Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-10-26
Washington Ticker
BY CLINTON COFFIN,
Associated Press Financial Writer,

Considerable light on one of the most
puzzling features of the stock market
boom Of 1928-29 will shortly be fur
niShed by the Federal Trade Commits
| sion. The puzzle relates to the situation
behind the extraordinary and persisting
price advances of the great body of
stocks in the public utility holding class,
the scope and speed of their merger
proceedings and the complex financial
structures resulting. There are few peo-
pie who have much notion of the facts
as whole in this zone, but the COM
missions corps of economists and ac-
countants, modified in compliance with
Senate resolution to investigate the
whole matter, is now winding up work
and Will be ready to report some COM
| prehenS1Ve data within a few weeks.
Though details will not be disclosed
until the commission calls its witnesses
in open hearings, men who have been
engaged in the work have developed
some of the broad principles which I'M
derlieS both the stock market perform
ances and the swift spread of merger.
1T will probably be found that each
of the great holding companies, typi-
cally, in acquiring control of an oper-
ating subsidiary bought common or
voting stock only" said w. T. Chant
land one of the commissions special
attorneys in the work. Then the oper-
ating company, characteristically. pro-
ceeded to finance its own expansion by
the sale to customers of preferred or
non-votirig stocks or, in some cases,
bonds, nearly all of which were in the
! fixed return class. The central hold
! ing corporations maintain generally
merely ownership of the majority of
outstanding common stock in an enter
prise"
This is the situation that somewhat
/ explains the paradox frequently noted,
that public utility securities of the
holding company class have been able
| to pay 10, IL and Is per cent returns
to shareholders, though the business is
strictly regulated by State commissions
to prevent, in general. the earning Of
more than an 8 per cent annual return
on the value OF property put to public
| service in operation. The public regu-
lation, in the first place, does not apply
to the central holding corporations, but
| to the operating subsidiaries. Then the
| typical operating subsidiary has its in
vestment represented half by per cent
| bonds and 40 per cent in the form of
| per cent preferred stock, with but 10 per
cent in a common voting stock. The
distribution of the operating companys
lawful per cent return among these
! remarkable rates of dividend to be
paid on the small issues of voting COM
, mon stock, which is what the holding
corporation holds.
Further, as the commission agents
are finding, with the utility expansion,
particularly noted in the electrical
branch. there is continuous expansion
going on, and this is financed almost
| always by more fixed interest issues,
| mostly sold to customers. The trend
has been to keep the common stocks at
| the apex of the operating corporation
| financial structure continuously bearing
smaller ratio to the outstanding issues
Of fixed return securities underlying
them. There is fine tangle to follow
| through, the commission economists
have learned, before the problem can
be worked out as to any one of the score
or more of great holding concerns, but
the principle they are sure is fairly
generally eXemplified in all the oper-
| ationS.
Ir the last "a months holding COM
panies getting control Of operating
utilities have been willing to pay as
founding prices for needed majority
shares, because of the confidence of
the operators that when control was
oEce attained future expansion of bust
ness would justify the costs. It now
remains to be seen whether that out
lOOA Will 10 dominate. AL any
rate, the coming hearings will picture
the situation as it stands.
One mirror detail Of the tariff wrangle
has been holding up the installation
of a new American Ambassador to
France, but 1t is clearing up now. Sem
ator Edge, Republican, New Jersey, who
is President Hoover's selection for the
embassy, feels that he can't take up
the diplomatic career until the Senate
votes on the tariff schedule on earth.
earthenWare and porcelain. Having
acted as chairman OF the subcommittee
which framed that particular schedule,
it is understood that the Senator held
himself responsible for getting 1t voteo
on before reSigning. The vote is now
expected to be reached within week.
Since New Jersey bulks most ms
portantly in the earthenware industry,
the Edge attitude is quite understand
able A comparison of the schedule
with terms of the present law indicates
that the new bill, If the Senator's
schedule is accepted. will leave duties
much the same as they have been on
the line of goods treated.
Through all the tremendous down.
ward rush of stock prices on the eX-
changes in New York and elsewhere
this week the membership OF the Fed
eral Reserve Board continued to main
tain close communication with banking
leaders, but apparently never got re-
quest for positive action. Much cur
rent comment was that the board would
bring about a reduction in the 6 per
cent rediScount rate which has OBJ
tanned at the New York Reserve Bank
since last Summer, but it is pretty
fair deduction that this was not asked
by the New York banking community.
Few observers doubt but that the
Thursday noon meeting OF bank preSi- |
dents at the Office of j. P. Morgan
would have received any Government
aid under the circumstances that they
might have asked. and since no rates
went down, 1t is pretty certain that rate |
reduction wasn't sought.
There is rather slight room in the |
history of the Reserve System as an in |
stitution for anticipating use OF redts-
count rate changes as medicine for
panicking stock market. In the tradi-
ton of central banking cutting OF in
terest rates in periods of depressed BUSH
ness has been resorted to with good re-
suits on several occasions, but official
Washington has repeated many times
this week the view that the stock mar
ket and its tragedies are something
separately considered from general bust
ness Also, the most recent and up
ward adjustments Of central bank rates
in the United States have been DELHI
erately made by the board, with the
approval of the general banking world
for the understood purpose of quoting
down stock markets and haven't been
singularly successful in effecting the
purpose. 1t was speculative irony that
market traders most hostile to Reserve
Board policy .last Summer were moved
to look for Help from IL In the latest
distress.