bonds.

The proceeds of the loan will be used for additions, betterments and extensions to the water supply and sewerage systems of the City of San Paulo, and for extension of the Sorocabana Railway.

In reply to the last paragraph of your letter of June 21st, we are informed that the railroad earthwork contracts have all been granted to private parties and that the rails will be laid by the State. With regard to the waterworks construction, the proceeds of the loan will be used only to complete construction already under contract. We are (etc.)


832.51 Sa 6/128

Field, Glore & Co., International Acceptance Bank, Baker, Kellogg & Co., and Ulen & Company to the Secretary of State

NEW YORK, July 17, 1928.

[Received July 20.] DEAR SIR: The undersigned desires to call the attention of the State Department to a statement of facts submitted to the Department by the law firm of Curtis, Mallet-Prevost, Colt & Mosle on our behalf under date of March 22nd, 1928, regarding our claim against the State of Sao Paulo, Brazil. This statement of facts sets forth very clearly the obligation upon the part of the State in an amount of approximately $380,000 which obligation the State has definitely defaulted in fulfilling.

*Latter not printed.

Our attention has lately been called to the report that this same State of Sao Paulo contemplates the flotation on the American market in the immediate future of upwards of $15,000,000 of its bonds which bonds will be sold to a wide list of American investors.

It is our feeling that the facts as stated in the memorandum submitted by us should be given full consideration in connection with the reported new loan and we should appreciate it if the Department will take full cognizance of said memorandum in determining its attitude toward any such proposed loan.

We take the liberty of inquiring whether under these circumstances the Department would give its approval to a loan to a borrower known to be in default as indicated in the above mentioned memorandum. We wish furthermore to point out that we are in no way interested in the contemplated loan to the State of Sao Paulo and are in no sense competitors of the bankers who are negotiating it. Respectfully yours,




120 Broadway,

832.51 Sa 67136

The Ambassador in Brazil (Morgan) to the Secretary of State No. 3039

RIO DE JANEIRO, July 20, 1928.

[Received August 11.] Sir: Referring to the Department's telegraphic instructions Nos. 15, of May 3, 5 P. M., and No. 23, of June 29, 12 N., I have the honor to report that the instruction contained in the last paragraph of the Department's instruction of May 3 has been complied with

Not printed.

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