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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



HEARINGS 

BEFORE THE 

TEMPOKAKY NATIONAL ECONOMIC COMMITTEE 
CONGEESS OF THE UNITED STATES 

SEVENTY-SIXTH CONGRESS 

SECOND SESSION 
PURSUANT TO 

Public Resolution No. 113 

(Seventy-fifth Congress) 

AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO 
MAKE A FULL AND COMPLETE STUDY AND INVESTIGA- 
TION WITH RESPECT TO THE CONCENTRATION OF 
ECONOMIC POWER IN, AND FINANCIAL CONTROL 
OVER, PRODUCTION AND DISTRIBUTION 
OF GOODS AND SERVICES 



PART 23 



INVESTMENT BANKING 

FINANCING OF AMERICAN TELEPHONE & TELEGRAPH CO. 

FINANCING OF RAILROAD MATURITIES, J935 

J. P. MORGAN & CO. 

MORGAN STANLEY & CO., INC. 



DECEMBER 15, 18, 19, AND 20, 1939 



Printed for the use of the Temporary National Economic Committee 




UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1940 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75tb Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Cliairman 

WILLIAM H. KING, Senator from Utah 

WILLIAM E. BORAH, Senator from Idaho 

CLYDE WILLIAMS, Representative from Missouri 

B. CARROLL REECE, Representative from Tennessee 

THURMAN W. ARNOLD, Assistant Attorney General 

* WENDELL BERGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

*LEON HENDERSON, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

*EWIN L. DAVIS, Commissioner 

Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

*A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 
Representing the Department of the Treasury 

CLARENCE AVILDSEN, Special Adviser to the Secretary 
Representing the Department of Commerce 

JAMES R. BRACKETT, Executive Secretary 
•Alternates. 



CONTENTS 



Testimony of — Page 

Alexander, Henry C, J. P. Morgan & Co., New York, N. Y. 1184&-11861, 

12095-12097 
Anderson, Arthur M., J. P. Morgan & Co., New York, N. Y.. 11999-12049 

Danielian, Dr. N. R., Washington, D. C 11830-11845 

Chapin, John R., Kidder, Peabody & Co., Boston, Mass 11863-11870, 

11882, 11926-11928 
Gordon, Albert H., Kidder, Peabody & Co., New York, N. Y. 11942-11956 
Hall, Perry E., vice president, Morgan Stanley & Co., Incorporated, 

New York, N. Y 12069-12086 

Keyes, Leonhard A., general manager, J. P. Morgan & Co., New 

York, N. Y 11904-11909 

Leffingwell, Russell C, J. P. Morgan & Co., New York, N. Y. 12101-12113 
Lyons, Barrow, associate financial economist. Securities and Exchange 

"Commission, Washington, D. C . 12001-12049 

Mitchell, Sidney A., president, Bonbright & Co., New York, N. Y.. 12086- 

12095 
Stanley, Harold, president, Morgan Stanley & Co., Incorporated, 

New York, N. Y 11958-11995, 

12049-12086, 12097-12101 
Stuart, Harold L., president, Halsey, Stuart & Co., Inc., Chicago, 111. 

11935—11941 

Swan, Joseph R., Smith, Barney & Co., New York, N. Y 11999-12049 

Whitehead, W. S., security analyst, Securities and Exchange Com- 
mission, Washington, D. C . 11920-11921, 11999-12000 

Whitney, George, J. P. Morgan «fe Co., New York, N. Y 11845-11861, 

11870-11887, 11893-11903, 11909-11920, 11921-11926, 11928- 
11935, 11995-12049, 12064-12086, 12097-12101 
Statement of — 

Connely, Emmett F., president, Investment Bankers Association of 

America, Detroit, Mich 11887-11889 

FINANCING OF AMERICAN TELEPHONE & TELEGRAPH 

CO.— J. P. MORGAN & CO. 

, Page 

Introductory statement on American Telephone & Telegraph Co. financing. 11829 

Early development of Bell System and its capital requirements 11832 

The management looks to New York for additional capital 11834 

The change from competitive to noncompetitive financing . 1 1838 

Difficulties in disposing of the 1906 bond issue 11841 

The 1906 financing under the leadership of J. P. Morgan & Co 11847 

Competition and competitive bidding 11848 

Percentage interests of original contractors in 1906 and subsequent syndi- 
cates 11850 

Appearance in group of First National Bank and National City Co., 1913. 11852 

Further issues purchased by the group, 1913-16 11854 

Investment banking as a profession 11858 

Association of Kidder, Peabody & Co. and Baring Brothers & Co., Ltd., in 

Telephone financing 1 1863 

Use of term "American Telephone proprietary interests" 11864 

Percentage participations of underwriting group in Telephone issues, 1916- 

1919 11870 

The "Library Agreement" _.. 11872 

Mr. Whitney's comments on origin of term "proprietary interests" 11875 

First issue after the "Library Agreement" 11885 

Summary by counsel of previous testimony on American Telephone & 

Telegraph Co. fipanciog 1 1892 



IV CONTENTS 

Page 
New England and Baring Brothers' participations prior to "Library 

Agreement' ' 11 893 

Informing interested parties of "Library Agreement" 11898 

Readjustment of Kuhn, Loeb & Co.'s interest subsequent to "Library 

Agreement" 11901 

Availability of records of J. P. Morgan & Co., to the Committee 11904, 11920 

Percentage participations subsequent to "Library Agreement" 11909 

Distribution of spread on Telephone issues 11912 

Competitive bidding as an alternative 11915 

Length of subscription period 11916 

Telephone issues not covered by "Library Agreement" — Applicability of 

"trio arrangement" 11 922 

Management fee to J. P. Morgan & Co. and Kidder, Peabody & Co 11923 

Percentage participations subsequent to "Library Agreement" — The New 

England interests 1 1926 

Telephone financing subsequent to the Banking Act — Activities of George 

Whitney 11928 

Request of Halsey, Stuart & Co., Inc., to bid on Illinois BeU Telephone Co. 

bonds 11935 

Knowledge by the reorganized Eidder, Peabody & Co. of "Library Agree- 
ment" of 1920 11942 

Reorganization of Kidder, Peabody & Co. in 1931 11945 

Discussion of Kidder, Peabody & Co.'s position in Illinois Bell Telephone 

Co. issue— 1931 11949 

Kidder, Peabody & Co.'s position in Illinois BeU Telephone Co. Issue — 

1935 11951 

Illinois Bell Telephone financing, October 1935 11958 

The Illinois Bell Telephone syndicate ,.. 11960 

Former members of Telephone group afi'ected by Banking Act of 1933 11963 

Alternative methods of selling securities 1 1968 

Understanding among investment bankers with respect to existence of 

Telephone group 11971 

Percentage participations of principal members of Telephone group in 

relation to participations of Morgan Stanley & Co., 1935-39 11973 

Accounts "frozen to a far greater extent than others" — The Telephone 

account 1 1978 

Guaranty of financial responsibility of other members of syndicate by 

Morgan Stanley & Co 11981 

Several liability of underwriters under purchase contract with issuer 11981 

Reciprocity with Morgan Stanley & Co 11938 

Underwriting risk relative to Telephone issues 11984 

Profits of J. P. Morgan & Co. and Morgan Stanley & Co. on Telephone 

financing , 1 1988 

Position of dealer 11991 

Memorandum on competitive bidding, Morgan Stanley & Co 11993 

Testimony of Mr. Whitney in the Niagara Hudson Power hearing relative 

to Telephone financing J 1 1995 

Recognition of claims of Kidder, Peabody & Co 1 1998 

FINANCING OF RAILROAD MATURITIES, 1935 

Purpose of the Banking Act 12001 

Railroad maturities due 12004 

The spread oii the railroad-bond issues under consideration 12005 

Function of J. P. Morgan & Co. in refunding operations 12006 

The Toledo & Ohio Central Raih-oad Co. refunding 12007 

"Matching" for the leadership 12015 

Consultation with railroad concerning leadership 12018 

Role of J. P. Morgan & Co. in Nypano extension 12021 

Advantages which accrue from leadership 12025 

Historical relation of E. B. Smith & Co. to Erie Railroad Co. financing 12027 

Former association of partners of E. B. Smith & Co. with Guaranty Co. as 

a valid claim to leadership .. 12033 

Atlantic Coast Line Railroad Co. refunding — Role of J, P, Morgan & Co.. 12035 



CONTENTS V 

Page 
Chicago & Western Indiana Railroad Co. refunding — Role of J. P. Morgan 

& Co 12040 

Opinion of Messrs. Davis Polk Wardwell Gardiner & Reed relative to 

Banking Act of 1933 and relation of J. P. Morgan & Co. thereto. 12044 

RELATIONS OF J. P. MORGAN & CO. TO MORGAN 
STANLEY & CO. 

Officers and directors of Morgan Stanley & Co., Incorporated, and their 

prior affiliations 12049 

Common and preferred stockholders of Morgan Stanlev & Co., Incorpo- 
rated 1 12051 

Limitations on disposition of capital stock under articles of incorporation.. 12055 

Analysis of business done by Morgan Stanley & Co., Incorporated 12058 

]''numeration of former accounts of J. P. Morgan & Co. underwritten by 

Morgan Stanley & Co., Incorporated — Accounts not underwritten 12064 

Utility underwritings by Morgan Stanley & Co., Incorporated, which were 

not underwritten by J. P. Morgan & Co 12068 

"Morgan Stanley & Co., Incorporated, have been doing business with the 

clients which formerly had patronized J. P. Morgan & Co." 12072 

Proportions in which preferred stock of Morgan Stanley & Co., Incorpo- 
rated, is held by partners of J. P. Morgan & Co 12076 

Partners' interests in J. P. Morgan & Co. in relation to their preferred stock 

interests in Morgan Stanley & Co., Incorporated 12079 

Organization of Bonbright & Co., Inc 12086 

Informal understanding relative to future financing of Niagara Hudson 
Power Co. system between Bonbright & Co. and Morgan Stanley & Co., 
Incorporated 12088 

Continuity of banker relationship 12094 

Question of whether proceeds of issues underwritten by Morgan Stanley & 

Co., Incorporated, were placed on deposit with J. P. Morgan & Co 12097 

Increases in holdings of Government obligations by J. P. Morgan & Co. 

between 1934 and 1939 , 12102 

Proposal by Mr. Leffingwell to abandon policy of tax exemption on certain 

Government obligations 12104 

Advocacy by Mr. Leffingwell of policy permitting price increase 12107 

Tax-exempt income to J. P. Morgan & Co. and its partners 12111 

Schedule and summary of exhibits vii 

Friday, December 15, 1939 11829 

Monday, December 18, 1939 11891 

Tuesday, December 19. 1939 11957 

Wednesday, December 20, 1939 ., 12047 

Appendix ^ i 12115 

Supplemental data 12316 

Index I 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1659-1. Agreement, dated December 15, 1879, among minority 
stockholders of National Bell Telephone Co. agree- 
ing to sell no stock to other interests prior to April 
1, 1880 .-. 

1659-2. Table: List of directors of American Telephone & Tele- 
graph Company and predecessor companies prior to 
1900 

1659-3. Table: Officers and members of executive committee, 
American BeU Telephone Co., 1885 to 1900, inclu- 
sive 

1659-4. Table: Percent of equity ownership by directors, other 
officers and their family relations as of selected dates 
from July 9, 1877 to September 16, 1935, American 
Telephone & Telegraph Co. and predecessor com- 
panies 

1659-5. Table: Stock outstanding and number of stockholders 
from 1881 to 1926. Table: Financial interest of 
large stockholders, 1881 to 1926. Table: Financial 
interest of directors, 1880 to 1926. Table: Degree 
of control by large stockholders, 1881 to 1926. 
Table: Potential control by directors, 1880 to 1926. 
Table: Estimated number of stockholders in addi- 
tion to large holders and in addition to directors 
necessary to control annual meeting 

1659-6. American Telephone & Telegraph Co. and American 
Bell Telephone Co., long term debt issues, 1880 to 
1905, inclusive 

1659-7. Letter, dated April 8, 1904, from H. L. Higginson, 
Lee Higginson & Co., to Frederick P. Fish, presi- 
dent, American Telephone & Telegraph Co., re- 
garding need of new market for Telephone financing. 

1659-8. Letter, dated March 7, 1902, from F. P. Fish to 
Francis L. Hine, First National Bank of New York, 
offering to seU to George F. Baker 15,000 shares of 
American Telephone & Telegraph Company stock; 
with option to purchase 25,000 additional shares. 
Letter, dated March 8, 1902, from Francis L. Hine 
to F. P. Fish confirming the foregoing sale and 
option and requesting election of George F. Baker 
and. John I. Waterbury to the board of directors. 
Letter, dated March 25, 1902, from George F. Baker, 
First National Bank, to F. P. Fish exercising fore- 
going option to purchase 35,000 of American Tele- 
phone & Telegraph Company stock 

1659-9. Letter, dated February 16, 1905, from George V. 
Leverett, Thomas Sherwin, and William R. Driver, 
American Telephone & Telegraph Co., to F. P. 
Fish objecting to plan of financing by convertible 
bonds proposed by John I. Waterbury and associates 
1659-10. Letter, dated February 15, 1905, from F. P. Fish to 
J. P. Morgan & Co. regarding delay in proposed 

financing 

1659-11. Letter, dated February 15, 1905, from Senator W. M. 
Crane to F. P. Fish doubting wisdom of convertible 
bond issue 



11843 
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11843 



12115 
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12118 



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12119 
12125 

12125 



11843 

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11843 



12126 

12128 
12132 
12132 



vn 



vni 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1659-12. Letter, dated February "20, 1905, from F. P. Fish to 
John I. Waterbury, Manhattan Trust Company, 
declining scheme of financing submitted by J. P. 
Morgan & Co. Letter, dated February 20, 1905, 
from F. P. Fish to J. P. Morgan & Co., declining 
scheme of financing suggested. Letter, dated 
February 20, 1905, from F. P. Fish to George F. 
Baker, First National Bank, declining scheme of 
financing submitted by J. P. Morgan & Coi 

1659-13. Copy of letter dated August 14, 1905, from F. P. Fish 
to Robert Winsor, Kidder, Peabody & Co., regard- 
ing possible discussion of future financing 

1659-14. Copy of letter dated November 21, 1905, from John I. 
Waterbury, Manhattan Trust Company, to F. P. 
Fish regarding possible future financing of the 
telephone company 

1659-15. (1) Proxy for special meeting of stockholders of 
American Telephone & Telegraph Co., December 
21, 1905, to authorize issue of convertible bonds, 
(2) Notice on proxy for stockholders' meeting of 
March 26, 1901..-- 

1659-16. Letter, dated December 6, 1905, from F. P. Fish, 
president, American Telephone & Telegraph Com- 
pany, to Charles H. Davis urging proxy for converti- 
ble bond issue. Resolution, dated December 21, 
1905, authorizing directors of American Telephone 
& Telegraph Co. to issue $150,000,000 of convertible 
bonds 

1659-17. Letter, dated December 15, 1905, from F. P. Fish to 
W. I. Putman urging support of the Lowell stock 
for convertible bond issue. Letter, dated Decem- 
ber 15, 1905, from F. P. Fish to George Barclay 
Moffat urging support of the Lowell stock for con- 
vertible bond issue. Memorandum, dated Decem- 
ber 15, 1905, from G. A. W. to F. P. Fish regarding 
Mr. Driver's telephone call stating he had not sent in 
his proxy (3,750 shares) to the special stockholders' 
meeting. Letter, dated December 15, 1905, from 
F. P. Fish to Marsden J. Perry urging proxy for 
convertible bond issue. Letter, dated December 
16, 1905, from F. P. Fish to Joseph S. Fay, Jr., 
urging proxy for convertible bond issue and a hand- 
written footnote by Mr. Fay disapproving the 
proposed issue. Letter, dated December 16, 1905, 
from Marsden J. Perry to F. P. Fish endorsing plan 
for the issue of convertible bonds. Letter, dated 
December 18, 1905, from Seth Low to F. P. JFish 
regarding disapproval in proposed issue 

1659-18. Letter, dated January 27, 1906, from F. P. Fish to 
William Salomon, Vv'illiam Salomon •& Co., declin- 
ing to discuss underwriting. Letter, dated January 
29, 1906, from William Salomon to F. P. Fish regard- 
ing possibility of making a competitive offer in tele- 
phone financing. Letter, dated January 30, 1905, 
from F. P. Fish to William Salomon & Co. declin- 
ing the foregoing 

1659-19. Letter, dated December 16, 1905, from F. P. Fish to 
Edgar Speyer regarding delay in financing. Letter, 
dated January 27, 1906, from Senator W. M. Crane 
regarding proposed syndicate in telephone financing. 
Letter, dated February 1, 1906, from Lee Higginson 
& Co. toJF. P. Fish requesting opportunity to bid 
on new telephone securities 



11843 
11843 

11843 
11843 

11843 



12133 
12134 

12134 
12135 

12136 



11843 



12136 



11843 



11843 



12138 



12139 



COHsfTENTS 
SCHEDULE OF EXHIBITS— Continued 



TK 



Number and summary of exhibits 



^659-20. Purchase agreement dated February 8, 1906, be^tween 
American Telephone & Telegraph Co. and J. P. 
Morgan & Co., Kuhn, Loeb & Co., Kidder, Peabody 
& Co., and Bearing Bros. & Co., Ltd., covermg 
$100,000,000 convertible 4 percent bonds of the 
Telephone Company, and option agreement cover- 
ing $50,000,000 of the bonds. Letter, dated Feb- 
ruary 13, 1906, from F. P. Fish to J. P. Morgan & Co. 
and others modifying Article Three of purchase 
agreement. Letter, dated February 13, 1906, from 
J. P. Morgan & Co. and others to American Tele- 
phone & Telegraph Company accepting modification. 

1659-21. Agreement, dated February 14, 1906, between J. P. 
Morgan & Co., Kuhn, Loeb & Co., Kidder, Pea- 
body & Co. and Baring Brothers & Co., Ltd., list- 
ing percentage participations in American Telephone 
& Telegraph Company convertible 4 percent bond 
issue , 

1659-22. Syndicate agreement, dated February 15, 1906, cov- 
ering $100,000,000 American Telephone & Tele- 
graph Company convertible 4 percent gold bonds. . 

1659-23. Memorandum initialled by J. P. Morgan & Co., Kuhn, 
Loeb & Co., Robert Winsor of Kidder, Peabody & 
Co., F. P.. Fish, president, American Telephone & 
Telegraph Company and W. M. Crane, regarding 
employment of proceeds of sale of Telephone bonds. _ 

1659-24. Table: Syndicate joint allotments made by Kuhn, 
Loeb & Co. and J. P. Morgan & Co. for $100,000,000 
convertible 4 percent gold bonds ofifered February 
15, 1906 1 . 

1659-25. Letter, from George V. Leverett, American Telephone 
& Telegraph Company to Charles Steele, J. P. 
Morgan & Co., enclosing agreements and memo- 
andum between the Telephone Company and 
bankers. Memorandum, dated January 8, 1907, 
between the American Telephone & Telegraph Com- 
pany and J. P. Morgan & Co. et al. modifying agree- 
ment between the parties dated February 8, 1906. 
Agreement, dated January 8, 1907, between the 
American Telephone & Telegraph Company and 
J. P. Morgan & Co. et al. regarding reduction of 
option price of American Telephone & Telegraph 
Co. convertible 4 percent gold bonds. Agreement, 
dated January 8, 1907, between the American 
Telephone & Telegraph Company an^ J. P. Morgan 
& Co. et al. regarding proposed issue of|,$25, 000,000, 
5 percent notes dated January 1, 1907. Letter, 
dated January 12, 1907, from Kidder, Peabody & 
Co. to J. P. Morgan & Co. regarding enclosed agree- 
ments. Letter, dated January 16, 1907, from 
Robert Winsor, Kidder, Peabody & Co., to Charles 
Steele, J. P. Morgan & Co., regarding enclosure 
of the redraft of the Telephone coupon note along 
with the original draft of the registered note 

1650-26. Excerpts from "The Wall Street Journal" and the 
"Commercial and Financial Chronicle" regarding 
American Telephone & Telegraph Co. financing 

1659-27. Letter, dated May 29, 1908, from J. P. Morgan & Co. 
and others to the American Telephone & Telegraph 
Company terminating the syndicate with respect 
to the $100,000,000 convertible 4-percent gold 
bonds : 



Intro- 
duced at 
pagr 



11843 

11843 
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Appears 
on page 



12140 

12143 
12143 

12147 
12147 



12150 
11152 

12155 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1659-28. Letter, dated September 26, 1908, from T. N. Vail, 
president, American Telephone & Telegraph Com- 
pany, to J. P. Morgan & Co. and others extending 
option for purchase of $50,000,000 American Tele- 
phone & Telegraph Co. 30-year convertible 4- 
percent gold bonds. Letter, dated September 30, 
1908, from J. P. Morgan & Co. and others to T. N. 
Vail accepting extension of option for purchase of 
$50,000,000 American Telephone & Telegraph 30- 
year convertible 4-percent gold bonds. Copy of 
letter dated November 27, 1908, unsigned (from J. 
P. Morgan & Co. and others) to T. N. Vail, presi- 
dent, American Telephone & Telegraph Co., con- 
firming the purchase of $50,000,000 American Tele- 
phone & Telegraph 30-year convertible 4-percent 
gold bonds. Letter, dated September 29, 1908, 
from Robert Winsor, Kidder, Peabody & Co. to 
George W. Perkins, J. P. Morgan & Co. regarding 
acceptance of conditions for purchase of bonds as 
set forth by American Telephone & Telegraph 
Cc -ijany. Letter, dated September 26, 1908, from 
Robert Winsor, Kidder, Peabody & Co. to George 
W. Perkins, J. P. Morgan & Co., regarding the 
signing of form of letter by American Telephone & 
Telegraph Co 

1659-29. Letter, dated January 15, 1907, from F. P. Fish, 
president, American Telephone & Telegraph Com- 
pany, to Hon. W. M. Crane enclosing copy of letter 
from J. I. Waterbury, Manhattan Trust Com- 
pany. Letter, dated January 16, 1907, from Hon. 
W. M. Crane to F. P. Fish regarding appointment 
of Messrs. Coolidge, Baker, and Vail to a com- 
mittee on organization. Letter, dated January 21, 
1907, from Hon. W. M. Crane to Mr. F. P. Fish, 
regarding possible appointment of a committee on 
organization along with recommendations for ap- 
pointment of members of such committee. Reso- 
lution by the executive committee dated January 
23, 1907, regarding special committee to consider 
the organization of American Telephone & Tele- 
graph Company and its relation to the associated 
companies. Letter, dated January 24, 1907, from 
F. P. Fish to John I. Waterbury requesting latter 
to serve on special committee to consider the or- 
ganization of American Telephone & Telegraph 
Co. and its relation to the associated companies. 
Letter, dated January 25, 1907, from T. N. Vail 
to F. P. Fish accepting appointment to committee. 
Letter, dated January 30, 1907, from Hon. W. M. 
Crane to F. P. Fish regarding meeting of recently 
appointed committee. Letter, dated April 2, 1907, 
from George F. Baker and others to F. P. Fish 
regarding recommendation for increase in number 
of the executive committee of American Telephone 
& Telegraph Company. Letter, dated April 23, 
1907, from F. P. Fish to the board of directors of 
the American Bell Telephone Co. tendering resig- 
nation as president of American Telephone & Tele- 
graph Company. Letter, dated April 23, 1907, 
from F. P. Fish to the board of directors of the 
American Bell Telephone Co. tendering resignation 
as a member of the board 



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11843 12157 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XI 



Number and summary of exhibits 



Intro- . 
duced at Appears 
^ ' on page 



1659-30. Letter, dated May 8, 1907, from J. P. Morgan & Co. 
and others to T. N. Vail, president, American Tele- 
phone & Telegraph Company regarding need for 
economies as essential to credit of the company. 
Letter, dated May 16, 1907, from T. N. Vail to 
Manhattan Trust Company regarding appoint- 
ment as New York agent for registration of Amer- 
ican Telephone & Telegraph Company stock. Let- 
ter, dated May 16, 1907, from T. N. Vail to Guar- 
anty Trust Company regarding appointment of 
Manhattan Trust Company as New York agent 
for registration of American Telephone & Tele- 
graph Co. stock. Letter, dated May 21, 1907, 
from J. W. Castles, president, Guaranty Trust 
Company, to T. N. Vail requesting reason for 
change of registration of American Telephone & 
Telegraph Co. stock from Guaranty Trust Com- 
pany to another company. Letter, dated May 
29, 1907, from T. N. Vail to J. W. Castles regarding 
reason for change of agents for registration of 
American Telephone & Telegraph Co. stock. Let- 
ter, dated February 4, 1908, from T. N. Vail to 
Hon. W. M. Crane, Henry S. Howe, and J. I. 
Waterbury regarding consideration of names for 
possible additions to American Telephone & Tele- 
graph Co. directory. Letter, dated January 20, 
1909, from T. N. Vail to Hon. W. M. Crane regard- 
ing election and filling of vacancy in the directory 
of American Telephone & Telegraph Company. 
Letter, dated March 19, 1909, from Robert Winsor, 
Kidder, Peabody & Co., to Rudulph Ellis regarding 
acceptance of directorship of American Telephone 
& Telegraph Co 11843 

1659-31. Letter, dated March 20, 1909, from Robert Winsor to 
T. N. Vail, president, American Telephone & Tele- 
graph Co. regarding acceptance of Mr. Ru4ulph 
Ellis as a director of American Telephone & Tele- 
graph Co. with a footnote concerning Mr. Terrell. 
Letter, dated November 19, 1909, from T. N. Vail 
to George F. Baker regarding possible election of 
one of the members of J. P. Morgan & Co. to the 
board of directors of American Telephone & Tele- 
graph Co 11843 

1659-32. Letter, dated April 19, 1910, from T. N. Vail to H. P. 
Davison, J. P. Morgan & Co., regarding appoint- 
ment of dummy director to hold place on direc- 
torate for Mr. Morgan, Jr 11843 

1659-33. Letter, dated March 27, 1905, from Clarence H. Mac- 
kay, president. Postal Telegraph & Cable Co., to 
T. Jefferson Coolidge, Jr., Old Colony Trust Com- 
pany, regarding the Mackay Company and its ac- 
quisition of stock in the American Telephone & 
Telegraph Company 11843 

1659-34. Letter, dated March 30, 1905, from T. Jefferson Cool- 
idge, Jr., to Clarence H. Mackay reviewing reasons 
for organization of the Mackay Company and its 
relationship to American Telephone & Telegraph 
Company -- 11 843 

1659-35. Letter, dated April 3, 1905, from Clarence H. Mackay 
to T. Jefferson Coolidge, Jr., regarding future rela- 
tions between the Mackay Companies and Ameri- 
can Telephone & Telegraph Company 1 1 1843 



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12163 



12164 



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XII 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1659-36. Letter, dated April 11, 1905, from T. Jefferson Cool- 
idge, Jr., Old Colony Trust Company, to Clarence 
H. Mackay, president, Mackay Companies, regard- 
ing resignation as trustee of the Mackay Companies. 1 1843 

1659-37. Letter, dated April 12, 1905, from Clarence H. Mac- 
kay to T. Jefferson Coolidge, Jr., regarding resig- 
nation of Mr. Coolidge as trustee of the Mackay 
Companies 11 843 

1659-38. Letter, dated June 20, 1905, from John I. Waterbury, 
Manhattan Trust Company, to Clarence H. Mac- 
kay tendering his resignation as trustee of Mackay 
Companies -^ 1 1843 

1659-39. Letter, dated June 20, 1905, from Clarence H. Mac- 
kay to John I. Waterbury regarding resignation of 
Mr. Waterbury as trustee of the Mackay Companies- 1 1843 

1659-40. Letter, dated July 3, 1905, from T. Jefferson CooUdge, 
Jr., to Clarence H. Mackay tendering his resigna- 
tion as a director of Commercial Cable Company. _ 11843 

1659-41. Letter, dated July 6, 1905, from Clarence H. Mackay 
to T. Jefferson Coolidge, Jr., regretting Mr. Cool- 
idge's resignation as a director of Commercial Cable 
Company 11843 

1659-42. Letter, dated July 7, 1905, from T. Jefferson CooUdge, 
Jr., to Clarence H. Mackay giving reasons for his 
resignation as a director of Commercial Cable Com- 
pany 11843 

1659-43. Letter, dated January 2, 1906, from T. Jefferson Cool- 
idge, Jr., to F. P. Fish, president, American Tele- 
phone & Telegraph Company, regarding traJisfer of 
14,000 shares of Telephone stock to Clarence H. 
Mackay - ---. 11843 

1659-44. Letter, dated March 1, 1906, from Clarence H. 
Mackay, president. Postal Telegraph Cable Co., to 
F. P. Fish, president, American Telephone & Tele- 
graph Company, requesting G. M. Cummings, 
president, United States Mortgage & Trust Com- 
pany, be substituted for Mr. T. N. Vail as a director 
of the telephone company . 11843 

1659-45. Letter, dated March 2, 1906, from F. P. Fish to 
Clarence H. Mackay indicating difficulties in com- 
plying with Mr. Mackay's request of March 1, 1906. 11843 

1659-46. Letter, dated March 3, 1906, from Clarence H. 
Mackay to F. P. Fish stating reasons why the re- 
quest that Mr. Cummings be made a director of the 
telephone company is a reasonable one 11843 

1659-47. Letter, dated March 5, 1906, from F. P. Fish to Clar- 
ence H. Mackay further regarding the removal of 
T. N. Vail as a director of American Telephone & 
Telegraph Company 11843 

1659-48. Letter, dated March 6, 1906, from Clarence H. 
Mackay to F. P. Fish further regarding removal of 
T. N. Vail as director of American Telephone & 
Telegraph Co. and agreeing to await his return from 
Europe before making change of directors 1 1843 

].,659-49. Letter, dated March 7, 1906, from F. P. Fish to Clar- 
ence H. Mackay giving correct date of appointment 
of Mr. Vail as a director of American Telephone & 
Telegraph Co : 11843 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XIII 



Number and summary of exhibits 



1659-50. Letter, dated April 14, 1906, from T. N. Tail, director, 
American Telephone & Telegraph Company to F. 
P. Fish, president, American Telephone & Telegraph 
Company, explaining his relationship to Mackay 
and to the Postal System and Telephone Company 
and offering a plan by which the Telephone Com- 
pany may acquire the Postal System 

1659-51. Letter, dated April 23, 1906, from F. P. Fish to Hon. 
W. M. Crane enclosing copy of letter from T. N. 
Vail dated April 14, 1906 

1659-52. Letter, dated April 23, 1906, from F. P. Fish to Henry 
S. Howe enclsoing copy of letter from T. N. Vail 
dated April 14, 1906 

1659-53. Letter, dated April 26, 1906, from Hon. W. M. Crane 
to F. P. Fish regarding possible talk relative to Vail 
matter and hope that latter will not be retired from 
the board of directors 

1659-54. Letter, dated July 5, 1906, from Clarence H. Mackay, 
president, Mackay Companies, to F. P. Fish re- 
garding date of T. N. Vail's election to board of 
directors 

1659-55. Letter, dated October 10, 1906, from Wm. H. Baker, 
vice president, Mackay Companies, to the Finance 
Committee of the Mackay Companies, regarding 
his opinion as to the effect a combination of the 
Western Union Telegraph and the American Tele- 
phone & Telegraph Co. would have upon the tele- 
graph business 

1659-56. Enclosure to letter dated October 10, 1906 by Wm. H. 
Baker to the Finance Committee of the Mackay 
Companies regarding the combining of telephone 
and telegraph companies. 

1659-57. Letter, dated December 24, 1906, from Clarence H. 
Mackay to F. P. Fish requesting list of American 
Telephone & Telegraph Co. stockholders with their 
addresses in order to send them a copy of the regular 
annual report of the Mackay Companies 

1659-58. Letter, dated December 28, 1906, from F. P. Fish to 
Clarence H. Mackay regarding undesirabUity of 
advertising the fact that one large corporation is 
interested in the stock of another 

1659-59. Letter, dated December 31, 1906, from Clarence H. 
Mackay to F. P. Fish regarding effect of annual 
report of Mackay Companies upon the public rela- 
tive to telephone holdings 

1659-60. Letter, dated February 1, 1907, from Clarence H. 
Mackay to F. P. Fish regarding representation of 
Mackay Companies on the board of directors of 
American Telephone & Telegraph Companies 

1659-61. Letter, dated February 10, 1907, from T. Jefferson 
Coolidge, Jr., Old Colony Trust Company, to F. P. 
Fish regarding Mackay Companies interest being op- 
posed to interest of other stockholders and represen- 
tation, therefore, should not be given to them 

1659-62. Letter, dated February 13, 1907, from F. P. Fish to 
Clarence H. Maekay relative to undesirabUity of 
Mackay Companies having its stock interest specif- 
ically represented on American Telephone & Tele- 
graph Company board of directors in view of com- 
petitive situation of the two organizations 



Intro- 
duced at 
page 



11843 
11843 
11843 

11843 

11843 

11843 



11843 



11843 



11843 



11843 



11843 



11843 



Appears 
on page 



12172 
12173 
12174 

12174 

12174 

12174 



12176 



12177 



12177 



12177 



12178 



12178 



XIV 



CONTENTS 
SCfiEBXJLE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1659^63. Letter, dated February 19, 1907, from Clarence H. 
Mackay to F. P. Fish taking exception to views ex- 
pressed by latter and pointing out desirability of 
board representation 

1659-64. Letter, dated February 21, 1907, from John I. Water- 
bury, Manhattan Trust Company, to F. P. Fish 
stating that the matter of directors should be 
firmly dealt with in the interest of the telephone 
company 

1659-65. Letter, dated February 21, 1907, from Hon. W. M. 
Crane to F. P. Fish suggesting that President 
Mackay be notified that the matter of directors for 
the telephone company will be referred to the board 
of directors 

1659-66. Letter, dated February 25, 1907, from F. P. Fish to 
Clarence H. Mackay stating the matter of A. T. & 
T. directors has been submitted to members of the 
board of directors for consideration 

1659-67. Letter, dated March 6, 1907, from F. P. Fish to John 
I. Waterbury, Manhattan Trust Company, stating 
that executive committee had determined to ask 
Messrs. Thayer, Fish, and Waterbury to consider the 
question of directors and expressing view as to type 
of persons to be considered 

1659-68. Letter, dated March 9, 1907, from Hon. W. M. Crane 
to F. P. Fish regarding necessity of careful inquiry 
before extending invitation to new board members 
and a suggestion that Mr. Cutler be chosen as a 
member 

1659-69. Letter, dated March 11, 1907, from F. P. Fish to Hon. 
W. M. Crane stating the desirability of offering to 
one of the men Mr. Mackay'suggested a position on 
the board of directors and general discussion on 
type of men to fill vacancies 

1659-70. Letter, dated March 22, 1907, from F. P. Fish to 
Clarence H. Mackay stating that the American 
Telephone & Telegraph Co. board of directors 
thought it UP wise to elect too large a representation 
of another and to some extent competing corpora- 
tion 

1659-71. Letter, dated July 14, 1908, from T. N. Vail, presi- 
dent, American Telephone & Telegraph Company 
to John I. Waterbury, Manhattan Trust Company, 
suggesting that the telephone company acquire 
Western Union Telegraph Company and stating 
advantages to the telephone company if Postal 
Company could be acquired 

1659-72. Letter, dated November 24, 1909, from T. N. Vail to 
Clarence H. Mackay, president, Mackay Com- 
panies, regarding preparation of agenda to be taken 
up at next meeting 

1659-73. Letter, dated November 30, 1909, from T. N. Vail to 
Clarence H. Mackay regarding possible discussion 
before making final plans to dispose of telephone 
holdings _ 

1659-74. Letter, dated December 22, 1909, from T. N. Vail to 
Clarence H. Mackay requesting conference 

1659-75. Letter, dated December 23, 1909, from Clarence H. 
Mackay to T. N. Vail regarding purchase price of 
telephone stock offered American Telephone & 
Telegraph Company 



11843 



11843 



11843 



11843 



11843 



11843 



11843 



11843 



11843 

11843 

11843 
11843 

11843 



12179 



12179 



12180 



12180 



12180 



12181 



12181 



12182 



12182 

12184 

12185 
12185 

12185 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XV 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1659-76. Letter, dated February 18, 1910, from Clarence H. 
Mackay to T. N. Vail concerning option for the 
purchase of 82,906 shares of American Telephone 
& Telegraph Company's stock from the Mackay 
Companies and The Commercial Cable Company.. 

1659-77. Letter, dated February 19, 1910, from Clarence H. 
Mackay to T. N. Vail regarding terms of payment 
in e.xercLse of. option to purchase teleplione stock 
held by the Mackay Companies and the Com- 
mercial Cable Company 

1659-78. Letter, dated April 27, 1909, from W. A. Gaston, the 
National Shawmut Bank, to T. N. Vail regarding 
transfer of funds to Kidder, Peabody & Co. and 
charged against American Telephone & Telegraph 
Co. Letter, dated June 24, 1909, from T. N. Vail 
to T. L. Chadbowine, Jr. regarding agreement to 
purchase Western Union Telegraph Company capi- 
tal stock up to and not exceeding 100,000 shares. 
Letter, dated June 24, 1909, unsigned (from T. L. 
Chadbourne, Jr.) to Robert Winsor, Kidder, Pea- 
body & Co., accepting proposition respecting pur- 
chase of Western Uiaion Telegraph Company capital 
stock. Letter, dated March 30, 1937, from N. R. 
Danielian, Federal Communications Commission, 
to W. Shelmerdine, American Telephone & Tele- 
graph Company, requesting information as to num- 
ber of shares of Western Union Telegraph Company 
stock the telephone company received in respect to 
the $22,000,000 advanced to Kidder, Peabody & Co. 
Letter, dated Api-il 14, 1937, from W. Shelmerdine 
to N. R. Danielian supplying information requested 
regarding acquisition of Western Union Telegraph 
Company stock by American Telephone & Tele- 
graph Co. Memorandum covering data from 
various records regarding acquisition of Western 
Union stock by American Telephone & Telegraph 
Co. covering a period from April 28, 1909, to 
November 16, 1909 

1659-79. Letter, dated September 29, 1915, from T. N. Vail, 
president, American Telephone & Telegraph Com- 
pany, to N. T. Guernsey, general counsel, American 
Teleplione & Telegraph Company, regarding pos- 
sible participation in proposed loan to Great 
Britain and France. Letter, from N. T. Guernsey 
to T. N. Vail regarding legality of Telephone Com- 
pany participation in proposed loan to Great 
Britain and France. Letter, dated October 1, 
1915, from T. N. Vail to Henry S. Howe regarding 
the question of participating in the loan to England 
and France to be taken up at the next meeting of 
the American Telephone & Telegraph Co. execu- 
tive committee. Letter, dated Ae^ust 21, 1916, 
from H. P. Davison, J. P. Morgan & Co., to T. N. 
Vail regarding possible purchase of $5,000,000 of 
the new British 2-year loan. Memorandum, dated 
August 22, 191b, on American Telephone & Tele- 
graph Company letterhead paper by A. C. DuBois 
to Mr. Milne regarding necessary refinancing to 
participate in British 2-year loan. I^etter, dated 
August 23, 1916, from T. N. Vail to H. P. Davison, 
J. P. Morgan & Co., enclosing memorandum by 



11843 



11843 



12185 



12186 



11843 



12186 



XVI 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced at 



Mr. DuBois. Letter, dated November 2, '926, 
from T. W. Lamont, J. P. Morgan & Co., to T. N. 
Vail regarding the holding of $5,000,000 of British 
Gavernment 3- and 5-year 5}i percent notes until 
the telephone company's next meeting. Letter, 
dated November 4, 1916, from T. N. Vail to T. W. 
Lamont stating participation in the British Govern- 
ment 2-year loan by the telephone company im- 
possible. Letter, dated November 23, 1916, from 
T. N. Vail to J. P. Morgan & Co., requesting an 
offer for $80,000,000 30-year collateral trust 5 per- 
cent bonds. Memorandum in response to request 
of N. R. Danielian, Federal Communications Com- 
mission, as to date which American Telephone & 
Telegraph Co. received proceeds from sale of 30- 
year 5 percent collateral trust bonds and other data 
pertaining thereto. Voucher, dated December 14, 

1916, on American Telephone & Telegraph Com- 
pany paper to J. P. Morgan & Co. relative to 
participation of the telephone company in special 
6 percent demand loan to the British Government. 
Letter, dated December 14, 1916, from G. D. Milne 
to J. P. Morgan & Co. enclosing check amounting 
to $20,000,000 for participation in 6 percent demand 
loan to British Government. Copy of resolution 
adopted by the executive committee of the Ameri- 
can Telephone & Telegraph Company held De- 
cember 20, 1916, regarding a participation of 
$20,000,000 in special 6 percent demand loan to 
the British Government signed by A. A. Marsters, 
secretary. Letter, dated December 30, 1916, from 
J. P. Morgan & Co., to American Telephone & 
Telegraph Company enclosing check for $60,000 
covering interest on Telephone participation of 
$20,000,000 in a special demand loan to the British 
Government. Copy of letter, dated January 2, 

1917, from G. D. Milne, American Telephone & 
Telegraph Company, to J. P. Morgan & Co. in 
receipt of check for $60,000 covering interest at 
rate of 6 percent on $20,000,000 British Govern- 
ment demand loan. Copy of letter, dated January 
24, 1917, from C. G. DuBois, comptroller, American 
Telephone & Telegraph Company, to U. N. Bethell, 
senior vice president, American Telephone & Tele- 
graph Company, regarding notification by J. P. 
Morgan & Co. that the rate of interest in the 
British Government demand loan had been reduced 
from 6 percent to 5 percent. Letter, dated Febru- 
ary 5, 1917, from J. P. Morgan & Co. to American 
Telephone & Telegraph Company crediting the 
telephone company vi^ith $20,101,666.67, being re- 
paynient of participation of $20,000,000 in special 
(Jemand loan to the British Government 

ll659-80. Letter, dated October 21, 1918, from T. N. Vail, pres- 
dent, American Telephone & Telegraph Company, 
to Hon. Nevi^ton D. Baker, Secretary of War, re- 
questing that W. S. Gifford be released as director 
of the Council of National Defense so that he may 
be returned to his duties with the telephone com- 
pany ^ 



11843 



11843 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XVI r 



Number and summary of exhibits 



Intro- 
duced at 



Appears 
on page 



1659-81. Resolution, dated June 19, 1919, giving U. N. Bethel! 
leave of absence for one year as vice president of 
American Telephone & Telegraph Company. 
Agreement between U. N. Bethell and American 
Telephone & Telegraph Company covering trans- 
fer of certain securities to American Telephone & 
Telegraph and services to be rendered to the tele- 
phone company along with payment of salaries. 
Resolution, dated July 2, 1919, authorizing the 
purchase of certain shares of capital stock held by 
American Telephone & Telegraph Company. 
Resolution, dated July 2, 1919, by American Tele- 
phone & Telegraph Company agreeing to defend 
any actions brought against U. N. Bethell growing 
out of or based upon any action by him as director 
or ofBcer of the telephone company. Resolution, 
dated July 2, 1919, by the executive committee of 
American Telephone & Telegraph Company that 
the full pay granted to U. N. Bethell as vice presi- 
dent by resolution shall be construed to include in 
addition the salaries paid him by associated sub- 
sidiary companies. American Telephone & Tele- 
graph Company voucher made out to U. N. Bethell 
for purchase of certain shares of capital stock 

1659-82. Copy of letter, dated December 19, 1924, unsigned 
(from H. B. Thayer, president, American Tele- 
phone & Telegraph Company) to Henry S. Howe, 
member of executive committee, American Tele- 
phone & Telegraph Company, regarding appoint- 
ment of a committee for the purpose of filling the 
post of president in case of emergency. Letter, 
dated December 29, 1924, unsigned (from H. B. 
Thayer), to Henry S. Howe arranging for discus- 
sion relative to presidency of American Telephone 
& Telegraph Company. Letter, dated June 11, 
1923, from H. B. Thayer, president, American 
Telephone & Telegraph Company, to George F. 
Baker, First National Bank, enclosing a suggestion 
for a letter to D. F. Houston. Letter, to D. F. 
Houston, president, Bell Telephone Securities Co., 
from George F. Baker, First National Bank, in- 
troducing Mr. Houston to bankers abroad 

1659-83. Letter dated December 12, 1939, from W. Shelmerdine, 
American Telephone & Telegraph Company, to 
Lloyd C. Mathers, Securities & Exchange Commis- 
sion, enclosing photostat copies of certain letters 
along with copy of stockholders resolution approved 
by stockholders December 21, 1905, authorizing the 

issue of $150,000,000 convertible bonds 

1660. Letter, dated December 1, 1939, from Leon Hender- 
son to J. Lawrence Fly, Federal Communications 
Commission requesting use of exhibits relative to 
American Telephone & Telegraph Co. investigation. 
1661-1. Memorandum, dated November 15, 1939, for Henry 
C. Alexander regarding American Telephone & 

Telegraph Co. financing 

1661-2. Table: Participations in underwriting by J. P. Mor- 
gan prior to 1920 in Telephone financing 

1662. Copy of telegram, dated February 8, 1906, from 
Jacob Schiff, Kuhn, Loeb & Co., to Mr. Winsor, 
Kidder, Peabody & Co. regarding necessary changes 

in agreement for financing 

J24491 — 40— pt. 23 2 



11843 



11843 



11843 

11845 

11847 
11847 



12196 



12198 



12200 

12201 

12201 
12202 



11850 12206 



XVIII 



CONTENI'S 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1663. Letter, dated January 8, 1913, from J. P. Morgan & 

Co. to First National Bank regarding a 10-percent 
interest in American Telephone & Telegraph Com- 
pajiy financing 

1664. Letter, dated January 6, 1916, from J. P. Morgan & 

Co. to Kuhn. Loeb & Co. regarding a 15-percent in- 
terest in American Telephone & Telegraph Com- 

pan j^ financing 

166.5. Letter, dated November 27, 1916, from J. P. Morgan 
& Co. to Kidder, Peabody & Co. regarding a 31 H- 
percent interest in American Telephone & Tele- 
graph Company $80,000,000 financing 

1666. Table: Participations on "original terms" in Tele- 

phone financing headed bv J. P. Morgan & Co., 
1906-19 -"- 

1667. Summary statement of participations by J. P. Morgan 

& Co. in issues of "associated" companies headed 
by others 1906-19 

1668. Appears in Hearings, Part 22, appendix, p. 11827 

1669. Telegram dated December 15, 1939 from R. S. Peter- 

son, Halsey, Stuart & Co., Inc., to H. L. Stuart, 
Halsey, Stuart & Co., Inc., giving explanation of 
penciled notation on "Exhibit No. 1637" 

1670. Appears in Hearings, Part 22, appendix, p. 11795 

1671. Table: American Telephone proprietary interest, 

1906-20 

1672. Table: American Telephone & Telegraph Company 

proprietary interest, September 19, 1918 

1673. Table: "original terms" group on future purchases of 

A. T. & T. securities as agreed to at "the Library," 
and dated May 5, 1920 

1674. Memorandum, dated September 30, 1920, relative to 

New England proprietary interest and interest in 
Pennsvl vania Bell selling syndicate 

1675. Letter, dated August 17, 1920, from D wight W. 

Morrow, J. P. Morgan & Co., to Robert Winsor, 
Kidder, Peabody & Co.^ regarding difficulty in al- 
lotting extra % oi 1 percent to Kuhn, Loeb & Co. 

1676. Letter, from Robert Winsor to D wight W. Morrow, 

regarding adjustment in allotting extra % of 1 
percent to Kuhn, Loeb & Co 

1677. Letter, dated September 28, 1920, from D wight W. 

Morrow to Robert Winsor confirming oral agree- 
ment relative to % of 1 percent extra allotment for 
Kuhn, Loeb (feCo 

1678. Letter, dated October 1, 1920, from Robert Winsor to 

Dwight W. Morrow confirming the arrangement 
as to division of Telephone allotment to be given 
Kuhn, Loeb & Co 

1679. Table: American Telephone & Telegraph Company 

underwriting group showing division suggested 

and that finally agreed upon, dated May 6, 1920- 

1680-1. Memorandum, dated January 31, 1924, from CHfford 

M. Brewer relative .o division of American Tele- 

Ehone & Telegraph underwriting between Kuhn, 
ioeb & Co. and J. P. Morgan & Co 

1680-2. Memorandum, dated January 25, 1924, regarding 
different basis for distributing proprietary profit 
and including a list of New England proprietary 
interest 



118.')2 

118.56 

11857 
11861 



12207 

12207 

12208 
1220S 



11861 
11862 


12209 


11862 
11862 


12210 


11866 


12210 


11867 


12211 


11867 


12211 


11868 


12212 


11868 


12213 


11868 


12213 


11869 


11903 


11869 


12212 


11869 


12214 


11870 


12214 


11870 


12215 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XIX 



Number and summary of exhibits 



Intro- 
duced at 
page 



1681-1. Letter, dated December 5, 1939, from Henry C. 
Alexander, J. P. Morgan & Co., to Peter R. 
Nehemkis, Jr. enclosing schedule regarding financ- 
ing of American Telephone & Telegraph Co. and 
associated companies from January 1, 1920, to 
June 16, 1934 

1618-2. Table: Financing of American Telephone & Tele- 
graph Co. and associated companies from January 
1, 1920, to June 16, 1934 

1681-3. Table: Financing of American Telephone & Tele- 
graph Co. and associated companies, January 1, 
1920, to June 16, 1934. (Corrected version of 
"Exhibit No. 1681-2") .... 

1682. Table: Bankers' gross commissions on issues of 

American Telephone & Telegraph Co. and asso- 
ciated companies managed by J. P. Morgan & Co. 
or Morgan Stanley & Co., Incorporated, 1906-39-. 

1683. Appears in Hearings, Part 21, appendix, p. 11380 

1684. Memorandum regarding $25,000,000 Bell Telephone 

Company of Pennsylvania twenty-five-year first 
and refunding mortgage 7 percent sinking fund 
gold bonds series "A" syndicate 

1685-1. Letter, dated September 29, 1920, from J. P. Morgan 
& Co. to Kuhn, Loeb & Co. regarding the purchase 
of $25,000,000 Bell Telephone Company of Penn- 
sylvania issue 

1685-2. Letter, dated September 30, 1920, unsigned (from 
Kuhn, Loeb & Co.) to J. P. Morgan & Co. ac- 
knowledging letter dated September 30, 1920, con- 
firming interest of $2,687,500 in $25,000,000 Bell 
Telephone Company of Pennsylvania issue 

1686-1. Letter, dated October 30, 1939, from J. P. Morgan & 
Co. to the Securities and Exchange Commission 
giving summaries of various Telephone issues 

1686-2« Memorandum, giving summaries of 14 issues in 
which J. P. Morgan & Co. participated in Tele- 
phone financing 

1687. Table: Percentage participations in issues of Ameri- 

can Telephone & Telegraph Co. and associated 
companies headed by J. P. Morgan & Co., Septem- 
ber 1920-January 1930 

1688. Table: Issues of American Telephone & Telegraph 

Co. and associated companies headed by J. P. 
Morgan & Co. 1920-30 showing length of time 
syndicate banks were open and relation of sub- 
scriptions to ofiFerings 

1689-1. Memorandum regarding $2,155,000 United States 
Telephone Company first mortgage 7 percent gold 
bonds extending to July 1, 1941 

1689-2. Memorandum regarding $2,676,000 Cuyahoga Tele- 
phone Company first mortgage 7 percent gold 
. bonds extended to July 1, 1941 

1690. Letter, dated March 2, 1935, from Albert H. Gordon, 

Kidder, Peabody & Co., to John Wilkie, Central 
Hudson Gas & Electric Corp., regarding belief of 
increased utility refunding and Telephone re- 
funding 

1691. Stipulation by C. E. Mitchell regarding communica- 

tions from the files of Blyth & Co., Inc 



11874 
11874 

11874 



11875 
11892 



11894 
11910 

11910 
11911 
11911 

11912 

11916 
11923 
11923 

11929 
11930 



XX 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1692. Memorandum, dated June 27, 1935, by C. E. 

Mitchell, Blyth & Co., Inc., to George Leib and 
others regarding discussion with George Whitney, 
J. P. Morgan & Co., with reference to Telephone 
financinK p,nd stating it would be a waste of time 
to see "Waiter Gifford, president of American Tele- 
phone & Telegraph Co _ 11930 

1693. Letter, dated June 27, 1935, from C. E. Mitchell, 

Blyth & Co., Inc., to Walter S. Gifford, president, 
American Telephone & Telegraph Co., relative to 
future financing of American Telephone & Tele- 
graph Co 11931 

1694. Letter, dated December 11, 1939, from Charles A. 

Capek, Lee Higginson Corporation, to Peter R. 
Nehemkis, Jr., transmitting a letter dated April 
4, 1935, by Mr. Hallowell, Lee Higginson Corpora- 
tion to Charles H. Schweppe, Lee Higginson 
Corporation ^ 11 932 

1695. Letter, dated April 4, 1935, from N. P. Hallowell, 

Lee Higginson Corporation, to Charles Schweppe, 
Lee Higginson Corporation, regarding talk with Mr. 
Walter Gifford, president, American Telephone & 
Telegraph Company, relative to $50,000,000 
Southwest Bell Telephone Company issue 1 1932 

1696. Appears in Hearings, Part 22, appendix, p. 11826 11958 

1697. Memorandum, dated September 27, 1935, from E. N. 

Jesup, Lee Higginson Corporation, to N. P. Hallo- 
well, Lee Higginson Corporation, covering talk 
with Harold Stanley relative to $45,000,000 
Illinois Bell Telephone issue : 11966 

1698. Memorandum, dated September 30, 1935, by H. M. 

AddinseU, the First Boston Corporation, relative 
to conversation between Harold Stanley, Morgan 
Stanley & Co Inc., and Mr. AddinseU regarding 
Illinois Bell Telephone Co. $45,000,000, 35-year, 
3}4-percent first and refunding mortgage bonds 11967 

1699. Memorandum, dated November 20, 1935, by H. M. 

AddinseU regarding registration of Southwestern 
Bell Telephone Company $45,000,000, 3}4-percent 
bond offering 11972 

1700. Table: Public offerings of securities under Securities 

Act of 1933 by the American Telephone & Tele- 
graph Company and subsidiary companies 11 972 

1701. Memorandum, dated April 14, 1937, by H. M. Addin- 

seU, the First Boston Corporation, regarding 
Southern BeU Telephone Company $45,000,000, 
3>^percent, 25-year debentures 11972 

1702. Memorandum, dated June 26, 1939, by H. M. 

AddinseU regarding Southern Bell Telephone 
Company $22,250,000, 40-year, 3)4 percent deben- 
tures r- 11972 

1703. Table: Relative participations |in security issues of 

Amercan Telephone & Telegraph and associated 
companies, 1935-39. Participations of the principal 
underwriters in relation to the participations of 
Morgan Stanley & Co., Incorporated 11973 

1704. Table: Financing of American Telephone & Telegraph 

Company and associated companies by Morgan 
Stanley & Co., Incorporated, from September 16, 
1935, to June 30, 1939 11973 



11930 
12238 

12239 

12239 

12240 

12240 

12241 
12242 

12243 

12243 

12244 
12245 



CONTENTS 

SCHEDULE OF EXHIBITS— Continued 



XXI 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1705. Memorandum, dated September 23, 1936, by George 

Leib, Blyth & Co., Inc., to C. R. Blyth, E. M. 
Stevens and others, Blyth & Co., Inc., relative to 
conversation with Mr. Stanley regarding $175,000,- 
000 American Telephone & Telegraph Company 
25-year Syis 

1706. Letter, dated March 4. 1936, from Charles E. Mitchell, 

Blyth & Co., Inc., to Charles R. Blyth, Blyth & Co., 
& Co., Inc», relative to talks with Mr. Stanley 
relative to Blyth & Co., Inc., position in Pacific 
Telephone financing 

1707. Financing of American Telephone & Telegraph Com- 

pany and Associated Companies headed by Morgan 
Stanley & Co. Incorporated, from October 16, 1935, 
to July 20, 1939 

1708. Letter, dated February 15, 1905, from Francis Higgin- 

son, Lee Higginson & Co., to F. P. Fish^ president, 
American Telephone & Telegraph Company, pro- 
testing against American Telephone & Telegraph 
Company allowing a single firm to dominate its 
financing plans 

1709-1. Letter, from H. S. Sturgis, the First National Bank, 
to Peter R. Nehemkis, Jr. enclosing requested table 
showing the First National Bank's participation in 
American Telephone & Telegraph Co. financing 

1709-2. Letter, from H. S. Sturgis to Peter R. Nehemkis, Jr., 
adding Western Electric Company debentures of 
$35,000,000 to table offered as '•'Exhibit 1709-3"_. 

1709-3. Table: Particiaptions by issues on original terms of 
the First National Bank or the First Security Com- 
pany in American Telephone & Telegraph Com- 
pany or Associated Companies financing from 1906 
to date 

1710-1. Letter, dated December 6, 1939, from Kuhn, Loeb & 
' Co. to Peter R. Nehemkis, Jr., transmitting a 
schedule of the percentage participation in Ameri- 
can Telephone & Telegraph Company financing 

1710-2. Table: Participations by issues on original terms of 
Kuhn, Loeb & Co. in American Te'ephone & Tele- 
graph Company or Associated Companies financing 
from 1906 to date 

1711. Letter, dated June 6, 1934, from William C. Potter, 

tluaranty Trust Company of New York to the 
stockholders regarding effect of Banking Act of 
1933 on the Guaranty Trust Company 

1712. Table: Maturities of certain railroad bonds giving 

name of Company and description of bonds 

1713. Diary entries by John W. Cutler, H. D. Moore, and 

Karl Weishgit of Smith, Barney & Co. relative to 
New York Central R. R. Co. financing 

1714-1. Lett<5r, dated June 18, 1935, from John W. Young, 
J. P. Morgan & Co., to Willard Place, New York 
Central Ilailroad Company accompanied by table 
showing original group and secondary groiip with 
amounts of participations in Toledo & Ohio Central 
financing . 

1714-2. Handwritten note referring to table 

J7J$, Letter, dated June 3, 1935, from Willard Place, New 
York Central Railroad Co , to Max O. Whiting, 
Whiting, Weeks & Knowles, as to whether the 
bonds should earry a S% percent or 4 percent 
coupon. __,,,y,-„^,, . ,,,,,, y,,_ 



11980 

11984 
11989 

11993 

11993 
11993 

11993 

11993 

11993 

12002 
12004 

12008 



12010 
12012 



12250 

12250 
12251 

12252 

12253 
12254 

12254 

12255 

12256 

12259 
12260 

12260 



12261 
12262 



12013 I 12013 



XXII 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



1716. Letter, dated June 13, 1935, from E. Stuart Peck, 

Adams & Peck, to Willard Place, New York Central 
Railroad Co. regarding talk with Harry Morgan, 
J. P. Morgan & Co., relative to Toledo & Ohio 
Central bond issue 

1717. Memorandum, dated June 17, 1935, by H. M. Ad'din- 

sell, the First Boston Corporation, regarding the 
Toledo & Ohio Central $12,000,000 refunding and 
improvement mortgage S% percent bonds 

1718. Telegram, dated June 21, 1935, from Max O. Whiting, 

Whiting, Weeks & Knowles, to J. R. Macomber, 
the First Boston Corporation, protesting for place 
in Toledo & Ohio Central business 

1719. Telegram, dated June 21, 1935, from Max O. Whiting 

to J. R. Macomber regarding the First Boston Cor- 
poration's lack of control over allocating Toledo & 
Ohio Central business 

1720. Letter, dated June 28, 1935, from J. R. Macomber to 

George Whitney, J. P. Morgan & Co., in apprecia- 
tion for part in Toledo & Ohio Central financing... 

1721. Table: Final selling list and the respective amounts of 

the various houses on Toledo & Ohio Central 
$12,500,000, 3J4 percent bonds, series "A" 

1722. Diary entries of John W. Cutler and Karl Weisheit, 

Smith, Barney & Co., relative to New York, Penn- 
sylvania & Ohio Railroad financing 

1723. Memorandum, dated December 28, 1934, containing 

an extract from the minutes of the meeting of the 
board of directors of the Erie Railroad Company 

1724. Memorandum, dated December 11, 1934, by Horace 

D. Moore, Smith, Barney & Co., to J. W. Cutler 
regarding major financing of Erie Railroad Com- 
pany from June 28, 1924, to July 1, 1930 

•1725. Memorandum, dated December 17, 1934, by J. P. 
Ripley, National City Company, to H. C. Sylvester 
and P. V. Davis, National City Company, relative 
to heading New York, Pennsylvania, & Ohio ex- 
tension bonds 

1726. Memorandum, dated February 13, 1935, by J. W. 

Cutler, Smith, Barney & Co., regarding extension 
of the $8,000,000 New York, Pennsylvania & Ohio 
Railroad Company prior lien mortgage 4^ percent 
bonds 

1727. Diary entries by John Cutler relative to Atlantic 

Coast Line R. R. Co. financing covering a period 
from September 20, 1934, to January 11, 1935 

1728-1. Letter, dated May 21, 1935, from H. L. Borden, vice 
president, Atlantic Coast Line R. R. Co., to W. D. 
McCaig, comptroller, Atlantic Coast Line R. R. 
Co., relative to Atlantic Coast Line R. R. Co. 
$12,000,000 collateral trust 5 percent notes 

1728-2. Letter, dated May 22, 1935, from L. Delano, Atlantic 
Coast Line R. R. Co., to Roland L. Redmond, 
Carter, Ledyard & Milburn, relative to close of 

$12,000,000 collateral trust notes transaction 

1729. Memorandum by Burnett Walker, Edward B. Smith 
& Co., regarding Brown Harriman & Co., Incorpo- 
rated, and Edward B. Smith & Co. being invited 
by J. P. Morgan & Co. to consider purchase of 
Chicago and Western Indiana Railroad Co. first and 
refunding mortgage 5)^percent, s^pes "0" bonds. - 



Int^o- 

duced at 

page 



12014 

12016 

12019 

12020 
12020 
12021 
12023 
12025 

12027 

12031 

12031 
12035 

12039 
12039 

12041 



Appears 
on page 



12014 

12262 

12263 

12263 
12020 
12263 
12264 
12264 

12266 

12267 

12268 
12268 

12269 
12272 

12272 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXIII 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1730. Memorandum, dated July 2, 1934, by H. D. Moore, 

E. B. Smith & Co., to Burnett Walker, E. B.' Smith 
& Co., relative to Brown Harriman & Co., Incorpo- 
rated having the strongest claim in leadership of 
Chicago and Western Indiana Railroad Co. financing. 

1731. Memorandum, dated February 21, 1935, by J. P. Rip- 

ley, Brown Harriman & Co., Incorporated, to H. C. 
Sylvester, Jr., P. V. Davis and W. Harmon Brown, 
Jr., Brown Harriman & Co., Incorporated, relative 
to having Kidder, Peabody & Co. in group with At- 
lantic Coast Line R. R. Co. financing 

1732. Copy of letter dated April 30, 1934, from Arthur M. 

Anderson, J. P. Morgan & Co., to Ralph Budd, 
president, Chicago, Burlington & Quincy Railroad 
Co., regarding possible sale of Chicago & Western 
Indiana 5J4-percent bonds 

1733. Memorandum, dated May 17, 1934, by William 

Ewing, J. P. Morgan & Co. regarding conversation 
with Mr. A. N. Williams, president, Chicago & Wes- 
tern Indiana Railroad Co., about 6 percent collateral 
note for $6,000,000 maturing October 7, 1935 

1734. Telegram, dated June 28, 1934, from H. D. Moore, 

E. B. Smith & Co., to Burnett Walker and Karl 
Weisheit, E. B. Smith & Co., regarding statement 
by W. R. Coe, Brown Harriman & Co. that J. P. 
Morgan & Co. had asked Brown Harriman & Co. 
to form Chicago & Western Indiana group 

1735. Diary entries by John W. Cutler and Karl Weisheit, 

E. B. Smith & Co., regarding Chicago & Western 
Indiana Railroad Co. from August 22, 1938, to 
February 15, 1935 

1736. Memorandum, dated November 9, 1934, by William 

Ewing to A. M. Anderson, J. P. Morgan & Co., re- 
garding sale of Chicago & Western Indiana bonds.. 

1737. Letter, dated May 2, 19S4, from Ralph Budd, presi- 

dent, Chicago, Burlington & Quincy Railroad Co., 
to A. M. Anderson stating that Mr. Sturgis, Chi- 
cago, Burlington & Quincy Railroad Co. is to 
handle Chicago & Western Indiana Railroad 
financing 1. 

1738. Memorandum, dated June 13, 1934, by C. I. Sturgis, 

Chicago, Burlington & Quincy Railroad Co. re- 
garding talk with Mr. Anderson, J. P. Morgan & 
Co. relative to selling Chicago & Western Indiana 
Railroad bonds 

1739. Memorandum, dated July 26, 1934, by A. N. Williams, 

president, Chicago & Western Indiana Railroad 
Co'., regarding conversation with A. M. Anderson 
covering financial setup of Chicago & Western 
Indiana Railroad Co 

1740. Telegram, dated November 13, 1934, from W. R. Coe, 

Brown Harriman & Co., Inc., to A. N. Williams 
regarding 24-hour delay in making Chicago & 
Western Indiana issue 

1741. Telegram, dated November 9, 1934, from W. Ewing, 

J. P. Morgan & Co., to A. N. Williams requesting 
Mr. Ewing to talk with Mr. Davis of Brown 
Harriman &Co 

1742. Telegram, dated November 9, 1934, from William 

Ewing to A. N. Williams stating possible close of 
Chica go & Western Indiana deal 



12042 

12042 
12042 
12042 

12042 

12042 
12042 

^.043 

12043 

12043 

12043 

12043 
12043 



12273 

12273 
12273 
12274 

12275 

12275 
12275 

12276 

12276 

12277 

12277 

12278 
12278 



XXIV 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



1743. Telegram, dated November 13, 1934, from P. V. 

Davis, Brown Harriman & Co., to A. N. Williams 
regarding notification of group as to signing of con- 
tract for Chicago & Western Indiana financing — 

1744. Telegram, dated November 14, 1934, from A. N. 

Williams to A. M. Anderson, J,. P. Morgan & Co., 
requesting tliat he discuss bond matter with Mr. 
Kurrie, vice president of Chicago & Western 
Indiana Railroad Co 

1745. Telegram, dated November 14, 1934, from A. M. 

Anderson to A. N. Williams stafng willingness to 
see Mr. Kurrie regarding Chicago & Western 
Indiana Railroad Co 

1746. Telegram, dated November 19, 1934, from A. N. 

Williams to W. Ewing regarding situation so report 
may be given at directors' meeting 

1747. Copy of letter dated December 14, 1934, unsigned, to 

W. Ewing regarding success of bom' e of Chicago 
& Western Indiana Railroad bonds 

1748. Memorandum, d^ ed June 17, 1936, by C. E. Mitchell, 

Blyth & Co., li c, to C. R. Blyth and others, Blyth 
& Co. Inc., regarding $26,000,000 Louisville & 
NashviUe Railroad Company first and refunding 
SYi percent bonds due 2003 

1749. Memorandum, dated November 8, 1939, by Peter R. 

Nehemkis, Jr., to H. C. Alexander, J. P. Morgan & 
Co., requesting certain information from J. P. 
Morgan & Co — ^ 

1750. Letter, dated November 1, 1939, from H. C. Alexander 

to Peter R. Nehemkis sending copies of opinions re- 
quested dated May 29, 1934, July 22, 1935, August 
21, 1935, and December 14, 1935 

1751. Letter, dated May 29, 1936, from Davis Polk Ward- 

well Gardiner & Reed, to J. P. Morgan & Co. giving 
opinion under section 21a of Banking Act of 1933- 

1752. Letter, dated July 22, 1935, from Davis Polk Ward- 

well Gardiner & Reed, to J. P. Morgan & Co. rend- 
ering opinion regarding extension of the New York, 
Pennsylvania and Ohio Railroad Company prior 
lien mortgage bonds 

1753. Letter, dated August 21, 1935, from Davio Polk Ward- 

well Gardiner & Reed, to John P. Meyer, J. P. Mor- 
gan & Co. rendering opinion regarding extension of 
the Long Dock Company bonds 

1754-1. Letter, dated December 14, 1935, from Davis Polk 
Wardwell Gardiner & Reed, to J. P. Morgan & Co. 
regarding extension of the Long Dock Company 
consolidated mortgage 6 percent bonds 

1754-2. Memorandum, dated August 20, 1935, by John M. 
Meyer, J. P. Morgan & Co., for J. Howland Auchin- 
closs, Davis Polk Wardwell Gardiner & Reed, cov- 
ering list of drafts relative to Long Dock Company 
financing — 

1755. Letter, dated November 1, 1939, from Allen Wardwell, 

Davis Polk Wardwell Gardiner & Reed, toH. C. 
Alexander, J. P. Morgan & Co., regarding opinion 
dated May 29, 1934, covering section 21a (1) of 
Banking Act of 1933 relative to functions of J. P. 
Morgan & Co 

1756. Appears in Hearings, Part 22, p. 11795 

1757. Appears in Hearings, Part 22, p. 11826 



Intro- 
duced at 
page 



12043 

10243 

12043 
12043 
12043 

12044 

12044 

12044 
12044 

12044 
12044 
12044 

12044 



12044 
12046 
12046 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



XXV 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1758-1. Letter, dated December 9, 1939, from C. B. Sawyer, 
president, the Brush Beryllium Company, to Sena- 
tor O'Mahoney enclosing letter supplementing his 
testimony ' 

1758-2. Letter, dated May 17, 1939, from C. B. Sawyer to 

Hugh B. Cox, Special Assistant to the Attorney 

General, regarding his testimony and that of A. J. 

- Gahagan • 

1758-3. Chart: Tensile strength of various metals compared 
with beryllium 

1759-1. Appears in Hearings, Part 22, appendix, p. 11797 

1759-2. Appears in Hearings, Part 22, appendix, p. 11798 

1760-1. Certificate qf incorporation of Morgan Stanley & Co., 
Inc 

1760-2. Certificate of change of name of Morgan Stanley & 
Co., Inc., to Morgan Stanley & Co. Incorporated 

1760-3. Certificate of increase of the amount of capital stock 
of Morgan Stanley & Co. Incorporated 

1760-4. Certificate of change of provisions of its certificate of 
incorporation of Morgan Stanley & Co. Incorpo- 
rated 

1761. Letter, dated November 27, 1939, from Harold 

Stanley, president, Morgan Stanley & Co. Incor- 
porated, to Peter R. Nehemkis; Jr., transmitting 
information regarding holders of common and pre- 
ferred stock of Morgan Stanley & Co., Incorporated. 
Table: Morgan Stanley & Co., Incorporated, com- 
mon stockholders of record as at August 31, 1939. 
Table: Morgan Stanley & Co., Incorporated, com- 
mon stockholders of record as at September 16, 
1935. Table: Morgan Stanley & Co., Incorpo- 
rated, preferred stockholders of record as at August 
31, 1939. Table: Morgan Stanley & Co., Incor- 
porated, preferred stockholders of record as at 
September 16, 1935 

1762. Table: Morgan Stanley & Co., Incorporated, issues 

imderwTitten or participated in during period Sep- 
tember 16, 1935, through June 30, 1939 

1763. Table: Morgan Stanley & Co., Incorporated, issues 

managed or comanaged during period September 
21, 1935, through April 3, 1939, giving dates of 
offering prospectus, names of issuers, titles and 
amounts of issues, names of syndicate managers, 
counsel for underwriters, advertising agencies, en- 
gineering and appraisal firms, and accounting 
firms 

1764r-l. Table; Utility issues managed or co-managed by 
Morgan Stanley & Co., Incorporated, September 
16, 1935-June30, 1939 

1764r-2. Table: Industrial and railroad issues managed or co- 
managed by Morgan Stanley & Co. Incorporated, 

September 16, 1935- June 30, 1939 

1765. Letter, dated January 2, 1929, from Thomas S. La- 
mont, J. P. Morgan & Co., to Lansing P. Reed, 
Davis Polk Ward well Gardiner & Reed, enclosing 
advertising circulars regarding various investment 
trusts which make little pretense of diversification 
and whose purpose is to insure control by bankers 
and their clients 

> See Part 6. pp. 2012 ff and 2079 fl. 
» On file with the Committee. 



12047 12286 



12047 


12287 


12047 
12048 
12048 


12290 


12049 


(') 


12049 


(') 


12049 


{') 


12049 


« 


12052 


12291 


12058 


Facing 
12291 


12058 


Facing 
12291 


12067 


12293 


12067 


12296 


12070 


12296 



XXVI 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



Intro- 
duced at 
page 



Appears 
on page 



1766-1. Report to the stockholders of the United Corpora- 
tion for the year ended December 31, 1934 

1766-2. Report to the stockholders of the United Corpora- 
tion for the j'ear 1938 

1766-3. Table: Approximate percentage of capital in J. P. 
Morgan & Co. and approximate percentage of 
Morgan Stanley & Co., Incorporated, preferred 
stock in comparison with total held by Morgan 
partners and their assignees 

1767-1. Table: Relative participations in utility issues man- 
aged or comanaged by Morgan Stanley & Co., 
Incorporated, 1935-39. Schedule B: Issues other 
than those of Consolidated Edison Co. of New- 
York, Inc., and its subsidiaries 

1767-2. Schedule of deposits with and loans by J. P. Morgan 
& Co 

1768-1 Letter, dated March 6, 1939, from Peter R. Nehemkis, 
.Jr., to J. P. Morgan & Co. requesting data in con- 
nection with study of investment banking 

1768-2. Letter, dated March 15, 1939, from J. P. Morgan & 
Co. to the Securities & Exchange Commission sub- 
mittmg data in response to request of March 6, 1939, 
including: Lists of corporations and governments 
for which J. P. Morgan & Co. perform one or more 
of the following services: Payment of coupons; 
sinknig fund administratic;i; payment of matured, 
called, or converted securities; registration or trans- 
fer of bonds or stock; payment of dividends. Lists 
of corporations and other in..titutions of which part- 
ners of J. P. Morgan & Co. are directors or trustees. 
Lists of corporations and other institutions of 
which employees of J. P. Morgan & Co. are directors 
or trustees as a result of an interest of J. P. Morgan 
& Co. Public announcements upon formation of 
Morgan Stanley & Co^ Incorporated, dated Septem- 
ber 6, 1935, and additional information on question 
of interest of J. P. Morgan & Co. or a partner 
thereof in Morgan Stanley & Co., Incorporated. 
Table: Principal amounts of bonds purchased by 
J. P. Morgan & Co. in Morgan Stanley & Co., In- 
corporated, bond issues 

1769. Table: Participation of J. P. Morgan & Co. in issues 

of Consolidated Gas Co. and subsidiaries, 1919-32.. 

1770. Table: Participations of Blyth & Co., Inc., in issues 

managed by Morgan Stanley & Co., Incorporated, 
September 16, 1935, to June 30, 1939 

1771. Table : Relative participations in utility issues managed 

by Morgan Stanley & Co., Incorporated, 1935-39. 
Schedule A: Issues of Consolidated Edison Co. of 
New York, Inc., and its subsidiaries 

1772. Table: Financing of Consolidated Edison Co. of New 

York, Inc., and its subsidiaries by Morgan Stanley 
& Co., Incorporated, September 16, 1935, to June 
30, 1939 

' On flic with the Committee. 

' On file with the Securities & Exchange Commission. 



12071 
12071 

120S6 



12296 



12093 12297 
12096 I (2) 

1209e ■ 12298 



12096 
12096 

12096 
12097 
12097 



12298 
12310 

12312 
12314 
12315 



CONTENTS 
SUPPLEMENTAL DATA 



XXVII 



Number and summary of exhibits 



Unnumbered 

Unnumbered. 
Unnumbered. 

Unnumbered. 

Unnumbered. 

Unnumbered. 

Unnumbered. 
Unnumbered. 

Unnumbered. 
Unnumbered. 

Unnumbered. 
Unnumbered. 



Letter from N. R. Danielian, Senate Committee 
on Education and Labor, to Hon. Joseph C 
O'Mahoney, dated January 10, 1940, stating 
that the American Telephone & Telegraph 
Company at no time has taken exception to 
facts presented in testimony of December 15 

1939 .. ' 

Extract from memorandum of corrections sub- 
mitted by Arthur H. Dean, Sullivan & Crom- 
well, counsel, to Albert H. Gordon 

Copy of letter from Lyman Delano, chairman of 
Board, Atlantic Coast Line Railroad Com- 
pany to W. C. Potter, Guaranty Trust Com- 
pany, dated April 30, 1935, regarding Guaranty 
Trust Company having been designated as 
trustee of $12,000,000 10-year collateral trust 

notes 

Copy of letter from George Whitneyj J. P. 
Morgan & Co., to Leon Henderson, Securities 
& Exchange Commission, dated January 25, 
1940, submitting amplification of answers 
made in testimony of December 19, 1939, 
regarding functions by underwriting houses 
Letter from Davis Polk Wardwell Gardiner & 
Reed to J. P. Morgan & Co., dated Septem- 
ber 13, 1935, regarding the incorporation and 
organization of Morgan Stanley & Co., In- 
corporated 

Letter from Peter R. Nehemkis, Jr", toGe'o'rge 
Whitney, J. P. Morgan & Co., dated January 
23, 1940, requesting information supplement- 
ing testimony 

Letter from George Whitney to Peter R." Nehem-" 
kis, Jr., dated January 26, 1940, submitting 

supplementary information 

Letter, from E. H. York, Jr., vice presidVnt"," 
Morgan Stanley & Co., Incorporated, to Peter 
R. Nehemkis, Jr., dated February 15, 1940, 
listing sales of securities since September 1935, 
by companies for which J. P. Morgan & Co. 
and Drexel & Co. sold securities from 1921 to 

1933 

Letter, from Peter R. Nehemkis, Jr., to E" H 
York, Jr., dated March 4, 1940, commenting 

on list submitted 

Letter, from Harold Stanley, president, Morgan 
Stanley & Co., Incorporated, to Peter °R 
Nehemkis, Jr., dated March 12, 1940, replying 

to letter of March 4, 1940 

Letter, from J. P. Morgan & Co. to Peter R 
Nehemkis, Jr., dated October 26, 1939, sub- 
mitting revision of "Exhibit No. 1768-2" list- 
ing directorates and trusteeships held by 

partners 

Letter, from Peter R. Nehemkis, Jr. to Henry C 
Alexander, J. P. Morgan & Co., dated Novem- 
ber 15, 1939, inquiring as to participation of 
partners who were corporate directors in dis- 
cussions and voting on security issues 



Intro- 
duced at 
page 



Appears 
on page 



12316 
12316 

12317 

12317 

12318 

12320 
12321 

12321 
12323 

12324 
12325 
12327 



XXVIII 



CONTENTS 
SCHEDULE OF EXHIBITS— Continued 



Number and summary of exhibits 



latro- 
duced at 



Appears 
on page 



Unnumbered. Letter, from Henry C. Alexander to Peter R. 
Nehemkis, Jr., dated December 7, 1939, 
setting forth information in response to letter 
of November 15, 1939 

Unnumbered. Letter, from Irving S. Olds, United States Steel 
Corporation, to Peter R. Nehemkis, Jr., dated 
October 10, 1939, submitting copy of minutes 
of meeting of board of directors held on May 
31, 1938 

Unnumbered. Letter, from Peter R. Nehemkis, Jr., to Russell 
C. Leffingwell, J. P. Morgan & Co., dated 
January 29, 1940, requesting amplification of 
testimony 

Unnumbered. Letter, from Russell C. LeflRngwell to Peter R. 
Nehemkis, Jr., dated February 2, 1940, sub- 
mitting list of United States Government 
obligations held by J. P. Morgan & Co. and 
Drexel & Co., classified as tax exempt and 
taxable as to surtax 

2163. Memorandum, by R. C. Leffingwell, J. P. Morgan & Co., 
dated December 1939, supplementing testimony 



12328 



12330 



12337 



12337 
12338 



INVESTmATION OF CONCENTRATION OF ECONOMIC POWER 



FRIDAY, DECEMBER 15, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. G. 

The committee met at 10:20 a. m., purcuant to adjounmient on 
Thursday, December 14, 1939, in the Caucus Room, Senate Office 
Building, Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman), Messrs. Henderson, 
Avildsen, and Brackett. 

Present also: Willis J. Ballinger, Federal Trade Commission; 
Ganson Purcell, Securities and Exchange Commission; Holmes Bald- 
ridge, Department of Justice; Clifton M. Miller, Department of 
Commerce; Charles L. Kades, Treasury Department j Peter R. 
Nehemkis, Jr., special counsel; David Ryshpan, financial analyst; 
W. S. Whitehead, security analyst, and Samuel M. Koenigsberg, asso- 
ciate counsel. Investment Banking Section, Securities and Exchange 
Commission. 

The Chairman. The committee will please come to order. The 
hearing this morning will open with a statement by Commissioner 
Henderson, 

introductory statement on AMERICAN TELEPHONE &. TELEGRAPH CO. 

FINANCING 

Mr. Henderson. This morning the S..E. C, through its Investment 
Banking Section, would like to present to the committee a case history 
of the financing of America's largest corporation by America's lead- 
ing bankers. This story involves the financing of the American 
Telephone & Telegraph Co., beginning with the year 1906 and ending 
with the last piece of financing in 1939. During this period, when 
J. P. Morgan & Co. assumed the leadership over the financing of the 
telephone company, A, T. & T. was relatively a small enterprise. 
It had assets of about $530,000,000. The number of Bell telephones 
was about 2,800,000. Today, A. T. & T. and its associated companies 
have assets in excess of $5,000,000,000 and almost 16i/^ million Bell 
telephones are in use. 

That the services of the bankers in providing a large part of the' 
capital required for this- expansion was a matter of the greatest 
moment to the A. T. & T. goes without saying. 

That the capital was provided at the lowest cost and in a manner 
most in the public interest is a question which cannot be answered. 
For at no tine during this entire period did the bankers or the 

11829 



11830 CONCENTRATION OF ECONOMIC POWER 

company consi(Jer any alternative method of financing than that of 
direct dealings with a single banking group. 

I quote now from a letter of Lee, Higginson & Co. to Frederick 
P. Fish, president, American Telephone & Telegraph Co., dated 
February 15, 1905 [reading from "Exhibit No. 1708"]. 

As we think we have made it apparent to your Company ever since our firm 

and Messrs. Speyer & Co. provided for the last capital requirements, we are 

anxious to be afforded an opportunity to show on what terms we can provide 

the fresh capital desired by the Company for the coming year. We do not ask 

'^ suggest that we should be given the slightest preference over any other 

aking firms. The Company is in sound financial condition, and we submit that 
.nere is no reason, based on the condition of the Company in the present market 
situation, why the Company should not provide for its wants on the best terms 
available, and we think it a fair statement to say that the Company cannot 
determine what these are if it permits a single firm only to lay before it a 
plan to provide for its financial requirements. 

The first witness will present testimony dealing with the background 
of the telephone industry, and through him there will be developed the 
events which resulted in the exclusive financial relations between 
the powerful banking group headed by J. P. Morgan & Co. and the 
American Telephone & Telegraph system. 

Subsequent witnesses will develop the story of the manner in which 
the telephone company has been financed, and one of the principal 
perquisites to the bankers flowing therefrom — the profits from under- 
writing. 

Mr, Chairman, in presenting the first witness we have a unique op- 
portunity. If we were as an S. E. C. unit to present the material 
he will present, it would have required men on our staff to spend 
literally months in the examination of documents. There was, as 
you know, an inquiry into A. T. & T. by the Communications Com- 
mission, and it is fortunate that an economist who undertook to fol- 
low the early history of the A. T. & T. and the companies which 
wen|^to make it up is available. We are, therefore, in the position 
of presenting an expert witness of our own choosing, you might say, 
whose information comes from another investigation set in motion 
by the Congress of the United States. I think it will develop from 
the testimony that this committee is fortunate in availing itself of 
this opportunity for a condensation of what represents literally 
months of inquiry. I think, Mr. Nehemkis, the questions that you 
will address relate particularly to the financing and not to the A. T. 
& T. itself. Is that correct? 

Mr. Nehemkis. That is correct, sir. 

I call Dr. N. R. Danielian, please. 

The Chairman. Do you solemnly swear that the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Dr. Danielian. I do. 

TESTIMONY OF DR. N. K. DANIELIAN, WASHINGTON, D. C. 

Mr. Nehemkis. Mr. Chairman, I should like to read into the record 
a statement of the qualifications of this witness. 

Dr. Danielian holds the degrees of A. B., A. M., and Ph. D. from 
Harvard University. He was instructor in the Department of Eco- 
nomics at Harvard University from 1929 to 1935. In 1932, while at 



CONCENTRATION OF ECONOMIC POWER 11831 

Harvard, he assisted Dr. W. W. M. Splawn, counsel of the House Com- 
mittee on Interstate and Foreign Commerce, in tliat committee's in- 
vestigation of utility holding companies. 

In 1933 he participated in the study of stock-market operations, con- 
ducted by the Twentieth Century Fund. In 1935 he was appointed 
financial and utility expert in the telephone investigation conducted 
by the Federal Communications Commission under Public Resolution 
No. 8, Seventy-fourth Congress, and continued in that capacity until 
1938. Since then he has been director of research for the Subcom- 
mittee on I'ducation and Labor under Senate Resolution 266, otherwise 
known as die Senate Civil Liberties Committee. 

Dr. Danielian, do you accept as a true and correct statement the 
resume I have just read into the -ecord? 

Dr. Danielian. I do. 

Mr. Nehemkis. So that the record may be complete, will you state 
your full name and address, Mr. Danielian? 

Dr. Danielian, N. R. Danielian, Wishington, D. C. 

Mr. Nehemkis. Very briefly, will yea state for the record your 
duties in connection with the telephone investigation by the Federal 
Communications Commission ? 

Dr. Danielian. I was in charge of the economic studies of the 
telephone investigation under the direction of the chief accountant. 

The Chairman. The cliief accountant of whom? 

Dr. Danielian. Mr. John H. Bickley. 

The Chairman. Chief accountant for the F. C. C. ? 

Dr. Danielian. The telephone investigation. 

The Chairman. He was accountant of the Federal Communications 
Commission ? 

Dr. Danielian. That is right. 

Mr. Nehemkis. And you also participated, did you not, Dr. 
Danielian, in the preparation of the reports on the investigation? 

Dr. Danielian. I did. I prepared some of the reports personally 
and participated in the preparing of others. 

Mr. Nehemkis. And you are the author, are you not, of a recent 
publication called "A. T. & T., The Story of Industrial Conquest"?. 

Dr. Danielian. That is correct. 

Mr. Nehemkis. Dr. Danielian, may I ask you a question concerning 
the documentation upon which your testimony is predicated. Do I 
understand correctly that the 83 exhibits which will be offered in 
connection with your testimony are matters of official record in the 
files of the Federal Communications C ommissicn ? ^ 

Dr. Danielian. All but about 10 docuTr.ents are on file at the Fed- 
eral Communications Commission, having been introduced in official 
proceedings before the Commission in Special Investigation Docket 
No. 1. I think about 5 documents were obtained from A. T. & T. 
recently. They are not matters of record with the F. C. C. There 
are a few oiliers which I thmk the S. £. C. made available to me in 
connection with the preparation of this particular testimony. 

The Chairman. Are any of these documents that were introduced 
in the F. C. C. study challenged by anybody ? 

Dr. Danie li an. These documents were presented in the following 
fashion: They were accumulated in the course of the investigation. 

^ Subsequently entered as "Exhibits Nos. 1659-1 to 1659-83," appendix, pp. 12115-12200. 



11832 CONCENTRATION OF ECONOMIC POWER 

Photostatic copies were obtained from the company, and I might add 
that the photostats filed with the Federal Communications Commis- 
sion have in back of them the authentication of the company to the 
effect that they were taken from the files of the company. I followed 
that procedure personally in obtaining these documents from the 
company. 

The Chairman. So far as the documents which have been taken 
from the F. C. C. study is concerned, they have all been authenticated ? 

Dr. Danieuan. That is right. 

The Chairman. Could you separate those from the others to which 
I referred so we could put them in ? Or could that be done without 
much difficulty? 

Mr. Nehemkis. Suppose I offer these later? 

The Chairman. What is the authentication of the other documents 
to which you refer? 

Dr. Danielian. The files that were obtained from the company 
recently have a letter of transmittal by Mr. W. Shelmerdine, of the 
company. The others that were made available to me by the Securi- 
ties and Exchange Commission 

Mr. NEHEMias (interposing). We assume responsibility for their 
authenticity. 

The Chairman. Unless there is objection, then each of these docu- 
ments may be presented and entered into proceedings when offered. 

Mr. AviLDSEN. Are you at present connected with any Government 
departments or universities? 

Dr. Danielian. I am at the present time director of research for 
the Senate Civil Liberties Committee, a subcommittee of the Senate 
Committee on Education and Labor under Senate Resolution No. 266. 

Mr. Henderson. I might say that I communicated with Senator 
La Follette and asked his permission to have Dr. Danielian appear 
today, and it was graciously accorded. 

early development of bell SYSTEM AND ITS CAPITAL REQUIREMENTS 

Mr. Nehemkis. Dr. Danielian, will you state for the committee 
b. iefly the history of the develbpment of the Bell System prior to 
1900? 

Dr. Danielian. Briefly, the original Bell patents were under the 
control of Alexander Graham Bell and his father-in-law, Gardiner G. 
Hubbard. This situation obtained until 1878. In that year, on 
accoi it of the financial requirements of the System, they had to obtain 
capital from Boston financial and commercial interests. In coimec- 
tion with the sale of the stock of the Bell Telephone Co. in that year 
to these Bostonians, they had to concede to those Bostonians control 
of the Bell patents. That was done by a by-law of the corporation 
which reads as follows: 

The holders of % of the stock for which money has been paid and subscribed 
shall for the space of two years have an equal right and power with the holders 
of the % reserved to the patentees. 

Thus within 2 years the inventor and his original backer lost control 
of the patents to these commercial and financial interests of Boston.- 
In 1879, Hubbard was only a director, and Alexander Graham Bell 
was ijiveii the official title of electrician. 



CONCENTRATION OP ECONOMIC POWER 11833 

The new group and their friends remained in power for the suc- 
ceeding quarter of a century, A study of the personnel of the boards 
and executive committees of A. T. & T. and its predecessors indicates 
that these Bostonians remained in power until 1902. In the interven- 
ing period, from 1902 to 1907, the control of the corporation was a 
matter of contest. 

Mr. Nehemkts. Dr. Danielian, will you tell me how the Bell Sys- 
tem covered its capital requirements during this period of which you 
have been speaking? 

Dr. Danielian. The capital requirements of the System during 
this period were covered principally by the sale of stock to its stock- 
holders and by the reinvestment of earnings and surplus. In the 
pei'iod up to 1898 only a very small amount of bonds and notes were 
issued, about $8,000,000, and even those were sold to stockholders pro 
rata. It was not until 1898 that the System issued bonds for sale 
through banking houses. Between 1898 and 1905, inclusive, the Sys- 
tem issued some $78,000,000 of bonds, of which all but 25 millions 
were sold to bankers after competitive bids were permitted. 

Mr. Nehemkis. As I understand you to say, the sale of the System 
securities during this period was through what we know as competi- 
tive bidding. 

Dr. Danielian. That is correct. 

