Evening star., 1940-07-28
Profits Of Bankers
On Missouri Pacific
Securities AssaiIed
Senators Told Roiiroud
Reorganization Paid
Kuhn, Loeb S., 500, 900
sv the Assoclated Press.

The Senate Interstate Commerce
Committee reported to the Senate
yesterday that bankers who under
wrote the Missouri Pacific Railroads
reorganization securities received
half again as much compensation
as the systems general officers did
for running it from 1921 to 1890.
The report was one of series of
preliminary findings on investiga-
ton of railroads, holding companies
and affiliated companies.
Senators Wheeler, Democrat, of
Montana and Truman. Democrat, of
Missouri declared in an accom-
panylng statement that indications
were that while investors in the
Missouri Pacific suffered in 1915 and
again in 1888, the road was a profit
able enterprise for its bankers"
Kuhn. Loeb e. Co of New York
and other participating bankers,
they said received gross compen-
satioh of nearly s95OOOOO during
the l0-year period from 1921 to 1890,
While total salaries and expenses of
all general officers of the railroad
amounted to S6.069 900.
Dominated by Bankers.
The report discussed the systems
reorganization, expansion and
financing from 1915 to 1890 and the
extent TO which the current bank
ruptcy of the Missouri Pacific is
traceable to imperfections in the
previous 09l5-19l0 reorganization.
and to policies subsequently pursued
by the management which emerged
from that reorganization"
Kuhn, Loeb & Co.. the Senators
stated, dominated the 1857 re-
organization by reason of their rep
feSentatlon on the Stockholders
Proxy Committee and on two Bond
holders Committees, as we'll as
through their appointment as re-
organization managers, their role as
chief underwriters of the emerging
securities and their representation
IN the voting trust which controlled
the railroad during the five wears
after the reorganization"
The reorganization plan, the
statement said, provided for a $50
100000 reduction in long-term deot
and s3,250,000 reduction in annual
fixed charges, but "subseuuent
financing, entirely through the sale
of flXed-lntereSt debt, wiped out anv
benefits from the reorganization"
The debt, the report added. was sub
SeQuently increased by Sl85 900 900
and fixed interest charged by So
100000 a year.
The upShot was the 1885 bank
fuptcy, the Senators asserted. The
story Of how the l915-l7 reorgar-
izatIon postponed renewed insOl
Vency for only 16 years contains.
IN our opinion, lesson for present
reorganlzerS and future manage
mentS of the Missouri Pacific"
Invested in Other Carriers.
Kuhn. Loeb & Co., reorganization
managers in 1851, found that
one of the major causes of that re-
organizations was the large invest
mcnts in securities Of other railroad
companies. the statement said sI
Yet, after reorganization. the
Missouri Pacific management again
spent substantially the same large
sums upon securities of substan-
tally the same other Southwestern
railroads."
Purchase of stock control of The
Gulf Coast Lines was cited as an
example
The SYSTEMS fixed interest obi
cations and interest requirements
as a whole were increased un-
necessarily. it was said. by substi-
tuition of Missouri Pacific debt for
coast line stock.
Declaring that each acquisition
Of control of a subsidy by the Mis-
souri, Pacific brought further op-
portunitieS for profit" the state
ment said that:
AS reorganization managers, Kuhn.
Loeb & Co. received Sl,244,661 for
services and expenses.
AS underwriters of reorganization
securities they and associated bank
erS received an additional ST $40 900
As continuing bankers until 1881.
when j. P. Morgan e. Co. took
first place among the systems
bankers, Kuhn, Loeb and their as
sociates received S9,478 900. of which
the Kuhn, Loeb share was SO 3,4O8,-
600.
The statement ended with the
observation that the tragic history
Of the Missouri Pacific from in
so.vency to insolvency seems to us
to merit the closest study at this
time by those who are now or will
hereafter be concerned with the
management of that 1900 mile
railroad system.