Postal Down

Richest strike in Nevada's fabulous Corn-stock Lode was made in March 1873 when the Consolidated Virginia mine opened a silvershot vein 54 ft. thick. Before it was played out the vein yielded $190,000,000 in pure bullion and made a onetime Irish immigrant clerk one of the richest men in the greatest get-rich-quick era in U. S. history. Like many another bonanza king, John William Mackay beat a quick & gaudy path to the capitals of Europe but he did leave an enduring monument to his amazing energy--Postal Telegraph.

The testy irishman entered the telegraph & cable field solely to annoy Jay Gould, who had characteristically crossed him in a business deal. Allied with the equally testy Publisher James Gordon Bennett, who shared his animosity for the sly manipulator of Erie-R. R., John Mackay strenuously laid cables and strung wires to compete with Western Union, then a Gould favorite. The ensuing rate wars were scandalous, but at the founder's death in 1902 the Mackay companies were still a worthy heritage for his son.

Dapper, debonair, lavishly educated abroad, Clarence Hungerford Mackay continued to spin the web his father had begun until it was a $120,000,000 world-wide system. Then, after presiding over Western Union's only competitor for a quarter century, he sold out in 1928 to International Telephone & Telegraph which, under the direction of the Brothers Behn, was gobbling up communication companies in all the world's corners. As I. T. & T. has since learned, the Postal System was no bargain.

Under I. T. & T. management Postal persuaded the telephone companies to handle its telegrams on the same basis as Western Union's: charged to the sender's telephone bill. It arranged with several Standard Oil companies to have filling stations accept messages. It developed its radio business, modernized transmission equipment, spruced up its messenger boys. It sought additional revenues in the distribution of bus. theatre and airline tickets.

All this effort increased Postal's share of the total available telegraph business from 17%, to 22%. But the company did not thrive. Deficits were reported for the last four years, and interest charges on $50,000,000 of bonds and debenture stock were met only by liquidating assets and borrowing from I. T. & T. Last week, facing another interest payment July 1, Postal's President George S. Gibbs petitioned the courts for permission to reorganize under Section 77 B of the Bankruptcy Act. So long had Wall Street awaited some formal recognition of Postal's plight that both its bonds and preferred stock rose sharply after the bad news was out.

Few days before the Postal petition was filed it was learned that nearly two months ago the company had retained for expert financial counsel none other than Charles Edwin Mitchell. Just what Mr. Mitchell has been doing in his modest little office had been something of a mystery ever since he returned to Wall Street last winter (TIME, Feb. 4). But the choice of the bankless banker as Postal's adviser appeared wholly logical. I. T. & T. was first financed by Edward B. Smith & Co. in the early 1920's but before the end of that decade the Brothers Behn were using J. P. Morgan & Co. Under the Banking Act of 1933, the House of Morgan is no longer in the investment business, but its partners, two of whom sit on the I. T. & T. board, still take at least a friendly interest in their old clients' affairs. Furthermore, as commercial bankers J. P. Morgan & Co. hold a good deal of Mitchell paper including, at last reports, mortgages on the three Mitchell homes. Certainly no one would be more glad than the House of Morgan to see Mr. Mitchell make a little money --so that he can clean up his loans. And it was by no means improbable, reasoned Wall Street last week, that the Morgan partners tossed a little work Mr. Mitchell's way whenever they justly could.

Postal's problem is not unlike that of many a common carrier. Its annual revenues, now about $28,000,000, are not sufficient to meet fixed charges after paying all expenses. The bondholders will have to take at least a temporary cut in their coupon rate, and the preferred stockholders, who have had no return for four years, will probably be asked to accept a less preferred position in the capital structure. Knottiest question will be the treat-ment of the common stock, all owned by I. T. & T. The Brothers Behn not only issued more than 300,000 shares of I. T. & T. stock to Clarence Mackay & friends in payment for Postal, but I. T. & T. also subsequently increased its equity by $25,000,000 cash, which was used to finance Postal improvement.

Mr. Mackay did not fare much better than Mr. Behn. The value of his immense I. T. & T. holdings melted like snow when the price dropped from a 1929 high of $149 per share to a Depression low of $2.63. Not long after that low was reached, Mr. Mackay was living in the superintendent's cottage on his Long Island estate, having closed his big house and stopped the salaries of his hundreds of gardeners, grooms and domestics. To-day with non-dividend-paying I. T. & T. selling at $9 Mr. Mackay is certainly solvent but he no longer plays godfather to anything from the New York Philharmonic to Nevada University's Mackay School of Mines.

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