Mr. Nehemkis. During this period, Dr. Danielian, the Bell System 
had no sustained relations with any single banking house or group, 
did it? 

Dr. Danielian. There do not appear to be any habitual relations 
with any banking house. 

Mr. Nehemkis. Dr. Danielian, will you be good enough to describe 
briefly the financial needs facing the Bell System at the turn of the 
century ? 

Dr. Danielian. The financial requirements of the Bell System, of 
course, were defined by the business situation in which the System 
found itself at the time. It will be recalled that in 1893 and 1894 the 
Bell patents expired, and after that there was great competition from 
independent telephone interests. As a result of this competition there 
was great impetus to the expansion of telephones ; whereas in 1893-94 
there were only 266,000 telephones in use by the Bell System — and the 
Bell System was a monopoly at that time — 10 years later the Bell 
System itself had 1,317,000 stations, and the independents in the 
course of the 10 years had themselves developed 1,058,000 stations, 
which together meant total telephones in use of 2,371,000, which indi- 
cates a tremendous expansion in that period. It also means that the 
Bell System was really being pushed by the independents to supply 
service to the country. Furthermore, at that time the Bell System 
had adopted — the American Bell Telephone Company, which was a 
predecessor of A. T. & T. — adopted the policy of acquiring control by 
purchasing of stock of subsidiary operating companies. That also 
necessitated new money. 

Mr. Nehemkis. Did the company during this period. Dr. Danielian, 
seek to broaden the n arket for its securities ? 



124491 — 40— pt. 23- 



11834 CONCENTRATION OF ECONOMIC POWER 

THE MANAGEMENT LOOKS TO NEW YORK FOR ADDITIONAL CAPITAL 

Dr. Danielian. It does appear that the management of A. T. & T. 
was beginning to look outside of New England to find sources of 
funds. They naturally looked toward New York to supply some of 
their needs. The financial requirements as well as the amount to go 
outside of New England are perhaps best described in th^se two 
documents. 

Mr. Nehemkis. Which documents? 

Dr. Danielian. The one is a memorandum from Theodore N. Vail 
to Senator W. M. Crane, of Massachusetts, in 1901. I believe that 
was just prior to the election of Mr. Crane to the Senate, in which Mr. 
Vail described the financial needs as follows [reading] : 

The worst of the oppositici has come from the lack of facilities afforded by 
our companies — that is, either no service or poor service. For this, circumstances 
beyond control are to a great extent responsible, as it was, in the early days, 
very difficult to provide money. 

To meet these increasing demands, increasing amounts of money will be needed 
each year. A low estimate for the next five years would be $200,000,000 — every 
probability points to a larger sum. 

These demands necessitate a broad financial policy covering a period of no lesa 
than five years. . . . 

The other communication is from Henry Lee Higginson to Fred- 
erick P. Fish, who was president of the A. T. & T. from 1901 to 1907. 
In this letter, which is dated April 8, 1904, Mr. Higginson stated to 
Mr. Fish [reading from "Exhibit No. 1659-7"] : 

Of course, we agree with your views entirely that you need a new market, and 
we think this can be accomplishing by dealing with Speyer. We know as well 
as anybody can that the telephone securities are as good as can be, but they 
have not interested the public yet, outside of New England, very much, and 
the company has not got the standing which it deserves, and which it will have 
by and by. The New Yorkers are always shy of new things from this part of 
the country. We think Speyer can help to distribute the securities elsewhere. 

I think that these documents indicate, on the one hand, that the com- 
pany needed a large-scale financing and, on the other hand, that the 
management was looking outside of New England for a source of 
capital. 

Mr. Nehemkis. Now, Dr. Danielian, will you describe rather briefly 
the negotiations for the sale of $150,000,000 bonds to the Morgan 
syndicate ? 

Dr. Danielian. Preliminary to that particular episode, perhaps a 
word should be said about the first attempt to obtain capital from 
New York. That came in 1902. In that year, in the month of March, 
Mr. Fish, the president of the A. T. & T., carried on negotiations with 
Mr. George F. Baker, Sr., for the sale of 50,000 shares of A. T. & T. 
stock. 

The Chairman. What year was this ? 

Dr. Danielian. 1902. 

The Chairman. And prior to 1902, the Bell System was prac- 
tically locally financed in New England? 

Dr. Danielian. That is correct. 

The Chairman. And now you are describing the appeal to capital 
sources outside of New England? 



COXCENTRATIOX OF ECONOMIC POWER 11835 

Dr. Danielian. That is right. In March of 1902, they concluded 
an agreement with George F. Baker, Sr., whereby the latter would 
take 50,000 shares of A. T. & T. stock at 1531/2. In connection with 
that agreement, provision was also made for the election of George F. 
Baker, Sr., and John I. Waterbury, who was then president of the 
Manhattan Trust Co., and was also associated with Mr. Baker in 
this particular deal — they were elected, these two, to the board of 
the A. T. & T. At the same time, Theodore N. Vail came into the 
directorate of the A. T. & T. Mr. Vail became associated with this 
system in the early days as general manager, but he had resigned in 
1887 to devote himself to his personal affairs. For the first time since 
then he came back to the System with Mr. Baker and Mr. Waterbury 
as director of the company. 

In the next 2 or 3 years, the question of large-scale financing was 
still to the fore, although in 1904 the System was again financed by a 
competitive offer of bonds. 

Mr. Neiiemkis. Do you recall which banking house at the time had 
made that offer, Dr. Danielian? 

Dr. Danielian. I think you have a tabulation there which indicates 
that. 

Mr. Nehemkis. Well, it doesn't make any difference, we will bring 
it up later. 

Dr. Danielian. Lee, Higginson and Kidder, Peabody were quite 
active in bidding for the securities of the company at that time. 

Now, in 1905, the proposition for large-scale financing received con- 
crete expression. In February of that year a plan of financing was 
offered to the A. T. & T. by John R. Waterbury and associates. Cor- 
respondence indicates that these associates were J. P. Morgan & Co., 
and Kidder, Peabody. According to this plan of financing, $85,000,- 
000 of convertible bonds were to be issued. In addition, $50,000,000 
more, on which the bankers were to be given an option. This plan 
of financing was subject to a great deal of discussion in the company, 
for w^ have a memorandum indicating a joint expression of opinion 
by officers of the company on this plan of financing which involved 
the issue of convertible bonds. 

Mr. Nehemms. That was the $150,000,000 which 

Dr. Danielian. This, the original plan, involved the issue of really 
$185,000,000 of convertible bonds and $50,000,000 of other bonds. 
i?his was subjected to criticism by company officials, and in this 
memorandum wliich is dated, I believe, February 16, 1906 

Mr. Nehemkis. That is correct. 

Dr. Danielian. The officers of the company, namely, Vice Presi- 
dent Sherwin, Treasurer Driver, and Attorney Leverett of the com- 
pany, reach the following conclusion : They said [reading from "Ex- 
hibit No. 1659-9"] : 

To oar minds there is another risk in the proposed plan which should be had 
in mind. If a bankers syndicate should be formed, under the proposed plan, who 
should pool their bonds or place them in trust, the trust so formed, by exercis- 
ing the option given for the conversion of bonds, would have the power to acquire 
so near an absolute controlling interest in this company as practically to control 
the whole assets of the company, which they could use for any schemes of 
financing that they saw fit. In short, having nearly one-half of the entire 
issued capital stock of the company, they could consolidate this company with 
other companies, or make any other arrangement in regard to its future 



11836 CONCENTRATION OF ECONOMIC POWER 

financing that they saw fit. This is a great and extremely valuable option and 
is equivalent, until the bonds are distributed or sold to the public, to a 
surrender of the powers of the management upon present officers and stock- 
holders to a body of bankers who may work to the disadvantage of the present 
stockholders in the promotion of other schemes of consolidation. 

The Chairman. Who is the author of that statement? 

Dr. Danieuan. This memorandum was prepared by Vice President 
Sherwin, Attorney Leverett, and Treasurer Driver of A. T. & T., on 
the plan of financing proposed by Waterbury and associates. 

The Chairman. And to whom was the memorandum submitted? 

Dr. Eanielian. To Mr. Fish, the president. 

There were other criticisms. Senator Crane, who was director of 
the system at that time, also said : 

I am beginning to think — 

This is a letter of the same date as this memorandum, February 15, 
1906 [reading from "Exhibit No. 1659-11"] : 

I am beginning to think that we ought to raise the necessary money by the 
sale of font percent collateral bonds without the conversion clause. We surely 
can find someone who will buy them at a reasonable price. The other proposi- 
tion is intricate and uncertain and might lead to a great deal of trouble. 

Pursuant to these opinions, Mr. Fish, by letters dated February 20, 
1905, to J. P. Morgan & Co., John I. Waterbury, George F. Baker, Sr., 
declined this plan of financing. 

Mr. Henderson. That is, basing it on their conclusions which you 
have read from this memorandum? 

Dr. Danielian. I assume that was the basis on which Mr. Fish 
declined the offer, although in his letter he said that there were too 
many intricacies in the plan to proceed at the time. 

In 1905, instead of this plan of financing, the company issued 
$20,000,000 of 6-percent gold-coupon notes, which were sold to Lee, 
Higginson & Co., and Speyer & Co., after competitive bids were 
offered. 

In the fall of 1905 the plan for large-scale financing was revived 
again, and in December a stockholders' meeting was called to ap- 
prove the issue of $150,000,000 of convertible bonds. Prior to the 
meeting, Mr. Fish submitted the circular letter to stockholders which 
he was planning to send, to Mr. Baker and Mr. Waterbury for their 
criticisms, and lie obtained their suggestions by letter dated Novem- 
ber 21, 1905, and then proceeded with the stockholders' meeting. In 
connection with that meeting, the president, Mr. Fish, had to canvass, 
to some extent, for proxies to the meeting of the stockholders. In 
fact, to the best of my knowledge, for the first time in the company's 
history a regular proxy committee was formed, with the names of 
the committee members on the proxy form and no opportunity was 
given on the proxy form for the substitution of the stockholders' 
own attorney. 

On December 21 the stockholders did approve by two-thirds vote 
the issues of $150,000,000 of convertible bonds by the board of direc- 
tors. There was no statement in this resolution with regard to the 
conditions under which the bonds were to be issued. There was also 
some criticism from certain large stockholder^ as to the advisability 
of this bond issue. 



CONCENTRATION OF ECONOMIC POWEJl 11837 

In the succeeding month, January 1906, Mr. Fish was in constant 
negotiation with Mr. Waterbury, in conferences with Mr. Crane, 
one of the members of the board of directors. 

Mr. HENDERSON. Dr. Danielian, will you tell me again who Mr. 
Fish and Mr. Waterbury were, what interests they represented, and 
what positions they held? 

Dr. Danieijan. Mr. Fish was the president of A. T. & T. from 
1901 to 1907. Mr. John I. Waterbury was the president of Man- 
hattan Trust Co., and he became a member of the board of directors 
of A. T. & T., with George F. Baker, Sr., on the occasion of the 
sale of the 50,000 shares of A. T. & T. stock in 1902, and Mr. Water- 
bury was associated with Mr. Baker and later with J. P. Morgan & 
Co. in the financing that they then proposed to A. T, & T. Mr. 
Crane was Senator from Massachusetts and was elected a director of 
A. T. & T. in K03. 
• Mr. Nehemkis. Will you proceed, sir. 

Dr. Danieijan. During the month of January negotiations were 
being carried on with the bankers. At the same time, other bankers 
were insistently trying to obtain an opportunity to bid for the pro- 
posed financing. 

Mr. Nehemkis. In other words, the situation then was in some 
respects not different from the situation as prevails now, in general ? 

Dr. Danielian. I wouldn't want to express an opinion on that 
because I haven't studied the situation now as thoroughly as I have 
studied its past history. 

Mr. Nehemkis. Very well, sir. 

Dr. Danielian. Speyer & Co., associated with Lee, Higginson & 
Co., tried to obtain an opportunity to bid, Salomon & Co. insistently 
attempted to secure an opportunity to bid for bonds, and Lee, Higgin- 
son & Co. also tried to have such opportunity. 

Mr. Henderson. They were trying to get, if I understand you cor- 
rectly, the right to make a bid. 

Dr. Danieijan. That is right. 

There are several letters pertaining lo this. I would like to read 
only part of one, part of a letter from Lee, Higginson & Co., dated 
February 1, 1906, which was only 7 days before the bonds were 
actually sold to J. P. Morgan & Co. and Kidder, Peabody & Gq. 
Apparently, in this letter, Lee, Higginson wanted to go on record. 
In this letter, the banker stated [reading from "Exhibit No. 1659 — 
19"] : 

In order that t! ere may be no misunderstanding about our position, I beg to 
say that, representing a syndicate formed by Messrs. Speyer & Ck). of New York 
and ourselves, we would be glad to have an opportunity to bid on such new 
securities as the Telephone Company may contemplate issuing. 

At present, we do not know sufficient details as to the character of the securi- 
ties and the amount to be Issued, to formulate an offer. 

We are ready to make an offer for these securities on short notice, if we are 
put in a position by the Company to do so. 

The Chairman. You spoke of other letters. Do you mean other 
letters of a simila^r character? 

Dr. Danieijan. Yes; if you wish, I could read one from Salomon 
«& Co. 

The Chairman. -I would like to have you do that. 



11838 CONCENTRATION OF ECONOMIC POWER 

Dr. Dakielian. Yes; this is dated January 27, 1906, 4 days before 
the Lee, Hioginson letter. A letter from President Fish to William 
Salomon, which indicates Mr. Fish's attitude on competitiAe hid^ 
[read-ng from "Exhibit No. 1659—18''] : 

Nothing has been done as yet but the condition is such that I must be very 
careful in all cases not to give any encouragement to any parties in the matter 
referred lo. 

I very much appreciate your continued interest ii; our financial affairs, and 
it would give me great pleasure to be in a position to utilize your very efficient 
organization and capacity, but there are innumerabb considerations that must 
be taken into account and it is entirely impossible for me to say what can or 
what cannot be done. 

And two da^'s later Mr. Salomon replied to this letter, on January 
29 [reading from "Exhibit No. 1659—18"] : 

I understand from your telegram and letter that the matter is still open, and 
I would like to learn whether it may be possible to allow me to make for 
myself, associated with a satisfactory group, a competitive offer. Your policy 
has always been that of allowing competitive tenders to be made and I do not 
understand from your letter that it is your intention to follow a different policy 
in this instance. 

To which, f)n January 30, Mr. Fish replied. 

THE CHANGE FROM COMPETITI^^J TO NONCOMPETITIVE riNANCING 

The Chaibman. Does your examination of the history of the financ- 
ing of this company bear out the statement that you have just r'^ad, 
namely, that up to this time when new capital was sought it was 
obtained by competitive bidding? 

Dr. Danielian. That is correct. 

The Chairman. And you are now discussing the period when the 
change was made from the competitive-bidding system to the place- 
ment system? 
. Dr. Danielian. That is right. 

Mr. Nehemkis. By that you mean — you said, "That is right." By 
the latter part of the Senator's statement, your acquiescence meant 
direct negotiations? 

The Chairman. What I meant was the selection of a particular 
house or group to carry on the financing without competitive bidding. 

Mr. Nehemkis. That is your understanding of the situation, isn't 
it, Dr. Danielian? 

Dr. Danielian. That is true; but that is predicated upon rela- 
tionship between the banking group and the corporation which makes 
that kind of a procedure in the sale of bonds possible, in other words, 
a more intimate relation between one banking group and the manage- 
ment of a corporation, in which the noncompetitive sale of bonds is 
one of the elements. 

The Chairman. Wliat I am trying to brin^ out is that you are 
now discussing the change from the competitive to the noncom- 
petitive system? 

Dr. Danielian. That is correct. 

The Chairman. Now then, the letter of President Fish referred to 
considerations which should be take"!! into account. Do you know 
what those considerations were ? Does your stud^ provide any infor- 
mation on that point? 



CONCENTRATION OF ECONOMIC POWER 11839 

Dr. Dakielian. Frankly, that is one of the mysteries I have not 
been able to solve. It is one of those difficult problems on which 
evidence cannot be obtained, as to what was going on in Mr. Fish's 
mind at the time he was negotiating with this particular banking 
group. I am unable to explamj in other words, what considerations 
led Mr. Fish to change his policy from one of offering competitive 
bids to one of dealing only with one banking ^oup. 

The Chairman. As a student of this financing problem, what con- 
siderations would suggest themselves to your mind as being of suffi- 
cient importance to dictate the dropping of the competitive system 
and the adoption of the noncompetitive system of disposing of 
securities ? 

Dr. Danielian. Possibly the fact that a contractual arrangement 
with a banking group providing for financing over a certain number 
of years, large-scale financing, may be one consideration. In other 
words, the contract, after it was consummated, called for the issuance 
of bonds in installments over a period of 2 years, from 1906 to 1908, 
these installments to be taken by the bankers at specified dates. 

Now, perhaps that facility of insuring the obtainment of funds over 
a long period of time may have been one of the considerations that 
led the company to make this particular kind of arrangement, but 
that is only conjectural on my part because I have no documentary 
evidence to indicate what the motives were. 

The Chairman. I appreciate that fact, but I wasn't asking you for 
any evidence, I was asking for your own conclusions from your own 
study, as to what considerations might suggest themselves to your 
mind as indicating any advantage of one system over the other, 
noncompetitive over the competitive, if there is such an advantage. 

Mr. Henderson. Could I ask a question? 

The Chairman. You want to amplify the question ? 

Mr. Henderson. Yes; because I am interested also. Senator. Do 
you think that the coming of Mr. Waterbury into the situation in 
the way you described had anything to do with the departure from 
the competitive and the selection of a single group ? 

Dr. Danielian. I think that Mr. Waterbury and one or two of his 
associates were insistent on having this exclusive relation with the 
company; that is, the original plan of financing contemplated, the 
one that was declined early in 1905, contemplated exactly this sort 
of relationship. As to why Mr. Waterbury insisted on that, I think 
the rest of the investigation will probably show. 

Mr. Miller. May I ask the witness a question, Mr. Chairman ? In 
1905 was not $150,000,000 a very large piece of financing? 

Dr. Danielian. I assume so; yes. 

Mr. Miller. I mean very large. Had there been any financing in 
your studies approaching that m size? 

Dr. Danielian. I don't recall of any occasions as early as that 
involving 150 millions. 

Mr. Henderson. What about the financing of the Steel Corporation ? 

Dr. Danielian. In 1901? 

Mr. Henderson. It was a larger amount, was it not? 

Dr. Danielian. But may I make one distinction there? The con- 
tract called for the sale of 100 millions of bonds in installments of 
10 millions, with the exception of 1 installment which: was 30 mil- 



11840 CONCENTRATION OF ECONOMIC POWER 

lions in 1907, over a period of nearly 2 years, and that the other 
50 millions were optional with the banks, they didn't have to take 
the additional 50 millions if they didn't want to exercise the option. 
So really this was a firm commitment for 100 millions over a period 
of 2 years. 

The Chairman. Doctor, going back to my question, which was 
merely an attempt to elicit your expert opinion and not an attempt 
to develop any facts, because you have testified that you have been 
unable to find the facts bearing on this, I was merely asking you 
what considerations would suggest themselves to your mind as an 
expert in this matter, as indicating any advantage, if there is such 
an advantage, in the noncompetitive system over the competitive sys- 
tem of disposing of securities. 

Dr. Danielian. I mentioned one ; namely, the ability to make long- 
term contract with a given banking group, to take care of financing 
over a period of time. Now, if these bonds were offered competi- 
tively, they would have to be offered, for instance, at different periods 
instead of providing for the financing over 2 years. 

Another advantage that has been suggested by the bankers, of 
course, is the intimate knowledge which the bankers have of the 
company's needs and the greater security and, shall I say, depend- 
ability of a continued relationship with a banker, where the banker 
comes to the aid of the company at the time that the company needs 
financing — that has been offered as reason justifying that relation- 
ship. I have discussed this problem with bankers myself, and that 
is their position. On the other hand, of course, there are advantages 
offered for competitive buying: for instance, in the matter of reach- 
ing a price for the sale of bonds on a more rational basis than mere 
decision across the table, as to how much the bonds should be sold 
for, open-market conditions in determining the price at which the 
bonds can be sold to the public. 

Mr. Mnj.ER. Didn't the company here abandon the historical pol- 
icy of piecemeal financing in small amounts, which could be sub- 
mitted for competitive bids, and embark at this particular period 
on a long-term program which involved financial commitments going 
beyond the immediate issue and taking further issues into the pro- 
gram? In other words, this was a large amount of money and 
they changed the policy in order to assure themselves of this supply 
of funds, and they probably had a construction program that went 
hand in hand with it, involving forward expenditures for exten- 
sion's. Is that not what happened? 

Dr. Danielian, Do I understand your questions correctly : Did 
the company make provision for long-time financing; is that the 
question ? 

Mr. Miller. No; the question that I wanted to know is whether 
they abandoned the policy of piecemeal financing in which the com- 
pany could get competitive bids, to adopt a long-term financial pro- 
gram here involving several years, and in order to do that, didn't 
they change their form of financing and therefore abandon the 
competitive system that they had previously used ? 

Dr. Danielian. I stated that this particular financing provided 
financing over this 2-year period. That fact in itself I should think 
would answer the question. 



CONCENTRATION OP ECONOMIC POWER 11841 

Mr. Ballinger. Wouldn't it have been possible to have competi- 
tive bids on long-term financing? In other words, there may have 
been other groups that may have wanted to put in a bid to dis- 
tribute securities over a 2-year period. 

Dr. Daneelian. From the letters of the other bankers, it does 
look as if they were ready to bid for financing. 

Mr. Ballinger. But they weren't given a chance. 

Dr. Daniellan. In fact, there is evidence to indicate that Lee, 
Higginson & Co. wanted a two-thirds interest in the syndicate that 
was formed for the sale of this particular issue. They did not 
obtain it. They ' ^re kept out of this particular deal. 

Mr. Ballinger. But there is nothing inconsistent in competitive 
bidding on long-term financing. The idea that you can't have com- 
petitive bidding on long-term financing — I just wanted to ask your 
opinion about that. As I understand the question put to you, this 
contractual relation was entered into because the only way you can 
have competitive bidding on financing is when issuing piecemeal. It 
seems to me when you have a program you are going to put across 
in 2 years, you can open it up on the Street and say, "Let's have the 
highest bid that can handle this financing in 2 years." 

Dr. Danielian. That was a distinct possibility but it wasn't ap- 
plied in this particular case. 

Mr. Ballinger. No,; it wasn't; the market wasn't opened up. 

Mr. MnxER. But long-term financing doesn't mean necessarily 
that the bonds were long in maturity. By the reference you make 
here to long-term financing, it is really a long-term program of 
financing, where there were financial commitments involved beyond 
immediate commitment for issues to be sold immediately, but an 
obligation to take further issues which was a firm obligation ? 

Dr. Dantetjan. That is correct. 

I would like to make this statement, that even though this financ- 
ing was projected for a period of 2 years, the firm commitment on the 
part of the bankers was to buy the bonds. On the other hand, alter- 
native barxking groups were soliciting to see whether this particular 
issue under those same conditions could be sold to those othei"S upon 
more favorable terms or not. 

In other words, there are no alternatives in the situation whereby 
you can judge the wisdom of the particular transaction. 

Mr. Nehemkis. Dr. Danielian, perhaps the committee shoujd be 
informed that it is tentatively hoped, if the time and pleasure of the 
committee permit, at some later date, to explore this whole prob- 
lem in its technical ramifications in much detail, but in view of 
the fact that there are a considerable number of witnesses yet to be 
heard, if it is the pleasure of the committee, may we proceed with the 
further development of the examination. Is that your pleasure, 
gentlemen ? 

Dr. Danielian, who was the leader of the successful syndicate? 

Dr. Danielian. J. P. Morgan & Co. was associated with Kidder, 
Peabody & Co. ' and Kuhn, Loeb & Co. in the purchase of this 
large issue of the bonds. 

DIFFICUl/nES IN disposing OF THE 19 6 BOND ISSUE 

Mr. Nehemkis. Did not the syndicate experience certain difficulties 
in getting rid of the bonds? 



11842 CONCENTRATION OP ECONOMIC POWER 

Dr. Daneeman. These bonds were contracted for on February 8, 
1906, and 30 millions of them were taken in the course of 1906. None 
of these bonds were offered to the public in 1906. 

In January 1907 the bankers went back to the company and ob- 
tained certain concessions on the price of the bonds, concessions 
amounting to about 3 points on the face value of the bonds, and 
at the same time they agreed with the company to offer the bonds for 
public sale, which they did in February. They offered $40,000,000 
for sale in February, but they couldn't sell any more than about 10 
millions of this offer. From then on until the syndicate was dissolved 
in June 1908 none of the bonds were offered for sale. 

Mr, Henderson. In other words, the bankers carried those through 
that panic of 1907? 

Dr. Danielian. The bankers carried 90 millions of it which they 
had purchased in installments from 1906 to 1908 without selling it to 
the public. 

Mr. Henderson. And if it hadn't been a strong banking group they 
wouldn't have been able to carry those in the way they did, is 
that correct? 

Dr. Danielian. Perhaps I should make a distinction between — I 
ihink that is correct, but I want to make a distinction between the 
-•nanagers of the syndicate and the syndicate itself. 

A syndicate was formed on February 15, 1906. According to the 
syndicate contract, the subscribers, who were, of course, a large num- 
ber of bankers all over the country, assumed the obligation to pay 
for these bonds 10 days before the managers of the syndicate had to 
buy the bonds from the company, and on the other hand, the syndi- 
cate contract provided that the bankers, the managers, would have 
complete control over the bonds, that the subscribers could not sell 
the bonds until the dissolution of the syndicate. 

So that we have a situation here where the subscribers undertook 
all the liabilities incidental to the contract, and the managers, of 
course, undertook the obligations to manage and to distribute the 
bonds. 

On the other hand, I must also state that the bankers, besides 
being the managers of the syndicate, also themselves jDarticipated in 
the syndicate by taking certain amounts for their account. 

I think Morgan & Co. took $3,588,000; J. S. Morgan & Co. took 
$2,000,000; Kuhn, Loeb & Co., $4,915,000; and Kidder, Peabody & 
Co. $5,000,000 for its account and $25,000,000 for distribution in New 
England. 

Mr. Nehemkis. J. S. Morgan & Co. was the London banking house, 
was it not? 

Dr. Danielian. I think that is correct. 

Mr. Henderson. During this period, the managers had on their 
shelves quite a bit of the inventory of this bond issue ? 

Dr. Danielian. Yes; these amounts that I indicated are the extent 
of the financial liability of the managers, as participants in the 
syndicate. 

Mr. Miller. Was it a joint and several liability that these syndi- 
cate members had, where they were all liable for the whole? 

Dr. Danielian. No; they had limited liability. 



CONCENTRATION OF ECONOMIC POWER 11843 

Mr. Miller. In those days, it is my recollection of the historic 
form of syndicate, that was the type of syndicate that was made, 
where everybody was liable; there was no several liability. 

Dr. Danteltan. I don't think that is true of this syndicate. You 
have a copy of the syndicate contract that will be placed in the 
record. 

Mr. Nehemkis. Then, if I understand your testimony correctly, up 
until this time we had a system of the company's placing its 
bonds through competitive bids. Following the $150,000,000 issue 
under *he leadership of J. P. Morgan & Co., the company entered 
into a system of direct negotiations with a banking group. 

Is it your opinion, Dr. Danielian, based on these studies, that this 
situation has prevailed from that time? 

Dr. Danielian. That is true; since 1906 the bonds of the A. T. & 
T. have been sold to a single banking group managed by J. P. Mor- 
gan & Co. 

Mr. Nehemkis. Mr. Chairman, gentlemen of the committee, this 
will conclude our testimony on this phase of the subject. 

I should, while Dr. Danielian is still on the stand, like to offer 
in evidence 83 exhibits. 

Mr. Chairman, normally I should not ask you to print so volumi- 
nous a number of exhibits, but I believe these documents are unique, 
and that for future students of the subject of corporate finance they 
will prove to be an invaluable case book of early financial transac- 
tions. 

The Chairman. These are the documents to which reference was 
made earlier in the day? 

Mr. Nehemkis. Correct, sir. 

The Chairman. They have already been admitted. 

Mr. Nehemkis. Dr. Danielian, in behalf of my staff, I want to 
express our deep thanks to you for the time you have given in the 
preparation of this material. 

The Chairman. Do you have any choice as to whether they should 
be given different numbers? 

Mr. Nehemkis. I have just arranged them for the convenience of 
the reporter in the order to which reference has been made in the 
testimony. They are numbered in sequencej^, 1 through 83. 

(The documents referred to were marked "Exhibits Nos. 1659-1 to 
1659-83" and are included in the appendix on pp. 12115-12200.) 

The Chairman, Do any members of the committee desire to ask any 
additional questions of the witness ? 

So far as you know. Doctor, is there any controversy over any of 
the matters of fact to which you have referred this morning? 

Dr. Danielian. Of course, A. T. & T. has taken exception to the 
implications and conclusions that may have been derived. Perhaps, 
in order to be quite fair, I should depart from ordinary procedure 
of offering my own statement, the witness' statement, to the record, and 
offer instead the criticisms of A. T. & T. of the particular report of the 
F. C. C. from which some of these facts have been recited. In <^hat 
way perhaps A. T. & T.'s position in these matters may be a of 

the record, too. 



11844 CONCENTRATION OF ECONOMIC POWER 

The Chairman. It may be that the criticism of the F. C. C. report 
would cover matters which you hav^ not covered. 

Dr. Danieuan. It does cover a wider field. 

The Chairman. My question was merely as to whether or not there 
is any controversy over the facts which you have your^lf presented 
to the committee this morning, so far as you know. 

Dr. Danielian. I don't believe the facts are contested. 

Mr. Nehemkis. Mr. Chairman, I think, as coimsel to the committee, 
I should like to be heard on that point. I believe, to the best of my 
knowledge, that Dr. Danielian has confined his testimony to the ex- 
hibits, to the facts stated in the exhibits which have been offered and 
received, and, in my opinion, if I may venture to say, I do not think 
he has departed from strict facts as presented in the documentation, 
and I vouch for the statements. 

The Chairman. That really wasn't the question. I am merely 
asking for his knowledge. He knows whether there is any controversy 
over these facts, and he tells us there is not, so far as he knows. 

Mr. AviLDSEN. Does this pamphlet contain criticisms of your re- 
port, the particular part of the work you did ? 

Dr. Danielian. This particular document covers a report which I 
presented before the Federal Communications Commission on the 
control of A. T. & T., and it covers, of course, a wider field because 
that report covered the whole period from 1875 to 1935, during which 
the company's management went through different stages of develop- 
ment. This criticism is the company's response to that report, but I 
must state that the major part of that report concerns the control of 
the corporation, and consequently this particular document would not 
be directly related to the 

The Chairman (interposing). Is there anything in that which 
refers to the matters concerning which you have testified this 
morning? 

Dr. Danielian. No ; except the first part, I think one section, about 
a page and a half. 

The Chairman. Let the chairman suggest to you that you take 
that document and if there are any matters in it anywhere which 
refer to your testimony this morning, that you call it to the attention 
of the Chair so that it may. be entered in the record,^ merely express- 
ing the opinion of the A. T. & T., so far as that goes, with respect 
to your particular testimony here. We Just don't want to go afield. 

Mr. Ballinger. You suggested two reasons, Mr. Danielian, as to 
why this contract was given to the group headed by J. P. Morgan. 
Have you given any thought to the possibility that it might have been 
given because of the dominant position of the House of Morgan in 
investment banking, and their various means of control of reservoirs 
of funds and their ability perhaps to apply coercion, and so forth. 
I mean the whole history of the House of Morgan ? 

Dr. Danielian. I have looked at it strictly from the point of 
A. T. & T.'s relations with the bankers, and the negotiations- for 
these bonds, and I have not broadened myself into the general field 
of banking control of industry so far as this particular sale is con- 
cerned. I think a more intimate relationship did develop after the 

^ Dr. Danielian, under date of Januarj 10, 1940, submitted the t^(or^lation requested. 
It is included In the appendix on p. 12316. 



CONCENTRATION 0^ ECONOMIC POWER 11845 

sale of these bonds between a particuar banking house and this cor- 
poration, but I wouldn't care to comment as to the position of J. P. 
Morgan & Co. in the banking field in general. 

Mr. Nehemkis. Thank you very much, Dr. Danielian. 

Mr. Chairman, so that the record may be complete in all respects, 
I should like to offer a carbon copy of a letter from Commissioner 
Leon Henderson to the Honorable J. Lawrence Fly, Chainnan of the 
Federal Communications Commission, dated December 1, 1939. It 
was pursuant to this letter that the exhibits previously offered into 
the record were made available to the Investment Banking Section. 
The letter described is offered. 

(The letter referred to was marked "Exhibit No. 1660" and is 
included in the appendix on p. 12201.) 

Mr. Nehemkis. The next witness is Mr. George Whitney. Mr. 
Whitney, please. 

The Chairman. Do you solemly swear the testimony you are about 
to give in this proceeding shall be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Mr. Whitnet. I do. 

The Chacbman. You may be seated, Mr. Whitnej'. 

TESTIMONY OF GEORGE WHITNEY, J. P. MORGAN & CO., NEW 

YORK, N. Y. 

Mr. Nehemkis. Mr. Whitney, will you state your full name and 
address, please? 

Mr. Whitney. George Whitney, Westbury, Long Island. 

Mr. Nehemkis. What is your business or profession, Mr. Whitney ? 

Mr. Whitney. Banker. 

Mr. Nehemkis. And you are associated with the banking firm of 
J. P. Morgan & Co.? 

Mr. Whitney. Yes. 

Mr. Nehemkis. And how long have you been associated with that 
firm, Mr, Whitney? 

Mr. Whitney. Since 1915. 

Mr. Nehemkis. And when did you become a partner of the banking 
firm of J. P. Morgan & Co.? 

Mr. Whitney. December 31, 1919. 

Mr. Nehemkis. Were you not prior to becoming a partner of the 
firm of J. P. Morgan syndicate manager and in charge of syndica- 
tion? 

Mr. Whitney. No. 

Mr. Nehemkis. Were you ever associated with the bond depart- 
ment of J. P. Morgan & Co. ? 

Mr. Whitney. Yes. 

Mr. Nehemkis. In what capacity ? 

Mr. Whitney. Member of it. 

Mr. Nehemkis. What is the distinction between being a member of 
the bond department and being syndicate manager ? 

Mr. Whitney. Because there wasn't any such thing in our office. 
We had no allocated duties such as that. 

Mr. Nehemkis. Mr. Whitney, weren't you really responsible for 
organizing and setting up the first American underwriting syndicate ? 

Mr. Whitney. No. 



11846 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Wasn't the first real syndicate, as we know it, 
organized by you and your associates? 

Mr. Whitney. That is a different question. 

Mr. Nehemkis. You understood the second question? 

Mr. Whitney. Quite. 

Mr. Nehemkis. Will you answer it, please. 

Mr. Whitney. I would hate to claim quite as broad an inference 
as that, but 1 think substantially, yes. 

Mr. Nehemkis. Mr. Whitney, I show you a series of sheets con- 
taining syndicate records of financing by your firm. 1 ask you to 
examine them and tell me whether you did not cause to have these 
sheets prepared in response to a request from me ? 

Mr. Whitney. Your request isn't here, is it ? 

Mr. Nehemkis. Mr. Alexander, 1 suggest you examine the carbon 
copy of a memorandum, the original of which was presented to you. 

Mr. Whitney. I have no doubt that is correct. Yes, that is correct. 

Mr. Nehemkis. May 1 suggest, Mr. Chairman, that either Mr. Alex- 
ander's appearance should be noted, since he will be assisting Mr. 
Whitney, or if it is your pleasure, perhaps you would prefer that he 
be sworn, if Mr. Whitney will rely upon his teclinical assistance. 

The Chairman. If Mr. Alexander is to answer any questions and 
becomes a witness, then he should be sworn. Yes, he may be sworn. 

Do you solemly swear the testimony you are about to give, shall b«. 
the truth' the whole truth, and nothing but the truth, so help you 
God? 

Mr. Alexander. I do. 

TESTIMONY OF HENRY C. ALEXANDER, J. P. MORGAN & CO., 
NEW YORK, N. Y. 

Mr. Nehemkis. May I ask, Mr. Alexander, for you to state your 
full name ? 

Mr. Alexander. Henry C. Alexander. 

Mr. Nehemkis. And you are a partner of the firm of J. P. Morgan 
&Co.? 

Mr. Alexander. I am. 

Mr. Nehemkis. And how long have you been a partner of that firm ? 

Mr. Alexander. Since February 17, 1939. 

Mr. Nehemkis. Did I understand you to identify these documents as 
coming from your firm ? 

Mr. Whitney. Yes. 

Mr. Nehemkis. The documents identified by the witness are offered 
in evidence, Mr. Chairman. 

Was the firm of J. P. Morgan & Co. interested in Telephone financ- 
ing prior to the year 1906 ? 

Mr. Whitney. Not as far as I know. 

Mr. Nehemkis. It never had any participations in underwriting 
groups before the year 1906 ? 

Mr. Whitney. Again, not as far as I -know. I have never checked 
back. I don't think so. 

The Chairman. The memorandum just handed to the chairman by 
counsel, entitled "Memorandum for Henry C. Alexander, Esq., re- 
American Telephone & Telegraph Co. Financing," is admitted to 
the record for printing. 



CONCENTRATION OF ECONOMIC POWER 11847 

(The documents referred to were marked "Exhibits Nos. 1661-1 and 
1661-2," and are included in the appendix on pp. 12201 and 12202.) 

Mr. Nehemkis. So that prior to 1906, J. P. Morgan & Co. never 
had any leadership over Telephone financing, correct, sir, so far as 
your recollection goes? 

Mr. Whitney. It is not a question of recollection at all. My first 
answer, I should think, would cover the second. 

THE 19 06 FINANCING UNDER THE LEADERSHIP OF J. P. MORGAN & CO. 

Mr. Nehemkis. Now the first piece of A. T. & T. financing headed 
by J. P. Morgan & Co. was in 1906, with the issue of $150,000,000 of 
4 percent convertible bonds due March 1, 1936, is that correct, Mr. 
Whitney? 

Mr. Whitney. I shouldn't think so. And Mr. Henderson, if I 
may, I think there were two, inadvertently perhaps, implications. 
In the 1906 financing we didn't lead. As the records will show, that 
was a joint arrangement, jointly signed with the Telephone Cq.^ 
by Kidder, Peabody ; Baring Bros, in London ; ourselves, and Kuhn,"" 
Loeb, and J. S. Morgan in London. We didn't lead in that business. 

On the other point, just as a matter of comment, you said in 
your statement today that during this entire period the bankers 
.,iidn't consider any alternative method of financing. I assume, of 
course, you had reference to bond financing, because it is a well-known 
fact that during that period they sold vast amounts of common stock, 
genef^ly to their own stockholders and a certain amount of con- 
vertible bonds during that period, all to their own stockholders, 
without any underwriting, and I think it is a fact that they increased 
the capital stock during this period something like 10 times without 
any relation to the bankers. It seemed to me that that statement of 
yours implied that the only financing, or all the financing they did, 
was through bankers. 

Mr. Nehemkis. But your qualification, Mr. Wliitney, would only 
hold good with reference to those phases of financing other than direct 
negotiations with the banking group. 

Mr. Whitney. I think you will find if you check the records (^as a 
matter of fact I have here records that I think are substantially ac- 
curate) that substantially more than half the total additional financing 
done from 1906 down to the present day was done through stock of- 
fered to their own stockholders, always at par and without under- 
writing of any kind. 

Mr. Nehemkis. But other than that you have no objection to the 
statement:^ 

Mr. Whitney. I have no objection to the statement whatever, but 
I thought it would be simpler to get that cleared up. 

Mr. Nehemkis. Mr. "V^Hiitney, perhaps it will be more convenient 
for both of us if you follow these sheets, a carbon copy of which you 
probably have available, as we go through them. 

Will you indicate, Mr. Whitney, how this first group of original 
contractors came to be brought together — and by the wa^, the term 
"original contractors" is correct, is it not, as a designation for the 
group ? 

Mr. Whitney. I see that is w^hat it says here, yes. 



11848 CONCENTRATION OF ECONOMIC POWER 

Of course, Mr. Qiairmaii, I can't speak of my own personal knowl- 
edge and I am a little loath to testify on matters with which I have 
no knowledge, but I have, of course, investigated this matter and I 
can only tell you what my understanding is as to how this happened. 

My understanding is this, that prior to this period of time, the 
A. T. & T. and certain of its subsidiaries had financed themselves as 
they went along, more or less what you might call "hand-to-mouth 
financing." As you read back over the history of the business, while 
the growth \rp to that time had been great, the following period after 
1916 marked the tremendously accelerated growth, and it has always 
been my understanding that at the time this business came to us, 
J. P. Morgan & Co. — Mr. Fish, who was then president, became con- 
cerned as to how he was going to handle the financial part of it. 
There has been some testimony given here today, which as I under- 
stand it was restricted entirely to the financial side of it. I don't 
need to tell you of the work and the development of the Telephone 
business, which has contributed so much to all of us. 

My understanding is that Mr. Fish approached Kidder, Peab'ody. 
Mr. Winsor and he had a program, a big program, I don't know the 
details of it. The program was so large that he felt the necessity of 
getting himself set for it, and the times, if you remember — and some 
of us remember — weren't so good in 1906, and he felt he had better 
make arrangements to get himself financed over a period of time. 

As a result of that, Mr. Winsor approached Kuhn, Loeb & Co. and 
ourselves to see whether we would be j^repared to join with them, 
with him and Baring Bros., who were very closely associated with 
Kidder, in this very large transaction. Mr. Miller said, I think, 
that it was one of the largest. I haven't looked that up, but it was a 
very large piece of financing for then, or for now. 

The steel business, Mr. Henderson, I think was a little different, 
because most of the bonds there were sold or delivered to the former 
owners rather than offered publicly. 

Mr. Henderson. Were there any rail issues in this period equivalent 
to that? 

Mr. Whitnex. I can't speak fvith any degree of accuracy, but it is 
my impression that there hadn't been anything of this size except one. 
perhaps, the only one I can think of off the bat — the Burlington joint 
4's which was a result of a deposit of stock of Northern Pacific and 
Great Northern and was issued to such holders. It was not what you 
might call a public issue. Aside from that I don't of my own knowl- 
edge think of anything that was as large a financial transaction as 
this. 

That, Mr. Nehemkis, is my understanding of how this came about. 
The business was not originally brought to us, but it came through 
Mr. Fish who was a lawyer in Boston, not a Telephone man primarily, 
who went in to Mr. Winsor to get his advice as to how to finance, and 
it being the size it was, with the picture they had in their mind at 
that time of the possible growth of the Telephone Company, he had 
felt that he ought to enlist the aid of others than merely New England 
bankers. 

COMPETITION AND COMPETITIA'E BIDDING 

Mr. Whitney. I have listened this morning with great interest to 
the words "competition" and "competitive bidding." It seemed to me 



CONCENTRATION OF ECONOMIC POWER 11849 

tliat the previous witness established that there was a lot of competi- 
tion, and this is one of those times, I am afraid. Senator, when. you 
are going to find that I raise the question of terms quite a good deal. 
I have listened the last few days to a good deal of testimony and par- 
ticularly to presentation, and I think terms have shifted in the last 30 
years quite a good deal. Competitive bidding, as we understand it 
today, means public tender, which today is done in the case of munici- 
pals and certain railroad equipments. Competition is quite a differ- 
ent thing. There has never been, except for municipals, any re- 
quirement of what today is known as competitive bidding. I think 
from what I know of the history that there has been a lot of competi- 
tion in the Telephone business, but competition doesn't necessarily 
mean that the company should just offer its bonds for public tender as 
we mean it today. It means that certain bankers would like the chance 
to do the dealing with the company rather than the people that the 
company elected, to deal with. 

The Chairman. In other words, you understand this to be competi- 
tion among certain groups to be exclusive agents? 

Mr. Whitney. That is it; or not to be the exclusive agent, but to 
be the person chosen by the company, and again I try to shift the 
emphasis, because it seems to me that extraordinarily little has been 
said up to date in the, presentation about where the issuer comes into 
this. My recollection and all the history that has been brought down 
through the years is to the effect that the company sought Mr. Winsor, 
and Mr. Winsor, faced with an undertaking which he believed was 
beyond his firm alone, or New England, to handle, approached 
Kuhn, Loeb and ourselves as other people who were supposedly 
skilled in this business. It happens, if I may identify myself — it 
doesn't amount to anything — ^that I was a clerk in Kidder, Peabody 
in 1907 and 1908, and one of the earliest recollections I have in my 
business life is of this transaction, so my historical recollection stems 
not only from what I knew then in office gossip — I was a very lowly 
clerk — ^but also from what I have learned since I moved and went 
into the employ of J. P. Morgan & Co. 

Mr. Nehemkis. Mr. Whitney, did all of the firms in the group of 
that February 13, 1906, issue enter into discussion with the company 
equally, or were the discussions restricted to one or more of the 
participants? Do you recall? 

Mr. Whitney. Of course, I don't recall, but as I 

Mr. Nehemkis (interposing). Excuse me. How are you going to 
establish an answer to the question if you don't recall ? 

Mr. Whitney. I was just about to try to give you my best infor- 
mation. My historical studies, if you wish, lead me to believe that 
the direct negotiations were conducted with the company by Kidder, 
Peabody ; Kuhn, Loeb ; Baring Bros. ; and J. P. Morgan & Co. 

Mr. Nehemkis. Mr. Whitehead, will you step forward for a mo- 
ment, please? 

I snow you a memorandum which purports to come from the files 
of Kuhn, Loeb & Co. Will you examine this, Mr. Whitehead, and 
tell me whether this was a memorandum you obtained from those 
files? 

The Chairman. Has Mr. Whitehead been sworn ? 

Mr. Nehemkis. Yes ; he has. 

Mr. Whitehead. That is correct, 

124491— 40— pt. 23 — —4 



11850 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. This is a copy of a telegram sent to Kidder, Pea- 
body & Co., for Mr. Winsor, dated February 8, 1906, signed by 
Jacob Schiff. I offer it in evidence. 

The Chairman. The telegram may be admitted. 

(The telegram referred to was marked "Exhibit No. 1662" and is 
included in the appendix on p. 12206.) 

Mr. Nehemkis (reading from "Exhibit No. 1662") : 

It was not proper to ask us to sign an agreement involving such large 
responsibility without giving us an opportunity to carefully consider its contents. 
I signed it in the expectation that it had received your own and the Messrs. 
Morgans careful scrutiny. I now find that the following rectifications need be 
made before the agreement is delivered by you^ — 

And then follow suggestions and changes in the agreement. 

The Chairman. On whose behalf was Mr. Schiff acting at the 
time? 

Mr. Nehemkis. If I recall correctly — this is before my time 

The Chairman. Then you don't recall either. 

Mr. Whitney. I can identify Mr. Schiff. He was senior partner 
of Kuhn, Loeb. 

The Chairman. At the time of this telegram ? 

Mr. Whitney. Yes, sir. \^ 

Mr. Nehemkis. Each of these original cont^iactors, Mr. Whitney, 
had a several liability of a quarter and a liai'bility for a total not 
exceeding one-third of the aggregate obligation. 

Mr. Whitney. That is what I have understood from this paj^er. 

Mr. Nehemkis. You have referred just now to "this paper" and I 
believe earlier you referred to "this paper." So that the record may 
be clear, would you state now what paper you are referring to ? 

Mr. Whitney. It is one of the papers just introduced as evidence 
which is headed "February 13, 1906, American Telephone and Tele- 
graph Co. Convertible 4 percent due 3/1/36" ("Exhibit No. 1661-2") ; 
and down in the one, two, three 

Mr. Nehemkis. That is all, just so the record shows what you are 
referring to, and that was the exhibit prepared by you in response 
to our request? 

Mr. Whitney. Yes. 

PERCENTAGE INTERESTS OF ORIGINAL CONTRACTORS IN 1906 AND SUBSE- 
QUENT SYNDICATES 

Mr. Nehemkis. In addition to the original contractors, Mr. Wliit- 
ney, J. S. Morgan & Co., and the First National Baiflc of New York 
were ceded interests in the syndicate? 

Mr. Whitney. Yes. 

Mr. Nehemkis. Upon final settlement the interests in the syndi- 
cate were — will you follow me on your sheet (referring to "Exhibit 
No. 1661-2")— Kidder, Peabody & Co., 25 percent. 

Mr. Whitney. Yes. 

Mr. Nehemkis. J. P. Morgan & Co., 18% percent. 

Mr, Whitney. Yes. 

Mr. Nehemkis. Baring Brothers & Co., Ltd., 221^ percent. 

Mr. Wihtney. Yes. 

Mr. Nehemkis. Kuhn, I^oeb & Co., 22i/^ percent 

Mr. Whitney. Yes. 



coxcentuation of economic power 11851 

Mr. Nehemkis. J. S. Morgan & Co., 5 percent. 

Mr. Whttnet. Yes. 

Mr. Nehemkis. First National Bank, 61/^ percent. 

Mr. Whitney. Yes. 

Mr. Nehemkis. The Telephone Company bought from the company 
an issue of $25,000,000 of 3-year 5-percent notes— — 

Mr. Whitney. Well, you missed one. The second is Pacific Tel. 
handled by the Bank of California. 

Mr. Nehemkis. And then after that we had the $25,000,000 issue. 

Mr. Whitney. The record will be clear that the second issue was 
not handled by that group. 

Mr. Nehemkis. Did not the Telephone group purchase from the 
company an issue of $25,000,000 of 3-year 5-perce'nt notes? 

Mr, Whitney. Yes ; so the record shows. 

Mr. Nehemkis. And the participants in the syndicate were Kid- 
der, Peabody & Co., Baring Brothers & Co., Ltd., with a 47i/2 percent 
interest. 

Mr. Whitney. Yes. 

Mr. Nehemkis. And Kuhn, Loeb & Co. with a 22i/^ percent interest. 

Mr. Whitney. Right. 

Mr. Nehe]vikis. J. S. Morgan & Co., 5-percent interest. 

Mr. Whitney. Right. 

Mr. Nehemkis. J. P. Morgan & Co., 25-percent interest. 

Mr. Whitney. Right. 

Mr. Nehemkis. Were not Kidder, Peabody, and Baring Bros, con- 
sidered more or less by the other members of the group as a unit in 
this transaction? 

Mr. Whitney. Oh, I don't think so at all. Baring Bros, was 
one of the leading private banking firms in London and they were 
lumped this way; Kidder, Peabody signed for themselves and for 
Messrs. Baring Bros, & Co., Limited, for whom they had power of 
attorney in this country. There was no possible thought that it was 
the sajne. 

Mr. Nehemkis. Now the First National Bank did not participate 
in this issue, did it? 

Mr. Whitney, No. 

Mr. Nehemkis. Were there any other bond issu6s of A. T. & T., 
that is to say the parent company, from 1907 through 1913? 

Mr'. Whitney. Wliy this record shows, Mr. Nehemkis, that in 
January 25, 1911, the American Tel. & Tel. Co, sold some 5i/^-per- 
cent notes to the extent of $8,000,000. 

Mr. Nehemkis. I asked, if I recall my question, correctly, any 
bonds, 

Mr. Whitney. Excuse me, I missed it. No. 

Mr, Nehemkis, Your answer is "No," then, to the question ? 

Mr, Whitney. There were no long-term debts. 

Mr. Nehemkis. Continuing on those sheets to which we have been 
referring, Mr. Whitney, on January 8, 1913, did the Telephone group 
underwrite an issue of $67,000,000 of convertible bonds wMch were 
offered for subscription to the stockholders? 

Mr. Whttney. What date is that? 

Mr. Nehemkis. January 8, 1913. 

Mr. Whitney, Yes. 



11852 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. As I understand, $1,556,000 that were not sub- 
scribed f of by the stockholders were taken by the group ? 

Mr. Whitney. That is what the record shows. 

Mr. Nehemkis. And the participants of the group in that under- 
writing were Kidder, Peabody & Co., Baring Bros. & Co., Limited, 
of London with a 35-percent interest, Kuhn, Loeb with 15-percent 
interest, Morgan Grenfell & Co. with 5-percent interest — by the way, 
does Morgan Grenfell at this time become the new organization 
formerly known as J. S. Morgan? 

Mr. Whiti^y. No. There was a predecessor firm, originally Pe^,- 
bodj <& Co., and back in 1850 or thereabouts it became J. S. Morgan, 
and about 19-rJ don't know, about 1908 it became iior^an Gj'enfell. 

Mr. Nehemkis. Morgan Grenf ell's interest was 5 percent. Here 
the First National Bank of New York has an interest of 10 percent, 
the National City Co. has an interest of 10 percent, J. P. Morgan 
& Co. has an interest of 25 percent. 

Mr. Whitney, I show you a photostat copy of a letter signed by 
J. P. Morgan & Co. addressed to the First National Bank of New 
York, dated January 8, 1913. Will you look at this and tell me, 
if you can, whether this is a true and correct copy of an original in 
your files ? 

Mr. Whitney. Yes, sir. 

Mr. Nehemkis. The letter identified by the witness is offered. 

(The letter referred to was marked "Exhibit No. 1663" and is 
included in the appendix on p. 12207.) 

(Mr. Henderson assumed the Chair.) 

appearance in group of first national bank and national city 

company, 191.3 

Mr. Nehemkis. It would seem that in comparison with the par- 
ticipants of the first two issues, First National Bank and National 
City Co. appear for the first time as constituent members of the 
group with interests of 10 percent each ? 

Mr. Whitney. The first part of that question was fine, except that 
it isn't the first time that the First National appeared. It is the 
first time the National City did. You said something about "as con- 
stituent members." What does that mean? 

Mr. Nehemkis. Let's take one of your problems up at a time. 
WTien was the first time that the First National Bank appeared ? 

Mr. Whitney. In 1906, $100,000,000 convertible issue. 

Mr. Nehemkis. The first time that First National Bank appeared 
did it not obtain its 6i/4-percent interest from the J. P. Morgan & 
Co. interest? 

Mr. Whitney. I don't know, I should think not. 

Mr. Nehemkis. In other words, the statement reads here [reading 
from "Exhibit No. 1661-2"] : 

By agreement between J. P. Morgan & Co. and the First National Bank 
dated March 6, 1907, the First National Bank accepted a participation. 

I assume from that they must have gotten it from J. P. Morgan & 
Co.? 

Mr. Whitney. That, I think, is a fair assumption, but it doesn't 
say so. 



CONCENTRATION OF ECONOMIC POWER 11853 

Mr. Nehemkis. Do you have any doubts on that? 

Mr. Whitney. No. 

Mr. Nehemkis. My question, Mr. Whitney, was, in the issue that we 
are now discussing, whether or not the First National appeared in 
this last group as a member of the group for the first time on its own 
feet, so to speak. Did it get its participation in that group from 
J. P. Morgan or from the company or by some other method? 

Mr. Whitney. Well, I should think that it would be a fair as- 
sumption that when it came to this underwriting of $67,000,000 con- 
vertibles, 1913, the people who had been interested in this financing 
up to that time made a realignment of percentages and that the task 
that was confronting them of assisting the Telephone Company in 
its financial problem was growing all the time, and I should think 
it is a fair assumption to say that they sat down and decided they 
needed to widen the group. 

Mr. Nehemkis. So that you are now correcting your earlier answer ? 

Mr. Whitney. No ; I am not correcting that answer at this time. 

Mr. Nehemkis. It, was about this time that the security affiliate of 
the First National Bank of New York and the National City Bank 
was organized, wasn't it? 

Mr. Whitney. I don't know. 

Mr. Nehemkis. The total participation here of 20 percent was made 
up 121/2-percent participation out of the New England group and 71/2 
percent from Kuhn, Loeb? 

Mr. Whitney. I don't :^ollow your mathematics at all. 

Mr. Nehemkis. I was just comparing this group that we have been 
discussing with the previous group, and I was wondering how the 
1214-percent participation for the New England group was made up? 

Mr. Whitney. Mr. Nehemkis, in my answer a minute ago I said I 
thought the assumption was that the firms that were interested in this 
business previously decided that there would be a realinement, and 
I don't believe that there is any subtraction or addition involved in it; 
they decided that they were going to broaden the group and include 
the First and National City Co., and these figures resulted from that 
decision. I don't question your mathematics. 

Mr. Nehemkis. I think we can move on. At this time was there 
not already in existence the agreement between J. P. Morgan & Co., 
National City Bank, and the First National Bank of New York 
whereby each had an option on a one-quarter interest in any business 
originated by the other? 

Mr. Whitney. There was no such agreement at any time. There 
was an understanding (and had been for some years prior to that) 
as to these securities transactions, in order to diversify the risk, 
which is the essence of the banking business, that any one of the three 
should offer the other a participation which that other had a 
complete right to refuse or accept at its own option. I only make 
that explanation because there was never any option involved, and it 
wasn't an agreement ; it was an understanding. Many times it was not 
accepted. It was in no sense an option. 

Mr. Nehemkis.'' Was the understanding reached about 1907? 

Mr. Whitney. I think — again I am speaking more or less from what 
I have heard, of course; I have no knowledge — ^that it started in 1907 
or 1908. I should think it was 1908, after the panic. 



11854 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Probably grew out of the panic? 

Mr. Whitney. Yes. 

Mr. Nehemkis. Now, how did it happen that the percentages in this 
business which we have been discussing did not conform to the under- 
standing concerning which you have just testified? 

Mr. Whitney. Well, because they were original members of this 
group. 

Mr. Nehemkis. In other words, the understanding was not an over- 
all understanding? 

Mr. Whitney. Oh, certainly not. 

Mr. Nehemkis. Now, I note that all of the First National and Na- 
tional City interests come out of the Kuhn, Loeb-Kidder, Peabody- 
Baring Bros.' interest. Is there any particular reason for that, Mr. 
Whitney? 

Mr. Whitney. I have not the remotest idea. I was not present. 

Mr. Nehemkis. You caji't attach any significance and you have 
never heard any gossip about thof ? 

Mr. Whitney. Never a word, never saw these things, until you 
asked me. 

further issues purchased by the group, 1913-16 

Mr. Nehemkis. Now, on October 7, 1913, did not the Telephone 
group underwrite the distribution of $10,000,000, 5i/^ percent, 6-month 
discount notes of companies associated with the A. T. & T. system? 

Mr. Whitney. Yes ; so the record shows. 

Mr. Nehemkis. And on March 31, 1914, did not the group under- 
write $30,000,000, of 5 percent, 2-year notes of associated companies? 

Mr. Whitney. Yes, sir. 

Mr. Nehemkis. Now, if you will just hold those two pages together, 
the percentage 

Mr. Whitney (interposing). The reason I hesitated is t|iat there 
was an intermediate transaction done at practically the same time, 
which I was looking at, with the Southern Bell. 

Mr. Nehemkis. Now, you keep those two groups in mind and follow 
me on these percentage distributions. On the March 31, 1914, issue, 
Kidder, Peabody, and Baring Bros, had a 35-percent interest, and in 
the October 7, 1913, offering they had a 35-percent interest. Kuhn, 
Loeb & Co. had a 15-percent offering in the first and a 15-percent offer- 
ing in the second. Morgan GrenfeTl & Co. had a 5-percent participa- 
tion in the first offering and 5 percent in the second. Lee, Higginson 
was not included in the first and had a 3% interest in the October 7, 
19i3, participation. The First National Bank of New York had II14- 
percent interest in the March 31, 1914, offering, and 10^^^ percent in the 
October 7, 1913, offering. National City had lli^ in the March 31 
offering, and lO/if in the October 7. J. P. Morgan had 221/4 percent 
in the 1914 offering and 20% percent in the October 7, 1913, offering. 
Is that correct? 

Mr. Whitney. Those figures are correct; yes. 

Mr. Nehemkis. Now, in the issue of October 7, 1913, it appears that 
Lee, Higginson 's name is shown for the first time. Is that con-ect? 

Mr. Whitney. You mean in these lists. That is the fact. 

Mf. Nehemkis. Its interest of 3%, however, was made up appar- 
ently from the Morgan interest: that is, the First National, Na- 



CONCENTRATION OF ECONOMIC POWER 11855 

tional City Co., and J. P. Morgan & Co. interest. Can you explain 
that? 

Mr. Whitney. I suppose that it was considered in the interest of 
the business to have Lee, Higginson included. And I should further 
assume that the others didirt feel that way, so it came out of our 
interest. 

Mr. Nehemkis. So that in this particular gitualion, it would seem 
that the interests of First National, "National City Co., and J. P. Mor- 
gan & Co. were in conformity to the understanding between these 
three banks as to the division of business, the understanding that we 
have referred to? 

Mr. Whitney. You remember you corrected me a little while ago 
when I talked about bonds instead of notes. 

Mr. Nehemkis. Yes. 

Mr. Whitney. And if I may refer you to your own comment, you 
are talking about short-time bank paper in those instances, which 
did not involve any substantial commitment and undoubtedly was 
taken for their own investment. 

Mr. Nehemkis. But, Mr. Whitney, my question 

Mr. Whitney. You said 

Mr. Nehemkis. Let me state my question. My question to you, sir, 
was. Was not this distribution of percentage interests in conformity 
with the understanding — I didn't say anything about notes as dis- 
tinguished from bonds. 

Mr. Whitney. No; I did. The answer to your question is that 
they have a quarter interest, or half of what we had, if you can look 
at it collectively. I don't think it is important, but I think it has 
been stated that they were original participants. But these were trans- 
actions in bank paper, as I said, and the fact is true that they had each 
a half of what we had. 

Mr. Nehemkis. Now, on January 25, 1911, again on January 10, 
1913, did not the firm of J. P. Morgan & Co. place short-term notes 
for the A. T. & T. and associated companies with a group of banks? 

Mr. Whitney. January 11 — will you excuse me? 

Mr. Nehemkis. I think I said January 25, 1911, and January 10, 
1913. 

Mr; Whitney. Yes. 

Mr. Nehemkis. Now, the participants in the first of those place- 
ments, the $8,000,000 of 6-month notes, were Guaranty Trust Co., 
with a 25-percent interest; Bankers Trust Co., with a 12^-percent 
interest; First National Bank of New York, 1214-percent interest; 
National Bank of Commerce, with a 12i/2-percent interest; National 
City Bank, 121/2; Mercantile Trust Co., with I21/2; Astor Trust Co., 
33^ interest ; United States Mortgage & Trust Co", 31/3 ; Liberty Na- 
tional Bank, 3l^; Chemical National, 2^^; is that correct? 

Mr. Whitney. The paper shows ; yes. 

Mr. Nehemkis. Now, the participants in the $7,500,000 of 3-month 
notes taken on January 10, 1913, were: National Bank of Commerce, 
26% percent; Guaranty Trust Co., 26% percent; Bankers Trust Co., 
20 percent ; First National Bank of New York, 16% percent ; Liberty 
National Bank, 3V^ percent; J. P. Morgan & Co., 6% percent? 

Mr. Whitney. That is correct. 



11856 CONCENTRATIOJN OF KOONOMIC POWER 

Mr. Nehemkis. Now, on January 5, 1916, did not the group pur- 
chase from the American Telephone & Telegraph Co. an issue of 
$50,000,000 2-year, 4y2-percent notes, dated February 1, 1916? 

Mr. Whitney. Yes,, sir. 

Mr. Nehemkis. And were not the participants of this group 
Kidder, Peabody, Baring Bros. & Co. of London, sharing between 
them a 3314-percent interest: Kuhn, Loeb & Co, with a 14i/t-percent 
interest; Lee, Higginson & Co., 5-percent interest; Morgan Grenfell 
& Co. with a 4%-percent interest ; First National Bank of New York, 
10^^ -percent interest; National City Co., 10^-^ percent interest; and 
J. P. Morgan & Co. with 21%-percent interest ? 

Mr. Whitney. Yes, sir. 

Mr. Nehemkis. I note with this issue Lee, Higginson & Co. appar- 
ently has become a member of the group. Would that assumption 
follow ? 

Mr. Whitney. They are here listed. They certainly had a 5-per- 
cent interest. 

Mr. Nehemkis. Now, to make up the Lee, Higginson interest of 
5 percent, is it not correct that each member of the group gave up 5 
percent of his participation? 

Mr. Whitney. Five percent of what participation? 

Mr. Nehemkis. Of each individual member's participation. 

Mr. Whitney. Well I don't doubt it, of course. Our records don't 
say anything about it. 

Mr, Nehemkis. Your records don't disclose anything? 

Mr. Whitney: I don't know what percentage you are talking 
about. 

Mr. Nehemkis. I am now asking you whether, in order to make 
up the Lee, Higginson interest of 5 percent, did not each member of 
the group give up a certain amount of his percentage in the previous 
group in order to get this 5-percent interest ? In other words, maybe 
this will help you: The participation of the New England group — 
that is to say, Kidder, Peabody, and Baring Bros. — was reduced 
from 35 percent in the previous issue to 3314 percent in this issue. 
The participation of Kuhn, Loeb was reduced from 15 percent in the 
previous issue to I414 percent in this issue. The participation of 
Morgan Grenfell was reduced from 5 percent to 4% percent. The 
participation of the Morgan group was reduced from 45 percent to 
423^ percent. Do you follow my thought, Mr. Whitney ? 

Mr. Whitney. You clarified my thinking when you said it was a 
percentage of another piece of business. Obviously, if somebody has 
introduced the 5 percent, the total being 100, it would have to come 
out of somebody. 

Mr. Nehemkis. Now, Mr. Whitehead, will you step forward for a 
moment, please? I show you a letter from J. P. Morgan & Co. to 
Messrs. Kuhn, Loeb & Co., dated January 6, 1916, marked "confi- 
dential." Will you examine this -photostat and tell me if you ob- 
tained an original thereof from the files of Kuhn, Loeb & Co. ? 

Mr. Whitehead. That is correct. 

Mr. Nehemkis. The letter identified by the witness is offered. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1664" and is in- 
cluded in the appendix on p. 12207.) 



CONCENTRATION OF ECONOMIC POWER 11857 

Mr. Nehemkis. On December 1, 1916, did not the group purchase 
from the A. T. & T. Co. an issue of $80,000,000 of 30-year, 5-percent 
collateral trust bonds, dated December 1, 1916? 

Mr. Whitney. That is correct. Yes, sir. 

Mr. Nehemkis. And if you will follow me on your sheet; were 
not the participants and their respective percentage interests in the 
group, as follows : ^ 

Kidder, Peabody & Co., Baring Bros. & Co.. Ltd., of London, 311/2 ; 
Kuhn, Loeb & Co.", 13V2 ; Morgan Grenfell & Co., 41/2 ; First National 
Bank of New York, lOy^ ; National City company, lOi/g ; J. P. Morgan, 
2014 ; Lee, Higginson, 5 ; Harris, Forbes, 5 ? 

Mr. WHmsTET. That is correct. 

Mr. Neitemkts. Now, with this issue, I note, Mr. Whitney, that 
Harris, Forbes & Co., and Lee, Higginson apparently became per- 
manent members of the group. 

Mr. WHrrNET. What ? Oh, yes ; at the direction and suggestion of 
Mr. Vail. 

Mr. Nehemkis. I was coming to that in a moment. Now, I show 
you, Mr. Wliitney, a letter from your firm to Messrs. Kidder, Peabody 
& Co., dated NoVember 27, 1916. Will you tell me if this is a true 
and correct copy of an original in your custody and possession? 

Mr. Whttnet. Yes, sir. 

Mr. Neht:mkis. It is offered in evidence. 

The Chairman. The letter may be received. 

(The letter referred to was marked "Exhibit No. 1665" and is 
included in the appendix on p. 12208.) 

Mr. Nehemkis. Now, from the letter which you have just identified, 
Mr. Wliitney, it appears that the inclusion of Messrs. Lee, Higgin- 
son & Co., and Messrs. Harris, , Forbes & Co., in the purchase on 
original terms was at the request of Mr. Vail, the president of the 
company ? 

Mr. Whttnet. The letter savs so. 

Mr. Nehemkis. Now, Lee, Higginson had not, however, been a 
member of the previous group ? 

Mr. Whitney. They had been, as I have already testified, a mem- 
ber of certain groups. 

Mr. Nehemkis. Yes. Now, the members of the group other than 
Lee, Higginson & Co., gave up proportionately 5 percent each from 
their orijrinal participation to make the Harris, Forbes interest? 

Mr. Whitney. I will accept that, I suppose, I have not figured 
it out. 

Mr. Nehemkis. Now, had not Lee, Higginson and Harris, Forbes 
been leaders in financing some of the subsidiaries prior to this time? 

Mr. Whitney. They had been. I don't know about leaders, but 
I am snre they had been — Mr. Chairman 

Mr. Nehemkis. Just a minute, Mr. Whitney. I want to get your 
statement. Was it? Do you know? 

Mr. Whitney. I think so; yes. 

Mr. Nehemkis. Well, all right. Did you want to make a btate- 
ment, Mr. Whitney? 

1 See "Exhibit No. 1661-2," appendix, p. 12202. 



11858 CONCENTRATION OF ECONOMIC POWER 

INVESTMENT BANKING AS A PROFESSION ' 

Mr. Whitney. I merely want to comment there, Mr. Chairman, 
if I may. I think that there is just one comment that I would like 
to make in order that the committee may follow the trend, per- 
haps, of this testimony a little bit better. It seems to me interesting 
that during these last 3 days that I have been listening here with 
great interest, there never has been any attempt made by anybody 
to tell what the banking business, the investment banking business, 
has been. 

Of course, as you know, I have been out of it for 5i/^ years. I was 
in it . for 25. And it seems to me that all these "groups" can be 
tremendously simplified in your, the committee's thinking, if it is 
accepted, as I firmly believe it to be a fact, that the investment 
banking business is a profession. It isn't a fly-by-night thing. It 
requires great technical knowledge, great responsibility, financial 
strength, and all the other qualities that any other profession does. 
At the inception of a piece of business, the basis of it is that cer- 
tain people, individuals who are charged with the responsibility 
of running large corporations, who are not in their line of business 
keeping up in detail with current financial events, seek some group 
of people whom they know to be expert in those things, from whom 
they ask the advice as to how they should conduct their operations. 
My lawyer friends sometimes dislike the analogy, but I always be- 
lieve that it is very analogous to the relation the client has with 
his lawyer. 

Mr. Nehemkis. You say your lawyers don't like that analogy? 
[Laughter.] 

Mr. Whitney. Not much. I think it is true, and I was in the 
business for a long time, and I have watched the business as it is 
today, and I think that it is essential, in the study that is going 
on, to keep in mind the fact that it is a serious, highly technical, 
highly specialized responsibility. It employs a large number of 
people; it requires ^eat experience and absolute integrity if it is 
going to go on and it is as competitive as the dickens. If a fellow 
makes a mistake, if a house makes a mistake, he may make one, and 
so may a lawyer, but if he makes a succession of them, his bonds are 
not going to sell well and his position changes. It has happened 
in my experience, and I could name half a dozen instances. Invest- 
ment banKing is divided, roughly, into three parts, and every one 
of them is important. 

The first part is a knowledge, an intimate knowledge, of the af- 
fairs, and aims, and programs of the different borrowing corpora- 
tions. That requires highly technical skill, or a certain acquaint- 
ance, anyway, with the program that people like Mr. Fish, in this 
instance, and then Mr. Vail, had in mind. 

It requires enough knowledge to decide what kind of security 
is not only to the best interest of the corporation, but to the best 
interest of the public to whom those securities will be distributed. 

The second thing is the technical knowledge of the Street and of 
the kind of security that is apt to be saleable, because if you don't 
sell the right kind, the business is going to be a failure, and that 
hurts the credit of the borrower. The final and last thing is the 
factor in the business that we have heard a good deal about in the 



CONX'ENTRATIUN OF ECONOMIC POWER 11859 

last few days, the sheerly mechanical part of distribution. There 
are various things in that, as you have heard — underwriting strength, 
financial strength, distribution ability, and the question of where you 
can get that distribution, and the best way you can get it. 

Now, obviously, the first thing you have to think about is who is 
going to give the best service, and this story here, in which we have 
gone a little way, is typical of an ordinary financial program that 
thousands of corporations have done. The Telephone Co. today is 
a wonderful company, and its bonds command the highest rating. 
It is very easy to forget that it was a terrible headache at one time. 
Only as lately as 1919 there was an issue of bonds that was a com- 
plete flop, and the improvement that has happened in the last 20 
years, roughly speaking, has been owing largely to Mr. Gilford, a 
name not yet mentioned. 

Now, these two men, these two firms that came in here now, were 
at that time, as I can say of my own knowledge, the two leading 
bond distributors in the country. The bond business has completely 
changed since the war. Mr. Nehemkis paid us the compliment of 
suggesting that we created the first modern syndicate. Prior to that 
time the practice had been to follow the general theory of English 
financing, where you had a list of underwriters and a few brokers 
or many brokers, who found customers for a relatively small com- 
mission. 

In other words, the two activities of underwriting and selling were 
completely divided. That was true until the time of the war. In 
1915, September of 1915, when the first big foreign loan came, the 
head of our bond department devised the scheme of a modem syn- 
dicate. At that time there were only these two outstanding dis- 
tributors of bonds, as contrasted from underwriters. 

Mr. Henderson. WTiich two? 

Mr. Whitney. Lee, Higginson and Harris. 

Mr. Henderson. Did I understand you to say that the arrange- 
ment for financing the A. T. & T. is typical of thousands of cases? 

Mr. Whitney. I think so. I think it is typical of a case where 
the company has a job to do. They go to the people fi*om time to 
time that they trust, and as long as those people have a continuing 
relationship with them and do good work, it is all right. But if 
their advice and their technical performance is not ail right, it will 
be changed. 

Mr. Henderson. In the latter part of j^our statement, then, I think 
you are agreeing with what Mr. Mitchell said yesterday. He said 
about the same thing, didn't he? 

Mr. Whitney. Did he? I have not read the testimony. 

The Chairman. Well, may I say, Mr. Whitney, that there seems 
to be a disposition upon the part of many persons who are called 
before this committee to assume that the mere fact that they have 
been called implies a desire or an intent or a suspicion upon the part 
of the committee, or somebody associated with the committee, to 
develop some sentiment of criticism, ethical criticism, perhaps, of the 
activities of those who are called. 

Now, that is the furthest thing from the thought of anybody in 
this committee. I am frank to say I have never yet foimd any mem- 
ber of the committee express to me, or any person associated with 



11860 CONCENTRATION OF ECONOMIC POWER 

the committee, a desire to hold any person or any institution, as 
such, up to public obloquy. That is out. We are merely studying 
the facts as they are. 

And may I say to you what has transpired here in the last few 
days illustrates that principle which I have been preaching for many 
years. Here we have the gradual development of the financing of 
large industrial institutions. In the beginning, this financing was 
local. By and by, it becomes specialized. As an institution like the 
telephone business suddenly branches out into a vastly greater aspect 
than it ever had before, it turns iTom specialized financing in New 
England to national financing, and your group comes into the picture 
with that arrangement which has been described here by the previous 
witnesg and by yourself. 

Now, the mere fact that we are discussing this does not necessarily 
imply any criticism of it, but it does show that big business, indus- 
trial business, has brought about a concentration of financing, and 
that in turn has led to the building up of government. And the three 
things seem to be pretty well tied together as part of the growth of 
this cCuntry, and we are merely trying to analyze them. I do hope 
thafe"s6>, far as your concern or associates and anybody else who may 
be called in the future, you will get out of your head, if you have it 
there, that we are really trying to make any personal capital out of 
this. 

Mr. Whitney. Well, Senator, that was the very last thought in 
my mind. As I have said, I have been out of this business 5i/^ years. 
The only reason why I said what I did, was not that I thought there 
was any criticism or insinuation of anything that was not completely 
all right, but it seemed to me that if I were to be asked to explain 
this development of the Telephone financing, that it was impossible 
to do so unless I could establish what we were trying to do and why 
the steps were taken. 

It is not my job — and I don't think he needs any defense — to defend 
the investment banker, and I am not going to do that. The cormner- 
cial bankers have enough to do for themselves. But I think that we 
must understand the function that I consider the people like this 
group, if you want, served, and we must remember that the initiative 
of it always came from the issuing company. It is not my business 
to comment on what went before, but if that is correct, you have 
these relations and you require intimate knowledge, you require con- 
tinuing acquaintance with affairs, if you are going to do a good 
job for the company and the investor. They are both in it, and they 
are in it importantly. Their interests are not antagonistic, but they 
are there, and there is nothing further, I can promise you, from my 
thoughts than that you were critical of these people, or anything else. 
And I certainly am not going to defend theqj. But t got the feeling 
after 3 days of testimony that the impression was being created that 
this business was just dividing a lot of profits, where, as a matter 
of fact, it is a terribly serious, highly specialized profession. Per- 
haps my historical connection with it made me want to say that. 

The Chaikman. We are not going to assume you were dividing up 
a lot of losses. (Laughter.) 

Mr. WHrrNET. Well, there are some of them in here. 

Mr. Nehemkjs. I should like to offer in evidence a table predicated 
upon data supplied to us by J. P. Morgan & Co., identified by 



CONCENTRATION OF ECONOMIC POWER 11861 

the witness. The table is entitled, "Participations on 'original terms' 
in Telephone financing headed by J. P. Morgan & Co.— 1906-1919." 
It is a study of percentage allocations and their significance. 

I should also like to offer, Mr. Chairman, if you please, a summary 
statement of participations by J. P. Morgan & Co. in issues of asso- 
ciated companies, headed by others. This table, likewise, is predi- 
cated upon information and data furnished us by J. P. Morgan & 
Co., and identified by the witness. 

The two documents are offered. 

Mr. Whitney. What arc those ? I haven't 

Mr. Nehemkis. I have offered an abstract of material in those 
papers. 

Mr. Whitney. I have not identified those. 

Mr. Nehemkis. I have not said that you did. I said you identified 
that material on which this was based. 

The Chairman. Without objection, the material may be admitted. 

(The documents referred to were marked "Exhibits Nos. 1666 and 
1667," and are included in the appendix on pp. 12208 and 12209.) 

Mr, Nehemkis. Mr. Chairman, I should like at this time your leave 
to dismiss Mr. Whitney and call another witness whose time on the 
stand will be rather brief, and then I propose to recall Mr. Whitney 
in the afternoon. 

The Chairman. It is now 12 : 25. 

Mr. Nehemkis. I think I can finish with this witness in about 10 
minutes. 

The Chairman. The Chair was thinking of recessing for only an 
hour this noon. 

Mr. Nehemkis. Whatever your pleasure is, sir. 

The Chairman. The committee will stand in recess until 1 : 30. 

(Whereupon, at 12:25 p. m., the committee recessed until 1:30 
p. m. of the same day.) 

afternoon session 

The committee resumed at 1 : 40 p. m., on the expiration of the 
recess. 

The Chairman. The committee will please come to order. Are you 
ready to proceed ? 

Mr. Nehemkis. I am, sir. There is some business from this morn- 
ing, Mr. Chairman, that I would like to call to your attention. 

The witness. Dr. Danielian, indicated to the committee that certain 
exhibits had been obtained from the A. T. & T. direct, and I in- 
advertently omitted to give you all of the material — a letter of trans- 
mittal, with reference to those exhibits — and I now ask that this 
letter be offered in evidence, to become part of the record of the 
committee. 

The Chairman. That may be received, and it will be placed in 
the record at the appropriate place.^ 

Mr. Nehemkis. You will als6 recall, Mr. Ohainnan, that yesterday 
afternoon, I stated I would furnish you with a memorandum sup- 
plementing the table* on deposit accounts of investment banking 

^ See "Exhibit No. 1659-83," appendix, p. 1 2200. 

= See "Exhibit No. 1651-2," Hearings, Part 22, appendix, p. 11777. 



11862 CONCENTRATION OF ECONOMIC POWER 

firms, which had been made available to us by J. P. Morgan & Co., 
describing the nature of maximum and minimum balances. I now 
hand you such memorandum. 

The Chairman. The memorandum may be received for printing in 
the record. 

(The memorandum referred to was marked "Exhibit No. 1668"' 
and appears in Hearings, Part 22, appendix, p. 11827.) 

Mr. Nehemkis. Mr. Chairman, two other matters of old business: 
Yesterday, in offering a telegram ^ from the files of Halsej^ Stuart & 
Co., it appears that there were on the photostats certain pencil 
notations which I did not observe, and I have been requested by the 
chairman of Halsey, Stuart & Co. to correct a possible impression 
that may have b6en gained from the failure to have read those pencil 
notations on the photostat copy. I should perhaps say at this time 
that nothing significant as far as Halsey, Stuart & Co. was intended ; 
it was merely offered and discussed as part of the practice involved. 
But so that the record may be complete, I request, sir, that this 
telegram be offered at this time, in explanation of those penciled 
notations on the exhibit to which I did not call your attention. 

The Chairman. The telegram is from ? 

Mr. Nehemkis. The telegram is addressed to H. L. Stuart, this 
room, by R. S. Peterson. I believe that Mr. R. S. Peterson is asso- 
ciated with Halsey, Stuart in the Chicago office. 

The Chairman. The telegram may be received and will be printed 
in the record. 

(The telegram referred to was marked "Exhibit 'No. 1669" and is 
included in the appendix on p. 12210.) 

Mr. Nehemkis. You will also recall, Mr. Chairman, that on Tues- 
day afternoon, I had occasion to ask Mr. Jesup, one of the witnesses, 
whether he had had any discussions with a partner or partners of 
J. P. Morgan «S; Co. concerning the future distribution of the old 
Morgan interest in Chicago Union Station Co. financing. Mr. Jesup 
indicated that he believed a partner of his may have had such conver- 
sations and I requested at the time whether he would be good enough 
to ascertain, and if so, furnish us with the information. Mr. Jesup 
has written to me as of December 13, 1939, as follows [reading 
Exhibit No. 1670"] : 

In accordance with your request made yesterday at the hearing, I wish to 
advise you that my associate, My. N. Penrose Hallowell, remembers distinctly 
discussing Chicago Union Station' underwriting with Mr. Harold Stanley of the 
firm of Morgan, Stanley & Co., and he also feels reasonably sure that the 
partner in J. P. Morgan & Co. with whom he discussed this business in the 
early part of 1935 was Mr. Arthur M. Anderson. 

May I request, sir, that this be made part of the record and that the 
reporter be instructed to insert it at the appropriate place? 

The Chairman. It is so ordered. 

(The letter referred to was marked "Exhibit No. 1670" and appears 
in Hearings, Part 22, appendix, p. 11795.) 

Mr. Nehemkis. And now, sir, I call Mr. Jolm R. Chapin. 

1 See "Exhibit No. ]«37," Urtirincs, Part 22. jippondix. p. Jl"-". 



CONCENTRATION OF PX'ONOMIC POWER 11863 

TESTIMONY OF JOHN E. CHAPIN, KIDDER, PEABODY & CO., 
BOSTON, MASS. 

The Chairman. Do you solemnly swear that the testimony you are 
about to give in this proceeding will be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Mr. Chapin. I do. 

The Chairman. You may proceed, Mr. Nehemkis, with Mr. Chapin. 

Mr. Nehemkis. Mr. Chapin, will you state your full name and 
address, please? 

Mr. Chapin. John R. Chapin, Brookline, Mass. 

Mr. Nehemkis. Mr. Chapin, were you not a partner in the old firm 
of Kidder, Peabody & Co. ? 

Mr. Chapin. I was. 

Mr. Nehemkis. And certain documents which I will have occasion 
to ask you to identify, came from the files of the old firm of Eadder, 
Peabody & Co.? 

Mr. Chapin. They did. 

Mr. Nehemkis. You are not at present a partner in the new firm 
of Kidder, Peabody & Co., are you ? 

Mr. Chapin. I am not. 

Mr. Nehemkis. And you are with the Boston office of Kidder, 
Peabody & Co., the new firm? 

Mr. Chapin. I am. 

Mr. Nehemkis. Did you know Mr. Robert Winsor, formerly head 
of the firm of Kidder, Peabody & Co. ? 

Mr. Chapin. I did. 

Mr. Nehemkis. Were you intimately associated with him? 

Mr. Chapin, Yes. 

Mr. Nehemkis. In fact, you were his personal assistant for a long 
time? 

Mr. Chapin. In the later years of his life, in Boston. 

Mr. Nehemkis. In Boston? 

Mr. Chapin. Yes. 

Mr. Nehemkis. Did not Mr. Robert Winsor personally handle 
Telephone matters for the old firm of Kidder, Peabody? 

Mr. Chapin. To the best of my knowledge and belief, he did. 

association or KIDDER, peabody & CO. AND B^VRING BROTHERS & CO., LTD., 
IN TELEPHONE FINANCING 

Mr. Nehemkis. Had not Kidder, Peabody and Baring Brothers 
been engaged in distributing Telephone securities as early as 1900? 

Mr. Chapin. I don't recollect about Baring Brothers before 1906. 

Mr. Nehemkis. How early had the old firm of Kidder, Peabody 
been engaged in distributing Telephone securities, to the best of 
your recollection, Mr. Chapin? 

Mr. Chapin. I believe the first was in 1899. 

Mr. Nehemkis. Now, in 1906, were not Kidder, Peabody & Co. 
and Baring Bros, joined by J. P. Morgan & Co. and Kuhn, Loeb in 
financing the American Telephone Co.? 

Mr. Chapin. That is what my records — our records show 

Mr. Nehemkis. Is that your impression at this time ? 

Mr. Chapin. That is my impression. 



11864 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Now, was not the Kidder, Peabody, Baring Bros, 
interest in the Telephone group originally 47i/^ percent? 

Mr. Chapin. To my recollection, from the records. 

Mr. Nehemkis. And you so testify at this time ? 

Mr. Chapin. Yes. 

Mr. Nehemkis. Now, was not 

Mr. Chapin (interposing). Excuse me a minute. 

Mr. Nehemkis. Yes, Mr. Chapin? 

Mr. Chapin. My recollection is that there were other interests in 
that so-called New England group. 

Mr. Nehemkis. That is correct, sir, and we will come to that in a 
moment. 

Now, was not that old 47 1^^ percent interest subsequently reduced 
to 331/2 percent? 

Mr. Chapin. Reduced to 35, my recollection is, and then to 31i/^. 

Mr. Nehemkis. Thirty-five, and then 31l^. But were not the orig- 
inal participants reduced from 47i/^ to 3IV2 ^ Perhaps my next ques- 
tion will help clarify this for you. Do you recall the names of the 
original participants of the New England group ? 

Mr. Chapin. Kidder, Peabody & Co.; R. L. Day; Estabrook &• 
Co. ; and Baring Bros., to my recollection. 

Mr. Nehemkis. The Old Colony Trust Co., do you recall that? 

Mr. Chapin. Well, you have got it correct there; I don't 

Mr. Nehemkis (interposing). I am going to ask you to examine a 
table ^ and see whether this does not refresh your recollection. Will 
you glance at this, please? 

Mr. Chapin. Yes. 

Mr. Nehemkis. Now, will you tell me the participants of the old 
New England group ? 

Mr. Chapin. R. L. Day & Co., 4 percent; Estabrook & Co., 4 per- 
cent; Old Colony Trust Co., 6i^ percent; Kidder, Peabody, 18 per- 
cent ; Baring Bros. & Co., Limited, 15 percent. 

Mr. Nehemkis. And if I were to add for you the total of those per- 
centages, it would come to 47l^ percent ? 

Mr. Chapin. Forty-seven an^ one-half percent is correct. 

USE or TERM "AMERICAN TELEPHONE PROPKIETAKY INTERESTS'" 

Mr. Nehemkis. Now, I repeat to you my original question, Mr. 
Chapin: Did not the Kidder, Peabody, Baring Bros, interest in the 
telephone group consist of the 47V2-percent interest? 

Mr. Chapin. The New England group? 

Mr. Nehemkis. Yes. 

Mr. Chapin. That was 47i/^. 

Mr. Nehemkis. Yes. And do you now recall whether or not that 
4714-percent interest was subsequently reduced? 

Mr. Chapin. It was subsequently reduced to 35 percent and again 
to 311/2. 

Mr. Nehemkis. Now, Mr. Chapin, will you read the title of that 
table? 

Mr. Chapin. "American Telephone Proprietary Interests." 

• 1 See "Kxhibit No. 1G71," appendix, p. 12210. 



CONCENTRATION OF ECONOMIC POWER 11865 

Mr. Nehemkis. And was this table obtained from the files of the 
old Kidder, Peabody Co.? 

Mr. Chapin. Yes; it was. 

Mr. Henderson. Mr. Nehemkis, may I ask the witness, did the staff 
put that heading on, or was that the heading on the table when it was 
located ? 

Mr. Nehemkis. Well, I will have the witness answer that. Mr. 
Chapin, can you respond to the Commissioner's question? 

Mr. Chapin. That was on the table when they had it photostated. 
They did not put it on. 

Mr. Henderson. Was it customary to refer to these percentage 
participations as "proprietary interests"? 

Mr. Chapin. Yes. 

Mr. Henderson. Now, Mr. Chairman, I have an observation to 
make; I am not a witness, but in the last few days, one day which 
you missed, we had considerable disagreement on some of the terms 
that were used. As I recall, one erf those was "proprietary" interest. 
Another one yesterday, which I think you did hear, was "reciprocal 
obligation," and another one that has been used is "original terms." 
I think it ought to be noted that the staff of the S. E. C. did not create 
those terms. This one, evidently, has been in existence for a long 
period of time. 

Mr. Nehemkis. Since 1906, sir. 

Mr. Henderson. And therefore we use them in our presentation; 
they are not words of new coinage. 

Mr. Miller. Is this recently prepared, this table ? 

Mr. Chapin. TMb table ^ was prepared August 16, 1920, for Mr. 
Winsor. 

Mr. Miller. 1920? 

Mr. Chapin. Yes, sir. 

Mr. Miller. Was that common usage in Boston, to refer to some 
old accounts as "proprietary"? 

Mr. Chapin. I know of no other account but the American Tele- 
phone account that would term it proprietary interests. 

Mr. Henderson. Wliat do you understand they meant by proprie- 
tary interest ; a continuing interest ? 

Mr. Chapin. Why, I should say yes, it was a continuing interest 
in this account; yes. 

Mr. Nehemkis. Mr. Chapin 

The Chairman (interposing). Perhaps another phrase might be 
used to designate it, one that was used yesterday, and I thought with 
a good deal of illumination — a sort of a "frozen interest." 

Mr. Nehemkis. Well, to make you perfectly at ease, Mr. Chapin, 
would you feel happier if I u^ed "proprietary interest" or "frozen 
interest" ? 

Mr. Chapin. I don't care. 

Mr. Nehemkis. It doesn't matter. Thank you, sir. Will you indi- 
cate for the committee that on the left-hand side of the table before 
you, there appears a pencil notation, and will you indicate to the 
committee what that pencil notation is ? 

-Mr. Chapin (reading trom "Exhibit No. 1671"): 

Compiled for R. W., August 16. 1920. 



'Exhibit No. 1671." 

124491 — 40— pt. 23 5 



118^)6 CONCENTRATION OP ECONOMIC POWER 

Mr. Nehemkis. And "R. W." is Robert Winsor? 

Mr. Chapin. Robert Winsor. 

Mr. Nehemkis. Formerly head of the house of Kidder, Peabody? 

Mr. Chapin. Yes, sir. 

Mr. Nehemkis. I offer in evidence, Mr. Chairman, the table identi- 
fied and described by the witness. 

The Chairman. The table may be received. 

(The table referred to was marked "Exhibit No. 1671" and is in- 
cluded in the appendix on p. 12210.) 

