Western Europe: U.S. Investments Up

Instead of curtailing their foreign investments as a result of President Johnson's call for a "voluntary" downhold on dollar outflow, American business men are expanding faster than ever overseas. They have indeed improved the nation's balance of payments by cutting back U.S. bank loans to foreigners and repatriating more profits from ventures abroad. But they will in crease their foreign investments by 20% this year, spending a record $7.4 billion, about half of it in highly developed and competitive Western Europe. The bulk of these investments will not damage the U.S. balance of payments. Reason: U.S. companies are increasingly turning to European capital markets, in varying ways, to finance their Continental invasion.

Costs of Cooperation. Last week Monsanto Co. announced that it will raise $25 million in Europe through a new subsidiary that will offer debentures convertible into Monsanto stock—a form of financing that is familiar in the U.S. but a rarity abroad. Through another new subsidiary, American Cyanamid recently marketed $20 million worth of debentures in Europe. Gulf Oil floated a $25 million bond issue, Socony Mobil a $28 million issue, and U.S. Rubber a $14 million issue—all in Europe.

From European banks, such companies as Celanese, General Motors and Caterpillar Tractor have borrowed tens of millions of dollars. The costs are steep —even for prime borrowers, little money is available in Europe for less than 7%, v. about 5% in the U.S. These premiums stand to cut the U.S. companies' foreign earnings, which have been growing faster than domestic earnings. To make borrowing easier, Dow Chemical has bought an interest in an Amsterdam bank, soon will open a wholly-owned bank in Zurich.

Less Panic. Though many European businessmen fear that the added pressure of American borrowing will pinch Europe's already tight capital markets, some of their panicky aversion to takeovers by the great American giants has worn off in the past few months. A major reason is that the U.S.'s $132 million balance-of-payments surplus in the second quarter muted the old complaint that American businessmen were using their almighty dollars without restraint or discipline to buy up European industry.* There is also a growing awareness among Europeans that the U.S. stake is still relatively small, amounting to $11.5 billion, or less than 5% of total European investment.

U.S. investment is concentrated in three countries. In Britain, where American business has spent $4.8 billion, U.S. companies make 55% of the vacuum cleaners, 34% of the tires, control half of the country's 40,000 filling stations. American companies have spent $2.5 billion in France, account for 70% of its sewing machines, 40% of its rubber, 35% of its farm machinery. In West Germany, U.S. firms have invested $2.3 billion, control 40% of the auto industry, 50% of the oil refineries, 80% of the computer market.