The Washington herald., 1916-08-29
DISSIPATION OF REVENUE
GAINS OF THE RAILROADS
The Disease by Which Many
Railroads Are Afflicted.

ANAAt So1S tS bAtAAShSSs
AS a result Of the methods OF financing
or selling securities through the banking
Institutions which control the railroads,
enormous bonuses to stockholders have
been granted. Ddring the period 1900
1910 alone. Is representative railroads
traversing all sections OF the country.
gave away in bonuses to their stockhold-
ers the huge sum of A5a4l4es2 More
| than $3.50, 600 was also distributed in
this way during the same period by s
representative Western railroads. Large
underwriting and banking commissions
have also been paid which have been
without Justification. BY way OF Illus
| tration, the recent investigation OF the
st. Louis and San Francisco Railroad by
the Interstate Commerce Commission
| showed that discounts and commissions
were paid to banks and syndicstes which
aggregated the enormous total OF $50, 152 .
eO2 during the period Iss6-1sl3 These are
typical instances. By the sale OF secur-
! tiles at much less than their market
value, the railroad companies have been
| deprived Of cash resources which they
| should have had. and at the same time
they have issued fictitious capitalization
which became a drain on operating reve-
nues.
One banking house received a fee Of
$4,000 for reorganizins the Chicago
Great Western in 1909 and in addition
\ made a profit Of 5000, 900 for the syndi-
cate which II represented. In the re-
organization of the Northern Pacific
| Railroad In 1896, the same banking firm
received a commission OF one-fourth OF
one per cent upon the par value OF all
| the securities deposited under the reor-
ganizstion plan, the only reservation be-
| ing a stipulation that the total fee TO
| this firm should not be more than one
million dollars.
Syndicstes OF bankers and hnanciers
made enormous profits In connection
with the stock manipulation and trans
actions Of the Chicago and Alton and the
| Union Pacific Railroads. The total
amount OF the funds or resources divert
ed from the treasury of the Chicago and
Alton Railroad during the period lSos-
| 1906 amounted to more than s9lcoo, 600
The same syndicate made more than 81 =
! 10000 In the sale OF the stock Of the
Southern and Northern Pacific and the
Chicago and Alton Railroads to the Tn
| ion Pacific Railway, over the finances OF
which they had control. A banking rr1n
which represented the syndicate, receiv-
| ed profits on these transactions also
which were estimated 20 be more than
g, 10000. Large syndicate profits were
! also received in connection with the sale
/ to the Rock Island Railroad OF some Of
its subsidiaries.
As the result of this reorganization,
the Atchison stock Issues were inflated
without adding anything TO the Value of
the property or to It's earning capacity.
| to the amount OF slssoa3Oq More than
Nl2,ocO,coo has already been paid In divi-
dends upon these fictitious securities
| which constitute a liability against the
| property but do not represent any con-
tribution ever made in any way 70 its
earning capacity. The annual dividends
now paid upon these stock Issues amount
to se.1s7.I5s
] The New York Central and Hudson
=, River Railroad was formed by consoli-
dation. dated December IL, 1889 The
| total par value of the stock OF the two
companies entering into the consolids-
tion was S4S5,sOo. This amount was
arbitrarily increased. without adding one
! cent TO the value OF the property. by
an increase in the capital stocks Of the
! consolidating Comps nies Of 81 4cS S3n or,
in other words. a stock dividend OF prsc-
| tlcally 100 per cent was declared Prior
! to this consolidation. the capitalization
! OF the two constituent companies had
been Increased, at a conservative esti-
mate, S2.5oo.Ooo without any tangible in
crease in the properties. As conse-
I QuenCe, at the time Of the consolidate
| In 1859, S5s, e2s. 80 of the constituent COM
panies did not represent any value paid
/ in. The cash dividends upon this wa
tered stock for 45 years. 1s7O-1sl4. inclu-
! sive. aggregates 2sso per cent. This is
equivalent to an average Of s., ss7. .51s per
year or a total of Sl5l. 4fa. .357 in dividends
for the 45 years actually paid out by the
company on stock which was issued
! prior TO or at the time OF the consolids-
tion and which did not represent any
addition TO the physical property OF the
company.
BY the terms OF the consolidation Of
the Chicago and Alton in 1905. $4,000
600 of railroad company securities
were given for s22, 10000 Of railway
! securities, or. in other words. more
than s17.ooO.O0O OF water" was in
jected into the capitalization Of the
new company.
In the consolidation OF the Missouri
! Pacific properties in 1909. s2s. .oOO. 600 in
| fictitious securities which represented
the capitalization of the previous A.
nancial mismanagement OF this rail-
road were carried forward into the
capitalization of the new company.
A further Illustration of stock ma
nipulation and improper financial
practices is furnished by the financial
! history of the St Louis and San Fran
cisco Railroad Company since its re-
| organization in 1895. On the basis Of
/ most conservative valuation at
least S1OO.O 900 in unwarranted cap
ital liabilities has been created by this
! railroad in the payment OF discounts
and commissions to banking interests
and in the acquisition of subsidiaries
and other properties Out OF a total
outstanding stock of $4,000. 900. s46,-
J 200, 900 is estimated to be fictitious
and to have already absorbed in divi-
dend requirements se,0O0,o0o from the
productive efficiency of capital and
labor engaged in the operation OF this
railroad. As a result of a recent ex-
haustive investigation by the Inter
state Commerce Commission, IL was
officially declared that the indefensible
| financial policy of the Frisco within
recent years had resulted in the i'm
proper diversion of net revenue OF the
railroad to a sum which approximates
between s3.50o,Ooo and 100000 per
snnum."
The last reorganization of the
Frisco is such that public interests
demand a Congressional investigation.
MONTCLAIR YIELDS A RELIC.