Mr. Nehemkis. I show you, Mr. Chapin, another photostat copy 
of an original document from your files. I ask you to examine this 
document and tell me whether or not it was furnished to us by you 
from the files of the old Kidder, Peabody & Co. ? 

Mr. Chapin. Yes, sir. 

Mr. Nehemkis. Now, will you read the date of this document? 

Mr. Chapin. September 19, 1918. 

Mr. Nehemkis. And will you read the heading of the table? 

Mr. Chapin (reading from "Exhibit No. 1672) : 

Proprietary Interests, American Telephone & Telegraph Company. 

Mr. Nehemkis. Now, will you read the names of the "proprietors," 
please ? 

Mr. Chapin (reading further) : 

J. P. Morgan & Co., 25 per cent ; First National Bank, 10 per cent ; Kuhn, 
Loeb & Co., 131/2 per cent ; National City Bank, 10 per cent ; Harris. Forbes & 
Co., Inc., 5 per cent; Lee, Higginson & Co., 5 per cent; Kidder, Peabody & 
Co., 31% per cent. 

Mr. Nehemkis. Now. these were 

Mr. Henderson (interposing). Just a minute. 

Mr. Nehemkis. Excuse me, sir. 

Mr. Henderson. In your presentation you used the word "pro- 
prietors." That does not occur in the memorandum. 

Mr. Nehemkis. No, sir ; it does not. 

Mr. Henderson. Is that a proper term to use, do you think? 

Mr. Nehemkis. In my judgir^ent, it is, sir. If the witness has any 
difference of opinion, I presume he is capable of so stating. 

Mr. Chapin. Proprietary interests 

Mr. Nehemkis (interposing). That is what it said, and I said, 
will you indicate the names of the "proprietors." Those who have 
an interest, I assume, are proprietors. But now, am I correct, Mr. 
Chapin, this w^as the group that had the proprietary interest in the 
American Telephone & Telegraph Co.? 

Mr. Chapin. The Kidder, Peabody interest was further divided. 

Mr. Nehemkis. Now, will you indicate how the Kidder, Peabody 
interest was further divided? 

Mr. Chapin. Thirty-one and a half per cent was divided [reading 
further from "Exhibit No. 1672"] : 

Kidder, Peabody & Co., 14.80 per cent ; Baring Bros. & Co., 4.70% ; Old Colony 
Trust Co., 4% ; Estabrook & Co., 2.50% ; R. L. Day & Co., 2.50% ; Hayden, 
S'tone & Co., 1.66% ; F. S. Mosely & Co., 1.34%. 

Mr. Nehemkis. Making a total of how much, Mr. Chapin? 
Mr. Chapin. 3II/2 percent. 

Mr. Nehemkis. And it was from the 3IV2 percent, representing the 
New England proprietary interest in the Telephone business, that the 



CONCENTRATION OF ECONOMIC POWER 11867 

old firm of Kidder, Peabody subdivided its proprietary interest among 
the houses you have just enumerated? 

Mr. Chapin. Correct. 

Mr. Nehemkis. Mr. Chairman, I offer in evidence the document 
described and identified by the witness. 

The Chairman. The document may be admitted. 

(The document referred to was marked "Exhibit No. 1672" and is 
included in the appendix on p. 12211.) 

Mr. Nehemkis. Mr. Chapin, I show you a photostat copy of a 
memorandum dated New York, May 5, 1920, and ask you to examine 
this copy and tell me whether or not it is a true and correct copy of 
an original in the files of the old Kidder, Peabody company ? 

Mr. Chapin. Yes ; it is. 

Mr. Nehemkis. Mr. Chairman, I ask that the document identified 
by the witness be received in evidence. 

The Chairman. Let's see it. 

(The document referred to was marked "Exhibit No. 1673" and is 
included in the appendix on p. 12211.) 

Mr. Nehemkis. Will the reporter be good enough to return that 
document to me ? 

Mr. Chapin, I show you a photostat copy of the document dated 
September 30, 1920, containing certain pencil notations. I ask you to 
examine this copy and tell me whether or not it is a true and correct 
copy of the original obtained from the files of the old Kidder, Peabody 
company ? 

Mr. Chapin. It is a true and correct copy. 

Mr. Nehemkis. Now, there are certain pencil notations, you will 
note, under the fii-st title, which, by the way, will you be good enough 
to read, the left-hand title? 

Mr. Chapin (reading from "Exhibit No. 1674") : 

New England Proprietary Interests. 

Mr. Nehemkis. And then there appears "Kidder, Peabody & Co.," 
and a' pencil notation, "14-3/4," Can you tell me in whose hand- 
writing that pencil notation is ? 

Mr. Chapin. That pencil notation is Robert Winsor's handwriting. 

Mr. Nehemkis. And at the end of the column there is another pencil 
notation, "29-3/4." Whose handwriting? 

Mr. Chapin. Robert Winsor's handwriting. 

Mr. Nehemkis. And then in bold-face type there appears "Septem- 
ber 20." Whose handwriting? 

Mr. Chapin. Robert Winsor's handwriting. 

Mr. Nehemkis. And then there appears other handwriting, and I 
note the following [reading from "Exhibit No. 1674"] : 

Consolidated Interest with First Natl. & sent check for 5% to First Natl. Bank, 
on Am. Tel. 5% Deb. 1965 as per J. R. Chapin, Feb. 17—30. 

Is that per your instructions ? 

Mr. Chapin. It was, 

Mr. Nehemkis. But is that in your writing? 

Mr. Chapin. It is not. . 

Mr. Nehemkis. Now, I wish you would explain to* the committee 
whether or not this sheet called "New England Proprietary Inter- 
ests," dated September 30, 1920, was kept alive in your files for this 
10-year period, and these notations made upon it. 



11868 CONCENTRATION OF ECONOMIC POWER 

Mr. Chapin. It was in our files for that period. 

Mr. Nehemkis. Would you call this a "cuff sheet," as a witness indi- 
cated yesterday, an informal memorandum, or does this document 
which has been kept alive for over 10 years represent something 
more formal than was characterized here yesterday as a "cuff sheet"? 

Mr. Chapin. It is simply a memorandum for the people in our 
office to divide up the participation when it came along. 

Mr. Nehemkis. But this document remained in your files for 10 
years. Mr. Winsor apparently had occasion to refer to it. Entries 
were made upon it, percentages changed, in Mr. Winsor's own writ- 
ing. In short, this was a vital document, was it not, Mr. Chapin? 
Let me put it this way, it was not a casual piece of paper? 

Mr. Chapin. No; it wasn't casual. 

Mr. Nehemkis. May I have it, sir? I offer it in evidence. 

(The document referred to was marked "Exhibit No. 1674, and is 
included in the appendix on p. 12212.) 

Mr. Nehemkis. I show you a letter dated August 17, 1920, from 
Dwight W. Morrow to Robert Winsor, and ask you if this is a true 
and correct copy of an original in the custody and possession of the 
old Kidder, Peabody firm? 

Mr. Chapin. That is a copy of a letter which was copied from Mr. 
Winsor's private copy book, not in the possession of the old firm of 
Kidder, Peabody & Co. 

Mr. Nehemkis. Will the record show that that letter was taken 
from the personal effects of the late Robert Winsor and not, as counsel 
indicated, from the files of the old Kidder, Peabody. 

Can you tell me, Mr. Chapin, when Robert Winsor died? 

Mr. Chapin. January 1930. 

Mr. Nehemkis. January 1930? 

Mr. Chapin. Yes. 

Mr. Nehemkis. Thank you, sir. 

. Mr. Chairman, I ask that the letter identified by the witness be 
received in evidence. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1675," and is 
included in the appendix on p. 12213.) 

Mr. Nehemkis. Mr. Chapin, I show you a photostatic copv of a 
letter from Mr. Robert Winsor to Dwight Morrow dated August 
18, 1920. Will you identify this as being a true and correct copy 
and indicate to me whether or not this came from the personal 
effects of the late Robert Winsor or from the files of the old Kidder, 
Peabody firm? 

Mr. Chapin. That came from the personal effects of Robert Win- 
sor. 

Mr. Nehemkis. The letter is offered in evidence, if you please. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1676" and is 
included in the appendix on p. 12213.) 

Mr. Nehemkis. Mr. Chapin, I show you a letter dated September 
28, 1920, on the stationery of J. P. Morgan & Co., Dwight Morrow 
to- Robert Winsor, Esq. I ask you to identify this and tell me 
the original source, that is whether it came from Mr. Winsor's per- 
sonal effects or from the files of the old K. P. firm. 



CONCENTRATION OF ECONOMIC POWER 11869 

Mr. Chapin. Tliat letter came from Mr. Winsor's personal effects. 

Mr. Nehemkis. May the letter be received in evidence ? 

(The letter referred to was marked "Exhibit No. 1677" and ap- 
pears in full in the text on p. 11903.) 

Mr. Nehemkis. I show you another letter, Mr. Chapin, dated Octo- 
ber 1, 1920, from Robert Winsor to Dwight W. Morrow, Esq., ad- 
dressed to Messi-?. J. P. Morgan & Co. Will you identify this letter 
for me and tell me its source ? 

Mr. Chapin. That letter came from the private letter book of Mr. 
Robert Winsor. 

Mr. Neiiemkis. The private letter book of Mr. Robert Winsor ? 

Mr. Chapin. Yes. 

Mr. Nehemkis. I ask that the letter be received in evidence. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1678" and is in- 
cluded in the appendix on p. 12213.) 

Mr. Nehemkis. I now show you a memorandum entitled "American 
Tel. & Tel. Co.," bearing the date May 6, 1920. Will you tell me 
if you can identify that document? 

Mr. Chapin. I identify the document as taken from the files of 
the old firm of Kidder, Peabody & Co. 

Mr. Nehemkis. I ask that this be received in evidence. 

The Chairman. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1679" 
and is included in the appendix on p. 12214.) 

Mr. Nehemkis. I now show you a memorandum in pencil dated 
January 31, 1924, and another document dated January 25, 1924, 
containing pencil notations and marks. Will you examine these two 
documents and tell me if you can identify them for me, Mr. Chapin ? 

Mr. Chapin. These documents came from the files of the old firm. 

Mr. Nehemkis. Will you hold it just a moment? You notice the 
first document is written in pencil. Do you recognize that writing? 

Mr. Chapin. I do. 

Mr. J«[ehemki8. In whose handwriting is it? 

Mr. Chapin. Clifford M. Brewer. 

Mr. Nehemkis. What is the last name? 

Mr. Chapin. Brewer. 

Mr. Nehemkis. B-r-e-w-e-r? 

Mr. Chapin. Yes. 

Mr. Nehemkis. Clifford M. Brewer? 

Mr. Chapin. Yes. 

Mr. Nehemkis. Will you tell me who Mr. Clifford M. Brewer is 
or was? 

Mr. Chapin. Mr. Brewer was the head of our syndicate depart- 
ment in Boston at that time. 

Mr. Nehemkis. On the document dated January 25, 1924, I ask 
you to read the caption in bold-face type at the bottom of the 
document. 

Mr. Chapin (reading from "Exhibit No. 1680-2") : 

New England Proprietary Interests. 

Mr. Nehemkis. And will you read the names of the members of 
that proprietary group? 



11870 CONCENTRATION OF ECONOMIC POWER 

Mr. Chapin (reading further) : 

Old Colony Trust Co., 3%; Estabrook & Co., 21/2%; R. L. Day & Co., 2^!%; 
F. S. Moseley, 11/3%; Haystone Securities, 1%%; Fir.«t National Bank, 2%; 
National Shawmut Bank, 2% ; Kidder, Peabody & Co., 14%%. 

Mr. Neheimkis. What is the date of this memorandum, Mr. 
Chapin ? 

Mr. Chapin. January 25, 1924. 

Mr. Nehemkis. Will you look at the bottom of the memorandum 
and tell me if you see an entry, a pencil entry or possibly an ink 
entry. Do you see that? 

Mr. Chapin. Yes. 

Mr. Nehemkis. What does that entry say? 

Mr. Chapin (reading further from "Exhibit No. 1680-2") : 

February 17, 30 — as per J. R. Chapin Old Colony consolidated with First 
Natl, and check for 5% interest was sent to First Natl. Bank on American 
Tel. & Tel. 5% Deb. due 1965. 

Mr. Nehemkis. Do I understand correctly that the notation which 
you have just read was placed upon this document at your request? 

Mr. Chapin. Yes, sir. 

Mr. Nehemkis. Then, I take it that this document which you have 
described is not a casual piece of paper but an important document 
relating to the New England proprietary interests of the old house of 
Kidder, Peabody? 

Mr. Chapin. Yes. 

Mr. Nehemkis. May I offer these documents just identified? 

The Chairman. They may be received. 

(The memoranda referred to were marked "Exhibit No. 1680-1" 
and "Exhibit No. 1680-2" and are included in the appendix on 
pp. 12214 and 12215.) 

Mr. Nehemkis. Mr. Chairman, may it please the committee, I ask 
that the witness be temporarily dismissed, and that I be permitted to 
recall Mr. George Wliitney. Mr. George Whitney, please. 

TESTIMONY OF GEORGE WHITNEY, J. P. MORGAN & CO., NEW 
YORK, N. Y.— Resumed 

Mr. Nehemkis. Mr. Whitney, you may recall that before the recess 
I had occasion to offer in evidence a large sheet of paper which I 
described as "Participations on original terms in Telephone financing 
headed by J. P. Morgan & Co." [Referring to "Exhibit No. 1666."] 
I hasten to point out that that word "headed" is used loosely. You 
will know what I mean when you see this chart. Here is a mimeo- 
graphed copy which I show you. AVill you examine it, please ? There 
is a larger one here if you can't see that well enough. 

Do you think you are familiar enough with it to discuss it? 

Mr. Whitney. What is your question, please? 

Mr. Nehemkis. I didn't ask a question, as yet. Are you sufficiently 
familiar with this so I may examine you on it? 

Mr. Whitney. I have never seen it before, but I will try. 

percentage participations of underwriting group in telephone 

ISSUi:S, 1016-1919 

Mr. Nehemkis. All right; fine. If you will look at thfe issue of 
A. T. & T. 41/2's, due 1918, $50,000,000. Are you with me on this, Mr. 
Whitney ? 



CONCENTRATION OF ECONOMIC POWER 11871 

Mr. Whitnet. 41/2 's, 1916. Yes. 

Mr. Nehemkis. The date was February 1, 1916? 

Mr. Whitnet. Right. 

Mr. Nehemkis. And will you read the categories of houses on the 
top — Kidder, Peabody ; J. P. Morgan — and run across the percentage 
interests for me ; will you, Mr. Whitney ? 

Mr. Whitney. Yes, sir. [Referring to "Exhibit No. 1666."] This 
is headed Kidder, Peabody & Co. and Baring Bros., Ltd., 331/4 ; J. P- 
Morgan & Co., 213/8 ; First National, lOH/ig; National City Co. lOn/ig; 
Morgan, Grenfell & Co., 43^; Kuhn, Loeb, 141^; Lee, Higginson & 
Co., 5 percent. 

Mr. Nehemkis. Now, Mr. Whitney 

Mr. Whitney (interposing). This, of course, did not come from our 
files. 

Mi*. Nehemkis. Will you read the footnote while you have it in your 
hand ? You see the source there ? What does that say ? 

Mr. Whitney. It says [reading from "Exhibit No. 1666"] : 

Compiled from data supplied by J. P. Morgan & Co. 

Mr. Nehemkis. Do you recall at the outset of your testimony I 
offered you certain large sheets which you identified as having come 
from your firm and caused to be prepared by you pursuant to my 
request ? 

Mr. Whitney. Yes. 

Mr. Nehemkis. Do you want to withdraw that last answer? 

Mr. Whitney. I never saw this compilation. 

Mr. Nehemkis. Did you misunderstand that this was compiled on 
the basis of that other data ? 

Mr. Whitney. I do now; I didn't before. 

Mr. Nehemkis. Are we clear ? 

Mr. Whitney. Quite. 

Mr. Nehemkis. All right, let's go on. Will you proceed under 
Kidder, Peabody & Co. and Baring Bros., Ltd., of London, and go 
down the column this time instead of across and give me the per- 
centage allocations for that house ? 

Mr. Whitney. Well, all the others are 31l^ percent. 

Mr. Nehemkis. From then on until the issue of 1919. Correct? 

Mr. Whitney. That is what it says. 

Mr. Nehemkis. Now, will you go to the column J. P. Morgan & 
Co. and give me the percentages from 1916 down ? 

Mr. WnrrNEY. 213/8 in 1916, and thereafter 201^. 

Mr. Nehemkis. Now, will you turn to the First National Bank of 
New York and do the same ? 

Mr. Whitney. 10|| ; 10% from there on. 

Mr. Nehemkis. I didn't liear the last part of your answer. 

Mr. Whitney. 10% from there on. '' 

Mr. Nehemkis. Will you turn to the National City Co. and do 
likewise ? 

Mr. Whitney. 10{^, 1916; 10%, the remaining issues of this list. 

Mr. Nehemkis. Will you turn to Morgan Grenfell & Co., Ltd., 
and give me the same information ? 

Mr. Whitney. 4% in 1916, the issue referred to, and 4% in the 
remaining issues listed here. 

Mr. Nehemkis. And will you now turn to Kuhn, Loeb and give me 
the identical information ? 



11872 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitn-et, I414 as to the 1916 issue, and 13i^ the remaining 
issues on this list. 

Mr. Nehemkis, Now, will you turn to Lee, Higginson & Co.? 

Mr. Whttney. 5 in that, and thereafter. 

Mr. Nehemkis. "Will you turn to Harris, Forbes and give me that 
information ? 

Mr. Whitnet. Thereafter 5 percent. Mr. Nehemkis, may I 
inquire 

Mr. Nehemkis. Just a moment, I hadn't quite finished with you, 
Mr. Whitney. I want to now ask you one further question on this 
table and then you may comment. This is what has been heretofore 
testified to as a more nearly frozen account than other accounts. 
Would you accept that as being an accurate characterization? 

Mr. WnrrNET. Not in the slightest. 

Mr. Nehemkis. Did you have something you wanted to comment 
upon ? 

Mr. Whitnet, I merely wanted to inquire whether these were all 
the issues that were taken from data that I identified this morning. 

Mr. Nehemkis. Let me consult with one of my assistants. My 
assistant tells me that these were issues headed by J. P. Morgan & 
Co. and taken by the group. 

Mr. Whitney. That is what my impression has been, but I just 
wanted the record to make it clear that there were other Telephone 
financings during the same period where these percentages wouldn't 
necessarily 

Mr. Nehemkis (interposing). We went ovtr some of them this 
morning, you recall, on short term notes. 

Mr. Whitney. And in this compilation by your investigators, as 
this is, these were just selected from the total list of financing of the 
Telephone Company, 

Mr. Nehemkis. Just so you may complete your statement, based 
on information furnished by you. 

Mr. Whitney. Yes, sir. 

the "library agreement" 

Mr. Nehemkis. Mr. Whitney, I want to show you certain docu- 
ments which have been identified by the witness who preceded you. 
I show you a memorandum headed "New York, May 5, 1920." [Re- 
ferring to "Exhibit No. 1673."] Would you glance at this memo- 
randum, Mr. Whitney ? 

Mr. Whitney. Yes. 

Mr. Nehemkis, Are you familiar with the substance of that 
memorandum ? 

Mr. Whitney. It was shown to me by one of your investigators a 
short time ago in New York and subsequently Mr. Chapin sent me a 
copy of it so that I am familiar with what it says. Of course it is 
not out of our files. 

Mr. Nehemkis. Mr. Chapin identified it as having come from the 
files of the old Kidder Peabody. 

Mr. Whitney. To that extent I am familiar with it. 

Mr. Nehemkis. Did you request Mr. Chapin to send you that 
copy ? 

Mr. Whitney. I did not. 



CONCENTRATION OP ECONOMIC POWER 11873 

Mr. Nehemkis. Mr. Cliapm volunteered? 

Mr. Whitney. Yes. 

Mr. Nehemkis. May I have it back, please? I am going to read 
to you, Mr. Whitney, from this memorandum. 

Mr. Whitney. May I interrupt a second? . There is another memo- 
randum you just introduced also; when I come to it, may I talk 
about it ? 

Mr. Nehemkis. Oh, sure; I want you to talk about all these memo- 
randa. That is what you are here for. 

Mr. Whit'ney. That's fine. 

Mr. Nehemkis. This memorandum is dated New York, May 5, 1920. 
[Reading from "Exhibit No. 1673"] : 

" 'Original terms' group on future purchases of A. T. & T. securi- 
ties — " then the footnote : 

Meaning purchase or underwriting of A. T. & T. or subsidiary company 
securities. 

" — as agreed to, at 'The Library' — " 

I am not quite familiar with the meaning of that phrase. What 
does that mean ? 

Mr. Whitney. I assume it means Mr. Morgan's library. 

Mr. Nehemkis. Could you be a little more positive and tell me you 
know it means t' a library of Mr. Morgan's home? 

Mr. Whitney. If tnere is any difference; yes, sir. 

Mr. Nehemkis. All right, I just wanted to know whether you were 
sure about that [reading further] : 

"Original terms" group on future purchases of A. T. & T. securities as agreed 
to, at "the Library" tliis morning between J. P. M. — 

Whose initials are those? 

Mr. Whitney. Mr. J. P. Morgan. 

Mr. Nehemkis. The present Mr. J. P. Morgan ? 

Mr. Whitney. Yes 

Mr. Nehemkis (reading further). "H. P. D." 

Mr. Whitney. H. P. Davison. 

Mr. Nehemkis. Mr. Davison is deceased? 

Mr. Whitney. Yes. 

Mr. Nehemkis (reading further). "And R. W.,'^ — presumably Rob- 
ert Winsor ? 

Mi\ Whitney. Yes, 

Mr. Nehemkis. Now the first statement apparently concerned the 
original terms group on the future purchases of ail A. T. & T. secu- 
rities as well as all subsidiary financing, and there was a meeting at 
the library on May 5, 1920, which was attended by J. P. Morgan, Henr> 
P. Davison, and Robert Winsor. 

Mr. Whitney, I show you a table entitled "American Telephone & 
Telegraph Co. and Associated Companies," and a letter from your part- 
ner, Mr. Alexander, addressed to me. Will you glance at this and 
tell me whether you recognize this as having been prepared by your 
firm? 

Mr. Whitney. Yes, sir. 

Mr. Nehemkis. Prepared by your people? 

Mr. Whitney. Yes ; but I may point out that we have substituted 
another one. That one was in error. 

Mr. Nehemkis. So that we may do full justice to your workman- 
ship, I am going to take the liberty of offering both. 



11874 CONCENTRATION OP ECONOMIC POWER 

By the way, Mr. Whitney, I intended to ask was Mr. H. F. Davison 
a partner of J. P. Morgan ? 

Mr. Whitney. He was. 

Mr. Nehemkis. Mr. Chairman, may I offer in evidence the tables 
identified by the witness? 

The Chairman. The tables may be received. 

(The documents referred to were marked "Exhibits Nos. 1681-1 to 
1681-3" and are incUided in the appendix on pp. 12215 and 12-216.) 

Mr. Nehemkis. I note, Mr. Whitney, that from January 1, 1920. 
to June 16, 1934, there was $832,000,000 of Telephone financing.^ 
The selling syndicate interest in that financing was over $50,000,000. 
"Our net profit" — meaning the profit of J. P. Morgan & Co. — was 
over $900,000, and the total profit before overhead expenses, salaries 
and taxes, $2,969,320.64. So that the conference which was held here 
on May 5, 1920, concerning the future purchases of A. T. & T. 
securities was a pretty substantial conference; it concerned itself 
with $832,000,000 of future business. 

Mr. Whitney. Oh, no, it didn't, Mr. Nehemkis. What is con- 
cerned was the situation at that time, which is quite a loiig story. 
It may have resulted, there may have been that amount in the 
total business done thereafter, but the memorandum you showed 
me had no reference whatever to $800,000,000 of securities. 

Mr. Nehemkis. Of course not; I read you from this table. 

Mr. Henderson. Technically, Mr. Wliitney is right. 

Mr. Nehemkis. I will accept that correction, I want to be tech- 
nically correct in all respects here. 

Mr. Whitney. That was a very substantial financial program. 

Mr. Nehemkis. Mr. Whitney, I have here a table the data for which 
was supplied by your firm and this table is entitled [reading from 
"Exhibit No. 1682"] : 

Bankers' Gross Commissions on Issues of American Telephone and Tele- 
graph Company and Associated Companies, Managed by J. P. Morgan & Co. 
or Morgan Stanley & Company, Incorporated, 1906-1939. 

I find that the bankers' gross commissions on Telephone issues for 
the period 1906 to 1930 was $26,905,000. I find that the bankei-s' 
gross commissions on issues managed for the period 1935 to 1939 
by Morgan, Stanley was $11,470,750. So that the total for the period 
1920 to 1930 was $26,905,000. 

Mr. Whitney. In the first place, I would be willing to wager you 
didn't get that out of our office. 

Mr. Nehemkis. Mr. Whitney, I want to offer my documents. You 
will have plenty of chance to explain. 

Mr. Whitney. You introduced it, didn't you, as saying it came 
out of our office? 

Mr. Nehemkis. Oh, no; I said this was data supplied by J. P. 
Morgan & Co. 

Mr. Whitney. By J. P. Morgan & Co. I am pretty sure it 
didn't. Part of it may have come out, but all of it I am sure 
didn't. 

Mr. Nehemkis. I think t indicated in my original statement, Mr. 
Whitney, that the source of this was data supplied by J. P. Morgan 
& Co. and Morgan, Stanley & Co. and, I am now advised, by the 
Federal Connnunications Commission. These figures are perfectly 

» See "Exhibit No. 1681-3." appendix, p. 12217. 



CONCENTRATION OF ECONOMIC POWER 11875 

accurate: one, an official source; two, your own figures; three, the 
figures of Morgan Stanley. 

Mr. WnrrNEY. I did not understand that you included Morgan, 
Stanley & Co. That was an error on my part. 

Mr. Nehemkis. I would like to offer this table, Mr. Chairman. 

The Chairman. The table may be received. 

(The table referred to was marked "Exhibit No. 1682" and is 
included in the appendix on p. 12218.) 

Mr. Miller. May I ask a question, Mr. Nehemkis? What do you 
mean by gross commissions? Does that mean the spread between the 
issue price and the purchase price that the company received? 

Mr. Whitney. Gross spread between the issue and the net price 
before any expenses of any kind or, to put it another way, between 
the price paid to the company and the price paid by the ultimate 
consumer. If I can take Mr. Miller's point on that, that is gross. 
Now, of course, it is well known that a certain portion goes to the 
original terms group, a certain portion to any intermediate group 
you might have, and a certain portion to the bond-distributing 
houses scattered all through the country, seven or eight or nine hun- 
dred of them. I think that this figure Mr. Nehemkis referred to in 
the first instance, shows that the amount of issue — may I withdraw 
that? 

Mr. Nehemkis. Why don't you, if you want to comment on that 
later, send a supporting memorandum? 

Mr. Whitney. I will. 

Mr. Miller. It is about 2i/^ percent gross as I see it. 

Mr. Whitney. That is about what it averages. 

Mr. Nehemkis. Now to return to the conference at the library on 
May 5, 1920, Mr. Whitney. I continue reading from that memo- 
landum [reading from "Exhibit No. 1673"] : 

K. P. & Co.— 

Which I take it to mean Kidder, Peabody & Co. — 

to manage N. E. & J. P. M. & Co. the rest of the country. 

I may assume from that that Kidder, Peabody was to have the 
right to manage the New England proprietary interests as described 
by Mr. Chapin, and J. P. M. & Co. was to have the exclusive right to 
manage the rest of the country. Would you say that was a fair 
interpretation ? 

MR. Whitney's comments on origin of term "proprikiary interests" 

Mr. Whitnet. I am afraid not. If I may be permitted, I should 
like to say a word on that "proprietary" interest. That memorandum 
does not speak of "proprietary" interests, it speaks of original terms. 
I was very glad to learn a few minutes ago where the word started 
from, because I had never heard it used before until the other day. 
I consider it, if I may say so, a complete misnomer, because if I 
understand the word "proprietary" it means ownership, and obvi- 
ously there would have to be some agreement by the company to 
anything of that kind. I can state unequivocally that in an experi- 
ence dating from 1916 down through 1930 that the company had not 
the slightest agreement of any kind with us that they would continue 
to finance through us. I can't remember a single instance where the 



11876 CONCENTRATION OF ECONOMIC POWER 

question ever came up. They did consult with us in 1920 as to a 
program that Mr. Gifford was planning on refinancing. Tt is quite 
a long story, and it may come later. But the question of "proprietary" 
interest I consider is a complete misnomer. 

The Chairman. Was the word used, Mr. Whitney, to define the 
transaction between the Telephone Co. and the investment bankers, 
or was it not used to define an understanding among the bankers ? 

Mr. Whitney. Well, Mr. Chairman, I can only say of my per- 
sonal knowledge, extending as I say in this particular business back 
to 1916, that I never heard the word used before until I came down 
here to these hearings, and I didn't know where it had come from. 
I was very much interested in Mr. Henderson's explanation that the 
S. E. C. got the term from Kidder. 

I don't remember in all the years that I was working with Kidder 
on this business that I ever heard them use it. Of course, the New 
England subparticipations, as has been disclosed by this evidence, is 
a matter that we never knew anything about. *Ve only knew of it 
casually. We never had a record of who they were. I never knew 
until way along in the middle 20's who the people were. I am not 
questioning Mr. Winsor's use of the word, but I merely want to 
explain that we never used it, and if I understand what the word 
Itself means, we never considered that there was any such relation- 
ship as existing between us and the company, the group and the 
company, or between the members of the group itself. It was a 
group or2:anized to do a job that in Mr. Gilford's estimation was 
going to be a big job, and it was, and it was a fine job. But there 
were to be changes if they wanted them, nobody had any question 
about it as long as we had the business, but the use of the word 
"proprietary" implies some vested right, and I can assure you with- 
out any equivocation in our thinking in my office that notion never 
had been connected with this business or any other. 

The Chahjman. Let me say that, sitting here and istening to this 
testimony, it never occurred to me to give to this word any legal, 
strict legal significance. I have interpreted it as meaning the general 
understanding that had grown up with respect to the manner in 
which these distributions would be allocated. 

Mr. Whitney. Well, the use of the word is just as new to me as 
it is to you. 

The Chairman. Nevertheless, apparently it does describe a fact 
which did exist, a condition, but not in the legal sense. 

Mr. Whitney. I understand, of course, but I merely wanted to 
point out that whatever implication may be in the word, whether 
legal or otherwise, the use oi the word was completely foreign to us 
and to the best of my knowledge I never heard oi it. 

The Chairman. Would I be incorrect in drawing the inference that 
when there was a division in the "library" that that division would 
stand until the "library" again changed it? 

Mr. Whitney. As a matter of fact,it didn't even stand in the next 
deal. 

Mr. Nehemkis. I think we had better wait until the development of 
the testimony to see whether the. witness' remark is oorrect, 

I want to go back to what this a^eement was all about and 
attempt to follow through, if I may, sir, just what wAs decided by 
these three men, Mr. Morgan, Mr. Davison, and Mr. Winsor. They 



CONCENTRATION OF ECONOMIC POWER 11*. 77 

agreed that there was to be a division of the country. Kidder, 
Peabody was to Jianage New England, J. P. Morgan was to have 
the management of the rest of the country, and then there appears 
on this memorandum ^ — I believe you have copies of it before 
you — the percentage allocations for the New York group and the 
New England group, and the New York group took 70 percent, 
the New England group took 30 percent. In turn, the New York 
group divided up its 70 percent in the following fashion : J. P. Mor- 
gan & Co. got a 20-percent interest in all future purchases of 
A. T. & T. securities as well as securities of the subsidiary companies 
according to the understanding entered into on May 5. The First 
National Bank got a 10-percent interest. The City Bank got a 10- 
percent interest; Kuhn, Loeb & Co., a 10-percent interest; Harris, 
Forbes & Co., a 5-percent interest; Lee, Higginson & Co., a 5-percent 
interest; Guaranty Trust, 5 percent* and the Bankers Trust, 5 pei-cent; 
making 70 percent to the New York group. 

Now, the New England group had divided up its 30-percent pro- 
prietary interest, and I think I now use it correctly as it was intended 
by the previous table, as follows : Kidder, Peabody & Co. retained 
a 15 percent interest in all of the Telephone business ; the Old Colony 
Trust, 3-percent interest; Estabrook & Co., a 2i/2-percent interest; 
Day & Co., 2i/^-percent interest; Moseley & Co., 1%-percent interest; 
Hayden, Stone & Co., 1% percent. 

First, let me find out, Mr. Chairman, what that Boston bank is. 

The Chairman. First National. 

Mr. Nehemkis. First National of Boston a 2-percent interest and 
the Shawmut Bank a 2-percent interest, making the total 30, the 
total of New York 70, giving a total of 100 percent. 

I also observe, Mr. Chairman, may it please the committee, a very 
significant notation. You will notice on the right-hand side [refer- 
ring to "Exhibit No. 1673"] the word "negotiations" underscored, and 
the statement as follows : 

Negotiations to be joint but both free to talk with the Co. and to help them 
in any way in their power. 

Now, perhaps Mr. Whitney can enlighten us on that. Isn't that a 
rather anomalous provision ? Usually one banker does the talking for 
the entire group. Do you happen to know — you were the specialist 
at this time in Telephone matters — ^how it happened that it was 
agreed upon that both houses would talk ? One other question : will 
you develop it in your answer: Why is it significant for only one 
banker to do the talking to a company ? 

Mr- Whitnet. Let me be sure. I think I have got three questions 
here. 

Mr. Nehemkis. You can take them in any order you wish. 

Mr. Whitnet. The question that I didn't answer before related to 
the division of the rest of the country. That bore on my own knowl- 
edge of handling a selling syndicate, which as Mr. Miller suggested 
a few minutes ago, was the ultimate end of the business — getting it 
through successfully. 

This note that is on the side there has been a great puzzle to me, 
because as the evidence shows, this did not come out of our files. It is 
not initialed by any of our partners. 

1 "Exhibit No. 1673." 



11878 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. You have indicated, Mr. Whitney, that this docu- 
ment was only shown to you very recently. Now, it has been identi- 
fied. I don't think you need discuss that. 

Mr. Whitney. Yes. I am not questioning:^ anything about it. I 
want to make that very clear. But there is, as I said a minute ago, 
another memorandum that you have identified 

Mr. Nehemkis (interposing). Well 

Mr. Whitney (interposing). Well, now, let me get back. I was 
puzzled as to what that does mean, because in my experience — most 
of the talks with the Telephone Company, when there was a piece of 
financing on, in their bond business, were held mostly with us. But 
I think it must refer to the fact that Kidder, Peabody & Co. had a 
great deal of talk in connection with the sale of common stocks, of 
various plans they had for employees. They had a lot of contacts 
completely outside of bond financmg. I don't know the significance 
of that statement, because we both had always talked to the company, 
and I don't quite know — I can't see any reason why Mr. Winsor was 
so specific about it. 

Your third question was whether it wasn't unusual for more than 
one — well, that depends, of course — it is very difficult for me to gen- 
eralize about that, but I suppose the obvious reason why some one 
individual or some individual firm is designated by a group of people 
for making a joint purchase is that they think it is a great deal 
simpler to have one man talk than to have a town meeting about it, 
and I suppose it is because that particular firm or individual is 
trusted by the other participants in the business to interpret the views 
of the group, when tliey have any, and so I don't think that you can 
say that was any custom as to how negotiations were han 

Obviouslj', when I was in the business, it was generally . for 

one or two to discuss matters. I wouldn't say there were 

Mr. Nehemkis. Do you mind if I ask you a question now ? 

Mr. Whitney. Any ! 

Mr. Nehemkis. In your long experience with the firm of J. P. 
Morgan & Co., can you tell me in how many of the old accounts 
managed by J. P. Morgan & Co., you ever took any other bankers 
along with you when you talked with company officials ? 

Mr. Whitney. Well, I could think of several; I don't quite know 
what you mean by account. 

Mr. Nehemkis. Well 

Mr. Whitney (interposing). If I may designate them as trans- 
actions or bond issues 

Mr. Nehemkis (interposing). No; I will be more specific, if it will 
help you. Take the New York Central Railroad, that was always 
regarded as an old account of yours; you were the advisers of the 
company, they respected .your judgment, leaned upon you for tech- 
nical help. Now, did you drag along with you to your conferences 
any members of the community? 

Mr. Whitney. No; that was business which we settled solely on 
our own responsibility. J. P. Morgan & Co., as you may know 
historically, "were fiscal agents of the New York Central Railroad. 
I think that was abandoned in 1916. So tliat was a case where all 
the negotiations were exclusively with us. 

Mr. Nehemkis. Well, now 



CONCENTRATION OF ECONOMIC POWER 11879 

Mr. Whitney (interposing). Certainly I can tell you, for example, 
about the Great Northern and Northern Pacific, in which case — and 
the Burlington and others — there were various times when we gen- 
erally discussed the matter with the First National Bank. I am going- 
back quite a while now, back to 1921. I remember discussing certain 
things in connection with General Motors financing with others, going 
to conferences, about the general question of policy, what things 
should be done, and so forth. 

Mr. Henderson. You mean other members of the group went with 
you to general conferences? 

Mr. Whitney. Well, there was no group, Mr. Henderson, because 
it was an isolated thing. As a matter of fact, I think the business 
was finally consummated — the transaction was exclusively Avith us — 
but the question of going with one or two others is not an isolated 
thing. When it comes down to it, down to the actual transactions, 
when you get down to what I referred to this morning as the technical 
arrangement of a particular bond issue or a particular security, that, 
generally, we did alone, for the simple reason that, as we did the 
Telephone business — I mean, those negotiations as to the arrangement 
of the mortgages, going over all the infinite papers that are required, 
the footwork that is required, doing a thing like that, was done by 
our statistical department and by our organization. We consum- 
mated it with the other members of the group when the time came to 
talk prices or to talk general philosophy, and we consulted them as 
any prudent man does when he tries to get the best possible advice he 
can on an important line of business such as this. But I don't want 
to, I can't, as I said before, explicitly, Mr. Henderson, say, or 
generalize, as to what is the practice, and that was the first case that 
springs to my mind. If you would be interested, I will try to think 
up some others. 

Mr. Henderson. I think it would be very helpful. 

Mr. Whitney. But I don't think it means anything anyway. 

Mr. Nehemkis. Well, I just was puzzled, as you were, because 
Robert Winsor was a very distinguished banker and he was the head 
of one of the great houses of this country. 

Mr. Whitney. Absolutely. 

Mr. Nehemkis. He was an associate of yours. As a matter of fact, 
he was a former employer of yours. 

Mr. Whitney. Mine? 

Mr. Nehemkis. Wasn't he? 

Mr. Whitney. Well, what has that got to do with it? 

Mr. Nehemkis. Well, you seemed to be worried about it. And he 
came back from this conference, after this discussion, and he made 
this entry [reading from "Exhibit No'. 1673"] : 

Negotiations to be joint but both free to talk with the Co. and to help them 
in any way in their power. 

Well, suppose we continue, Mr. Whitney. 

The agreement also apparently covered the security issues of sub- 
sidiary companies in addition to issues of the parent company. Now, 
didn't that mark a departure from the earlier arrangements? If I 
recall correctly, you testified 

Mr. Whitney (interposing). Well, I will answer that. 



11880 CONCENTRATION OP ECONOMIC POWER 

I think it did mark a departure in that at that particular time. 
Mr. Gifford, of the Telephone Co., was then and until 1919 vice 
president in charge of finance. He had been in the employ of the 
company before — he came down to Washirigton auring the war. 
When lie came back^ — of course, I am not going to talk about Mr. 
Gifford — he came to us, and I assume to Kidder, because he felt that 
the financial condition of the Telephone Co. needed a complete reset- 
ting. You read this morning, or there was introduced, and I testified 
from it, a list ^ of a lot of companies. In 1919 there had been a big 
issue done with the Southwestern Bell Telephone in 5-year notes — not 
a success. He felt that he had to get his balance, his ratio, between 
bonds and stocks in better order if, as he saw the picture, there was 
going to be this tremendous development of the telephone business. 
He made a survey — Mr. Gifford — and he came and said that he had 
a program which might run over several years, of resetting the sub- 
sidiary financing and the telephone finances, so that, between them, 
they would have a more appropriate ratio. If you check up, you 
will find that in 1920 the ratio of debt to stock in the Telephone Co. 
was the worst that it had ever been — I mean the highest ratio of debt 
to stock and that there has been a constant improvement down to 
say, 1930 ; and Mr. Gifford had the great ability, he had the fore- 
sight, to see that unless something were done in getting this reset, 
he was going to get into a position where they couldn't finance 
properly. 

So we started, and he came and discussed with us, Mr. Chairman, 
along the lines I talked about today, as experts, as people who would 
plan a campaign, and a part of that campaign with which we had 
nothing to do whatever — no one of the bankers, m fact — was the 
flotation or sale to his own stockholders of these common stocks. 

Now that memorandum — that meeting, if I may say so, was insti- 
gated by me. You have introduced in evidence a memorandum in 
pencil which is in n^.v handwriting.^ When we were charged with 
this job, we felt that me retail distribution of the country wouLl not 
stand having 30 percent of the final selling done in New England. 
We had introduced into this group two new houses, the Guaranty 
Co. and the Bankers who had, about that time, become substantial 
national distributors, and we felt that if we were going to get the 
benefit of retail distribution of those national houses, the City Co., 
Lee, Higginson, Harris, the Guaranty, and the Bankers, to get the 
full strength and power of their organizations, that we ought to have 
a larger percentage of the original group profits go to those four 
people. 

There is a pencil memorandum here 

Mr. Nehemkis (interposing). We will come to that in just a 
minute. 

Mr. Whitney. All right; I will leave that out for now. 

Mr. Nehemkis. I wish you would. 

Mr. Whitney. I was a partner then. I had been a partner for 
about 4 or 5 months, and I went with our bona specialists to Mr. 
Davison, who was in charge of Telephone financing in our office, and 
said to him, "Will you not take up with Kidder, Peabody & Co., Mr. 

' "Exhibit No. 1631-2." 
» "Exhibit No. 1679." 



CONCENTRATION OF ECONOMIC POWER 11881 

Winsor, this program? Mr. Gifford wants to pursue in the Tele- 
phone Co. a realinement of these percentages with these two 
new people in there." A meeting was held, and Mr. Davison was 
not successful in getting the 9 percent that I had suggested should 
be taken from the New England distribution and given to the rest 
of the country. 

Now this is a memorandum obviously written before the meeting, 
rhis one I have just been talking about, which shows the figures that 
were settled 

The Chaipman (interposing). Do 3^ou know why he was not suc- 
cessful in inducing the New England group to surrender that 9 per- 
cent? 

Mr. Whitney. I don't. Mr. Davison is dead, Mr. Chairman, and 
Mr. Alexander pnd I have spoken to Mr. Morgan about that, as the 
only person who is now living who was at this meeting, and Mr. 
Morgan doesn't even remember there was such a meeting and doesn't 
remember anything about it. 

The Chairman. Now, this 

Mr. Whitney (interposing). So I can't tell you. 

The Chairman. And your testimony is that you, a new partner, 
after examining this situation, made up your mind that for the better 
distribution nationally of these securities, a certain percentage of the 
so-called proprietary interests should be taken away from New Eng- 
land; you suggested that to Mr. Davison, and the account was so 
frozen that even he couldn't change them? 

Mr. Whitney. Well, you see, Mr. Chairman, at this time there were 
being added to this list that we have been talking about this morning, 
two additional people, so it was necessary to have a realignment of 
the percentages. It wasn't a question of the "proprietary" rights. 
Looking back on it, which is always so easy, I now realize that I didn't 
know at that time that he^had this subparticipation in New England. 
So I can see it was very difficult for Mr. Winsor to do. If I had been 
in Mr. Winsor's place, probably I should have felt just as he did. But 
that is what this memorandum really conveys to me. The Telephone 
Go. was starting their actual program. They had to get reset finan- 
cially, and that would take really hours for me to try to explain that 
to you in detail, and I would probably do it wrong anyway. 

But with those talks I was having then — and I am sure Kidder 
was, if my memory serves me right, with Mr. Gifford on his program — 
Mr. Gifford wanted us to get set to help him as experts, in the financ- 
ing, the execution of his program. These two houses came into the 
picture there, so it involved a realignment anyway of any traditional 
percentages there might be, and I wanted, being perhaps interested 
more then in the rest of the country distribution than I was in New 
England, to get them what I thought was a more appropriate per- 
centage of the total. 

Mr. Davison, I just remember him coming back, saying that it 
wasn't settled a.nd, well, I have been told that we wouldn't speak of 
the other memorandum, but 

The Chairman (interposing). But there was then a traditional 
aspect to this thing ? 

Mr. Whitney. I think certainly there was, and I think Mr. Winsor 
felt that he didn't agree with us. Well, I know he didn't agree with 
me from subsequent conversations. 

124491 — 40— pt. 23 6 



11882 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. You say, Mr. Whitney, that you mstigated this con- 
versation of May 5, 1920? 

Mr. WuCTNEY. Yes, sir. 

Mr. Nehemkis. If I understood you correctly ? 

Mr. Whitney. Yes. 

Mr. Nehemkis. You weren't present, though ? 

Mr. Whitnet. No. Well, I was only a kid? 

Mr. Nehemkis. When did you first learn about the results of the 
conference ? 

Mr. Whitney. Next morning. 

Mr. Nehemkis. Who told you ? 

Mr. Whitney. Mr. Davison. 

Mr. Nehemkis. Mr. Chapin, may I recall you for a moment, please ? 

TESTIMONY OF JOHN R. CHAPIN, KIDDER, PEABODY & CO., BOSTON, 

MASS. — Resumed 

MR. Whitney's aide memoire prepared for the "library" conference 

Mr. Nehemkis. Mr. Chapin, above these columns of figures appear 
the notations, "Davison's Suggestions," and then in the next column, 
"Finally agreed upon."^ Can you tell me in whose handwriting 
that is? 

Mr. Chapin. Those were in Robert Winsor's handwriting. 

Mr. Nehemkis. That is all, Mr. Chapin. 

Mr. Whitney, you will find — oh, just a moment, Mr. Chapin ; may 
I call you back for a second? 'V\Tiose handwriting is this, "May 6, 
L920"?' 

Mr. Chapin. Mr. Winsor's handwriting. 

Mr. Nehemkis. Thank you, sir. 

TESTIMONY OF GEORGE WHITNEY, J. P. MORGAN & CO., NEW 
YORK, N. Y.— Resumed 

Mr. Nehemkis. Now, Mr. W^iitney, will you look at this memo- 
randum that you have been wanting to talk about, and tell me in 
whose handwriting the rest of the memorandum is ? 

Mr. Henderson. Has that been introduced in evidence ? 

Mr. Nehemkis. It has been identified.^ 

Mr. Whitney. This column here 

The Chairman (interposing). You are referring now to the first 
and second columns? 

Mr. Whitney. Yes; the list of initials and the next one are in my 
handwriting. 

Mr. Nehemkis. Are in your handwriting? 

The Chairman. Which one is in your handwriting? 

Mr. Whitney. This original — initial one. 

The Chairman. The first column? 

Mr. Whitney. Which is headed — I thought it was written by 
Davison, but Mr. Chapin says it was Mr. Winsor. That is all right 
with me. But I do know my own handwriting and the first column 
is my own, and if you will see 

» "Exhibit No. 1679." 



CONCENTRATION OF ECONOMIC POWER 11883 

The Chairman (interposing). Well, now, when you use the phrase, 
"the first column," you are referring to the first column of figures? 

Mr. AVhitney. No; I am referring to this list and this list [indi- 
cating] . 

The Chairman. Pardon me, Mr. Wliitney, but the reason I am so 
technical about this is so that it may be clear in the record to anybody 
who reads it. 

Mr. WnrrNEY. May I try to do better? There is a column of 
initials of firms— J. 'P. M. & Co., First National, City, K. P. & 
Co., K. L. & Co., H. F. & Co., L. H. & Co., Guaranty, Bankers, New 
England, you see. Now, the next column is headed "Davison's Sug- 
gestions," and Mr. Chapin has just identified that as being in Mr. 
Winsor's writing. There is a list of figures down there. The next 
one is "Finally agreed upon," and a list of figures, both adding up 
to 100 percent. There is "May 6, 1920," down here in the corner and 
you will remember the conference of May 5. There is also a re- 
ceipt thing by Kidder, Peabody & Co., a time-clock thing, marked 
"May 12, 1920." 

Mr. Nehemkis. Now, Mr. Whitney, I think I asked you just to 
explain the notations, and you are departing from that. Will you 
return the memorandum to me? 

The Chairman. Well, Mr. Nehemkis, he was just about to testify 
as to the handwriting. 

Mr. Nehemkis. Oh, I'm sorry. 

The Chairman. You see, he was interrupted. Proceed, please. 
Now, the first column, giving the list of the names of the firms, in 
whose handwriting is that? 

Mr. AVhitney. Mine. 

The Chairman. Yes; and the second column, being a column of 
figures entitled "Davison's Suggestions," is in whoge handwriting? 

Mr. Whitney. Mine. 

The Chairman. And the third column has just been testified to by 
Mr. Chapin as being in Mr. Winsor's handwriting. 

Mr. Whitney. I wouldn't know whose it was. 

The Chairman. No; but I say, it has been testified to by Mr. 
Chapin. 

Mr. Whitney. Oh, excuse me. Yes. 

The Chairman. And the date, May 6, 1920, ha^s been testified to by 
Mr. Chapin as in Mr. Winsor's handwriting, as well as the title "Amer- 
ican Telephone and Telegraph." 

Mr. Nehemkis. That was testified to, I believe, earlier, as being 
someone in the old Kidder, Peabody firm. We don't know who. Did 
I understand correctly, Mr. Whitney, that you have described certain 
notations in response to the questions as having been made by your- 
self? 

Mr. Whitney. Yes, ^ir. 

Mr. Nehemkis. Now, this document was identified as coming from 
the files of the old Kidder, Peabody & Co. Mr. Whitney, will you ex- 
plain to this committee how it happens that you did not make avail- 
able to the authorized representatives of this committee this docu- 
ment, in response to our request? 

Mr. WnrrNEY. You just said it came from Kidder, Peabody files. 
We didn't have it. I never saw that until — as I testified a little while 



11884 CONCENTRATION OF ECONOMIC POWEE 

ago, Mr. Chapin = ent me certain papers. This, we haven't anything 
like this in our file.;. 

Mr. Nehemkis. You mean this mysteriously made its way into the 
files of the old Kidder, Peabodv company? 

Mr. Whitney. Wliy, Mr. Nehemkis, I was saying that there is still 
a further notation on this memorandum which shows, as is the cus- 
tomary form stamped on papers when received by an oflfice, the 
date mark of May 12, 1920. I can't testify definitely, but I think it is 
a perfectly fair assumption that this paper was brought back by Mr, 
Davison and shown me, that we made a record of what the agree 
ment was for future reference, and that he then sent the original paper 
to Mr. Winsor as indicated, he receiving it on the 12th of May. 

The Chairman. You recognize your handwriting there? 

Mr. Whitney. Certainly. 

The Chairman. You remember the occasion on which you made it ? 

Mr. Whitney. I might say that I was very much relieved when I 
saw this because it did revive my memory as to a lot of details about it. 

The Chairman. I said, do you remember the occasion on which you 
made that? 

Mr. Whitney. Oh, certainly, that is what I said; I instigated the 
meeting, because these are the figures we asked Mr. Davison to try to 
arrange for better distribution for the country. 

Mr. Nehemkis. Mr. Chairman, I am afraid that I have lost some 
of Mr. Whitney's remarks. May I ask to have the reporter read them 
back? 

The Chairman. Yes. Which ones are you referring to? 

Mr. Nehemkis. Following my last question. 

The Reporter (reading) : 

I was saying that there is still a further uotation on this memorandum which 
shows — as is the customary form stamped on papers when received by an 
oflSce, the date mark of May 12, 1920. I can't testify definitely, but I think it is 
a perfectly fair assumption that this paper was brought back by Mr. Davison, 
arrd shown me, and that we made a record of what the agreement was 

Mr. Neheivikis. Stop. Now, Mr. Whitney, when our representative 
called on your firm, did they not ask you, as duly authorized repre- 
sentatives of this committee, to make available to us all documents — 
memoranda, letters — in your files, pertaining to this transaction? 

Mr. Whitney. And everything else. 

Mr. Nehemkis. Now — just a moment 

Mr. Whitney (interposing). And you got 

Mr. Nehemkis (interposing). Mr. Chairman, I must request that 
3'ou rule 

The Chairman. The witness was answering the question, Mr. Ne- 
hemkis, I think. You may proceed. 

Mr. Whitney. Any other question therein, I would be delighted to 
answer. 

Mr. Nehemkis. Fine. I just want to know the meaning of that 
statement you just made, that you made a complete record of what 
Mr. Davison had told you. Why did you not furnish us that docu- 
ment? 

Mr. Whitney. Well 

Mr. Nehemkis (interposing). Read back that one sentence, if you 
will. 



CONCENTRATION OF ECONOMIC POWEE 11885 

Mr. Whitney. I got the sentence all right, Mr. Nehemkis, and the 
last thing I want to do is to appear in any way evasive. The next 
thing, and even more important than that, I would hate to have the 
commjttee feel that we didn't give you every single document in 
our file. We worked hours and hours to produce data for you, anc. 
there is no such record as this in our office. If that is clearly under- 
stood, 1 would be delighted to explain what I meant by what I said. 

Mr. Nehemkis. I wish you would. 

Mr. Whitney. We have in our office, or had, back in those days, a 
thing called a syndicate department, through which went the tech- 
nical bookkeeping entries of syndication of securities. We had there, 
obviousl}^ certain things to do with the Telephone Company, and un- 
doubtedly, this was some notation for future business, because there 
was a piece of business pending. 

You have got everj'^thing. I just testified to the chairman that 
I was much relieved when I found this because it did stir up my 
recollection of this other memorandum. 

Mr. Nehemkis. The May 5 memo? 

Mr. Whitney. The May 5 memorandum, which I saw 3 or 4 days 
before this hearing, and I knew the figures in that were accurate, 
although, as I have already testified, they were changed a few 
months thereafter. I undoubtedly went to the fellow who handled 
the bookkeeping part of our office. 

Mr. Nehemkis. Mr. Keyes? 

Mr. Whitney. Oh, no ; he is our general manager. 

Mr. Nehemkis. Who is that person? 

Mr. Whitney. Let's see, in 1920, I couldn't remember who it was, 
some head of the department. So that there would be some notation 
when another Telephone transaction came up, that we, who had the 
handling or the syndication of it, would know what had been agreed 
on, for the next deal. 

FIRST ISSUE after THE "LIBRARY AGREEMENT" 

Mr. Whitney. As I say,' when the next deal came, these percentages 
didn't hold. It was a very minor change, you know, but I stand by 
my statement, and I also stand by the absolutely unequivocal state- 
ment that there isn't a single thing in our office that you gentlemen 
have asked us for that you haven't had. It has been difficult some 
times to present it the way you wanted it, but we have tried, and 
there is nothing like this in our office. 

Mr. Henderson. In other words, you haven't even yet located the 
record you made before this thing went back to Kidder? 

Mr. Whitney. No, because the only record we have kept on this, 
Mr. Henderson, is a record of the transactions as they actually took 
place. The next issue came in the fall, and I think it was Bell 
Telephone of Pennsylvania. The percentages which you will find 
there are substantially as stated here, with the very small change of 
Kuhn, Loeb, who got 103/4. There was a quarter taken off three other 
people. So the only records we would have of a thing like this are 
just in the run of business, and if I may say so, it seems to me to 
indicate that we didn't take these things as a very permanent, lasting, 
frozen arrangement; that when the next transaction came up, we 



11886 CONCENTRATION OF ECONOMIC POWER 

dealt with it in that wa}^, subject always to the thought that the next 
time it might be changed again. And our permanent records you 
have got. 

Mr. Henderson. You mean to say you didn't attach importance to 
Davison's suggestion which originated with you and which involved 
questions of future participations? Here is a record of it and you 
didn't think it important enough to keep? Does that mean you 
had it in your head, or you knew you could go back to the last issue 
and get it? 

Mr. Whitney. No, I don't think so. It has got to be considered, 
Mr. Henderson, in connection with what we were doing at the time. 
There was this Bell Telephone thing planned. We did not know 
what the longer future held. 

Mr. Henderson. But you did know pretty much what the agreement 
was as to the division, didn't you ? 

Mr. Whitney. We knew, my senior partner told me, that for the 
next Telephone operation these percentages had been fixed between 
him and Mr, Winsor, including these two new participants in the 
group, in that way. Well, what I almost surely would have done 
would have been to make a notation somewhere so that I wouldn't 
forget about it, because it did not pay to forget things with him. 
Wlien the deal came it was translated into actuality, and my "aide 
memoire" to remind me of the way he wanted me to do it would have 
been destroyed with other working papers, and the fact that the Bell 
Telephone was handled in this way is proof that I did what I had 
been told to do, plus that very minor alteration of three-fourths of 
1 percent. 

The Chairman. Was the next issued divided in accordance with 
the figures that appear in the second column ? ^ 

Mr. Whitney. No^ sir. I say 

The Chairman (interposing). I meant, when I said the second 
column, the second column of figures. 

Mr. Whitney. It was, with the exception of Kuhn, Loeb who on 
the last column to the right have got 10 percent. They actually got 
10%, and the Guaranty, the Bankers, got 4% each, and I think that 
Kidder, or the New England group got 29%. 

The Chairman. Well, then, the label at the head of that column 
finally agreed upon is not, then, accurate? 

Mr. Whitney. It was altered. We never worked under that final 
column which proves that this was not static. 

The Chairman. So there was another distribution, another 

Mr. Whitney. Alinement. 

The Chairman. Alinement? 

Mr. Whitney. Yes, sir. 

May I say — I want to make it very clear — I am not questioning in 
any sense the accuracy of that memorandum. I never have, or any 
of those figures. If I talk about them, I am not questioning them. 

The Chairman. I understand that; you have not disputed that 
point at all. 

Mr. Nehemkis. Mr. Chairman, these are rather precious documents, 
and I don't want to be carrying them around. Can I get them into 
evidence right now? 



» See "Exhibit No. 1679," appendix, p. 12214. 



CONCENTRATION OP ECONOMIC POWER 11887 

Mr. Alexander. "We have some more copies. [Laughter.] 

The Chairman. These exhibits may now be admitted into the 
record.^ 

Mr. Nehemkis, do you wish to suspend at this point ? 

Mr. Nehemkis. I think so, if we may, until Monday morning, if 
that is the committee's pleasure. 

The Chairman. Until Monday morning at 10. 

Mr. Nehemkis. Yes; at which time we will resume with Mr. Wliit- 
ney and the other witnesses involved in the presentation of the tele- 
phone story. 

The Chairman. Now, then, for the purposes of this particular 
hearing, Mr. Whitney and Mr. Alexander may step aside. 

Before the committee adjourns, however, it will now receive a sug- 
gestion from Mr. E. F. Connely, president of the Investment Bankers 
Association. Mr. Connely will step forward. 

Mr. Emmett F. Connely. Mr. Chairman. 

The Chairman. You n ay be seated. You are not giving testi- 
mony, you are making a request. 

Mr. Connely. Thank you, sir. 

The Chairman. I may say that Mr. Connely has approached the 
chairman and the executive secretary with respect to the desire of 
his organization to request an opportunity to be heard. You may 
proceed, Mr. Connely. 

STATEMENT BY EMMETT F, CONNELY, PRESIDENT, INVESTMENT 
BANKERS ASSOCIATION OF AMERICA, DETROIT, MICH, 

Mr. Connely. Thank you, Mr. Chairman. 

Mr. Chairman and members of the committee, my name is Emmett 
F. Connely, I am president of the Investment Bankers Association 
of America, a voluntary association composed of 723 dealers in securi- 
ties, having 1,410 offices located in 210 cities and in 40 States, I was 
elected by the association membership at its convention in October to 
serve for 1 year. 

Since its inception, early in the year, our members have been keenly 
interested in the constructive possibilities of this inquiry. More re- 
cently, some of our members, particularly those of us from the West 
and South, have evidenced the feeling that any study of the invest- 
ment-banking industry, such as comes within the scope of this com- 
mittee's powers, should be sufficiently broad as to bring out the local 
problems affecting the flow of capital into industry as we know them 
from practical day-to-day experience in our several local communities. 

After assuming office, I made inquiry as to just what these hearings 
would cover, and learned that your committee intended to confine its 
investigation for the present, at least, to a small group of large 
houses., whose exclusive or principal business is the underwriting and 
original distribution of large national issues. It seemed to me that 
if this inquiry were confined to such limits that the public might 
erroneously assume that your inquiry into the affairs of 8 or 10 very 
large houses was a study of the investment-banking business as a 
whole. 



1 "Exhibits Nos. 1673 and 1679.' 



11888 CX)NCENTRATION OF ECONOMIC POWER 

Actually, if confined to these limits, we feel that you would be 
studying but a single phase of our business; and, what is far more 
important, that in so doing you would be depriving yourself of an 
opportunity to accumulate a vast amount of additional information 
that would be extremely useful for your purposes in your study of this 
all-important subject of the flow of capital into industry. 

After conferring with members of our board of governors, who ap- 
proved of my making an effort to introduce testimony at this hearing, 
I wrote Senator O'Mahoney on November 17, requesting an oppor- 
tunity to be heard. I asked the Senator if we might introduce 
testimony that would be given by dealers from various sections of the 
country. 

Subsequently, in this connection, I called a special committee meet- 
ing which was held on December 5 and 6 at my home city of Detroit, 
at which were present some 15 representative members from widely 
scattered locations — from Wisconsin to Texas, and from North Caro- 
lina to the Pacific Northwesi. I did not know at that time that your 
schedule of necessity had to be developed quite far ahead of the actual 
appearance of the witnesses, nor did I know until coming to Wash- 
ington this week that it was necessary to submit our statements to 
you at least 30 days prior to the hearing so that you might have them, 
for study. 

It became apparent to mc iir.:rx2diately that, willing as you were, you 
could not hear our people at this time. Fearing that this investment 
banking inquiry might be permanently adjourned on or about 
December 22, I felt it desirab-e to get some brief statement into the 
record that our position might be set forth in the hope that when 
your committee reconvenes you will recognize the importance of our 
request and hear the story of the local dealer in our business and what 
he thinks can be done to put idle men and machines to work. 

This being an economic study, it seemed a pity to close the invest- 
ment banking section of the inquiry without hearing from the hinter- 
lands, for we honestly believe we can be helpful in making suggestions 
that will help to eliminate the lag, leak, and friction referred to in 
the President's letter to Senator O'Mahoney, dated May 16 of this 
year. Your committee has been both generous and gracious in waiv- 
ing its rules and granting me an opportunity to make this brief 
statement. I am more than appreciative. 

The President in the letter just referred to stated "that the dollars 
which American people save each year arc not yet finding their way 
back into productive enterprise." There are more than 6,000 dealers 
in this business. They are situated from coast to coast and give 
employment to over 93,000 people. We believe that we are more 
closely connected with the investment banking process than any group 
in the country. 

We believe that we have an intimate knowledge of the small invest- 
ment buyer's problem and tlie problem of the small-business man, 
and if given an apportunity at a later date we would hope to give you 
important factual data coupled with suggestions as to what might be 
done toward the solution of our economic troubles. While we come 
from the smaller centers, nevertheless we believe our viewpoint has 
worth while social significance. 

We are particularly anxious h get before you the problem of small 
and medium-sized business when it comes to financing its needs and 



CONCENTRATION OF ECONOMIC POWER 11889 

also the current attitudes of investors and potential investors in local 
communities. If given an opportunity to appear at a later date, 
these typical local dealers will be specific in their testimony. They 
will present case histories of local investors and businesses, and the 
way in which concerns m their own communities have been financed 
in the past and are now being financed or hindered in their financing. 

Since our testimony will be aimed at presenting to you the situation 
which today confronts on the one hand the investor, potential or 
nctual, and on the other hand, concerns which seek or might seek 
financing — it seems inevitable to me that references will be made to 
so-called deterrents, handicaps, and bottle necks. 

Effort will no doubt be made to show that business conditions 
could improve if <:enain deterrents were removed. Those who testify 
will undoubtedly point out that our business is encountering diffi- 
culties, real or fancied, with the Securities Act of 1933, as amended. 
There are some real problems to be solved as to how to correct the act, 
so that businessmen — both large and small — may be more willing to 
borrow publicly and thus put idle dollars to work. 

The question of private placement will also undoubtedly come up 
for discussion as will the question of banking-department regulations 
and limitations that these regulations impose upon local banks and 
the development of local business enterprises. The influence of the 
tax structure upon different kinds of security purchasers and its 
effect upon local industries may also be referred to. In a word, it will 
be our purpose to offer testimony based on our experience in our own 
communities which Ave hope will be helpful in solving the unemploy- 
ment problem and, in that way, contribute a definite social service. 

If it meets with your approval, we might also ask a professional 
economist to review testimony already before your committee, given 
in conection with factual data now in the record, since we are not 
wholly in accord with certain inferences that have been drawn from 
such data. 

I trust that I have given you an indication of our intentions which 
will be adequate for your purposes, that the topics to be covered in 
the testimony which we hope to provide have been set forth with 
sufficient precision and that you will feel that this testimony will be 
useful in solving ■■l^vx common problem of restoring the economic 
mechanism to good working order. 

The Chairman, Thank you, very much, Mr. Connely. 

Mr. CoNNELT. I thank you and the committee very much. 

The Chairman desires to call to the attention of all prospective 
witnesses here that o-i Monday we resume this study of A. T. & T. 
financing, and all witnesses, who have been subpenaed in this <;onnec- 
tion probablj' had letter make their arrangements to be present. The 
committee then will stand in recess until 10 : 30 Monday morning. 

(Whereupon, at S:20 p. m., the tearing recessed until 10:30 a. m. 
on Monday morning, December 18^ 1939.) 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWEK 



MONDAY, DECEMBER 18, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington^ D C. 

The committee met at 10:50 a. m., pursuant to adjournment on 
Friday, December 15, 1939, in the Caucus Koom, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman), and King; Messrs. Hen- 
derson, Avildsen, and Brackett. Present also: Charles L. Kades, 
Treasury Department; Ganson Purcell, Securities and Exchange 
Commission; Clifton M. Miller, Department of Commerce; Peter R. 
Nehemkis, Jr., special counsel; David Ryshpan, financial analyst; 
W. S. Whitehead, security analyst; and Samuel M. Koenigsberg, 
associate attorney. Securities and Exchange Commission. 

The Chairman. The committee will please come to order. Mr. 
Nehemkis, are you ready to proceed ? 

Mr. Nehemkis. I am, sir. 

The Chairman. Commissioner Henderson will make a brief an- 
nouncement with respect to the continuance of these hearings. 

Mr. Henderson. The S. E. C. had hoped to conclude this week 
the presentation involving these three items related to investment 
banking, but finds that the committee and the witnesses would 
undoubtedly be unduly burdened, and we have suggested to the 
chairman and the executive secretary, and they have concurred, that 
we conclude Wednesday night and recess until the first week in 
January. 

The Chairman. You mean, conclude this phase of it. 

Mr. Henderson. Conclude the phase relating to the A. T. & T., 
J. P. Morgan & Co., and Morgan Stanley & Co., everything relating 
to those three items by Wednesday evening, if possible, and then 
pick up with other investment banking houses after the first of the 
year. 

The Chairman. Well, that will mean that other witnesses who have 
not been called to testify with respect to any of these matters are free 
to absent themselves from the hearing if they so desire? 

Mr. Nehemkis. That is correct, sir. 

Mr. Henderson. During the hearings on Friday, there was de- 
veloped by counsel a good deal of technical background, showing the 
origin and development of the Telephone group and of various per- 
centage changes in the original terms group. It seems to me it would 
be very helpful to the members of the committee if, before resuming 
the hearings, counsel gave us a brief summary of the state of the 
record at the time we concluded on Friday afternoon. 

11891 



11892 CONCENTRATION OP BCONOMIO POWER 

The Chairman. May I interrupt there, to insert m the record a 
statement which has just been received from Dr. Albert Haring, 
professor of marketing of the School of Business of Indiana Univer- 
sity, Bloomington, Ind. 

When Dr. Haring testified before the committee at the price hear- 
ings on December 7, he was requested to submit certain information 
concerning the assets and liabilities of the Great Atlantic & Pacific 
Co. This material has now been furnished, and without objection, 
it will be printed in tl;ie record at the proper place. Now, Mr. 
Nehemkis. 

(The material j-ef erred to was marked "Exhibit No. 1683" and 
appears in Hearings, Part 21, appendix, p. 11380.) 

SUMMARY BY COUNSEL OF PREVIOUS TESTIMONY ON AMERICAN TELEPHONE 
& TELEGRAPH CO. FINANCING 

Mr. Nehemkis. May it please the committee, in accordance with 
Commissioner Henderson's request, may I briefly review the im- 
portant developments, as we left on Friday ? 

On the historical development of the JTeiephone group, first, the 
members of the group in the issue of 1906 were as follows : Kiddei', 
Peabody & Co., Baring Bros., Ltd., of London. -T. P. Morgan & Co., 
J. S. Morgan & Co., of London, and Kuhn, Loeb & Co. There was 
added to the group in the year 1913 the First Narional Bank of New 
York and the National City Bank, and in 1916 i:here was added to the 
Telephone group the following bank and brokerage accounts: Lee, 
Higginson & Co., Harris, Forbes & Co. 

This group remained intact until the year 1920. The percentage 
participations of the so-called proprietary grorp in Telephone financ- 
ing are set forth in the committee's "Exhibit Nr. 1666. ' ^ The per- 
centages of the so-called proprietary group remaiiied fixed, begiiming 
with the issue of December 11, 1916, and through tho subsequent four 
issues of Telephone securities taken by the group. This is shown by 
five entries in the committee's "Exhibit No. 1666." 

The second item I review for you is the conference of May 5th at 
"the library." The evidence shows, Mr. Chairman, that prior to the 
conference at "the library" of May 5, 1920, Mr. Whitnej' had prepared 
a memorandum for his senior partner, Mr. Davison, committee's 
"Exhibit No. 1679." = The evidence will show, Mr. Chairman, that 
on this aide memoire, Mr. Whitney prepared a list of abbreviated 
names of the group and certain percentage realinements. It appiears 
that Mr. Davison took this memorandum with him to the conference 
at "tlie library." The final column of figures on the memoire bears 
the caption, ''Finally agreed upon." It has been testified that was 
in the writing of Robert Winsor. 

The evidence does not show in whose writing the last column of 
figures was. The caption, "Davison's suggestions," appearing on the 
first set of figures written by Mr. Whitney has been testified to as 
being in the handwriting of Robert Winsor. "Exhibit No. 1673" ' is 

1 Appendix, p. 12208. 
•Appendix, p. 12214. 
•Appendix, p. 12211. 



CONCENTRATION OF ECONOMIC POWER 11893 

Mr. Robert Winsor's record of what was decided upon at the confer- 
ence in "the library." 

The conference at "the library," it would apf)ear from the evidence, 
was made necessary by the following factors : First, the desire to intro- 
duce into the original-terms group twc n^w houses, the Bankers Trust 
Co. and the Guaranty Co., and to increase the share in the original- 
terms group of Lee, Higginson and Harri?. Forbes & Co. Second, the 
desire on the part of J. P. Morgan & Co. "'to have a larger percentage 
of the original-group profits go to these four people." ^ Third, the 
pending financing program formulated by Mr. Walter Gifford re- 
quired, according to Mr. Whitney's testimony, a realinement of the 
percentages with these two new people. 

Now, the third item which I review 2oc you 

The Chairman (interposing). Perhaps, Mr. Nehemkis, it might be 
proper to remark that there was some dispute with respect to the 
exact significance of the phrase, "proprietary interest." The witness 
wanted it understood — the witness, Mr. TvTiitney — that there was no 
legal significance 

Mr. Nehemkis (interposing). That's right. 

The Chairman. Regardless of what the facts might be. 

Mr. Nehemkis. The third item which I review for you, sir, is 
the result of the conference of May 5, 1020. It would appear that 
Mr. Whitney's proposal for percentage realinements did not prevail. 
The conferees, Messrs. Morgan, Davison, and Winsor agreed upon 
(1) a 70-30 division of the Telephone business, 70 percent going to 
the New York group and 30 percent to the New England proprietary 
interests; (2) that negotiations with the company were to be joint; 
(3) that future Telephone financing would include subsidiary com- 
panies as well as the parent company. 

Such, Mr. Chairman, may it please the committee, is my under- 
standing of the state oi the record as we concluded on Friday. At 
this point, if it please the committee, we shall endeavor to ascertain 
what figures did finally prevail, and I should at this time desire 
to recall Mr. Whitney. 

Mr. George Whitney, take the stand,^ please. 

TESTIMONY OF GEORGE WHITNEY, J. P. MORGAN & CO., NEW 
YORK, N. Y.— Resumed 

NEW ENGLAND AND BARING BROTHERS' PARTICIPATIONS PRIOR TO "LlTTJRARY 

agreement" 

Mr. Nehemkis. Mr. Whitney, following the conference at "the 
library," as you have previously testified, there was a readjustment 
of % percent in the percentage allocations which had been agreed 
upon on May 5th? 

Mr. Whitney. Yes. 

Mr. Nehemkis. Now, the next Telephone issue followed the ad- 
justed figures. This was the 25 million Bell Telephone of Penn- 
sylvania f 

Mr. Whitney. Yes. 

Mr. Nehemkis. M.\. Whitney, I show you a record sheet describing 
the $25,000,000 Bell Telephone Co. offering of Pennsylvania, which 

' Supra, p. 11880. 



11894 CONCENTRATION OF ECONOMIC POWER 

you were good enough to make available to us. I ask you to ex- 
amine this record and tell me whether you recognize it as a true 
and correct copy? 

Mr. Whitney. Yes, sir. 

Mr. Nehemkis. The document is offered in evidence, Mr. Chair- 
man. 

The Chaikman. Without objection, it may be received. 

(The document referred to was marked "Exhibit No. 1684" and is 
included in the appendix on p. 12219.) 

Mr. Nehemkis. Now, on Friday, Mr. Wliitney, you testified, at 
the time of the May 5th conference at "the library," you did not 
know that Mr. Winsor had subparticipated the so-called New Eng- 
land proprietary interests. Do you recall that? 

Mr. Whitney. Didn't know he had? 

Mr. Nehemkis. Yes. Now, at the time of the Bell Telephone Co. 
offering in 1920, did you know that Mr. Winsor had subparticipated 
in New England proprietary interests? 

Mr. Whitney. Mr. Nehemkis, we knew it was true in the Tele- 
phone business, as to the actual distribution by the subscribing 
syndicate of seven or eight or nine hundred people throughout the 
country that New England lijindled a portion of that, this percent- 
age you speak of, roughly 30 percent or 29% percent, distributed 
through Winsor's own office. We handled everything outside of 
New England. If I were to say when I learned about his sub- 
participations on original terms, I would date my knowledge later 
than that, when we first learned about it, and very much later than 
that when we learned the detail of it. Do I make that clear? 

Mr. Nehemkis. You knew it much later than the year 1920 ? 

Mr. Whitney. We knew — of course, we knew of the selling ar- 
rangement that he had. 

Mr. Nehemkis. Yes, you knew 

Mr. Whitney (interposing). Which is entirely a different thing 
from the original terms, but I would say that we didn't know, or that 
I didn't know, that he had any subparticipations on the original 
terms until substantially after this day. 

Mr. Nehemkis. Well, now, isn't it a fact, Mr. "V\niitney, that even 
before the May 5 conference at "the library," you knew that Mr. 
Winsor had subparticipated the New England interests? 

Mr. Whitney. On the original terms? 

Mr. Nehemkis. Yes. 

Mr. Whitney. I just said I don't think so. 

Mr. Nehemkis. Well, now, Mr. Whitney, I recall 

Mr. Whitney (interposing). Of course we knew back in the 
Baring days. 

Mr. Nehemkis. Yes. Well, now, I recall to you "Exhibit No. 
1679," which you have testified to was in your own handwriting, and 
on that exhibit appear two figures, Kidder, Peabody, 15; New 
England, 9. If you did not know that Mr. Winsor had subpartici- 

Sated the New England proprietary interest, on the basis of what 
ata in your office could you have possibly arrived at the figures, 15 
for Kidder. Peabody, and 9 for the New England subparticipation ? 



CONCENTRATION OF ECONOMIC POWER 11895 

Mr. Whitney. Why, I testified on Friday that when I prepared 
this memorandum for Mr. Davison, it was for the reason that we be- 
lieved that the rest of the country was entitled to a larger interest in 
the distribution of these securities. And I took these figures as an 
indication to Mr. Winsor of what we wanted to do. because you will 
notice the reduction from the figures finally agreed upon and those 
that I suggested to Mr. Davison are all in that one item. And when- 
ever it came to consideration of Telephone financing, there was al- 
ways this distinction made. It was not my province to discuss what 
the original terms were, but I felt, and the bond department felt, that 
we needed more of the original term profits. You read an excerpt ^ 
from the minutes this morning — to be given to these three large na- 
tional distributors for the purposes of distribution. It was not at 
all a question of where the original profits went, except insofar as it 
affected the quality of the job of distribution which we could do for 
our clients, the Telephone Co. 

Mr. Nehemkis. Mr. Whitney 

Mr. Whitney (interposing). Excuse me, may I just continue? 

Mr. Nehemkis. Yes, sir; indeed. I am sorry. 

Mr. Whitney. Of course I knew what was being done in New 
England, and I wanted to get from New England this 6 percent to 
be divided among these four houses, because they were national dis- 
tributors. It was ail for the purpose of distribution — my job and 
the bond department's job, in our office. It was that, and not the 
question of any policy involved. 

Mr. Nehemkis. Mr. Whitney, I now show you "Exhibit No. 1671." 
I ask you to examine this exhibit. 

(Witness examines exhibit.) 

Mr. Nehemkis. Will you read the title, please, to the committee 
may have it before them ? 

Mr. Whitney. Well, may I — I can't identify this. 

Mr. Nehemkis. That is in the record, already offered. Just do 
as I ask you, if you will. 

Mr. Whitney. You asked me to read something. 

Mr. Nehemkis. Read the title. 

Mr. Whitney (reading from "Exhibit No. 1671") : "American Tele- 
phone Proprietaiy Interests." 

ivTr. Nehemkis. Now, will you ■■ 

iMr. Whitney. May I just say there, this did not come from our 
files. 

Mr. Nehemkis. No one has said so. 

Mr. Whitney. No; but perhaps there has been that inference. I 
testified, certainly, ad nauseam, that we never heard ihe term, "pro- 
prietary" interest. 

Mr. Nehemkis. Just follow this; and will you do as I ask, Mr. 
Whitnev? Turn to the column headed, "Convertible 41/2's of April 
1913. Do you have it? 

Mr. Whitney. Right. 

Mr. Nehemkis. Now read the names and the amounts of the first 
three firms under the New England group. 

> Supra, p. 11893. 



11896 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitney (reading from "Exhibit No. 1671"). "R. L. Day & 
Co., Estabrook & Co., Old Colony Trust Co." Well, it names Hayden, 
Stone & Co., ¥. S. Moseley & Co., Kidder, Peabody, Baring Bros. 
Ltd. 

Mr. Nehemkis. Now, will you read the sum of the first entries, three 
figures ? 

Mr. Whitney. Nine. 

Mr. Nehemkis. They total up to 9. Now, still glancing at this 
column, wiiryou read the figures set opposite Peabody? 

Mr. Whitney. Fifteen. 

Mr. Nehemkis. Now, still at this same column, is not the balance 
of the 35 percent New England proprietary interest shown to have 
been made up of 11 percent, set against Baring Bros. & Co., Ltd., 
of London ? 

Mr. Whitney. Yes. 

Mr. N-EHEMKis. Now, will you note, Mr. Whitney, that the divisions 
are the same in the next column, except that the Old Colony Trust Co.'s 
4 percent interest was retained by Kidder, Peabody i Now, follow me, 
if you will, Mr. Whitney, to the next column, labeled "American Tele- 
phone Subsidiai-y Notes, August 1914." The figures are exactly the 
same in this column as the figures for the April 1913 issue. Now, 
turn with me, if you will, Mr. Whitney, to the next column, and 
you will note that the figures there are again the same except that 
Kidder, Peabody ceded to Hayden, Stone a one-ninth interest out of 
its 15 percent. But, if you are following iiie, Mr. Whitney, you will 
note that the figures 9, 15, and 11, remain intact. Now, turn, if 
you will, Mr. Whitney, to the next column, labeled "December 1916." 
The proportionate interest, you will note, remained the same. Tiie 
participants give up proportionately 10 percent each in order to make 
up the 10 percent for Harris, Forbes and Lee, Higginson. Now, if 
you will, turn to the next cohimn, and you will note 

Mr. Whitney (interposing). What '.vas that last; Harris, Forbes; 
Lee, Higginson? 

Mr. Nehemkis. The participants, I said, give up proportinately 
10 percent each in order to makfe up the 10 percent for Harris, Forbes 
and Lee, Higginson. 

Mr. Whitney. It doesn't say that here. 

Mr. Nehemkis. Well, you follow the next column. In the next 
column, you will note that Baring Brothers, Limited, of London has 
disappeared and you will also note R. L. Day, Estabrook, the Old 
Colony Trust Co. have been restored to their old 9-percent interest. 
Now, Mr. Whitney, in your aide memoire for Mr. Davison, insofar 
as the New England interests were concerned, you were in reality 
proposing to distribute the Baring Brothers, Limited 9.9-percent in- 
terest, so that the "9" ' your handwriting, in "Exhibit No. 1679,"^ 
the aide 'memoire^ is tl. proprietary interest of Day, Estabrook, and 
the Old Colony Trust Co. which you proposed to leave untouched and 
the "15," in your handwriting, in "Exhibit No. 1679," the aide mem- 
oire, is the old 15-percent interest of Kidder, Peabody in the New Eng- 
land proprietary group which you also proposed to leave untouched. 
So it appears that you were really not concerned with the ability of 
New England to distribute the minimum which it had always dis- 

> Appendix, p. 12214. 



CONCENTRATION OF ECONOMIC POWER 11897 

tributed, because you left that untouched. It would appear, Mr. 
Whitney, that what you were really concerned about was whether 
New England should continue to have the share of the underwriting 
which under the New England agreeement had gone to Paring 
Brothers of London ? 

Mr. Whitney. Well, that is very interesting testimony. 

Mr. Nehemkis. You have no further comment to make on that? 

Mr. Whitney. I have ^"ust this. It is very brief. As far as our 
knowledge goes, your last estimate has got no relevancy. We did not 
know a thing about it. The 6 percent we were trying to reallocate 
was to go 1% percent to those four houses. And I repeat, definitely, 
and all your mathematical calculations notwithstanding, that is hind- 
sight. We did not know the first single thing about this. There is 
not the slightest thing to show there was any agreement about 

Mr. Nehemkis (interposing). We are not discussing that. 

Mr. WnrTNEY. I don't want to get in an argmnent about vour last 
statement, but I can tell you unequivocally that the fact that these 
figures look the same, iias no bearing on our knowledge, and as a 
matter of fact, we did not take the 9 percent of Baring's. 

Mr. Nehemkis. 9.9 percent. 

Mr. Whitney. 9.9 ; we only asked to take 6. 

Mr. Nehemkis. But that is the amount you had to distribute. 
There is a question I would like to ask you, if I may. How was it 
possible for you to make all those calculations without the aid of a 
written record? Apparently, Robert Winsor couldn't do it. 

Mr. Whitney. We have written records in our syndicate file^, and 
all these figures that you presented yesterday — perhaps it may not 
be clear to the committee — come from our records — all these percent- 
ages and businesses done. We have those records, but, as I said on Fri- 
day, Mr. Chairman, these are isolated transactions. There were no 
vested rights of a'ny kind, either between the company, this group, 
ourselves, and Kidder, no vested rights between the various partici- 
pants of the group. And this testimony and this exhibit, I hope it is 
quite clear, have nothing to do with our files. I was just asked to read 
certain writings on an exhibit that I never saw before until a couple 
of weeks ago when the copies were sent to us. And this calculation of 
Mr. Nehemkis is more or less — I don't doubt his accuracy, but w<^ just 
didn't know about it. And these — my memoranda, my penciled mem- 
oranda,^ to Mr. Davison were solely, strictly related to the distribution. 

I wouldn't attempt to go into the details of the bond business, be- 
cause that would take too long, but we believed that these four houses 
who had a large national distributior. needed a bigger percentage on 
the original terms in order to insure their full cooperation in doing 
the job for the Telephone company that we had iDeen asked to do 
When I say "been asked to do," I wish to add that there was no com- 
mitment, there was no contract. When Winsor used the word "pro- 
prietary" terms, that was his business. It was not our feeling about 
it, and there was nothing to support it, and the calculation of Mr. 
Nehemkis — I don't doubt they all add up to that, except there were 
only 6, it was not 9. 

Mr. Nehemkis. Now, Mr. Whitney, how did you know when you 
were preparing the aide memoire for your senior partner, Mr. Davi- 

» "Exhibit No. 1679." 

12449) — 40— pt. 23 7 



11898 CONCENTKATION OF ECONOMIC POWER 

son, to put after New England, as you did, the 9? How did you 
know that after K. P. you were to put 15? You must have known 
that the New England subparticipations of Mr. Winsor's group 
totaled up to 9? 

Mr. Whitney. But they did not. 

Mr. Nehkvikis. You just read them for me from the exhibit ^ which 
I showed you, and you added 9. And then, for three columns I 
went with you and said, now, they are the game, and your answer was 
''Yes, Mr. Nehemkis, they are the same, and they total up to nine." I 
am asking if you could enlighten us how it was possible for you to 
tell Mr. Davison that New England represents nme, if you did not 
know what was on those sheets that you just examined? 

Mr. Whitney, Well, I am sorry, Mr. Chairman, I am afraid I 
can't do any better than I have done, I think. I consider it a pure co- 
incidence. Twenty years is a long time, but I am perfectly confident 
that I had no knowledge such as you infer I had, and that that memo- 
randum, the fact that it leaves them with nine, was the sheerest 
coincidence. 

Mr. Nehemkis. I accept your word for that, Mr. Whitney. 

Mr. Whitney. May I ask a question of you ? What is the point of 
this? 

Mr. Nehemkis. Well, Mr. Whitney, that is not a proper question 
for a witness to ask. 

Mr. Whitney. I withdraw it. 

(Laughter.) 

INFORMING INTERESTED PARTIES OF "LIBRARY AGREEMENT" 

Mr. Nehemkis. To continue, if we may. Do you happen to know 
whether the terms of the understanding which was arrived at in 
the library, were transmitted to the company, the American Tele- 
phone & Telegraph Co. ? 

Mr. Whitney. I testified, I think, on Friday, that I don't re- 
member (and I had most of the discussion with Gifford) that the 
percentages were given to them,. They certainly were not given to 
them as something that had happened, but I have no doubt that 
during the course of the years, he may have acquired a pretty good 
understanding without the details. But the question of formation 
of the group, or who was in it, or the percentages, as far as I can 
testify to what another man knew, Mr. Gifford had no knowledge 
of them. He certainly did not have them from me. 

Mr. Nehemkis. Now, do you know, Mr. Whitney, whether Mr. 
J. P. Morgan, or Mr. Henry P. Davison discussed the revision of 
interests with the New York group, prior to the meeting at "the 
library"? 

Mr. Whitney. I couldn't answer that, except insofar as I told 
you the other day, that Mr. Alexander and I asked Mr. Morgan if 
he had any recollection of this meeting and of the substance of it. 
I think I said he told us he did not even remember there was a 
meeting. 

Mr. Nehemkis. But of your own recollection and knowledge, you 
cannot tell me now whether either Mr. Davison or Mr. Morgan dis- 
cussed the revision, prior to the time they went into "the library"? 

1 "Exhibit No. 16T1." 



CONCENTRATION OF ECONOMIC POWER 11899 

Mr. Whitney. Of my own knowledge, of course, I wouldn't pre- 
tend to know what two other gentlemen did 20 years ago but I 
would be willing to say that I am perfectly confident they did not. 

Mr. Nehemkis. Repeat that. 

Mr. Whitney. I am perfectly confident they did not. 

Mr. Nehemkis. They did not? 

Mr. Whitney. No, but that must be a surmise, it can't be a fact. 

Mr. Nehemkis. Now, do you know, Mr. Wliitney, when and how 
the terms of the agreement arrived at, at "the library," were trans- 
mitted to the First National Bank of New York? 

Mr. Whitney. I know of no reason to believe they were. 

Mr. Nehemkis. Do you happen to know or recall how and when 
the terms of the agreement arrived at in "the library" were trans- 
mitted to the National City Bank? 

Mr. Whitney. I have no reason to believe they were. 

Mr. Nehemkis. Would your answer be the same for Kuhn, Loeb & 
Co.? 

Mr. Whitney. It wouldn't be quite the same, because most of the 
discussions there were with Kidder, Peabody, and I would haA^e no 
knowledge of that. 

Mr. Nehemkis. I'm sorry, I don't follow you. I asked if your 
answer was the same with reference to Kuhn, Loeb & Co. 

Mr. Whitney. I said 

Mr. Nehemkis. And your answer was that it was discussed with 
Kidder, Peabody? 

Mr. Whitney. I said my answer would not be the same, because, 
if you remember, I testified on Friday ^ that in 1906 Kuhn, Loeb were 
approached by Mr, Winsor, of Kidder, Peabody & Co., and that gen- 
erally speaking, the discussion on Telephone matters had been be- 
tween Mr. Winsor, of Kidder, Peabody, and Kuhn, Loeb & Co. 
Therefore, my ansvrer would not be the same. 

Mr. Nehemkis. I misunderstood you. Would your answer be the 
same ^s in the earlier answer with reference to the communication 
or possible communication to Harris, Forbes & Co. ? 

Mr. Whitney. Yes; it would with all the others. 

Mr. Nehemkis. Guaranty Trust and Bankers Trust ? 

Mr. Whitney. Yes. 

Mr. Nehemkis. So that the most powerful and important banking 
houses in the United States, with a 60-percent interest in business 
ultimately amounting to $832,000,000, were not consulted concerning 
this redivision of their interest in the Telephone business, according 
to your own testimony? 

Mr. Whitney. Now, Mr. Nehemkis, if I may, there are two or 
three things I would like to say. I did not say that they weren't 
told about it. You asked me the question, if I knew how the news 
had been transmitted to them. 

The second thing is that you again draw in the question that this 
conference was dividing up $832,000,000 worth of business. I want 
to reiterate again — I will have to do it as often as it comes up — that 
each transaction stood absolutely on its own legs. We were not 
dividing up anything. 

The third question was that it was not a matter of consultation. 
I have said that they had no vested rights in this thing. Now, if you 

» Supra, p. 11848. 



11900 CONaENTRATION OF ECONOMIC POWER 

go to the end, I don't mean to say that they didn't know, when the 
next transaction came along, what their percentages were. That is 
obvious; they did. 

Mr. Nehemkis. That is something else, again, though, Mr. AVliit- 
ney. 

