East Coast Receivership

Memories of a titan returned to Wall Street last week when Florida East Coast Railway was placed in receivership and control of the road passed from the estate of the titan's widow to a group of bondholders. Henry Morrison Flagler conceived greater schemes in his life than his $126,000.000 railroad, but none retained his affection as did this enterprise, on which he lavished his brain and wealth.

Early in his career Flagler was a partner of John Davison Rockefeller. More than that they were close friends, worked in the same room, lived only a little distance from each other. Rockefeller called Flagler's friendship "valuable above all other possessions," and credited him with the scheme of controlling the oil supply of the country. "I wish I had had the brains to think of it," Mr. Rockefeller once said on a witness stand.

In the '80s Flagler, over 50 years old, became interested in Florida's east coast. He saw the possibilities of the playground it has since become. Transportation and good hotels were essential to his scheme and he began to provide them. The "Green Road," a narrow-gauge line from Jacksonville to St. Augustine, was his first railroad purchase in Florida, followed shortly by the construction of the Ponce de Leon and Alcazar hotels in St. Augustine. From these small beginnings the road reached south 552 mi. to Key West.

It operates in all about 1,660 miles of tract and owns, jointly with the Atlantic Coast Line, the Peninsular & Occidental Steamship Co. providing service from Florida ports to Havana and Nassau.

When Henry Flagler died in 1913 he owned all of the 375,000 shares of common stock of the railroad. These formed a large percentage of his estate, which was left in trust to his second wife, Mary Lily Kenan Flagler, afterward Mrs. Robert Worth Bingham. A curious provision of her will, filed after her death in 1917, provided that the administrators could use the income from the estate to protect the railway and the Flagler hotels for a period of 21 years.

From 1921 through 1926 there was no need for such action. The Florida real estate boom sent the road's revenues sky-rocketing to such a degree that earnings of over $10 a share were shown on the common stock in 1925. But the boom was indirectly the undoing of the company. Increased traffic could not be moved on the single-track line. To provide funds for double tracking and other expansion the road sold $45,000,000 of 5%, bonds during 1924, 1925 and 1926. The bonds were underwritten by an imposing group headed by J. P. Morgan & Co., First National Bank of New York and National City Bank. Failure to meet interest payments on these bonds last week precipitated the receivership.

Ironically, the action was brought by Standard Oil Co. of Kentucky, a unit of the old Oil Trust which Tycoon Flagler thought up.

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