The Washington herald., 1920-09-22
n. CENTRAL I
GETS new LOAN
|. c. C., However, Warns
Other Roads Against
Like Procedure. a

Railroad corporations desiring to
float stock and bond issues will do
well not to dispose OF them before
securing the approval Of the Inter
state Commerce Commission. The
New York Central Company did
this and got away with It," but
according TO the announcement
made public yesterday by the Com
mission. others are. warned to be
more ethical
Incidentally modern financing
methods in which competitive bid
ding is eliminated came in for some
criticism, and the discount in the
case Of the New York Central is
sue was termed liberal" in some
what ironic language. A syndicate
headed by J. p. Morgan & Company
OF New York handled the g25. 600 600
New York Central issue and profted
literally as middlemen, according
TO the detailed sls:ement made BY
the commission.
The New York Central company
sought permission to issue SZS.OOO.-
600 in ten-year, "a collateral trust
bonds, and also an issue OF the
same amount Of refunding and i'm
provement mortgage bonds al g..
the latter being part Of the security
Tor the collateral bonds. preferred
stock Of the Reading Railroad form
ing the balance. The SIS 600 OO0 is
10 be used in retiring earlier issue,
about to mature, and other obliRs-
tions.
TT developed at the hearing" the
commissions statement says. that
the proposed collateral trust bond.
had been sold on August 20, 1920.
subject to our authorization Whle
the law does not prohibit such a
conditional sale in advance Of an
issue of securities. carriers sboUrd
realize that We shall not be con-
trOlled in our action by reDreserta-
tions that failure to accord a.
lprOval Of issues conditionallv sofa
will result in disturbance or disar-
rangement Of plans based upon an
ticipated approval"
The statement asserts that tn.
bond sale was made without COM
petition, J. 7. Morgan & Co. being
the only firm dealt with. the sale 10
be made at 81 with accrued interest
If the Morgan firm and the National
City Company and First National
Bank Of New York, as associates.
succeeded in forming a syndicate.
But Morgan and associates bought
the bonds at s6.5&59 per cent OF par,
or on a : L per cent basis. The svn-
dlcate was composed OF 4u3 invest
ment security firms throughout the
country. and the subscription books
were closed within two hours or
their opening with an oversubsCrip-
tion Of more than 50 per cent
The cost OF marketing the issue.
so far as the New York Central was
concerned. was SS6S.525. plus small
amounts for taxes. etc. As synd.-
cate manager. the Morgan firm re-
Ceived SllSJ25. which was divided
with its associates. Syndicate mem
bers received H. per cent for all
sales within their allotment and >
per cent for sales in excess After
deductinE the commissions and OK
penses, the remainder Of the $50
600. or 2 per cent gross profit. was
distributed among syndicate mem
bers, amounting to about IL per
cent
J. The commission in its statement
admits that conditions arising out
OF the war have radically changed
the character OF the investment mat
ket" and that railway issues are
not as popular as formerly because
OF the possibility OF higher returns
n other issues. Under the condi-
I tions prevailing in the financial
world. applicant probably could MT
have obtained the advanJaEa Of opt a
competition" says the statement.
| but. il continues. in view 1. rEs
small financial risk and rh- arTa--
ent ease with which the Subs. rip
tions were obtained. w th.rh the
! discount at which the bonds were
sold was liberal The evidence,
/ however. is not sufficient ta justify
conclusion that the cost mf fnat-
ing the loan was such that We
ought. under all the circumstances.
q L II.