Mr. Whitney. Right. But your question was, did I know how 
they were advised of this meeting at the library, and I said that I 
had no reason to believe they were advised. It is quite a different 
question, that sometime later, when there was a piece of business 
pending, they were not told what percentages they would have. But 
I want the record very clear, Mr. Chairman, if I may, that this 
$832,000,000 

That was on what date? 

Mr. Nehemkis. In 1933, just before- 



Mr. Whitney (interposing). '32 or '30. 

Mr. Nehemkis. 1930 was the last piece. 

Mr. Whitney. That was a completely unknown figure. There 
was no contemplation of such financing. Obvaously, it would take 
over 10 years. Secondly, this interest in this financing was not a 
continuing interest in any sense. Each tian:.,ai.ti<jti was a matter 
of negotiation with the Telephone company. Ihere was not a word, 
either legal or moral, that would call upon them to continue to do 
business with this particular group unless we had done a good job. 
We were employed by the Telephone company, to do a job of an 
expert aiong the lines of the program that Mr. GifTord had developed, 
and each transaction was separate and individual. These percent- 
ages were determined in what we thought was the best way. We, 
J. P. Morgan & Co., thought that was the best way to do a good job. 

Mr. Nehemkis. Mr. Whitney, were there discussions among the 
partners of J. P. Morgan & Co., either individually or at partners' 
conferences, with re.-^pect to the terms of the understanding reached 
at "the library"? 

Mr. Whitney. Oh, undoubtedly, because everything was discussed 
there. 

Mr. Nehemkis. Discussed individually, or at partners' conferences? 

Mr. Whitney. Both, 

Mr. Nehemkis. is it your practice to have full discussion among 
the partners of all understandings or arrangements that may have 
been reached by individual partners? 

Mr. Whitney. Oh, that statement is too inclusive. CeTi:ainly, any 
questions of policies, or any question of detail, would be reported if 
they were significant by whatever partners had it in charge. In this 
caso I should assume Mr. Davison would have reported the matter, 
I don t remember it, but I assume he would, because at our firm meet- 
ings we discuss everything. 

Mr. Nehemkis. Were you present at the partners meeting when 
Mr. Davison reportea it to the others? 

Mr. Whitney. I have just said/Mr. Nehemkis, that I did not re- 
me^nber his actually doing it m any way. I may or may not have 
been there. But I said I am sure he did. 



CONCENTRATION OF ECONOMIC POWER 11901 

readjustment of kuhn, loeb & co.'s interest subsequent to 
"library agreement" 

Mr. Nehemkis. Now, it would appear, Mr. Wliitney, that at least 
one of the New York group was clissatisfied with the realinement 
which had been settled upon at "the library." And I am going to 
read to you a letter previously identified as "Exhibit No. 1675," 
from the late Dwight W. Morrow to Mr. Winsor. The letter is dated 
August 17, 1920 [reading from "Exhibit No. 1675"] : 

You were good enough to suggest that I make the adjustment of % of 1% 
in the telephone allotment which is to be given up by some one to furnish 
another % of 1% to Kuhn Loeb & Co. 

I want you to note the next sentence, Mr. Whitney. 

I find almost insurmountable difficulties in taking this out of any of our New 
York associates. I am also handicapped — 

And I ask you to pay strict attention to the following phrase, Mr. 
Whitney — ■ 

I am also handicapped by not knowing the considerations which affected the 
original division of 70 per cent to New York and 30 per cent to Boston. 

If you have no objection, I will tell Kuhn, Loeb & Co. that they are to have 
a 10%% interest in the group and we can leave for adjustment between Mr. 
Davison and yourself wnetLer that is to come from J. P. Morgan & Co. or 
from Kdder, Peabody & Co., or, if from both, in what proportions. Mr. Davison 
will be hoLie in about two weeks. 

Now, the committee will recall that in the exhibit which Mr. Wliit- 
ney recently examined, and which is now in the record [referring 
to '"Exhibit No. 1671"]. 

Mr. Whitney. From Kidder, Peabody. 

Mr. Nehemkis. And from the files of the old Kidder, Peabody 
firm, if you want me to be precise, Mr. Wliitney. There appears at 
the bottom of that exhibit the following notation. "Compiled for 
Robert Winsor, August 16, 1920." That is one day before Mr. 
Dwight Morrow had occasion to write to Mr. Winsor. 

From Mr. Morrow's letter it would appear, Mr. Whitney, that by 
August 16, Mr. Davison had already agreed with Mr. Wmsor that the 
interest allotted Kuhn. Loeb & Co. at the library was to be increased 
from 10 percent to 10% percent. The only problem was to find some- 
one who was willing to have his interest decreased by the required 
amount. And as Mr. Davison says in a letter which I have just 
read • 

Mr. Whitney (interposing). Mr. Morrow. 

Mr. Nehemkis. Mr. Morrow, I beg your pardon. [Reading from 
"Exhibit No. 1675":] 

I find insurmountable difficulties in taking this out of any of our New York 
associates — 

And Mr. Morrow further says : 

I am also handicapped by not knowing the considerations which affected the 
original division of 70 percent to New York and 30 percent to Boston 

So that even Mr. Dwight Morrow, Mr. Whitney, was not fully in- 
formed by the partners, J. P. Morgan and Henry F. Davison, of all 



1 1902 (X)NCENTRATION OF ECONOMIC POWER 

the considerations surrounding this allocation of the so-called proprie- 
tary interests. 

Mr. Whitney. What was that last ? 

Mr. Nehemkis. I will have to ask the reporter to read that. 

(The previous question was read.) 

Mr. Whitney. Did you ask me a question ? 

Mr. Nehemkis. Well, I think it was a question. 

Mr. Whitney. I thought so, too, but I just wanted to be sure. Mr. 
Nehemkis, the question, I think was whether Mr. Morrow did know, 
or did not know. Well, he obviously didn't know all the details, be- 
cause at the meetings referred to a minute ago we didn't have a steno- 
graphic report of conferences. What we probably told him was that 
that had been the agreement reached with Mr. Winsor. I should say 
from that letter that it is a perfectly clear indication that the other 
members of the group didn't have very much to say about what the 
percentages were that were taken away from them, because obviously 
Mr. Davison had all the talks with Mr. Winsor. He did not know. 
Mr. Morrow didn't know what the considerations were that led to 
that agreement. Why should he? How could he possibly have? 
Secondly, Mr. Morrow had very little to do with Telephone business, 
and here you get a letter dated August 17, when there were generally 
only two of us left in the office (everybody else was away if they pos- 
sibly could be) and he says, perfectly naturally, that lie is going to 
leave it with Mr. Davison, who had the original talk with Mr. Winsor, 
to settle later. He says, "I find almost insurmountable difficulties m 
getting this out of any of our New York associates." I would guess 
that those of us charged with distribution, again having been disap- 
pointed in the results of the conference in May, raised a howl when it 
was suggested that any more should be taken away. 

Mr. Nehemkis. But you had better note quickly, so that you may 
correct yourself, Mr, Whitney, that this letter refers to underwriting. 

Mr. Whitney. They are absolutely locked up together. 
" Mr. Nehemkis. You can't separate them, Mr. Whitney ? 

Mr. Whitney. Underwriting and distribution are two factors of 
that group; underwriting the financial responsibility and the dis- 
tribution. And that is all a part of the whole. 

Mr. Henderson, Could I ask a question? 

Mr, Nehemkis. Yes, sir. 

Mr. Henderson. Do you remember why K. L. wanted another % 
percent ? 

Mr. Whitney. No, sir. 

Mr. Henderson. It stands out like a sore thumb there, and evidently 
there was a "helluva lot" of going back and forth to get that % percent. 

Mr. Whitney. It sounds a little like Oliver Twist, doesn't it? 
[Laughter.] 

Mr. Henderson. It seems to me it must have been something very 
valuable there. 



CONCENTRATION OF ECONOMIC POWER 11903 

Mr. Whitney. I just don't remember a thing about it. I had clear Ij' 
nothing to do with all this. I don't know anything about it except that 
I do know that at the first transaction that we had for the Telephone 
company after the May conference, these were the percentages that 
prevailed. 

Mr. Nehemkis. I was very much interested, Mr. Whitney, in one 
word that Mr. Morrow used. Now, Mr. Morrow was a very dis- 
tinguished lawyer, and he used, in referring to this agreement or 
understanding arrived at at "the library," a word that has always 
great significance for lawyers, "considerations." 

Mr. Whitney, I am not a lawyer. 

Mr. Nehemkis. So that, apparently, he 

Mr. Whitney. I use it sometimes myself. 

Mr. Nehemius. So apparently Mr. Morrow felt that there was some- 
thing about this agreement that was a little bit more than a casual 
piece of paper. 

Mr. Whitney. Oh, but now, Mr. Nehemkis ! I should hate to have 
you or the cormiiittee get the impression that I think it is a casual piece 
of paper. But obviouslj' Mr. Morrow — there couldn't have been some 
consideration vdiich has the technical meaning that you say, "value 
received," or whatever it was, or Mr. Davison would have obtained that 
extra 6 percent that we wanted for nation-wide distribution. You can 
read the purely technical legal phraseology into it, but it makes sense 
to me, a layman, without that construction. 

Mr. Nehemkis. Now, with the return of Mr. Davison from vacation, 
an agreement was arrived at whereby New England was to provide 
1/4 and New York i/^ in order to make up the % percent required for 
Kuhn, Loeb. Now, I read you a letter written September 28, 1920, 
from Mr, D wight W. Morrow to Robert Winsor, on the stationery of 
J. P. Morgan & Co. [reading from "Exhibit No. 1677"] : 

Referring to my letter of August 17, this is to confirm our oral arrangement 
that the % of 1% in the telephone allotment which is to be given up to Kuhn 
Loeb & Co. one-halt is to come out of the New York members of the group and 
one-quarter out of the Boston members. 

Mr. Nehemkis. Now I read you another dated October 1, 192C, 
from Robert Winsor to Dwight W. Morrow, Esq.^ addressed to J. P. 
Morgan & Co., New York, N^ Y. [reading from "Exhibit No. 1678"] : 

I have your letter of September 28th, and confirm the arrangement as to the 
division of the additional Telephone allotment to be given up to Kuhn, Loeb & 

Co. * * * 

Mr. Nehhvikis, I should like at this time, Mr. Chairman, to ask 
that Mr. Whitney be temporarily dismissed, and call another witness. 

The Chairman. That will be quite agreeable. 

Mr. Nehemkis. I call to the stand Mr. Leonhard Keyes. 

The Chairman. Do you solemnly swear that your testimony in 
this proceeding which you are about to give will be the truth, the 
whole truth, and nothing but the truth, so help you God ? 

Mr. Keyes. I do. 



11904 CX)NCENTRATION OF ECONOMIC POWEB. 

TESTIMONY OF LEONHAKD A. KEYES, GENERAL MANAGER, J. P. 
MORGAN & CO., NEW YORK, N. Y. 

AVAILA15IIJTT OF RECORDS OF J. P. MORGAN & CO., TO THE COMMITTEE 

Mr. Nehemkis. Will you state your name- 



The Chairman (interposing). May I interrupt, Mr. Nehemkis? 
On this "Exhibit No. 1678" I note certain handwricing in the margin. 
Is that a part of the exhibit? 

Mr. Nehemkis. It is a part of the exhibit, Lut I have not com- 
mented upon it because I do not know what it means. 

Will you state your full name, Mr. Keyes? 

Mr. Kktes. Leonhard A. Keyes. 

Mr Nehemkis. And 3'our residence? 

Mr. Keyfs. Ninety-one Durand Eoad, Maplewood, N. J. 

Mr. Nehemkis. Mr. Keyes, are you general manager for the firm 
of J. P. Morgan & Co.? 

Mr. Ketes. I am. 

Mr. Nehemkis. And how long have you held that position ? 

Mr. Keyes. About 6 or 7 years. 

Mr. Nehemkis. And prior 10 that period, were j;ou likewihe em- 
ployed by the firm of J. P. Morgan ? 

Mr. Ketes. I was. 

Mr. Nehemkis. What were your duties prior to becoming general 
manager ? 

Mr. Ketes. Chief clerk. 

Mr. Nehemkis. How long were vou chief clerk? 

Mr. Ketes. From December 1913 to 1982. 

Mr. Nehemkis. At which time you became general manager? 

Mr. Ketes. Right. 

Mr. Nehemkis. Now what are your duties as general manager for 
the house of J. P. Morgan & Co. f 

Mr. Keyes. Supervision and management of the office. 

Mr. Nehemkis. What does that mean, in a little bit more detail? 

Mr. Kete's. In charge of all the books and records. 

Mr. Nehemkis. In charge of all the books and records ? 

Mr, Keyes. Right. 

Mr. Nehemkis. That means the files? 

Mr. Keyes. Right. 

Mr. Nehemkis. When papers come in, presumably after they have 
been read by the partners and initialed, are they sent to you? 

Mr. Keyes. Well, they are sent to the files, they don't all come to 
me personally. 

ISlr. Nehemkis. But the general supervision of that department of 
tb.e house known as the files, that comes under your jurisdiction? 

Mr. Keyes. It does. 

l\Ir. Nehemkis. Now, Mr. Keyes, on Friday Mr. "\Vliitney testified 
before the committee as follows. I am going to read from page 156 
of the transcript : ^ 

I can't testify definitely, but I think it is a perfectly fair assumption that this 
paper — 

And Mr. Whitney was referring to this paper [exhibiting paper], 
Mr. Keyes 

» Supra, p. 11884. 



CONCENTRATION OF ECONOMIC POWER 11905 

The Chairman (interposing). What is that paper? 
Mr. Nehemkis (reading) : 

I can't testify definitely, but I think it is a perfectly fair assumption that 
this paper was brought back by Mr. 

The Chairman. Mr. Nehemkis. 
Mr. Nehemkis (interposing) : 

by Mr. Davison. 

The Chairman. Please identify the paper, the exhibit number. 

Mr. Nehemkis. I'm sorry, I don't recall this memorandum by the 
exhibit number. We have been referring to it here as Mr. Whitney's 
aide niemoire^ prepared for Mr. Davison, 

The Chairman. "Exhibit No. 1679," being the list of percentages 
showing Mr. Davison's suggestions and those finally agreed upon. 

Mr. Nehemkis. That is correct, sir, thank you. I had better repeat 
the statement: 

I can't testify definitely, but I think it is a perfectly fair assumption that 
this paper was brought back by Mr. Davison and shown me, that we made the 
record of what the agreement was for further reference, and that he then 
sent the original paper to Mr. Winsor as indicated, he having it on the 12th of 
May. 

Now, Mr. Keyes, will you be good enough to explain the mechanics 
by which the record of an agi^eement to which Mr. Whitney referred 
in his testimony, and which 1 have just read to you, is filed for future 
reference? 

Mr. Keyes. The agreement itself would be filed for future refer- 
ence. 

Mr. Nehemkis. Now, what happened to the record to which Mr. 
Whitney referred in his testimony, and which you have just said was 
filed for future reference? 

Mr. Keyes. Well, I don't consider this an agreement. 

Mr. Nehemkis. Well, what happens to that piece of paper which 
was filed? 

Mr. Keyes. We have no record of it. Tt was not filed, it was not in 
our files. We have no trace of it. 

Mr. Alexander. Didn't you ask Mr. Wliitney, the same question, 
and didn't he testify about that on Friday ? 

Mr. Nehemkis. That may well be. 1 am now calling the person 
directly in charge of such matters, and I think it is perfectly appro- 
priate for me to ask that person the same question. 

Now is there any record available? 

Mr. Henderson. Just a minute. Do you have a question as to the 
appropriateness of it, Mr. Alexander? 

Mr. Alexander. I just want to call attention to the fact that Mr. 
Whitney had testified about the same question and had given some 
explanation or possible explanation. 

Mr. Henderson. It was a possible explanation of how he thought 
it might have been handled. 

Mr. Alexannder : That is it; I wanted to make mention of that. 

Mr. Nehemkis. Mr. Keyes, I show you now a copy of an aide 
■memoire, since we are using that term, re American Telephone & 
Telegraph Co. financing, addressed to Henry C. Alexander, Esq., 



1 190G CONCENTRATION OF ECONOMIC POWEK 

dated Washington, D. C, November 15, 1939, prepared by me. 1 'ask 
you to examine this copy, which is already in evidence, and tell me 
whether you have ever seen it before? 

Mr. Keyes. I have, 

Mr. Nehemkis. Will you read the last paragraph, pleasel 

Mr. ICeyes [reading from "Exhibit No. 1661-1"] : 

Will you be good enough to make available to Mr. W. S. Whitehead, any memo- 
randa, ieUei-s or other documents which bear upon the foregoing questions? 

Mr. Nehemkis. Is it not a fact, Mr. Keyes, that it is an unwritten 
law of the House of Morgan that partners' files are never destroyed? 

Mr. Keyes. I don't know that we have any unwritten law, or written 
law. 

Mr. Nehemkis. You have no laws? 

Mr. Keyes. Maybe not under that subject. 

Mr. Nehemkis. Haven't you so indicated that partners' files are 
never destroyed? 

Mr. ICeyes. No, sir, 

Mr. Nehemkis. Now, Mr. Keyes, I show you four letters ^ in evi- 
dence from Mr. Dwight W. Morrow to Mr. Winsor, from Robert Win- 
sor to Mr. Morrow. I ask you to examine these letters, if you will? 

(Witness examines documents.) 

Mr. Nehemkis. Have you examined them? 

Mr. Keyes. I have. 

Mr. Nehemkis. I ask you, Mr. Keyes, why these letters were not 
made available to a duly authorized representative of this committee 
in response to my request? 

Mr. Keyes. Mr. Nehemkis, I know very positively that two of 
these were made available to members of your committee. 

Mr. Nehemkis. These letters were identified as coming from the 
old files of Kidder, Peabody. 

Mr. Keyes. Well, I will correct that. A carbon copy of that Jetter ^ 
was made available to members of the committee. This is the original. 
We didn't have that. 

Mr. Nehemkis. That's right. 

Mr. Keyks. It is not in our files nor do we have it. 

Mr. Henderson. Wliat is the date of that letter ? 

Mr. Keyes. The date of that letter is September 28, 1920. Nor do 
we have 

Mr. Hendekson (interposin"'). From whom to whom? 

Mr. Keyes. From Senator Morrow — pardon me, Mr. Morrow — to 
Robert Winsor, of Kidder, Peabody. He was not Senator at that 
time. 

IVIr. Nehemkis. And you say that letter was made available to us? 

Mr. Keyes. I know that that letter is in one of our folders that 
we made available to the examining officei-s of your committee. 

Mr. Nehemkis. Mr. Chairman, may I have an off-the-record discus- 
sion for a minute? 

The Chairman. Surely. 

(Off-the-record discussion.) 



» "Exhiblta Nos. 1675, 1G7C, 1677, and 1678." 
2 ••Exhibit No. 1677.'' 



CONCENTRATION OF ECONOMIC POWER 11907 

Mr. Nehemkis. May we proceed? There were four letters shown 
you, Mr. Keyes. I want you carefully to tell me which ones, again, 
you allege were furnished to representatives of the committee ? 

Mr. Keyes. Mr. Nehemkis, may I refresh my memory on a sum- 
mary of each bond issue that we gave to members of your committee, 
and I would like to say that the summary— about this time, on one oi 
those bond issues, I don't recall which 

The Chairman (interposing). Will you please hand the witness 
the summary ? 

Mr. Nehemkis. Mr. Alexander has it right before him. 

Mr. Keyes. One of these letters refers to the Pennsylvania issue. 

Mr. Nehemkis. That is correct. 

Mr. Keyes. I don't recall that particular letter. 

Mr. Nehemkis. You don't? Just a moment. So that — this is very 
crucial, Mr. Keyes, you will appreciate. I want to follow you with 
the minutest care. You say you don't recall that particular letter ? 

Mr, Keyes. I don't recall now. 

Mr. Nehemkis. What does that mean ? 

Mr. Keyes. That is, I have no recollection. 

Mr. Nehemkis. Oh, you have no recollection ? 

Mr. Keyes. Of seeing that particular letter. 

Mr. Hendebson. Which one is that ? 

Mr. Keyes. That one is the one from Mr. Robert Winsor to Mr. 
Dwight Morrow, of October 1, 1920. 

The Chairman. Read the number on the back. 

Mr. Nehemkis. These are already in, but this Is a set I am working 
with, Mr. Chairman. 

The Chairman. I beg your pardon. 

Mr. Keyes. And this letter ^ contains a statement saying that "I 
am most thankful that things went along all right on the Pennsyl- 
vania issue." The Pennsylvania issue is undoubtedly the issue of the 
Bell Telephone Co., brought out in September. 

Mr. Nehemkis. That is perfectly correct. 

Mr. Keyes. In 1920. 

Mr. Nehemkis. But we are not discussing that, Mr. Keyes. 

Mr. Keyes. No; but these matters relate to that, and they are in a 
folder of the Bell Telephone Co. 

Mr. Nehemkis. Well, where are they? Why can't they be given 
to us? 

Mr. Keyes. They were — you should have made copies of them. 
They were included in that folder of contracts under the Bell Tele- 
phone Co. and which you had — it had all our correspondence with 
the First National Bank, with Kuhn, Loeb & Co., with all these 
companies, and that letter, I am quite sure, is in that folder, because 
that related to 1034 percent that Kuhn, Loeb & Co. had; and that 
agrees with this memo. 

Mr. Nehemkis. What about the remaining letters? 

Mr. Keyes. Well, those three, I think, are in that folder, and pos- 
sibly that fourth is in there, but I don't recall that now. 

Mr, Nehemkis. So you now think that those letters are in your 
files? 



» "Exhibit No. 1878." 



1 ] 908 CONCENTRATION OF ECONOMIC POWER 

Mr. Keyes. Oh, I think so, but I would like an opportunity to 
again look it up. 

Mr. Nehemkis. Should Mr. Keyes, sir, be given that opportunity? 

Mr. Henderson. I think so. 

Mr. Nehemkis. And then advise the committee? 

The Chairman. Certainly that may be given. You may have 
that opportujiity, if it is desired. 

Mr. Henderson. You think that these four letters, that is, the 
originals from Mr. Winsor to Dwight Morrow, and the carbons from 
Dwight Morrow to Mr. Winsor, are in the Pennsylvania Telephone 
file? 

Mr. Keyes. I think so, and I think that — the date of that issue, the 
Pennsylvania issue, was September 29, 1920, and that ran until the 
syndicate — until December 1, 1920 — and these letters relate to the 
fixing of percentages of tliat issue. 

Mr. Henderson. All right. Then it is your impression that you 
did give those, in giving the Pennsylvania Telephone 

Mr, Keyes (interposing). V7e gave our entire folder. We made 
available the entire, the full folder, to your examiners at the time they 
called, as we did on all of those, but you didn't make copies. I am 
not sure that you took any copies on that, of those that we had the 
summaries written for. 

Mr. Nehemkis. I have Jio further questions of the witness, Mr. 
Chairman. 

The Chairman. Thank yon. Mr. Keyes. 

Mr. Henderson. May I ask something? "Wlien Mr. Wliitney comes 
back, I will ask him the same thing. Now, have you read Mr, Whit- 
ney's testimony as to what is likely to have happened to the aide 
memoire? 

Mr. KJEYES. I have read Mr. Whitney's testimony ; yes, sir. 

Mr. Henderson. And I think he said, or he indicated, that probably 
they made the notation in the syndicate department, and it was then 
sent to Kidder, Peabody. \\' asn't that it, Mr. Whitney ? 

Mr, Whitney. That is what 1 said, substantially. 

Mr. Henderson. Well, have you examined your syndicate records 
since that time? 

Mr. Keyes. Yes, sir, 

Mr. Henderson. And you find no copy either of the "library agree- 
ment" ^ or of the aide memoire. f " 

Mr. Keyes. No, sir, 

Mr. Henderson. Welh do you find any document that was con- 
structed from them to sho-v what the final understanding was? 

Mr. Keyes. No; no dofnment, except that each issue was an under- 
standing by itself, and when you come into this next issue, that was 
issued after May or in September 1920, that is what we would say 
was the only 

Mr. Henderson (interposing). Yes; but you mean you may have 
kept something up until that time? 

Mr. Keyes. No; I would say not; no. 

Mr. Henderson. Your impression then would be that there never 
was any record after, say. May 12, of either the May 5 conference 

> "Exhibit No. 1C73." 
•"Exhibit No. 1679." 



CONCENTRATION OF ECONOMIC POWER 11909 

Mr. Keyes (interposing). Yes. 

Mr. Henderson. Or of the May 6, I believe it was, understanding 
that Davison and Winsor arrived at? 

Mr. Keyes. Tiiat is right, sir. 

Mr. Henderson. Well, is that customary in your house, not to keep 
a record of that kind ? 

Mr. Keyes. Mr. Henderson, it wasn't that we did not keep a record 
of it. If there was a record to be kept, we would have kept it. We 
have found nothing indicating the execution of any contracts such 
as described by you. 

Mr. Henderson. Just a minute. Mr. Chairman, I suggest that Mr. 
Whitehead, our S- E. C. field man, go back to Mr. Keyes at the 
appropriate time, and look over the records on the Bell Telephone, 
on these. I think that is the appropriate thing to do, 

Mr. Nehemkis. That is all, Mr. Keyes. Thank you very much for 
having come down this morning. 

Mr. Whitney, recalled, please. 

TESTIMONY OF GEORGE WHITNEY. J. P. MORGAN & CO., NEW 
YORK, N. Y.~Resumed 

percentage participations subsequent to "library agreement" 

Mr. Nehemkis. Shall I wait until Mr. Alexander returns ? 

Mr. Whitney. No. 

Mr. Nehemkis. By comparing the original allotments, ^Mr. Whit- 
ney, with the interests of the participants in the Pennsylvania Bell 
Telephone issue of September 27, 1920, it appears that Kidder, Pea- 
body yielded the one-quarter ceded by Boston, and the one-half 
which was to conje from New York came out of the interest of 
Bankers Trust and Guaranty Trust, the two new members of the 
group ; is that correct, sir ? 

Mr. Whitney. Yes. Mathematically, if you predicate your calcu- 
lations on the May 5 memo,^ the facts are very simple, that in the 
Bell Telephone issue, Kidder, Peabody had 29% and the Guaranty 
and Bankers had 4%, respectively. If I were to explain this myself, 
I would say that it merely showed that was the final alinement at 
that time, for that particular issue, and it was what our records show, 
Mr. Henderson, because w^e are only interested in the records and not 
in the arguments that led up to them. 

Mr. Nehemkis. I show you, Mr. Whitney, a copy of a letter which 
purports to be written on the stationery of J. P. Morgan & Co., dated 
September 29. 1920, addressed to Kuhn, Loeb & Co., and a carbon copy 
of a reply from Messrs. Kuhn, Loeb & Co. to J. P. Morgan & Co. 
I ask you to examine these two papers and tell me if you recognize 
them as being true and correct copies of material in your files? 

Mr. Whitney. Well, of course, these couldn't come from our files, 
because this original must have come from Kuhn, Loeb. 

Mr. Nehemkis. That wasn't my question, Mr. Whitney. You have 
counterparts of those in your files; the letter to Kuhn, Loeb is writ- 
ten by Mr. Anderson. 

Mr. Whitney. Certainly. 

Mr. Nehemkis, You identify the' ° 



» "Exhibit No. 16TS. 



11910 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitney. I identify them as a photostatic copy of a letter we 
wrote, and a copy of the answer by Kuhn, Loeb & Co. 

Mr. Nehemkis. I oflfer in evidence the two letters identified by the 
witness, Mr. Chairman. 

(The letters referred to were marked "Exhibits Nos. 1685-1 and 
1685-2" and are included in the appendix on pp. 12219 and 12220.) 

Mr. Nehemkis. I ask you to note, sir, a notation which appears on 
the bottom of the letter of September 29,^ which reads, "$2,687,500 
equals 10% per cent." Before I hand you this, Mr. Whitney, it is a 
fair assumption, is it not, that Avhen this letter was sent out by Mr. 
Arthur Anderson, he didn't write that? 

Mr. Whitney. Certainly not. 

May the record show, Mr. Chairman, that I didn't identify any pen- 
cil notation? I identified the original as having come from us. 

The Chairman. The record will so show. 

Mr. Nehemkis. Now the significance of that notation, Mr. Chair- 
man, is that Kuhn, Loeb was very anxious to know whether the 
amount given to them by J. P. Morgan & Co. equaled 10% percent. 
Obviously, the partner who got that letter made a quick mental nota- 
tion and wrote down that two million-and-odd dollars equals 10% per- 
cent. He knew that the agreement had been kept. 

Mr. Whitney. He was checking the correctness of the figures. 

The Chairman. The $2,687,500 which appears in handwriting on 
the bottom of the letter, those are the figures mentioned in the third 
paragraph of the letter which says [reading from "Exhibit No. 
1685-1"] : 

Your interest in the purchase on original terms is $2,687,500. 

Mr. Nehemkis. Yes. As Mr. Whitney observed in an aside, they 
were checking up to make sure it was right. 

Mr. Whitney, in the Bell Telephone Co. issue of $25,000,000 7's 
offered on September 1920, the first issue to be floated under the terms 
of the new arrangement, can you tell me what the interests were of the 
participants ? 

Mr. Whitney. Do I understand your question correctly — you put 
in some aside about the first under the new arrangement; you mean 

the first since the Guaranty, the Bankers — the original terms • 

-Mr. Nehemkis (interposing). The first after the understanding 

reached in "the library" on May 5, 1920. 

— Mr. Whitney. That is chronologically correct, and it also is more 
correct to say the first piece of business done for the Telephone Co. 
or its subsidiaries after the Guaranty Trust Co. and the Bankers Trust 
Co. were included in the original group. 

Mr. Nehemkis. Well, now, we have both bits of information in the 
record. Will you see if you can give me the names of the participants 
and the. percentage amounts? 

Mr. Whitney. Do you want me to just read it? 

Mr. Nehemkis. Yes. 

Mr. Whitney. I can almost do it by heart. 

Mr. Nehemkis. Well, then, do it either way. 

Mr. Whitney. Kuhn, Loeb & Co., 103^; Kidder, Peabody, 293^; 
Lee, Higginson, 5; Harris, Forbes, 5; First National Bank, 10; Na- 

> "Exhibit No. 1686-1." 



CONCENTRATION OF ECONOMIC POWI^ 11911 

tional City Co.. 10; Guaranty Trust Co., 43^; Bankers Trust Co., ^%; 
J. P. Morgan & Co., 20.^ 

Mr. Nehemkis. Now, Mr. Whitney, I show you a cover letter, a 
letter of transmittal, from your firm, together with 14 syndicate ab- 
stracts. I ask you to examine these and tell me whether you recognize 
them as being true and correct copies and whether this be in fact a 
letter of transmittal from your firm ? 

Mr. Whitney. I am sure, but may I say here that that list is incom- 
plete? AVe have subsequently turned up two very small extensions.^ 

Mr. Nehemkis. I have those. But I don't want the record to have 
what you just said, Mr. Whitney, that it is incomplete. I asked a very 
specific question. 

Mr. Whitney. The answer is "yes." 

Mr. Nehemkis. All right. 

Mr. Whitney. Tlie only reason I mentioned it at all, Mr. Nehemkis, 
is that the other day, I think in a hurry, you didn't put in a correct 
list. 

Mr. Nehemkis. I have those. 

Mr. Whitney. You said you were going to put those in and I 
didn't see them. 

Mr. Nehemkis. In due course, Mr. Whitney, we will come to them. 

Mr. Chairman, may it please the committee, I now offer in evidence 
the documents identified by the witness. 

(The documents referred to were marked "Exhibits Nos. 1686-1 and 
1686-2" and are included in the appendix on pp. 12220 and 12221.) 

Mr. Nehemkis. Mr. Wliitney, I have before me a table entitled, 
"Percentage participations in issues of American Telephone & Tele- 
graph Co. and associated companies, headed by J. P. ISIorgan & Co., 
September 1920-January 1930." ^ The inform'ation upon which this 
table is predicated is based upon the syndicate abstract sheets which 
you just identified as having been furnished to us. Do we have a 
copy which Mr. Whitney could look at? 

Mr. Whitney, you will note that under J. P. Morgan & Co., 'begin- 
ning with the year 1920, the percentage participation for your house 
is 20, and thereafter, until the last issue, it continues to be 20 with no 
changes; and for the First National Bank, you will notice in 1920, 
after the "library conference," the participation of the First National 
was 10 percent and thereafter, until 1930, it remained 10 percent; 
and you will notice that the National City Co.'s participation in 1920 
was likewise 10 percent and thereafter, until 1930, it continues to be 
10 percent; and you will notice that Kuhn, Loeb's participation, 
begining with 1920, was 10.75 percent and continues fixed and un- 
alterable until 1930, when it remained 10.75 percent; and Harris, 
Forbes & Co., you will note, Mr. Whitney, beginning with 1920, was 
5 percent and thereafter, until 1930, continued to be 5 percent; and 
Lee Higginson Corporation's interest in 1920 was 5 percent and there- 
after, until the last piece of financing in 1930, continued to be 5 per- 
cent ; you will notice that the Guaranty Co.'s interest was 4.75 percent 
in 1920 and until the year 1930, the last piece of financing, continued 
to be 4.75 percent; and the Bankers Trust Co.'s interest in 1920 was 
likewise 4.75 percent, and thereafter continuing to be 4.75 percent; 



I See "Exhibit No. 1684," appendix, p. 12219. 

« See "Exhibits Nos. 1689-1 and 2,'' appendix, p. 12236. 

» Referring to "Exhibit No. 1687," appendix, p. 12234. 



11912 CONCENTRATION OF ECONOMIC POWEK 

you will notice in the final column, Kidder, Peabody's interest was 
29.75 percent in 1920, after the ac^reement reached at the library, and 
thereafter until the last piece of financing under the leadership of 
your firm, it remained 29.75 percent. 

May it please the committee, I now offer ^in evidence the table 
from whicli I have been reading, compiled from records supplied 
to this committee by J. P. Morgan & Co. 

The Chaipjviax. Tlie table may be received. 

^The table referred to was marked "Exhibit No. 1687" and is 
included in the appendix on p. 12234.) 

Mr. Whitkey. Do I owe you an answer? 

Mr. Nehemkis. Oh, no; not unless you wish. You needn't say 
anything. 

Mr. Whitney. Well, I would like to just comment there, even 
though it is not in the form of a question ; this is very unimportant, 
of course, but our records were not — they would not have showed Lee 
Higginson as Lee Higginson Corporation. 

The Chairman. I didn't get that remark. 

Mr. Whitney. Lee, Higginson & Co. it was, during those days. 
It is now Lee Higginson Corporation, whicli is an entirely different 
thing. The fact that they were unchanged is questionable, too. 

The Chairman. Let that correction appear on the record, please. 

Mr, Nehemkis. Mr. Wliitney 

Mr. Whitney (interposing). Mr. Chairman, as I said, it is a fact 
that tliey were unchanged during this period, as a fact. But Mr. 
Nehemkis in his statement used one word in reference to one of them, 
I don't know which, that they were "unalterable." That is not a fact. 
It is a matter of almost public record that during these 10 years this 
group did do these pieces of financing for the Telephone Co., and the 
only reason, the only point I want to leave with the committee is 
that that is a fact ; we did the business, but that each piece of busi- 
ness rested on its own feet, and that these percentages, or our arrange- 
ment with the Telephone Co., were completely alterable at the in- 
stance, primarily, of the company, and, secondarily, as the perform- 
ance of these different people, in their different functions in this iob 
or this service which we were undertaking for the Telephone Co., 
would change, then the percentages would have changed, as a prac- 
tical manner. There was no need to change them, however, because 
the jobs were done satisfactorily. I would be- — 

The Chaikvian (interposing). Then your statement to the com- 
mittee, Mr. Whitney, is that these 14 -abstracts covering a period from 
1920 to 1930, though not unalterable, were nevertheless unaltered 
during that 10-year period. 

Mr. Whitney. Quite so, and that the reason they weren't altered 
was the relative importance of these houses to the success of the Tele- 
phone Co. financing. 

distribution of spread on telephone issues 

The Chairman. Now, what was the total of all of these issues, do 
you recall? Perhaps that could be run up very quickly. 

Mr. Whitney. $832,000,000. That is the par value of the issues 
which is invoh^ed on this sheet. 



CONCENTRATION OF ECONOMIC POWER 11913 

The Chairman. Kow, of course, there was a big dilierence between 
the pa^' value and the amount which the Telephone Co. or its various 
subsidiaries received for the issue? 

Mr. Whitney. That would involve, of conrse, the fact that they 
were sold on a yield basis — depending on the price to yield a proper 
return— and, of course, the price to the public had to include what is 
called the "spread," which, as Mr. Miller pointed out the other day 
on this whole business, is approximately 21/2 percent gross. Now, 
that is customarily divided on original terms so much, then there 
might be an intermediate group, or there might not be, but then 
there would be the distributing syndicate, which would have seven 
or eiglit or nine hundred people in the country, depending on the 
size ot 

The Chairman (interposing). Let me call your attention to ''Ex- 
hibit No. 1C85" which you identified a little bit earlier in the day. 
I observe from that, which is a letter which refers to a $25,000,000 
issue, that J. P. Morgan & Co. bought that issue from the Telephone 
Co. at 901/2 ? 

Mr. Whitney. Yes, sir. 

The Chaibmax. And then sold it to the syndicate at 9II/2? 

Mr. Whitney. Yes, sir; that is the 1 percent gross profit to the 
original terms group. 

The Chairman. J. P. Morgan & Co. then received a profit of 1 
percent of $25,000,000; did it? 

Mr. Whitney. Oh, no, sir. 

The Chairman. All right, then what did it receive? 

Mr Whitney. This letter says [reading from "Exhibit No. 
1685-1"] : 

We beg to advise that we hare today purchased for the account of ourselves 
and associates $25,000,000 ... at 90 1/2. 

Then it goes on to say [reading further] : 

We are forming a syndicate, iri which we shall participate, to purchase these 
bonds Irom ourselves and associates at 91 1/^. 

The Chairman. So that J. P. Morgan & Co. sold the issue to tlvj 
syndicate of which it was a part? 

Mr. Whitney. But the associates 

The Chairman (interposing). At 1 percent more than it paid the 
Telephone Co.? 

Ml. Whitney. No, sir. 

The Chairman. Ail right, then explain it. 

Mr. Whitney. N(., sir; the associates referred to are this original 
group in the techiaca] language of the street, the original group of 
people who participated in the purchase direct ii'v-m the company. 
If you will remember this famous memorandum of May 5, 1920,^ it 
says "Original terms group" — doesn't it ? 

Mr. Nehemkis. Right. 

Mr. Whitney. Now, we and our associates are associates of this 
whole group, in which we had a 20-percent interest. 

The Chairman. Well, now wait a minute. Who paid 90i/^ to the 
Telephone Co.? 

i "Exhibit No. 1673." 

124491— 40— pt, 23 -8 



11914 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitney, This group, Kidder, Peabody; Kuhn, Loeb; Lee, 
Higginson; Harris; First; National City; Guaranty Trust; Bankers 
Trust ; J. P. Morgan, in the percentages you have heard this morn- 
ing. 

The Chairman. Yes; so that in all, when that letter refers to the 
purchase from the Telephone Co. at 901/^, it is referriiig to a purchase 
not by J. P. Morgan alone, but a purchase by J. P. Morgan and 
associates. 

Mr. Whitnct. That's right. It says so. 

The Chairman. Yes. Well, I haven't read the letter carefully. 
Then there was a resale to a syndicate, a distributing syndicate? 

Mr. Whitney. A distributing syndicate; yes, sir. 

The Chairman. Now, was that syndicate different from the 
associates ? 

Mr. Whitney. Well, that would have had, as I said — I don't recall 
actually in this case, but five, six, or seven hundred people all over 
this country, in every State of the Union or practically every State 
in the Union. There would be somebody, a bank, or a dealer, a bond 
dealer, who would do the actual distribution to the ultimate con- 
sumer, and this letter here again, Mr. Senator, the third paragraph 
of it, if I may read it [reading from "Exhibit No. 1685-1"] : 

Tour interest in the purchase on original terms is $2,687,500. We have al- 
lotted to you, in the distributing syndicate, a participation of $750,000, 

Now, Kuhn, Loeb, as ourselves, were not retail distributors of 
bonds; we didn't have siilesmen, we never had had, either of us, and, 
therefore, our participation on original terms is materially reduced, 
as in this case, from $2,687,500 to $750,000, and the balance of that 
original term participation was spread all over the country. 

The Chairman. Well, I am trying to get at the spread. So, now 
we begin with a price of 90^2, which was all that the Telephone Co. 
got out of the issue? 

Mr. Whitney. Yes, sir. 

The Chairman. Then we find that is sold by the managers, if I 
may use that phrase, at an increase of 1 percent? 

Mr. Whitney. Right, sir. 

The Chairman. And then we find from that letter that these new 
purchasers, in turn, distribute to the public at 95 percent? 

Mr. Whitney. That is right; yes, sir. 

The Chairman. So that the spread here is not 2^^ but 4^ ? 

Mr. Whitney. In this issue, right. 

The Chairman, Yes. Now, i^-^ percent of the $25,000,000 issue was 
how much? 

Mr. Whitney. Well, it would be something over 

The Chairman, I mean 4i/^ points. 

Mr. Whitney. It would be something over a million dollars. 

Mr. Henderson, It is on the sheet. 

The Chairman. Where is it? 

Mr. Whitney. But of that, Mr. Senator, the original group with 
which we have been dealing, got 1 percent, leaving §14 percent to go 
to this very large group — I can find out how many but I don't remem- 
ber unless it says here — ^to a very large number where we allowed, 
out of that SY2 — that was again subdivided — IV2 percent for a man 
who sold, 2 percent for whatever bonds he took "firm," as we call it, 
which when he went into the syndicate he had to buy. 



CONCENTRATION OF ECONOMIC POWER 11915 

COMPEnTI\'E BIDDING AS AN ALTERNATI%'E 

The Chairman. Well, you see, Mr. Whitney, the question that nat- 
urally suggests itself to my lay mind is whether or not, if this method 
of financmg were not frozen, to use a word that was brought out by 
one of the witnesses, whether the Telephone Co. would have had to 
pay the total of $1,125,000 for the privilege of selling some high-class 
bond, and whether, if these bonds had been sold in the open market, 
at competitive bidding, the Telephone Co. might not have received 
more. That is the question which naturally suggests itself. 

Mr. Whitney. Well, may I try to answer that to the best of my 
ability? 

The Chairman. Yes. sir. 

Air. Whitney. Of course, the first answer is that 20 years after- 
ward, we don't know; but in the first place, the Telephone financ- 
ing 

The Chairman (interposing). Well, of course, this is the system 
that existed with respect to 14 issues over a period of 10 years. 

Mr. Whitney. But if you look at it successively, if you take each 
one of these up in detail, you will find that this particular issue was 
refunded within 2 or 3 years on a 5-percent — and then some further 
bonds were sold on a 4y2-percent — ^basis. In 1920, the Telephone Co. 
had not reached its position of high credit that it has today. Only 
6 months before that there had been an issue which was not handled 
by this group, in connection with the Southwestern Bell Tei&phone 
Co., that had been a failure, and those were 5-percent 5-year notes 
on a 7-percent basis. Now, we come along here, if you remember, 
times were pretty bad in 1920 and. in September 1920, we had a 

Eanic, a little bit of a one compared with our recent or present one, 
ut it was a panic, ^nd this was about the best company in the sys- 
tem, or one of the very good ones, and tliis was priced right on 
the market; this 4i/^ -point spread was used to try to induce the 
dealers throughout the" country by very generous treatment, more 
generdus, I think, than any of the subsequent issues, to get them 
interested in the time they didn't believe it was possible. 

The second thing we must remember is that at that time, there 
wasn't the bond organization built up that there has subsequently 
been built up, and it was harder to get people to do it. But it is a 
question of merchandising. Now, whether or not the price could 
have been an eighth of a point or a quarter of a point higher, I 
can't tell you, but, of course, the ^.rice, if I may say so, Mr. Chairman, 
is only one factor. When you are doing a job for a man, you want 
to preserve his credit. In those days, we wanted to build it up. 
That is what I referred to the other day when I said Mr. Gifford was 
so anxious to reestablish the credit of his company and reset the 
Telephone issues. Whether you get an eighth or a quarter of 1 per- 
cent more isn't the final consideration. The question is whether they 
are properly sold, whether you are going to ge!: vout* credit popular 
through the country — all those factors come into the distribution, 
if you consider, as I did, that then — and I believe today^-that this 
business is giving professional advice to your client. You tell him 
what you think is the best thing for his credit. Nothing hurts so 
much as a failure, and I think you will find that if anything during 
this lO.years that are under discussion here, we overpriced the tele- 



11916 CONCENTRATION OF ECONOMIC POWER 

phone issues rather than underpriced them. "Whether the coinpetitive 
bidding, which you used in the present or colloquial sence of putting 
things up for tender at the instigation of the corporation — that was 
not done here because the corporation in its sole, exclusive authority, 
elected, in view of the size of the job. to come to a certain group 
of experts rather than to just throw tliem on the market for what 
they would bring. 

But the price thing isn't the ultimate thing. It-^-yaur credit. It 
is involved, Mr. Chairman. 

Mr. Miller. Well, Mr. Whitney, isn't the policy — isn't this the 
policy in pricing rhat the United States Treasiuy seems to follow in 
pricing its own issues? I have seen all of these recent issues go to an 
immediate premium which has made those issues popular with the 
buying public. I have not seen any go to a discount.. 

Mr. Whitney. That is exactly so. May I reniird you, Mr. Chair- 
man, that at that time, in 1920, the Federal Eesrrve bank discount 
rate was 7 percent, and the United States G^rvernment Liberty bonds 
v.ere 4i/i and sold at 83. So it is a competiiive market, which those 
figures show better. Now, this price was expensive, but relatively it 
was not expensive. As Mr. Miller says, this policy has been carried 
out by the Government persistently in putting their bonds out at what 
they thought were an attractive price. 

The Chairman. Well, the Treasury, I fancy, doesn't have any lists 
that cover a 10-year period, in which certain selected firms only are 
participating. 

Mr. WnrrNEY. But they don't have competitive bidding, either, sir, 
except in connection with their Treasury bills, these 90-ciay Treasur}' 
bills. They put them on the counter and anybody may buy tliem. 
They are a .syndicate all to themselves. 

LENGTH OF SUBSCRIPTION PERIOD 

Mr. Nehemkis. Mr. Chairman, in connection with the first ques- 
tion you asked Mr. Whitney, which prompted this discussion, I have 
had prepared by the staff a table which bears directly on your point; 
and since it is relevant at this place, I ask leave of the committee to 
offer it in evidence and discuss it with you briefly. It is a rather 
unique bit of information. May I offer it, sir ? 

The Chairman. Certainly. What does this represent, Mr. Ne- 
hemkis? 

Mr. Nehemkis. This table shows the issues of the American Te^e- 
nhoiie & Telegraph Co. and associated companies headed by J. P. 
Morgan during the period we are discussing, 1920 to 1930. 

The Chairman. This table was compiled by whom? 

Mr. Nehemkis. Compiled by the staff from records furnished by 
J. P. Morgan & Co. and identified a few moments ago by the witness, 
now in evidence. 

The Chairman. Without objection, the table may be admitted. 

(The table referred to was marked "Exhibit No. 1688" and is in- 
cluded in the appendix on p. 12235. ) 

Mr. Alexander. Are we goin"- to have the opportunity sometime 
later on, for instance, to check tnis? 

Mr. Nehemkis. Oh, quite ! Absolutely ! I should be disappointed 
if you didn't, Mr. Alexander. 

Mr. Alexander. We haven^t seen it until this moment. 



CONCENTRATION OF ECONOMIC POWER 11917 

The Chairman. You may check any of these exhibits, Mr. Alexan- 
der; that is perfectly understood. 

Mr. Nehemkis. You will note, Mr. Chairman, from this exhibit,' 
it shows the length of time that the syndicate books were open. You 
will note that in the $50,000,000 offering of Illinois Bell Telephone 
Co, 5's, offered on June 14, 1923, the amount of subscriptions was 
$126,000,000. Now, note 

Mr. AVhitnet (interposing). Will you go back to the Bell Tele- 
phone Co.? 

Mr. Nehemkis. Well, suppose we run down them in order. The 
Bell Telephone Co. of Pennsylvania, offered in 1920, an offering 
of $25,000,000. The books were opened at 10 o'clock, and they werr 
closed at 1 o'clock. The books were, in short, open 3 hours, and the 
number of times the issue was oversubscribed was 2.7, or 270 per- 
cent. Now. the next issue is the Northwestern Bell Telephone, 
offered in '21. That was a $30,000,000 issue, and the information 
on this, I regret to say, isn't available. Now, take the New York 
Telephone Co. 

Mr. Henderson (interposing). It does show, Mr. Nehemkis, that 
the issue was three and one-tenth times OA^er tiie 

Mr. Nehemkis (interposing). Correct, sir. Now, if you will drop 
down a bit and go to the Illmois Bell Telephone i's of 1923, which 
was a $50,000,000 offering, the books were opened at 10 o'clock and 
closed at 10 : 30. They were open 30 minutes, and they were over- 
subscribed 2.5 times. Now, if you will go to the American Tele- 
phone & Telegraph issue of 1923, which was one of the largest to 
date, $100,000,000, the books were opened at 10 o'clock, closed at 19 
o'clock, a period of 2 hours, and oversubscribed 190 percent. New. 
if you will go to the next largest one, the $125,000,000 offering, I 
think I had better continue — the Southwestern Bell Telephone offer- 
ing, which was $50,000,000, in 1924, the books opened at 10 o'clock 
and closed at 10 : 01, They were open 1 minute, and were oversub- 
scribed 510 percent. 

The' Chairman. The credit of the company was improving. 

Mr. Nehemkis. Apparently. And the Bell Telephone issue of 
Pennsylvania offered in '25 which was a $50,000,000 offering, ^he 
books were opened at 10 o'clock and closed 5 minutes later, and the 
issue was oversubscribed 640 percent. In the next offering of New 
England Telephone & Telegraph bonds, wliich v/as a $40,000,000 
issue, the books were opened at 10 o'clock, , closed 10 minutes later, 
and were oversubscribed 800 percent. 

Mr. Whitney. May I be excused, if I make just two comments, 
Mr. Chairman. One of them is more or less regret that there are so 
few people now living who remember the state of the bond marxet 
in the twenties. The second thing is that as we ail remember, ■j-Te 
didn't have any 20-day clause that we now have in the Security Act of 
1933 so that this sellins; had all been done beforehnnd. And throush- 
out the twenties we ran into what was colloquially known as "padding," 
when the dealers throughout the country thought it would gain them 
credit with somebody, if they wanted 10 bonds, to put in for a han- 
dred. That is again not very different from what sometimes nap- 
pens with the Treasury issues, where a fellow puts in for his full 
legal limit. The;^^ have learned that trick, too. 

» "Exhibit No. 168S." 



11918 CONCENTRATION OF ECONOMIC POWER 

The Chairman. You mean the Treasury has learned that from 
you? 

Mr. Whitney. The bond business of the twenties. Anything that 
took over 2 or 3 liours in those days was almost a failure. You gen- 
erally had vour books full the dav before the books opened. It was 
more or less of a technical matter. You opened and shut them to 
prevent getting too much padding, but you couldn't prevent people in 
those happy days from coming in and taking all there were. You 
see, these Avere undivided joint accounts, without exception, in other 
words, a man in the selling or distributing syndicate had a firm 
commitment for so many bonds and then he would sell. And they 
used to, really — it sounds perhaps silly to say it, but it was a great 
problem as to know how to handle an issue, unless you take the 
worst of these, one of the worst, New York Telephone. $50,000,000 in 
1921, which you got 8 times oversubscribed. You didn't give any- 
body what he asked for, because that was what was known collo- 
quially as "padding." 

Mr. Miller. Did a dealer make an additional commission if he 
oversold his commitment, and had a confirmation of the oversale? 

Mr. Whitney. He got an additional commission on the oversale 
if allotted to him; yes. 

"Mr. Miller. In other words, he had the chance to make a large 
profit? 

Mr. Whitney. In this instance, he had an extra commission of 
11/2 percent. 

Mr. Nehemkis. Mr. Chairman, may I ask Mr, Whitney if he 
would be good enough to tell us, in this connection, for how long a 
period of time the syndicate books were opened for the 1906 offernig 
that we have discussed with you, the $150,000,000 offering? 

Mr. Whitney. Well, Mr. Nehemkis, of course, all this time-clock 
business doesn't come off our files. 

.Mr. Nehemkis. Well, you know that, Mr. Whitney 

Mr. Whitney (interposing). And I think it is pretty well known, 
at least I have tried to make it clear, that the 1906 issue was any- 
thing but a success and, thirdly, the method of distribution in 1906 
was completely different. 

Mr. Nehemkis. You know the period of time, Mr. Whitney; can 
you tell me quickly? 

Mr. AYhitney. Several years, I think. 

Mr. Nehemkis. It was open for 2 years, wasn't it? 
. Mr. Whitney."! think it was a great failure. 

Mr. Nehemkis. Just one other thing, just a minute, Mr. Whitney, 
when you say 

Mr. Whitney (interposing). But may I make the statement that 
we did not have a time clock on this. We didn't, did we ? 

Mr. Nehemkis. Mr. Whitney, you identified your documents and 
it was on the basis of your documents ^ which themselves show the 
lengths of time the syndicate books were open that we prepared this 
table. 

Mr. Whitney. The 1900 thing, I don't quite know where I am 
failing in an answer, because the 1906 issue was known to be open 
for a long time. 

» See "Exhibit No. 1688-2." 



CONCENTRATION OF ECONOMIC POWER 11919 

Mr. Nehemkis. Well, I just asked you, Mr. Whitney, so that the 
record would be perfectly clear. You have done something that is 
very interesting. You have compared the bonds of the Telephone 
Co. with the bonds and notes of the Treasury of the United States, 
and I just wanted to show the comparison. , 

Mr. Whitney. No, sir ; I beg your pardon, that is a complete rnis- 
understanding, and I very much regret if the committee got that im- 
pression. All I meant was that the Treasury Liberty 4i4's were sell- 
ing at 83, which was an explanation of the 7-percent price at 95 or 91, 
whichever price you want to take, the 1906 issue was notoriously a 
failure, as was the syndicate, not the original group, but a long list 
of people that we furnished to you, which were mostly bankSj stock 
companies, and people of that kind and a great many individuals. 
They carried that for a long time, and it was finally washed out in 
1908. Of course, a panic intervened in there in 1907. But there is no 
conceivable analog^' between the bond business in 1906 and the bond 
business in 1920, and if I have given any impression that I was trying 
to compare the bond business as done in private issues with the Treas- 
ury, of course, I do not. 

The Chairman. It might be worthy of comment at this point, since 
you made the comparison between the price of Liberty Bonds in 1920 
and the price of an industrial issue like the Bell Telephone Co., that 
these Liberty Bonds had been sold during the war, in very small 
amounts, $50 bonds and $100 bonds, to a large number of people, and 
in many instances, members of the naval and military forces of the 
United States had purchased those bonds, and that for several years 
after the boys had come back, some of them were selling those bonds, 
and that the charge was made then and later on that they were get- 
ting a price that was far below the price for Liberties, and that these 
bonds were moving from what was technically known as weak hands 
into strong hands during this period. 

Perhaps, therefore, the comparison is not altogether as justifiable 
as it might appear. 

Mr. Whitney. Mr. Chairman, that is all true, but the market price 
of money is determined by money rates. It isn't in the hands of 
bankers or anybody else. It is determined by the trend of money 
rates, and I only refer to those two things, first, that the Federal 
Reserve Bank rediscount rate was 7 percent, and, second, that as a 
result of those money rates, plus the factors you speak of, the liquida- 
tion by weak holders, even Liberty Bonds, with their credit, Mere 
selling at 83 — 41/4's, which was, I don't know what the yield was, but 
it was high. Now, any kind of private corporate financing can only 
follow money rates, which are determined Avithin microscopic differen- 
tials, as to what you offer bcmds for. I didn't mean there was any 
analogy with the Liberties which were sold, as you say, under quite 
different money conditions, but the fact remains that no one could 
control money rates, and I merely gave those as an example, perhaps 
it was an unfortunate one, but the important one there is the Federal 
Reserve Bank rediscount rate of 7 percent, which determines the gen- 
eral level of money. 

Mr. Miller. Did the Standard Oil companies, during 1920, do some 
financing at 7-percent coupon rates ? 

Mr. Whitney. Yes, sir; two issues of preferred stock at $100,000,- 
000 each. ' 



11920 CX)NCENTRATION OF ECONOMIC TOWER 

Mr. Miller. Standard Oil of California and Ne-w t ork, as I recall, 
did some linancing? 

Mr. Whitney. That is outside of my own kroT^'edge, Mr. Miller. 

The Chairman. Are you ready to take a recess now? 

Mr. Nehemkis. Yes, sir. 

Tlie Chairman. The committee will stand in recess until 2 p. m. 

(Whereupon, at 12:30 p. m,, a recess was taken until 2 p. m., the 
.same day.) 

atternoon session 

(The committee resumed at 2 : 15 p. m. on me expiration of the 
recess.) 

The Chairman. The committee will please coiLie to order. 

Mr. Nehemkis, are you ready to proceed? 

Mr. Nehemkis. I am, sir. 

Mr. Henderson. Will you call Mr. Whiteh'^ad, Mr. N^^hemkis? 

Mr. Nehemkis. Mr. Henderson requests that I call Mr. William 
Whitehead, of my stall. Mr. Whitehead, take vj.e witness stand, 
please. 

TESTIMONY OP W. S. WHITEHEAD, SECUEITY ANALYST, SECU- 
RITIES AND EXCHANGE COMMISSION, WASHINGTON, D. C— 
Eesumed 

The Chairman. Mr. Whitehead has been previously sworn? 

Mr. Nehemkis. He has, Mr. Chairman. 

Mr. Henderson. In order to clear up what seems to be a misunder- 
standing, and so as not to have any confusion, I want ^o ask you a 
few qjjestions relating to Mr. Keyes' testimony this morning. 

I understand that you have been working on this Telephone in- 
quiry ? 

availability or records of j. p. morgan & CO. TO the committee 

Mr. Whitehead. That is correct. 

Mr. Henderson. And that you secured from the old Kidder, Pea- 
body records the Winsor copy of the so-called "library agreement"? '■ 

Mr. Whitehe^\d. That is correct. 

Mr. Henderson. And that you went to J . P. Morgur and consulted 
various members of the firm and stall there a,ti lo wiieiner or not 
Morgan & Co. had similar records? 

Mr. Whitehead. Yes; that is correct. 

Mr. Henderson. And I gather from the testimoi\j both of Mr. 
Whitney and of Mr. Keyes that as far as the or^gir.al memorandum 
was concerned, they had no record of that? 

Mr. WhitehExVD. That is correct. 

Mr. Henderson. And this inorning, •.\ lien inquiry v*a<^; niaJe as to 
the four letters ^ passing between Morrow and Winsor, Mr. Keyes 
thought that they were in the Bell Telephone syndicate records which 
were made available to you, i^ that cor"-:>ct? 

Mr. Whitehead. That is correct, commissioner. 

1 "Exhibit No. 1673." 

3 "Esbibits Noa. 1675, 1676, 1677, and 1678." 



CONCENTRATION OF ECONOMIC POWER 11921 

Mr. Henderson. Well, now, you knew something of the importance 
attached to the "library agreement." I want to ask yon, as far as 
your memory is concerned, do you feel that if copies of the Winsor- 
Morrow correspondence had been there when you examined them, 
you would probably have noticed them and asked for them? 

Mr. WnrrEHEAD. The answer is yes, without equivocation. 

Mr. Henderson. I think it is more a matter that you knew clearly 
what you were looking for. 

Mr. Whitehead. Yes; very definitely, I knew what I was looking 
for. 

Mr. Henderson. And it is higlily possible that Mr. Ke^^es, not hav- 
ing any knowledge, as he has testified, of those things, did not attach 
as mucli importance to them as you might? 

Mr. Whitehead. Possibly so, but that is problematical. 

Mr. Henders^on. And when you went to Kidder, Peabody and got 
there the originals and the carbons, you instantly recognized them 
as having something to do with the modification of tne so-called 
"library agreement"? 

Mr. Whitehead. That is correct. 

Mr. Henderson. Mr. Chairman, this is merely for the purpose of 
emphasizing the professional status of the investigator. I am not 
raising any question of veracity. 

The Chairman. You want it understood that he did not think he 
was overlooking anything? 

Mr. Henderson. Yes. I want to have it understood that the S. E. 
C. is very proud of its investigators, and I would hate anything 
that might cause confusion to be recorded against their professional 
ability. 

Senator King. You testified as to your own competence? 

Mr. Whitehead. Yes, sir. 

Mr. Henderson. Another thing. We have arranged for Mr. Keyes, 
as you heard this morning, to see whether they were there. That 
is entirely the point. It Is a question of making available to the 
committee these originals or anjrthing else that might pertain to 
this particular item. That is all. 

The Chairman. Very well. 

Will you call the next witness, please ? 

Mr. Nehemkis. I recall Mr. WTiitney. 

TESTIMONY OF GEORGE WHITNEY, J. P. MORGAN & CO., NEW 
YORK, N. Y.— Resumed 

Mr. Nehemkis. Mr. Wliitney, I show y-'u a copy of a syndicate 
record of the $2,155,000 Telephone Co. First Mortgage 7 Percent Gold 
Bonds, and a copy of a syndicate record of the $2,676,000 Cuyahoga 
Felephone Co. 7 Percent Gold Bonds. 

You will recall, Mr. Whitney, that during the testimony this morn- 
ing you had occasion to make reference to these two sheets which were 
furnished to us by your colleague Mr. Alexander, last week. Will 
you examine these and tell me whether you recognize them to be true 
and correct copies of originals ? 



11922 CX)NCENTRATION OF ECONOMIC POWER 

Senator King. While Mr. Whitney is making that examination, 
Mr. Nehemkis, for my own information — unfortunately I have been 
detained in other places than the District of Columbia until a few 
minutes ago — will you tell me the purpose of this investigation and 
the relevancy to any matter that is under consideration by the com- 
mittee, so that I may determine for my own benefit, its relevancy and 
materiality ? 

Mr. Nehemkis. I think Commissioner Henderson could do that 
with much more propriety than I could, Senator King. 

Mr. Henderson. I think I can answer that with the introductory 
statement I made, and I will secure a copy of that right away. 

Senator King. Thank you. That may not do it for me until I 
read it, but I will not delay you. 

Mr. Nehemkis. Shall I go on, sir? 

The Chairman. Proceed. 

telephone issues not covered by "library agreement" — APPLICABILITY 

or "trio arrangement" 

Mr. Whitney. Those are the copies of the papers furnished by us. 

Mr. Nehemkis. Now, these records, Mr. \Vhitney, refer to two 
pieces of underwriting, October 25, 1921, one I have already indi- 
cated involving an offering of $2,155,000 of Telephone First Mortgage 
7 Percent Gold Bonds, and the other the Cuyahoga Telephone Co. 
First Mortgage 7 Percent Gold Bonds.^ 

Mr. Whitney. That is right. 

Mr. Nehemkis. Do you have copies before j^ou ? 

Mr. Whitney. Yes. 

Mr. Nehemkis. NoWj who were the members of the original terms 
group in that underwriting? 

Mr. Whitney. Well, they were both the same, I think. The First 
National Bank of New York,- 221/2 percent ; National City Company, 
221/2 percent; Huntington National Bank, Columbus, Ohio, 10 per- 
cent. J. P. Morgan & Co., 45 percent. 

Mr. Nehemkis. Now, earlier in your testimony, Mr. Whitney, you 
had occasion to refer to the "trio arrangement" between the First 
National Bank, the National City Co., and J. P. Morgan & Co.^ 
Do you recall? 

Mr. Whitney. Yes, sir. 

Mr. Nehemkis. Was this piece of underwriting to which reference 
has just been made, involving these three institutions, part of the old 
•'trio arrangement" ? 

Mr. Whitney. Well, the percentage figures would lead one to be- 
lieve that, but I am afraid my memory, except as it has been revived by 
these documents, is practically nonexistent, 

Mr. Nehemkis. I would merely call to your attention, Mr. "Whitney, 
that this underwriting took place after the conference of May 5, 1920, 
and that the participants in the syndicate of this underwriting are 
not the same as in the other, and therefore I merely inquired of you 

•1 Referring to "Exhibits Nos. 1689-1 and 1689-2." 
• Supra, p. 11853. 



CONCENTRATION OF ECONOMIC POWER 11923 

whether this was another instance of where the old "trio arrange- 
ment" operated, but you have given me your answer that you do not 
recall. 

Mr. Whitney. It clearly indicates it is entirely outside of any per- 
centage which we discussed this moriiing. 

Mr. Nehemkis. Mr. Chairman, I offer these two documents in evi- 
dence as identified by the witness. 

The Chairman. Without objection, they may be received. 

(The two syndicate records of $2,155,000 and $2,676,000 referred to 
were marked "Exhibits Nos. 1689-1 and 1689-2," and are included in 
the appendix on p. 12236. ) 

Mr. Nehemkis. Mr. Whitney, what justification was there for in- 
cluding Kidder, Peabody in the management fee ? 

MANAGEMENT FEE TO J. P. MORGAN & CO. AND KIDDER, PEABODY & CO. 

Mr. Whitney. The management fee, as you have just stated, ap- 
pears for the first time in this issue, and the justification for having a 
management fee at all, and particularly in this business, was that here 
in the telephone business we and Kidder, Peabody & Co. did all the 
clerical, manual work involved in the distribution. You will re- 
member that this morning I pointed out that this 70 percent country 
and 30 percent for New England had to do with the distribution of 
telephone securities or any other securities as they came along. 

Now, all the syndicate records, all the examination of documents, 
all the preparation of whatever papers were necessary in the various 
transactions, were handled through either J. P. Morgan & Co., or 
Kidder, Peabody & Co., and we felt that the amount of actual out-of- 
pocket expense to which our two organizations were put justified a 
management fee, so-called. 

That fee, if you will follow through the bookkeeping, was charged 
only to members of the original group. It was not charged against 
the syndicate and must not be confused with so-called syndicate ex- 
penses. It was merely that Kidder and ourselves in this instance did 
all the manual work, the clerical work, for the members of the original 
group and as such we felt it was justified. 

Your question was, Why was Kidder justified in its share? And I 
hope that I have included that in my answer. They did the leg work 
for New England, and I think you will find the percentage they got 
was 30 percent of the total management fee. 

Mr. Nehemkis. I would like to read into the record, if I may, sir, 
at this time, a memorandum which was previously offered. This 
is, as you will recall, Mr, Chairman, from the files of the old Kidder, 
Peabody firm, previously identified. 

January 25, 1924 

The Chairman (interposing). May I ask you what was the origin 
of "Exhibit No. 1680-2"? 

Mr. Nehemkis. These were obtained from the files of the old 
Kidder, Peabody firm. 

The Chairman. Both sheets? 

Mr. Nehemkis. Yes, sir ; identified by Witness Chapin. 

The Chairman. Was the handwriting identified? 



11924 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. No, sir ; it is of no consequence to the testimony. 

Shall I proceed, Mr. Chairman? 

The Chairman. Please. 

Mr. Nehemkis (reading from "Exhibit No. 1680-2") : 

At the time of the purchase of Southwestern Bell Telephone First 5%, 
Series "A," of 1954, the Proprietary Profit was distributed on a different basis, 
in accordance with letter from J. P. Morgan under date of January 25th, 1924, 
as per following extract. 

I now quote from the extract [reading further] : 

We are forming a syndicate in which we shall participate to purchase these 
bonds from ourselves and associates at 91% and accrued interest and to 
offer them for public subscription at 93%% and accrued interest. In accord- 
ance with our discussion at the meeting at which the above purchase was 
reported verbally today, we plan to charge a managing commission of one-eighth 
per cent on the principal amount of bonds to be issued. After full considera- 
tion of the matter and in line with the understanding that the decision as to the 
allocation of this one-eighth would be left to us. we have thought it was 
advisable to charge it against the profit of the original purchasers. 

And the original document continues [reading furtlier] : 

The above method to be foUowf^d in all subsequent telephone issues, i. e. : 
1% of issue less %% for managers' commission. 
% of said 1/8 to go to K. P. 
% of said Vs to go to J. F. M. 
leaving % percent to be divided among the Proprietors. 

And then follows a caption indicating who the New England pro- 
prietary interests were. 

I call to your attention, sir, the notation which again has been 
identified by Witness Chapin, at the bottom [reading further from 
"Exhibit No. 1680-2"] : 

February 17-30— 

although the original document is dated January 25, 1924 — 

as per J. R. Chapin Old Colony consolidated with First Natl, and check for 
5% interest was sent to First Nail. Bank on American Tel. & Tel. 5% due 1965. 

The Chairman, Tlie significance of that, I assume, is that Old 
Colony under the original listing received 3 percent and the First 
National received 2 percent, so that the combination, the sum of the 
two, was 5 percent? 

Mr. Nehemkis. Yes. 

Mr. Whitney. Mr. Chairman, I inadvertently made a misstatement. 
I said the management fee was divided 70-30, and I would like 
to correct that, if I may, because reading from the so-called syndicate 
record, which we have furnished the committee, the management fee 
of one-eighth percent amounted to $62,500, Kidder, Peabod}' receiving 
a quarter of this fee. 

May the record be perfectly clear that the letter ^ that ISIr. Nehemkis 
quoted, mentioning the original terms, and the word "proprietary" 
again is Mr. Winsor's word and not ours. 

The Chairman. Yes ; and I observe that the proprietary interests, 
as set forth in this exhibit, are all New England interests. 

Mr. Whitney, Right, sir. 

Mr. Henderson. I think, Mr. Chairman, I had a general rebuke 
for counsel the other day for using the word "proprietors" and I see, 
again, he is on firm ground in having used it. 

» "Exhibit No. 1680-2." 



CONCENTRATION OF ECONOMIC POWER 11925 

Senator Kjno. Mr. Nehemkis, I note in one of the papers which 
have been handed to me concerning which you are now interrogating 
the witness, the words and figures, "May 6, 1920." Do these transac- 
tions to which you have just referred go back to 1920 to some trans- 
action then? 

Mr. Nehemkis. Yes. 

Senator Kjng. In other words, you are now investigating con- 
cerning transactions under which the syndicate was formed to acquire 
and take over and dispose of certain stocks and bonds away back in 
1920? 

Mr. Nehemkis. Wb have done even worse than that, Senator, we 
have gone back to tlie year 1906. [Laughter.] 

Senator King. Why don't you go back to the begmning of time? 
[Laughter.] 

Mr. Henderson. I think the record, Senator, will show why we 
went back to 1906. 

Senator King. 1 suppose there is some valid reason. 

Mr. HENDERPCiN I assure the Senator that there is, and it is 
consistent with the terms of reference set down by the resolution 
creating this conmiittee. 

Mr. Nehemkis Mr. Whitney, before I dismiss you, may I just ask 
one or two questions so that I may be clear in my own mind and 
that the record may be perfectly clear? 

Mr. W^HiTNEY. Yes, sir. 

Mr. Nehemkis. There is no question in your mind, is there, sir, 
that there was a meeting at "the library" on May 5, 1920? 

Mr. Whitney. Not the slightest. 

Mr. Nehemkis And that the persons who were present at this 
meeting were Mr. J. P. Morgan, Mr. Henry P. Davison, and Mr. 
Robert Winsor? 

Mr. Whitney. There is no question in my mind that they were 
there, although, to make the record perfectly clear, we have no record 
of such a meeting. 

Mr. Nehemkis. And the only living person today who could testify 
concerning what transpired during that meeting is Mr. J. P. Morgan ? 
The other two gentlemen who were present are deceased? 

Mr. Whitney. Mr. Nehemkis, you used "could." I have already 
told you that Mr. Morgan says he can't, and if this is an. attempt 
to disqualify my statement 

Mr. Nehemkis (interposing). Heavens, no! You misunderstand, 
Mr. T\niitney. 

Mr. Whitney. May I finish? 

Mr. Nehemkis. Surely. 

Mr. Whitney. The facts are as you state, but the inferences are 
not, because I am perfectly competent to testify what went on at that 
meeting from my own recollection. The question was technically cor- 
rect. Mr. Morgan is the only one of the three gentlemen who is now 
living that attended that meeting. That is true. 

Mr. Nehemkis. And the only record in evidence concerning what 
transpired at that meeting and the agreement resulting therefrom is 
Mr. Winsor's memorandum ^ dated May 5, 1920 ? 

1 "Exhibit No. 1673." 



11926 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitney. That is not correct, because there is another memo- 
randum ^ in evidence in which the first part of it is in my hand- 
writing. 

Mr. Nehemkis. The aide Tneinoiref 

Mr. Whitney. It is a memorandum, isn't it? 

Mr. Nehemkis. What we have been calling the aide memoire? 

Mr. Whitney. Well, whatever you want to call it, it is still a 
memorandum which was on the purpose for which the meeting was 
called, and of that I have personal knowledge so that you can't, I 
think, correctly ^ay that the memorandum found in Kidder's files un- 
signed, and otherwise unidentified, except being there, is the only 
memorandum that has to do with that meeting. 

Mr. Nehemkis. Mr. Chairman, may I now recall Mr. Chapin ? 

The Chairman. Mr. Chapin. 

Is this witness dismissed? Do you wish the present witness to 
step aside? 

Mr. Nehemkis. If he will, Mr. Chairman. 

The Chaikman. Thank you A^ery much, Mr. Whitney. 

TESTIMONY OF JOHN R. CHAPIN, KIDDER, PEABODY & CO., BOS- 
TON, MASS.— Resumed 

percentage participations subsequent to ''library agreement" 

the new ENGLAND INTERESTS 

Mr. Nehemkis. Mr. Chapin, I observe that you have been present 
at the session this morning, and you have no doubt followed the 
testimony ? 

Mr. Chapin. Yes, sir. 

Mr. Nehemkis. I nave recalled you simply to review with you what 
I have already reviewed with Mr. Whitney, the realinement in the 
percentage interests after the arrangement or agreement of May 5, 
1920. The percentage participations, as finally agreed upon, differed 
from those suggested by Mr. Davison, in that Mr. Davison had pro- 
posed to allot a 6V2-percent interest to Lee, Higginson, Guaranty 
Trust Co., Bankers Trust Co., and a 9-percent interest to New 
England, but the finally agreed-upon decision gave 5 percent to the 
houses I have just mentioned, and 15 percent to New England, is 
that correct? 

Mr. Chapin. That is correct. 

Mr. Nehemkis. Mr. Whitney's testimony has disclosed that as a 
result of Kuhn, Loeb's dissatisfaction with the redistribution reached 
at "the library," an additional three-fourths of 1 percent was given 
to Kuhn, Loeb, is that correct, sir. 

Mr. Chapin. An additional three-fourths of 1 percent was given. 
I presume it was through Kuhn, Loeb's dissatisfaction with their 
10 percent. 

Mr. Nehemkis. I was merely asking you to tell rne whether the 
three-fourths of 1 percent was made available. 

Mr. Chapin. I understand. 

Mr. Henderson. I asked Mr. Whitney whether he knew why Kuhn, 
Loeb was such a stickler for that other three-fourths percent. Do you 
of your own knowledge know the reason ? 

» "Exhibit No. 1679." 



CONCENTRATION OF ECONOiMIC POWER 11927 

Mr. Chamn. I do not, sir. 

Mr. Nehemkis. If I were to suggest that it might perhaps have been 
that that immediately took them out of the 10-percent class and 
gave them a standing probably third in the issue, is that likely to 
have been it? 

Mr. Chapin. I should think that might very well have been it. 

Mr. Nehemkis. Mr. Chapin, of this three-fourths of 1 percent, did 
not Kidder, Peabody cede one-quarter out of its own participation? 

Mr. Chapin. It did. 

Mr. Nehemkis. The New England proprietary interests, therefore, 
as finally agreed upon, were as follows [referring to "Exhibit No. 
1674"]: 

Kidder, Peabody & Co., 143^ percent; Old Colony Trust Co., 3 
percent; Estabrook, 2i/2 percent; Day, 2i/^ percent; Moseley, II/2 

gercent; Hayden, Stone, 1% percent; The First National, 2 percent; 
hawmut Bank, 2 percent; making a total of 29% percent. Do you 
recall ? 

Mr. Chapin. Well, my remembrance was that Hayden, Stone were 
1%, and Moseley li.-s. 

Mr. Nehemkis. I show you a memorandum, "Exhibit No. 1674," 
previously identified by you. I ask you to examine this and see 
whether this refreshes your recollection. 

Mr. Chapin. Moseley, one and one-third of this. 

Mr. Nehemkis. Correct. 

Mr. Chapin. And Hayden, Stone & Co., one and two-thirds, as 1 
stated. 

Senator King. Mr. Nehemkis, I notice Shawmut, 2 and 30. You 
stated 2. 

Mr. Nehemkis. I am not sure that I know which document. 

Mr. Henderson. It is the last one. 

Senator King. The last one, the last item there on one of these 
sheets. Shawmut, 2. Then there is a space, then, 30. The 30 would 
not be a fractional part of the assignment to Shawmut ; would it ? 

Mr. Henderson. That is the total of all New England interests. 

Mr. Nehemkis. Except, Mr. Chapin, for the changes in name and 
identity, those were the proprietary interests of the New England 
group in all A. T. & T. and associated financing from the year 1920 
until the last issue of A. T. & T. securities prior to the passage of the 
Banking Act of 1933? 

Mr. Chapin. From 1920 to 1930, those were the interests of the New 
England group. 

Mr. Nehemkis. And they remained as you have just testified? 

Mr. Chapin. They remained that way. 

Mr. Nehemkis. And the changes were as follows: The consolida- 
tion of the 3 percent interest of the Old Colony Trust Co. with the 2 
percent interest of the First National Bank upon the consolidation of 
these corporations in the year 1930? 

Mr. Chapin. Yes. There was a consolidation of the securities de- 
partments of these two banks. 

Mr. Nehemkis. And the transfer of the 2 percent interest of the 
Shawmut Bank to the Shawmut Corporation in the year 1925 ? 

Mr. Chapin. Yes. 

Mr. Nehemkis. And the transfer of the Hayden, Stone & Co. inter- 
est of 1% percent to Haystone Securities Corporaiion in 1923 ? 



11928 CONCENTRAsnON OF ECONOMIC POWER 

Mr. Chapin. Made at their request. 

Mr. Nehemkis. That is all, Mr. Chapin. 

I recall Mr. Whitney. 

Senator King. I would like to ask the last witness one question, if I 
may. It may not be relevant to his tcotimony. 

The Chairman. Mr. Chapin, will you again take the stand? 

Senator King. Were you familiar with the allocations which were 
made o^ ..^se? 

Mr. CHAPrN. Only from the record. 

Senator King. Do you know whether or not the price paid for the 
bonds, the stock, whatever were ^'^sued 

The Chairman (interposing). Bonds. 

Senator King. Bonds — was a reasonable price, or whether, if this 
syndicate had not been formed, a better price might have been ob- 
tained by those seeking to dispose of the bonds from the general 
public ? 

Mr. Chapin. Well, Senator, I can't go back as far as that to give 
you any reasonable opinion on it. 

Senator King. That is all. 

(The witness was dismissed.) 

Mr. Nehemkis. Mr. Whitney, please? 

TESTIMONY OF GEORGE WHITNEY, PARTNER, J. P. MORGAN & CO., 
NEW YORK, N. Y.— Resumed 

TELEPHONE FINANCING SUBSEQUENT TO THE RANKING ACT — ACTIVITIES OF 

GEORGE WHITNEY 

Mr. Nehemkis. Mr. Wliitney, after the enactment of the Baulking 
Act of 1933, did not J. P. Morgan & Co. elect to discontinue its secu- 
rities business? 

Mr. Whitney. We elected to continue in the banking business. 

Mr. Nehemkis. Which is saying the same thing that I asked you. 

Mr. Whitney. It is the same thing, put a little more accurately. 

Mr. Nehemkis. Now, during this 1933-34 period, was there not a 
good deal of consideration given to refundings as a result of the decline 
in the interest rate? 

Mr. Whitney. 1933-34? 

Mr. Nehemkis. Yes. 

Mr. Whitney. I don't remember any. Was there a decline in the 
interest rate? I don't remember any. 

Mr. Nehemkis. Now, since you were recognized in the financial com- 
munity as your firm's specialist in Telephone financing, did anj^ of 
the investment banking houses have occasion to discu.ss with you 
Telephone business? 

Mr. Whitney. Of course, I must deny your qualification, and in the 
second place, you are talking about 1933 and 1934. 

Mr. Nehemkis. Yes. 

Mr. Whitney. I don't remember any. 

Mr. Nehemkis. During the period 1933 through 1935, did any part- 
ners of investment banking firms have occasion to discuss with you 
Telephone matters ? 

Mr. Whitney. Oh, I think so. 

Mr. Nehemkis. Do you recall M'hat partners of what firms? 



CONCENTRATION OF ECONOMIC POWER 11929 

Mr. Whitney. Well, I should hesitate to attempt to try to recol- 
lect such an unimportant thing as that, inclusively. I remember cer- 
tain ones who did. But I would be bound to say that my recollection 
lias been rather stimulated by these paper? yoii have asked from us- 
I can remember a partner in the new firm of Kidder. Peabody & 
Co., 1 remember talking about it with Mr. Mitchell. 

Mr. Nehemkis. What part)ier of the new Kidder, Peabody firm ? 

Mr. Whitney. Several. 

Mr. Nehemkis. By chance, Albert H. Gordon ? 

Mr. Yv^HITNEY. No. 

Mr. Nehemkis. VkTiich ones, do you recall ? 

Mr. Whitney. Well, there were ^hree others. tAvo others — ^Mr. 
Chandler Hovey and Mr. Herman R. Kinnicut. 

Mr. Nehemkis. Mr. Mathers, will you step forward, please? He 
has already been sworn. 

I show you a letter on the stationery of Kidder, Peabody & Co., 
dated New York, Mai'ch 2, 1935, which purports to hcav the signa- 
ture of Mr. Albert H. Gordon. Will you examine this and tell me 
vrhether you obtaint 1 this from the files of the Central Hudson 
Gas & Elpctric Corp. 

Mr. Mathers. I did, sir. 

Mr. Nehemkis. That is all, thank you. 

I read to you from the second page of his letter — - 

Senator King. By whom written? 

Mr. Nehemkis. Albert H. Gordon, partner of the firm, of Kidder, 
Peabody & Co., to John Wilkie, Esq., of Central Hudson Gas & 
Electric Corp., dated March 2, 1935. I read frou.-. thb second page 
of this letter [reading from "Exhibit No. 1690"] : 

It is my guess that there will be much utility refunding within the next sis 
months. At the moment Pacific Gas & Electric Company is working actively on 
the refunding of its $40,000,000 5%% bonds due 1952, The Tilcpboue Com- 
pany has been giving serious consideration to refunding its Illinois Bell Tele- 
phone and Southwest Bell Telephone i.ssues, but has decided for the time being 
to do nothing because of political fears. Confidentially, Gi-orge Whitney told 
the company that it might be possible to sell these issues ou a 3% basis, less 
2Y2 points to the bankers. Whitney feels that the company should proceed on a 
refunding operation and is endeavoring to obtain reassurances from Washington 
which will be satisfactory to the management. 

I offer in evidence, Mr. Chairman, the letter just identified and 
from which I have read. 

(The letter referred to was marked "Exhibit No. 1690" and is in- 
cluded in the appendix on p. 12237.) 

Mr, Nehemkis. Now, Mr. Whitney, do you recall, during this 
period, ha\'ing any conversations with Mr. Charles E. Mitchell con- 
cerning prospective Telephone financing? 

Mr. Whitney. I have already safd I did. 

Mr. Nehemkis. Mr. Chairman, I would like you to examine a 
stipulation signed by Mr. Mitchell, dated December 14, 1939, in con- 
nection with certain letters which I shall have occasion to offer in 
evidence. 

Senator King. Is it your purpose to offer these letters without 
further corroboration of their authenticity ? 

Mr. Nehemkis. That is what I requested Mr. Mitchell to do when 
he signed that stipulation, so it would not be necessary to bring him 

124491—40 — pt. 23 9 



11930 CONCENTRATION OF ECONOMIC POWER 

back. He had been a witness before the committee earlier last 
week. 

Mr. Whitnet. Of course, the record shows that first letter from 
Gordon has nothing Whatever to do with us. 

Has that been identified? 

The Chairman. It was identified by one of the staff of the S. E. C. 

Mr. Wehtney. It has nothing to do with us, of course. 

The Chairman. Is it your purpose to offer these various letters 
and memoranda which Mr. INIitchell, by his stipulation, indicates 
he would identify if he were present? 

Mr. Nehemkis. Correct, sir. 

The CiiAii^MAN. Unless there is objection, they may be admitted as 
they are presented. 

iSenator King. Excuse me. Why didn't you offer the letters when 
Mitchell was on the stand, if they are material? 

Mr. Nehemkis. They were not material in connection with Mr. 
Mitchell's testimony. Thej^ are now, with this witness' testimony, 
and I wanted the record to have the letters at this time, rather than 
in another place, that was all. 

The Chairman. You did not offer this stipulation. Perhaps you 
had better do that. 

Mr. Nehemkis. Shall I? I offer, Mr. Chairman, Mr. Mitchell's 
stipulation. 

The Chairman, It may appear in the record. 

(The stipulation referred to was marked "Exhibit No. 1691" and 
is included in the appendix on p. 12238.) 

]\Ir. Nehemkis. I now read from a memorandum by Charles E. 
Mitchell, dated June 27, 1935, addressed to three of his associates, 
Messrs. G. Leib, E. Bashore, and S. Hawes [reading from "Exhibit 
No. 1692"] : 

In Ji general 

The Chairman (interposing). This is one of the memoranda men- 
tioned in the stipulation? 

Mr. Nehemkis. It is. I shall try and remember in each instance 
to specify they are covered by the stipulation. 

In a general discussion yesterday with Mr. George Whitney of J. P. Morgan 
& Company, the subject of A. T. T. financing was brought up. Mr. Whitney 
said that Mr. Walter Gifford was being pestered by proposals and calls from 
investment banking houses and that he was doing nothing about any of them 
other than to give full reports to Mr. Whitney. 

Mr. Whitney intimated that J. P. Morgan & Co. would have very complete 
domination in the matter of funding plans and the selection of bankers to 
do the business, and suggested that aside from writing Mr. Gifford a personal 
note, he felt it would be not only a waste of time but unwise to press financing 
ideas upon him, and that when the time came for financing I need have no 
fear that we would lose out by this procedure. I have written Mr. Gifford 
as he suggested. 

Initialed C. E. M. 

Mr. Chairman, I offer this memorandum, covered by Mr. Mitchell's 
stipulation, in evidence. 

The Chairman. This is the memorandum dated June 27, 1935. It 
may be received. 

(The memorandum referred to was marked "Exhibit No. 1692" and 
appears in full in the text.) 



CONCENTRATION OF ECONOMIC POWER 11931 

Senator King. Of course, your contention is it would not bind Mr. 
Wliitney or anybody else. It is Mr. Mitchell's. 

Mr. Nehemkis. I have not made any allegations or characteriza- 
tions at all. I merely present the facts to you for your evaluation. 

Mr. Mitchell wrote to Walter S. Gifford, president^ American Tele- 
phone & Telegraph Co., as follows [reading from exhibit No. 1693] : 

As you doubtless have read, I am back in the investment banking business, my 
connection being that of Chairman of the Board of Blyth & Company. 

Senator King. Chairman of what ? 

Mr. Nehemkis. Of the board of Blyth & Co. That is Mr. Mitchell's 
firm. 

I would be inclined to chat with you about your financing but I have no doubt 
that you are being pestered from all quarters, and believing that whether the 
banking house that has handled your financing in the past is in the investment 
banking business or not, you will undoubtedly be guided by their views, I am 
not going to count myself in among the pesterers. I merely remind you that I 
am again active and if at any time I can be of service in any way, I shall be 
delighted. 

Mr. Chairman, I offer in evidence the letter of Mr. Mitchell, dated 
June 27, 1935, covered by the stipulation. 

The Chairman. It will be received. 

(The letter referred to was marked "Exhibit No. 1693" and is 
included in the appendix on p. 12238.) 

Mr. Nehemkis. I have here, Mr. Chairman, a letter from Mr. C. A. 
Capek, C-a-p-e-k, assistant treasurer of Lee Higginson Corporation, 
dated December 11, 1939, addressed to the committee's counsel. I read 
to you from that letter [reading from "Exhibit No. 1694"] : 

At the request of Mr. W. S. Whitehead^ through Mr. N. P. Hallowell in our 
New York office, we are enclosing a copy of a letter dated April 4, 1935, written 
by Mr. Hallowell to Mr. Charles H. Schweppe in Chicago. 

I now read to you from the letter transmitted as described. 

Senator King. Who were those persons referred to by you just now? 

Mr.,NEHEMKis. These are all parties associated with the investment 
banking house known as Lee Higginson Corporation, with offices in 
New York and Chicago, and elsewhere, and the letter is as follows 
[reading from Exhibit No. 1695] : 

I had a very interesting luncheon yesterday with Walter Gifford of the 
Telephone Company. They are considering registering a $50,000,000 issue of 
Southwestern Bell Telepbone Co. The bonds outstanding were offered in 1924 
by J. P. M. & Co., K. L. & Co., Kidder, Peabody & Co., First National Bank, 
Bankers Trust Co., Harris Forbes, National City Co., Guaranty Co. and L. H. & 
Co. These bonds are callable at 105 whereas most of the telephone Issues are 
callable at 110. 
He said- 
Referring to IMr. Gifford — 

they were tied up to no one and they had not discussed how to take up 
the matter of selling. He said that a great many houses on the street have 
been to him for telephone refunding and that he realized there was quite a 
problem ahead of them to do the thing right so as not to stir up enmity among 
the various houses on the street. I said "Why not use those members of the 
old telephone group who are still in the business as a starter, and invite in 
others who are the leading distributors?" He said that very possibly that 
might be a good way to do it. He told me that J. P. M. & Co. would not 
be the guiding hand as to who was to come in. I told him that if he wanted 
to sell us $50,000,000 Southwestern Bell Telephone 3y2S at 100 less 2y2% 
commission we would take them. That led to the question which I was hoping 



11932 CONCENTRATION OF ECONOMIC POWER 

he would ask of the set-up of our corporation and aur capabilities for doing 
business and Rave me the chance to tell him the amount of business we have 
been in duniig 1934. He said it has been suggesi ed that they sell this i50,000,0*'X) 
issue to one or two insurance companies but he did not think that that was 
a very good idea b\it even if they did that they would want to register tLie 
bonds as he ?culd have nothing to do with private sales. I toic; him that 
if he did have <:hem registered we could sell them t© insurance companies as 
well as anybody else but he said In case they did the Company would do it 
direct, but there again that probably was not the best thing for the Company 
to do. 

He understands our position in the old telephone group and I am sure 
would not object, in fact, I think he would be glad, to have us in any group 
doing telepho- e financing in the future but he reiterated that they had not 
discussed any group and that they were beholden to no one. Re told me 
to call him iro ^;)7,ardP the end of i:he month and perhaps he co ild tell me 
more. He was very friendly and I feel free to go to him at any rime and I 
certainly will not leave it until the end of the month before seeing him again. 

I want yc;u to note, if yuu will, Mr. Chairman and members of 
the committee, this last paragraph [reading further] : 

In spite of his saying that Morgan would not wield the guiding hand 
he said of course he would talk everything over with George Wli'tiiey and it 
might be a good idea for me to talk to George Whitney also, which I v.-ill do 
next week on his return. So far so good. If you can offer any suggestions 
which would help me in making more sure of our position, please let me 
know. 

