The New York herald., 1922-01-05
BOND PRICE RISE In
1924 MEMORABLE
Not Since 1916 Had Values
Advanced Generally-Rails
Take Part in Gain.
MUCH REFUNDING DONE
Public Shows Preference for
Issues Of Roads-Danger
to Transportation Act.
MUCH REFUNDING DONE
BY PIERPoNr ". DAVIS.

BY PIERPONT v. DAVIS.
Vsce-President OF the National CITY
Company and Choirn,on Of tho COM
n,ittce on Railroad Securities OF tho
Investment Bdnkers' Aosootctsox.
4" HE year 1921 WAS. broadly speak
ing, year Of rising prices for all
classes Of bonds. This in Itself
makes the past twelve months memoir
able. as the most recent year Of rising
prices occurred as long ago as 1916.
Railroad bonds have participated in the
advance very generally. although certain
issues Of companies. the immediate flnan-
cial future Of which is thought to be
clouded. have not benefited by it.
very fair volume OF new railroad
financing has been accomplished. Ac-
cordiny to careful computations Of the
Financio, and CoasmerctaI Chronicle
Covering TO date. however. only ten
nonths) $GS6.0o0.000 OF new bonds have
been sold. As the major part Of that
amount was for refundIng purposes 1t Is
clear that the railroads did not obtain
or attempt to obtain new capital which
they really required.
An interesting commentary on the at
titrde OF the investor Is the fact that
new railroad issues were sold to the pub
lie to yield an average of only $50 per
cent. whereas the public utility financing
was done on the basis OF 7.50 per cent.
to the public. Industrial financing on one
OF 7.70 per cent. and foreign government
financing on one Of TOT per cent. That
preference shown railroad securities can
De explained In two ways; first. that only
the very strongest among the railroads
attempted to sell their bonds and, Sec
ond. that the American investor tradi-
tionally prefers railroad securities
The outstanding refunding operation
was, OF course, the sale OF $23O,000, 900
OF so-called Chicago. Burlington and
Quincy Joint 6ks. Those bonds, which
are the Joint obligation Of the Northern
Pacific AND Great Northern Railways,
were sold SO successfully that. notwith-
standing the enormous size Of the loan,
their price never dropped below their
onering quotation and since their fiota-
ton has advanced about ten points. Up
to the time that the Offering was made
the Great Northern had failed to earn
its operating expenses by $2.97S,000 and
the Northern Pacific similarly was $685.
COO In the red. The poor earnings were
properly ignored by the investor who
recognized their temporary character.
ss2O.OOo.OoO Due in 1922.
II is impossible TO estimate how much
railroad financing will take place dur
Ing 1929. About $500. 00o,0 Of railway
obiisatfons Of all sorts will fall due.
Among the larger maturing issues are
S25.00o.000 OF Southern Railway notes,
and $l.5o0.000 OF Rock Island notes on
February L; S15.000.000 of Erie notes
and $27.Ss2. 900 OF New Haven bonds on
April 1: s5.950.000 OF Easton and Am
boy (Lehigh Valley first SIS on May I,
$780, 900 OF Delaware and Hudson
equipment %Ns on July I. and $1l,291,-
coo OF International Great Northern ex-
tended rs on November I. The Bur-
lington and Great Northern railways
have applied TO the Interstate Commerce
Commission for authority to sell bonds
for general Improvement purposes.
Many other roads need new capital
desperately but do not command the nec-
essary credit Broadly considered I look
for substantial amount Of financing
to obtain fresh capital. provided that I'm
proven1ent In general business takes
place ana that the Congress and the
Interstate Commerce Commission allow
railroads q reasonable opportunity TO
earn fair profit
A vast surplus Of railway facilities
exists. duo to diminished traffic and
yet this 70 precisely the time to make
sdvants goous purchases. No doubt the
entry OF the railroads into the markets.
as buyers on q broad scale would st,nu-
late business throughout the country.
but the railroads face the unpleasant
fact that In 1874 they earned only sH
por cont on their invested capital-rin
other words they earned tho interest on
their mortgages but nothing for their
stockholderG--and even that scant re-
turn was secured by O curtailnent of
nafntenance that has impaired the prop
critics. Although much mon0y ought TO
Dc spent to place the carriers In shape
TO handle the reviving conimerce OF the
country, many companies will scrutin-
ise their income accounts ior months
before adding to their liabilities.
Transportation Act Threatened.
The attitude of tho Congress and the
Interstate Commerce Commission toward
the carriers will be very influential in
determining. not only whether the rail-
roads VIII desire to raise capital, but also
whether or not the investor viii advance
II. Tho transportation act Of 1920 Is
recognized az being a most constructive
measure. and the renewed favor with
which investors have regarded railway
issues IN the last two years is duo to Il
in great measure. Yet that act Is
threatened with amendment (by the
Capper bill) in its most vital sections.
II the Capper bill becomes a law the
railroads again will be at the mercy OF
forty-odd State commissions, intrastate
rates will be made with no regard to the
welfare OF the railways and the chaos
OF conflicting regulations between Fed
cral and State authorities reenacted. The
Cepper bill also repeals the rate making
section OF the transportation act of 1920.
which provides that the Interstate Com
merce Commission In fixing rates must
give consideration to a fair return on |
the value OF railway property, which
fair return Is defined. until Marci, 1, !
1892. as not less than 3 " per cent, to |
which the commission has added al per |
cent. IN its discretion provided by law. |
IL 10 not difficult to foresee the disas- /
trous consequences that Inevitably would |
cnsuc II that bill should become a law. |
Among those who In the end would be as |
badly hurt as any one are the farmers. |
In whose supposed interest Senator Cap. |
per has drafted II.
The Interstate Commerce Commission |
nas been in position to make or break
tns railroads for many years. Investors