Los Angeles herald., 1910-10-15
WITNESS YIELDS
RAILWAY SECRETS
IN STOCK SALES
President Brown of New York
Central Appears Before Inter-
state Commerce Body
MORGAN, FINANCIAL ADVISER
Official Testifies Regarding In
crease in Dividends When the
Employees Asked More Pay
MORGAN, FINANCIAL ADVISER
[Assoclated PressI

WASHINGTON, Oct. 14.-President
w. c. Brown of the New York Central
lines was on the witness stand
throughout the day in the investiga-
ton by the interstate commerce COM
mission into the proposed advance in
freight rates in the eastern trunk line
territory.
The case of the railroads is practi-
cally completed, although j. c. Stew
art, vice president of the Erie, is to be
hec I'd
In discussing the capitalization of
the New York Central, President
Brown said:
1.-THE New York Central stock, every
dollar of 1t, has been paid for at $1OO
a. share, except such as was paid for
at the rate of $125 to $3.50 share, and
the New York Central cannot be re-
produced today for 200 per cent of its
total stock and bonds. l say that un-
der oath"
Louis d. Brandeis of counsel for the
shippers took up the oss-exam1na-
ton, and elected the information that
]. p. Morgan was member OF the
executive board of the New York Cen
traI and that the firm of ]. p. Morgan
& Co. was among the financial ad-
visers of the road.
did Mr.. Morgan approve of the in
from to per cent in 1902" inquired
Mr.. Brandeis
'I cannot answer because don't
know" responded the witness.
"Did not you and your directors
make this increase in dividends with
a full knowledge that employees were
about to demand increased wages?"
1.-THE demand for increased wages
was pending at the time, l belleVe'
rap1iad praSidepf RrOwn
us it not a fact persisted Mr..
Brandeis, that you disabled yourself
to the extent OF $1,786,00O a year from
meeting the increased liabilities for
wages?"
FACTS BEHIND DIVIDENDS
'Tn doing that" replied President
Brown, 1--WE increased the dividend
less than the men who held the Sc
curities of the New York Central could
have got on first class mortgages
dividend about equal to a per cent
bond, because bonds sell almost on
5 per cent basis. The same reason that
caused an increase in wages logically
and necessarily applied to the people
who held the stock of the railroad"
do you not conceive" suggested Mr..
Brandeis, "that 1t was your duty and
the duty of your fellow directors, II
a surplus was necessary for the main
tenance of the credit of the road, to
withhold the granting of the dividend
at a time when you knew that a de-
mand for an increase in wages was to
be made, which necessarily would i'm
pair a portion of your net revenue?"
''No, sir" said Mr.. Brown.
'sWas the question considered" ysug-
gested Mr.. Brandeis, lin view of the
effect of that action on the credit of
the New York Central and upon its
lrates
of the world?"
"I don't recall" replied President
Brown, whether it was or not; but
there is no question but that the in
crease of the dividend to 6 per cent
made it possible to dispose on satisfac-
tory terms of $44,000,OO0 securities of
the company"
Mr. Brandeis, in response to ques-
tions by Chairman Knapp and other
members of the commission, indicated
his purpose to show that if railroads
in the eastern territory were man
aged with the highest degree of eff
cheney it would be possible for them
to earn dividends and make the de-
sired improvements without increasing
rates. He said he would put men on
the stand who would explain how this
could be done.
CROSS-EXAAIINE BROWN
Cross questioned, President w. G.
Brown of New York Central, said of
his roads earnings:
"In twenty-one years the New York
Central paid an average of 4.76 per cent
in dividends TO it's stockholders, an aV-
erage less than they could have real
lied If they had invested their money
in first-class farm mortgages. In that
time they have taken out of earnings
and applied to improvements 1.27 per
cent, or just about % cents for each
dollar of dividends"
After Mr.. Brown had given similar
information Of earnings and surplus
set aside for improvements on other
of the New York Central lines, Com
missioner Lane asked how it happened
that in such rich territory as the New
York Central had, it had paid such
small dividends.
Because" Mr.. Brown replied, "it
has not been possible to earn any
more"
"If the Pennsylvania and the Balti-
more & Ohio could do so well, how is
it that you could do so little?' asked
Commissioner Lane
"That is very hard question to an
swer," replied Mr.. Brown.
"The Pennsylvania railroad is locat-
ed, in some respects. in better terri
tory than the New York Central and
the Lake Shore, that Is in territory
that gives an enormous tonnage"
Reverting to. the proposed advance in
rates, Mr.. Brown in response to In
quiries by Examiner Lyon, declared:
at think it is absolutely necessary for
the railroads to return more money to
sustain their credit, so they may OBJ
tain sufficient funds to make necessary
improvements. I do not think the IN
creases in rates asked for are all that
we should have, but they will enable
us, if granted, to obtain money abroad.
The sentimental effect of allowance Of
the proposed rates would be worth as
much as the practical advance in sus-
tanning our credit. 1t will convince the
foreign investment that there Is a trib-
unal in the United States that VIII
hermit a fair increase in rates. The
fact is, there is much doubt about that