Mr. Chairman, I offer in evidence the letters which I have just 
read to you. 

The Chaikman. They may be received. 

(The letters were marked "Exhibits Nos. 1694 and 1695 ' and are 
included in che appendix on p. 12239.) 

Senator Kiivg. I have gathered, during the short time that I have 
been here this afternoon — and I apologize that I iiave not oeen here 
before — I was west and didn't return to Washmgton until a few 
minutes ago — that an issue vras to be made by the Telephone Com- 
pany of a considerable sum for the purpose of refunding, if not 
for original issue, and the talk to which you have referred and the 
letter to which you have referred, dealt with the possibility or the 
probability or certain organizations, certain investment banking 
companies and corporations, taking these various issues? 

Mr. Nehemkxs. Yes. 

Senator King. Well, is it your contention that that was a violation 
of any law if issues were divided among a large number >f people 
where millions and hundreds of millions were involved ? 

Mr. Nehemkis. It's not my function, Senator King, to make alle- 
gations of that sort, I present to you facts, and you evaluate them. 

Senator King. I think I understand you, Mr. Xehemkis. 

Mr. Nehej»,ikis. Just so that we may review the matter to date, 
review the sequence of events together, Mr. Whitney, I understand you 
to testify iiuit at this time, J. P. Morgan & Co. had elected to remain 
a bank of deposit; right? 

Mr. Whitney. At what time are you talking about ? 

Mr. Nehemkis. 1933-35, the period of time now under liscussion 

Mr. Whitney. Just in the interest of accuracy, we did not make that 
election until June 1934; in '35, obviously we had made the election 

Mr. Nehemkis. And J. P. Morgan & Co. at this time was no longer 
in the securities business? 

Mr. Whitney. No. 



CONCENTRATION OF ECONOMIC POWER 11933 

Mr. Nehejnikis. That is correct'? 

Mr. Whitney. Certainly. 

Mr. Nehemkts. At that time, Mr. Wiiitney, were you a inembor of 
the board of directors of the A. T. & T. Co. ? 

Mr. Whitney. jSTo. I 7iever have been. 

Mr. NEirE:\LKis. But Mr. Gilford frit constrained to make reports to 
yon about all discussions that he v.as having witli other members of 
the investment banking community^ according to Mr. Mitchell? 

"Mr. Whitney. My ^inderstanding, Mr. Chairman, is that Mr. 
Nehenikis wants me to take up these exhibits ar-d discuss them, bat 
I can't discuss ariything about Mr. Gilford quoted by other people. 
I can comment on all these, and I hope I -will have the opportunity 
(o do so as far as they •aif'^ct me, but 1 can't ans^ver the question. 

The Chairman. Yoa are at liberty to make any conimenl you 
care to. 

Mr. Whitney. The question counsel asks vvouid be impossible for 
me to answer of mj own knowledge. He asked me if Mr. Gilfor 1 1 ;it 
free to call upon me. 

Mr. Nehemkts. I was referring to a memorandum ^ which I xul 
Tiow refer directly to the witness, in which Mr. Charles E. Miixii.ll, 
whom we had the pleasure of hearing recently, reported to his asso- 
ciate Mr. Bashore on Jmie 27, li)35, that he had a conference with 
Mr. Wiiitney ar^d that Mr. Whitney and he had discussed Telephi.r,- 
matters. I think it is perfectly proper under ti-e circumstances for 
me to ask the witiiess wlie^-her he iias any knowledge about a i:on Ter- 
ence of that sort. 

The Chairman. Well, that question has not been raised. Of couise, 
there would be no obiGction to 3'our asking the nuestion, and tne wit- 
ness has already indicated his desire to make comment upon these 
matters, and, of couise, the committee will be very glad to ^stend 
him that oppoi-tuiuty 

Mr. Whitney. W^ell, that last question is a very simple one to 
answeu, if there were a question in that statement, because, of course, 
I did, as I testified earlier, have a talk with Mr. G. E. Mitchell about 
Telephone financing. H' tvas one of the three men I mentioned w iLh 
whom I had talked. 'The fact is also true that I had several talks 
during '35 with Mr. Gifford about his financing Bians. 

I would like, if I may, to recall to the committee the fact tn-ii I 
have testified several times in the last 2 days that my firm had oeen 
employed in tiie past vvith others by Mr. GiliOj-d to do a ceitajn 
mechanical part of the financing and resetting of the Teiephons pic- 
ture. My firm, and partly myself — perhaps' largely myselt as --in. 
individual — had been advising the Telephone Gcmpany on financial 
matters since 1920 anyw.p.y, and probably befoK. t-Mt, and whi'.e wt 
were out of the security business from June 1934 there was notiiing 
implied or anything else in the law that wo cou.d not conti^me to 
serve our clients, and vve have tried to do 30 ever since and will 
continue to do so in a way that is entirely proper. 

Mr. Gilford came to me because he wanted to get advice on hir. 
financial program. It is a matter of almost common knowledge that 
the passage of the Banking Act in 1934 necessarily threw out oi gear 

1 "Exhibit No. 1692 " 



11934 CONCENTRATION OF ECONOMIC POWER 

the existing machinery of investment banking. We were only one of 
many whom that affected, as has been testified here. 

Mr. Gifford certainly came to us and asked our advice, and I 
certainly gave him all the advice and the best advice that I could 
possibly do. This second paragraph of this memorandum,^ as the 
Senator pointed out, says or intimates certain things. Well, I just 
think, if I may be so bold as to say this, it is just nonsense. I could 
not have ever intimated that I could dominate or ever wanted to 
dominate Mr. Gifford, and anybody who had ever seen him would 
know this statement was ridiculous; at best, it only says intimated, 
that I intimated, whatever that means. 

Now, you have read other letters, from Mr. Hallowell,^ and you 
have read a letter — well, that is the only other one, I guess, which 
says that Mr. Gifford was talking to me, but Mr, Gifford's own 
exposition of his attitude toward the problem, it seems to me, is the 
most accurate one. Nobody dominated him — which I have been try- 
ing to say all morning and Friday. He was talking to various peo- 
ple, had given consideration to many plans, and as a matter of fact. 
Senator, there was no immediate contemplation of any financing. 
That was merely one of many things that he did consider, and it 
wasn't that particular issue that was the first one after this interval. 
There wasn't any other issue, if my memory is correct, until 6 months 
after all these conferences. 

But I can't — Mr. Mitchell brought an inference from me, but I 
would like to take this opportunity to just say that when he claimed 
that I claimed or intimated or anything else, that I had complete 
domination, it just is silly. 

Senator King. That is, it isn't true ? 

Mr. Whitney. It isn't true. 

Mr. Nehemkis. Mr. Chairman, unless it is the pleasure of the com- 
mittee to direct any further questions to Mr. Whitney, he may be 
dismissed. I desire to call another witness. * 

The Chairman. Well, now, have you finished 

Mr. Nehejmkis (interposing). I nave finished with Mr. Whitney 
now. 

The Chairman. You are not going to recall him ? 

Mr. Whitney. Oh, I think so. 

May I read just one very short statement, because I should like to 
do it to make it perfectly clear ? This came up in the very beginning. 
Just to clarify things, I should like to read this statement issued by 
J. P. Morgan & Co. made on June 7, 1934. It is as follows [reading] : 

In order to comply with existing banking laws, both state and federal, we have, 
under Article IV of the New York State Banking Law, made application to 
Joseph A. Broderick, State Superintendent of Banks, to continue as private bank- 
ers. The Superintendent has made an examination of our affairs as of June 1, 
19S4, and in the event that he approves the application, we shall, in accordance 
with the law, be prepared to publish our statement whenever called for by the 
State Superintendent of Banks. 

Just SO that the record will be clear as to what we did do. 

Senator King. Tliat is, after J. P. Morgan & Co., if it had not been 
before, was incorporated, it existed under and by virtue of the laws of 
the State of New York? 



'Exhibit No. 1692." 
'Exhibit No. 1696." 



CONCENTRATION OP ECONOMIC POWER 11935 

Mr. Whitney. Yes, as required by the banking law of 1935. 

Senator King. I see. 

Mr. Whitney. Or license. 

Senator King. License law, and that license stiU exists? 

Mr. Whitney. Yes, sir. 

Senator King. And any operations to which reference has been made 
since you have been on the stand have been under and by virtue of 
the position of the corporation to which you referred? 

Mr. Whitney. Yes, sir. 

Senator King. After the last 

Mr. Whitney (interi^osing). We have been rendering a service to 
our clients which is in no sense investment banking service. It is in 
full compliance with the Federal laws and the State laws. 

The Chairman. Thank you, Mr. Whitney. The committee is very 

grateful for your very ready responses to the many questions which 
ave been asked. 

Call your next witness, Mr. Nehemkis. 
Mr. Nehemkis. Mr. Harold Stuart, take the witness stand, please. 

TESTIMONY OF HAEOLD L. STUAKT, PRESIDENT, HALSEY, STUART 
& CO., INC., CHICAGO, ILL. 

The Chairman. Do you solemnly swear that the testimony which 
you are about to give in this proceedi^ig will be the truth, the whole 
truth, and nothing but the truth, so help you God ? 

Mr. Stuart. I do. 

The Chairman. Please be seated, Mr. Stuart. 

request by HALSEY, STUART & CO., INC., TO BID ON ILLINOIS BELL 
TELEPHONE CO. BONDS 

Mr. Nehemkis. Mr. Stuart, will you state your name and address, 
please ? 

Mr. Stuart. Harold Leonard Stuart, 999 Lake Shore Drive, 
Chicago. 

Mr. Nehemkis. And you are associated with the investment bank- 
ing firm of Halsey, Stuart & Co. ? 

Mr. Stuart. I am the president of Halsey, Stuart & Co. 

Mr. Nehemkis. Mr. Stuart, will you tell me about how large your 
distributing organization is at the present time, what your facilities 
are for distributing securities throughout the country? 

Mr. Stuart. Well, we have a great many salesmen. I can't give 
you the amount oflFhand. 

Mr. Nehemkis. Well, just indicate the size. 

Mr. Stuart. Oh, I should say we have upward of a hundred. 

Mr. Nehemkis. Upward of a hundred? 

Mr. Stuart. Yes. 

Senator King. May I ask a question? 

Mr. Neuesikis. Surely. 

Senatt)r King. Is the corporation organized under the laws of 
Illinois? 

Mr. Stuart. It is, and its main office is in Chicago. 

Senator King. It has branches in various other parts of the United 
States, or representatives, rather? 

Mr. Stuart. Yes, and branch office 



11936 CONCENTRATION OF ECONOMIC POWER 

Senator King. That is since it became a corporation. When did it 
become a corporation ? 

Mr. Stuart. In 1911. 

Senator King. And it existed since that time without modification 
of its charter? 

Mr. Stuart. The name was changed to Halsey, Stuart & Co. in 
1916. 

Senator King. All right. 

Mr. Nehemkis. In about the year 1935 or 1934, were the distribut- 
ing facilities of your firm less than they are at present? 

Mr. Stuart. They were fully as big as now. 

Mr. Nehemkis. Fully as big. Without giving me any precise fig- 
ures, but just responding, if j^ou will, to my question ger;(ually, would 
it be fair to say that the capital position of your ho::: e compares 
favorablv to that of any other investment banking h )use in the 
United States? 

Mr. Stuart. I wouldn't have a direct knowledge of nit, but that 
is my impression. 

Mr. Nehemkis, Would that also have been true on t about the 
years 1934, 1935? 

Mr. Stuart. I believe so. 

Mr. Nehemkis. Is it a correct assumption on my part, Mr. Stuari. 
that outside of the city of New York, your firm is one of the largest 
houses? 

Mr. Stuart. I think so; yes. 

Mr. Nehemkis. And that your general securities business compares 
favorably to most houses in the city of New York ? 

Mr. Stuart. I think that is a fair statement. 

Mr. Nehemkis. Now, during — have you been in the room this after- 
noon? 

Mr. Stuart. I have. 

Mr. Nehemkis. As a matter of fact, you have been here for several 
days, haven't you? 

Mr. Stuart. I have been here since last Tuesday. 

Mr. Nehemkis. You heard the testimony of the previous witness? 

Mr. Stuart. Yes; I did; most of it. 

Mr. Nehemkis. So you are familiar with the time sequence that 
we are now discussing, the period 1934-35? 

Mr. Stuart. I think I am ; yes, sir. 

Mr. Nehemius. At about that time, Mr. Stuart, were you interested 
in Telephone financing? 

Mr. Stuart. I tried to be interested in Telephone financing. 

Mr. Nehemkis. In what way did you try to get interested in Tele- 
phone financing? 

Mr. Stuart. In the summer of 1935. I understood that the Illinois 
Bell Telephone Co. were going to refund their bonds — were talking 
of it — and I sought an o])portunity to bid on those bonds. 

Mr Nehemkis. Wliom did you see? You say you sought an 
opportunity ? 

Mr. Stuarv. T sought an opportunity from Mr. GifTord. 

Mr. Nehemkis. The president of the Telephone Company? 

Mr. Stuart. The president of the American Telephone & Tele- 
graph Co. 



CONCENTRAT'ION OF ECONOMIC POWER 11937 

Mr. Nehemkis, In other words, you came on from Chicago to New 
York presumably and arranged an appointment and saw Mr. Gifford ? 

Mr. Stuart. I did. 

Mr. Nehemkis. Can you recall at this time the general nature of 
your discussion with Mr. Gifford? 

Mr. Stuart. Yes; I can. I was particular to be introduced to 
Mr. Gifford, whom I didn't know, so that he would feel that he was 
talking to someone of responsibility, and I told him that I was there 
for the purpose of seeking an opportunity to bid on the Illinois Bell 
Telephone bonds if, as, and when refunded. He was very pleasant 
and very brief; he told me that all his affairs were in the hands of 
Morgan Stanley & Co. and if I wanted to participate in any bond 
issues, it could only be through them. 

Mr. Nehemkis. No further questions, Mr. Chairman. 

Senator King. How large were the bond issues that you were 
interested in? 

Mr. Stuart. Forty-five or fifty million. 

Senator King. For the one company? 

Mr. Stuart. Of that company ; yes, sir. 

Senator King. Did you seek an opportunity to bid on the bonds, 
other than that which you have just related? 

Mr. Stuart. That was as far as I could go. 

Senator King. You didn't see anybody else? 

Mr. Stuart. No. 

Senator King. Did you attempt to buy any of the bonds after they 
had been floated? 

Mr. Stuart. I think we had a small participation in the selling 
group. 

Mr. Miller. Wliat was the siz;e of the participation, Mr. Stuart? 
Small? 

Mr. Stuart. Well, I would have to guess at it. I would say $350,000 
to $500,000, which would be small for us. 

Mr. Miller. That was in the selling syndicate? 

Mr. Stuart. That was in the selling syndicate; yes, sir. 

Mr. Miller. Did you speak to Morgan Stanley after Mr. Gifford 
suggested it? . . 

Mr. Stuart. My recollection is that I asked Mr. Gifford if he would 
care to, when he refused to give me a chance to bid, that I asked him 
if he would feel like oflScially requesting Morgan Stanley & Co. to 
allot a very substantial amoimt of that issue to the Chicago dealers, 
including my own firm, and he said "no" ; that he would not make any 
such request, but that he would mention the matter to Mr. Stanley, 
and he advised me to telephone Mr. Stanley. 

Mr. Miller. But you didn't do so ? 

Mr. Stuart. I went back to Chicago and thought it over, and then 
telephoned Mr. Stanley, not for the purpose of asking him for a posi- 
tion in the underwriting, but really to check up to see whether Mr. 
Gifford had telephoned Mr. Stanley. Mr. Stanley said Mr. Gifford 
had spoken to him about it. 

Mr. Miller. And you said nothing further then ? You said nothing 
further to Mr. Stanley? 

Mr. Stuart. No, sir ; that was all. 

The Chairman. How long have you been engaged in the investment 
banking business? 



11938 CONCENTRATION OF ECONOMIC POWER 

Mr. Stuart. Well, I am 58 years old, and I have been in it since 
I wns 13. 
Mr. Henderson. Did you have much capital at that time ? 
Mr. Stuart. I didn't have a dime. 
Senator King. Has it been profitable ? It has been profitable, hasn't 

it? 

Mr. Stuart. On the whole, yes ; I think it has. 

The Chairman. And are you familiar with this method of financing 
referred to by one of the witnesses as a "frozen" system? 

Mr. Stuart. I have learned more in the last week than I ever 
dreamed about the manner in which these syndicates in the East are 
handled. I have always lived in Chicago and have done business in 
Chicago. 

The Chairman. Well, do they have any "frozen" accounts out 
there? 

Mr. Stuart. I have never been a party to one. 

Mr. Nehemkis. That was not the question. 

The Chairman. Well, do they have them? 

Mr. Stuart. I say, they may have them, but I have never been a 
party to them. 

The Chairman. Well, do you know of them? 

Mr. Stuart. I do not, but that doesn't mean that one doesn't exist. 

The Chairman. Yes; then what has been the type of financing in 
which you have been engaged, if it has not been the frozen type? 

Mr. Stuart. All types of financing but 

The Chairman (interposing). I mean with respect to this particu- 
lar issue of the frozen account as against one that is not frozen. 

Mr. Stuart. Well, my experience in general is that when every 
deal comes up, it is considered on its own basis at the time. 

The Chairman. Well, by that do you mean that an issuer does 
not ordinarily go to one banker and say, Will you handle this ac- 
count for me, or tliat he always offers it to a group of bankers, to 
get competitive bids, as it were? 

Mr. Stuart. Well, since, I think before the passage of the Securi- 
ties Act in 1933, it was the general custom for a corporation to pick 
out an investment banker that they wanted to take charge of their 
business and do it with them, but since that — since the passage of the 
act, why, it has been anybody's business. 

The Chairman. Well, was that the custom in Chicago prior to the 
passage of the act? 

Mr. Stuart. Yes; I think that was the custom generally prior to 
the passage of the act, yes, sir. 

The Chairman. Then j^ou have had experience of that kind, in 
Halsey, Stuart? 

Mr. Stuart. Oh, indeed, we have had experience, but you asked a 
while ago, as I understood it, about whether such accounts were 
frozen, and we were always sure of a certain percent of something, 
and I had to say no, we were not. 

The Chairman. Well, I am trying to get a thorough picture of just 
how you understand this business to have been handled. 

Mr. MiiXER. Mr. Chairman, may I ask a question? 

The Chairman. Go ahead. 

Mr. Miller. Mr. Stuart, have you no accounts of corporations that 
you handled over jieriods of years, or have you always done financing, 
at least headed up groups, that did their financing? 



CONCENTRATION OF ECONOMIC POWER 11939 

Mr. Stuart. Yes ; we have such, or we had, until the passaj^e of the 
Securities Act, but since then, it has been very much scattered. The 
business that we used to have we don't have now. 

Mr. Miller. Have you done no financing since the passajje of the 
Securities Act for an}^ of these corporations that you previously had? 

Mr. Stuart. Yes, we have done some. 

Mr. Miller. Wliich ones, Mr. Stuart? 

Mr. Stttart. Well, now, let me give you — you take the Middle 
West Utilities Co.: Prior to the passage of the Securities Act, we 
did a great deal of it; we were head of the financing, the bond financ- 
ing. All we handled were bonds, of many of the companies. But 
since that time, I should say, of a dozen different issues that we 
formerly were the head of, we have not been the head of now but 
have had some participation in them. 

Mr. Miller. Well, I asked you if there were any that you had done 
the financing for since, that you had always done before? 

Mr. Stuart. That we did before? 

Mr. Miller. Yes. 

Mr. Stuart. Yes. 

Mr. Miller. And I asked you if you would tell me a few of the 
accounts. 

Mr. Stuart. Well, take the Commonwealth Edison Co., People's 
Gas Co., Central Illinois Public Service Co., Northern Indiana Pub- 
lic Service Co., Public Service of Indiana. 

Mr. Miller. The accounts, then, have carried over since the pas- 
sage of the Banking Act, and you still are doing the financing and 
heading up the groups? 

Mr. Stuart. Quite right. 

Mr. Miller. Are any of those — have you still associated with you 
some of the previous syndicate members who were associated in the 
beginning bef oi-e the passage of the Security Act ? 

Mr. Stuart. Well, some, yes, sir, but tliey are very largely new 
names, very largely new people. 

Mr. Mili^er. Wliy is that, because of changes in houses? 

Mr. Stuart. Changes in business, houses going out of business, 
consolidations, disappearance of bank affiliates. 

Senator King. Then there has been mortality among the invest- 
ment bankers as well as those engaged in commercial banking? 

Mr. Stuart. Yes, sir. 

Senator King. You know, in the West, the name Halsey, Stuart & 
Co. is very familiar to us. You have done a good deal of business in 
the West, have you not? 

Mr. Stuart. Yes, sir. 

Senator King. In the mountain region? 

Mr. Stuart. Yes, we have done quite a good deal. 

Senator King. You had competition, I suppose, but still you under- 
wrote a good many of the bonds, didn't you ? 

Mr. Stuart. Yes, sir. 

Senator King. And sold a great many issues? 

Mr. Stuart. Yes, sir. 

Senator King. You had no competition from the banking houses 
in New York, did you, the investment-company houses in New York? 

124491 — 40— pt. 23 —8 



11940 CX)NCENTRATION OF ECONOMIC POWER 

Mr. Stuart. Well, if there is any business that we have got in 
Chicago that the New York investment houses haven't tried to get 
since the passage of the Securities Act, then I don't know what it is. 

Senator King. Well, it is a wholesome thing if there is competi- 
tion, isn't there? 

Mr. Stuart. Oh, I agree to it. 

Senator King. But, I say, in the West, and I am particularly re- 
ferring to the western coast and to the intermountain region, you 
have done a large amount of business there, and you haven't had very 
much competition from the investment houses of New York, have 



you 



Mr. Stuart. Weli, we haven't done so very much out in the west 
coast region. Our business has been done mostly in the Central West. 

Senator King. And when you built up a reputation for integrity, 
as I assume you did, and I am very happy to confirm that assump- 
tion 

Mr. Stuart (interposing). Thank you, sir. 

Senator King. Then you attem-pted, of course, to hold your clien- 
tele, did you not? 

Mr. Stuart. We tried to give them our best service ; yes, sir. 

Senator King. And would you take over their bond issue, the en- 
tire bond issue, if you could? 

Mr. Stuart. Yes, sir. 

Senator King. Without dividing it with A. B, and C, if you could ? 

Mr. Stuart. If I could get it all, we'd do it. 

Senator King. Exactly. And that has usually been the case of the 
investment companies, hasn't it? 

Mr. Stuart. I think it has. That is what we are in business for. 

Senator King. And the largest investment companies, of course, 
have been established, and, having established themselves and ob- 
tained their clientele, had some little advantage, the same as you had 
a little advantage, over the smaller investment companies; that is, 
not investment companies, but patrons who desired credit, and spe- 
cially those that were new corporations, new sources, new organiza- 
tions that desired capital? 

Mr. Stuart. No ; I wouldn't say that is so. I would say that there 
are a good many organizations that have been formed since the pas- 
sage oi the Banking Act that do get the business of former concerns 
who were not in the business then. 

Senator King. Well, isn't it a fact it is the same \^ith investment 
companies as it is with lawyers; if a lawyer has established himself 
as in the confidence of a large clientele, when a corporation or an 
individual gets into trouble, who have been the clients of this lawyer, 
they go to him rather than to some other lawyer who might be just 
as good, or perhaps even better? 

Mr. Stuart. I should think that was natural ; yes, sir. 
Senator King. And the fact that very large bond issues, as a rule, 
seek large investment companies — that is, investment companies of 
integrity and prestige and capital guch as yours, Morgan, and others, 
I am not sure of the names — seek them for the floating of their bonds 
or the sale of their securities? 

Mr. Stuart. I think that is generally true; yes, sir. 



CONCENTRATION OF ECONOMIC POWER 11941 

Senator King. Now, there is no inhibicion or no prohibition 
against an individual or a corporation seeking capital, going to any 
person where they could get the best results? 

Mr. Stuakt. I don't think there is, but some of my competitors 
don't agree with that. I think that Halsey, Stuart's policy is that 
they will bid on any bonds that they want to buy, where invited to 
do so by the responsible official of the corporation, regardless of who 
has been the banker before, and we are constantly seeking such con- 
tacts or opportunities. 

Senator King. But 3'ou have a chance to bid on any issue that is 
made by a corporation? 

Mr. Stuart. Well, we didn't have a chance on the Illinois Bell 
Telephone Co. 

Senator King. ^\Vliy? 

Mr. Stuart. I can't answer. 

Senator King. Why didn't you go to the corporation and ascer- 
tain ? 

Mr. Stuart. Why, we thought that Mr. Gifford was the man to see. 
Perhaps I made a mistake there; perhaps I should have gone to som»e- 
one else. 

Senator King. Well, did he tell you to go to anybody else? 

Mr. Stuart. He did not; no, sir. 

Senator King. Well, why didn't you go to somebody elso? 

Mr. Stuart. Well, again, I repeat that I thought he was the man 
to see. 

Senator King. Did you tell him that you would bid more than any- 
body else? 

Mr. Stuart. I didn't get that far. 

Senator King. You didn't get that .far ? Well, if you were very 
earnest to obtain the business, why didn't you make hira an offer? 

Mr. Stuart. Well, I don't think we would want to do that. I 
don't think wq would want to make an offer unless we were invited 
to do it. 

The Chairman. Mr. Stuart, if I understood you correctly, you said 
that you had learned more about the manner in which the investment 
banking business is conducted in the East during the few days you 
have been attending this committee hen ring than you had known 
before; Did I understand you correctly? 

Mr. Stuart. You did, sir. 

Tlie Chairman. Would you mind telling us what is the outstand- 
ing fact that you have learned about this business? 

Mr. Stuart. Well, briefly, it amused me very much to find out that 
the boys all divide up something they don't own. [Laughter.] 

The Chairman. Anything else? 

Mr. Stuart. I think that covers a lot, Senator, 

The Chairman. Very well. Thank you very much, Mr. Stuart. 

Mr. Nehemkis. I call Mr. Albert H. Gordon, 

The Chairman. Do you solermily swear that the testimony you are 
about to give in this proceeding will be the truth, the whole truth, and 
nothing but the truth, so help you God ? 

Mr. Gordon, I do. 



11942 CONCENTRATION OF ECONOMIC POWER 

TESTIMOirr OF ALBERT H. GORDON, KIDDER, PEABODY & CO., 

NEW YORK, N. Y. 

The Chairman". Please be seated. 

Mr. Gordon. Thank you. 

Mr. Nehemkis. Mr. Gordon, will you state your full name and ad- 
dress to the reporter, please ? 

Mr. Gordon. Albert H. Gordon, New York City. 

Mr. Nehemkis. Arc you not a partner of the new firm of Kidder, 
Peabody«&Co.? 

Mr. Gordon. Yes, sir. 

Mr, Nehemkis. How long have you been a member of that firm? 

Mr. Gordon. I became a partner in March 1931. 

KNOWIiEDGE BY THE REORGANIZED KIDDER, FEABODT & CO. OF "lIBRART 
^ agreement" OF 192 

Mr. Nehemkis. Were you present today during the earlier testi- 
mony, Mr. Gordon ? 

Mr. Gordon. I have been here during all the time today and on 
Friday. 

Mr. Nehemkis. Mr. Gordon, were you familiar with the agreement 
of May 5, 1920, in a general way, before you heard the testimony here ? 

Mr. Gordon. I was not familiar with the agreement set forth in 
the papers until those papers were shown me after they had been taken 
from the files of our predecessor firm in Boston. In a general way, 
I knew of Kidder, Peabody's position in the Telephone business in the 
past, and I knew the specific amounts that Kidder, Peabody & Co. 
had underwritten in the past, but as to the agreement, I had no knowl- 
edge of it. Before we took over the business of Kidder, Peabody & 
Co. in 1931, we made a very thorough study of its background. Obvi- 
ously^ in 1931, we were not going to risk our capital unless we made a 
study which, to our satisfaction, was thorough. It was obvious to us 
that the most important phase of Kidder, Peabody's business had been 
the distribution of Telephone securities. Kidder, Peabody had prob- 
ably, or has probably, distributed more Telephone securities than any 
other concern in the United States. 

In spite of the financial difficulties of Kidder, Peabody in 1931, it 
seemed to us tliat the name could be rehabilitated because there must 
have been a great many satisfied clients who had bought Telephone 
securities from Kidder, Peabody & Co. We did not think that there 
was any agreement, that Kidder had any proprietary interest or any 
agreement for Telephone financing. We did leel, however, that if we 
built back the business, that if we could keep our caj)ital intact, which 
we put into the })usiness, and if we could build up the distribution, that 
we would be approached by whoever led the Telephone business, to 
take part in it. 

In passing, I would like to comment, if I may, on the term "pro- 
prietary." I never heard the term until these papers were shown to 
me, when they were taken from our Boston files. I understand that 
Mr. Winsor, the senior partner of the old firm, was very adept at 
coining phrases, and, therefore, I think that the term "proprietary" 
is an invention of his. 



CONCENTRATION OF ECONOMIC POWER 11943 

The Chairman. Well, you noticed that it went through a large 
number of exhibits^ 

Mr. Gordon. Mr. Chairman, Mr. Winsor was the dominant partner 
of Kidder, Peabody from 19 — I can't say the exact date, but from 
around 1910 or 1915, until his death. Practically nothing was done 
in Kidder, Peabody & Go. without Mr. Winsor's full knowledge and 
approval. 

The Chairman. The first exhibit^ that I recall was that of, oh, 
sometime during 1920. Perhaps my recollection may be a little 
vague, but it appeared then, and then again as late as 1924 with the 
memo ^ on which there was a notation as late as February 1930, 
and in this exhibit of 1924, not only do you have the heading, "Pro- 
prietary Interests," but on the attached memo ^ you have this phrase: 
"Balance of seven-eighths divided as usual to proprietors." So that 
the idea is used in two ways, proprietary and proprietors. 

Now, are you testifying that though this apparently appeared on 
various memoranda in the files of the old Kidder, Peabody Co., you 
never had any knowledge of it at all? 

Mr. Gordon. No, sir ; I never had any knowledge of it. 

Mr. Nehemkis. Mr. Gordon, did I understand you correctly to say, 
in response to my question, that you never had any knowledge of the 
agreement of May 5, 1920? Now, before you answer, I want you to 
think very carefully. 

Mr. Gordon. I had no knowledge of any such agreement. As I 
have said, in studying the records, the syndicate records, which were 
available to me, T knew that Kidder, Peabody had a certain per- 
centage in various issues of the Telephone Co. and of its subsidiaries. 
I had no knowledge of any agreement that had been made between 
Mr. Winsor and the partners of J. P. Morgan & Co. 

INIr. Nehemkis. You did know, did you not, that the old firm of 
Kidder, Peabody had operated under some kind of an arrangement 
for many years, whereby it had the exclusive distribution of Tele- 
phone securities in New England? 

Mr. Gordon. Yes; I kneAv that. 

Mr. Nehemkis. Now, Mr. Gordon, about the early part of Septem- 
ber of the year 19-35, did you have occasion to discuss the matter with 
Mr. Harold Stanley of the newly organized firm of Morgan, Stanley 
& Co., Incorporated? 

Mr. Gordon. If I may do so, I should like to go back to 1931, to 
the conversations regarding Telephone business and tell about them. 

Mr. Nehemkis. Well, I will give you full opportunity, as every 
witness has always had, as you know, since you have been here, but 
may I ask if you answer my question as best you can? 

Mr. Gordon. May I have that question again? 

(The question was read.) 

Mr. Gordon. To the best of my knowledge, I did, 

Mr. Nehemkis. Now, what was the nature of your discussions with 
Mr. Stanley, as you recall them now? 

Mr. Gordon. When I learned that Morgan, Stanley had been asked 
by the Telephone Company to form a syndicate to underwrite and dis- 
tribute the Illinois Bell Telephone bond^, I went to Mr. Stanley to 

1 "Exhibits Nos. 1672 and 1674." 
»"Eslilbit No. 1680-2." 
•"Exhibit No. 1680-1." 



11944 CONCENTRATION OB^ ECONOMIC POWER 

ascertain what our position would be. I told him of it, reminded him 
of the past background of Kidder, Peabody in Telephone securities. 
I told him of what we had done to build up our position in distribut- 
ing over the period of 1931 to 1935. I told him that because Kidder, 
Peabody had distributed so many securities, Telephone securities, that 
we felt that we were in an unusually good position to do an effective 
job in the prospective is3ue. 

Mr. Nehemkis. Did you not also 

Mr. Gordon. I used 

Mr. Nehemkis. Oh, excuse me. I'm sorry. 

Mr. Gordon. The matter was of very great importance to us, ob- 
viously. I used evGry argument at my command to get as large a 
position as possible for my firm. 

Mr. Nehemkis. Did you not also discuss with Mr. Stanley at this 
time whether or not 3'our firm would have, as it did in the old days, 
the exclusive distribution of Telephone securities throughout New 
England ? 

Mr. Gordon. No, sir; and I wished to go back to 1931 in order to 
explain that. 

Mr. Nehemkis. I will give you a full opportunity to do that, Mr. 
Gordon. 

Mr. Gordon. But by that tim.e we knew that there was not the 
slightest chance of our wholesaling securities in New England and, to 
the best of my knowledge, that subject w^as not mentioned. It is dif- 
ficult to remember exactly what took place 4 years ago. 

Mr. Nehemkis. Now, you said, if I understood you correctly, that 
you knew by that time that you would not have any chance to get the 
New England distribution. Just how did you know that fact? 

Mr. Gordon. If I may, Mr. Chairman, I would like to go back, as I 
said before 

Senator King. You can go back. 

Mr. Gordon. It is very difficult for me to put back pieces. I can do 
it as a whole. I h ; . e never been a witness in this kind of thing before, 
and it makes it very difficult for me to answer the question as perhaps 
you wi^h. 

(Senator King assumed the chair.) 

Acting Chairman King. It might be wise not to state conclusions on 
hearsay testimony. If you have primary testimony 

Mr. Gordon (interposing). Yes, sir; thank you. 

Before we took over the business, we investigated the background. 
It was obvious, as I said, that one of the main reasons for our being 
interested was the performance of Kidder, Peabody in Telephone 
securities. We negotiated the purchase of the goodwill of the business 
from the old partners, represented by a revolving credit which was 
headed by J. P. Morgan & Co. Most of our conversations for purchas- 
ing goodwill of the business took place Avith Mr. George Whitney. 
Mr. Whitney told us that "if any Telephone financing came in tfte 
future to J. P. Morgan & Co. there would have to be a change in the 
status of Kidder, Peabody & Co. in the account; that wholesaling by 
two different concerns of an issue w\as not sound, control should be 
imified, and that Ave would just have to reconcile ourselves to the 
change — not reconcile ourselves, but take into account that there 
would be such a change. 



CONCENTRATION OF ECONOMIC POWER 11945 

He told us that our position would depend on circumstances pre- 
vailing at the time of a future issue, and would be decided on 

Mr. Nehemkis (interposing). May I interrupt you just a moment, 
Mr. Gordon. What was the time of this conversation with Mr. 
Whitney ? 

Mr. Gordon. This conversation took place, roughly, in January, 
either January, February, or March, of 1931. 

Mr. Nehemkis. Will you proceed, Mr. Gordon. 

Mr. Gordon. Then that answers the question of when we learned 
that Kidder, Peabody & Co. would not have the rif^ht to wholesale 
Telephone securities in New England — that is, Kidder, Peabody & 
Co., as a new firm, would not have the right if we organized it. When 
we talked to Harold Stanley in 1935, Harold Stanley said Morgan, 
Stanley was a new firm; Kidder, Peabody was a new firm, and the 
situation would have to be — the circumstances would have to be de- 
cided. 

Acting Chairman King. Well, Kidder, Peabody was not a new firm, 
was it ? 

Mr. Gordon. Yes, sir. 

REORGANIZATION OF KIDDER, PEABODY & CO. IN 1931 

Acting Chairman King. T understood you to say that it was a new 
firm and you used the word, "we" several times. "We took it over." 
You mean reorganized it ? 

Mr. Gordon. Yes, sir ; reorganized it. The old firm of Kidder, Pea- 
body changed its name to the Devonshire Corporation, and we pur- 
chased the goodwill and continuing nature of the business, and went 
on with the name of Kidder, Peabody & Co. 

Acting Chairman King. Did you purchase anything besides the 
goodwill ? 

Mr. Gordon. No, sir, but we purchased certain assets. 

Acting Chairman King. D^'d you have any capital? 

Mr. Gordon. Yes, sir; v.e start i business with a capital of $5,300,- 
000. We purchased certain assets of a going nature, accoimts receiv- 
able, securities, with readily marketable value. 

Acting Chairman King. What was the value of that ? 

Mr. Gordon. Sir, I can't tell you from memory. I would think that 
we might have, at the time Kidder, Peabody had deposits and we 
assumed the deposits. Naturally, there are assets against those de- 
posits. I can supply a balance sheet of them 

Acting Chairman King. No ; I am not asking for that. 

Mr. Gordon. As of that time. Kidder, Peabody at that time had 
deposits, I guess, of about six to eight million dollars, which we 
assumed. 

Acting Chairman King. That is, those are liabilities ? 

Mr. Gordon. Those are liabilities; and we were given assets on the 
other side. 

Acting Chairman King. Equivalent to the liabilities ? 

Mr. Gordon. Yes, sir. 

Acting Chairman King. So you started out then with practically 
$5,000,000? 

Mr. Gordon. Yes, sir; capital. 

124491— 40— pt. 23^—10 



11946 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. Would you expect a corporation with only 
five million — an investment company with only $5,000,000 of capital — 
to be as favorably situated in the market to take over the handling of 
large i>sues, say, forty, fifty, sixty, or seventy million dollars refund- 
ing operations, as a corporation that had a much larger capital? 

Mr. Gordon. No, sir. 

Acting Chairman King. I understood you to say that it was advan- 
tageous to — or rather it would be disadvantageous to have a number 
of wholesalers of securities and it would be far better to have one 
wholesaler to handle this distribution? 

Mr. Gordon. I did not make myself clear. 

Acting Chairman King. All right, go on. 

Mr. Gordon. It was disadvantageous to have one wholesaler in New 
England keeping one set of books, another wholesaler handling the 
rest of tlie country and keeping another set of books; a wholesaler 
in New York, not being acquainted with the wholesaler in New Eng- 
land arid wliat he was doing, could not keep the control that, in an 
infi'icate. largo-sized operation, was essential for efficient operation. 

IMr. 1Ikn!)ekson. Is that your conclusion, or was that what the 
representations made by Mr. Whitney were? 

Me. (joRDCN. Sir, v.e had hoped that we would be continued as the 
wholesaler in New England, but we all along were realists enough 
to realize that the hope was very m.uch of a rainbow. 

Mr. HE^;DIR^oN. Well, you didn't answer my question directly. 
I ask(!d yon whether that conclusion 

Mr. G(iRnoN (interposing). Oh, excuse me! 

Mr. T1j:ndfkson. That you gave to Senator King was your own or 
AvheHior it was one that was made by Mr. Wliitney in this conversation 
you said you had, when you discussed the matter in 1931? 

Mr. Gordon. "Wo liad to, it was obvious that we had to recognize 
the Iruth of the statu.s. 

Acting Chairman King. Don't state a conclusion, just what did he 
say? Wo wili determine what the conclusion will be. 

Mr. GoiiDON. As I remember, sir, this was 10 years ago — 8 years 
ago. lie sjiid 

Acti!)!!; Clsairman King (interposing). Now, you are speaking of 
Mr. Whitney? 

Mr. Gordon. Yes, sir. 

Acting Chairman King. And he said this to you about 8 years ago? 

Mr. GoifDON. Eight or nine years ago. 

Acting Cliairrnau King. Was that before you became interested? 

Mr. Gordon. Wlien we were considering becoming interested. 

Acting Chairman King. All right, proceed. 

Mr. Gordon. That it was wise for the business to have it handled 
in one source, the books to be handled in one source, that as tim.e 
went on and as the Telephone issues became bigger and bigger, the 
fact that Kidder, Peabody & Co. were wholesalers of securities in 
New England, was making it less easy for J. P. Morgan & Co. to do 
the job that was necessary to be done. I believe that certain of the 
Telephone securities that were being wholesaled, supposedly, in New 
England, were coming up in other parts of the country, and it made 
it difficult for J. P. Morgan to have an orderly marketiiig operation. 

Acting Chairman King. May I ask another question? Suppose that 
an issue you have, say, of $50,000,000 of New England securities, were 



CONCENTRATION OF ECONOMIC POWER 11947 

divided $20,000,000 to J. P. Morgan, $30,000,000 to you, and the 
balance to Halsey, Stuart & Co., each one having, or fixijig, the price 
at which they were to be sold. Would not that be a discouraging 
factor or have a discouraging effect upon the market, or would it be 
better, not only for the distributor, but for the corporation that was 
obtaining the money, to have one sole distributor i I am asking for 
information. 

Mr. Gordon. It would be to the advantage of the corporation to 
have one sole distributor. 

Acting Chairman King. That would be the advantage, then, of the 
utilities organization to have one distributor, so that there would 
be 

Mr. Gordon (interposing). That is, one main distributor with rela- 
tion to other dealers. 

Acting Chairman King. Yes; I understand that. 

Mr. Miller. You really mean one manager, don't you? 

Mr. Gordon. Yes, one manager; that's what it is. 

Mr. Miller, One manager handling all of the sjTidicate books, 
making allotments to these dealers throughout the country. He could 
handle it better than dividing it up into two managers operating in 
nearby areas. 

Mr. Gordon. That is correct. 

Mr. Nehemkis. Mr. Gordon, I am sorry to say that I am a little bit 
confused about this conversation that you described in January or 
February or March of 1931 with Mr. Whitney. I would like to retrace 
that with you and perhaps you can help me understand that. On or 
about January or February or March of 1931 you had some discus- 
sions with George Whitney. Who instigated those discussions ? 

Mr. Gordon. We instigated them. As I recall it, we instigated the 
discussions because at that time, that is, by we, I mean Webster, Hovey, 
and myself, who were the original partners of the new firm of Kidder, 
Peabody & Co., were negotiating for the purchase of the goodwill 
and certain of the assets of the old firm of Kidder, Peabody & Co. 

Mr. Nehemkis. Now, what has that got to do with your seeing 
George Whitney at that time ? 

Mr. Gordon. As I said, Mr. George Whitney — we purchased the 
goodwill and the assets of the old partners who were represented by 
a revolving credit which had advanced money to the old firm of 
Kidder, Peabody & Co. This revolving credit had been headed by 
J. P. Morgan & Co. 

Mr. Nehemkis. You mean, J. P. Morgan & Co. bailed you out at 
that time, is that what you are talking about ? 

Mr. Gordon. No, sir ; it did not bail us out. We had no previous 
connection with Kidder, Peabody & Co. 

Mr. Nehemkis. Oh, they loaned you the money? 

Mr. Gordon. No, sir; nobody loaned us any money. Can I make 
that — let me 

Acting Chairman King (interposing). You had the $5,000,000, you 
and your associates ? 

Mr. Gordon. Yes, sir. If I may — this is the letter I wrote to Mr. 
Nehemkis, and I think it will explain it. 

Mr. Nehemkis. Before you start, may the record show at this 
point very clearly that Mr. Gordon is introducing a letter> — — 



11948 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King (interposing). Wait until we see what it is 
wlien he introduces it, 

Mr. Nehemkis. He is reading a letter which has not been offered 
by counsel. 

Acting Chairman King. Well, let's see if it is material. You wrote 
a letter to whom ? 

Mr. Gordon. This is a letter, sir— I can describe what happened, I 
think, but I would like to have — I can do it without reference to this 
letter, but I will stand in back of what I say in this letter. Or I can 
say it verbatim, if you wish. 

Acting Chairman King. Hand the letter to Mr. Nehemkis and if 
he thinks, under the terms of the authority that this committee has, 
that it is proper, it will be received. 

Mr. Nehemkis. I should say, Senator, that I have seen this letter. 
This letter is addressed to me. I had hoped that Mr. Gordon 
wouldn't make any reference to it, but if he wants to make any 
further reference to it, he will be perfectly at liberty to do so. 

Acting Chairman King. If it is self-serving, what are the facts 
in it? If it is material, what are the facts brought out by the 
letter? 

Mr. Gordon. All right, sir. In 1931, we purchased the goodwill 
and certain of the assets of the prior firm of Kidder, Peabody & Co. 

Acting Chairman King. Yes; you stated that. 

Mr. Gordon. Yes, sir. I am sorry to — I have never been a witness 
before, and you have got to excuse my redundancy. The Kidder, 
Peabody & Co. had obtained — the prior firm of Kidder, Peabody & 
Co. — had obtained a $HK),000,000 credit from a revolving credit headed 
by J. P. Morgan & Co., in order to carry on its business. 

Mr. Avildsen. Just what is a revolving credit? 

Mr. Gordon. $10,000,000 was placed at the disposal of the prede- 
cessor firm to be used, if necessary 

Mr. Avildsen (interposing). By J. P. Morgan & Co? 

Mr. Gordon. No, sir; by a group of banks headed bj J. P. Morgan 
& Co., including the First National Bank of New York, the Guaranty 
Trust Co., the First National Bank of Boston, and half a dozen 
others, the Chase National Bank. J. P. Morgan's interest in the 
credit was $2,500,000 out of the $10,000,000. 

Mr. Avildsen. All right. 

Mr. Gordon. In addition, $5,000,000 of new capital was raised by 
the old partners. In the course of a half-dozen months, 3 months, 
it became apparent that there was not enough money to carry on 
the business. We then 

Acting Chairman King (interposing). Pardon me, but you had 
the $5,000,000 plus the- — 

Mr. Gordon. The old firm. 

Acting Chairman King. Yes, plus the $10,000,000, of which J. 
Pierpont Morgan had furnished two million plus? 

Mr. Gordon. Yes, sir. 

Acting Chairman King. That is to say, the old firm was then in 
part indebted to Morgan and other corporations or other banks, for 
its capital or for the. revolving fund which it utilized to carry on its 
business ? 

Mr. Gordon. Yes, sir. 

Acting Chairman King. But its capital consisted of a much smaller 
sum than the $10,000,000? 



CONCENTRATION OF ECONOMIC POWER 11949 

Mr. Gordon. Well, it raised $5,000,000 in new money. 

Acting Chairman King. I see. 

Mr. Gordon. It then became obvious, as the depression went on, 
that it was necessary to raise more money in order to carry on the 
business. 

We interested ourselves in purchasing the goodwill. We put the 
old firm in an airtight compartment, so to speak, and started 
a new firm with the name of Kidder, Peabody & Co. and with 
certain of the assets, for which we paid. We agreed to pay for the 
goodwill. Our only connection with the past was our agreement to 
pay for the goodwill, by paying 25 percent of our earnings until we 
had paid a total of $2,000,000. 

Acting Chairmar King. Well, did the new firm have the advantage 
of that $10,000,000 re . oiving fund credit which was furnished by the 
banker? 

Mr. Gordon. No, sir. 

Acting Chairman King. You released that, or rather, it was with- 
drawn from the fund? 

Mr. Gordon. The old firm went into liquidation.^ 

Acting Chairman King. Proceed. 

DISCTJSSION or KIDDER, PEABODY & CX).'s POSITION IN ILUNOIS BELL TELE- 
PHONE CO. ISSUE — 1931 

Mr. Nehemkis. Now, Mr. Gordon, I am sorry you got into this 
thing. It is of no concern to us. But I presume you want to mention 
this as being the motivating factor which led you at this time to 
have a discussion with George Whitney. 

Mr. Gordon. We had many discussions with George Whitney, and 
several other partners in J. P. Morgan & Co. 

Mr. Nehemkis. Now, just so that we may move fast, I will ask 
simple questions and I think they will lend themselves to simple 
answers. In connection with a discussion growing out of, perhaps, 
this revolving fund, you discussed Telephone matters with Mr. Whit- 
ney; is that correct? 

Mr. Gordon. Yes, sir ; that is right. 

Mr. Nehemkis. At this time, Mr. Wliitney suggested to you tha^t 
the old arrangement, which we have been discussing here for several 
days, whereby the New York group got 70 percent of the Telephone 
business and the New England group, under the leadership of Kidder, 
Peabody & Co., the old Kidder, Peabody, got 30 percent, wasn't 
satisfactory. Is that correct ? I am asking for just a general answer. 

Mr. Gordon. Just a minute, until I get that straight. 

Mr. Nehemkis. Well 

Mr. Gordon. I think I can answer that by saying that the old posi- 
tion of Kidder, Peabody & Co. came up for discussion and we were 
advised that there would be a change if 

Mr. Nehemkis (interposing). Now, just a minute. You have indi- 
cated that you want a little help, being a novice in this witness busi- 
ness. Now, let me suggest how you can be helpful and I can be 
helpful to you. I will ask you a question and you answer it, and then 
stop. 

1 See extract from "memorandum of corrections" submitted by Arthur H. Dean, counsel 
to Mr. Gordon : appendix, p. 12316. 



11950 (CONCENTRATION OF ECONOMIC POWER 

Acting Chairman Kino. Answer "Yes" or "No" if you can. Coun- 
sel can ask you for an explanation if you haven't made it clear. 

Mr, GoRix)N. All right, thank you. 

Mr. Nehemkis. Now, you discussed, apparently at this time, the old 
arrangement, the 70-30 arrangement. You have indicated that Mr. 
Whitney suggested to you that the old 70-30 arrangement wasn't sat- 
isfactory, and that there would have to be another change, is that 
correct ? 

Mr. Gordon. I don't know that he said the old 70-30 arrangement ; 
he said that the position that Kidder, Peabody had had in the past 
would be changed. 

Mr. Nehemkis. Fine. Now, did you know at that time, and I refer 
to the time of your discussion with Mr. Whitney, what the old Kid- 
der, Peabody distributing arrangement had been for telephone 
securities ? 

Mr. Gordon. I knew that Kidder, Peabody had distributed a cer- 
tain number of — had a position in pieces of Telephone financing. I 
knew that Kidder, Peabody had wholesaled the bonds in New Eng- 
land. 

Mr. Nehemkis. And Mr. Whitney at that time was suggesting that 
instead of having in effect two syndicate managers, one operating in 
New York, with jurisdiction over the entire country, and another 
syndicate manager operating in Boston, with jurisdiction over New 
England, that there would be one syndicate manager and that the 
books would be kept in one shop ; is that correct ? 

Mr. Gordon. That's right. 

Mr. Nehemkis. But the shop would not be Kidder, Peabody, but 
rather J. P. Morgan; is that correct? 

Mr. Gordon. That is right, assuming that J. P. Morgan & Co. 
obtained the business from the Telephone Company. 

Mr. Nehemkis. Well, they already had it. 

Mr. Gordon. Not the future issues, they didn't have. 

Mr. Nehemkis. Well, all right. 

Acting Chairman King. Did J. Pierpont Morgan have the whole- 
saling of issues in New England? 

Mr. GornoN. Up to that time, I believe that the old firm of Kidder, 
Peabody had distributed in New England, wholesale, to the dealers, 
the Telephone securities, 

Actiny; Chairman King. All of them? 

Mr. Coi^don. As far as I know, sir. 

Acting ChuM-ni'm King. J. Pierpont Morgan or other investment 
conipniies had nothing to do, then, with the distribution or sale of 
securities? 

Mf. Gordon. Tlie wholesaling. 

Actino; Ch:iirman King. The wholesaling? 

^li". GoHDON. Yes: as far as I loiow. 

Mv. Nehemkis. Now, Mr. Gordon, I want to leave this particular 
period 

Acting Chairman King (interposing). Pardon me, but was that 
only Tebphone secui'ities? 

Mr. Gordon. Yes; Telephone bonds. 

Acting Chairman King. Well, that is a security, isn't it? 

Mr. Gordon. Yes ; but not common stocks. 



CONCENTRATION OP ECONOMIC POWER 11951 

KIDDER, PEABODY & CO.'S POSITION IN ILLINOIS BELL TELEPHONE CO. 

ISSUE — 19 35 

Mr. Xehemkis. Now, I would like to leave the period now under 
discussion, of 1981, and go back to your earlier testimony, when you 
indicated that sometime m 1935, around the fall of the year, you had 
occasion to call upon Mr. Harold Stanlej^ the president of the newly 
organized firm of Morgan Stanley & Co. Incorporated. Did you 
not, at this time, when you discussed and reviewed with Mr. Stanley 
the old Kidder, Peabody arrangement for New England distribution, 
indicate that the new firm hoped it might get the same old arrange- 
ment, namely, distribution for New England? 

Mr. Gordon. To the best of my knowledge, I think that the most 
we could have said was that since we weren't going to wholesale in 
New England, we hoped that we would have as good a position as 
possible to offset it. 

Mr, Nehemkis. But at the tmie of your discussion with Mr. Stan- 
ley, you had no personal knowledge that tliere had been an under- 
standing reaching back to the year 1920 between Mr. Morgan, Mr. 
Davison and Mr. Wmsor, under which 

Mr. Gordon (interposing). Yds 

Mr. Nehemkis. Let me finish. Your old firm had been operating 
for over 10 years? 

Mr. Gordon We knew, when we took over the business of Kidder, 
Peabody & Co. that we weren't taking over any agreements, that 
we would have to stand on our own feet. 

Mr. Nehemkis. Now, that isn't what I asked you. Now I am 
going to repeat it, because I think you are probably leaving a little 
difficulty with my questions. I am going to repeat what I indicated 
in my previous question. Let me repeat it for you and listen very 
carefully, if you will, Mr. Gordon. 

At the time that you conferred with Mr. Stanley, in the fall of 
1935, did you have any personal knowledge that there had been an 
agreement entered into in the year 1920 between J. P. Morgan, 
Henry P. Davison, and Kobert Winsor, under which your old firm 
had been operati^ig for at least 10 years? Now, what is your answer 
to that? 

Mr. Gordon. I did not know of any such agreement, and once 
again, I knew that the business had been conducted along the lines 
which it had been conducted, but I did not know of any agreement. 

Mr. Nehemkis. You knew, however, the end results of what may 
have been arrived at through an agreement? 

Mr. Gordon. Yes; I knew what positions Kidder, Peabody & Co. 
had had in Telephone business in the past. 

Mr. Nehemkis. In other words, no one ever told you specifically 
that on such-and-such a date, this was decided? 

Mr. Gordon. Nc. 

Mr. Nehemkis. Now, when you went to see Mr. Stanley, in an en- 
deavor to have the new firm of Kidder, Peabody & Co. brought into 
the Illinois Bell issue^ which everyone knew was coming at that time, 
didn't you claim for your new firm as much as you could get, namely, 
the distribution over New England? 

Mr. Gordon. I think I have answered that, Mr. Nehemkis. We did 
not claim it, to the best of my knowledge.. 



11952 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. What caused you not to put forward that claim, 
which seems rather unusual? 

Mr. Gordon. Well, we were realistic enough to know that we 
weren't entitled to it. 

Mr. Nehemkis. Because of the 



Mr. Gordon (interposing). Because 

Mr. Nehemkis. Break-up of the old firm, nev^ situations, and that 
it wasn't a sound arrangement? 

Mr. Gordon. Yes; all of those reasons. We could recognize that. 

Acting Chairman King. You didn't expect to have that revolving 
fund of $10,000,000 available for you, did you? 

Mr. Gordon, No, sir. I hope never to have a revolving credit avail- 
able to me. 

(Senator O'Mahoney resumed the Chair.) 

The Chairman. What do you mean by saying that you knew it 
wasn't a sound arrangement? 

Mr. Gordon. As I said before, my expression has been loose, but 
I do not think that it is sound, under today's circumstances or under 
the circumstances prevailing in 1935, for an issue to be wholesaled by 
two different houses. Since the days in which Kidder, Peabody 
wholesaled the issue in New England, relatively it is not as important 
in financial markets as it was in those days. Furthermore, in the 
early days, Kidder, Peabody had a great deal to do with the Tele- 
phone business. The Telephone Company started in New England, 
and there was a great deal more interest in the Telephone business 
in New England than anywhere else. As the telephone spread over 
the country, that gradually wore off. 

The Chairman. New England, then, became a small factor in the 
Telephone business and in the issuance and purchase of Telephone 
securities ? 

Mr. Gordon. Relatively ; yes, sir. 

Mr. Nehemkis. Now, after your conversation with Mr. Stanley, 
what was the final position that the new firm of Kidder, Peabody 
received in the first telephone offering, the Illinois Bell issue, under 
the leadership of Morgan Stanley ? 

Mr. Gordon.. I believe that we received an underwriting interest of 
approximately 12 percent. 

Mr. Nehemkis. And do you recall what the old underwriting inter- 
est had been of the Kidder, Peabody firm? 

Mr. Gordon. As testimony brought before the committee has indi- 
cated, it had been 29% percent in the past. 

Senator King. You knew that from your studies of the twenties, 
did you not? 

Mr. Gordon. Yes, sir. 

Mr. Nehemkis. Of which the old firm of Kidder, Peabody retained 
16 percent for itself? 

Mi-. Gordon. Yes, sir. 

Mr. Nehemkis. No further questions, Mr. Chairman. 

Senator I^nq. Was a much larger issue — strike that out. 

The Chairman. I was called to the telephone, so I don't recall how 
long you were associated with the old company. 

Mr. Gordon. I became a partner of Kidder, Peabody & Co. in 
March 1931. I had no prior connection with tiie old firm. 



CONCENTRATION OF ECONOMIC POWER 11953 

The Chairman. I see. So that whatever happened in the old firm 
is merely hearsay to you ? 

Mr. Gordon. Yes, sir; other than information we obtained from 
the records of the old firm. 

The Chairman. Yes; but you have no personal experience? 

Mr. Gordon. No; none whatsoever. 

The Chairman. All right. 

Mr. Gordon. May I say one word about groups in the investment 
banking business ? 

The Chairman. Surely. 

Mr. Nehemkis. Before the witness does that, it occurs to me, I 
would like to have clarified one question which I inadvertently 
omitted to ask, and then, Mr. Gordon, you may proceed. You have 
probably learned, as a result of hearing the testimony of this morn- 
ing and last Friday, that your old firm, under the agreement entered 
into at "the library" on May 5, 1920, had the right to approach the 
Telephone Company directly with J. P. Morgan & Co. for discussions. 
Did you know about that? 

Mr. Gordon. No, sir ; I did not. 

Mr. Nehemkis. If you had known about it, it wouldn't have been 
necessary for you to see Mr. Harold Stanley; is that correct? 

Mr. Gordon. I would not have gone to the Telephone Company 
directly. We did not think that we could head the Telephone Com- 
pany business. I had known Mr. Gifford. He and I have been on 
the visiting committee of the Harvard Business School, but I did 
not think of talking to him about Telephone business. 

The Chairman. Now, you are about to make so«ie comment on 
your own behalf? 

Mr. Gordon. In the formation, I would like to say"^ a word or two 
about the formation '^f groups. In order to do a busines effectively, 
it is necessary to get as good a team as possible, to select people 
with whom you can work effectively and sympathetically. When 
business was done under competition with competitive bids or done 
privately, houses would have to go out and form groups to do the 
business in the best possible manner. Several years ago the Potomac 
Electric Co., the Potomac Edison, I believe, wished to. issue bonds, 
and according to the laws of the District of Coliunbia it had to call 
for competitive bids rather than to accept bids from a great many 
different houses with resultant expense of consulting with those 
houses. It said that it would accept bids from four different houses, 
and it selected four houses. 

Our firm was one of the houses asked to form a group to make a 
bid. Each of the four groups, each of the four houses, formed groups 
to make the bids. Anybody who was not in any of those groups 
could not have bid, so that even under that system, you would have 
people who would be on the outside, perhaps, trying to get in. 

We started business, as I have explained, in 1931. We have gotten 
mto, I would say, forty to fifty new accounts in which the prior 
firm of Kidder, Peabody had no past connection. It seems to me 
that the Telephone business and the Telephone account are no more 
frozen for the best interests of the business, the Telephone business, 
than it should be. We started with 12 percent, we are now down 
to 6 percent. The 6 percent hasn't been taken from us because we 
haven't built up our* distribution, because we have failed, it has been 



11954 CONCENTRATION OF ECONOMIC POWER 

taken from everybody in order to get more and more people into 
the business, in order to do the job more and more effectively. 

The Chairman. Well, what assurance do you have that you can 
retain the percentage that you now have ? 

Mr. Gordon. We have no assurance, sir. Our only assurance comes 
from our doing a satisfactory job. If we ever fall down on our dis- 
tribution, then we would expect to be reduced. 

The Chairman. Well, who would exercise the judgment, the deci- 
sion, upon which that distribution would be taken away from you? 

Mr. Gordon. As long as the business came to Morgon Stanley & 
Co., and as long as we were a member of the Morgan Stanley group, 
we would expect that the officials of Morgan Stanley would make 
that decision, unless the Telephone Company learned that we were 
distributing the bonds, perhaps cutting prices as we shouldn't, and 
should ask that we be excluded. 

Today, more than ever, corporations, issuers, are selecting the 
members of the groups in order to make certain a gatisfactory job is 
done. 

Senator King. They have got to be satisfied that the issue will be 
subscribed foi- and sold to the public generally? 

Mr. Gordon. They have to be satisfied, I believe, sir, a group is 
formed which can make the best possible offer for the bonds and dis- 
tribute it in the best possible manner. 

Senator Kjng. Supposing there were no groups at all, just left to 
individual banks or investment companies, or corporations, or part- 
nerships, to buy an issue of 50 oi- 60 million dollars; don't you tnink 
it would be very uncertain as to the consequences and the results? 

Mr. Gordon. It would be very uncertain. 

Senator King. And unsatisfactory ? ^ 

Mr. Gordon. And unsatisfactory, unless the issuer put such a price 
on his issue that it was obviously very attractive. 

Now, in the case of the recent issue of the Southwestern Bell Tele- 
phone Co. bonds, which I believe were 314-percent bonds, offered at 
IO71/2 — my figures may be a little bit wrong — I don't believe that half 
of the bonds were originally distributed, and they subsequently, 
within a few weeks, went down to as low as 97i/2- The loss fell on the 
underwriters and the members of the selling groups who had the 
bonds. Had the Telephone Company offered the bonds to the public, 
it would have had a great many unsold bonds on its hands, and had 
it been using the money for new construction, it wouldn't have had 
the money. 

Senator King. After all, it comes back to the question of the pres- 
tige 'and the financial ability of the group or an individual or a corpo- 
ration to underwrite the bond issues ? 

Mr. Gordon. That is mv conviction. 

Senator King. And if the public has confidence in Morgan or Kid- 
der, Peabody, that they can absorb and dispose of an issue of $40,- 
000,000, why, probably they become^, the wholesalers. 

Mr. Gordon. Yes, sir. 

Senator King. All right. 

The Chairman. Are there any other questions? 

Mr. AviLDSEN. Mr. Gordon, is your firm, the new Kidder, Peabody, 
a corporation ? 

Mr. Gordon. No, sir. 



CONCENTRATION OF ECONOMIC POWBB 11955 

Mr. AvxLDSEN. It is a partnership? 

Mr. Gordon. Yes, sir. 

Mr. AviLDSEN. I notice that practically all the large underwriting 
firms that appeared before this committee are corporations. Halsey, 
Stuart is a corporation. I believe Morgan Stanley is a corporation. 
Is your firm an exception in that regard? 

Mr, Gordon. No, sir; there are two groups; Smith, Barney & Co., 
I'or example, a large distributor, is a partnership, and there are a 
great many others. I would say that there are more partnerships than 
there are corporations. 

Mr. AviLDSEN. What is your opinion as to the advantages of a 
partnership over a corporation? I assume you feel there are advan- 
tages in it as compared with the corporal ion ? 

Mr. Gordon. We are members of the New York Stock Exchange, 
and as members of the New York Stock Exchange we must be a 
partnership. 

Mr. AviLDSEN. In other words, that is the primary reason for not 
being incorporated, is it? 

Mr. Gordon. Yes, sir. 

Mr. AviLDSEN. Thank you. 

The Chairman. Are there any other questions? 

Mr. Nehemkis. I am through with the witness, sir. 

The Chairman. Mr. Gordon, thank you very much. 

Mr. Gordon. Thank you, sir. 

Mr. Henderson. Mr. Gordon 

The Chairman. Oh, I beg your pardon. There is another 
question. 

Mr. Kades. Mr. Gordon, does Kidder, Peabody & Co. do any State 
or municipal business? 

Mr. Gordon. Yes; we do. 

Mr. Kades. Do you arrange your groups the same way in that 
business ? 

Mr. GrORDON. Yes; we do. When we are making a bid for an 
issue, and when we are heading the account, we form as strong a 
group as we can. 

Mr. Kades. Do you bid after competitive bidding at public sale ? 

Mr. Gordon. On municipal sales? 

Mr. Kades. Yes. 

Mr. Gordon. Yes; we do. 

Mr. IkADEs. And State issues? 

Mr. Gordon. Yes; we do. 

Mr. Kades. Substantially large issues? 

Mr. Gordon. Yes; we do. 

Mr. Kades. Is that an unsatisfactory method of doing business? 

Mr. GrORDON. It is quite a different method of doing business. 

Mr. Kades. That is not my question. 

Mr. Gordon. If it is a satisfactory way of doing a municipal busi- 
ness ? Yes. 

The Chairman. Any other questions? 

Thank you very much, Mr. Gordon. 

Mr. Nehemkis. Mr. Chairman, I would point out to you that the 
next witness is Mr. Harold Stanley, who begins a new phase of the 



11956 CONCENTRATION OF ECONOMIC POWER 

discussion. I would estimate that his testimony will take about an 
hour and a half. If it is the pleasure of the committee, I can go 
forward, or if it is the committee's pleasure to recess and start with 
Mr. Stanley in the morning, I am prepared to do that. 

The Chairman. Well, speaking for myself, I would prefer to re- 
cess. Do I find any objection? 

Well, then, without objection, the committee will stand in recess 
until 10 : 30 tomorrow morning. 

(Whereupon, at 4 p. m., a recess was taken until Tuesday, Decem- 
ber 19, 1939, at 10 : 30 a. m.) 



INVESTIGATION OF CONOENTEATION OF ECONOMIC POWER 



TUESDAY, DECEMBER 19, 1939 

United States Senate, 
Temporary NATiONiVL Economic Committee, 

Washington, D. C. 

The committee met at 10 : 40 a. m., pursuant to adjournment on 
Monday, December 18, 1939, in the Caucus Room, Senate Office Build- 
ing, Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman) and King; Messrs. Hen- 
derson, Avildsen, Hinrichs, O'Conneli, and Brackett. 

Present also : Ganson Purcell and Baldwin B. Bane, Securities and 
Exchange Commission; Willis J. Ballinger, Federal Trade Commis- 
sion; John W. Hanes and Charles L. Kades, Treasury Department; 
Clifton M. Miller, Department of Commerce. Holmes Baldridge, De- 
partment of Justice; Peter R. Nehemkis, Jr., special counsel; David 
Ryshpan, financial analyst; W. S. Whitehead, security analyst; 
Lawrence Brown, investigator; and Samuel M. Koenigsberg^ asso- 
ciate attorney, Securities and Exchange Commission. 

The Chairman. The committee will please come to order. 

Mr, Nehemkis, are you ready to proceed? 

Mr. Nehemkis. I am, sir. 

The Chairman. Will you call the first witness ? 

Mr, Nehemkis. Will Mr. Harold Stanley please take the witness 
stand ? 

The Chairman. Do you solemnly swear that the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr, Stanley. I do. 

The Chairman. You may be seated, Mr. Stanley. 

The Chairman desires to take note of the fact that the committee 
is honored this morning by the presence of Under Secretary Hanes, 
of the Department of the Treasury, The Secretary will be privileged 
to ask any questions, if he feels so moved. 

Under Secretary Hanes. Thank you, very much. 

Mr. Nehemkis. Mr. Chairman, before proceeding with the examina- 
tion of the witness, there is a bit of old business that should be taken 
care of. You may recall, sir, that in connection with the examination 
of Mr. Woods, I asked Mr. Woods certain questions pertaining to the 
stock holdings in other investment houses by himself and some of his 
associates.^ Mr, Woods was not quite clear on the pointy and we asked 
whether he would not be good enough to furnish the committee with 
that information. I am in receipt this morning of a letter from Mr. 

I Mr. Woods' testimony appears in Hearings, Part 22. 

11957 



11958 CONCENTRATION OF ECONOMIC POWER 

Woods' counsel, Messrs. Sullivan & Cromwell, supplying that informa- 
tion, and I now ask leave of the committee that this information be 
offered in evidence, and that the reporter be instructed to place it at 
the appropriate place in the testimony. 

The Chairman. Without objection, it is so ordered. 

(The letter referred to was marked "Exhibit No. 1696" and is in- 
cluded in Hearings, Part 22, appendix, p. 11826.) 

TESTIMONY OF HAKOLD STANLEY, PKESIDENT, I^ORGAN STANLEY 
& CO. INCORPORATED, N2W YORK, N. Y. 

Mr. Nehemkis. Mr. Stanley, will you state your full name and 
address, please? 

Mr. Stanley. Harold Stanley, 30 Sutton Place, New York City. 

Mr. Nehemkis. What is your present business connection, Mr. 
Stanley ? 

Mr. Stanley. I am president of Morgan Stanley & Co. Incorpo- 
rated. 

Mr. Nehemkis. Incorporated? 

Mr. Stanley. Incorporated. 

Mr. Nehemkis. And prior to your present oiEce, what was your 
previous business connection? 

Mr. Stanley. I was a partner of J. P. Morgan & Co. 

Mr. Nehemkis. On what date did you become a partner of J. P. 
Morgan & Co., Mr. Stanley? 

Mr. Stanley. January 1, 1928. 

Mr. Nehemkis. And on what date did you cease being a partner 
of J. P. Morgan & Co.? 

Mr. Stanley. Sejitember 13, 1935. 

Mr. Nehemkis. And will you state on what date the investment 
banking house of Morgan Stanley & Co. Incorporated, was organ- 
ized? 

Mr. Stanley. September 3, or September 5, 1935. 

Mr. Nehemkis. When were, if you recall, the papers of incorpo- 
ration filed ? 

Mr. Stanley. On one of those dates I mentioned. 

Mr. Nehemkis. September 3 or 5? 

Mr. Stanley. Yes. I can check that, if you like. 

Mr. John M. Young (Morgan Stanley & Co. Incorporated). Sep- 
tember 5. 

Mr. Nehemkis. You accept the answer of Mr. Young as your 
answer ? 

Mr. Stanley. I do. 

ILLINOIS BELL TEI.JJPH0NE FINANCING, OCTOBER 193» 

Mr. Nehemkis. Was not the first Telephone offering under the 
leadership of Morgan Stanley the Illinois Bell Telephone 3i^s of 
1970, an offering of $43,700,000? 

Mr. Stanley. It was. 

Mr. Nehemkis. And was not that offering made on October 16, 
1935? 

Mr. Stanley. At about that date. I can check that also if you like, 

Mr. Young. What date is that? 



CONCENTRATION OP ECONOMIC POWER 11959 

Mr. Stanley. October 16. 

Mr. Young. The date is correct. 

Mr. Stanley. Correct. 

Mr. Nehemkis. Do you happen to recall, Mr. Stanley, the date on 
which the registration statement for the Illinois Bell 3^s was filed 
with the Securities and Exchange Commission ? 

Mr. Stanley. Well, 20 days prior to October 16, or 21 days. 

Mr. Nehemkis. That would be September 26, 1935? 

Mr. Young, Approximately that. 

Mr. Nehemkis. That was about 11 days after Morgan Stanley 
began doing business? 

Mr. Stanley. It was. 

Mr. Nehemkis. Mr. Stanley, would you be good enough to tell me, 
generally speaking, about how ioiig it takes to make up the data 
which goes into a registration statement ? 

Mr. Stanley. Anywhere from 1 month to 3 months. 

Mr. Nehemkis. And is that generally true of most registration 
statements of substantial issues, $50,000,000 or $40,000,000? 

Mr. Stanley. It is, if it is the first issue that that particular com- 
pany has made. 

Mr. Nehemkis. Would you enlighten me as to how it was possible 
to have a registration statement filed 11 days after your organiza- 
tion when usually there are many detailed problems in connection 
with the setting up of a new business enterprise? 

Mr. Stanley. I will be glad to. 

Mr. Nehemkis. Would you? 

Mr. Stanley. The Telephone Company had been considering the 
question as to whether or not it could conform to the requirements of 
the Securities Act and whether or not it might do some financing. 
For some time prior to this date that you mentioned, in October, it 
had prepared — it had its own staff working on the matter for some 
months previous to that time, and the officials of the Illinois Bell 
Telephone Co. had been also working on it prior to that time. 

Mr. Nehemkis. When you were a partnei- of J. P. Morgan & Co., 
had you had any discussions with Mr. Gilford or other officials of 
the American Telephone Co.? 

Mr. Stanley. Yes. 

Mr. Nehemkis. Relative to this issue. 

Mr. Stanley. Well, relative to the possibility of an issue. 

Mr. Nehemkis. So that at the time you were still a partner of 
J. P. Morgan & Co. you were discussing prospective Telephone re- 
funding. 

Mr. Stanley. I wasn't discussing it; I knew they were consider- 
ing it. 

Mr. Nehemkis. I may have misunderstood you, Mr. Stanley. I 
hope you will correct me. Did I understand you to say earlier in 
your testimony that you had had some discussion? 

Mr. Stanley. That I had some conversations. 

Mr. Nehemkis. Conversations? 

Mr. Stanley. Right. 

Mr. Nehemkis. And were those conversations relative to Telephone 
refundings? 

Mr. Stanuey. Correct 



11960 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. And were those conversations more specifically 
with reference to the Illinois Bell offering subsequently under the 
leadership of Morgan Stanley? 

Mr. Stanley, They were. 

Mr. Nehemkis. So that it is correct that while you Avere a partner 
of J. P. ]\Iorgan & Co., you did discuss with Mr. Gifford Telephone 
matters. 

Mr. Stanley. Well it is very hard for me to say what you mean 
by discussion. I knew they were considering an issue. They had 
told me so. 

Mr. Nehemkis. Well, when you have a conversation with any com- 
pany official about a prospective refunding, I assume you discuss 
details, what is to go in the registration statement, accounting matters, 
price matters, and things of that sort ? 

Mr. Stanley. Very often ; but in this particular case they did not 
discuss the details. 

Mr. Nehemkis. What were the nature of your discussions? 

Mr. StanixEY. They were considering the whole question of whether 
or not to do refunding. They were considering whether they could 
conform to the Security Act requirements and they were considering 
whether or not they would issue some securities in the fall. 

Mr. Nehemkis. Can you tell me at this time, Mr. Stanley 

Mr. Stanley (interposing). These conversations, I might saj', 
were in August. 

Mr. Nehemkis. Were in August? 

Mr. Stai.xey. Right. 

the ILLINOIS BELL TELEPHONE SYITOICATE 

Mr. Nehemkis. Can you tell me at this time how many underwriters 
composed the group for the Illinois Bell Telephone issue ? 

Mr. Stanley. Nine. 

Mr. Nehemkjs. Do you recall at this time, Mr. Stanley, the names 
of the underwriters who composed the group in the Illinois Bell 
issue ? 

Mr. Stanley. Yes ; I do. '^ 's- 

Mr. Nehemkis. Will you state them, please ? 

Mr. Stanley. Morgan Stanley & Co. ; Kuhn, Loeb & Co. ; Kidder, 
Peabody & Co.; Lee, Higginson & Co.-r-or Lee Higginson Corpora-' 
tion, I suppose 

Mr, Nehemkis. I think you and I understand each other. 

Mr. Stanley. First Boston Corporation ; Brown Harriman & Co. ; 
E. B. Smith & Co. ; Bonbright & Co. ; Mellon Securities Corporation. 

Mr. Nehemkis, The last one is Bonbright ? 

Mr. Stanley. Yes. 

Mr. Nehemkis. Mr. Chairman, you .will recall that yesterday I 
asked you to examine a stipulation ^ which Mr. Charles Mitchell was 
good enough to make available to us, concerning certain documents 
which I would have occasion to introduce at vario.us places in connec- 
tion with the testimony. One of the documents covered by that stip- 
ulation is a letter, now in evidence, from which I should like to read 

» "Exhibit No. 1691." 



CONCENTRATION OP ECONOMIC POWER 11961 

an appropriatxe 3*:atement. This is a letter from Mr. Mitchell to Mr. 
C. R. Blyth, dated September 26, 1935. 

Mr. Hendebson. Has that been identified ? 

Mr. Nejtsmkis. It has not been identified, sir. It is covered by a 
stipulatic I reading from "Exhibit No, 1644"] : 

Harold Stanley, of the new firm of Morgan, Stanley & Company, asked me 
to luncL with him .yesterday and we had an hour and a half's discussion, the 
main points of which I am sure you will find of interest. 

He pened the conversation by saying that he wanted to get the bad news off 
his chest first and he was doing that net only because of our relations, but because 
George Whitney, who had to leave town the night before for several days, asked 
him particularly to ste me and explain the situation. The bad news was that 
we were not going to be in the underwriting of the Bell Telephone of Illinois. To 
make a long story short, they found that if they were to go beyond the very short 
underwriting list that they have, and are bound to more or less by past relations 
to the br^ir IS, to a point of including us^ they would necessarily have to include 
four or five firms more. 

Mr. Nehemkis. Mr. Stanley, does Mr. Mitchell accurately reflect 
your attitude toward the Telephone business, that is to say, that you 
recognized that you were bound more or less by the past relations of 
different houses to the business? 

Mr. Stanley. It does not. 

The Chaikman. The letter^ which you have just handed rae, Mr. 
Nehemkis, is not signed. I take it, however, that it was signed by Mr. 
Mitchell? 

Mr. Nehemkis. That is correct, sir. 

The Chairman. Whose stipulation identified it? 

Mr. Nehemkis. That is correct, sir. 

The Chairman. And that is the letter of September 26, 1935, from 
C. E. Mitchell to Mr. C. R. Blyth? 

Mr. Nehemkis. Yes, sir. 

Mr. Henderson. Mr Stanley, what was your answer to Mr. Nehem- 
kis' question? 

Mr. Stanley. It does not correctly represent it. 

Mr. Henderson. Even to the point of "more or less" ? 

Mr. Stanley. Yes; I would say even to that extent. 

Mr. Henderson. Even to that extent ? 

Mr. Stanley. If you use the word "bound"; yes. 

Mr. Nehemkis. Did Mr. Mitchell completely' mismiderstand you, 
sir? 

Mr. Stanley. I haven't any idea. 

Mr Nehemkis. In other words, if I now understand you correctly, 
the statement which I have just read from Mr. Mitchell to his west 
coast partner, reporting a conversation with you, is inaccurate ? 

Mr. Stanley. I should say so ; yes. 

Mr. Nehemkis. I am perfectly willing to accept your word for that, 
Mr. Stanley, with one conmient. It seems to me, roughly 

Mr. Sr/i^NLJii y mterposing) . I am glad that you accept my word. 

Mr. Nehemkis. I do, sir, in every respect, but I would merely 
observe that it seems rather difficult to believe that a responsible mem- 
ber of the financial community would so thoroughly misunderstand an 
old friend. 



1 "Exhibit No. 1644." 

124491 — 40 — pt. 23 11 



11962 CONCENTRATION OF ECONOMIC POWER 

Mr. Stanley. Well, Mr. Nehemkis, there lias been a lot of talk and 
some testimony I have heard about the use of words. Certainly, we 
considered the past connections of people witli the Telephone Com- 
pany, but as far as being bound, there was nothing bound at all. 

Mr. Nehemkis. Yes. Well, I accept your explanation. 

Mr. Stanley. Well, I hope so. 

Mr. Nehemkis. It is perfectly all right. 

The Chairman, You object to the strict definition of the word 
"bound"? 

Mr. Stanley. Correct. 

The Chairman. That is the interpretation that you desire to avoid ? 

Mr. Stanley. There wasn't any obligation to anybody. 

The Chairman. Was there such a conversation? 

Mr. Stanley. I had a conversation with Mr. Mitchell, yes. 

The Chairman. And in that conversation, did you tell him that 
Blyth & Co, would not be included in this financing? 

Mr. Stanley. I did. 

The Chairman. Did you intimate to him at that time that the 
reason that that firm was not to be included was that it would make 
necessary, or possibly necessary, the inclusion of other firms that had 
not previously been allowed to participate in the issues ? 

Mr. Stanley. There was nothing necessary about it, Senator. 
That goes back to what the job and function of a manager of a syndi- 
cate is. When we were selected by the Telephone Company to man- 
age this financing, they looked to us to have a suitable group of 
people do it, and have the issue a success. The inclusion of the 
people and our decision as to whom to include covers a variety of 
things, I mean, their capital, their standing, their judgment of mar- 
' kets, their judgment of prices, and their distributing ability, and the 
whole general question of all the factors that any one house would 
bring into a piece of business; and we considered what we thought 
was the suitable group to be in this business, who could do it 
adequately. 

The original purchasers, who are called now the underwritei'S — I 
mean, underwriter today means the man who buys direct from the 
company with a lot of people or several other people. In this case, 
there was no real underwriting; it was simply a purchase, and we 
decided this was an appropriate and suitable group to do the business 
properly, and there wasn't any need of considering everybody who 
was eligible. There were a lot of other people who might perhaps 
have been worthy people or able people to oe m the business, but they 
weren't needed. We ourselves felt that we didn't want to have a large 
underwriting group in this issue. Remember, this was a sort of time 
of flux in the business, it was soon after the markets were opened, 
there were a lot of new firms. We thought it was best in this thing 
not to have too big a syndicate. We weren't afraid of the issue, or 
that it had to be spreaa around too far, but we did decide to have a 
very big selling group. So we had these nine underwriters and five- 
hundred-odd other people sell the bonds all over the country, and they 
were scattered in Chicago, 111., California, everywhere. But we 
thought these people were the appropriate people. Different ele- 
ments were considered in the selection of each fellow; one man for 
one reason or a combination of reasons, and another man or another 



CONCENTRATION OF ECONOMIC POWER 11963 

firm for another combinaiion of reasons. And certainly I considered 
the past connection of Kidder, Peabody & Co.; Kuhn, Loeb, to the 
Telephone business, or their predecessor firms, in the case of Kidder. 
But there was nothing bound, no obligation to anybody. 

FORMER MEMBERS OF TELEPHONE GROUP AFFECTED BY BANKING ACT OF 193 3 

Mr. Nehemkis. Shall we proceed ? 

Mr. Stanley, the previous testimony has shown that the Telephone 
group from the year 1920 up to the issue that we are now discussing, 
was comp i3ed of the following firms: Kidder, Peabody; J. P. Morgan; 
First National Bank ; National City Bank ; Kuhn, Loeb & Co. ; Harris, 
Forbes & Co.; Lee Higginson Corporation; Guaranty Trust Co.; 
Bankers Trust Co. Now, you indicated a moment ago what I think 
my next question will cover. As a result of the Banking Act, did not 
the First National Bank, National City, the Guaranty Trust, and the 
Bankers Trust cease to have any participation in miderwriting 
matters ? 

Mr. Stanley. They did. 

Mr. Nehemkis. However, the houses still in existence, and which 
did have a relation to the business, were the following : Lee Higginson 
Corporation; Kuhn, Loeb & Co.; First Boston (having succeeded to 
the goodwill and business of Harris, Forbes & Co.) ; Kidder, Peabody 
& Co. Is that correct, Mr. Stanley? 

Mr. Stanley. If I understand your question correctly, those firms 
who were in business in 1935, or thei; predecessors, had some connec- 
tion with Telephone business in the past. 

Mr. Nehemkis. That's right. And those four houses were included 
in the first Telephone offering under the leadership of Morgan 
Stanley? 

Mr. Stanley. They were. 

Mr. Nehemkis, Now, the new houses that were included in this 
business were Brown Harriman & Co (then Brown Harriman, now 
Harricfian Ripley & Co., Inc.) ? 
Mr. Stanley. Right. 

Mr. Nehemkis. And Edward 6. Smith & Co. ? 
Mr. Stanley. Correct. 

Mr. Nehemkis. I don't know whether you were here at one of the 
earlier sessions, Mr. Stanley, but if my memory serves me correctly, 
Mr. Boyenizer, of Kuhn, Loeb, testified that his firm recognized Brown 
Harrim'an as the heir to the National City Co. Did you likewise re- 
gard Brown Harriman as the heir to the National City Co.? 

Mr. Stanley. No; not any more than 

Mr. Nehemkis (interposing). Excuse me, sir. 
Mr. Stanley. Not, any more than I consider anyone the heir of 
anybody else, we or anybody else. 

Mr. Nehemkis. Yes. Do you regard E. B. Smith «^ Co. as the heir 
of the Guaranty Co., or is your answer the same for that? 
Mr. Stanley. It is the same. 

Senator King. I suppose you use the word "heir" in the same sense 
it would be used in legal terminology in connection with estates ? 

Mr. Nehemkis. Not quite, sir. No, I used it in a much more popular 
sense than that. 
Senator King. Popular or unpopular? 



11964 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Well, it may be both before these hearings are con- 
cluded. 

Mr. Henderson. Senator, when we had Mr. Bovenizer of Kuhn, 
Loeb on the stand, he readily acknowledged that he did regard them 
as the heirs, and counsel has asked this witness whether he had the 
same view. 

Mr. Nehemkis. In the letter from Mr. Mitchell which is in evi- 
dence, there appears the following sentence, Mr. Stanley [reading 
from "Exhibit No. 1644"] : 

For this reason, and the added reason that they are eliminating completely 
four houses who have heretofore been connected with the business, they felt that 
they were under the necessity of not including our name. 

Mr, Stanley, were the four houses which you felt constrained to 
eliminate the following: Estabrook & Co.; R. L. Day & Co.; F. S. 
Moseley; Hayden, Stone & Co.? 

Mr. Stanley. I didn't feel constrained to eliminate anybody. I 
don't know where the use of the word "constrained" comes from. 
They were both excluded, but there was no necessity or an\ hing of 
that kind. Those houses were not included who had been included 
in the previous business. 

Mr, Nehemkis. Do I understand you correctly to have replied to 
my question that the four houses whose names you eliminated were 
not included? 

Mr. Stanley. Not as underwriters. 

Mr. Nehemkis. Now, these four houses were still in existence and 
still able to underwrite, and these four houses were members of the 
old Kidder, Peabody New England proprietary group, so trat if I 
understand what transpired at this time, Mr, Stanley, your rirm de- 
clined to recognize, insofar as the new Kidder, Peabody firm was 
concerned, that the agreement of May 5, 1920, was binding, or that 
the interest of the New England group on original terms in the 
A. T. & T. financing was binding, or the right of the new Kidder, 
Peabody firm to share in the management fee or the right of the 
new Kidder, Peabody firm to talk to the company ? 

Mr. Stanley. Well, that is an awfully long question, 

Mr, Nehemkis, You may have all the time you wish, Mr. Stanley, 
to respond to it. 

Mr. Stanley. I will answer it, but I think I perhaps can get what 
you are after. The consideration we gave in 1935 to including dif- 
ferent houses in the proposed Illinois Bell issue which was made in 
October was based on what we thought their relative contribution 
to the business could be at that time. We were not concerned with 
past history, we were looking at conditions that existed in 1935, and 
I and my associates decided who would be the underwriters in that 
issue, as I have said, based on what we thought they could contribute 
to the good of the business at that time. 

Senator Kin(5, The first part of your question assumes that those 
four houses were competent, Mr, Nehemkis, and had the necessary 
standing to underwrite. Did you desire to commit him to that state- 
ment or yours as a question of fact? 

Mr. Nehemkis. I think the witness 

Senator Kino (interposing). It seems to me you ought to have 
asked him if they were competent. You state tha. +hey were, you i,0o. 

Mr. Nehemkis. I stated that they were in existence. 



CONCENTRATION OF ECONOMIC POWER 11965 

Senator King. You assumed that they were in the first part of your 
question, 3^ou assumed that they were in a position to do that. I 
think he ought to be permitted to state that, rather than to accept 
your statement, 

Mr. Nehemkis. Let me ask the witness the question you suggest. 
I thank you, Senator King, for proposing it. 

Are you clear, Mr. Stanley, as to Senator King's question? As I 
understand it, it is, were these four houses, Estabrook & Co.; E,. L, 
Day & Co. ; F, S. Moseley & Co. ; Hayden, Stone & Co. ; former mem- 
bers of the old New England proprietary group, competent to engage 
in underwriting at the time of the offermg of the Illinois Bell issue? 

Mr. Stanley. Well, you combine a lot of things, Mr. Nehemkis. 
There has been a lot of testimony about the proprietary group, which 
I am not going to try to cormnent about- I say this, and I would like 
to say to Senator King, that I did not understand that I was accept- 
ing the other question in the form given, because I didn't. I don't 
admit that the question was correct or the assumptions were correct, 
necessarily, but I will say in answer to the last question, eliminating 
all of the questions of groups and things of that kind, that those four 
firms you mentioned Mere in previous Telephone business during the 
period 1920-30. 

Mr. Nehemkis. And those four firms, for purposes of this testi- 
mony, were not included in the Illinois Bell offering of '35 ? 

Mr. Stanley. As underwriters, no. 

Mr. Nehemkis. As underwriters? 

Mr. Stanley. No. 

Mr. A\^LDSEN. I have a question at this pc nt, Mr. Chairman, if I 
may ask it. 

Mr. Nehemkis. I wonder if the witness has really responded to 
Senator King's question. 

Senator King. I think he has. 

Mr. AviLDSEN. I notice, Mr. Nehemkis, in this same letter I have 
read fBom, that the ver} next sentence after the one I just read reads 
as follows [reading from "Exhibit No. 1644"] : 

He- 
Meaning Mr. Stanley — 

assured me at the same time that this would not in any seuse be considered a 
telephone group, that they intended to consider each individual business sepa- 
rately, and as an illustration, indicated that i' they were to do a piece ot 
Pacific Telephone business, they would certair' ^ee that we were in a strong 
position in the underwriting. 

Mr. Nehemkis. That would have confirmed what Mr. Stanley has 
been saying. 

Mr. AviLDSEN. Is that correct, Mr. Stanley ? 

Mr. Stanley. I remember talking to Mr. Mitchell about Pacific 
Telephone at that time. I don't think I was as definite about the fact 
that he would be included, but certainly he would be considered in 
Pacific Telephone because his firm is a west-coast firm. 

Mr. Nehemkis. Mr. Chairman 

Mr. Henderson. I don't believe that covers, Mr. Stanley, the im- 
port of the sentence Mr. Avildsen has read. 

Mr. Stanuet. I see. 



11966 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson [reading from "Exhibit No. 1644"] : 

He assured me at the same time that this would not in any sense be considered 
a telephone group, that they intended to consider each individual business 
separately. 

Mr. Stanley. Undoubtedly I said that to Mr. Mitchell. 

Mr, Henderson. Therefore, you remember saying tlds, but you 
don't remember saying that you were bound to consider the past rela- 
tions, and you don't remember that you said you were eliminating 
completely four houses? 

Mr. Stanley. Well, I may very well have said that these four 
houses were not included, but I don't remember anything about the 
latter part of that sentence, that they were mider the necessity of 
not including Mr. Mitchell. Do you see? 

Mr. Henderson, Yes. 

