Tangled Transit

Passengers in New York's humid, jam-packed subways wondered dully at the headlines in their neighbors' newspapers one evening last week: I. R. T. IN RECEIVERSHIP. What would that mean? wondered the subway sardines. Fewer seats than ever? More jerking and lurching, more pushing and bawling by red-faced guards at the stations? Fact was it might mean, eventually, an improvement in the lot of the subway sardine.

Interborough Rapid Transit Co. staved off receivership in 1922 by whittling down its guarantee of dividends of stock of the Manhattan elevated lines which it had leased for 999 years. As a further aid J. P. Morgan & Co. arranged an exchange of maturing notes for an issue of ten-year notes. The elevated lines grew progressively unprofitable. Last year they showed a loss of $4,000,000 which I. R. T. had to make good from its subway earnings. Knowing that I. R. T. would be unable to meet its notes on Sept. 1, Banker Morgan revived a dormant committee last July, wrote to all holders urging them to support plans for unification of all New York subways as the best way to obtain eventual payment. Recommending the same course Banker Charles Hayden of Hayden, Stone & Co. formed a protective committee for another note issue due in October. Both committees requested deposits of notes so that holders could be directly represented in unification negotiations. Though the two issues totaled $42,000,000 Wall Street felt at the time that the committees would extend them, thus avoiding receivership.

New York has three subway systems. Though I. R. T. is the largest, it is controlled by smaller Brooklyn-Manhattan Transit Corp. Chairman of both is grinning, square-jawed Gerhard Melvin Dahl, onetime director of Cleveland's traction properties, later a trouble-shooting vice president of Chase National Bank. Together the two lines daily hurtle 5,000,000 New Yorkers up & down their rocky island, under and over the East River to Brooklyn and the Harlem River to The Bronx. The city's third system is municipally owned. Though it carries no passengers yet, its empty trains have rumbled up & down under Eighth Avenue for a long time just for practice. Last week the periodic threat of city officials to open this line seemed near fulfillment. On Sept. 5, officials say, curious New Yorkers may pay a nickel to ride in the big, shiny new cars. But by law the system must be self-supporting within three years, and Mayor Walker's administration fears that if operated independently it will lose money, thereby losing also the cherished 5-c- fare, biggest plank in Tammany's political platform.

The Transit Commission is charged by law to amalgamate New York's rapid transit facilities. Lawyer Samuel Untermyer, as special counsel to the Commission, has advanced three plans for combining various systems. All three were pigeonholed after long political and financial squabbling. Acting as a private citizen and "heavy taxpayer," Samuel Untermyer last June proposed still another plan to counter one published by the Commission last year after he resigned as its counsel. These two plans are now the bases for negotiations. Negotiations have been delayed because Mayor Walker and his officials have been engaged elsewhere (see p. 10). Both plans call for a Board of Transit Control, a public body which will purchase I. R. T. and B. M. T. by exchanging its bonds for their securities, and also acquire the city-owned system. The Transit Commission wants to back the proposed Board's bonds with a virtual city guarantee. Citizen Untermyer will have none of that, for the city, strapped already, is nearing its legal debt limit. Though believing the economies of unified operation insure retention of the 5-c- fare, he insists on a rate sufficiently flexible to make the proposed Board's bonds stand on their own feet.

Most of the wrangling has occurred over the price to be paid for the two private companies. The potential political patronage of the Board also clouds the situation. B. M. T. has toyed with the plans advanced, but because B. M. T. has good earning power and is financially sound, Chairman Dahl has steadfastly held out for better terms. A $13,500,000 B. M. T. note issue was taken care of by the bankers last month. As a condition of the loan, however, the $4 dividend was omitted despite earnings of $7.15 a share for the fiscal year. Shortly before this at the request of a group headed by Bernard Mannes Baruch and reported to control 150,000 shares, Elisha Walker, bankless banker, and Herbert Bayard Swope were elected to the Board. Though he is known as a good operating man. Chairman Dahl's longstanding animosity for Lawyer Untermyer has flared up frequently in his dealings with the Transit Commission, complicating negotiations. Observers thought that Financier Baruch had become impatient with his good friend Chairman Dahl's tactics, that his direct entrance into B. M. T. affairs would soften Chairman Dahl's unyielding stand. In the event of unification, Chairman Dahl's organization, more efficient than I. R. T.'s, would probably be retained and Chairman Dahl might become tsar of a united 688-mi. system carrying more passengers than any railroad in the world.

Speculation was rife in Wall Street last week over the real reason for I. R. T. receivership. The action was brought by a minor creditor (for $27,000) and the company readily assented. There were reports that the Morgan and Hayden Committees had been unable to obtain sufficient deposits of notes for them to authorize an extension until unification could be consummated. With an extension of note maturities it was thought that I. R. T. could have struggled along. Lawyer Untermyer hailed the receivership as a long step toward the time when I. R. T. would readily accept the terms of his offer. But most observers believed that I. R. T. would seek to rid itself of the burdensome Manhattan Railway Co. (elevated lines) lease. Saddled with this load, I. R. T. is in a poor position to bargain in unification deals, for at best it barely earns its fixed charges. On subway operations alone, I. R. T. showed earnings on its common stock even in the last fiscal year. But if efforts are made to break the lease, Wall Street expects stiff opposition from the Rockefeller interests. They have donated large blocks of Manhattan Railway securities to philanthropic institutions.

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