Bankers at Work

How did Ivar Kreuger gull austere and powerful U. S. bankers? Will any of these bankers who sold his securities and sat on his boards be tried for fraud or negligence?

Last week the second question was still unanswered. But much that may have an important bearing on it was revealed when the receiver for bankrupt International Match held hearings in Manhattan in an attempt to learn just what the company's position was. Out of the testimony could be gathered the first detailed account of Ivar Kreuger's manipulations. The whole afforded a remarkable close-up picture of the U. S. banker at work.

Who killed Cock Kreuger? What was the final thing which ran him to ground? Last week it became clear that his end was written when Sosthenes Behn, Chairman of International Telephone & Telegraph, with all the deliberateness of a Dane, refused to believe in the sly Swede; and when Gordon Rentschler, astute president of National City Bank, stood by Mr. Behn and asked Ivar Kreuger for facts, more facts, clearer facts.

This final Kreuger chapter started in June 1931, when he sold control of L. M. Ericsson Telephone Co. to I. T. & T. He was given a down payment of $11,000,000 and promised some I. T. & T. stock as soon as an audit was made. This audit was merely a routine matter so far as I. T. & T. was concerned.

Up to Stockholm went the accountants of Price, Waterhouse & Co. After much investigation they cabled I. T. & T. that Ericsson's cash account had been misrepresented, cheap foreign bonds being carried in the cash account at par value. In Manhattan Ivar Kreuger tried to pass this off. It was a mistake in translation he insisted. Oh yes, the bonds had been placed in lieu of cash but that was just a temporary loan Ericsson Telephone had made to Kreuger & Toll--he would soon put the cash back and take the bonds in return. And did not Sosthenes Behn see that Ivar Kreuger himself had guaranteed the Ericsson accounts? There was nothing to worry about.

But Sosthenes Behn cared little for the guaranty he had been given. And neither, apparently, did his bankers, J. P. Morgan & Co. and National City Bank. Soon Ivar Kreuger was closeted with National City's Rentschler. After ten days of meetings Mr. Rentschler said that Ivar Kreuger would have to cancel the deal, give back the $11,000,000. These dollars I. T. & T. has yet to see.

After his conferences with Kreuger, Banker Rentschler telephoned George Murnane, a partner in Lee, Higginson & Co., bankers for Kreuger's International Match Corp. Lee, Higginson had just floated a $50,000,000 International Match debenture issue in the U. S. "for important new investments in Poland . . . and other purposes." Banker Rentschler suggested that Banker Murnane ought to hear Kreu-ger's explanation of the failure of the Ericsson deal. It was Sunday, Feb. 21. Banker Murnane went off to church, then summoned his good friend and partner Donald Durant who was personally very close to Ivar Kreuger. Together they went to the Kreuger penthouse at No. 791 Park Avenue. Asked for his explanation Herr Kreuger again muttered something about "an error in translation." grew white, slumped into a chair. Bankers Murnane and Durant politely did not press the issue, called a doctor, withdrew. If they smelled a rat they did not follow their noses.

At last week's hearing Banker Durant, face white, lips twitching, testified in a nervous voice regarding this interview. Spectators grew restless at the obvious suffering he was going through. Nerves almost cracked when on the street outside a tinnish German band struck up. Many times Banker Durant failed to remember things, always insisted that he and his partners had faith in Kreuger up to the time of his death.

Six days after the penthouse interview a $4.000,000 unsecured loan made to International Match by several big banks fell due. Ivar Kreuger admitted he could not pay it. National City Bank, despite its recent experience in the Ericsson deal, offered to renew. S. Sloan Colt, president of Bankers Trust Co., renewed the loan after a cursory glance at a forecast of International Match's income. On the forecast were two items which should already have been collected by International Match. Neither had been received but that was not commented upon. No willing renewer, however, was Pittsburgh's Union Trust Co., the "Mellon Bank." Union Trust insisted on cash & collateral. On Feb. 27 the $4,000,000 loan was reduced $200,000 and 350,000 shares of Diamond Match Co. were put up as col lateral. Last week this block of stock still had a market value of $4,550.000.

None of the Lee, Higginson partners who testified last week admitted that they had felt any alarm over the coincidence of irregularities in the Ericsson deal and International Match's inability to pay a $4,000,000 loan although its 1931 income had been reported at $20,000,000. Last week they seemed to listen with surprise to the description of International Match's bookkeeping as given by James Naumburg Rosenberg, counsel for the receiver.

Between 1923 and 1931 International Match sold $169,890,000 worth of securities in the U. S. A $15,000,000 debenture issue was retired at over par, so that $154,000,000 was actually invested in the company. Last week the market value of this $154,000,000 was $1,787,000. Practically all of the money received was transferred to Europe and used by Herr Kreuger as he saw fit. Not until last week did Lee, Higginson & Co.'s partners hear that International Match's chief assets are $75,000,000 owed it by little known Continental Investment Co. of Liechtenstein and $15,000,000 by Garanta Co. of Hol land. Apparently both these companies used the money to some extent to buy properties for Swedish Match Co. They paid interest to International Match on a sliding scale, the scale being just large enough so that International Match would appear to earn its dividend. One year the "interest" went as high as 24%.

In addition to this remarkable book keeping method which mulcted International Match for Swedish and also gave Ivar Kreuger immense sums of money to use as he wished, two other frauds were shown, I) International Match bought $50,000,000 worth of German bonds which were placed in a Kreuger- controlled bank for safekeeping. A few weeks ago these bonds turned up in Stock holm where they had been used by Ivar Kreuger for a personal loan. 2) Many of International Match's so-called concessions were false. On the stand last week Fred Allen, large senior New York partner of Lee, Higginson & Co., looking 25 Ib. lighter in the past two months, testified that so far only the Turkish concession (made in 1930) and the Guatemalan have been found to be real.

Most fanciful of all were concessions listed as "X," "Y" and "Z." Lee, Higginson were content with Kreuger's story that these assets must remain anonymous for high diplomatic reasons. In 1931, when President Joseph R. Swan of Guaranty Co. asked for detailed information, Herr Kreuger reported about $70.000.000 invested in "X." "Y" and "Z" but still insisted on anonymity. Last week it was revealed that X stood for Italy, Y for Spain, Z for Diamond Match Co. But the "concessions" did not exist, the $70,000,000 "investment" was pure falsehood.

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