Sinking Sea Lord

To British investors a prime indication of safety is the presence of "good names" in a company. Last week a vast English company which, with its affiliates, represents a capitalization of nearly $500,000,000 and has assets scattered throughout the world, passed dividends upon both the preference and common stocks. This alone, was a shock to London businessmen. But even more shocking were whispers of Scandal about the best of the company's "good names."

Inevitable is the cycle which eventually brings depression to even the most prosperous company. In the 19th Century the Royal Mail Steam Packet Co. (dating back to 1839 when it was comprised only of swift sailing vessels bearing mail over the South American and West Indies routes) was rich and powerful. But by 1902 it was forced to omit its dividend.

The next year one Owen Crosby Philipps, a 6-foot-7 man of 40, became chairman of the company, which then operated 190,000 tons of shipping. Today Owen Philipps is Lord Kylsant, "Lord of the Seven Seas," a director of over 40 companies and organizations. With a single-handedness of management that amounts almost to secrecy, he has placed a great K on many orders. Some of these Ks have resulted in such deals as the purchase of the White Star Line (from Morgan interests in 1926), the Elder Demster Line (West Africa), the Union Castle Line (South Africa)*. Other K orders have resulted in fast steamers, improved service, mechanical-innovation. Today the Royal Mail's red ensign flies over a fleet of some 2,600,000 tons --one-sixth of the British merchant marine, the greatest fleet in the world.

That such a tremendous company should again face depression indicated to British financiers that the "Lord of the Seven Seas" had placed his K upon some orders that were unwise. Especially did this seem plausible in view of the belief that Lord Kylsant is paid not a salary nor a percentage of the profits, but a percentage of the gross. Thus more ships, more lines, terrific expansion, would have brought more pounds sterling into the Kylsant coffers even if they brought less to the Royal Mail treasury. And, according to Scandal, last week's trouble indicated that of late the K has been placed upon orders not only unwise but also unwarranted.

That all was not well in Royal Mail was indicated when early this year the common stock began a decline that carried it from a high of 76 (shillings) to 55. Then, while the stock dropped abruptly to 44, Lord Kylsant's brother. Viscount St. Davids, publicly accused him of mismanagement.

Last week, upon announcement of the dividend omission the stock tumbled from a resting place at 33 to a new low of 27 while the preference stocks concluded a drop that carried them from 81 to 37.

As an explanation Lord Kylsant said that "public attacks" had hurt the company although its earnings for this year would be as large as during 1928. Yet canny Londoners, awaiting the auditor's report, were inclined to believe Viscount St. Davids' attack upon his brother had been more than a family squabble. For Lord Kylsant's official statement included the phrases: "write off . . . for estimated shrinkage (under present conditions in heavy British industries) of investments in other than shipping companies." These "investments" were guessed to be the base of Viscount St. Davids' anger, were seen to be unwise and unwarranted uses of the K.

To the British public which recently viewed the New York market break with great and garrulous glee, Royal Mail's tumble was merely another incident in the series of misfortunes which have over taken the English investment market. Although in the U. S. prices broke, earnings of U. S. companies have so far been maintained. But in England poor trade conditions coupled with belief that the Labor government is financially incompetent, seem to indicate the culmination of the long established drift of the London market away from its position as world's leader. "Home Rails," long considered a prime investment, have seen the cycle bring Depression, as have Industrials. British Consols, once the "world's safest security" have depreciated with high interest rates. Last week's lowering of the Bank of England's discount rate to 5% and the shipment of $21,000,000 gold from New York were bullish items on the London market but could not compensate for the collapse in the gigantic Royal Mail and doubts concerning Kylsant, "Lord of the Seven Seas."

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