Mr, Nehemkis. Mr, Chairman, I have a number of exhibits which 
I propose to offer in the next few minutes. Unfortunately, the mem- 
ber of my staff who was to have identified them was taken ill. May 
I suggest for your consideration that they be marked at this time 
subject to definite identification tomorrow, or as soon as the staff 
member has regained his health. 

The Chairman. These are exhibits secured by a member of the 
staff who, by reason of illness, is not able to be here this morning? 

Mr. Nehemkis. That is correct, sir. 

The Chairman. Unless there is objection, they may be so marked 
and identified in tlie future. Do you intend to submit them to the 
witness ? 

Mr. Nehemkis. They do not come from his particular office. 

The Chairman. But do you intend to submit then- to him? 

Mr. Nehemkis. He will have copies, just as we all do. 

I now ask in accordance with the arrangement just proposed, that 
a memorandum dated New York,^ September 2'^, 1035, for N. P. 
Hallowell from E. N, Jesup, of the investment banking house of Lee 
Higginson Corporation, be marked subject to the terms just indi- 
cated 

The Chairman. The memorandum may be so marked. 

(The memorandum referred to was marked "Exhibit No. 1697" and 
is included in the appendix on p, 12240,) 

Mr Nehemkis. I read to you, Mr, Stanley, a memorandum pur- 
porting to be a conference which you had v/ith Mr, Jesup in con- 
nection with the Illinois Bell offering which we are discussmg. 

Harold Stanley emphasized the fact 

The Chairman (interposing). Mr. Jesup was the author of that 
memorandum? Only ini 'als appear upon the memorandum. 

Mr. Nehemkis. "E. N. J." is Mr. E. N. Jesup Treading from 
"Exhibit No. 1697] : 

Harold Stanley emphasized the fact that these Interests were for this piece of 
business only and they were not at the moment forming a telephone group. 

Apparently Mr. Jesup correctly understood you, Mr. Stanley. 

Mr SrANLEY. Undoubtedly. Certainly I don't know what "at 
the moment" means, but we certainly were not forming a Telephone 
group. 

Mr. Nehemxis. Mr. Chairman, may it please the committee, pur- 
suant to the same arrangement, I ask that there be LnurKed a memo- 



CONCENTRATION OF ECONOMIC POWER 11967 

randum by H. M. Addinsell, chairman of the executive committee of 
The First Boston Corporation, dated September 30, 1935. 

The Chaieman. The memorandum may be so marked. 

(The memorandum referred to was marked "Exhibit No. 1698" and 
is inchided in the appendix on p. 12240.) 

Mr. Nehemkis. Mr. Addinsell's memorandum of a conference with 
you on or about the same time, referring to the Illinois Bell offering 
now un'i r discussion, reads as follows [reading from "Exhibit No. 
1698'-] : 

The Mf'i ,u Securities will have an interest of |2,000,000 and Bonbright will 
have an i, 1 st of $1,000,000 but neither of these last two names will appear in 
the adver;>: g. * * * 

While Lj: ligginson will appear technically ahead of us in spite of the fact 
that they hit e a smaller interest, I assume that the reason for this is that the 
first four names aie the only names that appeared as such in the former adver- 
tising of til is issue. 

Jumpin-: ahead in that memorandumi, the first four names are: 
Kuhn, Loeb; Lee Higginson; Kidder, Peabody; and First Boston. 
Continuing witli the memorandum [reading further from Exhibit 
No. 1698] : 

The old Harris Forbes interest in Bell Telephone financing was approximately 
5%, and it will be seen under the new arrangement, First Boston will have 
10% of the entire issue, or 10.59% of the $42,500,000 to be sold by the under- 
writing syndicate. 

Mr. Stanley said that these percentages did not necessarily constitute a 
precedent for any other Bell Telephone financing that might be done, because in 
special cases other bankers might have to be. introduced, etc. 

Mr. Stanley, did Mr. Addinsell correctly understand that last 
statement I read? 

Mr. Stanley. It is very hard to follow as you read. What is the 
wording, that the other banks woiild have to be 

The Chairman. Please hand the exhibit to the witness. 

Mr. Nehemkis. Do you have a copy of it? 

The Chairman. No; I haven't. 

Mr. NEHEa.'iKis. All right. Now will you glance at the last para- 
graph of the memorandum you have, Mr. Stanley, and tell me whether 
that, generally speaking, correctly interprets the purport, of your con 
versation at the time with Mr. Addinsell? 

Mr. Stanley. Just let me take a minute to see this. Will you repeat 
""hat question, please? 

Mr. Nehemkis. Will the reporter please read the last question? 

(The previous question was read.) 

Mr. Stanley. Well, I think it gives it in substance, excepting that I 
don't know what Mr. Addinsell meant by other brnkers having to be 
included in the future, perhaps. I undoubtedly told him other 
bankers might be included, but there was no obligation to include 
them. I can't imagine what obligation there could be, unless the 
company wanted other people included, but I only question the words 
"have to be." 

The Chairman. The whole issue, as I take it, so far as your testi- 
mony is concerned, merely has to do with the interpretation of the 
word, whatever it may be, that might be taken by some persons to 
indicate a legal obligation ? 

Mr. Stanley. Right. 



11968 CONCENTRATION OF ECONOMIC POWER 

The Chairman. You desire to have it understood that there was no 
legal obligation? 

Mr. Stanley. Correct, sir. 

The Chairman. That applies to the use of the word "proprietary" 
which came up so frequently in the last few days; it applies to the 
word "bound" and it applies now to this phrase. But, on the other 
hand, you do not question the fact that there existed in you or in your 
pred'ecessors the absolute power to say who should be in this financing 
group or underwriting group, and that you exercised that power. 

Mr. Stanley. Well, without attempting to go back, Senator, to the 
question of the firm of which I was formerly a member, because that 
I do not want to testify about because there are other witiiesses who 
are now members of the firm who can so testify — that was^one into 
at quite some length yesterday. But so far as Morgan Stanley & 
Co., formed in 1935, was concerned, I would like to explain a little 
bit about how it came about that we were asked to decide, asked by 
the Telephone Co. to decide who should be included. 

Now the Telephone Co., as I have testified earlier, had been con- 
sidering the question of financing. In August of 1935 when they 
learned that Morgan Stanley was going to be formed, Mr. Gifford 
and Mr. Cooper said they might want to talk to us about the financ- 
ing that they had been working on with help, after that. They 
talked to us about that after we were formed. That was in Septem- 
ber and the issue was made in October. 

They said they would like to look to us for the proper distribution 
of these securities, and they would leave to us as to who should be 
selected, the appropriate and adequate people, and they would charge 
us with the responsibility of getting the right people. 

They did not know the people in the business and we did. "We 
should manage this for them. But they would hold us responsible 
for the results, and they made us guarantee the performance of all 
of these underwriters, and they have made us do it ever since on each 
issue, which involves various things. I mean, we assume, we believe, 
very much greater liability, civil liability in the Securities Act than 
we would do otherwise if we only took a part instead of guaranteeing 
the whole, but- we became bound for the solvency of the people we 
select and their performance. 

Senator King. AVlioever you select then, you guarantee their sol- 
vency and their ability to handle whatever allocation of the bonds 
was made to them ? 

Mr. Stanley. That is correct. 

alternative m'^.thods of selling securities 

The Chairman. The question of public interest, which is involved 
so far as I am concerned in all this testimony, is merely the com- 
parative value of the two methods of disposing of securities of a 
particular type, namely, the securities of large businesses which occupy 
a public relation like a railroad or a telephone company. 

Now, you are aware that in 1926 the Interstate Connnerce Commis- 
sion handed down a decision requiring the saTcof equipment trust 
certificates at public bid. 

Mr. Stanley. I am. 



CONCENTRATION OF ECONOMIC POWER 11969 

The Chairman. The Interstate Commerce Commission rendered 
that decision presumably in the belief that that was the more desir- 
able way of disposing of the securities of such companies. 

Now, here, on the other hand, we have illustrated over a long 
period of years the sale of the securities of the Telephone Co. 
than which it may be presumed there is not a stronger industrial 
organization in the country if not in the world. 

Mr. Stani^y. I think that is quite true. 

The Chairman. And that company's securities are disposed of 
without competitive bidding by turning the whole job over to J. P. 
Morgan for a number of years prior to the passage of the Banking 
Act, and from that time on apparently to your company. 

Mr. Stanley. Well, Senator, on that I would like to say this, sir. 
The question of competitive bidding is a subject which I should like 
to go into and talk upon at length, because I have thought about it a 
lot. But 

Mr. Henderson (interposing). Mr. Chairman, on the matter of 
competitive bidding, counsel announced at an earlier session that the 
staff had considerable information prepared for a hearing on that 
subject, which is very vital, and hoped that the committee would 
have time to hear at a later date. 

Mr. Stanley. But to comment more 

Senator King (interposing). I don't think that would preclude 
Mr. Stanley giving his views as to whether or not the policy adopted 
•and which was participated in was a satisfactory one to secure the 
best results. 

Mr. Stanley. I would like to comment briefly, and in detail as 
much as you have time for later, on 

The Chairman (interposing).. But in propounding the question, 
Mr. Stanley, it was not my desire particularly at this time to open 
up a debate as to the comparative merits of the two plans, but merely 
to make clear that that is the division. 

Mr. Stanley. Right. And without attempting to go into detail, 
I 

Mr. Henderson (interposing). Before Mr. Stanley goes into that, 
may I make a 

The Chairman (interposing). Mr. Stanley was making a state- 
ment or a comment not upon the merit now, but in direct response to 
my question. 

Mr. Henderson. I would like to make a statement. I think the 
record ought to note, Mr. Chairman, so far as I am concerned, that 
at the present time the S. E. C. has before it an issue which has been 
argued but not disposed of, involving some of these questions and 
involving Morgan Stanley; therefore, as I see it, I am precluded, of 
course, from participating in this discussion because we sit in quasi- 
judiciai- capacity. 

I should like the record to note also that none of the questions 
which counsel in this hearing will raise with Mr. Stanley have been 
suggested by me. Is that correct, Mr. Nehemkis ? 

Mr. Nehemkis. Absolutely correct, Mr. Commissioner. 

Mr. Henderson. None of the questions have I directed. And there- 
fore, they are not to be taken as having any relation at all to the 
issues which are before the S. E. C. in the instant case. 



11970 CONCENTRATION OF ECONOMIC POWER 

The Chairman. I take it that the S. E. C. in presenting this par- 
ticular study is not attempting to bring in any questions which is 
pending before the Conniiission on this other issue of which you 
speak ? 

Mr. Henderson. Not only that, but counsel's brief was prepared 
before the application of the declarant was filed. 

Mr. Nehemkis. As Mr. Stanley knows, we have been living in his 
shop for months. 

Mr. Stanley. Yes; I know it. 

The Chairman. He says that with an air of resignation. 
[Laughter.] 

Mr. Stanley. Well, Senator, to comment more appropriately on 
what you just said a moment ago about the two methods of doing 
business, I would like to say jusit this, without going into the other 
matter which Mr. Henderson referred to at all : Of course, corporate 
securities can be sold by competitive bidding; there is no question 
about it. But in my opinion — and I am not trying to argue it now — 
it is very much better in the interest of the borrower and of the 
investor not to sell issues through competitive bidding. If you do it 
by competitive bidding, there are a lot of things that come up. points 
that I think are bad. I mean, it is sort of a catch-as-catch-can propo- 
sition — casual intermittent connections, the company does not get 
the benefit of professional expert advice, the banker either has to 
take it as is, as the company has it, or pass it up. 

It tends to overpricing, tends to poorer character of securities, 
tends to eliminating the small dealer in my opinion, because the 
people who bid competitively have got to have capital; they have 
got to pay high prices, and I believe that it eliminates the small 
dealer and will concentrate the business in the hands of the large 
dealers more than today. 

Also, you are going to have groups in competitive bidding, because 
anybody can't come along and do it. You have the group question, 
whatever that is; if it is a matter of being democratic, it will be just 
the same as it is today. 

Now, I have thought a great deal about it, and I would like to come 
back to it later on if you will permit me and if you have time, but I 
would like to also comment on one other thing t,hat you said, sir, and 
the same statement or a similar statement was made in the opening 
statement, I think, yesterday morning, namely, that during the period 
of 1906, I think, to 1939, the Telephone Company had done all of its 
bond business with J. P. Morgan & Co. and associates, or Morgan 
Stanley & Co. and associates. 

Aside from the transactions prior to 1935 which Mr. Whitney re- 
ferred to, of various bond issues and loans that they did not handle 
with J. P. Morgan & Co., there Avere a very lai-ge amount of con- 
vertible bonds and stock that were sold by the company without the 
intervention of bankers at all, which frequently were sold to their 
own stockholders, running to a very large amount of money. 

I would like to correct what may be an erroneous impression inad- 
vertently made by Mr. Henderson in a previous statement, probably 
referring to public offerings, by saying that ;ince Morgan Stanley & 
Co. has been in business, the Telephone Companj^ and subsidiaries, 
or, rather, it was only subsidiaries, and certain companies that are 



CONCENTRATION OF ECONOMIC POWER 11971 

considered as part of the Bell System that are not controlled by it 
but of which the Telephone Companj^ has 20 or 30 percent stock 
interest have sold a total of $150,000,000 of securities direct to insur- 
ance companies without bankers at all, so they have tried alternative 
methods and have not confined themselves to one method. 

The Chairman. $150,000,000? 

Mr. Stanley. Yes, sir. 

The Chauiman. Out of a total of? 

Mr. Stanley. Well, we have managed issues of $580,000,000 I 
think, and in addition they have sold $150,000,000 since 1935. I don't 
think this really bears on it very much, but Mr. Young tells me that 
the amount they have sold to their pension fund is about $60,000,000 
additional. 

UNDERSTANDING AMONG INVESTMENT BANKERS WITH RESPECT TO EXISTENCE 
OF TELEPHONE GROUP 

Mr. Nehemkis. Mr. Stanley, from the three documents ^ which I 
had occasion to read to you, it would appear that you were very 
anxious that the arrangement for the Illinois Bell oifering should not 
constitute a precedent for the future interests in that business, is that 
substantially correct, Mr. Stanley? 

Mr. Stanley. I never made commitments for the future to anybody 
anyway, but at that particular time, as I have said l^efore, the in- 
dustr}', the investment banking business, was changing. People were 
very anxious to obtain a standing, to become established, these new 
firms, and were very eager to get into good business. We were 
equally anxious and definite in our minds that we were not going to 
let them get any kind of position in the future. 

Mr. Nehemkis. Is that the reason for your not desiring to estab- 
lish a group or create an impression that there might be a precedent ? 

Mr. Stanley. That is one reason, but as I said, I never made com- 
mitments for the future to anybody anyway. 

Mr. Nehemkis. Mr. Stanley, I had occasion to refer to a memo- 
randum of the telephone conversation between you and Mr. Jesup. 
I am going to read to you another statement that appears in Mr. 
Jesup's memorandum. 

You will recall, Mr. Chairman, that this is identified pursuant to 
your arrangement with me. Mr. Jesup said as follows [reading 
from "Exhibit No. 1697"] : 

My guess i.s that they do uot want to be committed to this group in these 
amounts for future telephone business, owing to the possibility of some of the 
banks being able to underwrite in the future. If this came about, I would 
imagine that they might have to include the First National, Guaranty and 
National City. 

Could Mr. Jesup have understood you correctly, or was that your 
impression at the time? 

Mr, Stant^ey. That was what Mr. Jesup said. 

Mr. Nehemkis. That was not possibly your view, or one of the 
reasons why you were not anxious to establish a group ? 

i "Exhibits Nos. 1644, 1697, and 1698." 



11972 CONCENTRATION OF ECONOMIC POWER 

Mr. Stanley. Well, my reasons, very simply, were that we were 
just considerin*^ this transaction, and we were not at that time mak- 
ing any plans for the future. 

Mr. Nehemkis. Mr. Chairman, in accordance with our prevailing 
understanding, I should like to offer a memorandum by H. M. Addin- 
sell, whom I have previously identified to the committee, dated No- 
vember 20, 1935. with reference to the Southwestern Bell Telephone 
Co. $45,000,000 offering. May it be marked, sir? 

The Chairman. It may be marked. 

(The memorandum referred to was marked "Exhibit No. 1699" and 
is included in the appendix on p. 12241.) 

The Chairman. Are thes letters to be marked, all of those? 

Mr. Nehemkis. You want them marked at one time? 

The Chairman. Suppose we have them all marked, and that will 
dispose of them. 

Mr. Nehemkis. All right. 

The Chairman. That includes all of these exhibits that are to be 
identified by the staff member when he returns? 

Mr. Nehemkis. Correct, sir. 

(The documents referred to were marked "Exhibits Nos. 1700, 
1701, and 1702" and are included in the appendix on pp. 12242-12243.) 

Mr. Nehemkis. Mr. Stanley, may I react to you a rather brief state- 
ment of Mr. Addinsell in which he says [reading from "Exhibit No. 
1699"] : 

All participants giving up pro rata to them ♦ • * 

I take it this indicates that in spite of your strong admonition, 
some of the banking houses still believed there was a group and 
tJiat they had definite claims on the business. Suppose I read you 
the whole statement [reading from "Exhibit No. 1699"] : 

We are offered a $4,000,000 interest which is a slight reduction from our pro- 
portionate interest in the Illinois Bells and is occasioned by the fact that 
Dillon Read will be introduced into the business (in a non-appearing position) 
and all participants are giving up pro rata to them. The amount of their 
interest is not stated. Mr. Morgan is sending us the proposed registration 
statement — 

And so forth. 

Now, I repeat my question, if I may, Mr. Stanley, that language 
seems to indicate that despite your very strong admonition that there 
was no group, some of the houses still believed that there was a group 
and that they had some claim on the business, and it would further 
indicate, Mr. Stanley, that you apparently were forced to recognize 
the existence of a group since you cut the participants pro rata ? 

Mr. Stanley. Well, Mr. Nehemkis, I don't see where you get the 
idea that we were forced to give, to start with. I don't know what 
the other people thought. I thought you intjroduced a memorandum ^ 
from Mr. Addinsell saying there was no precedent. 

Mr. Nehemkis. I have, but this is a subsequent memorandum ^ on 
the Southwestern Bell issue dated November 20, 1935. 

Mr. Stanley. But what of it ? 

Mr. Nehemkis. I am asking for your comment. Here is a responsible 
member of the investment banking commimity. You have been very 

1 "Exhibit No. 1698." 
'"Exliibit No. 1699." 



CONCENTRATION OF ECONOMIC POWER 11973 

careful to admonish the various houses that there was no precedent. 
Apparently, Mr. Addinsell, a responsible banker, believes that there 
was a group. You seem to indicate, in spite of your own statements, 
that there was a group, because it was necessary to cut the group 
pro rata. 

Mr. Stanley. I wouldn't think that his memorandum indicates he 
thought there was a group. What he is saying is that there is a read- 
justment of the amounts these people had, different from the time 
before. 

Senator King. Has this witness, the person who wrote the letter, 
testified ? 

Mr. Nehemkis. No, sir. This is a memorandum by Mr. H. M. 
Addinsell. 

Senator King. How would that bind Mr. Stanley? 

Mr. Nehemkis. I am not saying that it does. 

The Chairman. He doesn't contend that it binds Mr. Stanley, and 
of course it doesn't, but it is merely an expression of opinion, that is all, 
so that any question based upon it would be an argumentative question. 

Mr. Nehemkis. Correct. 

Mr. Stanley. I think all he is saying is that the same people are 
going to be in this Southwestern issue plus another one who wasn't in 
the previous issue. 

Mr. Nehemkis. Mr. Chairman, may I at this time offer in evidence 
a table entitled "Kelative Participations in Security Issues of American 
Telephone and Telegraph and Associated Companies, 1935-39." The 
source of the data which appears in this table was compiled from the 
registration statements filed with the Securities and Exchange Com- 
mission relating to the respective issues on file with that Commission. 

The Chairman. It may be admitted. 

(The table referred to was marked "Exhibit No. 1703" and is in- 
cluded in the appendix on p. 12244.) 

Mr. Nehemkis. In the same connection, Mr. Chairman, I also offer 
in evidence a table upon which the one you now have before you was 
predicated. This table likewise is compiled from the information ap- 
pearing in the registration statements on file with the Securities and 
Exchange Commission. However, I do not intend to discuss the sec- 
ond table which I request be admitted. 

The Chairman. The table may be admitted. 

(The table referred to was marked "Exhibit No. 1704" and is in- 
cluded in the appendix on p. 12245.) 

PERCENTAGE PARTICIPATIONS OF PRINCIPAL MEMBERS OF TELEPHONE GROUP 
IN RELATION TO PARTICIPATION OF MORGAN STANLEY & CO., INCORPO- 
RATED, 1935-39 

Mr. Nehemkis. Does Mr. Stanley have a copy of this table ? ^ 
Here is one, Mr. Stanley. A word concerning this table and why it 
is being offered at this time. This table was prepared, may it please 
the committee, by dividing the amount taken by each underwriter 
by the amount taken by Morgan Stanley; in other words, a series 
of fractions: Kuhn, Loeb over Morgan Stanley equals Kuhn, Loeb's 
amount ; Kidder, Peabody over Morgan Stanley would equal Kidder, 

1 Referring to "Exhibit No. 1703." 



11974 CONCENTRATION OF ECONOMIC POWER 

Peabody's amount, and so on. In each Telephone issue you will 
observe, INIr. Chairman, that Kuhn, Loeb gets exactly 50 percent of 
whatever is taken by Morgan Stanley, You will further observe, may 
it please the committee, that Kidder, Peabody's participations have 
been exactly 40 percent, or very close to 40 percent, in all issues other 
than Pacific Telephone, in which issue Kidder, Peabody i-eceived 
33i/;i percent. You will further note, Mr. Chairman, that Lee Hig- 
ginson's participation in 7 out of 11 Telephone issues has been exactly 
50 percent of the amount taken by Kidder, Peabody. Now, you 
will note on the table, there next appears a group of houses. First 
Boston, Brown Harriman, E. B. Smith. These three houses have all 
obtained precisely the same amounts beginning with the Pacific Tele- 
phone and Telegraph 3I/4S of April 1936. You will further note, 
Mr. Chairman, that a new firm appears as a participant in the 
issue, Harris, Hall & Co. This firm thereafter appears in fdl sub- 
sequent issues. Harris, Hall & Co.'s participation would appear to 
have been ceded to it by First Boston. From this time on First 
Boston gets the same percentage as E. B. Smith & Co. and Brown 
Harriman, and this would appear to be the explanation for First 
Boston's obtaining the same percentage as E. B. Smith and Brown 
Harriman beginning with the Pacific Tel. & Tel. issue, whereas in the 
prior issues First Boston's percentage exceeded that of the other two 
houses. 

Now what is the moral to be drawn from this chart? Yesterday, 
you win recall, Mr. Chairman, that there was offered a table ^ which 
showed that in all Telephone issues headed by J. P. jMorgan & Co., 
from 1920 until 1930, the percentage amounts taken by the group of 
houses in that syndicate were absolutely static, no variation. This 
chart was prepared, Mr. Chairman, to show whether or not there 
had been any crystallization of a group in Telephone financing under 
the leadership of Morgan Stanley & Co. comparable to the group 
under the old J. P. Morgan & Co. leadership. 

I submit, sir, that despite Mr. Stanley's desires that there be no 
group, as expressed to the participants, this chart indicates that there 
has been a crystallization. 

The Chairman. Well, it is not the chairman's understanding that 
the witness has ever denied that there was a group. He has mei'ely 
denied that there was any obligation by which particular members 
must of necessity be included in the group, and that is the only dif- 
ference that I see. Am I correct in that? 

Mr. Staklky. Not quite, sir. It depends on what you mean by 
the word "group," I suppose. A group of underwriters — may I just 
finish ? 

The Chairman. Yes, sir. 

Mr. Stanley. A group of underwriters are the people who buy the 
bonds from the company. Now it is quite true that since 1935, since 
Morgan Stanley & Co. have managed these Telephone issues, all of 
these people that have been mentioned have been in the business, 
but a great many others have, too, on exactly the same terms. For 
instance, in some issues they bought the entire amount. The first 
issue — no ; I am not sure whether you said seven names or nine. 

» "Exhibit No. 1C87." 



C0NC12NTRATI0N OF ECONOMIC POWER 11975 

Mr. Nehemkis. In that table? ' 

Mr. Stanley. Yes. 

Mr. Nehemkis. Nine names. 

Mr. Stanley. Anyway, it doesn't make any difference, a certain 
number of people bought the entire issue of the Illinois Bell, 9 people. 
The next issue, 10 people bought the entire issue; the next issue 10 
l>eople bought the entire issue; tlie next issue 47 people, all on 
exactly the same terms. In the next issue 

The" Ch.\irman (interposing). Wlien you say "all on exactly the 
same terms," what do you mean? 

Mr. Stanley. I mean they paid the same price to the com]:)any. 

The Chairman. Yes; but the proportionate share of each partici- 
I^ant was necessarily different. 

Mr, Stanley. Not to the total. I will come to that in a moment, sir, 
if I may. 

The next issue, 97 people bought the issue; the next issue 10 people, 
the next issue 48, the next issue 8, and how anybody can say there is 
anything ^ery frozen about that I don't see. The next issue 37 
people bought it, the next issue 43 people, the next issue 47 people 
bought it. 

The Chairman. Are you referring now to the underwriters? 

Mr. Stanley. Yes, sir. 

The CH.m{MAN. Or to the distributors? 

Mr. Stanley. To the underwriters. If you would like the number 
of distributors I can give them to you in each issue. They run from 
three to eight hundred people in each issue. 

Mr. Henderson. Mr. Stanley 

Mr. Stanley (interposing). May I just finish the question that the 
chairman raised? The i^eople whose names Mr. Nehemkis has given 
here, that is ourselves; Kuhn, Loeb; Kidder, Peabody; Lee Higgin- 
£on; First Boston; Brown Harriman; Smith, Barney; Blyth & Co., 
in the first issue bought 93 percent of the issue; in the next issue 89 
percent. The next 83 percent, the next issue 53 percent of the issue, 
the next issue bought 46 percent of the issue. 

The Chairman. Now, you are referring to the exhibit which has 
been 

Mr. Stanley (interposing). No, sir, I am not; T am referring to a 
table of my own. 

The Chairman. Well, I mean when you say the next issue, are you 
referring to the issues that appear on this chart? 

Mr. Stanley. Yes, sir; I am. 

Mr. Nehemkis. Would the 

Mr. Stanley (interposing). The next issue is 

Mr. Nehemkis (interposing). Excuse me a moment, Mr. Stanley. 

Would the Chair request for the convenience of those who are try- 
ing to follow the testimony, that the witness discuss them in the order 
in which they appear on the chart? 

The Chairman. Yes, let's do that ; Mr. Stanley, would you do that ? 

Mr. Stanley. I will read the names, if I may. 

The Chairman. If you will hold in your hand, or conveniently, a 
copy of this exhibit - and then, for the benefit of the members of the 
committee, identify each issue from it, reading from the top down 

1 "Exhibit No. 1703." 
2"Exliibit No. 1703." 



11976 COiSfCENTRATION OF ECONOMIC POWER 

Mr, Stanley. Right, sir. In the first issue- 



The Chairman (interposing). Which is the Illinois Bell? 

Mr. Stanley. The Illinois Bell issue, seven underwriters purchased 
97 percent of that issue, the balance being taken by two more under- 
writers, presumably. 

The Chairman. Pardon me? 

Mr. Stanley. The balance was taken by two more underwriters 
whose names are already in the testimony. 

The Chairman. Well, now, let's see. Appearing on that table,^ 
among the participants, are Morgan, Stanley & Co.; Kuhn, Loeb & 
Co. ; Kidder, Peabody & Co. ; Lee Higginson Corporation ; The First 
Boston Corporation; Brown Harriman & Co., Incorporated; Smith, 
Barney & Co.; later also identified as E. B. Smith & Co. 

Mr. Stanley. Those are the first seven to whom I referred. 

The Chairman. And then the Mellon Securities Corporation and 
Bonbright & Co. ? 

Mr. Stanley. Ri<Tht. 

The Chairman. A total of nine underwriters? 

Mr. Stanley. Yes, sir. The figures are in this chart, Senator, and 
those figures are the ratio that Mr. Nehemkis has figured out of the 
respective amounts that each firm purchased as compared to the 
amount we purchased. The figures that I am giving you are the 
« mounts in the aggregate of seven people, of the total issued. I don't 
question the accuracy of Mr. Nehemkis' statement here or his compu- 
tation of mathematics, but what I am trying to say is that it doesn't 
tell the story at all, because you have got to consider the whole issue. 
You can't give just part of the issue and 

Mr. Nehemkis (interposing). Mr. Chairman, may I venture to say 
that it is impossible to make the kind of comparison that Mr. Stanley 
wants to make ? I merely indicated, sir, that these were ratios and you 
can't compare ratios with absolute figures. Mr. Stanley should ad- 
dress himself to the chart in evidence, and then, if he wishes to 

The Chairman (interposing). He is doing that, Mr. Nehemkis, and 
what he is trying to do, as I understand him, is to point out to the 
connnittee what proportion of the entire issue was purchased by what 
underwriters and how many unclerwriters participated in each issue, 
and, of course, the committee is willing to have him make his explana- 
tion. 

Senator King. I think the explanation is quite proper and compe- 
tent in connection with the transaction. 

Mr. Stanley. Thank you. 

The second issue, the Southwestern Bell Telephone Co. issue, the 
first seven names at the top of Mr. Nehemkis' sheet purchased 89 per- 
cent of the total issue. 

The Chairman. But there were 10 participants in that issue, all 
told? 

Mr. Stanley. Yes, sir; the next issue was the Pacific Tel. & Tel. 
31/^ 's, and those 7 people, the same 7 people, purchased 83 percent of 
the entire issue, and there were a total of 10 underwriters. The next 
issue, the American Tel. & Tel. issue of 1961, those same 7 people pur- 
chased 53 percent of the issue, and there were 47 underwriters ; that is, 
39 other people. 

» "Exhibit No. 1703." 



CONCENTRATION OF ECONOMIC POWER 11977 

The Chairman. Now, may I interrupt you there to ask whether 
Mor<iun btunley & Co. determined the identity of all the persons who 
participated and all of the firms that partici[)atcd in that? 

Mr. Stanley. AVe did, sir; we discussed the names with the com- 
pany, but they said the responsibility was ours, and as I said before, 
we had to guarantee performance. 

The Chaikman. Then the seven first names purchased how nuich 
of that secui'ity? 

Mr. Stanley. 53 percent. 

The Chairman. Now, that allocation was made by you? 

Mr. Stanley. Yes, sir. 

The Chairman. And you allocated the other 47 percent to these 
additional underwriters whom you brought in of your volition? 

Mr. Stanley. Correct; entirely. 

The Chairman. And that was done at your discretion, and I 
assume you were guided by a sort of — what would be the best form 
of distribution? 

Mr. Stanley. Correct, based on our opinion of the merits of the 
people. 

The Chairman. Very well. 

Mj'. Neiiemkis. Mr. Stanley, do you want to point out that that was 
a $150,000,000 issue? 

Mr. Stanley. Quite. The amounts are shown, I think, on your 
list. 

Mr. Nehemkis. Yes. 

Mr. Stanley. The next issue of A. T. & T., of $140,000,000, the 
7 people bought 46 percent of the issue, and there were 97 underwriters. 
The next issue of Bell Telephone was S'/oS — Sy^s it should be — those 
same 7 people purchased 82 percent of the issue. 

Senator Kino. Purchased what? 

Mr. Stanley. 82 percent, sir; and there were how many under- 
writers? 

Mr. Young. Ten underwriters. 

Mr. Stanley. Ten underwriters. The Southern Bell issue, which 
was the next one, 7 people issued, it was a $42,500,000 issue, and the 
same 7 people purchased 54 percent of the issue and there were 48 
underwriters. The next issue was New York Telephone Co., a $25,- 
000,000 issue, and those 7 people purchased 98 percent of the issue, 
and there were 8 underwriters. The next issue, the Mountain States 
Telephone, the 7 people purchased 56 percent of the issue, and there 
were 37 underwriters. 

On the Southwestern Bell issue, the 7 people purchased 56 percent of 
the issue, and there were 43 underwriters. That was a $28,000,000 
issue. The Southern Bell issue, which is the last one, was $22,250,000, 
and 7 people purchased 55 percent of the issue, and there were 47 
underwriters. 

The Chairman. What was the largest percentage? 

Senator King. Who purchased the rest, on that last one, 45 percent ? 

Mr. Stanley. There were 40 other people who joined in the pur- 
chase. 

The Chairman. What was the largest percentage that you just 
gave us, allotted on any single issue, to the first seven firms ? 

124491 — 40— pt. 23 12 



11978 CONCENTRATION OF ECONOMIC POWER 

Mr. Stanlet. Tlie largest percentage was 98.40, and tliat is in the 
case of the New York Telephone Co., which the company wanted dis- 
tributed primarily in the East and particularly in New York. 

The Chairman. And the smallest was 50, or 

Mr. Stanley (interposing). Forty-six percent. 

The Chaihman. Forty-six percent in what issue? 

Mr. Stanley. In the $140,000,000 A. T. «& T. 

The Ch.vjrman. And in all other issues, these seven participated in 
more than 50 percent? 

Mr. Stanley. Yes, sir. 

The Chairman. Now, those seven firms which in each instance ex- 
cept one took more than half of the total, were Morgan, Stanley & 
Co., Inc."; Kuhn, Loeb & Co.; Kidder, Peabody & Co.; Lee Higginson 
Corporation; The First Boston Corporation; JBrown Harriman.& Co., 
Inc.; and Smith, Barney & Co., also known as E. B. Smith & Co.? 
, Mr. Stant^ey. Yes, sir. 

The Chairman. And the various proportions which they took are 
substantially those set forth on the exhibit offered by INIr. Nehemkis? 

Mr. Stanley. I have no reason to question the accuracy of it. 

The Chairman. That is a mathematical calculation; but as you 
glance at it, j-ou see no reason to dispute the proportions? 

Mr. Stanley. Quite correct. 

The Chairman. Very well, 

Mr. Nehemkis. Air. Stanley, you have referred to the first seven 
names, or a phrase substantially similar to that. Will you now give 
me the names represented by that phrase, the first seven? 

Mr. Stanij:y. Well, the first seven names on your list. 

Mr. Nehemkis. No; the first seven names which you had occasion 
to refer to in your exposition of a moment ago. What are those seven 
names ? 

Mr. Stanijey. Well 

The Chairman (interposing). Well, I just read them, and he ac- 
knowledged them. 

Mr. Stanley. They are the first seven names on your list; they are 
tlie same names at the top of yaur table. 

Mr. Nehemis. I see. I just wanted to make clear that we were 
talking about the first seven names. 

Do you recall Mr. Charles Mitchell's testimony in regard to Tele- 
phone matters when he was here? I'believc you were present. 

Mr. Stanley. I was present, I think, most of the time. 

ACCOUNTS "frozen TO A EAR GEEATER EXTENT THAN OTIIERs" THE 

telephone account 

Mr. Nehemkis. I am going to read to you what Mr. Mitchell had 
to say on the point now under discussion, may it please the com- 
mittee : ^ 

Mr. Nehemkis. Mr. Mitchell, we left off this morning with a discussion of Tele- 
phone matters. You were good enough to indicate to the committee that you would 
m;ike avaihible ('ertaiii information. Let me repeat to you sniue of the questions 
at this time. You had this to say, "There are certain accounts that are frozen 
to a far greater extent than others. For instance, what we know as the Tele- 
phone account. 

"The Chairman. Is that a frozen account? 



» Supra, p. 11573. 



CONCENTRATION OF ECONOMIC POWER 11979 

"Mr. Mitchell. As to its leadership and the first few names on that account 
I think it is more nearly frozen, perhaps, than most accounts." 

I skip a portion and I continue with Mr. Mitchell's testimony: 

Mr. MiTCHEix. I would say that for a long period of years — and I give you that 
from recollection — the business has been headed by J. P. Morgan and latterly by 
Morgan Stanley & Co., and there have always been in that gfoup, always according 
to my recollection, Kuhn, Loeb & Co. ; Kidder, Peabody & Co. ; Lee, Higginson & 
Co.; and latterly, Lee Higginson Corporation. Since Morgan Stanley & Co. 
have handled this financing, those names have headed the list. They have also 
followed them in all of the issues. The First Boston Corporation; Brown Harri- 
man & Co. ; and Edward B. Smith & Co., and those names by and large have been 
the names that have appeared in the public advertising. 

Mr. Nehemkis. And it was that list of names of those underwriting houses which 
you have just enumerated that you regard as being the group? 

IMr. Mitchell. Those names have appeared so often with the head of the 
group, with the head of the underwriting syndicate, that I would say that they 
were regarded as the principal names in the Telephone business. 

Mr. Stanley, is there a Telephone group under the leadership of 
Morgan Stanley & Co., Incorporated? 

Mr. Stanley. Not as I understand the meaning of the word. 

Mr. Neheme.is. Mr. Stanley, I now read you from a memorandum 
covered by stipulation of Mr. Charles E. Mitchell, may it please the 
committee. 

The memo is dated September 23, 1936, and is adaressed to members 
of the firm by Mr. George Leib, who was a witness here, as you will 
recall, Mr. Chairman. 1 now read you, INIr. Stanley 

Senator King (interposing). Did that witness identify the state- 
ment? 

Mr. Nehemkis. This memo. Senator King, has been offered under a 
stipulation by the chairman of the board of Blyth & Co., who identi- 
fies it as coming from his files, and that stipulation ^ is in the record. 

Senator King. Well, the point I am trying to get at is, could that 
be regarded as having been sworn to by some person, some witness? 

The Chairman. Yes, that was the understanding. Mr. Mitchell 
was here, and in order that he might not be required to remain, he 
acknov^ledged that, that that memo came from his files. 

Senator King. But he wouldn't swear to its accuracy and Mr. Leib 
was not here on the stand so he couldn't swear to it. 

Mr. Nehemkis. I am still saying, sir, that for purposes of identi- 
fication, and that the record may be clear, Mr. Mitchell has stipulated 
and I am offering in connection with that stipulation, a memo coming 
from the files of Blyth & Co. I say nothing further with reference 
to its contents. 

Senator King. Well, you see, it is sort of getting the testimony in 
the back door, withoirt bringing in the Avitness, Mr. Leib, on the stand 
and letting him swear that he made that statement. 

Mr. Nehemkis. Mr. Chairman, I must take exception to that. 

Senator King. Is Mr. Leib going to be called? 

Mr. Nehemkis. The record may show that counsel takes exception 
to that statement. 

Senator King. Let it be noted, but can Mr. Leib be called as a 
witness; yes or no? 

Mr. Nehemkis. Mr. George Leib, in connection with this proceed- 
ing, is not to be called as a witness. Senator. 

» "Exhibit No. 1691." 



11980 CONCENTRATION OF ECONOMIC POWER 

Senator Kjng. Well, I want to know — if lie doesn't have his testi- 
mony here. "VYe will continue. 
Mr. Nehemkts. Shall I proceed? 
The Chairman. Proceed. 
Mr. Nehemkis [reading from "Exhibit No. 1705"]. 

Harold Stanley called up while you were out ou the subject of American Tele- 
phone & Telegraph. There will be a $175,000,000, 2r)-year, 314s filed either today 
or tomorrow, to be offered about October 15. $25,000,000 of this will be retained 
by the company for the pension fund. 

It will be two point profit business with % going to Morgan Stanley. Under- 
writers will receive '/». subject to expenses and the .selling group will receive 
%. * * * There will probably be about 45 underwriters — 

And then appears a list of names. Now, the last paragraph [read- 
ing further]. 

Mr. Stanley went on to explain that there is absolutely no precedent in this 
business as the next issue will be a small one and ir may be that tbey will go 
back to the original seven underwriters who appear publicly. 

Mr. Chairman, I merely offer this in evidence at this time as an 
indication of what Mr. George Leib, whom the committee has seen 
and the committee has heard, understood at the time. It is offered in 
evidence. 

The Chairman. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1705" 
and is included in the appendix on p. 12250.) 

Mr. Nehemkis. And if I may use an expression 

The Chairman (interposing). Of course, Mr. Nehemkis, there is 
no argument about the facts so far as I see them. The witness 
acknowledges that there were several principal underwriters. He 
merely concedes that those could be changed. These various exhibits 
that you are offering do not in any sense controvert that declaration. 
I don't see how it can be controverted because it is a matter of inter- 
pretation. 

Mr. Nehemkis. That is correct. I think you and I understand 
each other perfectly. 

Mr. Henderson. I think also, Mr. Chairman, that some of the 
things we do offer support some of the contentions Mr. Stanley has 
made. 

Tlie Chairman. Yes, surely. 

Mr. Nehemkis. Now, Mr. Chairman, in accordance with your previ- 
ous arrangement concerning identification, I would like now to ask 
you to examine "Exhibit No. 1700," after I briefly touch on it, you 
will — if you will, sir, look at it. This exhibit was obtained from the 
Hies of E. B. Smith & Co., now known as Smith, Barney & Co. You 
will observe, sir, its very significant statement 

The Chairman (interposing). Now, is that one of the exhibits 
which we put in subject to futui'e identification? 

Mr. Nehemkis. Subject to future identification, correct, sir. This 
exhibit sets forth in one column the vai-ious underwriting houses that 
have participated in TeIe})hone securities from the time of the passage 
of the Securities Act in 11)33 u[) until the Mountain States Telephone »!t 
Telegraph offering of June 9, 1938, and on the left-hand side appears 
a list of underwriters, but the significant thing about this is that only 
the percentages and further reference marks that I will come to are 
made with reference to the first seven, always the percentage of the 
fiirst seven and always the position in advertising of the first seven. 



CONCENTRATION OF ECONOMIC POWER 11981 

It would seem — I make no other comment about it — that at least one 
important and responsible investment bankinjT iiouse thought that 
only the first seven houses were significant in this business. 

Will you examine it, Mr. Chairman ? 

GUARAXTT OF FINANCIAL RESPONSIBILITY OF OTHER MEMBERS OF 
SYNDICATE BY MORGAN STANLEY & CO., INC. 

Mr. Miller. Might I ask a question ? Mr. Stanley, were all of these 
Telephone issues handled in the same manner, that is, you had to 
guarantee the account and all the members' responsibility in the 
account ? 

Mr. Stanley. In each issue. 

Mr. MiLLx,... I wonder if the committee have the impression that 
that is a normal type of account? Isn't that an extraordinary thing? 

Mr. Stanley. Well, it is not general, Mr. Miller. We have done 
it in a few other cases, but it isn't general. I don't know whether any 
other managers have done it or not. I don't recall any, but it seems 
to me that some have done it. But I might point out that there are 
various other kinds of guaranties that other managers arrange in 
other syndicates, a partial guaranty, up to 10 percent or the first 
5 percent that might default, or whatever it might be, some guaranty 
of that kind. But I don't remember at the moment any other instance 
by any other manager of a complete guaranty of the entire under- 
writing. 

Mr. Miller. The usual thing is no guaranty on the part of the 
manager? 

Mr. Stanley. The usual thing is a separate, several contract between 
the underwriter and the company and that, of course, is one of the 
proofs that the company, in many cases, has a lot to say as to who the 
underwriters are, because they have a contract direct with them. 

Mr. Miller. I understand. 

Senator Kino. I didn't vmderstand that last observation. 

SEVERAL liability OF UNDERWRITERS UNDER PURCHASE CONTRACT WITH 

ISSUER 

Mr. Stanley. The way business is done now, sir, a group of people 
buy an issue of bonds, whatever the amount may be, from a borrowing 
company. : The procedure under the present laws makes it better, or 
less difficult, to have each underwriter sign a contract with the bor- 
rower. One man buys a million bonds, another man buys two million 
bonds — or another firm, in both cases, rather — another firm buys "x" 
number of bonds, and in the aggregate they comprise the entire issue, 
and that is a several contract between each firm and the borrower, so 
naturally the borrower knows something about whom he is doing 
business with. 

Senator King. From your experience in the business to which you 
have been referring, is there any advantage to the borrower in know- 
ing just what he will get for his entire issue, and knowing that he 
will not have to go out and look around for a purchaser, to peddle 
them here and there in various parts of the United States? 

Mr. Stanley. Oh, absolutely; a very great advantage. It is essen- 
tial that he know that he has got the entire amount to be paid to him 
on the date set. 



11982 CONCENTRATION OF ECONOMIC POWER 

Senator Ktno. From your exporience over a lonjr period of years, 
is it more advant:i<reous to the borrower and to the public to have 
a plan such as you have indicated, or rather to just let each issue 
be advertised and sold to any purchaser desiring to buy any portion, 
witliout any guaranty? 

Mr. Stanley. Well, I think it is very much more to the advantage 
of the borrower and the investor to have continuing relations with 
responsible, competent people in the investm.nt business, with a 
borrowing concern. I don't want to enlarge on it too nnicli, but the 
investment banker who knows about the company for a loi:g time 
and lias gotten wliere they have mutual confidence in each other 
and have had satisfactory relations with each other, it is normal 
that they will cont'iiue and certainly they can do business better and 
more effectively tlinn just a new man every time. Now, so far as 
the investor goes, sach a person wlio has continued relations, whose 
advice is heeded and followed — they may be disagreed with but they 
talk it out and the coinpany and the banker agi'ee on what is the 
proper thing for the investor's interests — certainly the investor's 
interest is looked after a great deal better than in a case where the 
investment banker has nothing to say about a certain issue at all. 

Senator King. Another question : Are there many issues of bonds, 
not coming within the category to wliich you have referred in Mr. 
Nehemkis' memo, that have defaulted? In other words, in the gen- 
eral issue of bonds, not those that are guaranteed, are there many 
in default during the past few years? 

Mr. Stanley. By the undeiwriter to the borrower, you mean, sir, 
or do you mean by the public? 

Senator King. The purchaser. 

Mr. Stanley. You mean the borrower? 

Senator King. By the issuer. 

Mr. Stanley. There have not been many defaults of American 
corporations in recent years. Perhaps I don't understand your ques- 
tion correctly. 

Senator King. Well, are there many companies wiiich have pur- 
chased bonds not in this — small group or individual groups, pur- 
chased bonds — have they defaulted? 

Mr. Stanley. Oh, I think perb.aps I understand your question as, 
Do the investment banking firms — ^liave they defaulted? No, sir, 
not often. 

Senator King. Where the investment banker has made a guaranty 
such as is indi.^ated in these, have there been any defaults? 

Mr. Stanley. We haven't been called on to make up any defaults. 

Senator King. That is all. 

Mr. Nehemkis. Mr. Stanley, may I clear up one point about your 
earlier testimony? As you were going over a list which was avail- 
able to you, you indicated that in the Southern Bell Telephone Co. 
$42,500,000 offering in 1937, the imderwriting group had been in- 
creased from either 9 or 10 to 48. Is it not a fact that you increased 
that underwriting group at the express request of the Telephone 
Co.? 

Mr. Young. Is that Southwestern? 

Mr. Nehemkis. Southern iSell Telephone, $42,500,000, 3i/4's, 25-year 
debentures. 



CONCENTRATION OF ECONOMIC POWER 11983 

Mr. Stanley. Well, I think very likely, Mr. Nehemkis. I can't 
be sure of the dates, but as I have testified, as business went on, as 
business began, we — this was 1937. 

Mr. Nehemkis. Right. 

Mr. Stanley. But I am coming back in a moment. In the initial 
Bell issue, we thought the most appropriate and best thing to do — 
and I would like to explain some of the reasons in a moment — was 
to have a fairly small group and a very large distributing group. 
That was — we were just starting in business, and you know the con- 
ditions in the investment markets were uncertain. People's ability 
wasn't fully tested, these new firms and all that. As we went on 
and did more business, we became convinced, and the company also 
felt that it was very wise, on large issues, national issues, to have 
a much larger underwriting, and between us, we agreed. The deter- 
mination of the people, however, was left to us. 

Mr. Nehemkis. Mr. Chairman, I should like to refer 

Mr. Stanley (interposing). We started that m 1936, Mr. Young 
says. 

Mr. Nehemkis. I should like to refer at this time to a memo- 
randum which has already been received in evidence, as "Exhibit 
No. 1701," subject to our prevailing understanding. This memo- 
randum confirms substantially what Mr. Stanley just said. It is a 
memorandum from Mr. H. M. Addinsell with reference to the 
Southern Bell offer, dated April 14, 1937. I should like also to refer 
to another memorandum by Mr. Addinsell, "Exhibit No. 1702," on 
the Southern Bell Telephone offering of 1939, 

RECIPROCITY with MORGAN STANLEY & CO., INC. 

Mr. Nehemkis. Now, may it please the committee, I should like 
to read to you a letter from Mr. Mitchell. Tliis letter is covered by 
Mr. Mitchell's stipulation^ in evidence. This letter is directed by 
Charles E. Mitchell to his partner on the west coast, Charles R. 
Blyth, and reads as follows [reading from "Exhibit No. 1706"] : 

I have had several talks with Harold Stanley regarding Pacific Telephone 
business and have used every argument that I can muster that we should be 
up around the top in that offering. He started out with the proposition, that It 
was going to be impossible to revise the old account. Later he conceded us 
a position of $1,000,000 in the underwriting and the last appearing name. Then 
he told me that there was just as much pressure from the Coast for the care 
of Dean Witter as there was for us and if he revamped the account to take 
us in, he would have to find some place for Dean Witter, and now in a letter 
written just as he was leaving for a holiday, he writes me as to the set-up 
as follows: 

"As to Pacific Telephone, we have tried to consider all the different aspects 
of that issue. It is not coming for some time, but I think that the partici- 
pants will be invited on the following basis." 

Then appears the first seven names that we have been referring to, 
and three additional names, Blyth & Co., Dean Witter, and Harris & 
Co. 

Continuing with Mr. Stanley's letter, which Mr. Mitchell quotes 
[reading further] : 

"The names to appear in the advertisement in the order given. 
"I know you will keep the above confidential, as we haven't spoken of any of 
the other houses, and the above program may be changed. 

» "Exhibit No. 1691." 



11984 CONCENTRATION OF ECONOMIC POWER 

"After giving not only yonr wishes hut the entire mntter a lot of thought 
I am convinced that the above arrangement is fair ail around and to the best 
interests of the business. 

And now, sir, I call your attention particularly to the next para- 
graph [reading further] : 

"I note what you say about yonr having offered us the participation in Pacific 
Gas & Electric, wliich of course we appreciated and which we were very glnd 
to accept, but really there can be no connection between that and the Pacific 
Telephone business in your mind or ours." 

Mr. Stanley, did that mean that you recognized that Blyth & Co. 
could not possibly reciprocate to you by having offered you a piece 
of P. G. & E. business for Telephone business? 

Mr. Stanley. Well, I don't know what it meant, because I don't 
know what was said in Mr. Mitchell's letter, but it certainly has no 
connection ; there is no connection between the two in my mind. 

Mr. Nehemkis. You still maintain that? 

Mr. Stanley. Yes. 

(The letter referred to was marked "Exhibit No. 1706" and is 
included in the appendix on p. 12250.) 

Mr. Nehemkis. Now let me read to you from Mr. Mitchell's testi- 
mony : ^ 

Mr. Nehemkis. You can't ever hope really to reciprocate to Morgan Stanley? 
Mr. Mitchell. No ; oh, no ; they are not in our line of business. 

Mr. Stanley. Well, I don't know whether you want me to comment 
on that or not. 

Mr. Nehemkis. Only if you wisl^i, sir. 

Mr. Stanley. Well, I don't see any reason at all why people can't 
do business with people who want to do business with them, but I 
say, in connection with the testimony that has happened here on reci- 
procity, that a man or firm cannot run a syndicate that he is man- 
aging on a basis of anything except merit and performance and use- 
fulness to the business. 

underwriting risk relative to telephone issues 

Mr. Nehemkis. Mr. Stanley, we have been discussing a case history 
of American Telephone & Telegraph Co. for 3 days. We have de- 
veloped for the committee the origins of that business and we have 
carried it through the leadership of Morgan Stanley. May I ask you 
this question. What risk is actually involved in managing a Telephone 
issue ? 

Senator King. What was the second word of your question? 

Mr. Nehemkis. What risk, Senator, is there actually involved in 
going in a Telephone issue? 

Mr. Stanley. Well, Mr. Chairman, I don't see how you can apply 
that, if you are implying that there is no risk in any business you do. 
For instance, when tlie war happened 

Mr. Henderson. Mr. Chairman, I don't think that that was called 
for by the witness at all. I think the question was very plain and 
the witness has in my opinion no right to read an implication into 
that statement. 

The Chairman. It was a conditioniil implication. 

» Supra, p. 11600. 



CONCENTRATION OF ECONOMIC POWER 11985 

Mr. StanI/Et. May I add to my answer in this way, that the risks 
involved in handling Telephone issues which are of the highest char- 
acter are similar to the risks of handling all bond issues: The matter 
of markets, changing markets; the matter of proper pricing; there 
might be no risk as to insolvency. 

Mr. Hendeieson. What was that? 

Mr. Stanley. There might be no risk as to the insolvency of the 
Telephone Company. For instance, when rumors of war happened 
in September, the outstanding Telephone bond issues went off 10 points, 
and if the- syndicate had had a commitment at that time they would 
have had a loss. If you overprice the issue, as we did in the last 
Southern Bell issue, you may have a loss there, the bonds went down. 
I am very glad to say that on most of the issues we happened to have 
priced them very properly. Now, I might inject here, Senator — you 
have asked myself and I think some of the other witnesses whether, 
there was any assurance that the price that was obtained by this 
method of negotiations was a fair and adequate price. 

Leaving aside the question of the spread for the moment, which is 
all a matter of record in the S. E. C. and most of the utility issues are 
passed upon by one commission or another as to its propriety, I 
think the best answer, for instance, on the Illinois Bell issue was the 
price it sold at in the open market. I have those figures here. It was 
offered at 1021^ and a month after it sold in the wide-open market 
at 102%. Now, it is a matter of judgment, and you have got to have 
experience in pricing and in merchandising. The same questions 
of judgment come into competitive bidding— I mean there isn't any- 
thing automatic about competitive bidding; a fellow forms an opin- 
ion as to what the proper price is, and he may be right or wrong. 

The Chairman. What you are saying now is that in this particu- 
lar issue 

Mr. Stanley (interposing). Yes. 

The Chairman. A month or so after the underwriting had been 
completed 

Mr. Stanley. Right. 

The Chairman. The issue was commanding in the open market a 
price which was at least a point above— — 

Mr. Stanley, No, sir. 

The Chairman. That at which it was disposed of. 

Mr. Stanley. It was selling at a J)rice approximately the same, 
fractionally above the price at which it was ottered, an eighth above. 
It was offered at IO21/2. 

The Chairman. So at this period, after the underwriting, the issue 
was commanding in the public market not only the price at which 
the underwriters purchased from the issuing ^company but also the 
entire spread. 

Mr. Stanley. Right. The spread in my opinion is the compensa- 
tion you pay for distribution, the same as you distribute any kmd of 
commodity. You buy at wholesale and sell at retail. 

The Chairman. Well, of course the point in a matter of this kind 
is whether so large a compensation should be paid for the distribution 
«f so high-grade a security. 

Mr. Stanley. That may be one question. That is also a question 
of pricing and markets. 

The Chairman. Si^rely; and I recognize th , different answers 
might be given. 



11986 CONCENTRATION OF ECONOMIC POWER 

Mr. Stanley. Further than that, I think there is another point 
not often thought of. You get into the question of whether wide pub- 
lic distribution is a good thing or not, or whether concentrated hold- 
ings are preferable. Generally speaking, it has been my experience 
that the corporation which has to borrow every year, or every 2 
years, with an expanding business, which I hope we are going to have 
again soon,^ those people would rather, generally speaking, have 
their securities widely distributed and have a market as a gage of 
their credit in the case of future issues. Now the only way you can 

get wide distribution from here to California and any other place is 
y having hundreds of dealers all over the country work and sell 
those bonds. The big houses can't do it all, the entire amount. They 
can do part but not all of it, and you have to pay those fellows or 
they won't work, and that is where part of your spread goes. There 
has been a lot of talk about dividing up the profits of business that 
people didn't own here 

The Chairman (interposing). There wasn't a great deal of talk; 
there was one simple short sentence. 

Mr. Stanley. Well, that I agree with, Senator, completely. The 
selling commission is about half of the total spread, but on the ques- 
tion of division of profits among various bankers and their partici- 
pations in issues, I am not sure that it has been brought out, I don't 
think that it has in the testimony I have heard, that, when a man 
takes a million-dollar commitment as underwriter, if things go well 
he may make $6,000; if things go wrong. Lord knows what ne will 
}ose. I mean we talk in such large figures that the compensation is 
lost sight of in the maze of large figures. Now another thing in 
distribution, and it is related to this Telephone business, that I would 
like to say very briefly is that most of these Telephone issues were 
refunding issues, and in considering the appropriate people who 
would be useful in the new syndicate, we naturally thought of people 
who had sold Telephone securities before. They were in touch with 
those people, those securities were to be taken away from them by 
redemption and new securities issued in their place. They naturally 
were in a much better position to place the new Telephone issues 
because of their knowledge and their clients having had old Telephone 
issues. As has been testified to here, the Telepnone Co. developed 
in New England; the securities were largely held in the East. We 
had a list of the holders of the Illinois BeU issue that was to be re- 
deemed. It was public information in the manuals of institution 
holdings, trusts, charities, insurance companies, and so forth, and of 
that issue those institutions alone held over half the issue. So it is 
obvious that the markets, generally speaking, as well as the holdings 
of the telephone bonds, are in the East rather than the West. We 
did put bonds in the West in' the selling group and in other places 
too. Incidentally, we put quite a large amount in Chicago. 

I may say that Mr. Stuart is an old friend, but his figures were 
wrong in the amount of his selling participation. He had $1,000,000 
which he accepted. 

The Chairman. What about the distribution of Telephone stock? 
Is that carried on in the same way? 

Mr. Stanley. That is generally, or latterly, by the company offer- 
ing directly to its own shareholders, nobody else having anything 



CONCENTRATION OF ECONOMIC POWER 11987 

to do with it, and the price is very attractive and way below the 
market. There have been times in the past where the Telephone Co. 
had a campaign of selling stock to the public, but that hasn't been 
done lately. 

Mr. Aatldsen. You said that the Southwestern Bell issue was over- 
priced, I believe? 

Mr. Stanley. No; the Southern Bell. 

Mr, AviLDSEN. Would you explain what you mean by overpriced? 

Mr. Stanley. Well, priced at a figvire where it wasn't attractive 
to all the public, and all the bonds were not sold and the price went 
oflf. 

Mr, AvTLDSEN. Who got the benefit of the overpricing, the under- 
writers or the Company? 

Mr. Stanley, The Company. 

Mr. AviLDSEN. The Company got the benefit of the overpricing? 

Mr. Stanley. Yes, 

Mr, A\iLDSEN. How about the investor? 

Mr. Stanley. The investor lost, if he bought bonds at that price, 
unless he bought them after they had gone down, 

Mr. Hendekson. Do you mean the investor lost if he bought a 
bond and then sold? 

Mr. Stanley, Yes; if he retains it he may not have a loss at all. 

Senator King. Have you concluded your statement, Mr. Stanley? 

Mr. Stanley. Yes, sir. 

Senator King. I want to ask one question. From your experience, 
is it more satisfactory to the public in general to have underwriting 
than where you sell without any underwriting? In other words, you 
sell more readily where the bonds are underwritten by responsible 
organizations ? 

Mr. Stanley. Much more so in the latter case, and, in addition to 
that. Senator^ of course when a company has a bond that is coming 
due, as the New York Telephone Co. did this fall — seventy five mil- 
lion, or vhatever the figure was — they have got to have somebody 
agree to provide that amount of money on October 1, or whatever the 
date is. They can't go out and make an effort to sell things and get 
half of it and not the rest of it at all, and the same thing applies in • 
these refunding issues, of which there have been a great many in the 
last year, calhng an outstanding security, paying perhaps 5 or 6 
percent, to refund at 3 percent. When they make a call to the 
bondholders those bonds come due, and they have got to have the 
money in their pockets to pay them. 

Senator King. That would necessitate — or at least it is believed to 
be necessary to go out then, and organize a syndicate for the purpose 
of taking up the refunding issue? 

Mr. Stanley. Yes, sir. 

Mr. Nehemkis. May I interpose at thi^ moment and ask the com- 
mittee's indulgence to continue a little longer than we usually do so 
that we may conclude with Mr. Stanley's testimony before lunch and 
not run over our schedule? As you recall, we have already advised 
certain witnesses that their appearance would not be necessary. 

The Chaikman. How long do you expect? 

Mr. Nehemkis. About 20 minutes. 

The Chaibman. Proceed. 



11988 CJONCBNTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Mr. Stanley, I believe you were present here yes- 
terday when the committee received in evidence a table ^ showinoj that 
on the old J. P. Morgan syndicates of Telephone bonds the syndicate 
books frequently closed in 1 minute, 6 minutes, 30 minutes, an hour • 2 
hours was considered a flop. Now, do you find any substantial dif- 
ficulties in disposing of Telephone bonds since Morgan Stanley has 
had the leadership o^ the telephone business? 

Mr. Stanley. I thuik the bond^ have gone very well in most cases 
excepting the last Southern Bell issue. 

I want to point out that what you have said, your description ol tne 
method prior to 1935, is not correct. 

Mr. Nehemkis. Excuse me, sir; do you want to testify about a 
matter pertaining to J. P. Morgan & Co. ? 

Mr. Stanley. I can testify about the general practice in the securi- 
ties business because ihat is what I was in charge of at the Guaranty. 

The general practice in subscription issues prior to the 1933 Bank- 
ing Act was that selling syndicates were formed, and they were told 
a few days in advance that subscription books would open on a certain 
date, ana between the time they got that notice and the opening of the 
books they sold the bonds; maybe it took 2 or 3 days. The idea the.': 
they sold the bonds 

Mr. Nehemkis (interposing). That isn't what has ever been 
said. The table and any comments on the table merely said that the 
books were closed, not that the bonds were sold. The books were 
closed ; that is what we are talking about. 

But let me proceed, sir, if you have finished. Hasn't Morgan Stan- 
ley's biggest difficulty in Telephone issues really been in keeping out 
other underwriters who wanted participations? 

Mr. Stanley. Well, as in almo3t all good business, Mr, Nehemkis, 
there are underwriters who would like to have been included in the 
Telephone issues, who were not, but you can't include everybody who 
is eligible in any piece of business.- The conversation on the part of 
certain people who may have desired to be included, when they talk 
to us, isn't very realistic. They talk about being included, and they 
don't even know what the price is going to be, it is just conversation, 
they are soliciting business. 

Mr. Nehemkis. Mr. Stanley, the Illinois Bell offering of 1935, with 
which we started this morning, was a refunding, was it not, of the 
Illinois BeM of 1923, headed by J. P. Morgan & Co. ? 

Mr. Stanley. I don't know; I think so. It was a refimding issue 
of an outstanding bond. 

Mr. Nehemkis. Will you ask one of your assistants? 

Mr. Young. It was. 

Mr. ITehemkis. ^ ou accept Mr. Young's answer as your answer? 

Mr. Stanley. Yes, quite. 

profits or J. p. MORGAN & CO. AND MORGAN STANLEY & CO. INCORPORATED, 
ON TELEPHONE FINANCING 

Mr. Nehemkis. From an exhibit ^ previously offered and now in 
evidence it appears that the 1923 issue had a total spread of 3^, or 

> "Exhibit No. 1688." 
•--Exhibit No. 1681." 



CONCENTRATION OF ECONOMIC POWER 11989 

$1,625,000, and the total profit to J. P. Morgan & Co. from the flota- 
tion of the 1923 issue was $144,000. 

Now in 1935, Mr. Stanley, on the issue of Illinois Bell which was 
brought out under the leadership of Morgan Stanley, there was a 
spread of 2 points or $874,000, and from the table ^ that you now have 
before you, you will note that the total profit to Morgan Stanley 
from the flotation of the 1935 issue was $211,345. Note, Mr. Stanley, 
that J. P. Morgan & Co.'s gross profit was less than 10 percent of the 
gross spread. Morgan Stanley's gross profit was almost 25 percent 
of the gross spread. 

Now would you care to indicate why there should be such a glaring 
discrepancy ? 

Mr. Stanley. I don't think there is any connection between the 
two things. 

Mr. Nehemkio. Do you want the record to show that that is your 
answer ? 

Mr. Stanley. Yes. 

Mr. Nehemkis. Is not the ability to collect a quarter point manage- 
ment fee on the entire issue one of the major perquisites of leader- 
ship in syndication? 

Mr. Stanley. Well, any one of the — I don't know that I would call 
it a major perquisite, I think that is an improper designation, but I 
would say one of the moot important parts of any syndicate offering 
is the work that the manager does in preparing the issue, advising the 
company, forming the underwriting group, forming the selling group, 
sponsoring the issue, putting his own money up to back his own 
judgment. 

Mr. Nehemkis. Let me put my question to you bluntly, sir. Under- 
writers don't work for nothing. Is not the quarter-point manage- 
ment fee very important? 

Mr. Stanley. Yes. 

Mr. Nehemkis. Now Morgan Stanley's, management fees on Tele- 
phone business have amounted, have they not, to approximately 
$2,000,000? 

Mr. Stanley. I will have to add them up, but I should think our 
total profits, incli-Jing management fees, ran somewhere around a 
half of 1 percent. 

Mr. Nehemkis. Will you accept my figure, subject to your correc- 
tion? 

Mr. Stanley. Certainly. 

(Senator King took the chair.) 

Mr. Nehemkis. I should like to offer at this time a table which 
gives the figures that I have been referring to. You will note, sir, 
that the source of the data upon which this table has been predi- 
cated was furnished us by Morgan Stanley & Co. Incorporated. 

Acting Chaieman KIing. Have you seen it, Mr. Stanley? 

Mr. Stanley. I have not seen it, sir. . 

Acting Chairman King. It may be received. 

(The table referred to was marked "Exhibit No. 1707," and is 
included in the appendix on p. 12251.) 

Mr. Nehemkis. Would it not be possible for the witness to accept 
that subject to correction at his leisure if he finds any inaccuracies? 

1 "Exhibit No. 1707." 



11990 CONCENTRATION OF ECONOMIC POWER 

Acting C^ airman King. During the recess, if you desire to make 
any suggestions or corrections you may do so when the committee 
r^^eets. 

1^1 i. Nehetikis. I merely say that so we may go ahead. 

Mr. Stanley. Certainly. 

Mr. Nehemkis. Is it not a fact, sir, that Morgan Stanley's total 
profits on Telephone business has amounted to $2,800,000. 

Mr. Stanley. The total gross profits, which in .your ta^'" sb'^-^? 
before taxes, overhead, and return on capital 

Mr. Nt^hemkis (interposing). Two million eight hundred thou- 
sand dollars. 

Mr. Stanley. That is the figure before those expenses and other 
items which I have just mentioned, taxes and overhead 

Acting Chairman King (interposing) . Out of that there would be 
expenses, rent of your office, and employees? 

Mr. Stanley. Yes, indeed, sir. 

Acting Chairman King. Social Security. 

Mr. Stanley. It is a very expensive Kind of organization to keep. 
You have business, sometimes a lot of it at once, and sometimes it is 
a long time before you have it. You have to keep a staff of exp irt 
people, and, of course, after taxes are paid nowadays there is not 
so much left. 

Mr. Nehemkis. Mr. Stanley, you may recall, having been present 
here yesterday, that the committee received in evidence a table ' 
showing the amount of securities floated under the leadership of 
J. P. Morgan, and the profits realized thereon. 

Mr. Stanley. I was here, but I missed that. 

Mr. Nehemkis. I will give it to you now. Between 1920 and 1930, 
according to the table now in evidence, J. P. Morgan & Co. floated a 
total of $832,000,000 of Telephone securities on which it realized a 
profit of $2,969,000. Now the total spread on this business, in dol- 
lars, amounted to approximately $27,500,000, and the Morgan pror.t 
was about 11 percent of the total. 

Now Mr. Stanley, Morgan Stanley & Co., Incorporated, has man- 
aged approximately $580,000,000 of Telephone securities on which its 
gross profit, as you have indicated the use of the term, has been 
$2,778,000. The banker's gross commission in your business, that is to 
say, under your leadership, has been $11,500,000 and Morgan Stanley's 
percentage of the total gross commissions has been^ according to my 
calculations, in excess of 25 percent as compared with but 11 percent 
for J. P. Morgan & Co. 

Would you accept that? 

Mr. Stanley. Well, I would say that it certainly is 2 or 3 or 10 
times as hard to do business now as it used to be, with all these laws 
and regulations and what not. I am a firm and strong believer and 
in favor of the underlying ideas of the Securities Act, but actually it 
is awfully expensive to do business today, and further than the 
expense of it, you have civil liabilities that run for 3 years and 
you don't know what they mean. 

I might say. Senator, that our guaranty of performance in the 
Telephone issues alone raises a civil liability — if tney were all within 



» "Exhibit No. 1681-3.' 



CONCENTRATION OF ECONOMIC POWER 11991 

a 3-year period, which I am not sure they were — of a total of $580,- 
000,000. Theoretically, conceivably we are liable on that whole 
amount. 

POSITION or DEALER 

Mr. Nehemkis. You have indicated, Mr. Stanley, that the possi- 
bilities of profit are becoming more and more difficult. Has the 
proportionate share in the business been felt by the distributor, has 
he shared equally with the underwriter in these profits? 

Mr. Stanley. I am not sure that I get your question clearly, Mr. 
Nehemkis. 

Mr. Nehemkis. You have indicated that it is more difficult 
today 

Mr. Stanley (interposing). More expensive, and more difficult. 

Mr. Nehemkis. More expensive for the vinderwriter to do business ? 

Mr. Stanley. Yes. 

Mr, Nehemkis. You have given some of the reasons. What about 
the little dealer scattered over the country? Does he share in the 
profits realized by the underwriters to the same extent? 

Mr. Stanley. Does he share in the profits realized by the under- 
writers to the same extent as he previously did? 

Mr. Nehemkis. Yes. 

Mr. Stanley. The business is done on an entirely different basis. 
In the old days the dealers — it is hard to say this without being tech- 
nical^ Senator. Let m& begin again. In the old days the selling 
syndicate usually included a lot of dealers, the principal people in the 
business and other people; all of those people had a firm commit- 
ment in the syndicate. To go back a minute — beyond that, usually in 
those days a group of a few people bought an issue and then formed 
a syndicate which they sold it to, but everybody had a firm commit- 
ment! in the syndicate. Nowadays the dealer doesn't have a firm 
commitment. Underwriters buy a block of bonds from a company, 
buy an entire issue; they hold the bag, they offer the dealers around 
the country an opportunity to sell those bonds, give them an option 
for a day, and he gets less compensation working on a commission 
or on an option than he used to get when he made a firm commitment. 

Mr. Nehemkis. Let me see if I can make a little clearer what I 
had in mind a moment ago. The gross spread, as you have, indi- 
cated, as the evidence shows, has been cut roughly in half. The 
underwriter's proportion, however, has been increased about 250 
percent. Now here was what I was trying to get out. Has the 
dealer been getting a smaller share than he got before ? 

Mr. Stanley. The dealer who is not an underwriter? 

Mr. Nehemkis. Yes. 

Mr. Stanley. Well, he functions — yes, I think the dealer who sells 
today on an option gets less compensation than the dealer who in the 
old days sold not as a dealer but as a member of a selling syndicate 
which is different from an underwriter. 

Mr. Nehemkis. That is what I was trying to get. 

Mr. Stanley. He does a different job. He doesn't have liabilities 
under the Securities Act. The underwriter does. 

Mr. Nehemkis. Let me ask you a question at this point. Is the 
result of what you have just said, namely, the smaller share, which 



11992 CONCENTRATION OF ECONOMIC POWER 

has been going to the dealer, result from anything the dealer has 
done? Has he asked for it? 

Mr. StajOjEY. The dealer prefers it. The dealer would rather 
make a commission on selling what bonds he is able to sell in a day 
than to take up bonds that he doesn't know whether he can sell or 
not. You see, under this method he doesn't have to take them up 
until after he is able to sell them, and naturally he is much safer and 
most of these smaller dealers haven't got very much capital. It also 
has another feature which has nothmg to do with your question 
which is a good feature; it cuts out this high pressure selling to a 
great extent. 

Mr. Nehemkis. Mr. Chairman, I don't think you were here at the 
opening of the hearings, but we opened at that time with Commis- 
sioner Henderson reading a very historic letter. He read at that 
time a letter from Le^ Higginson & Co. to Frederick P. Fish, Esq., 
president of the American Telephone and Telegraph Co. The letter 
was dated February 15, 1905. With your leave I want to conclude 
these hearings by reading to Mr. Stanley one paragraph of that 
letter. Will you follow me on this, sir? 

Acting Chairman King. Did you hear it? 

Mr. StanIiET. No, sir. 

Mr. Nehemkis (reading from "Exhibit No. 1708") : 

As we think we have made it apparent to your Company ever since our 
firm and Messrs. Speyer & Co. provided for the last capital requirements, we 
are anxious to be afforded an opportunity to show on what terms we can pro- 
vide the fresh capital desired by the Company for the coming year. We do 
not ask or suggest that we should be given the slightest preference over any 
banking firms. The Company is in sound financial condition, and we submit 
that there is no reason, based on the condition of the Company in the present 
market situation, why the company should not provide for its wants on the 
best terms available, and we think it a fair statement to say that the Company 
cannot determine what these are if it permits a single firm only to lay before 
it a plan to provide for its financial requirements. 

Mr. Stanley, isn't the situation which Francis Higginson, one of 
the most distinguished bankers of his time, was writing about in 1905 
just as true at the present time? 

Mr. Stanley. Well, I would iay two things in answer to that, Mr. 
Nehemkis. First, if the Telephone Company doesn't think we do a 
good job it is not going to keep us, and they are very competent people. 
In the second place, I would say when we as manager convey our 
ideas to the company as to what we think are the proper terms of an 
issue it represents the combined opinion of the best firms in the busi- 
ness, the best distributors. 

Mr. Nehemkis. Thank you, sir, very much. 

(Senator O'Mahoney resumed the chair.) 

Mr. Nehemkis. Mr. Chairman, there are a few documents to be 
offered at this time. The table to which I made reference earlier and 
the .source has been identified. I should like this historic letter from 
Francis Higginson to Mr. Fish printed in full, if you will, sir. A 
letter to me from Mr. Henry S. Sturgis, giving certain percentages 
in the participations of Telephone issues under the J. P. Morgan 
& Co. leadership, and a similar table and a letter of transmittal from 
Kuhn, Loeb & Co. 

The Chairman. Without objection, the documents may be admitted. 



CONCENTRATION OF ECONOMIC POWER 11993 

(The documents referred to were marked "Exhibits Nos. 1708, 
1709-1 to 1709-3, and 1710-1 and 1710-2," and are included in the 
appendix on pp. 12252-12256.) 

The Chairman. Are there any other questions to be addressed to 
Mr. Stanley? 

MEMORANDUM ON COMPETITIVE BIDDING BY MORGAN STANLEY & CO., INC. 

Mr. Stanley. I am not sure but that in the last sentence I spoke 
of the best firms in the business. I would like to have it made clear 
I mean the best other firms in the business. 

There is one other thing I would like to say, sir. There has been 
a good deal of reference to competitive bidding and what is in the 
public interest in the two methods of doing business. We had hoped 
this subject would come up in these hearings and we tried to put our 
own ideas in shape to present them as completely as we could on that 
subject and to be prepared to be examined and cross-examined on it. 
I am very sorry that there isn't time in these hearings to go into that 
subject fully, but in order not to waste time on it I put my own ideas 
in the form of a memorandum which I would like very much to sub- 
mit to the committee and have it put in the record. 

The Chairman. Mr. Stanley, Mr. Henderson pointed out earlier 
this morning that the S. E. C. is apparently preparing a complete 
study on that very question. We have endeavored to have these 
various matters presented in an orderly way so that all sides could 
. be reviewed at one and the same time. The insertion now of a state- 
ment by you would immediately subject the committee to requests 
from persons who t£»ke a different view, don't you see? 

Mr. Stanley. Quite right. 

The Chairman. And if you will bear with the committee or the 
chairman in that respect I think perhaps it would be best. 

Mr. Stanley. I quite understand that you can't attempt to argue 
the question when there are other points of view, but if it isn't possible 
to put it in the record may I submit it to you and the other members of 
the committee for them to read ? 

The Chairman. We would like very much to have you do that, and 
I assure yoii that it will be given the very closest attention. 

Mr. Stanley. First rate, sir. 

The Chairman. When that particular question comes up it will be 
thoroughly reviewed. 

Mr. Stanley. First rate, sir. I will then submit it. 

Mr. Henderson. Mr. Chairman, I object to the submission at this 
time even for members of the committee, for these reasons : The sub- 
ject of ompetiti^ 3 '"^iddino- as it relates to Mr. Siunley's firm ar- ^ .; 
number of other firms ±s one of the most acute and most often dis- 
cussf^d We in the P, T". C. and in the Investment Banking Section 
have been pressed by others of different and opposing views to have 
a hearing. We have told each one who asked to be heard, some of 
whom are presently engaged in controversy with Mr. Stanley's firm 
for pieces of business, that this hearmg was not going to take up 
this particular rhatter. I feel that we have given a certain amount 
of promise to those of opposing view who wanted to be heard, and 
they would have a right to resent it if Mr. Stanley in a hearing 
that was decidedly limited were able to intrude his views, no matter 
what the guise. This committee is at liberty to do as it pleases, 

124491— 40— pt. 23 18 



11994 CONCENTRATION OF ECONOMIC POWER 

of course, but I want to register, in no uncertain tenns and in the 
strongest language I can command, ar opposition to this particular 
introduction even to members of the cominittia ;t this time, for the 
reasons I have stated. 

Mr. Stanley. I didn't suggest this thing v ''^i any idea of going 
into arguments or into controversj' that Mr. Henderson speaks of. 
There is no reference whatever in this memorandum to that subject. 
I only suggested doing it because the topic has come up repeatedly in 
these hearings at which I have been present. 

The Chairman. Let me say it is a matter » " greac personal interest 
to me, and Mr. Stanley and the otheis would be at per"^ zt liberty to 
leave this room and go down to the post office and mai o o each o 
of us. He has agreed that it shall not be entered as a part of the 
record, and I really can't see any objection to the members of the com- 
mittee receiving it. 

Mr. Henderson. I regard it, Mr. Chairmr.n, as decidedly a disre- 
gard of the orderly presentation of inforniatio" before this com- 
mittee. If it needs any stronger language I will he glad to offer it at 
this time. I want this committee to be under nc do not as to how I 
feel about the submission of one point of view hj vrhat I would con- 
sider a backdoor method. Mr. Stanley is at liberty to do anything 
he wants in America with his point of view, but for this committee 
to recognize it I say does not 'leep faith with the otiiers whom we 
have assured that this matter would not come ip here. 

The Chairman. But the committee is not recognizing it urider the 
agreement that ^ announced would ne perfectly wiilir ': :» aaopt. 

Mr. HJE^TDERSON. It makes no diii'erence. 

The Chairman. I feel mj^elf, by some inadvertent questions whi'^h 
I address i to the committee without first submitting them to le 
S. E. C, that I provoked this matter, and for mytelf I am perfect' • 
willing and happy to receive the letter and I don't believe that 
in any way interferes with the presentation of this hearin ' bv ti 
S. E. C. 

_ mator Kjng. I would like to ask Mr. Stanley one question. Does 
that in any -v^ay explain or cover ■ , testimony which you have been 
giving here today, or deal with that same subject ? 

Mr. Stanley. It refers to the sair'^ general subjects. 

Mr. Henderson. To the A. T. & T. financing? 
fr, Stanley. InTo, sir; not to any specific piece of financing; th3 
general t ibjej^s of what an investment lam.^r do'^s and sb/ id •"" 
for his client. 

Mr. Henderson. I call the witness' attention to the fact that the 
subject matter before us was the A. T. & T. financing. 

Senator King. If that were true, and we asked questions that trans- 
gressed thoso limitations, it seems to m^^ ..' ' '' ime""" ^i '' 
counsel representing the Government and the witness, they would 
have a right to make an explanation of anything that w^as developed 
herein the hearing, and I would accept the views of the chairman. 

Mr. Stanley. It is a question of doing business in general without 
relation to an;' oarticular companv 

Thank you. 

The Chairman. Are there other questions? Are you going to 
.iiive other witnesses this afternoon ? 



CONCENTRATION OF ECONOMIC POWER 11995 

Mr. Nehemkis. We have three witnesses for this aftemoorf Shall 
I tell you their names now? 

The CHAraMAN. It might be well. 

Mr. Netezjikis. Mr. George Whitney and Mr. Arthur Anderson 
of J. P. Morgan & Co., and Mr. Joseph R. Swan, of Smith, Barney & 
Co. 

The ^.lAiRMAN. The committee will stand in recess until 2 o'clock 
this s.-^ ;rnoon. 

(^Hiereupon, at 12 : 50 p. m., the committee recessed until 2 p. m. 
of o e same day.) 

AFTERNOON SESSION 

The committee resumed at 2 : 12 p. m., on the expiration of the 
rocess. 

The Chairman. The committee will please come to order. 

Mr. Nehemkis. I apologize, Mr. Chairman, for holding you up. 

The Chairman. It is the first time you have done it. 

LIr. Nehemkis. I hope that you will forgive me. May I ask for 
your further indulgence for one moment more? May the Commis- 
sioner and I have an off-the-record discussion for a few seconds with 
Mr. George Whitney before his testimony ? 

The Chairman. You may. 

Mr. Henderson. I should say, Mr. Chairman, that Mr. Nehemkis 
was trying to see me all noon hour and I was conferring with you. 

The Chairman. You were buying my lunch. [Laughter.] 

(Off-the-record discussion.) 

The CHA.IRMAN. Are you ready to resume, Mr. Nehemkis? 

Mr. Nehemkis. I am, Mr. Chairman, I apologize again, sir. 

Mr. Chairman, members of the committee. In view of certain evi- 
dence which has just come to my knowledge I find it necessary at this 
time to recall Mr. George Whitney who, of course, will appear later, 
but I am now recalling him on the Telephone matter. 

Mr. peorge Wliitney, please. 

TESTIMOirr OF GEORCtE WHITNEY, J. P. MORGAN & CO., NEW 
YORK, N. Y.— Resumed 

Mr. Nehemkis. Mr. Whitney, have you ever had occasion to give 
sworn testimony which is contradictory to anything which you have 
had occasion to testify to before this committee in the past few days ? 

Mr. Whitney. No. 

TESTIMONY OF MR. WHITNEY IN THE NIAGARA HUDSON POWER HEARING 
RELATIVE TO TELEPHONE FINANCING 

Mr. Nehemkis. Mr. Whitney, I read to you testimony taken at a 
private hearing before the Securities and Exchange Commission in 
the matter of the application of Niagara Hudson Power Corporation 
for exemption as a subsidiary of the United Corporation. 

This appears on page 153 [reading] : 

Question. There were no commitments, formal or informal 

The Chairman (interposing). By whom was the question? 
Mr. Nehemkis. By Mr. Lawrence S. Lesser, acting as counsel for 
the Securities and Exchange Commission [reading] : 



11996 CONCENTRATION OF ECONOMIC POWER 

Question. There were no commitments formal or informal, were there? 

Answer. No. 

Question. In those days, there user! to be form»^d what were known as groups? 

Answer. I suppose if you want to, you have to acknowledge — I mean, men 
acquired certain vested rights in these groups which they have bitterly resented 
if they were changed, but as far as any agreement on our part, or any paper or 
contractual thing in any of these, or in any other, the only group that we ever 
had anything to do with in the last 25 years that I know about is telephone. In 
the old days there was a traditional position, percentages, in the so-caUed tele- 
phone group which we managed, but there there was a definite arrangement. 
That is the only one. 

Do you care to make any comment, sir? 

Mr. Whitney. Merely this, Mr. Chairman. Mr. Nehemkis was 
kind enough to show me this testimony to see if it refreshed my 
memory in connection with my first answer, which he thought was 
contradictory. I don't consider that that is in any way contradictory. 
I said there, if I can remember exactly, that certain people bitterly 
resented changing percentage that they considered they had vested 
rights, but that we never had contract or arrangement. I have never 
on the stand in the last few days questioned the accuracy of the memo- 
randa Mr. Nehemkis has presented from Kidder's in which they had 
used the word "proprietary," and so forth. 

There was quite a lot of discussion in the last 2 or 3 days about how 
we tried to change those percentages, about this pencil memorand'^m 
of mine which I have specific reference to,^ and how we were unsuc- 
cessful in that. And while I haven't so testified, it would have seemed 
to me to be clear that Mr. Winsor felt from his exhibits — from his 
actions when we have tried consistently through the twenties to con- 
tinue to extract from the New England distribution for the national 
distribution, a larger percentage, that he felt he had a right, going 
away back from 1906 when he introduced us to the business, and 
right on down through, and I am perfectly clear that in that testi- 
mony I gave a year or two ago, or whenever it was, I had in mind 
that he did consider they hnd vested rights. But I would like to just 
say 

The Chairman (interposing). When was that testimony given? 

Mr. Whitney. January 24, 1939, less than a year ago. But I said 
here, as Mr. Nehemkis read, that as far as any agreement on our part 
or any paper or contractual thing, the only group that I know is the 
Telephone where Mr. Winsor was successful in resisting any wish 
that we in the distributing end of my office had. While I don't 
know this, I am pretty sure because I had some conversations on the 
same subject in 1930 with Mr. Winsor; I have not felt it was my duty 
to answer a lot of things that were irrelevant to the questions, but I 
don't consider — and I still stand on my answer — that there is any- 
thing contradictory. The facts are simply these, that we had a job of 
work to do. We thought we could do it better by changing the per- 
centages. Mr. Winsor felt that he had a right in it that we never 
recognized, and that we never considered true. 

The Chairman. You tried to change the percentages as long ago as 
May 6, 1920? 

Mr. Whitney. Yes ; and practically constantly through the next 10 
years. 

1 "Exhibit No. 1679." 



CONCENTRATION OF ECONOMIC POWER 11 99*7 

The Chaibman. So that this effort on your part, this unsuccessful 
effort, to change the percentages, lasted down to January 1939, and it 
was of such a character that at that time in your testimony you spoke 
of it from the point of view of those who were holding the interests 
as a vested right? • 

Mr. Whitney. That is right. And, of course, perhaps it is irrele- 
vant to mention the context, that this came up against a suggestion by 
the S. E. C. lawyers that there was another case in connection with 
Niagara Hudson, where certain people considered they iiad vested 
rights. 

The Chairman. My impression, you know, was that you testified 
that the word "proprietary" came to you as a complete surprise. 

Mr. Whitney. And that it was Winsor's word. I have never 
questioned the accuracy, or his attitude. I never was asked what 
Mr. Winsor thought about it. Obviously, I wouldn't know, but I 
have never questioned that he considered he had a vested right. I 
was talking about J. P. Morgan & Co. 

The Chairman. You knew at all times, concerning which you have 
testified, that Winsor and his associates did think they had a vested 
or proprietary interest in this matter? 

Mr. Whitney. Certainly. 

Senator King. In the New England matter? 

The Chairman. No; in the distribution of the Telephone securities. 

Mr. Whitney. You notice, also, that I used the word "traditional," 
which is what Mr. Winsor said. 

Senator King. Well, so that I may be clear in regard to the matter, 
did Mr. Winsor claim any interest in any of the Telephone issues 
except those relating to corporations engaged in Telephone business 
in the New England States? 

Mr. Whitney. Oh, certainly. All the American Telephone System 
and its subsidiaries throughout the country. These are financial 
operations, Senator King, that I have testified about during t^ese 
last 21A days, which had to do with the whole system. This memo- 
randum of May 5, 1920,^ had to do with the A. T. & T. and subsi- 
diaries. He thought it went to everything. 

Senator Kjng. The reason I asked the question was that I under- 
stood you to say that he brought you the business from the New 
England States, and that you tried to change the percentage there, 
and that his testimony, or your testimony there, related to his con- 
tention with respect to the New England issues and not with respect 
to any other Telephone issues. 

Mr. Whitney. No, sir; that goes back to the very first days, tra- 
ditionally back to 1906, the financing of the Telephone system was 
handled in New England in 1906. I testified the other day that 
because the financial program got to be of such size, Mr. Winsor felt 
that it could no longer be handled successfully in New England alone, 
so he approached Messrs. Kuhn, Loeb & Co. and ourselves for as- 
sistance in a transaction of convertible bonds, and that was where 
we became in the first instance connected with Telephone financing. 
And^ I think Mr. Winsor felt that that — let me put it a different way. 
I think we felt that that was very difficult, to insist on things with 
Mr. Winsor, when Mr. Winsor claimed certain rights. But we never 

» "Exhibit No. 1673." 



11998 CONCENTRATION OF ECONOMIC POWER 

believed in tho ■>. We never felt that we had any vested rights to 
the business um ss we did a good job for our clients, and it was 
their election in e >ch issue that came along. 

RECOGNITION OF CLAIMS OF KIDDER, PEABODY & CO. 

Mr. Henderson. During the twenties, you did recognize the claim 
that he set up ? 

Mr. Whitney. Vv^e had no option but to recognize it. 

Mr. Henderson. Wliat do you mean by that, "no option"? You 
have testified there was no legal right, derived from the library 
agreement, that he could assert against you. 

Mr. Whitney. Oh, well, teclmically, if we wanted to be perfectly 
ruthless, we would have made an issue of it, but that isn't the way we 
do business. 

Senator King. I want to ask one question. I omitted to ask it of 
one of the witnesses who was on the stand. What proportion or per- 
centage of the underwriting during the past — oh, 5, 6, 8, or 10 years, 
has been with respect to new issues and what proportion with respect 
to refunding operations? 

Mr. WnrrNEY. Well, if I may testify — it is very hard to distin- 
guish between them. I think. Senator, it is fair to say that Morgan 
Stanley could testify better on that because I have not been familiar 
with the issue business since 1935, but I think the issues of 1935 and 
1936 and 1937 were very largely refunding. I think since then there 
has been a portion of both. Prior to 1935, with the exception of some 
financing done in 1920 and 1921, which was refinanced in 1924 and 
1925, when money rates changed, it was practically all new money. 

Mr. Henderson. Mr. Nehemkis, Senator King asked a question as 
to how much was new money and how much was refunding. Did 
we not have a calculation of the Morgan Stanley issues which shows 
how much was new money and how much was refunding? 

Mr. Nehemkis. No, sir; we did have a general calculation which 
I think is the direct answer to Senator King, in the testimony that 
was presented last spring, on savings and investment, and as soon 
as I retiim to the office, I will be very happy to send you a copy. 

Senator King. If it is already in the record, there will be no neces- 
sity for that. 

Mr. Henderson. I mean about the Telephone Co. 

Mr. Nehemkis. No, sir. 

Shall we proceed ? 

I now call to the witness stand, Mr. Arthur Anderson and Mr. 
Joseph R. Swan- 
Senator King. Are you through with Mr. Wliitney ? 

Mr. Nehemkis. Mr. Whitney will remain on the stand. 

(Senator King assumed the Chair.) 

Acting Chairman King. Have you been sworn? 

Mr. Nehemkis. Mr. Swan has not been sworn and Mr. Anderson 
has not been sworn. 

Acting Chairman King. Do you each of you solemnly swear that 
the testimony you are about to give in this proceeding is the truth, 
the whole truth, and nothing but the truth, so help you God? 

Mr. Anderson. I do. 

Mr. Swan. I do. 



CONCENTRATION OF ECONOMIC POWER 11999 

TESTIMONY OF AKTHUR M. ANDERSON, J. P. MORGAN & CO., NEW- 
YORK, N. Y.; J'OSEPH R. SWKN, SMITH, BARNEY & CO., NEW 
YORK, N. Y.; AND WILLIAM S. V/HITEHEAD, SECURITY AN- 
ALYST, SECURITIES AND EXCHANGE COi'IMISSION, WASHING- 
TON, D. C. 

Acting Chairman King. You may proceed. 

Mr. Nehemkis. Will Mr. Lyons and Mr. Whitehead step forward, 
please? In the interests of economy, Senator, I will have members 
of my staff identify a number of documents so there will be no 
interruptions later. Mr. Whitehead, will you examine the documents 
before you and indicate for the commiitee the name of the docu- 
ment and where you obtained it. and that you recognize it to be a 
document that you so obtained irom the files of the company, that 
you will mention? 

Mr. Whitehead. This first list consists of a selling group of 22 
names, that came from the files of The First Boston Corporation. 
It is headed, "Toledo & Ohio Central Railway Co., Refunding and 
Improvement Mortgage, 314 bonds." 

This next piece of material came from the files of the New York 
Central Railway. It is a letter written by Mr. John M. Young, 
dated June 18, 1935, address, 23 Wall Street, and the accompanying 
memo is a list of the original and secondary groups. The memo 
which accompanied that letter is also from the New York Central 
files. 

Acting Chairman King. You found the memo in the files with 
the letter ? 

Mr. Whitehead. Exactly ; together. 

Acting Chairman King. Would anything in the files indicate who 
prepared the memo? Was it a part of the letter or attached to it? 

Mr. Whitehead. It is attached. He says, Senator, "I am enclos- 
ing herewith a list concerning which," and so forth. 

Acting Chairman Iving. I see. 

Mr. Whitehead. Letter dated June 3, 1935, to Mr. M. O. Whiting, 
of Boston from Mr. W. F. Place, vice president of the New York 
Central Railway, from that company's files. 

Another letter from Mr. Stuart '^E. Peck to Mr. Willard Place, 
of the New York Central Railway, dated June 13, 1935, from the 
New York Central files. 

Memo entitled, "Toledo &, Ohio Central Railway," over the sig- 
nature of H. M. Addinsell, dated June 17, 1935, from the files of 
The First Boston Corporation. 

Telegram from iSlx. Max O. Whiting, of Boston to Mr. John R. 
Macomber, chairman of The First Boston Corporation, dated June 
21, 1935, from the files of The First Boston. 

Telegi^am initialed "J. R. M.," to M. O. Whiting, of "Wliiting, 
Weeks & lOiowles, dated June 21, 1935, from the files of The First 
Boston Corporation. 

Mr. Nehemkis. Mr. Whitehead, did you ascertain at the time you 
obtained that document whose intials "J. R. M." were? 

Mr. Whitehead. That has reference to ±»Ir. Macomber. 

Mr. Nehemkis. Mr. John R. Macomber? 

Mr. Whitehead. Correct. 



12000 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. And who is he? 

Mr. Nehemkis. John R. Macomber is an official of The First 
Boston Corporation. 

Mr. Whitehead. Letter to Mr. George Whitney, on The First 
Boston Corporation stationery, dated June 28, 1935, signed J. R. M., 
also identified as John R. Macomber, from the files of The First 
Boston. 

Memo obtained from the files of the Erie Railroad signed by C. B. 
Post, from the files of the Erie. 

Two letters, one to Mr. MacCraig, comptroller of the Atlantic 
Coast Line, from Mr. H. L. Borden, vice president, dated May 21, 
1935, and a letter to Mr. Roland Redmond, dated May 22, 1935, 
the original of which was signed by Mr. Lyman Delano, and both 
from the files of the Atlantic Coast Line. 

Acting Chairman King. Is Mr. Delano a director of the company? 

Mr. Whitehead. He is chairman of the board. 

Another letter dated April 30, 1935, to Mr. Potter, chairman of the 
Guaranty Trust Co. of New York, the original signed by Mr. Delano, 
from the files of the Guaranty Trust Co. 

A letter to Mr. Anderson, Arthur M. Anderson, of 23 Wall Street, 
New York, to Mr. Ralph Budd, from the files of the Burlington, dated 
May 2, 1934. 

Another memo initialed "C. I. S." from the files of the Burlington, 
dated June 13, 1934. 

File memo dated July 26, 1934, over the name of A. N. Williams, 
from the files of the Chicago & Western Indiana Railroad. 

Telegram to A. N. Williams, dated November 13, 1934, from W. R. 
Coe, from the files of the Chicago & Western Indiana. 

Telegram from Mr. A. N. Williams, dated November 9, 1934, to 
Mr. W. Ewing, of J. P. Morgan & Co., from the files of the Chicago & 
Western Indiana Railroad. 

Telegram dated May 9, 1934, from Mr. Ewing to Mr. Williams, from 
the Chicago & Western Indiana files. 

Telegram from Mr. P. V. Davis, of Brown Harriman, to Mr. Wil- 
liams of the same railroad, dated November 13, 1934, and telegram 
from Mr. Williams, dated November 14, to Mr. xVndei'son, from the 
same files. 

Another telegram dated November 14, 1934, to Mr. A. N. Williams 
from Mr. A. Anderson, from the Chicago & Western Indiana Rail- 
road files. 

Another telegram from Mr. A. N. Williams to Mr. W. Ewing, dated 
November 19, 1934, from the files of the Chicago & Western Railroad. 

A letter from, presumably, Mr. Williams to Mr. Ewing, dated De- 
cember 14, 1934, from the files of the Chicago &. Western Indiana. 

Mr. Nehemkis. Thank you veiy much, Mr. Whitehead. 

Mr. Lyons, step forward, please. Will you look at the document 
shown you and tell me whether that was obtained from the files of 
Harriman Ripley & Co., Incorporated, please? 

Mr. Lyons. Do I have to be sworn ? 

Mr. Nehemkis. Oh, I forgot. This gentlcmaii has not been sworn. 

Acting Chairman King. Do you solemnly swear that the testimony 
you are about to give is the truth, the whole truth, and nothing but 
the trutli, so help you God ? 

Mr. Lyons. I do. 



CONCENTRATION OF ECONOMIC POWER 12001 

TESTIMONY OF BARROW LYONS, ASSOCIATE FINANCIAL ECON- 
OMIST, SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, 
D. C, 

Mr. Nehemkis. Now, Mr. Lyons. 

Mr. Lyons. This is a memo to Mr. H. C. Sylvester, Jr., vice presi- 
dent of Brown Harriman & Co., and Mr. P. V. Davis, vice president of 
Brown Harriman & Co., which is from Joseph P. Ripley, dated 
December 17, 1934, from the files of Harriman Ripley & Co. 

Mr. Nehemkis. Thank you very iiTuch, Mr. Lyons. 

Mr. Lyons. There is another. A memo dated February 21, 1935, 
to Mr. Sylvester, Mr. Davis, and ilr. W. Harmon Brown, from 
•'J. P. R.,'' from the files of Brown Harriman. 

Mr. Nehezvikis. Who is J. P. R. ? 

Mr. Lyons. Same as the previous, Mr. Joseph P. Ripley. 

Mr. Nehemkis. Mr. Chairman, may it please the committee, you 
have been discussing with us for the past few days a number of case 
histories, concerning specific pieces of financing. This afternoon we 
should like to discuss with you a series of transactions which, however, 
occurred during one interval of time. We are going to discuss with 
3'Ou the maturities of certain railroad bonds which fell due during the 
year 1935, and as we go along we shall have occasion to identify each 
issue as we come to it. 

Mr. Swan, will you state your full name and address, please? 

Mr. Swan. Joseph R. Swan, 14 Wall Street, New York. 

Mr. Nehemkis. And what is your present business coimection ? 

IVIr. Swan. Partner in the banking firm of Smith, Barney & Co. 

Mr. Nehemkis. Mr. Anderson, will you state your full name and 
address, please? 

Mr. Anderson. Arthur M. Anderson, Bedford Hills, N. Y. 

PURPOSE OF THE BANKING ACT 

Mr. Nehemkis. And what is your business or profession, Mr. An- 
derson ? 

Mr. Anderson. Partner of J. P. Morgan & Co. 

Mr. Nehemkis. JSir. Anderson, did not the Banking 'Act of 1933 
have as itSi essential purpose to prohibit any firm receiving deposits 
from engaging in the issuing, underwriting, selling, or distributing of 
securities ? 

Mr. Anderson. Yes. 

Mr. Nehemkis. Mr. Anderson, was not the effective date of this 
provision June 16, 1934? 

Mr. AndeiJson. Yes. 

Mr. Nehemkis. Did not J. P. Morgan & Co , pursuant to the terms 
of the banking act, elect to continue its commercial banking business ? 

Mr. Anderson. Its deposit business; yes. 

Mr. Nehemkis. And to discontinue its securities business ? 

Mr. Anderson. As a result. 

Mr. Nehh^ikis. So that after June 16, 1934, pursuant to the provi- 
sions of the banking act, J. P. Morgan & Co. was barred from engaging 
in the business of issuing, underwriting, selling, or distributing 
securities ? 



12002 CONCENTRATION OF ECONOMIC POWER 

Mr. Anderson. Yes. 

Mr. Nehemkis. Mr. Swan, immediately prior to the effective date 
of the Banking Act, were you not president of the Guaranty Co. of 
New York, tlie security affiliate of the Guaranty Trust Co.? 

Mr. Swan. I was. 

Mr. Nehemkis. Did not the Banking Act of 1933, Mr. Swan, also 
provide by section 20 that no member bank of the Federal Reserve 
System was to be affiliated with any organization engaged in the issue, 
flotation, underwriting, public sale, or distribution of securities? 

Mr. Swan. I understand so. 

Mr. Nehemkis. Mr. Andei-son, the mechanical separation of the 
two types of business that we have been referring to was required 
under the act, was it not? 

Mr. Anderson. Yes. The securities business, as you defined it by 
quoting the act. 

Mr. Nehemkis. Is that your understanding, Mr. Swan? 

Mr. Swan. Yes; that is my understanding. 

Mr. Nehemkis. And this separation, Mr. Anderson, was consid- 
ered necessary by the Congress to accomplish the divorce of invest- 
ment banking from deposit banking? 

INIr. Anderson. I can't state what was their purpose. 

Mr. Nehemkis. Do you have any opinion? 

Mr. Anderson. That was the effect. 

Mr. Nehemkis. That was the result achieved? 

Mr. Anderson. Yes. 

Mr. Nehesikis. Mr, Swan, the separation that we have been dis- 
cussing was considered necessary in order to accomplish the divorce 
of investment banking from deposit banking, is that your understand- 
ing? 

Mr. Swan. I believe that was the purpose of the act; yes. 

Mr. Nehemkis. And the objective of the act was to accomplish 
such a divorce, Mr. Anderson? 

Mr. Anderson. I assume so. 

Mr. Nehemkis. And is that your understanding, Mr. Swan? 

Mr. Swan. That is my understanding; yes. 

Mr. Nehemkis. Now, Mr. Swan, do you recall Chairman Potter's 
letter to the stockholders of the Guaranty Trust Co. of New York of 
June 6, 1934, in which he expressed his understanding of the intent 
of the act ? 

Mr. Swan. I do not recall the letter. 

Mr. Nehemkis. I show you, Mr. Swan, the letter to which I have 
referred, and ask you to glance at it to see if it refreshes your recol- 
lection. (The witness examined the letter.) Mr. Swan, permit me 
to interrupt you. Did you ever recall seeing that letter? 

Mr. Swan. I do recall seeing the letter. 

Mr. Nehemkis. That's fine, that's all I wanted. 

INIr. Swan. I didn't know whether you were going to ask me to 
testify to it or not. I remember the letter. 

Mr. Nehemkis. The letter identified by Mr. Swan, Mr. Chairman, 
is offered in evidence. 

(The letter referred to was marked "Exhibit No. 1711" and is 
included in the appendix on p. 12259.) 



CONCENTRATION OF ECONOMIC POWER 12003 

Mr. Nehemkis. Before I relinquish it, may I read just one sen- 
tence from it. Chairman Potter had been discussing with his share- 
holders a number of alternatives confronting the bank after the 
passage of the act, and he had this to say [reading from ''Exhibit 
No. 1711"]— 

With respect to the second alternative, since it is tlie intent of the Banking 
Act of 1933 to divest commercial banks of a continuing interest in the securi- 
ties business, this course seemed objectionable — 

with reference to one of the objectives. 

May it be offered? 

(Senator O'Mahoney resumed the Chair.) 

The Chairman. It may be received. 

Mr. Nehe:>.ikis. In short, I take it, Mr. Anderson and Mr. Swan, 
that it was the objective of the Banking Act to disassociate deposit 
banking from the underwriting of securities; is that your under- 
standing, Mr. Anderson? 

Mr. Anderson. From the risk of the underwriting bu.siness ; yes. 

Mr. Swan. That's right. 

Mr. Nehemkis. Now, Mr. Swan, pursuant to the Banking Act, the 
Guaranty Co. of New York was liquidated by the Guaranty Trust 
Co., was it not? 

Mr. Sw^AN. I understand — ^I don't know whether it is completely 
liquidated or not. It went into liquidation. 

]Mr. Nehemkis. Fine. In June of 1934, did not 

Senator King (interposing). Voluntarily or involuntarily? 

Mr. Swan. Voluntarily. 

Mr. Nehemkis. In June of 1934, Mr. Swan, did not the principal 
officers of the Guaranty Co. join Edward B. Smith & Co.? 

Mr. Swan. Four of the officers of the Guaranty Co. joined Edward 
B. Smith & Co. as partners. Other officers joined in other capacities. 

Mr. Nehemkis. Will you give me the names of the former officers 
of the Guaranty Co. who became partners of Edward B. Smith 
& Co. ? 

Mr. Swan. Myself, Mr. Burnett Walker, Mr. Ritchie Kimball, and 
Mr. 

Mr. Nehemkis. Fish? 

Mr. Swan. Mr. Fish; yes. 

Mr. Nehemkis. Mr. Irving D. Fish ? 

Mr. Swan. Yes; Mr. Irving D. Fish. 

Senator King. I assume the Guaranty Co. was a corporation? 

Mr. Swan. The Guaranty Co. was an affiliate of the Guaranty 
Trust Co. 

Senator King. You mentioned partners 

Mr. Swan (interposing). A number of the officers of the Guaranty 
Co., when the Guaranty Co. ceased under the terms of the Banking 
Act to be able to do business, we became partners of a private banli- 
ing house of Edward B. Smith & Co. 

Senator King. But not merely stockholders in that corporation, 
but partners? 

Mr. Swan. Partners; yes, sir. 

Mr. Nehemkis. Without being precise, Mr. Swan, how many 
former employees of the Guaranty Co. joined the staff of Edward 
B. Smith & Co.? About a hundred, would you say? 



120U4 CONCENTRATION OF ECONOMIC POWEJR 

Mr. Swan. Oh, no ; maybe 200. 
Mr. Nehemkis. About 200? 
Mr. Swan. Or maybe 300. 
Mr. Nehemkis. A large number? 
Mr. Swan. Yes; a large number. 

RAILROAD maturities DUE 

Mr. Nehemkis. Mr. Whitney, during the interim between the time 
Avhen Section 21 of the Banking Act became operative and the time 
when Morgan Stanley & Co., Inc., was organized, were there not a 
number of railroad maturities of companies for whom J. P. Morgan 
& Co. had previously acted as banker? 

Mr. Whitney. Probably. 

Mr. Nehemkis. Do you Icnow? 

Mr. Whitney. Well, you want me to anticipate? 

Mr. Nehemkis. I want you to answer the question "Yes" or "No", 
if you are able. 

Mr. Whitney. That is the best of my recollection. 

Mr. Nehemkis. I show you a statement showing a number of 
maturities wliich came due at the time we have been discussing, 
and ask you to glance at these railroad securities and tell me, if you 
can give me a positive answer. For your information, Mr. Whitney, 
there were many others. This is but a random sampling. 

Mr. Whitney. This doesn't say anything about maturities here. 

Mr. Nehemkis. You were in the banking business for a long time. 
You should know that question. 

Mr. Whitney. Why? 

Mr. Nehemkis. Well 

Senator King (interposing). Don't argue with the witness; ask 
him a question. 

Mr. Nehemkis. I did ask him 

Mr. Whitnej (interposing). I do know, Senator, that these — I 
know from my recollection and from the fact that these properties 
consulted us about these matters, that these bonds did mature during 
that period. I was probably over precise because I wasn't exactly 
sure that they matured or whether they were anticipating maturities. 

Mr. Nehemkis. That is all I wanted to know, Mr. Whitney. You 
will recall — excuse me, for the convenience of the record, it might 
be well that I offer this statement at this time, since we will have 
occasion throughout this hearing 

The Chairman (interposing). ^Vliat is the source of the statement? 

Mr. Nehemkis. Moody's Steam Railroads for the year 1933. 

The Chairman. It may be offered. 

Mr. Nehemkis. I offer in evidence a table of the maturities which 
we will be discussing during this session of the committee. 

(The table referred to was marked "Exhibit No. 1712" and is 
included in the appendix on p. 12260.) 

Mr. Nehemkis. Mr. T\niitney, you will recall that in connection 
with your testimony on A. T. & T.', I had occasion to ask you whether 
any other banking houses ever discussed financial problems with 
companies for whom J. P. Morgan & Co. was the recognized banker? 
Now, these railroad companies whose maturities were imminent and 
placed on the sheet which you glanced at a moment ago, do you 



CONCENTRATION OF ECONOMIC POWER 12005 

recall whether any other banking houses joined J. P. Morgan & Co. 
in talking to the management at the time of the refundings? 

Mr. Whitney. May I be sure I got that question right? 

Mr. Nehemkis. Will the reporter please read the question? 

(The question was read.) 

Mr. Whitney. The answer is "No." 

Mr. Nehemkis. That is, Mr. Whitney — just a minute, I want to 
get your answer, and if you want to comment, we will, as we have 
always done, when we havie finished with the direct examination, 
give you an opportunity to do so. 

Mr. Swan, have you the sheet ^ before you ? 

Mr. Swan. No, sir. 

THE SPREAD ON THE RAILROAD BOND ISSUES UNDER CONSIDERATION 

Mr. Nehemkis. Will you borrow it from Mr. Anderson ? You will 
note that the first item is $8,000,000 for the Nypano or the New 
York, Pennsylvania and Ohio Railroad. The spread on that issue 
was 1 point, was it not, or $80,000 — of course, when it was ulti- 
mately extended ? 

Mr. Swan. The spread on the issue was arranged — its terms were 
that it was 1 point to be paid on the extension and half a point 
extra on such bonds as might be purchased by bankers. 

Mr. Nehemkis. But no new bonds, I am advised by my assist- 
ant 

Mr. Swan (interposing). No new bonds were so purchased. 

Mr. Nehemkis. Were so purchased, so that the figure I gave you 
is correct? 

Mr. Swan. Substantially. 

Mr. Nehemkis. Now, Mr. Swan, the next item is the Toledo & 
Ohio Central Railway maturity, $7,500,000, but $12,500,000 were ac- 
tually issued. Was there not then a spread of 2 points on the $12,- 
500,000, or $250,000 ? Shall I repeat my question ? 

Mr. Swan. I was just looking at my records; I just wanted to con- 
firm that. My records show — no, excuse me, I have the wrong one. 
I find from my records that that is correct. 

Mr. Nehemkis. Now, the next maturity was $4,000,000 of the Wil- 
mington and Weldon Railroad Co., an Atlantic Coast Line subsidiary, 
of July 1935. Twelve million dollars of the Atlantic Coast Line were 
actually issued, so that the spread was 2^ points, amounting to 
$300,000, Mr. Swan? 

Mr. Swan. Tliere was a spread of 2i/2 points in that issue; yes. 

Mr. Nehemkis. Now, the next offering was $6,300,000 of the Clii- 
cago & Western Indiana, due in September and October of 1935, is 
that correct, sir? Shall I repeat that? Six million three hundred 
thousand dollars was the actual issue; $6,100,000 was the amount 
that matured. 

Mr. Swan. $6,100,000, according to my record, is the amount which 
we underwrote. 

Mr. Nehemkis. And the spread was 21^ points, or $157,000 ? 

Mr. Swan. The spread was 2^/^ points. 

Mr. Nehemkis. Thank you, Mr. Swan. Mr. Swan, would you 



1 "Exhibit No. 1712," 



12006 CONCENTRATION OF ECONOMIC POWER 

accept my arithmetic if I said that the total of those spreads which 
you have gone over with me amounted to $688,000, subject to your 
correction f 

Mr. Swan. Subject to my correction; yes. 

Mr. Nehemkis. Now, Mr. Whitney, may I direct a question to 
you? The power to designate the houses which were to be in the 
underwriting and selling syndicates for the refunding of these 
railroad maturities was the power to distribute nearly $700,000, is 
that correct? 

Mr. Whitney. You are asking me to accept your arithmetic, too? 

Mr. Nehemkis. By implication. 

Mr. Whitney. If there were that power, if there were that ability 
to direct, I suppose it would be a fair assumption. 

Mr. Nehemkis. Mr. Swan, was it not in fact the decision of J. P. 
Morgan & Co. which determined among which firms this $700,000 was 
to be divided? 

Mr. Swan. I had not thought so. I had thought that it was the 
decision of the railway companies which were doing the financing. 

Mr. Nehemkis. Mr. Whitney, was it not the decision of J. P. 
Morgan & Co. which determined among wliich firms this $700,000 
was to be divided? 

Mr. Whitney. Certainly not. 

FUNCTION OF J. P. MORGAN & CO. IN REFUNDING OPEKATIONS 

Mr. Nehemkis. Mr. Whitney, what function did J. P. Morgan & 
Co. have in the refunding of these railroad maturities? 

Mr. Whitney. A very simple function. We had been in varying 
degrees financial advisers to these properties for a great, great many 
years. As you have so clearly pointed out, on the 16th day of June 
1934 the law forced a decision upon us as to what branch of banking 
we were going to continue in, and we followed our historic practice 
and continued in the deposit business. As I said yesterday, there 
was, however, nothing in the banking law, and there isn't as far as I 
know to this day, anything which told us that we shouldn't continue 
to serve our clients in any way that they requested us to, other than 
the distribution of securities. In each one of these cases these people 
who had had banking relations with us for years came to us, pre- 
dicated on the fact that we no longer could sell securities for them, 
and said, "What shall we do about these maturities?" In other 
words, they asked our advice as bankers. 

In each one of these cases they were confronted with the fact that 
the investment banking business had faced the very serious readjust- 
ment because of the Banking Act and they wanted to know oi the 
houses which were still in the business which we thought were the 
ones that would serve them best. The situations are each different, 
but the underlying reason why they came to us, J. P. Morgan & Co., 
was because they always had sought our advice and I presume they 
didn't think merely because we were out of business — out of the 
investment banking business — that we were also out of the deposit 
business; and we gave them, as we always have tried to do — we are 
still doing this — our clients for some reason still come to us for 
advice — we still give it to them to the best of our ability, and unless 
the law is changed again I hope that we always will continue to do 



CONCENTRATION OF ECONOMIC POWER 12007 

SO. And that is the simple function that we perform of service to 
our clients. 

Mr. Nehemkis. Mr. Anderson, did your firm 

Mr. Whitney (interposing). May I just finish, as I didn't answer 
your question? We did not designate these houses. In -"' ch case 
these houses had direct contacts with the issuing corporati ..i. ^hat is 
why a minute ago I asked to be perfectly clear in my answer to Mr. 
Nehemkis' question, Did they join you in discussing these matters 
with these issuing cn'Mi-ja!..^'s?, and ly answer was, "No; they did 
not join us; they had direct negotiations, direct contacts with these 
houses in each case." They never to my remembrance (I conducted 
certain of these conversation? — some I didn't ; Mr. Anderson did some 
and Mr. Ewing others), but in no case did we talk to the company 
with these houses; we were purely and simply advisers to these com- 
panies in a rather new field, as it was then, with the personnel in 
it, and we did not conduct the negotiation; we had nothing to do 
with the distribution; we had nothing to do with the underwriting 
whatsoever. In fact, although the law would let us, we didn't even 
take a fee for this service. 

Mr, Nehemkis. I turn now to the financing of the Toledo & Ohio 
Central, the wholly owned subsidiary of the New York Central. Mr. 
Swan, who decided what firms were to be included in the under- 
writing and what firms were to be excluded ? 

THE TOLEDO & OHIO CENTRAL EAILKOAD CO. REFUNDING 

Mr. Swan. I don't know. 

Mr Nehemkis. Mr. Anderson? 

Mr, Anderson. I have no knowledge; I had no contact with that. 

Mr. Nehemkis. Mr. W^hitney, the same question? 

Mr. Whitney, Which company was that? 

Mr. Nehemkis. Toledo & Ohio Central; who decided what firms 
were to be included and what firms were to be excluded? 

Mr. Whitney. Mr. Harold S. Vanderbilt and Mr. Willard F. 
Place of the New York Central. 

Mr. Nehemkis. Will you identify each one as to their position? 

Mr. Whitney. Mr. Willard F. Place was vice president at that 
time; he is now financial vice president of the New York Central; 
and Mr. Harold S. Vanderbilt is a member of the executive com- 
mittee of the New York Central and was at that time handling their 
financial affairs. 

Mr. Nehemkis. Mr. Swan, I show you a diary entry entitled "New 
York Central R. R. Co.," from the files of your office. Do you want 
to examine it in view of the fact that it is stamped on the back here 
"Smith, Barney & Co."? 

Mr. Swan. I should like to. Do you expect to examine me on 
this, or do you just want to identify? 

Mr. Nehemkis. I merely want you to tell this committee if that 
is a true and correct copy of an original now in your possession? 

Mr. Swan. I believe so. 

Mr. Nehemkis. This sheet identified by the witness is offered in 
evidence. 

The Chairman. It may be admitted. 



12008 CONCENTRATION OF ECONOMIC POWER 

(The sheet referred to was marked "Exhibit No. 1713'" and is in- 
cluded in the appendix on p. 12260.) 

Mr. Neiiemkis. Mr. Chairman, I now read to you two entries from 
that sheet, an entry dated P ^-bruary 13. 1935 : You will find that in the 
first i^aragraph of the photostat entered by John W. Cutler, a partner, 
is he not, of yours, Mr. Swan? 

Mr. Swan. Yes. 

Mr. Nehemkis. Aii'l the entry by John W. Cutler [reading from 
"Exhibit No. 1713"] : 

George Whitney spoke to JRS — 

That is Mr. Swan— 

and a secoad time to me, as to coming financing of the Road, about tliree weeks 
ago. Anderson — 

That refers to you, sir, — 

spoke to me again last v.eek and asked what detaiis, if any, GW — 

Meaning George Whitney — 

had given us. He said he himself was not familiar witli the last discussion 
between GW — 

Mr. T\^iitney — 

and H. S. Vanderbilt, and therefore thought^ it best to wait until Whitney's 
return about February 18th. He indicated they had not yet, but would probably, 
a so .speak to Brown Harriman. 

I ask you, sir, now to follow me to the third paragraph from the 
end, a further entry by J. W. C, May 3, 1935 [reading further] : 

Re Toledo & Ohio Central, spoke to G. Whitney. He said nothing would be 
done for two or three weeks, and that everyone in town had been in to see 
him about it. Will probably mean that the railroad or JPM&Co. will make up 
an account and hand it to someone to put thru. (Re Canada Southern, Pruden- 
tial and Metropolitan went direct to the railroad.) 

And now, sir, I ask you to skip to the next, to the last paragraph, 
diary entry by H. D. M. ; that is Mr. Moore of your organization, 
is it not, sir ? 

Mr. Sv/AN. That is correct. 

Mr. Nehemkis. And this is dated June 22, 1935 [reading fur her 
from "Exhibit No. 1713"] : 

Working on $12,500,000 Toledo & Ohio Central offering which it is hoped to 
release last of next week. First Boston will be leader of business. 

Mr. Swan, are these entries that I have read correct? 

Mr. Swan. It is my recollection that the first statement, the state- 
ments, to answer your question, I believe are correct transcripts. I 
should like to comment on the. . 

Mr. Nehemkis. ISIay I ask 3^ou one question and then have you 
comment, if you will, please? "Who did make up the account, Mr. 
Swan T. T*, Morgan & Co. or the road? Now, if you will answer 
and then comment. 

Mr. Swan. This business was not handled by my firm. We were 

Earticipants in it. It was handled, in my recollection, as it says 
ere, by The First Boston Corporation. We had nothing to do with 
making up *^he account and I can't answer your question. 

Mr. Nehemkis. Well, then you don't care to comment on your own 
entries? 



CONCENTRATION OF ECONOMIC POWER 12009 

Mr, Swan. I should like to comment on this as far as the first of 
these paragraphs is concerned. My recollection is that that refers 
not to Toledo & Ohio Central financing but to jjossibly future New 
York Central financing. The other paragraph, like all of the para- 
graphs in this memorandum, was rather a shorthand account of con- 
versations with Mr. Whitney. We were, like everyone on the Street, 
eagerly out and aggressively out seeking business, and we went to 
all of the large institutions everywhere, not only in New York City, 
but Chicago, I3oston, Cleveland, everywhere that we could, to try to 
get busiiiess. Amongst other people that we went to was J. P. Mor- 
gon & Co., and this refers to our approach to getting business. 

Mr. Nehemkis. I want to merely comment on one statement you 
made. You said this did not refer to Toledo & Ohio, but to New 
York Central? 

Mr. Swan. Will you let me just refer^to my files? 

Mr. Nehemkis. If you will, sir. I think it refers to Toledo & 
Ohio. If I am mistaken will you correct me at a later time? 

]\Ir. Swan. I can correct you now. This is headed, this sheet 
which you first showed me is headed "New York Central R, R. Co.," 
and it then goes on [reading from "Exhibit No. 1713"] : 

George Whitney spoke to JRS and a second time to me as to coming 
financing of the road— 

And I think it refers to New York Central R. R. Co. 

Mr. Nehemkis. I accept your word for that, but I would merely 
. point out that the only pending refunding at that time was Toledo 
& Ohio. Mr. Whitney, I am sorry, I want 

Mr. Swan (interposing). Excuse me. I just want to continue 
that point with you. The next sentence says [reading further from 
"Ex!iibit No. 1713"] : 

During lunch today at First National Bank with Sam Weldon discussion 
turned to railroad matters and New York Central was brought up. 

That was less than a month later and I don't think that that was 
brouglit up on account of Toledo & Ohio Central. 

Mr. Nehemkis. Mr. Chairman, I now read from a letter identi- 
fied by one of the members of the staff. This letter is from 23 
Wall Street. That is your house, isn't it [to Mr. Whitney] ? 

Mr. Whitney. The office. 

Mr. Nehemkis. And the letter is dated June 18, 1935, addressed 
to Willard Place, New York Central R. R. Co., and is signed by 
John M. Young. Mr. Young was then associated with J. P. Morgan ? 

Mr. Whitney. Wliat date is this? 

Mr. Nehejikis. June 18, 1935. 

Mr. Henderson. I gather, Mr. Whitney, you don't refer to it as 
"the House of Morgan"? 

Mr. Whitney. I do not. 

Mr. Henderson. Do you refer to it as "the corner" ? 

Mr. Whitney. I do not. J. P. Morgan & Co. 

Mr. Nehemkis. The letter reads as follows [reading from "Ex- 
hibit No. 1714-1"] : 

Deab Willard: I am enclosing herewith "a list concerning which I spoke 
to you today. 

And attached to it a list on which appear the following: "Orig- 
inal Group," and the following names : Brown Harriman & Co., Inc. ; 

124491—40 — pt. 23 14 



12010 CONCENTRATION OF ECONOMIC POWER 

E. B, Smith & Co. ; First Boston Corporation ; Lee, Higginson & Co. ; 
Kidder, Peabody & Co. Then appears the caption "Original group" 
and the amounts for that group; and then the following caption, 
•'Selling group" and the amounts for ihat group. Underneath that 
you will find "Secondary group" and a list of houses, together with 
their names and amounts. I offer in evidence this document. 

The Chairman. It may be received. 

(The documents referred to were marked "Exhibit No. 1714^1" and 
are included in the appendix on p. 12261.) 

Mr. Nehemkis. Mr. "Wliitney, would it be correct to conclude that 
the make-up of the list was determined by J. P. Morgan & Co.? 

Mr. Whitney. It would not. Mr. Chairman, this whole proceeding, 
it seems to me, could be very much simplified for the committee if 
again I repeat, because I may have to repeat it a good many times 
otherwise, that I haven't made any question of the fact that we were 
very active in this business. I have said, or tried ^o make clear a few 
minutes ago, that our clients who had dealt with us in this past came 
to us for advice as to how to conduct a certain piece of business; on 
all these cases the story is exactly the same. In each case we recom- 
mended to them that there were certain people who were then the most 
prominent people in the investment banking business in New York 
who would be proper people and would give proper service in the job 
of work they had to do. 

We had discussions with — I did, Mr. Anderson did, and Mr. Ewing 
did, who was then one of our partners — with the seniors, senior part- 
ners of these various concerns, or senior officers. We went to this 
party and that party, as a service for the railroad, to inquire whether 
these gentlemen would be interested in handling this financing. We 
went to the railroad company and said we would suggest this or 
that course. I don't want to give any possible indication that we 
didn't, that we didn't work just as hard as we could to help our 
clients. We did. We still do. But when it comes to the infer- 
ence that we had anything to do with the actual business, I just want 
to make very clear that we didn't certify these people. When it came 
down to a decision, it was made by the officers of these various corpo- 
ra "ons on their own discretion, on their own responsibility, and we 
merely gave them the best advice that we could as to ho5\' they were to 
handle their job. 

The Chairman. As I understand your explanation of the situation, 
J. P. Morgan & Co., in compliance with the Banking Act, was going 
out of the business of investment banking 

Mr. Whitney (interposing). Was out. 

The Chairman. And it was not, however, going out of the business 
of advising its clients, both former clients and new clients, with re- 
spect to all matters which might properly come before a banker ; that 
you considered it to be a perfectly proper and legal procedure for 
J. P. Morgan & Co. to advise a client, the New York Central Railroad, 
for example, with lespect to the maimer in whicli securities might be 
distributed or by whom they might be underwritten? That in giving 
that advice- you did not consider yourself as being engaged in the 
business? That you had numerous conversations with the responsible 
officers of the New York Central Railroad and that you do not deny 
that from J. P. Morgan & Co. went this letter ^ of June 18, addressed 

1 "Exhibit No. 1714-1." 



CONCENTRATION OF ECONOMIC POWER 12011 

to Mr. Willard Place, Esq., of the New York Central Kailroad, con- 
taining a list of security coiVipanies ; that in making the suggestion you 
were not engaged in exercising the discretion, but that the discretion 
was exercised by the company^ Have I correctly stated the 

Mr. Whitney (interposing). Just exactly. 

The Chairman. So that if the railroad followed your suggestion 
you considered that to be the responsibility of the railroad and not 
yourselves ? 

Mr. Whitney. Just exactly. 

The Chairman. Though of course we might also conclude that 
the railroad, having taken your advice for so many years, it was only 
natural that it should follow your suggestions and wlien you made 
them you had a pretty good idea that the railroad would follow your 
suggestion ? 

Mr. Whitney. WpIL Mr. Chairman, in the banking business, like 
so many other businesses, yon have to be right certainly 51 percent 
of the time before people think of you. So that it is reasonable — 
if they came to us and asked our advice — it is reasonable to believe 
they thought it was advice at least worthy of consideration. Mr. 
Nehemkis didn't ask me to comment on that particular letter. That 
of course is a letter from John Young to Place ; ^ whether that was 
a final list I don't know- it may have been; but undoubtedly who- 
ever was. the leader in this business — there seems to be some dispute 
about that — probabl}^ told him what they had done. We never had a 
thing to do with that second list of names there. We dealt in this 
case, and in one of the others at least, with three principal people, 
namely E. B. Smith, First Boston, and Brown Harriman. They 
made up a list of what they thought was an adequate list to dis- 
tribute these 12 millions of bonds, and I suppose they sent John 
Young, who was the head of our bond department, this list and he 
forwarded it to Willard Place. 

The Chairman. Wliat was your testimony with respect to com- 
pensation on J. P. Morgan & Co. ? 

Mr. Whitney. I said we weren't even paid a fee for the advice 
we gave, although we were advised we were legally entitled to it. 

Senator King. Would this be an analagous parallel case : A lawyer 
of standing in any community with a large clientele is elected to 
office, or engages in some other business, and concludes that he shall 
not any longer take the business of his large clientele, and having 
confidence in him, having taken his advice for years, and been guided 
by him in all their legal controversial matters, when he advises 
them that he no longer can act in that capacity but they ask him 
who would be good lawyers, who is a good man, to look after bonds, 
another for torts, and so on, and he suggests A, B, C, and D, and 
they go, pursuant to his suggestion, to the other law3^er whom he 
recommends. Would that be something analagaus to your situation ? 

Mr. Whitney. I think so. Senator King. I ventured to suggest 
in earlier testimony that I think there is a very close analogy between 
the relationship between a client and his lawyer, and a client and his 
banker; it is a professional relationship. 

The Chairman. But you also testified — I remember — that the 
lawyers didn't want to agree to that analogy. 



1 "Exhibit No. 1714-1." 



12012 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitnet. I said sometimes they questioned it; I didn't say 
they disagreed. 

Mr. Nehemkis. Mr. Chairman, there is to be attached— but I am 
offering them separately for the reason that I will explain to you — 
to the memorandum previously offered, a penciled addition to those 
lists and those amounts, and they 

The Chairman (interposing). To the list attached to the letter of 
June 18,1925? 

Mr. Nehemkis. Correct, sir. 

May I ask, Mr. Wliitney, if I understand you 

The Chairman. Now, let's get this understood; you are offering 
now this penciled memorandum on the sheet bearing the figures ''216" 
which is to be regarded as part of the previous exhibit ^ 

Mr. Nehemkis. Yes, correct sir. The reason I offer them in sepa- 
rate pieces is because they were found in separate places, but our 
man was told that they belonged together. 

The Chairman. By whom? Who told you that? 

Mr. Nehemkis. The responsible official of the railroad who opened 
up the files to us. But I want to be thoroughly correct and strict in 
this thing, and so I am offering them in two pieces. 

The Chairman. They may be admitted. 

(The memorandum referred to was marked "Exhibit Nos. l7l4r-2" 
and is included in the appendix on p. 12262.) 

Mr. Nehemkis. Did I understand you to say that you thought 
that a possible explanation for that list of proposed underwriters and 
selling gi'oup, with amounts, may have resulted from the fact that 
some of the underwriters had suggested those names to John Young, 
and he in turn had passed them on ? 

Mr. Whitney. No; I did not suggest that at all. I think the 
word I used was that I was merely commenting on them. Willard 
Place, as I said a little while ago, was a vice president of the New 
York Central in charge of finance, and as I also tried to show, we 
were in this advising the New York Central on a financial matter. 

Now, I am not attempting to draw any conclusions of what that 
list was. It merely was that obviously John Young, head of our 
bond department, was passing on to our client a list of names which 
M'Ould be in the business. I don't kiioAV who made it up. I shouldn't 
doubt that he discussed it with Willard Place. I just don't know. I 
merely say that my comment was that he was putting this up to our 
client along the lines of advising with them. 

Mr. Nehemkis. Mr. Swan, do you have any recollection of ever 
having made such suggestions to J. P. Morgan & Co.? 

Mr. Swan. Made suggestions about people who should be included 
in the syndicates? 

Mr. jNeuemkis. Yes. 

Mr. Swan. Yes, indeed. 

Mr. Nehemkis. You did? 

Mr. Swan. Yes. 

Mr. Nehemkis. Why have you not furnished us with that infor- 
mation? 

Mr. Swan. I don't know. In connection with the Chicago & 
Western Indiana, which we managed, you have the list of the syndi- 
cate members. 



1 "Exhibit No. 171-1-1.' 



CONCENTRATION OF ECONOMIC POWER 12013 

Mr. Nehemkis. I now read you, Mr. Chairman, a letter- 



Mr. Henderson (interposing). Mr. Neherakis, may I ask this 
question : Did you [to Mr. Swan] in connection with this furnish to 
Mr. Young any suggestion as to the make-up of the list? 

Mr. Swan. I couldn't tell you. Yo^r men went through our files — 
everything that was discussed. It is very possible that after the busi- 
ness was finally definitely arranged, that tlipy were sent by Mr. 
Young a list of the people who composed the principal group and 
any that may have been added. I can't answer that. It would have 
been the regular thing to have done.. 

Mr. Nehfmkis. I now read from* the letter previously identified, 
Mr. Chairman, from Mr. Willard Place to Mr. Max O. Whiting, 36 
Federal Street, Boston, Mass., June 3, 1935 [reading from "Exhibit 
No. 1715"] : 

Thanks for your letter of the 29tli. It is a serious question as to whether 
the bonds should carry a 3%% or 4% coupon, '-■^t so far the leaning has been 
to the 3% rate. It is also yet to be deternaineri as to just how the sale should 
be made. The matter is shaping up rather quickly now, however, and I think 
it will be pretty well decided upon within the next week or 10 days, so you 
ought to keep rather closely in touch with our frieuds on the corner. 

Mr. Anderson. What business is that you are talking about? 

Mr. Nehemkis. Toledo & Ohio, the subject matter under discus- 
sion. I offer it in evidence. 

Mr. Anderson. I don't think it is. 

Mr. Whitney. No, sir. 

The Chairman. The exhi^^^t may be received. To what does this 
refer ? 

Mr. Whitney. The Boston & Albany, another subsidiary of New 
York Central. 

(The letter referred to was marked "Exhibit No. 1715" and appears 
in full in the text.) 

Mr. Whitney. As I remember — and I am speaking from memory — 
New York Central had Boston & Albany bonds in the treasury, and 
it was k question whether they could sell them. It was not in connec- 
tion with the maturity, as these 

Mr. Nehejsikis (interposing). While I do not concede what the 
witness has said, it is interesting to note, Mr. Chairman, assuming that 
what he says is true, that the point still holds good. The place to 
get a participation was not the railroad but "the corner." 

Mr. Henderson. Mr. "V^Tiitney 

Mr. Anderson (interposing). He doesn't say that. 

The Chairman. The sentence here, which is the center of this little 
conversation, reads as follows [reading from "Exhibit No. 1715"] : 

The matter is shaping up rather quickly now. however, and I think it will 
be pretty weli decided upon within the next week or 10 days, so you ought to keep 
rather closely in touch with our friends on the corner. 

Now, what is your interpretation of that, Mr. Whitney? 

Mr. Whitney. I am not trying to interpret, but I suppose it is that 
Mr. Place had been consulting with us about how they should do their 
financing. This man, Whiting, Weeks, or somethii)_g, was up in Bos- 
ton and was a very close friend of his, and he thought if he wanted to 
be recommended he had better come in and tel' us to recommend him. 



12014 CONCENTRATION OF ECONOMIC POWER 

That would be perfectly reasonable. He was trying to get business, 
too. 

Mr. Henderson. He was trying to get on the list ? I gather from 
what you say that Mr. Place was telling him to go down to your 
firm and see whether he couldn't be included. 

Mr. Whitney. No, no. 

Mr. Henderson. That is what your answer was, I think ; am I in- 
correct ? 

Mr. Whitney. Yes ; I'm sorry you got a wrong impression because 
both Mr. Anderson's recollection and my recollection is that it is an 
entirely different piece of business. There is no question of a list. I 
think there were bonds sold for the New York Central to Boston, 



The Chairman. There seems to be no dispute with respect to the 
facts. Recommendations were made. Your dispute is on the meaning 
of the facts. 

Mr. Whitney. Certainly. There was no list about it. I have testi- 
fied with respect to advising these people. 1 1^ ,ve, in fact, boasted of 
the fact that we were performing a ser\'ice for ihem. 

The Chairman. That is it ; you made certain recommendations, and 
these recommendations apparently were followed. That is all there 
is to it. 

Mr. Whitney. Yes. But that would be good advice, wouldn't it? 

The Chairman. That is not for me to pass on. 

Mr. WnrrNEY. Perhaps not for me, either. 

Mr. Neiiemkis. Will the committee take judicial notice that, accord- 
ing to all the public manuals, the only railroad refunding at this 
time that was being considered was the Toledo & Ohio ? ^ 

I pass to the next document. T wish to ask you to consider, sir. 
This is a letter previously identified on the stationery of Adams & 
Peck, 63 Wall Street, dated June 13, 1935, from E. Stuart Peck to 
Mr. Willard Place. 

Senator King. Who are tbev? 

Mr. Nehemkis. Mr. Pe^k, I assume, is a member of the firm of 
Adams & Peck, and they deal in guaranteed bonds and railroad se- 
curities, a New York House. Mr. Peck writes as follows [reading 
from "Exhibit No. 1716"] : 

I called at J. P. M. & Co. today and as George Whitney was away for the day, 
I spoke to Harry Morgan about that matter. I have known him for a long 
time, mostly in connection with sailing, and somewhat in connection with busi- 
ness. We had a very luce chat about the Tole<lo bond issue, and he said that 
they did not know yet Low it would be handled, but that he would be very glad 
to put in a good word for Adams & Peck with whatever group of investment 
bankers might handle it. 

So we will hope for the best ; and I thank you very much for giving me your 
valuable time. 

Mr. Swan, do you recall whether Mr. Henr}' Morgan put in a word 
for Adams & Peck with E. B. Smith & Co ? 

Mr. Swan. In the natural course of events they would not. 

Mr. Nehemkis. I offer in evidence the letter, Mr. Chairman. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1716" and appears 
in full in the text.) 

Mr. Nehemkis. Mr. Anderson, to the best of your recollection, who 
decided to leave Adams & Peck off the list ? 



* See infra, p. 12048. 



CONCENTRATION OP ECONOMIC POWER 12015 

Mr. Anderson. I have never had any conversations about any such 
list that you are referring to, Mr. Nehemkis, so I can't answer that. 

Mr. Nehemkis. Mr. Whitney, who decided to leave Adams & Peck 
off the list? 

Mr. Whitney. Off what list? 

Mr. Nehemkis. The list of underwriters that Mr. Peck was refer- 
ring to, that he called on Mr. Harry Morgan about. 

Mr. Whitney. I don't know. 



"matching" for the leadership 

Mr. Nehemkis. Mr. Chairman, I now read to you from a memo- 
) andum previously identified, dated June 17, 1935, by Harry M. Ad- 
dinsell. Mr. Addinsell, Senator King, is the chairman of the execu- 
tive committee of The First Boston Corporation, and the memoran- 
dum is entitled "The Toledo & Ohio Central Railroad." 

I read from it as follows [reading from "Exhibit No. 1717"] : 

Mr. Whitney, of J. P. Morgan & Co., invited Mr. Ripley of Brown Harriman & 
Co., Mr. Swan of Edward B. Smith & Co. and myself to come over to their 
office today to discuss the above proposed issue. The road wishes to sell these 
bonds to the public at par and proposes to allow the bankers two points. The 
principals' interests will be as follows : 

There appear five names, and the respective amounts after that: 

First Boston 
Brown Harriman 
E. B. Smith 
Kidder Peabody 
Lee Higginson. 

Morgan have a list of, I think, about fifteen or sixteen names of people whom 
they want to have an amount of bonds, which they have not yet discussed with 
us, at a set-up of % of 1%. 

Mr. Whitney, would it not appear from Mr. Addinsell's memo- 
randum that J. P. Morgan & Co. did make up the list ? 

Mr. Whitney. It would not; what it says, of course 

Mr. Nehemkis. Now, don't quibble with me, Mr. Whitney, in that 
way. 

Mr. Whitney. I am not trying to quibble 

Mr. Nehemkis (interposing). I am trying to be courteous and 
polite to you, and 

Mr. Whitney (interposing). I don't mean to quibble, Mr. Nehem- 
kis, I promise you I don't, but they said we had a list of about 16 or 
16. 

Mr. Henderson. You think this refers not to the list, but to 
whether it is 15 or 16? 

Mr. Whitney. Yes. 

Mr. Nehemkis (reading further from "Exhibit No. 1717") : 

At the outset Mr. Whitney said they did not want to decide what the order 
of precedence should be as between Brown, Smith and ourselves. 

Mr. Anderson, were you present at that conference? 

Mr. Anderson. No. I had nothing to do with any part of the 
negotiations of this business. 

Mr. Nehemkis. Mr. Whitney, according to the statement that I 
have just read, is it not a fact that J. P. Morgan & Co. could have 
decided the precedence, but did not? 

Mr. Whitney. They asked us to. 



12016 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. I'm sorry, Mr. Wliitney, I must insist that you 
answer my question. Is it noi a fact tliat J. P. Morgan & Co. could 
have decided the precedence? 

Mr. Whitnet. Yes ; they asked us to. 

Mr. Neiiemkis. Thank you, Mr. Whitney [reading further from 
"Exhibit No. 1717"] : 

So we matched for it — 

[laughter] 

and that resulted in our being in first place, Brown second and Smith third. In 
the absence of Mr. Whitney I have advised Mr. Young of J. P. Morgan & Co. 
to that effect and also of the meeting referred to 'jelow. 

Mr. Whitney asked us to speak to Kidder and Lee Higginson about it, which 
I have done, and tliere will be a meeting of the five principals at tliis office 
Tuesday at two o'clock. The raortgage, circular, etc., are already pretty well 
lined up under the direction of Davis, I'olk, Wardwell, Gardiner & Reed • 

Just for the sake of the record, Mr. Whitney, who are Davis 
Polk Wardwell Gardiner & Reed ? 

Mr. Whitney. A firm of counselors in New York, vvho are our 
counselors. 

Mr. Nehemkis (reading further) : 

and understand Mr. Howland Auchincloss and Mr. MacVeigh of that firm are 
handling the matter and will act as counsel for the bankers. 

So it would appear, Mr. Whitney, that the lawyers were already 
selected, had already done their work. Who selected the lawyers, 
Mr. Whitney? 

Mr. Whitney. I don't remember, but — I don't remember. 

Mr. Nehemkis. The document from which I have read, Mr. Chair- 
man, may it please the committee, is offered in evidence. 

(The document referred to was marked "Exhibit No. 1717" and is 
included in the appendix on p. 12262.) 

Mr, Swan. May I comment on this a moment, please, because 
according to this [indicating document] I certainly knew more about 
this business than I have previously testified. Our files do not have 
any record of this meeting. My recollection of the business is that 
The First Boston Corporation was selected to handle this business, 
and that we were in a less important position than this here appar- 
ently shows. I apparently was at a meeting which I have entirely 
forgotten. 

Mr. Nehemkis. The committee does not care to have us call Mr. 
Addinsell, does it, on this point? Or is Mr. Swan's explanation 
sufficient ? 

Mr. Swan. I quite accept that. I am just — my memory is at fault. 

Mr. Nehemkis. I understand, Mr. Swan. 

Mr. Henderson. This was dated June 17, 1935, this memorandum ^ 
of Mr. Addinsell's. The principal interests that Mr. Young outlined 
to Mr. Place are the same as those indicated in Mr. Addinsell's 
memorandum ? 

Mr. Nehemkis. That is correct, sir, to the best of my recollection. 

So that Mr. Swan, apparently from Mr. Addinsell's statement of 
who were present at the conference which you were present at with 
Mr. "Whitney, it would appear that neither E. B. Smith & Co., nor 
The First Boston Corporation, composed the list. 

1 "Exhibit No. 1717." 



CONCENTRATION OP ECONOMIC POWER 12017 

Mr. Swan. Well, my recollection of that was that The First Boston 
Corporation were chosen to handle this business, in which event 
they would have gone ahead, and in consultation w^ith the road with 
the' advice of J. P. Morgan, the road having the advice of J. P. 
Morgan, and they would compose the list. 

I cannot testify as to how the list was composed. I don't know. 

Mr. Nehemkis. Can you testify at this time that E. B. Smith & 
Co. did not compose the list? 

Mr. Swan. I would be quite confident that they did not. 

Mr. Nehemkis. You did not? 

Mr. Swan. I would be quite confident we did not. 

Mr. Nehemkis. Now, may I ask, Mr. Swan, that further, while 
J. P. Morgan & Co. 

Mr. Swan (interposing). -Excuse me. May I add to my answer? 

Mr. Nehemkis. Certainly, Mr. Swan. 

INfr. Swan. It is possible— and it is subject, I think, to my getting 
the information, if j^ou want it — that we made suggestions for it. 

Mr. Nehemkis. I accept that, Mr. Swan. 

Although J. P. Morgan & Co. declined to decide who should lead, 
is there any question in your mind that they had the power to do so 
if they so desired? 

Mr. Swan. Well, I think that is a rather difficult question to 
answer. In my mind, there isn't any question that in the last analy- 
sis the borrowing corporation would decide what bankers they wanted 
to have. If J. P. Morgan & Co. had wanted any particular firm to 
lead this business, I don't think they would have arranged for that 
firm to lead the business without the acceptance of that recommenda- 
tion by the borrower. 

Senator King. By whom? 

Mr. Swan. By the borrowing corporation. 

Mr. Nehemkis. I want to recall to you, Mr. Swan, what Mr. 
Addinsell said v,^ho was also present at the conference with you 
[reading from "Exhibit No. 1717"] : 

At the outset Mr. Whitney said they did not want to decide what the order 
of precedence should be as between Brown, Smith and ourselves, so we matched 
for it. 

Mr. Whitney. Mr. Nehemkis 



Mr. Nehemkis (interposing). Excuse me, Mr. Whitney. 

Mr. Whitney. I just 

Mr. Nehemkis (interposing). No; I'm sorry, I am addressing my 
question to Mr. Swan. 

Mr. Swan. I read that, and it is obvious that they did not want 
to make the decision. Now, whether that decision was on behalf of 
the road or not, I am not prepared to say, but I presume it was that 
they were acting as the road's advisers. 

Mr. Nehemkis. Mr. Swan, as a banker of manj'^, many years' ex- 
perience in the financial community, under the circumstances here 
set forth, see if you can answer my question : Could J. P. Morgan & 
Co., if they so desired under the circumstances we have been discuss- 
ing, have decided who was to lead ? 

Mr. Swan. If J. P. Morgan & Co. had said to one of the three 
houses, "We want you to lead," we would have followed their sug- 
gestion. 

Mr. Nehemkis. Thank you, Mr. Swan. 



12018 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitney, you wished to make a comment ? 

Mr. Whitney. I very much regret, Mr. Nehemkis, that you thought 
I was quibbling a minute ago, beca.use I did not mean to. That was 
the first thing I wanted to say. As I said a few moments ago, I did 
not know about the list. But on this particular phase of it that you 
have been questioning Mr. Swan about, I have the liveliest recollec- 
tion of it, because of this : 

When I first spoke to these people in behalf of the New York 
Central, I spoke to them together. We have heard something in the 
last week about this ambition to have certain positions in the busi- 
ness — prestige, and the various reasons such as that. I had deliber- 
ately talked to them as three people, and had recommended that one 
of the three people lead it, also indicating Kidder and Lee Higginson. 
I remember this very well, because they said, "We can't agree who is 
going to lead in this business — " in other words, who was going to 
have precedence in name, "won't you settle it between us?" This 
was not in my capacity as adviser to New York Central. 

I said, "I have nothing to do with it." And I just remember as 
well as I am sitting here, that I said, "^Vliy don't j^ou match for it?" 
I never thought they would. And they said, "That would be the 
only way we could settle it." 

Now, there is the simple story, and I remem.ber it because I had 
never seen business settled quite so (juickly as that before. [Laugh- 
ter.] 

CONSULTATION WITH RAILROAD COXCERXIXG LEADERSHIP 

Mr. Nehemkis. Now, Mr. Swan, do you have any recollection at 
this time whether the railroad was ever consulted about who should 
be the leader? 

Mr. Swan. I have no recollection of that ; no. 

Mr. Nehemkis. In other words, after Mr. Whitney suggested that 
you toss for it right then and there, depending upon the outcome of 
the toss of the com, the leader of that business was determined ? 

Mr. Swan. Well, I am prepared to stand by this memorandum ^ 
here. As I said 

Mr. Nehemkis. Mr. Addinsell's memorandum? 

Mr. Swan. Yes; I daresay that is good evidence that we did toss 
for it. My memory is hazy about this transaction. 

Mr. Nehemkis. Thank you, sir. 

Mr. Chairman, I now read you from a telegram previously identi- 
fied from Max O. Whiting to The First Boston Corporation, dated 
1935, June. 21, 11 a. m. [reading from "Exhibit No. 1718"] : 

I understand that Toledo & Ohio business has been turned over to you, Smith, 
and Brown Harriman much as Albany issue was given to us to handle — 

By whom, under what circumstances? 
Mr. Whitney. By the company. 
Mr. Nehemkis. Are you sure, Mr. WTiitney? 

Mr. Whitney. You remember a little while ago I rather hesitat- 
ingly suggested that Mr. Place's letter ^ to Mr. WHiiting had to do 

1 "Exhibit No. 1717." 

2 "Exhibit No. 1715," supra, p. 12014. 



CONCENTRATION OF ECONOMIC POWER 12019 

with Albany finance? This confirms it. 

Ml-. Nehemkis. Mr. Whitney, before you get yourself into diffi- 
culties, the dates are very different. 

Mr. Whitney. They are? 

Mr. Nehemkis. Oh, yes. 

Mr. Whitney. But the fact remains that this was the Albany 
transaction. When was this? 

Mr. Nehemkis. I think it was in April. 

Mr. Whitney. All I remember, frankly, was that Whiting had 
done the Albany issue. It was turned over as I said before, and I 
regret that I don't make myself clear. We advised the railroad to 
do the business with these four or five houses, whichever you want, 
and in that sense the railroad had the direct negotiations wnth these 
houses, The First Boston, Smith, Brown Harriman, and in the 
Boston and Albany debenture issue, they had the railroad, and so 
the records of Whiting, Weeks, and Knowles show. 

Mr. Nehemkis. I would like to have you listen to the remainder 
of this telegram [reading further from "Exhibit No. 1718"] : 

that the bankers decided among themselves wl-.o was to head the business and 
that some suggestions were made as to who might be Included Stop As this 
is New Yorli Central business and at least distantly related to Albany I don't 
see how the First Boston Smith and Brown Harriman can fail to include 
Whiting Weeks and Knowles on terms equal to anyone appearing after the 
three principals and we feel we are entitled to an interest of five percent as 
you know Brown and Smith each had seven per cent in Albany. 

Could Whiting by chance have been referring to what Mr. Mitchell 
explained to us, the doctrine known, shall I say, as reciprocal 
obligation ? 

Mr. Whitney. I have not the remotest idea. 

Mr. Nehemkis. Mr, Chairman, the telegram is offered in evidence. 

The Chairman. It may be admitted. 

(The telegram referred to was marked "Exhibit No. 1718" and is 
included in the appendix on p. 12263. ) 

Mr. Nehemkis. I now read to you a telegram previously identified, 
from John R. Macomber of The First Boston to Mr. Whiting, the 
sender of the previous telegram, who wires as follows [reading from 
"Exhibit No. 1719"] : 

Telegram received. Understand Nevil Ford went over this situation with 
you yesterday and explained it fully. Stop As a matter of fact business re- 
ferred to came to First group which included two other houses than those you 
named all set up and with secondary group named by the road with amounts. 
Stop 

I want you to note that, Mr. Wliitney [reading further] : 

As a matter of fact, business referred to came to First group — 

Meaning First Boston group — 

which included two other houses than those you named all set up with second- 
ary group named by the road. 

Now, as a subsequent telegram will show, Mr. Macomber was 
a little confused [reading further] : 

We had nothing to do with guiding this and have got to handle as in- 
structed by them. You are of course included in this but cannot see how we 
can do anything but accept the schedule as presented and over which we 
have no control Stop Will be in Boston Monday. 



12020 CONCENTRATION OF ECONOMIC POWER 

The telegram which I have read is olfered in evidence, Mr. 
Chairman. 

(The telegram referred to was marked "Exhibit No. 1719" and is 
included in the appendix on p. 122G3.) 

Mr. Nehemkis. It would seem from the telegram I have just read, 
Mr. Swan, that Mr. Macomber felt no firm m the group had any 
power to decide who was to be in and who was to be out. Would 
that be a fair interpretation from that telegram? 

Mr. Swan. That was what Mr. Macomber says. 

Mr. Nehemkis. But he was apparently at that time under the 
misapprehension that the railroad selected the underwriters, since 4 
days earlier, on June 17, Mr. Addinsell was clearly aware that the 
list was made up by J. P. Morgan & Co.,^ and as you will see from the 
document I am about to offer, by June 28 he got straightened out. 

I now read you from Mr. Macomber's letter dated Jmie 28, 1935, 
to George Whitney, Esq., J. P. Morgan Sc Co., 23 Wall Street, New 
York City [reading "Exhibit No. 1720"] : 

The opportunity which was offered us to take part in the Toledo & Ohio 
Central 3%% bonds was naturally most satisfactory to us and I do want to 
thank you very much indeed for your thought of us. "We are very grateful. 

One of the things which has given me the most satisfaction in the last year 
has been the attitude of our old friends towards us who had to make quite a 
readjustment in our business lives and, as I said to a friend of mine this 
morning, it is sometimes almost embarrassing to have some of our friends do 
all they do for us. Nevertheless, it is gratefully accepted and I only hope in 
due course we may be able to be helpful on our side and we are trying to do 
our part. Your firm certainly has been very good to us and we do appreciate it. 

I offer it in evidence, Mr. Chairman. 

The Chairman. It may be admitted. 

(The letter referred to was marked "Exhibit No. 1720" and appears 
in full in the text.) 

Senator King. Your firm, Mr. IVliitney, had been doing business 
with this railroad company before, had it, acting as vendor of or 
underwriter of its securities? 

Mr. Whtney. Yes, sir. The T. & O. C. is owned 100 percent by 
the New York Central, and we have been banlcers for them since — 
oh, since 1880, 1 think, and we have been fiscal agents of that property 
up to 1916 when we abandoned that position. They come to us just 
as they would go to people they had done business with before, 
and we were trying to help them. The record will show all this. 
I don't want to do what Mr. Nehemkis might think was quibbling^ 
but I think the record here is perfectly clear. The list was made 
up by the road, in the final analysis. We advised them — but thac 
doesn't matter. The road made the decision. We advised them as 
to houses. I have testified that Avay time and again. 

Mr. Nehemkis. Mr. Chairman, do you recall that Commissioner 
Henderson inquired earlier whether the list that was submitted was 
the same as the list finally made up ? 

I now offer in evidence a document previously identified which 
contains that information, may it please the committee. 

The Chairman. Wliat is this ? 

Mr. Nehemkis. It was identified by Mr. Whitehead as having 
been obtained and given to him by The First Boston Corporation. 

1 "Exhibit No. 1717," supra, p. 12015. 



CONCENTRATION OF ECONOMIC POWER 12021 

It shows the final selling list and the respective amounts of the 
various houses on the issue we have been discussing. 

Mr. Henderson. Made up after Mr. Addinsell got straightened 
out? 

Mr. Nehemkis. After Mr. Macomber got straightened out, sir. 

The Chairman. This is the secondary group? 

Mr. Nehemkis. That is correct, sir. 

Senator King (to Mr. Nehemkis). So that I may properly under- 
stand the testimony, is it your contention that if J. P. Morgan for 
a number of years had been the fiscal agents, financial advisers, of a 
corporation and had underwritten its securities, and after the Act 
was passed which called for the dissociation of the corporation, that 
it was improper for J. P. Morgan, if one of their former clients 
whom they had served, should ask their advice as to who would be 
competent to underwrite their securities or buy their securities for 
them, to suggest somebody? 

Mr. Nehemkis. Senator King, I am afraid that what I am about 
to say will shock my good friend Commissioner Henderson who 
knows I have a lot of opinions on a lot of subjects. Unfortunately 
at this time I have no opinions whatsoever. 

Senator King. I am very glad to know that. Proceed. 

role of J. p. morgan & CO. IN NYPANO EXTENSION 

Mr. Nehemkis. We now turn, maj'^ it please the committee, to the 
financing of the 

The Chairman (interposing). Has this been marked? 

Mr. Nehemkis. Not yet. 

(The document referred to was marked "Exhibit No. 1721" and 
is included in the appendix on p. 12263.) 

Mr. Nehemkis. Now we turn, may it please the committee, to the 
financing of the Nypano. 

Mr. Swan, who determined who the underwriters were to be for 
the extension of the New York, Pennsylvania & Ohio bonds? 

Mr. Swan. I expect the Erie Railroad. 

Mr. Nehemkis. Mr. Anderson, I ask you the same question. 

Mr. Andfj?son. I know it was the Erie Railroad Co. 

Mr. Nehemkis. Mr. Wliitney, will you give me your answer to 
that same question ? 

Mr. Whitney. I assume the Erie Railroad. I know nothing 
about it. "^ 

Mr. Nehemkis. Mr. Swan, I show you a series of diary entries 
labeled "New York, Pennsjdvania & Ohio Railroad," which purport 
to come from your files. Will you examine this and tell me whether 
this is a true and correct copy of an original in your possession? 

Mr. Swan. That is a true and correct copy. 

Mr. Nehemkis. Mr. Chairman, may I read from the diary entries 
which have just been identified by the witness? This is an entry by 
Mr. Swan's partner, Mr. Cutler, December 10, 1934 [reading from 
"Exhibit No. 1722"] : 

George Whitney spoke to me December 7th reference underwriting extension 
of the $8,000,000 4M>s due March 1st 1935. Said he thought it should be 
handled 50-50 Brown Harriman and ourselves, and asked me to advise Ripley 
and arrange a meeting. He suggested the 4% bond be underwritten at par for 
1% commission, on theory that about two-thirds of the present holders would 
take new bonds. 



12022 CONCENTRATION OF ECONOMIC POWER 

Another entry, 2 days later, by Mr. Swan's partner, Mr. Cutler 
[reading further] : 
BW— 

Is that Burnett Walker, Mr. Swan ? 
Mr. Swan. Yes. 
Mr. Nehemkis (continuing) : 

and I — 

Meaning Mr. Cutler — 
with Ripley and Davis met with Messrs. Whitney and Anderson yesterday. 

Ripley is Joseph Ripley, and Davis is Pierpont Davis, of Harri- 
man Ripley & Co. 

The above was substantially confirmed, with the exception of maturity wliere 
10 to 15 years was suggested. 

Suggested by whom, Mr. Anderson? 

Mr. Anderson. I have no recollection of any such meeting at all. 

Mr. Nehemkis (reading further) : 

Time element involved in underwriting approximately 30 days and commit- 
ment on such basis would have to be made about February 1st. We assume 
we would head this account as bankers for Van Sweringens — 

Mr. Swan, E. B. Smith & Co., to the best of my knowledge, had 
never been bankers for the Van Sweringens. You meant the 
Guaranty Trust Co., didn't you ? 

Mr. Swan. Well, the Guaranty Co. had been bankers for them, 
I think. He used the word 

Mr. Nehemkis (interposing). He used the word loosely? 

Mr. Swan. He used it rather loosely, yes. 

Mr. Nehemkis. He seems to have wrapped himself up with 
Guaranty for the moment [reading further from "Exhibit No. 
1722"] : 

We assmne we would head this account as bankers for Van Sweringens, but 
Whitney and Anderson did not want to discuss this phase of it, suggesting 
we work it out between ourselves and B H & Co. 

Mr. Anderson, do you have any recollection of that meeting? 

Mr. Anderson. Not the slightest. 

Mr. Nehemkis. Mr. Whitney, do you have any recollection of that 
meeting? 

Mr. Whitney. No. I don't doubt it, but I haven't got any recol- 
lection of this meeting at all. 

Mr. Nehemkis. Mr. Whitney, for the sake of the record, I would 
like you to give plain and clear statements. I asked you a simple 
question. I will repeat it. Mr. AVliitney, do you have any recol- 
lection, of that meeting? 

Mr. Whitney. No. 

Mr. Nehemkis. Thank you, Mr. Whitnev [reading further from 
"Exhibit No. 1722"] : 

'.hat is, Burnett Walker — 

ind I lunched with Messrs. Ripley and Davis. 

I don't think the next one is particularly pertinent. It continues 
the discussion. 



CONCENTRATION OF ECONOMIC POWER 12023 

I now offer in evidence the diary sheets from which I have been 
reading and which have been identified by Mr. Swan. 

The Chairman. They may be received. 

(The diary sheets referred to were marked "Exhibit No. 1722" and 
are included in the appendix on p. 12264.) 

Senator King. Do you want the whole thing in or just what you 
have read? You indicated which you did not read, didn't you? 

Mr. Nehemkis. Yes, sir. May I say that my assistant calls my 
attention to the fact that inadvertently I should have read another 
paragraph, and this answers your question. I guess we had better 
put it all in. The line is this [reading from "Exhibit No. 1722"] : 

Question of LongDock Co. 6's due next year, brought up, but was left to be 
discussed if and wlien it came up. JWC and/or BW arrange to continue with 
Anderson of JPM & Co. 

And that is a dairj^ entry written by Mr. Cutler, Mr. Swan's 
partner, dated December 17, 1934. 

Mr. Swan. Is there any reason whj' the last paragraph shoidd 
not be read? I mean, it just bears out 

Mr. Nehemkis (interposing). I should be happy to, in the interest 
of getting it complete. Certainly [reading further] : 

Agreement with Railroad Company and our associates signed today; letter 
is being sent t)ut tonight and Railroad Company's Extension Offer and our 
purchase offer to be advertised tomorrow. 

This is a diary entry of February 13, 1935, the new year, and it is 
entered by Mr. Swan's partner, Karl Weisheit "KW," is that right ? 

Mr. Swan. That is correct. 

Mr. Henderson. Did you have some special reason, Mr. Swan? 

Mr. Swan. Only to show that we were dealing directly with the 
railro«i company. 

Mr. Henderson. Well, that was at the time of winding up the deal, 
was it not? There is nothing in the previous sentence to show that 
you were dealing with anybody else except the Morgan group, is 
there? 

Mr. Swan. That is, it was written at the time of winding up the 
deal, but the conclusion of negotiations with the railroad company. 

Mr. Henderson. And the concluding act, technically, was when 
you went to the railroad, of course? 

Mr. Swan. No; we conducted the negotiations with the railroad 
company. I think the gentleman we conducted them with was Mr. 
Walsh. 

Mr. Nehemkis. Do you recall, Mr. Anderson, whether the Erie 
suggested the leadership in that financing? 

Mr. Anderson. My best recollection of it, Mr. Nehemkis, is that 
Mr. Walsh came in to see me during the latter part of 1934. He 
asked for suggestions of various people who would be qualified to do 
this business, and we discussed their pros and cons. My recollec- 
tions, and that is not borne out by the record, is that I recommended 
his going in to talk to the Brown Harriman people, or rather to Mr. 
Davis, in that office, who, I was confident, had already familiarized 
himself with the problem. 

Senator King. With whom? Who is Mr. Walsh? 

Mr. Anderson. Treasurer of the Erie Railroad. 



12024 CONCENTRA'J^ION OF KCONOMIC i'OWEU 

Senator King. He represented the railroad company in that trans- 
action ? 

Mr. Anderson. Yes, sir. 

Senator King. Do you know v/hat was the initiation of the negotia- 
tions which cuhninated in the transaction referred to in the closing 
paragraph just called attentictn to by Mr. Nehemkis? 

Mr. Anderson. The first recollection of any discussion with 

Mr. Nehemkis. (interposing). The reason t wanted Mr. Ander- 
son's recollection on that was that the diary entry from the files of 
Smith, Barney & Co., beginning in December of 1934,^ when the 
negotiations were taking place, contained no reference to discussions 
with the company, and the first reference which Mr. Swan requested 
me to read into the record, referring to anything pertaining to the 
company, appears after the new year, February 13, 1935, and relates 
merely to the formal signing of the papers. 

Mr. Swan. May I state, Mr. Chairman, that these records, such 
as we have here, are really quite incomplete? I mean, they constitute 
memoranda, some of which are from time to time omitted, but they 
do not constitute memoranda of conversations and they are by no 
means complete. 

Mr. Nehemkis. Mr. Swan, do you have any additional memoranda 
bearing on these subjects? 

Mr. Swan. No ; I do not. 

Mr. Nehemkis. Because if you have, I Avould like you to give them 
to us. 

Mr. Swan. Your examiners bad access to all our files. 

Mr. Nehemkis. Then do you withdraw your statement that these 
diary entries are not complete? 

Mr. Swan. No; I can't withdraw that statement. I think that 
many times we had conversations which we did not enter in the diary. 

Mr. Nehemkis. What did you do with those memoranda, destroy 
them? 

Mr. Swan. They were not memoranda. I am just talking about 
conversations. 

Mr. Nehemkis. Oh, I see. I beg your pardon. I misunderstood 
you. So anything that is recorded in writing 

Mr. Swan (interposing). Anything that is recorded in writing is in 
the diary 

Mr. Nehemkis. It is in the diary entries? 

Mr. Swan. Not everything was recorded in writing in the diary 
entry, but you had access to everything that is recorded in writing. 

Mr. Nehemkis. I just wanted to be clear that I understood you. 

Mr. Swan. I am very confident of that. 

Senator King. Do you recall any of the railroad executives or 
representatives, lawyers, or otherwise, with whom j'ou had an}' — 
you or your firm — conversations? 

Mr. Swan. Well, we had conversations with Mr. Walsh of the 
Erie, we had conversations with Mr. Delano of the Atlantic Coast 
Line, we had conversations with Mr. Williams of the Chicago & 
Western Indiana. 

Senator King-. Those preceded your entering into this understand- 
ing to buy some of the securities ? 

1 "Exhibit No. 1722." 



CONCENTRATION OP ECONOMIC POWER 12025 

Mr. Swan. That is correct, yes, sir. 

Senator King. That's all. 

Mr. Nehemkis. Mr. Anderson, do you recall at this time whether 
or not Mr. Bradley, chairman of the Erie, had been holding discu.'i- 
sions with your firm ? 

Mr. AndersoisC. Prior to that time ? 

Mr. Nehemkis. At that time. 

Mr. Anderson. I remember having one talk with him. I can't 
relate the date to these discussions at all. 

Mr. Nehemkis. But as you previously testified, J. P. Morgan & 
Co. were bankers Avho could, of course, do no underwriting at this 
time? 

Mr. Anderson. That is correct. 

Mr. Nehemkis. Mr. Swan, have you any recollections as to 
whether or not Mr. Bradley had been negotiating with E. B. Smith 
c^' Co. at this time, bankers, who could do underwriting? 

Mr. Swan. I have no recollection. May I just comment upon that, 
that is, with regards to the Erie business? We were trying to get 
Erie business at that time. I think it would have been more than 
probable that Ave would have gone to Mr. Bradley and asked for his 
support in getting that business, and also to the other interests, with 
whom, over a lon^ period of years, we had quite close relations. 

Senator King. Do I understand that J. P. Morgan & Co. was not 
underwriting or wns not, in fact, giving you any part of this busi- 
ness, that you were dealing with the railroad company? 

Mr. Swan. We went to them, as we went to all of these other peo- 
ple, to try to get their support with the railroad company or with the 
issuer, believing that they would very quickly be consulted and that 
they would be advising them. 

Mr. Nehemkis. Mr. Chairman, I offer at this time a copy, previ- 
ously identified, of the minutes of the railroad. Shall I proceed, 
sir? 

The Chairman. The exhibit may be received. 

(The copy of the minutes referred to was marked "Exhibit No. 
1723" and is included in the appendix on p. 12264.) 

ADVANTAGES WHICH ACCRUE FROM LEADERSHIP 

Mr. Nehemkis. At this time, Mr. Swan, was there not some ques- 
tion as to whether E. B. Smith & Co. or Brown Harriman should 
lead the business? 

Mr. Swan. Oh, I believe we always, on all of these issues, had 
great discussion as to who should lead the business. It seemed very 
importan^to us, the leadership seemed very important to us. 

Mr. Nehemkis. Now, what are the advantages accruing to a bank- 
ing house in leading a piece of business ? 

Mr. Swan. I think prestige. 

Mr. Nehemkis. Position in advertising? 

Mr. Swan. Position in advertising. 

Mr. Nehemkis. Sometimes management fees ? 

Mr. Swan. Well, in this case 

Mr. Nehemkis (interposing). In this there tvasn't.but generally 
speaking ? 

Mr. Swan. Well,- if 

124491—40 — pt.23^ 15 



12026 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis (interposing). Isn't also one of the advantages of 
leadership the ability to conduct negotiations with the company 
officials? 

Mr. Swan. I don't think particularly. 

Mr. Neiiemkis. How about keeping the syndicate books? Isn't 
that one of the advantages of leadership? 

Mr. Swan. It is sometimes thought to be. 

Mr. Nehemkis. And why would it be an advantage to keep the 
books ? 

Mr. Swan. Well, it always is an advantage, I suppose, to be the 
people who can give out interests in the business. 

Mr. Nehemkis. Isn't it a fact, jSIr. Swan, that the house that keeps 
the books has the right to make the selections of the other members 
of the group, and by virtue of having the power to make the selections 
is in a position to place those other houses under a reciprocal 
obligation ? 

Mr. Swan. I think that sometimes can be inferred. As a matter of 
fact, in a situation of this sort, I think that everybody — that is, the 
three leaders, or the two leaders in this account — allocated business on 
this thing. I would like to say as regards any reciprocal gains, or 
any reciprocal advantage, that the first job of the banker every time 
is to do a good piece of business. If he doesn't do a good piece of 
business, he does not survive. Any reciprocal, so-called reciprocal, 
advantages are very incidental to any piece of business. The first job 
of the banker is to try to do a good piece of business in order to have 
another piece of business, and if he doesn't do a good piece of business 
he won't have another piece of business. 

Mr. Henderson. Mr. Swan, do you keep a little black book of 
reciprocal obligations ? 

Mr. Swan. We keep a card in our files which shows the business 
that we do with other people and the business they do with us. 

Mr. Nehemkis. I might saj^, Mr. Henderson, that Mr. Swan has 
been good enough to make that available to n^. 

Senator King. May I ask a question ? 

Mr. Swan. But I would like to emphasize that any reciprocal rela- 
tions are very incidental to this business. 

Mr. Henderson. They are part of the company records? 

Mr. Swan. We have this card,^ which is a part of our records, of 
which you have a copy. 

Senator King. Would the leader be interested, if there were a 
leader, in the facility with which his associates were distributing and 
disposing of the securities allocated to them? 

Mr. Swan. That is our first thought. The only way Ave might 
choose one person rather than another, where they had equally good 
abilities to distribute, but our first thought in these things is that 
every member of a syndicate should make a contribution to the syndi- 
cate of some kind, either distributing ability or even, in many cases, 
the value of a name associated with the business is a contribution. 

Senator King. Would I be wrong in assuming that a leader would 
be interested in knowing that all of his associates in the syndicate 
were properly carrying out their function and were selling the securi- 
ties as rapidly as the market required ? 

iSee "Exhibit No. 1S8S." 



CONCENTRATION OF ECONOMIC POWER 1202' 

Mr. Swan. We keep a very complete record of the performance ol 
dealers in all syndicates, so that we think we know how well they can 
perform, what their abilities are, and that is of major importance 
to us. 

Senator King. Each member of the syndicate would be interested, 
of course, in the proper discharge of the duties and obligations rest- 
ing upon the other members of the syndicate ? 

Mr. Swan. Very much so. 

Senator King. And I suppose would be in contact with the other 
members of the syndicate to determine whether or not they were 
discharging their obligations and making proper sales and distribu- 
tions of the allocations to them ? 

HISTORICAL RELATION OF E. B. SMITH & CO. TO ERIE RAILROAD CO. FINANCING 

Mr. Swan. The principal members of a syndicate are very apt to 
be in consultation about the formation of the group and best interests 
of the syndicate. Their advice to each one of the leaders is generally 
sought, and is very valuable. 

Mr. Nehemkis. Mr. Swan, will you examine the three sheets I now 
show you and tell me whether you recognize them to be true and 
correct copies of originals in your custody and your possession? 

Mr. Swan. That is a true copy. 

Mr. Nehemkis. Will you tell me who Mr. Moore is? I think he is 
the writer of the memo. 

Mr. Swan. He was an employee of Edward B. Smith & Co. 

Mr. Nehemkis. I now offer the memo identified by the witness in 
evidence. 

(Senator King assumed the chair.) 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1724" 
and is included in the appendix on p. 12266.) 

Mr. J^EHEMKis. Jij the Avry, Mr. Sw an, may I have 

Mr. Swan (interposing). Have I some right to comment on that? 

Mr. Nehe>ikis. Would you let me develop my questions, and then 
as we always do, comment afterward ? 

Acting Chairman King. You will have full opportunity to com- 
ment upon it, Mr. Swan. 

Mr. Nehemkis. Was not Mr. Moore formerly an employee of the 
Guaranty Co. ^ ,, - ,. _ . 

Mr. Swan. He was. 

Mr. Nehemkis. Do you have a copy of this with you, in your orig- 
inal file? It might be easier to follow as I ask you questions. If 
not, we will furnish you with a copy. 

Mr. Swan. Would you give me the date of that ? 

Acting Chairman King. December 11, 1934. 

Mr. Nehemkis. Mr. Swan, I notice that Mr. Moore first lists the 
bond issues of the Erie, the leadership of the syndicate, or the first 
three or four houses in the syndicate since 1924, and then he goes on 
as follows [reading from "Exhibit No. 1724"] : 

The Guaranty did not have an original interest in any of the above Erie financ- 
ing but did have a 6% interest in the selling groups formed in connection with 
the two offerings of $50,000,000 of First and Refunding Mortgage 5s. I did 
not check the smaller issues for selling group interests. 



12028 CONCENTRATION OF ECONOMIC POWER 

He then says, in the second paragraph on tlie bottom of page 1 : 

The Guaranty did not have an original interest in any of the above Erie 
financing. 

He next traces the ownership of the Erie stock, and you see that 
set forth there. He next traces the original interests and outstanding 
bank loans, Guaranty Trust, First National's interest being the 
largest. 

He says, in the middle of page 2, under the caption, "Bank loans*' 
[reading further] : 

In connection with the outstanding banli loans, the original interests were 
to be as follows — 

And then he lists the various banks. 
Then he continues [reading further] : 

It should also be noted that the National City Co. was not included. 

Do you follow me, Mr. Swan? 

Mr. Swan. Yes. 

Mr. Nehemkis. Now, I am going to read to you from the first 
paragraph under the caption, "Miscellaneous" [reading further from 
"Exhibit No. 1724"] : 

In February 1930, Mr. Swan spoke to J. P. Morgan & Co. regarding the 
Guaranty's interest in Erie financing. J. P. Morgan & Co. thought that they 
should go over all of their financing in which the Van Sweringens were inter- 
ested and review the Guaranty's interests. They — • 

Meaning the J. P. Morgan Company — 

recognized the Guaranty's claim on Pere Marquette financing but did not 
revise the Guaranty's interest in the Erie financing of $50,000,000 Refunding 
and Improvement Mortgage Bonds the following April. 

Now, will you turn with me, Mr. Swan, to the section called, 
"Comments," at the bottom of page 3, and Mr. Moore continues 
[reading further] : 

I am inclined to the belief that we should limit our claim to the leadership 
of the proposed underwriting of the Erie extension to the basis that it is 
Van Sweriijgen financing. If we take the position that the stock is owned 
by Chesapeake & Ohio it is possible that we may open up the claim of Kuhn 
Loeb to a leading position whether or not they have been invited to consider 
the business. 

And Mr. Moore continues [reading further] : 

We must also consider the extent, if any, to which we may be committed to 
Lee Higginson. In this connection they were included in Chesapeake Corpo- 
ration (initial issue) because part of the C. & O. stock was at that time 
owned by Nickel Plate. It was stated, however, at the time that their 
inclusion and interest were not to constitute a precedent. Also, while they 
appeared in Allegheny financing the Guaranty Company retained the manage- 
ment fee and warrants. 

Mr. Swan, what relation did E. B. Smith and Co. have to Van 
Sweringen financing, which entitled it to base its claim on the facts 
herein set forth and which I have read to you ? 

Mr. Swan. Well, it was purely on the basis of what we would call 
a professional, or a personal-professional relationship. "V\nien the 
Van Sweringens did their financing, which my impression was in the 
year 1922, it was handled by the Guaranty Co. I think it was largely 
handled by myself and Mr. Burnett Walker. 

Mr. Nehemkis. Wlien you wei-e with the Guaranty Co. ? 

Mr. Swan. When I was with the Guaranty Co.; yes, sir. 



CONCENTRATION OP ECONOMIC POWER 12029 

Mr. Nehemkis. Mr. Swan, I am sorry, but will you ask the gentle- 
man who gave you that information to come back to the stand ? 

Mr. Swan. Mr. Walker? 

Mr. Nehemkis. B. W.? ' 

Mr. Swan. B. W. 

Mr. Nehemkis. I am not at all interested in what Mr. Walker said, 
but in the interests of orderly procedure 

Mr. Swan (interposing). May I tell you exactly what he said? 

Mr. Nehemkis. It is not necessary. I shall just ask you, Do you 
accept what Mr. Walker gave as j-our answer to me ? 

Mr. Swan. Yes. It is quite clear. 

Mr. Nehemkis. All right, I just w^anted to have the record show 
that. 

Mr. Swan. What Mr. Walker said was that a registration statement 
had just been filed in connection with an issuance for the Chesapeake 
Corporation, which owned the stock of the Chesapeake & Ohio Rail- 
way Co. and was one of the so-called Van Sweringen companies. 

Mr. Nehemkis. Mr. Swan, did Mr. Moore mean that because Van 
Sweringen financing had been part of the Guaranty Co. business, that 
E. B. Smith & Co. had a claim to it ? 

Mr. Swan. I didn't finish my answer to the last question. I will 
start it by saying that we had this very close relation with the Van 
Sweringens, when we were doing the Nickel Plate financing, in 1922. 
I think we had continued that close personal relationship ever since. 

Mr. Nehemkis. When you say, "we," sir, you mean the Guaranty 
Trust? 

Mr. Swan. No ; the Guaranty Co. first and then when Mr. Walker 
and myself went into Edward B. Smith & Co., the close personal 
relationship continued, and we renewed it or extended it, whatever 
word you want, when we went into Edward B. Smith & Co. When we 
went into Edward B. Smith & Co. we were using every legitimate 
means in our power to secure business, and this professional relation- 
ship w,hich we had, and which we believe is a very important thing 
in the investment banking business, as Mr. Whitney has explained— 
the investment banking business has a very professional character. 
When the Guaranty Co. ceased to exist, we thought that that profes- 
sional relationship extended to the persons who had helped to create 
it, and when we were in the Guaranty Co. we did our best to get the 
relationship with the Van Sweringens and with other issues just as 
close as we possibly could. When the Guaranty Co. was no longer able 
to do investment business, we then went to these clients and we urged 
on them the close personal relationships which we had previously had 
with them, through our contact when we were members of the 
Guaranty Co. 

• Mr. Nehemkis. You felt, then, Mr. Swan, that when you and your 
associates left the Guaranty Co. of which you had been the head, and 
entered the private banking house of E. B. Smith & Co. that because 
of your personal and close and intimate relationship to that business, 
naturally that business followed you? 

Mr. Swan. We made an effort to see that it did follow, and in those 
cases it did. 

Mr. Nehemkis, Now, National City Co., Mr. Moore noted, was not 
included in the banks that had made loans to the Erie, do you recall 
that? 



12030 CONCENTRATION .OF ECONOMIC POWER 

Mr. Swan. The memorandum ^ so states. 

Mr. Nehemkis. Now, the National City Co. appeared after the 
Guaranty Co. in the original group of C. & O., Pere Marquette ani^ 
Missouri Pacific, is that correct? 

Mr. Swan. Those pieces of business were not handled by Guaranty 
Co.; we were participants, through syndicates, but we were not the 
managers. 

Mr. Nehemkis. Would you examine page 3 of Mr. ]Moore's memo- 
randum.^ You will note there that National City Co. appeared after 
the Guaranty Co. in each instance. 

Mr. Swan. Oh, I 

Mr. Nehemkis. Did you misunderstand me ? 

Mr. Swan. I think I probably misunderstood you. I didn't say 
they didn't appear, but I just said those pieces of business were not 
pieces of business Avhich we managed; they were not so-called our 
pieces of business. 

Mr. Nehemkis. Sorry. Was the piiority of Guaranty Co. over 
National City Co. the basis for E. B. Smith's claim of priority over 
Brown Harriman ? 

Mr. Swan. I think our claim of priority over Brown Harriman & 
Co. was any legitimate claim we could make. We were trying to get 
the leadership of this business and we put forward every argument 
that we could think of. Now this memorandum * that you see here 
was a memorandum prepared by Mr. Horace Moore. 

Mr. Nehemkis. I will give you a chance to explain that in detail as 
soon as we finish the questions. 

Mr. Swan. That is part of your question now. • 

Mr. Nehemkis. You will have full opportunity — the committee will 
afford it to you, I am sure. 

Acting Chairman King. You will have opportunity to make expla- 
nation. 

Mr. Nehemkis. Mr. Moore recognized in the memorandum * that 
we have been discussing that the mantle of Guaranty Co. had fallen 
on E. B. Smith and that the mantle of the National City Co. had 
fallen on Brown Harriman. . This committee has heard testimony 
from Mr. George Bovenizer of Kuhn, Loeb & Co., who likewise recog- 
nized that the mantle of the National City Co. had fallen on Brown 
Harriman. Now, did Mr. Ripley recognize the validity of these 
contentions ? 

Mr. Swan. I don't know w^hat Mr. Ripley thought. 

Mr. Nehemkis. I now read to you, Mr. Chairman, from a memo- 
randum by Mr. Joseph P. Ripley to Mr. H. C. Sylvester and Mr. 
P. V. Davis on the subject of the Erie Railroad which we are dis- 
cussing, and this memorandum has been previously identified [read- 
ing from "Exhibit No 1725"] : 

After hearing the whole story, I have seen fit to let E. B. Smith Company 
head the account on New York. Pennisylvania and Ohio Extension bond proposi- 
tion. Their name comes first, ours second ; interest to be 50/50 ; managership 
is to be shown as it was in the Chicago & Western Indiana. Nobody else should 
be brought into the account until both of us approve, and we t "h thiilk only the 
two of us should do the business. 



1 "Exhibit No. 1724." 
a Ibid, 
s Ibid. 
* Ibid. 



CONCENTRATION OF ECONOIMIC POWER 12031 

I offer this in evidence, Mr. Chairman. 

(The memorandum referred to was marked "Exhibit No. 1725" 
and is included in the appendix on p. 12267.) 

Mr. Nehemkis. Do you recall, Mr. Swan, that it was only E. B. 
Smith and Brown Harriman which were to do the entire issue? 

Mr. Swan. At that particular time that apparently was the thought 
in Mr. Ripley's mind, as expressed to his associates. 

Mr. Nehemkis. How did it happen that Kuhn, Loeb; White, 
Weld; Clark, Dodge; and Goldman, Sachs & Co. were subsequently 
included ? 

Mr. Swan. I think that we thought they would be an addition 
to the business and help it. 

Mr. Nehemkis. Mr. Swan, will you examine the document I now 
show you and tell me whether you recognize this to be a true and 
correct copy of an original in your possession? 

Mr. Swan. That is a true copy. 

Mr. Nehemkis. INIr. Chairman. I offer in evidence the document 
identified by the witness, 

(The document referred to was marked "ExKibit No. 1726" and 
is included in the appendix on p. 12268.) 

Acting Chairman King. It may be received. Now, Mr. Swan, 
you niay make the explanation. 

Mr. Swan. All I wanted to say in regard to this memorandum,^ 
was that Mr. Moore, who was an employee of ours, and was very 
anxious to bring to our attention any arguments that we might make 
whereby we would gain leadership or advancement in our cause of 
business, prepared this memorandum. Some of it is prepared from 
data ; he tells me some of it came out of his memory. It is his presen- 
tation of the arguments that we might use to try to get leadership 
of this business. Very little of it, in my opinion, had validity. 
The real argument which we thought we had for getting lead- 
ership in this business was the close connection of many years of 
Mr. Walker and myself with the Van Sweringens who were at this 
time — or who had previous to tliis time — or who at this time, yes, 
who at this time controlled Erie Railroad, one of their railroads. We 
had very close associations with them. 

I have no doubt that in the course of this discussion that we 
probably talked to the Van Sweringens; we probably talked to Mr. 
Bradley; we missed a trick if we didn't; we were doing everything 
we could to get business and to get important positions in the business. 

IMr. Nehemkis. Is there any question in your mind, Mr. Swan, 
concerning the accuracy of any of the statements made by Mr. 
Moore ? 

Mr. Swan. I don't doubt the accuracy of the statements, but I 
doubt the validity of the inferences. 

Acting Chairman King. Let me ask a question there. Was there 
during the period covered by the memorandum to which reference 
has been made, anterior and subsequent to that period, was there 
and is there rivalry among bond houses to secure positions in the 
syndicates for the sale of securities, and having securities? 

Mr. Swan. I think there is the most intense competition in our 
business, both before business is secured and after business is secured. 



1 "Exhibit No. 1724. 



12032 CONCENTRATION OF ECONOMIC POWER 

to get position and large interests in the business. I think the com- 
petition is very keen all the time. 

Acting Chairman King. Did the Guaranty Co. have rather an im- 
portant place in the vending of securities? 

Mr. Swan. I think the Guaranty Co. — it would probably be im- 
modest to say it — I think we were probably about the best distribu- 
tors of securities, retail distributors of securities. [General laughter.] 

Acting Chairman King. I think that modesty is entirely war- 
ranted. When did it cease to operate and when did this mantle — 
using the expression of my friend here — fall upon somebody else's— r 
if it did — shoulders? 

Mr. Swan. The Guaranty Co. ceased to operate. 1 think, on the 
15th of June 1934. At that time Edward B. Smith & Co. took over 
the major part of their organization; four officers of Guaranty Co., 
as I have testified, became partners in Edward B. Smith & Co. This 
sales organization to which j^^ou have refered I think was taken over 
practically in its entirety Edward B. Smith & Co. was perfectly 
qualified ; had the qualities which I think are necessary for an invest- 
ment banker to have, to handle the business that the Guaranty Co. 
previously handled. 

We naturally went out and pressed that as much as we could and 
pressed previous relationships as hard as we could. We succeeded 
in retaining, I should say, most of the business that the Guaranty 
Co. had previously done. 

Acting Chairman King. Is the investment business so uncertain 
and subjected to so many dangers so that its mortality, speaking 
generally over a long period of years, is very great? 

Mr. Swan. I wouldn't like to go intp that too intimately. 

Acting Chairman King. At any rate' it isn't absolutely watertight 
business ? 

Mr. Swan. I think it is an extremely hazardous busin.ss and as 
far as the present time is concerned, the profits of it are mcst limited. 

Acting Chairman King. When you guarantee the issues of rail- 
road companies particularly, is there any certainty of any profits at 
all? Judging from the past? 

Mr, Swan. Judging from the past, these issues I have been re- 
viewing, these issues here, and thinking about them, th'^se issues 
were all issues wliich needed good salesmanship, needed pvfjple who 
could properly explain securities and who were known as people 
who could do a good placing job. 

Acting Chairman King. Isn't there he'^itancy — I will put it that 
way — upon the part of some of these investment companies in under- 
writing the guaranteeing of the bonds which they take ov^r, or is 
there very great desire to underwrite obligations? 

Mr. Swan. Well, of course, it depends upon the character of the 
obligation. The very highest class obligations are very mucli sought 
for; there "re some other obligations which presumablj- are per- 
fectly good, but are less easily salable that are not so much sought 
for. I think it varies as to the eagerness with which people seek 
interests as to their apparent salability. 

Acting Chairman King. I assume that when a corporation desires 
to obtain capital with which to refund or to meet new issues that it is 
concerned as to the charncter, standing, and prestige of the various 
investment companies with which it seeks affiliation? 



CONCENTRATION OF ECONOMIC POWER 12033 

Mr. Swan. I think I would put it this way: I think they require 
sufficient capital to know that the obligation which the underwriter 
may take is assured. I think the next — I think all of these — no one 
of these is good without the other. An investment banker must 
have capital, he must have integrity, and he must have competence. 

Acting Chairman King. I assume, then, that some investment 
bankers have larger capital than others? 

Mr. Swan. Yes; that is true. 

Acting Chairman King. And to that extent if they have a good 
name, good character for integrity and honesty, they may have some 
advantages over other investment bankers? 

Mr. Swan. Well, I don't think — I don't think I would go too far 
on that. Capital is only one attribute which is necessary, and after 
you get up to capital of a certain amount, the capital which is suffi- 
cient to guarantee the obligation which you take, capital beyond 
that is not so particularly necessary. 

Acting Chairman King. The moral stamina and moral character 
have a great deal to do with the position which an investment bank- 
ing organization will have in the community ? 

Mr. Swan. I thoroughly believe so and I think that isn't enough. 
I mean capital and integrity aren't enough. I think that the banker 
has to be competent; he has to know his business. 

Mr. O'CoNNELL. May I ask a question, Mr. Swan? A moment 
ago you expressed some concern about possibly unwarranted infer- 
ences that might be drawn from Mr, Moore's memorandum.^ What 
did you have in mind more specifically than that? 

Mr. Swan. I just meant that some of the things that he put for- 
ward as arguments as to why we should have that business didn't 
seeiii to me very good arguments. 

Mr. O'CoNNELL. Specifically were you referring to the nature 
.and extent of the so-called reciprocal obligation that has been 
discussed ? 

Mr. Swan. No. Well, may I just look at that ? I don't know that 
I know just what you are referring to. 

Mr. O'CoNNELL. I am not at all clear on what you were referring 
to when you made the general statement. 

Mr. Swan. All I was saying was that here are a number of things 
that are recorded here on these several pages which are put forward 
as arguments as to why we might claim position over Brown Har- 
riman & Co. in the leadership of this business, and one or two of 
the things that I have spoken of here were valid arguments. I 
think a good many that were spoken of here did not constitute valid 
arguments, and I think the inference is — maybe this will answer your 
question — the inference is that all of this constituted valid argu- 
ments. It really was just bringing up before us the things that we 
might consider as to whether they were valid or not. 

FORMER association OF PARTNERS OF E. B. SMITH & CO. WITH GUARANTY 
CO. AS A VALro CLAIM TO LEADERSHIP 

Mr. O'CoNNELL. Well, would you consider the fact that you and 
other members of E. B. Smith & Co. had formerly been connected 

1 "Exhibit No. 1724." 



12034 CONCENTRATION OF ECONOMIC POWER 

with the Guaranty Co. is a valid argument to be used in this con- 
nection ? 

Mr. Swan. Yes; I certainly thought that was a valid argument, 
that our old relationship over a period of years with the people who 
now controlled this property constituted a valid argument as to why 
we should get leadership in this business. 

Mr. Henderson. Have you finished? 

Mr. O'CoNNELL. Go ahead. 

Mr. Henderson. I have no desire to interfere with the proper 
questioning by the committee. I would like to point out, however, 
we gave a sort of commitment to Mr. Whitney and his associates 
that we would try to get them through by tomorrow night. 

Acting Chairman King. If you will stop speaking now ws will 
hurry along. 

Mr. Nehemkis. You recall, Mr. Swan, I asked you if you had any 
knowledge as to why White, Weld & Co., or Kuhn, Loeb or Clark, 
Dodge were subsequently included. I want to read you from a mem- 
orandum which you have just identified and which is now in evidence, 
as follows [reading from "Exhibit No. 1726"] : 

We were advised by Mr. Arthur Anderson, of J. P. Morgan & Co., that White, 
Weld & Co. had been associated with J. P. Morgan & Co. or Drexel & Co. in 
the underwriting of a number of former Erie extensions and commented that 
they had approached him in connection with the underwriting of this exten- 
sion. Mr. Anderson did not .specifically request that we include White, Weld 
& Co. but he was pleased when informed that we had offered White, Weld & 
Co. an interest of 15%. 

After Kuhn, Loeb & Co. had been offered and had accepted an interest of 
10%, we learned that they had approached J. P. Morgan & Co. concerning the 
business. 

I note, there, Mr. Swan, that K., L. went direct to J. P. Morgan 
& Co., rather to E. B. Smith or Brown Harriman. I continue to read 
from this memorandum by Mr. Cutler [reading further] : 

An interest of 5 percent was offered to Clark, Dodge & Co. 

By the way, Mr. Anderson, do you know Mr. Francis Ward? 

Mr. Anderson. Very well. 

Mr. Nehemkis. Had Mr. Francis Ward formerly been with J. P. 
Morgan & Co.? 

Mr. Anderson. Yes. 

Mr. Nehemkis. And then he went to Clark, Dodge & Co.? 

Mr. Anderson. Yes. 

Mr. Nehemkis. I continue reading from the memorandum of Mr. 
Cutler, Mr. Swan [reading further from "Exhibit No. 1726"] : 

An interest of 5 percent was offered to Clark, Dodge & Co. because of Mr. 
Francis Ward's recent affiliation with the firm. 
We considered offering a participation to Morgan Grenfell & Co., Limited. 

Mr. Swan, why did you consider it necessary to offer a participa- 
tion to a London house? 

Mr. Swan. A great many of these bonds were held in Holland and 
England. As a matter of fact in making up this list strength was 
^dded to the business by the fact of having. Kuhn, Loeb; White, 
Weld; Clark, Dodge, in this business, because they were all very well 
known names abroad. That was one of the influences in choosing 
those people. 

Now as far as Clark, Dodge is concerned, it says here we included 
them becauss of Mr. Francis Ward's recent affiliation. That is true. 



CONCENTRATION OF ECONOMIC POWER 12035 

Mr. Nehemkis. I was just asking about Morgan Grenfell. 

Mr. Swan. Morgan Grenfell of course were located in London 
where their name also^ — where it would be useful to have them helping 
this business along, which required deposits and exchanges, and so 
forth. 

Mr. Nehemkis. Would I be entirely mistaken, Mr. Swan, if I sug- 
gested that one reason why you may have wanted to offer a partici- 
pation to Morgan Grenfell & Co., Ltd., of London was because of its, 
shall I ssij, association with J. P. Morgan & Co. of New York? 

Mr. Swan. I haven't any doubt but what that — that we, of course, 
knew that and maybe that is the reason their name was suggested to 
our minds. Of course they are very well and favorably known over 
there and would add to the business. Each one of these people 
TS'ould help the business. 

Acting Chairman Kjng. Were securities sold abroad in Holland? 

Mr. Swan. This was not a question. Senator, of selling securities. 
This was the extension of an outstanding issue and there were a great 
many of these bonds held in Holland and in England. 

ATLANTIC COAST LINE RAILROAD CO. REEUNDING ROIE OF J- P. MORGAN 

& CO. 

Mr. Nehemkis. Mr. Whitney, did J. P. Morgan & Co. arrange the 
$12,000,000 Coast Line financing in May of 1935? 

Mr. Whitney. Well, we advised a great deal with Mr. Delano, the 
chairman of the board of the Coast Line, because they had this record 
that you introduced earlier, not only these maturities but also a bank 
loan was coming due. 

Mr. Nehemkis. Bank loan to J. P. Morgan & Co.? 

IVIr. Whitney, We had an interest in a six and a half million 
dollar loan, if I remember right. Again here we had, I think, started 
doing business with the Atlantic Coast Line Railroad and Louis- 
ville & Nashvillt Railroad back somewhere prior to 1880, and our 
relations there had been particularly close. Mr. Delano, who was the 
chairman, was a verj^ close personal, friend of ours and he had 
shortly before succeeded Mr. Henry Walters, who had been chairman 
for years, and we certainly did everything in our power to assist in 
it. I think I arranged— we were very active — this particular trans- 
action myself, up to the point of discussion, and I know I did every- 
thing I possibly could to help Mr. Delano. 

Mr. Nehemkis. Mr. Swan, will you glance at these diary entries 
which purport to come from your files, and tell me whether they are 
true and correct copies of originals in your possession? 

Mr. Swan. They are. 

Mr. Nehemkis. I offer them in evidence, Mr. Chairman. 

Acting Chairman King. They may be received. 

(The diary entries referred to were marked "Exhibit No. 1727" and 
are included in the appendix on p. 12268.) 

Mr. NEHEMias. Mr. Whitney, will you follow me as I read you 
some of these entries by Mr. Cutler, Mr. Swan's partner? 

Diary entry, 9/20/34 [reading from "Exhibit No. 1727"] : 

JRS— 



12036 CONCENTRATION OF ECONOMIC POWER 

Mr. Swan — 

an<l I spoke to GW regarding possible financing. Road wants to sell about 
$12,000,000 bonds when it can. Business pretty fair first six months but falling 
off now. No reason why we .should not approach Lyman Delano direct, which 
we plan to do. 

Would that mean, Mr. Swan, that Mr. Whitney consented to your 
approaching Mr. Delano, chairman of the Atlantic Coast Line? 

Mr. Swan. I think it meant that Mr. Whitney thought it would be 
an advisable thing for us to do. 

Mr. Nehemkis. I'm sorry, I didn't quite get it. 

Mr. Swan. I think it meant that Mr. Whitney thought that it 
would be an advisable thing for us to do. As a matter of fact, Mr. 
Cutler happened to be a personal friend of Mr. Lyman Delano, and 
we went to Mr. Whitney because of his well-known connection with 
the road. Mr. Whitney said, or we asked possibly, Shall we talk to 
Mr. Delano, and he said, "Well, yes, go ahead." 

Mr. Nehemis. And you did talk 

Mr. Swan (interposing). And we talked to Mr. Delano. 

Mr. Nehemkis. To Mr. Delano, because Mr. Cutler subsequently 
noted in his diary that he [reading further from "Exhibit No. 1727"] : 

and JRS lunched with Lyman Delano, Chairman, today. Delano said he had 
extended his six months' loan with the banks (JPM & Co. loans secured by Gen- 
eral 4%% bonds) for another six months from October 1st. 

I am just skipping along here [reading further] : 

JWC to see GW— 

Mr. Whitney — 

and follow. I reported the above conversations to Anderson of JPM & Co., in Mr. 
Whitney's absence abroad. 

Continuing [reading further] : 

Reported to Whitney conversation JRS and I had with Delano as above. 
Loan extended to April 1st. George Whitney called JRS yesterday and said 
that Mr. Delano had seen him and he thought it was time to consider doing 
something. He — 

Meaning George Whitney — 

also spoke of our discussion with him some months ago as reported above. It was 
left we were to study the situation and decide what, in our opinion, could be 
done, and go back to GW. 

I continue, Mr. Swan [reading further] : 

JRS and I talked with G. Whitney and told him we would be very much inter- 
ested in considering the underwriting of $12,000^,000 of above bonds, but felt 
before talking more definitely we would like to have additional information. 

Skip along a few sentences, if you will [reading further] : 

Whitney will speak to Brown, Harriraan and then advise Delano he has spoken 
to both of us. He further indicated on account of the old three-way account that 
he assumed BH & Co. should lead. 

Mr. Whitney, the old trio account was made up of J. P. Morgan & 
Co., First National, and National City, according to your previous 
testimony ? Is that correct ? Can you answer me yes or no ? 

Mr. Whitney. Yes ; I think so. May I ask for that again ? 

Mr. Nehemkis. I said, Mr. Whitney, that the old trio, according to 
your previous testimony before this committee, had been made up of 



CONCENTRATION OF ECONOMIC POWER 12037 

J. P. Morgan, Fii-st National, and National City. Will you answer 
that yes or no, if you can? 

Mr. Whitney. Yes. 

Mr. Nehemkis. So that, Mr. Whitney, you recognize Brown Harri- 
man as the heir of the National City Co. ? 

Mr. Whitney. No. 

Mr. Nehemkis. You repudiate that statement? 

Mr. Whitney. What statement? 

Mr. Nehemkis. That I have just read to you purporting to be a con- 
versation. 

Mr. Whitney. The best answer will be the next sentence. 

Mr. Nehemkis. I am now continuing with the diary entries [read- 
ing further from "Exhibit No. 172T"] : 

Ran into G. Whitney again and in view of what we thought he indicated 
yesterday regarding leadership, reminded him that in the three issues of Coast 
Line securities since the war, J. P. M. & Co. had appeared alone, the last issue 
for the three-way appearance being in 1915. He said he realized that and merely 
indicated to us yesterday that he considered ourselves and B. H. & Co. 50-50, 
leaving us to work out leadership between us. 

That is not in conflict with any question I have asked you. 

Mr. Hendekson [to Mr. Whitney]. You didn't give him an answer 
to the question. He asked you whether you repudiate Cutler's dairy 
entry there? 

Mr. Whitney. I merely meant, Mr. Henderson, that I thought the 
next sentence which I had read ahead rather showed there had been 
some mix-up in Cutler's recollection of what I had said. He said, "he 
merely indicated to us yesterday that he considered ourselves and 
B. H. & Co. 50-50." 

So" apparently the next day I hadn't meant quite what Mr. Cutler 
meant in his previous memorandum. 

I acknowledge perfectly freely there had been a three-three account, 
but I don't remember ever saying to Mr, Cutler that I thought Brown 
Harriman should lead, and that is supported by what Mr. Cutler 
himself says the next day. Isn't that right? 

Mr. Nehemkis. Just a moment, Mr. Whitney. I want to point out, 
if I may, to the Chair, the diary entry by John W. Cutler dated 
January 10, 1935, which reads as follows [reading from "Exhibit No. 
1727"] : 

Whitney will speak to Brown Harriman and then advise Delano he has spoken 
to both of us. He further indicated on account of the old three-way account — 

That is the old trio arrangement, Mr. Chairman — 

that he assumed B. H. & Co. should lead. 

Mr. Whitney, of course, having this before him, jumps ahead and 
then reads from Mr. Cutler's entry of January 11, 1935, but those two 
things are separate statements, and my reference and my question, 
sir, was directed to Mr. Cutler's diary entry of January 10, 1935. 

Acting Chairman King. Then the statement made by Mr. Whitney 
is sufficient answer, it explains it. He repudiates it in the sense of a 
categorical statement, but he makfes the explanation. 

Mr. Whitney. I thought, sir, you asked me whether I recognized 
that Brown Harriman inherited the City Company business and I 
said "No" to that. 

Acting Chairman King. Proceed. 



12038 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. Just one more question on that. Mr. Cutler said 
very plainly that you had said to him that you assumed, on account 
of the old three-way arrangement, that Brown Harriman & Co. 
should lead, and your direct answer to that is what? Did you or 
didn't you tell Mr. Cutler that? 

Mr. Whitney. I haven't the slightest recollection of that, Mr. Hen- 
derson. It was a long time ago. It is quite extraordinary that I 
should have spoken to E. B. Smith first, if I had thought that Brown, 
Harriman should lead. 

Mr. Nehemkis. I would merely observe, Mr. Chairman, and I will 
promise to move on rapidly, that it would appear from the^e diary en- 
tries that Mr. Whitney was not able to make up his mind until after, 
when Mr. Cutler brought to him certain additional facts which ap- 
parently had escaped Mr. Whitney's attention, such as that J. P. 
Morgan & Co. had appeared alone in the last issue for the three-way 
appearance, being in 1915, and it would seem that after these addi- 
tional facts had been brought to Mr. Wliitney's attention, he changed 
his earlier view. 

I shall proceed as I have indicated. 

Acting Chairman King. But I assume that the entry there should 
be construed as the whole procedure. 

Mr. Nehemkis. Mr. Whitney, you indicated that there was an At- 
lantic Co^st Line loan at this time with J, P. Morgan & Co. Is that 
correct? 

Mr. Whitney. I indicated there was a loan with the banks of 
which we had a participation, if my recollection serves me, which was 
a six and a half million loan altogether. We had a million dollar par- 
ticipation, and we had arranged the loan for Mr. Delano with the 
other things. 

Mr. Nehemkis. Mr. Whitney, is it not a fact that part of the pro- 
ceeds of this issue were used to pay off some of the railroad's bank 
loans ? 

Mr. Whitney. Certainly. That was the purpose of the loan. 
Mr. Nehemkis. And J. P. Morgan & Co. was likewise paid off when 
the issue was floated? 

Mr. Whitney. Certainly ; they paid us all. 

Mr. Nehemkis. Mr. Whitney, you and I sometimes have difficulties 
about precision in language, so will you do me the great courtesy of 
listening attentively to my next question? Wliile I do not wish to 
imply that this particular repayment was in anj' way improi:>er, it 
did, however, involve the very situation which the Banking Act 
sought to obviate. Is that not so, Mr. Whitney ? 

Acting Chairman King. You mean the Banking Act prohibited 
making a loan to pay off an obligation of the bank? 

Mr. Nehemkis. No, sir. As I understand the provisions of the 
Banking Act, it was to prevent" the proceeds derived from flotation 
of securities to pay off obligations owing to a bank. 

Acting Chairman King. How would a corporation then, owing to 
a bank, pay its obligations if it had no credit and had no more 
monejj^, that is if it had no money and had to borrow or sell 
securities. 

Mr. Nehemkis. I don't want to testify. If you want me to, I 
will take the stand. 

Mr. Whitney. The answer to j^our question, Mr. Nehemkis is 
"No." 



CONCENTRATION OP ECONOINIIC POWER 12039 

Mr. Nehemkis. You don't consider that the situation described was 
in conflict in any way with the Banking Act ? 

Mr. Whctnet. I do not. I never even heard it suggested. 

Mr. Nehemkis. Bearing in mind, of course, that I have clearly 
indicated I personally see nothing improper about the transaction. 

Mr. Chairman, I now offer in evidence a memorandum and letter 
previously identified, from the files of the Atlantic Coast Line 
Railroad Co. 

Acting Chairman King. It may be received. 

(The documents referred to were marked "Exhibits Nos. 1728-1 
and 1728-2" and are included in the appendix on pp. 12269 and 
12272.) 

Mr. Nehemkis. Mr. Whitney, is not generally patronage one of 
the advantages sometimes derived from underwriting? Perhaps if 
you find difficulty in answering that, I will read to you from this 
letter by Mr. Delano. 

Mr. Whitney. May I have the question first? 

Mr. Nehemkis. Would you read back the question ? 

(The reporter read Mr. Nehemkis' last question.) 

Mr. Nehemkis. Did you get that? By that I mean the ability of 
a banker to name trustees and registrars, and where funds are to be 
placed on deposit, and so on. We have had some testimony to that 
effect earlier. 

Mr. Whitney. It is a new idea to me. 

Mr. Nehemkis. Let me read you this letter, Mr. Wliitney. This 
is by Mr. Delano, to Mr. William C. Potter, chairman of the Guar- 
anty Trust Co. of New York, dated April 30, 1935 [reading] : 

Dbae Mr. Pottee: The Atlantic Coast Line Railroad Company has agreed 
to sell to Brown, Harriman & Co., Incorporated, and Edward B. Smith & Co. 
$12,000,000 Ten- Year Collateral Trust Notes, secured by $25,000,000, of our 
General Unified 414% Bonds. 

Mr. Whitnej'-, if you will please listen to the following [reading 
further] : 

At the suggestion of Mr. George Whitney, we have designated the Guaranty 
Trust Company of New York to act' as Trustee of this indenture. 

Did you understand my question, Mr. Wliitney, when I referred 
to patronage as being one of the attributes of a banking house? 

Mr Whitney. I understood your question, but I was doing a little 
work for the Guaranty Trust Co. of which I was a director. 

Mr. Nehemkis. And also you were a member at that time of the 
executive committee, if I recall correctly. 

Mr. Whitney. That is quite so. 

Mr. Nehemkis. And J. P. Morgan had elected to discontinue its 
underwriting business in 1934, wasn't that what you said, Mr. 
Anderson ? 

Mr. Anderson. Your date was June 16, 1934. 

Mr. Henderson. I ought to say, Mr. Whitney, that I think coun- 
sel was compelled to ask you to give your opinion on these two 
matters that have been brought up, since they came to our attention 
in the course of the inquiry. It was an obligation on the part of 
counsel to raise' those two questions and to get your answer. 

Mr. Whitney. It is all right with me. 



12040 CONCENTRATION OF ECONOMIC POWER 

CHICAGO & WESTERN INDIANA RAILROAD CO. REFUNDING ROLE OF J. P. 

MORGAN & CO. 

Mr. Nehemkis. We no^v turn, Mr. Chairman, unless you think 
nightfall is too much upon us, to the Chicago & Western Indiana 
E. R. refunding, and I think Ave will be through in about 15 minutes. 

Acting Chairman King. Do you guarantee that, underwrite it? 
[Laughter.] 

Mr. Nehemkis. I underwrite it. [Laughter,] 

Acting Chairman King. We will take a recess until 10 o'clock 
sharp. 

Mr. Nehemkis. As soon as we conclude this. 

Acting Chairman King. I didn't say that. 

Mr. Nehemkis. Mr. Swan would have to stay overnight. 

Acting Chairman King. Would you like to leave this capital of 
the Nation tonight, Mr. Swan ? 

Mr. Swan. Senator, I would like to meet your wishes in any 
respect, but I would love to go home. [Laughter.] 

Acting Chairman King. I would like to meet your wishes, pro- 
ceed. 

Mr. Swan. There is a conflict of interest here that I think should 
be divorced. [Laughter.] 

Mr. Nehemkis. Mr. Whitney, the Chicago & Western Indiana 
financing in the fall of 1935 was a matter of purchasing a block of 
Chicago & Western Indiana bonds from the Burlington and also 
selling a block from the Chicago & Western Indiana's treasury, 
wasn't it? 

Mr. Whitney. I really can't testify of my own knowledge, except 
from these records that I have seen. I had nothing whatever to 
do with it. 

Mr. Anderson can answer, of course. 

Acting Chairman King (to Mr. Nehemkis). Can you answer the 
question ? 

Mr. Nehemkis. It was purely a technical question for the record. 
As I understand it, the Chicagq & Western Indiana financing in the 
fall of 1935 was a matter of purchasing a block of Chicago & Western 
Indiana bonds from the Burlington and also selling a block from the 
Chicago & Western Indiana's treasury, wasn't it [to Mr. Anderson] ? 

Mr. Anderson. The financing of the Western Indiana was the sale 
of treasury bonds. The sale of bonds for the Burlington was not 
of any immediate importance to the Chicago & Western Indiana R. R. 
Co. They had already passed out of their possession some j^ears 
before. 

Mr. Nehemkis. Mr. AndersoUj did J. P. Morgan & Co., manage that 
business and select the underwriters? 

Mr. Anderson, No. 

Mr. Nehemkis. Mr. Swan, will you examine a document which my 
assistant will show you, and tell me whether it is a true and correct 
copy of an original in your possession? 

Mr. Swan. It is. Do you want me to read it? 

Mr. Nehemkis. No, I don't want you to read it, I want you to 
identify it. 

Mr. Swan. I do. 

Mr. Nehemkis. I would like to offer this in evidence. 



CONCENTRATION OF ECONOMIC POWER 12041 

Acting Chairman King. It will be received. 

(The memorandum referred to was marked "Exhibit No. 1729" 
and is included in the appendix on p. 12272.) 

Mr. Nehemkis. I want to read you a part of this memorandum 
which has been identified as cominj? from the files of E. B. Smith & 
Co. [reading from "Exhibit No. 1729"] : 

Brown Harriman & Co., Incorporated, and Edward B. Smith & Co. were in- 
vited by J. P. Morgan & Co. to consider tlie purchase and sale of a block of 
$1,658,000 Chicago and Western Indiana R. R. Co. First and Refimding Mort- 
gage 51/2% Series C Bonds owned by the Chicago, Burlington and Quincy R. R. 
Co. It also developed that the Chicago and Western Indiana wished to sell 
$6,340,000 51/2% Series A Bonds for refunding purposes. An investigation of 
the Chicago and Western Indiana was undertaken jointly by Brown Harriman 
and ourselves without any determination by J. P. Morgan «& Co., or the two of 
us concerned of the question of leadership. Morgan said it was up to the two 
houses to settle this matter between themselves. Brown Harriman claimed 
the leadership primarily on the grounds that the National City Company had a 
historical and appearing position in former syndicate offerings. Our claims 
to the leadership were based primarily on the ownership of 2/5 of the capital 
stock of the Company by the Van Sweringen interests which were to acquire 
an additional 1/5 when and if the Wabash decided to withdraw. Our offer 
to toss a coin for the leadership was declined ■ond as a counter proposal it was 
suggested that the question be referred to J. P. Morgan & Co. for decision. 

Mr. Anderson, will you follow me on the next paragraph ? [reading 

further] : 

These conversations were concluded on a Friday night by Messrs. Davis, 
Sylvester and the undersigned and on the next morning Mr. Davis arranged for a 
meeting with Mr. T. S. Lamont who was the Morgan partner available that 
morning. In the meantime, however, I talked to several partners and it was 
decided that we would offer the leadership to Brown Harriman, we, however, 
to be joint in everything else, including managership. 

So, Mr. Swan, from that statement by your associate, Burnett 
Walker, admittedly J. P. Morgan & Co. had the power and the right 
to assign leadership between Brown Harriman and E. B. Smith, but 
simply preferred, for whatever reasons available at the time, not to 
exercise it. Is that correct ? 

Mr. Swan. My interpretation, of it would be that they would say 
to us that we were joint and we were to decide it between ourselves. 
We were finding it difficult to decide it between ourselves and we 
therefore tried to get them to arbitrate it. We made up our minds 
that it was a much wiser thing for us to say to Brown Harriman & Co., 
"You go ahead and lead it." 

Mr. Nehemkis. And on the basis of the opening paragraph I read, 
is it not a fact, Mr, Swan, that clearly J. P. Morgan & Co. selected the 
underwriters and was considered to be in cojnplete control of the 
situation ? 

Mr. Swan. I think if that had been written in completeness it would 
have said, "J. P. Morgan on behalf of the Railroad Company." 

Acting Chairman King. At any rate, Brown Harriman were selected 
as leaders ? 

Mr. Swan. We conceded the leadership to them without further 
action, 

Mr. Nehemkis. Will you examine that and tell me if that is a true 
and correct copy of the original in your possession? Identify the 
document for me, please- 

Mr. Swan. I do. 

Mr. Nehemkis. I offer this in evidence. 

Acting Chairman King. It may be received. 

124491—40 — pt. 23 16 



12042 CONCENTRATION OF ECONOMIC POWER 

(The memorandum referred to was marked "Exhibit No. 1730" 
and is included in the appendix on p. 12273.) 

Mr. Nehemkis. I now offer in evidence a document previously 
identified. 

(The memorandum referred to was marked "Exhibit 1731" and is 
included in the appendix on p. 12273.) 

Mr. Nehemkis. Mr. Anderson, will you examine a letter from your- 
self to Mr. Ralph Budd, of the Chicaojo, Burlington & Quincy Railroad 
Co., dated April 30, 1934, and tell me if that is a true and correct copy? 

Mr. Anderson. Yes, sir. 

Mr. Nehemkis. Will you look at this nnd tell me if you are familiar 
with that memorandum ? 

Mr. Anderson. Yes, sir. 

Mr. Nehemkis. These are offered. 

(The letter and memorandum referred to were marked "Exhibits 
Nos. 1732 and 1733" and are included in the appendix on pp. 12273 
and 12274.) 

Mr. Nehemkis. Will you examine these, Mr. Swan, and tell me 
if they are true and correct copies? 

Mr. Swan. They are. 

Acting Chairman King. I assume without reading that they have 
some relevancy tO' the inquiry ? 

Mr. Nehemkis. I am trying to "underwrite this deal" for j'ou, 
Senator. 

Acting Chairman King. They jnlay be received. 

(The telegram and the diary entries referred to were marked 
"Exhibits Nos. 1734 and 1735" and are included in the appendix on 
p. 12275.) 

Mr. Nehemkis. Mr. Anderson, will you glance at this memoran- 
dum and tell me if you recognize it as a true and correct copy? 

Mr. Anderson. Yes. 

Mr. Nehemkis. Offered. 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1736" and 
is included in the appendix on p. 12275.) 

Mr. Nehemkis. I now offer ^ 11 documents previously identified 
and bearing upon the subject of this discussion. 

Acting Chairman King. Who is Mr. Sylvester? 

Mr. Nehemkis (to Mr. Whitney). Mr. Sylvester is vice president of 
the investing banking house of Harriman Ripley & Co., Inc. ; correct? 

Mr. Whitnet. Correct. 

Mr. Anderson. Mr. Nehemkis, this memorandum seems to be 
dated around the middle of July 1934. I was absent on a holiday 
abroad at the time, I think. 

Mr. Nehemkis. Which memorandum? 

Mr. Anderson. This memorandum from Walker. 

Mr. Nehemkis. That is an undated memorandum. 

Mr. Anderson. It refers to a meeting on July 17, 1934. I never 
heard of this meeting which is referred to, and at which T. S. Lament 
was present. 

Mr. Nehemkis. May I suggest after the meeting is adjourned you 
and Mr. Walker and Mr. Swan get together on this? I am merely 
offering what is written here. 

Acting Chairman King. You may correct it; if you were out of 
the United States, you may indicate it in the record. These docu- 
ments may be received. 



CONCENTRATION OF ECONOMIC POWER 12043 

(The documents referred to were marked "Exhibits Nos. 1737 to 
1747" and are inckided in the appendix on pp. 12276-12279.) 

Mr. Nehemkis. Mr. Whitney, I asked you a question at the outset 
of these hearings. I am now going to repeat that question to you 
and see if y^n don't perhaps care to change your answer. It would 
appear, Mr. Whitney, that the power to determine to whom these rail- 
road refundings were to be distributed was the power to distribute 
about $700,000 of gross income. Would you agree, Mr. Whitney ? 

INIr. Whitney. I see no reason to change my former answer. But 
Mr. Chairman 

Mr. Nehemkis (interposing). Thank you, sir. I want to get my 
documents in and then you can comment. Does it relate to that 
point? 

Mr. Whitney. Oh, yes; it relates to that point. 

Mr. Nehemkis. To the specific point or the general subject matter? 

Mr. Whitney. I will be glad to wait. 

Mr. Nehemkis. You will recall we discussed this morning, Senator 
King, a stipulation ^ by C. E. Mitchell, concerning a number of 
documents which I have been offering. I now want to offer another 
document pursuant to that stipulation, but before handing it to you, 
let me read it to you. You will recall that we have been discussing 
the refunding of the Atlantic Coast Line. Now on June 17, 1936, 
after Morgan Stanley & Co. was organized, Morgan Stanley brought 
out an offering of $26,000,000 of Louisville & Nashville Railroad Co. 
first and refunding bonds. 

"VVliat is the relationship, Mr. Anderson, between the Louisville & 
Nashville Railroad and the Atlantic Coast Line? 

Mr. Andekson. The Atlantic Coast Line controls the Louisville & 
Nashville by ownership of a majority of the capital stock. 

Mr. Nehemkis. This is a memorandum, you will recall, by Mr. 
C. E. Mitchell [reading from "Exhibit No. 1748"] : 

Morgan, Stanley & Co. will offer the above mentioned issue probably next 
week, 9r possibly the week following. * * * 

Harold Stanley explained that, owing to the fact that when J. P. Morgan & 
Co. withdrew from the investment banking business, the First Boston Cor- 
poration, Brown HaiTiman, and E. B. Smith & Co. had handled some Louis- 
ville & Nashville financing, they had been obliged to. give them a preferential 
position over us. 

Do you know anything about that, Mr. Swan? 

Mr. Swan. I am sorry, I thought you were asking Mr. Arderson. 

Mr. Neiiemkis. Did you hear what I just read? Mr. Stanley ex- 
plained to Mr. Mitchell who was hoping to get a better position for 
his company that he couldn't do it in the L. & N. issue because of 
the fact that during this period we have been discussing J. P. Morgan 
& Co., he says, withdrew from the investment banking business and 
your firm. Brown Hariiman and First Boston handled some of the 
Atlantic Coast- Line business. Therefore, he said he was obliged 
to give your firm and the other two a preferential position. 

Mr. Swan. It is very difficult for me to testify, I should think,: on 
a memorandum of Mr. Mitchell's referring to a conversation with 
Mr. Stanley. 

Mr. Nehempcis. I thought you might by chance know something 
about it. 

I offer this in evidence. 



1 "Exhibit, No. 1691." 



12044 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1748" 
and is included in the appendix on p. 12279.) 

OPINION OF DAVIS POLK WARDELL GARDINER & REED RELATIVE TO BANKING 
ACT OF 193.'! AND RELATION OF J. P. MORGAN & CO. THERETO 

Mr. Nehemkis. Mr. Alexander, may I trouble you for a moment? 
I show you a carbon copy of a memorandum addressed to you from 
myself dated Washington, D. C, November 8, 1939. Do you recall 
seeing and receiving the original ? 

Mr. Alexander. Yes ; I do. 

Mr. Nehemkis. It is offered in evidence. 

Acting Chairman King. What is the purpose of that? Is it infor- 
mation you asked for? 

Mr. Nehemkis. That is correct, sir, just to complete the record. 

Acting Chairman King. Is there any contention about it? 

Mr. Nehemkis. No. This was an aide 7nemoire to assist him in 
getting the material for us. 

Acting Chairman King. It may be received. 

(The memorandum referred to was marked "Exhibit No. 1749" and 
is included in the appendix on p. 12280.) 

Mr. Nehemkis. Mr. Alexander, I show you a letter dated November 
1, 1939, and ask you if that is a copy of a letter you sent me. 

Mr. Alexander. It is. 

Mr. Nehemkis. I have here four opinions from Davis Polk Ward- 
well Gardiner <& Reed to Messrs. J. P. Morgan & Co. Examine those 
and tell me if they are true and correct copies. 

Acting Chairman King. What is the relevancy? 

Mr. Nehemkis. These are legal opinions obtained by the firm of 
J. P. Morgan & Co. from their counsel indicating to them certain 
factors about which I wish to examine one of the witnesses. 

Mr. Alexander. These are the copies of opinions that I sent to you. 

Acting Chairman King. There is nothing about relations between 
client and counsel? 

Mr. Nehemkis. No, sir. 

Mr. Whitney. We gave them voluntarily, sir. 

Mr. Nehemkis. I misunderstood you. These were made available 
by Mr. Alexander. 

Acting Chairman King. They may be received. 

(The documents referred to were marked "Exhibits Nos. 1750 to 
1755" and are included in the appendix on pp. 12282-12286.) 

Mr. Nehemkis. Mr. Alexander, will 3M)u read the next to the last 
paragraph on page 4 of the aide in-einoh'e of November 8, 1939. 

Mr. Alexander (reading from "Exhibit No. 1749") : 

In tbis connection, it is to be noted that the only general opinion of counsel 
I'urnished by J. P. Morgan & Co. is the opinion dated May 29, 1934, and that no 
specific opinion nor memorandum of specific discussions has been furnished that 
bear upon the aspect of the question raised by Mr. Wardwell. Three opinions 
dated July 22, August 21, and December 14, 1935, have been furnished by J. P. 
Morgan & Co., but each such opinion deals with legal problems connected with the 
respective bond issues, but not with the position of J. P. Morgan & Co. under 
Section 21a of the Banking Act of 1933. 

May I read from the opinion of Mr. Wardwell, of November 1, 
1939, concerning the applicability of section 21a of the Banking Act 
of 1933 [reading from "Exhibit No. 1755"] : 



CONCENTRATION OF ECONOMIC POWER 12045 

We have reviewed this question from time to time and have had no occasion 
to change our opinion. 

As you know, we consider it advisable for the firm to follow the existing prac- 
tice of examining with us the character of any particular transaction that may 
be under consideration in order that the firm be assured that such transaction 
falls within the scope of the general opinions which we may have given the 
firm from time to time. 

Mr. N^HEMKis. At this time, do you care to make any comment in 
regard to my communication to you from which you have read? 

Mr. Alexander. No. 

Mr. Nehemkis. Thank you, sir. 

I have no further questions, sir. 

Acting Chairman King. Mr. Wliitney, you had some further expla- 
nation. 

Mr. Whitney, This last evidence just given shows that we were 
obviously very much alive in ^4 and '35 to what we could and could 
not do under the new set of affairs. All I really wanted to say 
before that was, as I said in the beginning, if I can do a little boast- 
ing, I would like to say we would have trieil to do our duty for our 
clients, wliich is to give them every possible service we can, and 
that this whole arrangement was forced upon us and the rest of the 
banking community by the change in the laws, and w^e were trying 
to adjust ourselves to that position, and these all follow the same 
pattern. The clients came to us and asked us to do a job. We did 
it as well as we knew how, and advised them to the best of our 
knowledge and belief as to who would perform a proper service for 
them. 

That is really all I have to say. 

Acting Chairman King. I assume you had some uncompleted busi- 
ness, you had many clients and they came to you in the course of 
business and called for persons to take over some of the activities in 
which you had been engaged, and you gave them the advice upon 
their questions as to the persons or corporations or investment com- 
panies that could best serve them ? 

Mr. Whitnet. And assisted them just as much as we could within 
the legal limitations by which we were bound. 

Mr. Henderson. Mr. Whitney, in that connection, you take the 
position, I gather from your last statement, that none of the services 
you performed in this period contravene the Banking Act? 

Mr. Whitney. Absolutely. 

Mr. Henderson. Leavmg aside for a minute the legal phases, or 
leaving them aside entirely, a number of those functions you per- 
formed in this "switch-over" period are functions which are per- 
formed by underwriting houses, is that not correct? 

Mr. Whitney. No, sir ; I don't quite agred with that, because what 
we did was to advise clients of ours who in the past had traditionally 
come to us for advice and they didn't have the acquaintanceship, 
the relationship that Mr. Swan referred to that he had established 
with his clients, with anybody but with us at the time. They had to 
deal with others, and what we did in an extended service to these 
people varied a little bit in these issues, but none of those services had 
to do with the service of negotiation on price except insofar as we 
advised the borrowing corporation in two instances, to my knowl- 
edge, as to whether we thought the terms suggested by the under- 
writers were fair. 



12046 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. I was late and I don't want to get into an ex- 
tended argument, but I would like you to go back to the explanation 
you gave to this committee, which you volunteered at one of the 
earlier hearings, as to the functions performed by an investment 
banker, and I would like you to lay that alongside of some of the 
functions you performed in these cases under discussion this after- 
noon. I would like to have your considered answer, whether it would 
still be "No." 

Mr. Whitney. Do you want me to attempt to do this now, or do 
you want a considered answer reviewing the situation? 

Mr. Henderson. I would like your considered statement of the 
functions you perform. You have made several statements for the 
record as to what you consider that function to be. There has been 
laid on the table today a series of functions which you performed 
which you say were strictly banking functions for certain former 
clients of yours. I would like you to lay them together and tell me 
at some future time whether the answer is still "No." ^ 

Mr. Whitney. The answer is "No." 

Mr. Nehemkis. Mr. Chairman, there is one document I forgot to 
offer. This has been identified by Mr. Whitehead who appeared 
earlier. " '" . 

Acting Chairman King. It may be received. 

(The memorandum 'referred to was marked "Exhibit No. 1756" 
and appears in Hearings, Part 22, appendix, p. 11795.) 

Mr. Nehemkis. I would like to have a telegram admitted from 
Mr. George Leib, and may I give you a word of explanation why I 
ask you to do this. 

Mr. Henderson. Is that the telegram which was sent collect? 
[Laughter.] 

Mr. Nehemkis. Yes, sir. Mr. Leib was asked the question as to 
whether or not Harrison "V\'illiams had ever held any stock in Blyth 
& Co. Strictly speaking, Mr. Leib's answer was responsive to my 
question. Mr. Leib, howe- er, feels that there may be some misunder- 
standing about that in the minds of some of the members of the 
committee, and so that there may be no misunderstanding he has 
indicated and shown how and why and where Harrison Williams 
has held stock in Blyth & Co. 

Acting Chairman King. It may be received. 

(The telegram referred to was marked "Exhibit No. 1757" and 
appears in Hearings, Part 22, appendix, p. 11826.) 

Acting Chairman King. Have you additional questions of these 
witnesses? May they all be excused, including Mr. Whitney? 

Mr. Nehemkis. Oh, no, sir; Mr. Whitney is going to be with us 
tomorrow. 

(The witnesses, Mr. Anderson and Mr. Swan, were excused.) 

Acting Chairman King. The committee will stand adjourned until 
10 : 30 tomorrow morning. 

Mr. Henderson. The Insurance Subcommittee will meet at 10 : 30 
tomorrow in room 357, Senate Office Building. 

(Whereupon, at 5:15 p. m., a recess was taken until Wednesday, 
December 20, 1939, at 10:30 a. m.) 

T/f5<^;-.^Hi!,°?^vl° * ^^"^F; ^'^^^^ J^y'a'y 26. 1940, submitted the information requested. 
It is included in the appendix on p. 12321. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWEE 



WEDNESDAY, DECEMBER 20, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington^ D. G. 

The committee met at 10:45 a. m., pursuant to adjournment on 
Tuesday, December 19, 1939, in the Caucus Room, Senate Office 
Building, Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'iMahoney (chairman) and King; Messrs. Hen- 
derson, Lubin, Avildsen, Kades, Hinrichs, and Brackett. 

Present also: Holmes Baldridge, Department of Justice; Clifton 
M. Miller, Department of Commerce; Willis J. Ballinger, Federal 
Trade Commission; Ganson Purcell, Securities and Exchange Com- 
mission; Peter R. Nehemkis, Jr., special counsel; Samuel M. Koenigs- 
berg, associate attorney ; David Ryshpan, financial analyst ; Oscar L. 
Altman, financial analyst; and Lawrence Brown, investigator, Secu- 
rities and Exchange Commission. 

The Chairman. The committee will please come to order. 

Will you call your first witness, Mr. Nehemkis ? 

Mr. Nehemkis. Mr. Harold Stanley. 

The Chapman. The chairman has received a letter from Mr. C. B. 
Sawyer, president of The Bruslr Beryllium Co., submitting certain 
material for the record in connection with the hearings on beryl- 
lium.^ Without objection, this may be printed in the record at the 
appropriate place. 

(The letter and material referred to were marked "Exhibit No. 
1758-1 to 1758-3," and are included in the appendix on pp. 12286- 
12290.) 

Mr. Nehemkis. Mr. Chairman, you will recall that -the day we 
opened our proceedings, in the afternoon session we had occasion to 
discuss the financing of the Chicago Union Station bonds. In the 
course of the testimony of Mr. Bovenizer, there was a question as to 
whether or not certain contentions made by counsel were accurate, 
and as our usual procedure is, I requested Mr. Bovenizer to check 
his own books and advise us whether he still felt that way.- 

1 am in receipt of a letter under date of December 18, 1939, from 
Mr. Bovenizer, who advises as follows [reading from "Exhibit No. 
1759-2"] : 

Deae Mr. NEHiaiKis : I have your letter of the 14th instant in connection 
with my testimony of the other day on Chicago Union Station bonds and I find 
upon further examination that your figures are quite correct, not only as to 
percentage but as to amount also. 

Regretting that my error should have caused you this additional trouble and 
with appreciation of your courtesy — 



1 Hearings on the development of the beryllium industry appear in Part 5. 

2 Hearings, Part 22, p. 11436. 

12047 



12048 CONCENTRATION OF ECONOMIC POWER 

and so forth and so on. 

May this be inserted in the record at the appropriate place, sir? 

The Chairman. Without objection, it may be so inserted. 

Mr. Nehemkis. Together with the accompanying letter to Kuhn, 
Loeb. 

(The letters referred to were marked "Exhibits Nos. 1759-1 and 
1759-2 and appear in Hearings, Part 22, appendix, pp. 11797 and 
11798.) 

The Chairman. The Chair wishes to announce that a subcommittee 
of this comimttee is conducting insurance hearings in room 357 in 
this building. If there are any witnesses who have been subpenaed 
for the insurance hearing who are in this room, they should be in 
room 357. 

Mr. Nehemkis. Mr. Chairman, may it please the committee, one 
further matter before proceeding with the business at hand : Yester- 
day afternoon, you may recall, Mr. Chairman, that we were discuss- 
ing one of the interim pieces of financing, the Toledo & Ohio, and 
the question was raised by Mr. Anderson whether it was actually 
the Toledo & Ohio financing or some other financing.^ I have refer- 
ence now to our "Exhibit No. 1715," and so that the record may be 
clear, I merely want to read briefly from yesterday's proceedings: 

Question. I now read from the letter previously identified, Mr. Chairman, 
from Mr. Willard Place to Mr. Max O. Whiting. . . . 

Mr. Anderson. What business is that you are talking about? 

Answer. Toledo & Ohio, the subject matter under discussion. I offer it in 
evidence. 

Mr. Anderson. I don't think it is. 

Mr. Whitney. No, sir. 

Then the exhibit was identified, and Mr. Whitney continued: 

The Boston & Albany, another subsidiary of the New York Central — 

And then Mr. Whitney continued to explain how it had to be the 
Boston & Albany. 

Now, Mr. Wliitney was in error, and I have prepared for you, sir, 
an abstract from Moody's Manual on Investments of Railroad Se- 
curities, which indicates that it was the Toledo & Ohio that we were 
discussing, and that under no conceivable stretch of the imagination 
could it have been the Boston & Albany ; since so distinguished a 
banker as Mr. Whitney should have known that the Boston & Albany 
main line I's were 41/2 's. We were talking about 3i/2's. 

Mr. Miller. Mr. Nehemkis, didn't Mr. Whitney say that those 
Boston & Albany bonds were bonds held in some fund? It wasn't 
a new issue, it was a block of bonds held by the railroad. They were 
talking about selling those. 

Mr. Nehemkis. If he did 

Mr. Miller (interposing). It is my understanding from the 
testimony. 

Mr. Nehemkis. I don't recall it, sir, but I have the testimony 
before me and a rather hasty glance at it does not indicate, if he 
said that, that it arose in this connection. I think, Mr. Miller, that 
you may have reference to an answer by Mr. Anderson in connection 
with the sale of certain Burlington bonds. I will be very glad to 
check it for you later. 

1 Supra, p. 12013. 



CONCENTRATION OF ECONOMIC POWER 12049 

Do you want this in the record or are you satisfied with the state- 
ment? [pointing to exhibit]. 

The Chairman. I think it is all right. 

TESTIMONY OF HAROLD STANLEY, PRESIDENT, MORGAN STANLEY 
& CO. INCORPORATED, NEW YORK, N. Y.— Resumed 

Mr. Nehemkis. Mr. Stanley, will you state the date on which 
Morgan Stanley & Co. was incorporated? 

Mr, Stanley. I testified yesterday that it was September 5, 1913. 
I now understand that it was September 6 — I mean 1935. 

Mr. Nehemkis. Now, what is the correct answer to the question ? 

Mr. Stanley. The correct answer is September 6, 1935. 

Mr. Nehemkis. IMr. Stanley, I show you certain documents pur- 
porting to be the certificate of incorporation of Morgan Stanley, and 
various amendments thereto. "Will you be good enough to examine 
them and identify them for mo '. 

For your information, Mr. Chairman, these documents will be sub- 
sequently offered. They were obtained from the Secretary of State at 
Albany, N. Y., and bear his authentication. 

Mr. Stanley. I so identify them. 

Mr. Nehemkis. The four items identified by the witness are offered 
in evidence, Mr. Chairman. 

The Chairman. They may be received. 

(The documents referred to were marked "Exhibit No. 1760-1 to 
4" and are on file with the committee.) 

OFFICERS and DIRECTORS OF MORGAN STANLEY & CO., INCORPORATED, AND 
THEIR PRIOR AFFILIATIONS 

Mr. Nehemkis. Mr. Stanley, will you be good enough to name the 
officers and directors of Morgan Stanley & Co. Inc., and will you 
also at the same time state the business affiliations of these officers 
and directors prior to their becoming associated with Morgan Stanley 
& Co. Inc. ? 

Mr. Stanley. Have you the list there? 

Mr. Nehemkis. I do; but I prefer that you give it to me from 
your material. 

The Chairman. This exhibit,^ being the certificate of incorpora- 
tion, is filed with the committee, not printed. 

Mr. Stanley. The list of officers and directors of Morgan Stanley 
& Co., which we have already furnished you, are as follows: Harold 
Stanley, president and director. Prior affiliation, partner of J. P. 
Morgan & Co. 

Do you want the date of employment as well? 

Mr. Nehemkis. If you have it there, you might as well give it. 

Mr. Stanley. Date emj^loyed, September 6, 1935, which is the day 
we opened our office. 

William Ewing, executive vice president and director, same date of 
employment; prior affiliation, partner J. P. Morgan & Co. 

Henry S. Morgan, treasurer, secretary, and director, same date of 
employment; prior affiliation, partner J. P. Morgan & Co. 

1 "Exhibit No. 1760-1 to 4." 



12050 CONCENTRATION OF ECONOMIC POWER 

Perry E. Hall, vice president and director; former affiliation, part- 
ner Drexel & Co. 

Edward H. York, Jr., vice president and director, same date of 
employment ; prior affiliation, partner Drexel & Co. 

John M. Young, vice president, director, same date of employ- 
ment; former affiliation, manager bond department, J. F. Morgan 
& Co. 

Allen Northey Jones, vice president and director, same date of 
employment; prior affiliation, manager statistical department, J. P. 
Morgan & Co. 

Alfred Shriver, vice president and director, date of employment, 
February 17, 1936; prior affiliation, president and director of Guar- 
anty Co. of New York, in dissolution. 

Sumner B. Emerson, vice president and director, date of employ- 
ment, October 19, 1936; prior affiliation, vice president Fire Associa- 
tion of Philadelphia and associated companies. 

Archer M. Vandervoort, assistant treasurer and assistant secretary, 
date of employment, September 16, 1935; prior affiliation, employee 
J. P. Morgan & Co. 

Mr. Nehemkis. At the time of the organization of Morgan Stan- 
ley, you, Mr. Stanley, Mr. William Ewing, and Mr. Henry S. Morgan 
had resigned from the firm of J. P. Morgan & Co., had you not? 

Mr. Stanley. We had. 

Mr. Nehemkis. But the arrangements in regard to the organiza- 
tion of the new firm were made, were they not, at the time when 
these individuals whose names I have just mentioned were still 
partners in J. P. Morgan & Co. 

Mr. Stanley. The arrangements? 

Mr. Nehemkis. For the organization of the new firm. 

Mr. Stanley. Quite correct, 

Mr. Nehemkis. The capital stock of Morgan Stanley & Co., Inc., 
consists, does it not, of preferred stock and common stock? 

Mr. Stanley. It does. 

Mr. Nehemkis. Were there not issued 70,000 shares of preferred 
stock at par $100 per share and 50,000 shares of common stock at 
$10 per share, $5 of which was set up on the books as paid-in capital, 
$5 as paid-in surplus? 

Mr. Stanley. That is correct. 

Mr. Nehemkis. So that Morgan Stanley & Co., Inc., started busi- 
ness with a paid-in capital of $7,500,000? 

Mr. Stanley. Kather a paid-in capital of $7,250,000 and $250,000 
paid-in surplus. Seven and a half million dollars of money. 

Mr. Nehemkis. ^ accept that. On August 7, 1939, was there not 
authorized an issue of common stock and was not the common stock 
increased from 50,000 shares to 200,000 shares ? 

Mr. Stanley. I am not sure of the date. You undoubtedly have it. 

Mr. Nehemkis. You may accept my dates subject to correction, if 
you wish. 

Mr. Stanley. I think that on the date you mention the authorized 
number of shares increased to 200,000 shares and 150,000 shares as 
stock dividend. 

Mr. Nehemkis. And the additional 150,000 shares were distributed 
to the common stockholders as a stock dividend, as you just indi- 



CONCENTRATION OF ECONOMIC POWER 12051 

cated, increasing the amount of outstanding common stock to 200,000 
shares. Is that correct, sir? 

Mr. Stanley. That is correct. 

Mr. Nehemkis. And this is the amount of common stock now out- 
standing? 

Mr. Stanley. It is. 

COMMON AND PREFEERED STOCKHOLDERS OF MORGAN STANI:EY & CO., 

INCORPORATED 

Mr. Nehemkis. Were not the three principal common stockholders 
at the time of incorporation, yourself, Mr. William Ewing, and Mr. 
Henry S. Morgan ? 

Mr. Stanley. They were. 

Mr. Nehemkis. By the way, is Mr. Henry S. Morgan the son of 
Mr. J. P. Morgan ? 

Mr. Stanley. He is. 

Mr. Nehemkis. Mr. Stanley, as each of these individuals took 
something over 20 percent of the stock, do they not now hold be- 
tween themselves over 60 percent of the common stock ? 

Mr. Stanley. They hold, I think, exactly 60 percent between them. 

Mr. Nehemkis. So that, Mi'. Stanley, the controlling interest in 
the new firm was held by these three former partners of J. P. Morgan 
&Co.? 

Mr. Stanley. Well, it depends on what you mean by controlling 
interest. Sixty percent of the voting stock was held by these three 
individuals. 

Mr. Nehemkis. Does that mean anything to you ? 

Mr. Stanley. The control of a company is in the hands of all the 
stockholders. 

Mr. Nehemkis. Mr. Stanley, let's be precise. When three individ- 
uals hold 60 percent of the voting stock of the company, does that 
have any significance ? 

Mr. Stanley. If they act together they vote the majority of the 
stock, certainly, but if you take any one of them and the balance of 
the stockholders, I don't see how they could have a majority. 

Mr. Nehemkis. The other common stockliolders were Mr. Perry E. 
Hall. Mr. A. N. Jones, Mr. E. H. York, Jr., and Mr. John M. Young? 

Mr. Stanley. I am sorry, I didn't follow all the names. Undoubt- 
edly it is correct. 

Mr. Nehemkis. Perry Hall, A. N. Jones, E. H. York, Jr., John M. 
Young. 

Mr. Stanley. That is correct. 

Mr. Nehemkis. I believe you have already testified, but I should 
like you to state again at this time that the other common stock- 
holders whose names I have just given to you were former employees 
of J. P. Morgan & Co. 

Mr. Stanley. Well, former employees of J. P. Morgan & Co. or 
partners of Drexel «S; Co, 

Mr. Nehemkis. Who was a former partner of Drexel ? 

Mr. Stanley. Mr. Hall and Mr. York. 

Mr. Nehemkis. What is the difference between Drexel & Co. and 
J. P. Morgan? 

Mr. Stanley. They are the same firm, but Drexel & Co. is the 
name of the business down in Philadelphia. 



12052 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. I see, same firm, different name. 

Mr. Stanley. Yes. Understand, that isn't the legal definition. I 
am not trying to be legalistic about it. 

Mr. Nehemkis. I quite understand you, Mr. Stanley. So that all 
of the' common stock was held by either former partners or employees 
of J. P. Morgan & Co. ? 

Mr. Stanley. And Drexel & Co. 

Mr. Nehemkis. In the light of your explanation. 

Mr. Stanley. Quite right. 

Mr. Nehemkis. At the time of the incorporation of Morgan Stan- 
ley & Co., was not the bulk of the preferred stock taken by Morgan 
partners ? 

Mr. Stanley. The bulk of the preferred stock was purchased by 
certain individual partners. 

Mr. Nehemkis. If you can answer my question at this time I will 
give you further opportunity to clarify it by detailed questions later. 

(The reporter read the immediately preceding question.) 

Mr. Stanley. The bulk of this preferred stock was taken by Mor- 
gan partners individually, certain Morgan partners individually. 

Mr. Nehemkis. Mr. Stanley, I show you a letter from you addressed 
to me, dated November 27, 1939. Tell me if this is your signature 
and whether this is a letter which you did send to me ? 

Mr. Stanley. It is. 

Mr. Nehemkis. Will you examine the four sheets attached to the 
original letter of transmittal? Do you recognize those as having 
been prepared by your organization? 

Mr. Stanley. I do. 

Mr. Nehemkis. The documents identified by the witness, Mr. Chair- 
man, are offered in evidence. 

The Chairman. They may be admitted. 

(The documents referred to were marked "Exhibit No. 1761" and 
are included in the appendix on p. 12291.) 

Mr. Nehemkis. Of the original holders of the preferred stock, only 
William Ewing and Henry S.. Morgan were associated with the new 
company. Were not all of the other holders partners of J. P. Morgan 
&Co.? 

Mr. Stanley. I think that is correct. 

Mr. Nehemkis. As Messrs. Henry S. Morgan, yourself, William 
Ewing, each purchased about 20 percent of the common stock of 
Morgan Stanley & Co., was not their investment in the equity of the 
new company approximately $100,000 each ? 

Mr. Stanley. That is correct. 

Mr. Nehemkis. Did not Mr. Henry S. Morgan purchase 2,500 
shares of preferred stock for $250,000, and did not Mr. William Ewing 
purchase 1,500 shai _ of preferred stock for $150,000? 

Mr. Stanley. They did. 

Mr. Nehemkis. So that the total capital investment of Mr. Harold 
Stanley, president of the new company, was approximately $100,000 ? 

Mr. Stanley. As of September 16, 1935, but shortly after that 

Mr. Nehemkis (interposing). Just answer the question as you 
have been given it. 

Mr. Stanley. As of September 16, 1935, yes. 

Mr. Nehemkis. And that of Mr. Henry S. Morgan, vice president, 
wns approximately $350,000? 



CONCENTRATION OF ECONOMIC POWER 12053 

Mr. Stanley. Yes. 

Mr. Nehemkis. And that of Mr. William Ewing, vice president, 
was approximately $250,000? 

Mr. Stanley. As of that date. 

Mr. Nehemkis. Did not other officers invest something under 

Mr. Stanley [interposing]. Excuse rhe, Mr. Nehemkis, it was 
somewhat larger, but that is approximately correct. 

Mr. Nehemkis. You accept that? 

Mr. Stanley. Substantially so. 

Mr. Nehemkis. Let's see that the record clearly shows your answer. 
I asked you a series of questions concerning the amount of the in- 
vestment of yourself, Mr. Henry S. Morgan, Mr. William Ewing, 
and is your answer, "Substantially correct"? Is that what you want 
the record to show? 

Mr. Stanley. The amounts you mention are substantially correct. 

Mr. Nehemkis. Thank you, sir. Now, did not the other officers 
invest something under $200,000 in the common stock of Morgan 
Stanley? 

Mr. Stanley. Yes. 

Mr. Nehemkis. So that $6,600,000 of capital in the form of pre- 
ferred stock was supplied by Morgan partners ? 

Mr. Stanley. I don't think I have that. 

Mr. Nehemkis. Why don't you accept that subject to check? 

Mr. Stanley. I will be glad to. 

Mr. Nehemkis. So that the officers of Morgan Stanley & Co., In- 
corporated, supplied but $900,000 of the origmal $7,500,000 capital 
of the firm? 

Mr. Stanley. That is correct. 

Mr. Nehemkis. Will you tell me who now hold the common stock 
of Morgan Stanley & Co., Incorporated? 

Mr. Stanley. Do you want the whole list? 

Mr. Nehemkis. Run them off quickly. 

Mr. Stanley. Mr. Emerson, Mr. Ewing, Mr. Hall, Mr. Jones, 
Henry Morgan, Mr. Shriver, myself, Mr. York, Mr. Young. 

Mr. Nehemkis. Does not Mr. Ewing; yourself, Mr. Henry S. Mor- 
gan, each still hold approximately 20 percent of the common stock? 

Mr. Stanley. Mr. Ewing, Mr. Henry Morgan and myself do each 
hold approximately 20 percent of the common stock. 

Mr. Nehemkis. Is not the only new holder of common stock Mr. 
Alfred Shriver? 

Mr. Stanley. And Mr. Sumner B. Emerson. 

Mr. Nehemkis. And Mr. Sumner Emerson? 

Mr. Stanley. Correct. 

Mr. Nehemkis. When did Mr. Sumner Emerson acquire common 
stock in addition to that — I think you covered that in your previous 
answer when you told me the names of the common-stock holders, 
didn't you? 

Mr. Stanley. I didn't cover your last question. It is a very 
simple answer. He acquired it on or about the time he became an 
officer of our company, which was sometime after he became an 
employee — I don't know the exact date. 

Mr. Nehemkis. It is not important. Tell me who the holders of 
the preferred stock are, if you will ? 



12054 CONCENTRATION OF ECONOMIC POWER 

Mr. Stanley. As of August 31, 1939, the close of our fiscal year, 
the holders of our preferred stock were as follows. Do you want 
the amounts? 

Mr. Nehemkis. Just give me the names, 

Mr. Stanley. Arthur M. Anderson. 

Mr. Nehemkis. Well, to save time you might give me the amounts. 

Mr. Stanley. Arthur M. Anderson, 1000 shares. Gaspar G. Bacon 
and George "VYliitney, trustees under deed of trust, dated November 
13, 1914, 1,700 shares. Robert L. Bacon and Gaspar G. Bacon, as 
trustees for Martha B. Whitney, 1,700 shares. Francis D. Bartow, 
1,000 shares. William Ewing, 1,500 shares. Allen Northey Jones. 
200 shares. Thomas W. Lamont, 19,500 shares. 

Mr. Nehemkis. Let me make sure I have that. Thomas Lament, 
19,500. That is in evidence ^ but I want to put it on my copy. 

Mr. Stanley. Russell C. Leffingwell, 3,400 shares. H. Gates Lloyd, 
Jr., 850 shares. H. Gates Lloyd, Jr. and Charles D. Dickey, trus- 
tees for Richard W. Lloyd, under the will of Horatio G. Lloyd, de- 
ceased, 850 shares. Richard W. Lloyd, 850 shares. Richard W. 
Lloyd and Charles D. Dickey, trustees for H.^ Gates Lloyd, Jr., 
under the will of Horatio G. Lloyd, deceased, 850 shares. Henry 
S. Morgan, 9,800 shares. J. P. Morgan, 3,000 shares. Junius S. 
Morgan, 2,800 shares. Harold Stanley, 1,000 shares.^ Charles Steele 
estate, deceased, 20,000 shares. 

Mr. Nehemkis. I note that among the new holders of the preferred 
are yourself, holding 1,000 shares and Mr. Allen Jones holding 200. 
shares. Mr. Stanley, has any person other than those appearing in 
the four lists which you have previously identified in the names and 
amounts you have just given me ever been, to your knowledge, a' 
holder of record or beneficial owner of any shares of either common 
or preferred stock of Morgan Stanley & Co., Incorporated ? 

Mr. Stanley. Well, I can only answer the question about the 
holders of record; no one has, to my knowledge, in that respect. I 
can't answer of course about beneficial ownership. 

Mr. Nehemkis. Who can answer that question? 

Mr. Stanley. Each stockholder, I suppose. 

Mr. Nehemkis. You, as a principal officer of Morgtui Stanley are 
not aware of that? 

Mr. Stanley. We have no knowledge of the transfer of stock. 

Mr. Nehemkis. You have no knowledge or informatioh or belief 
on the subject? 

Mr. Stanley. No; I have none. 

Mr. Nehemkis. Is not the preferred stock ^,umulative up to 4 per- 
cent, and is it not a nonvoting stock entitled to 6 percent if earned? 

Mr. Stanley. It is. 

Mr. Nehemkis. It has no rights, however, of any kind other than 
to receive dividends when, as and if declared, and certain payments on 
liquidation. In shorty it has no right to vote for officers? 

Mr. Stanley. No right to vote for officers or directoi-s. 

Mr. Nehemkis. In other words, the common stock alone elects the 
officers and directors? 

Mr. Stanley. It does. 



1 Referring to "Exhibit No. 1761." 



CONCENTRATION OF ECONOMIC POWER 12055 

LIMITATIONS ON DISPOSITION OF CAPITAL STOCK UNDER ARTICLES OF 

INCORPORATION 

Mr. Nehemkis. Now, is it not a fact, Mr. Stanley, that under the 
articles of incorporation it is virtually impossible for either the com- 
mon or preferred stock of the corporation to be sold to anyone who 
is not satisfactory to the present directors or their successors? 

Mr. Stanley. Well, there are restrictions on transferability. 

Mr. Nehemkis. Do you accept my statement as a description ? 

Mr. Stanley. I am not sure that it doesn't go too far. They can't 
sell it without offering it to us but if we don't take it they can sell it. 

Mr. Nehemkis. If one of the holders of stock offers it to you and 
you are not interested, could it be sold to me, for example — this being 
a very hypothetical case? 

Mr. Stanley. I think so. You wouldn't get your dividend this 
year if you bought it. [Laughter.] ' 

Mr. Nehemkis. Is that really so, that anyone, for example, could 
acquire stock of Morgan Stanley if you decided that you weren't 
interested in purchasing it? 

Mr. Stanley. I will be glad to give you the exact situation subject 
to correction by my counsel. In brief, the restrictions are on trans- 
ferability. If the holders of preferred stock want to sell it they would 
have to offer it to us first, and if Ave don't take it within a certain time 
limit then they can sell it to somebody else. 

Mr. Nehemkis. To anybody else 

Mr. Stanley (interposing). That they want to, within a time limit. 

Mr. Nehemkis. Within 30 days? 

Mr. Stanley. Is that correct? 

Mr. George A. Brownell.^ Yes. 

Mr. Stanley. And if they don't sell it in that 30 days to somebody 
else and subsequently want to do it again they have to offer it to us. 

Mr. Brownell. Sixty days is right. 

Mr. Nehemkis. Do I understand you correctly that John Jones 
could under the circumstances that you have just narrated become 
a stockholder of Morgan Stanley & Co. ? 

Mr. Stanley. Yes. 

Mr. Nehemkis. You are quite sure of that? 

Mr. Stanley. I think so. May I ask counsel if that is correct? 

Mr. Brownell. Yes. 

Senator O'Mahoney. It would seem, Mr. Nehemkis, from your 
questions that you might be interested in acquiring some of this 
stock. [Laughter.] 

Mr. Nehemkis. After seeing exhibits here showing the profits in 
the underwriting business I ought to be. [Laughter.] 

The Chaerman. This is set forth in the charter. 

Mr. Stanley. It is all set forth in the papers that you have. 

The Chairman. Does counsel recall the particular section of the 
charter ? 

Mr. Nehemkis. Articles 13 and 14, Mr. Chairman. 
The Chairman. Let's read this into the record.^ 



1 Counsel to Mr. Stanley. 

'Reading from "Exhibit No. 1760-1," on file with the committee. 



12056 CONCENTRATION OF ECONOMIC POWER 

13. No holder of either Preferred or Common Stock shall be entitled as 
of ri^ht to purchase or subscribe for any part of any unissued stock of either 
class or any additional Preferred or Common Stock to be issued by reason 
of any increase of the authorized capital stock of the Corporation of either 
class, or bonds, certiticates of indebtedness, debentures or other securities con- 
vertible into stock of the Corporation, but any such unissued stock or such 
additional authorized issue of new stock or of other securities convertible 
into stock may b(^ issued and disposed of pursuant to resolution of the Board 
of Directors to such persons, firms, corporations or associations and upon such 
terms as may be deemed advisable by the Board of Directors in the exercise 
of their discretion. 

14, With the exception of transfers in the case of a deceased stockholder 
to his executors or administrators and, as to the Preferred stock only, with 
the further exceptions of transfers (1) to a person who is already an existing 
stockholder of the corporation and (2) to testamentary trustees, no shares 
of the Preferred Stock or the Common Stock of the corporation shall be 
sold, assigned, bequeathed, or otherwise transferred, whether by any holder 
or owner thereof, or by the executor, admiiiisti-ator, trustee or other repre- 
sentative of any stockholder or by any receiver, trustee in bankruptcy or any 
representative of the creditors of any stockholder, or by the grantee or assignee 
of any such shares sold on execution, or otherwise, unless the same first 
shall have been offered for sale to the corporation, or, if the corporation shall 
so elect, to a nominee or nominees of the corporation, as hereinafter provided. 

Whenever any such holder, owner, executor, administrator, trustee, receiver, 
bankruptcy trustee, grantee, assignee or representative shall desire to sell 
or dispose of shares of Preferred Stock or Common Stock of the corpora- 
tion, such holder, owner, executor, administrator, trustee, receiver, bankruptcy 
trustee, grantee, assignee or representative shall first notify the Board of 
Directors, and shall offer to sell said Preferred or Common Stock to the cor- 
poration or to its nominee or nominees at a price per share not exceeding 
the value thereof determined as follows : 

(a) In the case of the Preferred Stock said value shall be determined by 
computing the amount which each share of Preferred Stock would have 
received, after payment of all liabilities, of the corporation, if dissolution of 
the corporation had taken place at the end of the month last preceding the 
date of receipt by the corporation of the aforesaid offer. 

(b) In the case of the Common Stock said value shall be determined by 
computing the amount which each share of Common Stock would have received, 
after payment of all liabilities of the corporation and of all amounts payable 
to the holders of Preferred Stock on dissolution, if dissolution of the cor- 
poration had taken place at the end of the month last preceding the date of 
receipt by the corporation of the aforesaid offer. 

(c) In case any dividends shall have been declared by the corporation on 
such stock, payable to stockholders «f record of a date subsequent to the end 
of the month last preceding the date of receipt by the corporation of the 
aforesaid offer, but prior to the transfer by such holder, owner, executor, ad- 
ministrator, trustee, receiver, bankruptcy trustee, grantee, assignee or repre- 
sentative to the corporation or to its nominee or nominees of the stock 
covered by such offer, the amount of such dividends per share shall be 
deducted in determining the value per share as above provided. 

In computing the value of the I'referred Stock or of the Common Stock 
for the foregoing purposes the value of the assets and the amount of liabilities 
of the corporation shall be as determined by the Board of Directors, except 
that no allowance shall be made for good will or any other such intangible 
asset, and the determination of the Board of Directors shall be final ; pro- 
vided, however, that if the offerer of the stock so desires and so specifies 
in his offer, such value shall be determined by the independent accountants 
who last audited the books of the corporation, and in such case the determina- 
tion of said accountants .shall be final. If an offerer elects to have such 
value determined by said accountants, he shall pay the fees and charges 
of the accountants for such service. 

The aforesaid offer and notice shall be in writing addressed to the cor- 
poration at its principal office in the Borough of Manhattan, City of New 
York. Nothing herein contained shall be deemed to prevent an oft'erer from 
offering to sell his stock for less than the value thereof as above determined. 
If an offerer shall have specified a price in excess of the value of his stock, 
determined as above provided, the price at which the corporation, or its 



CONCENTRATION OF ECONO:\IIC POWER 12057 

nominee or nominees, shall have the right to buy the stock shall be automatically 
reduced to the value as so determined by the Board of Directors or the 
independent accountants, as the case may be. 

If any such offer be accepted by the corporation for itself, or on behalf of 
its nominee or nominees, it shall be the duty of any such holder, owner, execu- 
tor, administrator, trustee, receiver, bankruptcy trustee, grantee, assignee or 
representative to transfer said stock to the corporation, or to its nominee or 
nominees, upon payment of the purchase price (i. e., the offering price or 
the value as above determined, whichever is less), and no dividends or interest 
shall be paid or allowed on such stock after failure to comply with any 
request by the corporation to make such transfer. 

If within thirty (30) days after the delivery of any offer of sale as afore- 
said, the corporation shall not accept for itself, or on behalf of its nominee 
or nominees, such stock or any part thereof, the offerer shall be at liberty, 
within sixty (60) days after the expiration of such thirty (30) days, to 
sell and transfer such shares of stock as are not bought by the corporation, 
or by its nominee or nominees, to any person at any price not less than the 
price at which the corporation had the right to purchase such shares (i. e., 
the offering price or the value as above determined, whichever is less). If, 
however, such shares of stock shall not have been so sold or disposed of, and 
the certificates therefor presented to the corporation for transfer within such 
sixty (60) days, such shares must again be offered to the corporation as here- 
inabove provided, before the same or any pnrt thereof can thereafter be sold, 
assigned, bequeathed or otherwise transferred. 

From and after the sale, assignment, bequest or transfer of any stock made 
in violation of the foregoing provisions, and until after the notice and offer 
as heretofore provided shall have been given and the time of the corporation 
to exercise said option shall have expired, the corporation shall have, and it 
is hereby expressly given, the right and option to purchase all or any part of 
such stock at a price equal to the value thereof determined as above provided. 
No transfer of any stock made in violation of the foregoing provisions shall 
• be valid or effective or be recorded on the stock books of the corporation. 

Whenever the corporation shall exercise any of the rights and options herein- 
above given, either for itself or on behalf of its nominee or nominees, in accord- 
ance with the terms thereof, and shall deposit or cause to be deposited with 
any bank or trust company in the City of New York for the account of the 
holder of record of said stock, his legal representatives and assigns, the purchase 
price determined as hereinabove provided of any stock which it has so elected 
to purchase for itself or on behalf of its nominee or nominees, and shall give 
notice in writing to such holder of record, sent by registered mail to his address 
as the same appears on the stock books of the corporation, of the place and 
amount of such deposit, and that such deposit will be payable to him upon 
surrender of the certificates for such stock, duly endorsed and stamped for 
transfer, then and thereupon all rights of the owner and holder of such stock, his 
legal representatives and assigns, in law and in equity as a stockholder of the 
corporation shall cease and such stock shall be and become the property of 
the corporation or of its nominee or nominees, as the case may be, and the 
certificate or certificates representing such stock so purchased, shall be deemed 
to be and shall be cancelled and of no effect, and the custodian of the stock 
books of the corporation shall note such cancellation in the stock books of the 
corporation. 

Any notice hereinabove provided to be given by the corporation shall be 
sufficient if given to the holder of record of any stock at his address appearing 
on the stock books of the corporation, and shall bind the legal representatives 
or assigns of such holder of record. 

The Board of Directors shall have power to sell and dispose of the shares 
which may be transferred as aforesaid to the corporation whenever, in their 
judgment, it can be done with advantage to the corporation. 

Those are the two sections. 

Mr. Nehemkis. Shall I proceed, sir? 

Tlie Chairman". You may proceed. 

Mr. Nehemkis. Mr. Stanley, I show you two sheets containing data 
on issues underwritten or participated in by your firm during the 
period September 16, 1935, to June 30, 1939, "and the second sheet 
containing information with respect to counsel for underwriters, ad- 

124491 — 40 — pt. 23 -17 



12058 CONCENTRATION OF ECONOMIC POWER 

vertising agencies, engineering, appraisal firms, accounting firms. 
Will you examine these sheets and tell me vhether you caused them 
to be prepared in response to my request? 

Mr. Stanley. We did, sir. 

Mr. Nehemkis. The docniuents identified by the witness are offered 
in evidence, Mr. Charmiin. 

The CiiAiKM.xN. They may be received. 

(The documents referred to were marked "Exhibits Nos. 1762 and 
1763, respectively, and are included in tlie appendix facing p. 12291.) 

ANALYSIS OF BUSINESS DONE BY :M0KGAN STANLEY & CO. INCORPORATED 

Mr. Nehemkis. Mr. Stanley, was not Morgan Stanley & Co.'s first 
offering on September 21, 1935? Was not that an issue of Consum- 
ers Power Co.? 

Mr. Stanley. It was. We were joint managers with Messrs. 
Bonbright. 

Mr. Nehemkis. I was going to come to that. This offering ap- 
peared how many days after the organization of Morgan Stanley 
& Co. Incorporated ? 

Mr. Stanley. The date you mentioned is the date of the prospectus. 
Tlie offering was September 23, and I have testified that Morgan 
Stanley & Co. was organized on September 6. 

Mr. Nehemkis. So that your answer is now, how many days after 
the organization of Morgan Stanley was this issue of Consumers 
Power offered ? 

Mr. Stanley. Seventeen days. 

Mr. Nehemkis. And I believe you have already indicated that you 
were co-managers of this offering with Bonbright & Co.? 

Mr. Stanley. We were. 

Mr. Nehemkis. Now, if my memory serves me correctly, a previous 
witness, Mr. Gordon, has testified ^ concerning some of the difficulties 
that arise when you have a joint-managership account. Would you 
indicate briefly to the committee how it happened that j^ou had a co- 
managership of this account with. Bonbright & Co. ? 

Mr. Stanley. Well, I should like to say first that I think your 
reference to Mr. Gordon's testimony, which I heard in part, at least, 
was not quite on the subject. His testimony — his reference was to 
having one manager in one part of the country and another manager 
in another part of the country. 

Mr. Nehemkis. Certain difficulties arising from joint managership, 
but since you and the Bonbright firm were both in New York, that 
difficulty or that kind of difficulty would not ensue ? 

Mr. Stanley. No. 

Mr. Nehemkis. Then will you answer my question, if stated to you 
in this fashion: How did it happen that you were joint managers 
with Bonbright & Co. ? 

Mr. Stanley. We so acted because Mr. Wendell Willkie requested 
us to. 

Mr. Nehemkis. Mr. Wendell Willkie? 

Mr. Stanley. Yes. 



1 Supra, p. 11046. 



CONCENTRATION OF ECONOMIC POWER 12059 

Mr. Nehemkis. Now, is Mr. Wendell Willkie a partner of the in- 
vestment banking house of Bonbright & Co., Mr. Stanley? 

Mr. Stanley. Mr. Wendell Willkie is chainnan of the Common- 
wealth & Southern Corporation and chairman of the Consumers 
Power Co. 

Mr. Nehemkis. And Mr. Wendell Willkie requested you to make 
Bonbright your joint manager of the account ? 

Mr. Stanley. Yes; he requested us to be joint manager of the 
account with Bonbright. 

Mr. Nehemkis. What was the amount of the offering, Mr. Stanley? 

Mr. Stanley. $19,172,000. 

Mr. Nehemkis. And how much was your participation? 

Mr. Stanley. Our participation in the underwriting group was 
$5,711,000. 

Mr. Nehemkis. Now, keep your eyes on the same line and go to the 
last column and tell me hoAv much your gross profit was.^ 

Mr. Stanley. Our gross profit before deductions of expenses, which 
were set forth in the heading, was $60,575.66. 

Mr. Nehemkis. In the first 4 months of j-our existence, during the 
period September 16 through December 31, 1935, did not Morgan 
Stanley & Co. Incorporated participate in underwriting amounting 
to $195,835,000? 

Mr. Stanley. We participated in issues amounting to that. Our 
underwriting was fifty-five-million-odd dollars. 

Mr. Nehemkis. Now, having in mind the two figures we have be- 
fore us. what was the amount of the gross spread on these issues? 

Mr. Stanley. You mean dollars? 

Mr. Nehemkis. Yes; in dollars. 

Mr. Stanley.- $4,186,527. 

Mr. Nehemkis. Now, after deducting your share of the syndicate 
expenses, what was your gross profit? I am aware that your termi- 
nology is different from the one which I am using, which I take to 
be the 'accepted one. You refer to gross receipts or losses, but I think 
we understand each other. 

Mr. Stanley. Gross receipts. I think your question was our share 
of gross profits after 

Mr. Nehemkis (interposing). — deduction of syndicate expenses; 
correct. 

Mr. Stanley. "Wliich are the expenses of the syndicate as such? 

Mr. Nehemkis. Right. 

Mr. Stanley. None of our own expenses or overhead taxes, and 
so forth. 

Mr. Nehemkis. Right. What is the figure? 

Mr. Stanley. The figure is $933,245.79. 

Mr. Nehemkis. Right. 

Senator King. Out of that you paid taxes and your office expenses ? 

Mr. Stanley. Yes, sir; overhead, rent. 

Mr. Nehemkis. Now, was not j^our profit on these issues about 22 
percent of the gross spread? You don't have the figures there; Mr. 
Young had better make some calculations. Put down $933,246 over 
$4,186,528, and tell me if that isn't 22 percent of the gross spread; 
approximately 22 percent, Mr. Young? 

1 "Exhibit No. 1762." 



12060 CONCENTRATION OF ECONOMIC POWER 

Mr. Young. Yes; that is correct. 

Mr. Nehemkis. Now, was not this profit a little less than half 
received from management fees, Mr. Stanley? 

Mr. Stanley. Yes. 

Mr. Nehemkis. Now, during the 4-year period September 16, 1935, 
to June 30, 1939, did not Morgan Stanley & Co, manage or co-manage 
issues amounting to $2,534,968,530 ? 

Mr. Stanley. From September 16, 1935, to June 30, 1939? 

Mr. Nehemkis. Correct, sir. 

Mr. Stanley. We managed or co-managed issues amounting to 
$2,534 

Mr. Nehemkis (interposing). You accept my figure? 

Mr. Stanley. Yes. I wasn't sure whether I had the right place. 

Senator King. Was there a guaranty — were these underwritten ? 

Mr. Stanley. Yes, sir; these were all underwritten by various 
firms, including ours. 

Senator King. That meant a guaranty of the amount for which 
you had underwritten? 

Mr. Stanley. Not of the entire amount, sir. All of the Telephone 
issues were guaranteed and certain other issues, but not the entire 
figure just stated. 

Mr. Nehemkis. Did not, ckiring the same period that we are dis- 
cussing, Morgan Stanley participate in issues managed by others, 
amounting to $629,901,200? 

Mr. Stanley. They did, 

Mr. Nehemkis. And again, during the same period under discus- 
sion, did not Morgan Stanley manage or participate in issues amount- 
ing to $3,164,000,000? 

Mr. Stanley. That is the correct figure — the face amount of 
bonds — the amount of our own underwriting — — 

Mr. Nehemkis (interposing). I will come to that. Morgan Stan- 
ley participated in issues or co-managed — the Morgan Stanley par- 
ticipation in issues managed or co-managed by it was $522,991,050? 

Mr. Stanley. That is correct, 

Mr. Nehemkis. Now, that is something over 20 percent, isn't it ? 

Mr. Stanley. About. 

Mr. Nehemkis. Approximately? 

Mr. Stanley. Yes, approximately. 

Mr. Nehemkis. Do you want to check the figures, Mr. Young, or 
do you accept them ? 

Mr. Young. No. 

Mr. Nehemkis. Morgan Stanley's participations in issues managed 
by others was $66,525,000, or something over approximately 10 per- 
cent? 

Mr. Stanley. That is correct. 

Mr. Nehemkis. So that Morgan Stanley's participation in issues 
managed by itself was twice as large as in issues managed by others? 

Mr, Stanley. That is correct. 

Mr. Nehemkis. Now, do you have before you the total spread on 
the issues managed by IMorgan Stanley during this period under 
discussion? 

Mr. Stanley. I have. The figure is $50,450,210. 

Mr. Nehemkis. Now, of this amount, Mr. Stanley, did not IMorgan 
Stanley transfer to its gross profit account, referred to in your table 
as receipts and losses, $12,227,613, or about 24 percent? 



CONCENTRATION OF ECONOMIC TOWER 12061 

Mr. Stanley. Well, the figure that you mentioned is in this last 
column of gross receipts. 

Mr. Nehemkis. Is your ansAver "Yes" or "No"? 

Mr. Stanley. Well, you said transferred to our gross 

Mr. Nehemkis (interposing). Profit account, referred to in your 
table as receipts and losses. 

Mr. Stanley. Now, you are speaking about bookkeeping now and 
after all, presumably 

Mr. Nehicmkis (interposing). Well, where 

Mr. Stanley. There is no bookkeeping- 



Mr. Nehemkis (interposing). Well, "transfer" need not be taken 
that literally. What is your answer to my statenient? I want the 
record to show your answer. What appears in that column? What 
is the figure, $12,227,613? 

Mr. Stanley. Correct. 

Mr. Nehemkis. Then your answer should be "Yes," should it not, 
sir ? • 

Mr. Stanley. I don't know; I mean, you are talking about trans- 
ferring to a gross profit account. There is no such account. 

Mr. Nehemkis. All right. 

Senator King. Make such explanation as you care to. 

Mr. Stanley. Well, there is no doubt. Senator, that the figure he 
mentioned in the column, the last column of the table, which we 
prepared at his request, is there, but I thought he was referring 
to our books of record. 

Mr. Nehemkis. No; I think you were taking me too literally. 

Mr. Stanley. I'm sorry. 

Mr. Nehemkis. Now, can you tell me what the total spread was on 
the issues which were managed by other houses? 

Mr. Stanley. May I have that read? 

(The question was read.) 

Mr. Stanley, The spread in the issues managed by other firms in 
which, we participated was $12,621,294. 

Mr. Nehemkis. That's correct. Now, of that amount, it appears in 
the gross-profit account, does it not, $462,315 or about 3% percent of 
the spread? 

Mr, Stanley. It appears in that column ; yes, 

Mr, Nehemkis. Thank you, Mr. Stanley. 

Now, of the 73 issues managed by Morgan Stanley, am I correct 
in understanding that not one issue showed a loss? 

Mr. Stanley. No. 

Mr. Nehemkis. That is to say, loss to Morgan Stanley & Co. 
Incorporated. 

Mr. Stanley. That is correct. 

Mr, Nehemkis. In fact, it only shows — the only loss shown from 
the Morgan Stanley participations is the 1936 Shell Union issue, 
which was managed by some other house; is that correct? 

Mr, Stanley, That is correct, 

Mr, Nehemkis. And your loss on that participation was $32,000, 
roughly ? 

Mr. Stanley. It was. 

Mr. Nehemkis. So that this was the only issue out of the 90 man- 
aged or participated in by Morgan Stanley during these 4 years 
that showed a loss? 



12062 CONCENTRATION OF ECONOMIC POWER 

Mr. Stanley. That is correct. 

Mr. Nehemkis. Now, is this correct. Mr. Stanley, that the ottoss 
profit to Morgan Stanley on the issues managed or co-managed by 
it was slightly less than half a point? 

Mr. Stanley. That is correct. 

Mr. Neiiemkis. What is your answer, Mr. Stanley? 

Mr. Stanley. That is correct. I have answered. 

Mr. Nehe.aikis. Now, was not the gross profit that Morgan Stanley, 
on issues managed by others, made, $462,315, or about one-fifteenth 
of 1 percent, on the gross spread, of course ? 

Mr. Stanley. I can't follow you. 

Mr. Nehemkis. Accept it subject to correction, 

Mr. Stanly. I will be glad to. 

Mr. Nehemkis. Now, was not the total spread on the issues man- 
aged by others $12,621,000, rouglitly speaking? 

Mr. Stanley. Yes, 

Mr. Nehemkis. Is it correct that only two firms ever served as 
co-managers with Morgan Stanley? 

Mr, Stanley, I don't think 

Mr. Nehemkis (interposing). Perhaps I can help you if I give 
you this question : Have any other firms, other than Bonbright & Co. 
and Kuhn, Loeb & Co., ever served as joint managers with you ? 

Mr. Stanley. I think not. 

]Mr. Nehemkis. AVliat is your answer ; "Yes" or "No" ? 

Senator King. He said, "I think not." 

Mr. Nehemkis. I wasn't sure. You think not? 

Mr. Stanley. Yes. 

Mr. Nehemkis. Now, Bonbright & Co., prior to the organization 
of your firm, was always associated with utility business, was it not? 

Mr. Stanley. Well, it had done a very large 

Senator Kjng (interposing). Do you mean exclusivel}^ associated? 

Mr. