The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1920-05-31

In the nine months subsequent to
last July. practically no financing
was undertaken by any American
railroad for the purpose or raising
fresh capital for additions. better
ments or equipment, Such a long
period OF absence from the invest
ment markets is without precedent.
The past two mouths. however, have
witnessed a surprising revival, APP
proximatSly S200.000,000 of new Sc
curities having been issued by the
railroads and purchased by inves-
tors. This change Is due primarily
to two causes.
The transportation act of 1890 be-
came Law on February 2S, and has
been generally accepted as the hrst
really constructive railroad legis-
.lation since the Interstata Com
merce act itself, Increased comb
dence in railroad securities was
promptly demonstrated by a. rise
in prices on the stock Exchange
Second, the offerings by some OF
the premier railroads of their ten
year Z per cent bonds at par have
made an appeal that investors could
not resist. One must go back forty
five years to ind the Pennsylvania
Railroad Company, for example
selling a per cent obligation.
No deterioration of railroad creolt
is indicated by the high bases on
which this recent financing mas
been done. since industrial corpo-
rations of the best credit nave con-
temporaneously offered their bonds
and notes to the public on IA
per cent and s per cent oasis: Ihese
very high rates are world wide anu
reflect the enormous demand lor
capital by enterprise OF all KINDS.
The fact is that railroad securitles
have always been preferred invest.
ments in this country, and IT shoulo
be. possible for a number OF strons
companies TO raise substantial
amounts of money from time to
thine unless the entire investment
market receives a check. Inc re-
cent railroad financing has been
confined to those carriers enjoying
the highest credit, such as the
PennsyIyania, New York Central,
Northern Pacific, etc. but the pub
lie financing of the weaker ROADS
is, in all probability. out OF the
question for the moment.
Commerce requires large amounts
of money to be spent on tho rail-
roads, but all borrowers are serl-
ously embarrassed by the state or
the market. In invt stnent banking
there are three reservoirs from
which to draw-that of institution
al money. that of large individual
capital and that of small capital.
Tho reservoir of institutional capt.
tai is available only to very linn
tied extent at the present time. The
reservoir of large individual capital
Is practically closed to taxable Sc
curities. and IL is, in any event.
greatly diminished in size as the re-
suit of the surtaXes on incomes.
Therefore the investment bankers
must turn to the reservoir of small
/ individual capital, which is a very
broad one, and one which has in
creased in size materially since the
| beginning of the war but il is a
very shallow reservoir and is drain
| ed dry by a rapid output of new Sc
| curities. For this reason invest
! ment bankers have been very cau-
! tious in estimating tho amount OF
public financing that the railroads
could successfully do this year.
The Needs of the Railroads for New
Capital.
Every industry needs more capital
! today. but not one needs it more
desperately than the transportation
! industry. The railroads problem !.
| the more acute because they must
make up past DEFICIENCIES as well as
| prepare for future needs. A pro-
gressiVe management endeavors tC
| keep from five to seven years ahead
of actual II aflic demands. Today
the railroads are far behind current
demands. The blame for this situa-
ton rests on the public. not on the
railroad arrangements. After the
adverse decision in the 1911 rate
cases the amount of new money
which the railroads were able Ia
raise by the sale of their securities
steadily diminished. The amount in.
vested in 1916 was only 30 uer cen
of the amount invested in 1911.
While an average of $500. 0O0. 00t
rer annum was spent for additions
betterments and equipment durint
the two years of Federal control
this sum, because of the great ad
vance in the prices of labor and ma.
terials. was far short of the mini.
mum requirements II will be i'm
possible to correct in a few month:
the deficiencies which have been ac
formulating for years. The simmer.
who few years ago fought tn,
railroads before the commission So
vigorously must, for the present, b,
IContent with the kind of transporta.
ltion they were willing to paw for