African Entrepreneurship Record

Chapter 250: Chapter 239 Large Loan

Recently, Prussia has been noticeably more cordial to Ernst. Before even returning to Hohenzollern Castle, Ernst was already informed of an invitation from the Prussian royal family to visit Berlin.

Ernst had long anticipated Prussia’s intentions, and thus, he made a detour from Bavaria towards Berlin.

Kingdom of Prussia.

”Ernst, how have you been lately?” William I said with a cheerful smile.

”Your Majesty, I’ve been well, though quite busy with business recently.” Ernst replied.

”Just call me uncle. Your father is also a king now, making you the Crown Prince, and we’re all part of the Hohenzollern family. There’s no need to be so formal,” William I said.

”I’m afraid that might not be appropriate!”

”What’s inappropriate about it? We’re all family here. In private, you can call me uncle, and in formal occasions, you can address me as Your Majesty.”

Then William II would essentially be my nephew! Ernst thought with inner delight, but maintained his composure, saying, ”Alright, I’ll do as you say, Uncle William.”

”That’s the spirit!”

”I called you here today because I actually have a favor to ask. I won’t be embarrassed to admit it: although I’ve fought many battles in my life as king, Prussia’s finances have become unsustainable because of it, accumulating quite a bit of debt. Yet for the cause of German unification, Prussia cannot afford to stop in its tracks,” William I sighed.

”I completely understand. Prussia has indeed made significant contributions towards German unification over the years,” Ernst complimented.

”Yes, now I can disclose some information to you. The French are getting impatient, but Prussia was left heavily indebted after the last war, making it hard to raise funds for the military this time!”

Revealing true intentions.

”Um, Uncle William, although Heixinggen has been doing well these years, the investments this year have also been significant, so funds might be somewhat tight. I understand the difficulties the government faces. I’ll express my support for the kingdom by subscribing to 500,000 Taylor of war bonds.”

500,000 Taylor is not a small amount, but it’s nothing significant compared to what big capitalists like Ernst can afford.

Although Prussia is also preparing for war now, since France hasn’t declared war on Prussia, the North German Federation government can’t agree to allocate funds to the kingdom.

Historically, on July 21, 1870, the North German Confederation Parliament, led by Prussia, approved a war credit of 120 million Taylor.

So currently, the Kingdom of Prussia can only think of its own ways to gather funds. Ernst estimates that Prussia can at most scrounge together a few million.

Even at the beginning of the war in the original timeline, the Berlin stock market was in near panic, with quality stocks like the Cologne-Minden railway falling by 30%. The Prussian government urgently issued the first tranche of war bonds worth 100 million Taylor, attempting to bypass the banker monopoly on underwriting channels to directly sell to the market, at a condition of 5% interest and an 88% discount. But the bankers suggested an 85% discount, which the government refused. Oppenheimer mentioned to Breslauer in a letter that ”this is a ridiculous condition under the current market circumstances.”

The result was a massive failure in sales, with bonds selling only 60 million Taylor. In truth, the root of the problem was that if the government sold directly, bankers couldn’t earn underwriting fees and thus resorted to collective resistance. This once again demonstrated the power of ”channels are king” in financial markets. By late October 1870, the Prussian government learned from the previous failure, appointing Hansman to organize an underwriting syndicate in London and Berlin to sell a second tranche of 20 million Taylor bonds. With positive reports of Prussian military victories, the contract prices of these loans surged, allowing the government to soon cancel some mortgaged credit lines, and finally set the war bond interest rates at 5% for a 5-year term.

On November 30th, bankers succeeded once again, issuing 34 million Taylor of 92% discounted loans in Britain with an option to further issue 17 million Taylor. Meanwhile, although the British began to sympathize with the unfortunate France, French bonds hardly sold in the UK. On this invisible financial front, France failed once again.

Yet until the end of the Franco-Prussian War, the total war expenditure of Prussia was only 22 million Taylor.

Ernst wasn’t greedy and had long started saving money to prepare for the Franco-Prussian War. The entire Heixinggen consortium currently had over 30 million Taylor in available funds, and Ernst was prepared to stake at least 20 million on Prussia’s victory, betting that the French would settle the bill if victorious.

”500,000? This...” William I felt somewhat melancholic. 500,000 is not a trivial amount, but it’s like a drop in the ocean when it comes to a war.

”Ernst, just from the developments of Heixinggen Bank over the years, you should have done quite well. I’ve heard you’ve already expanded into the Far East... Rest assured, in this war, we, Prussia, have full confidence in victory. Invest boldly, and we will set a slightly higher-than-market interest rate. Not only that, since the Kingdom of East Africa is newly established, it’s lacking in many areas which we can collaborate on with Prussia in the future...”

What assurance of victory, William I was hardly convinced himself before facing France.

But William I knew that Heixinggen’s royal wealth was astronomical. With the Heixinggen consortium already established, its operations covered all of Europe and even had businesses worldwide. Therefore, seeking a loan from Ernst was certainly the right move, and William I made bold promises.

At the same time, being all part of the Hohenzollern family, one could play the emotional card. If they could borrow more from the Heixinggen royal family, negotiations with other big capitalists could be a bit more assertive later.

Ernst pretended to be troubled and said, ”In truth, Heixinggen manages many industries, but there are also many workers, and just the wages alone are not a small sum...”

”Be honest, how much can you provide? Prussia can offer a 7% interest return and prioritize the army’s procurement of Heixinggen’s products.”

”Uncle William, it’s not really about the money, but since you helped me a lot when I started my business, I’d be too stingy if I was this petty. I won’t hide it from you, the company can mobilize the entire fund of around 15 million Taylor this year, including workers’ wages. But for the cause of German unification, I’ll first subscribe to a 15 million Taylor war bond!”

million! William I was taken aback by the number. His initial goal for this solicitation was only three to four million Taylor. After all, it hadn’t yet been decided whether to start the war!

Large-scale borrowing would only take place if France truly declared war on Prussia. However, Prussia’s finances are particularly tight right now. No war compensation was sought from Austria after the Austro-Prussian war, and the debt was immense. So, they were trying to see if they could borrow some funds for emergencies.

Ernst’s offer of a 15 million investment could finance a large campaign, significantly easing Prussia’s current financial crunch, and this potentially means the army could prepare in advance!

William I was genuinely moved. Indeed, family is reliable, as Ernst was practically selling off everything to support Prussia! Given that not many were confident in Prussia’s victory, if this war was lost, the Heixinggen royal family might truly face bankruptcy.

In reality, William I overthought it. Ernst was far too cautious to gamble his entire fortune.

Moreover, Ernst planned to continue buying a 10 million Taylor war bond following Prussia’s issuance of the first war bond, while leveraging Heixinggen Bank to aid Prussia in bond issuance to earn extra underwriting fees. Coupled with the promised privileges from William I, this truly would result in considerable profits.

Both parties, thinking they were making substantial gains, quickly signed the agreement. Specialists from the Prussian government and Heixinggen consortium meticulously reviewed all clauses several dozen times, only signing their names once everything was verified to be accurate.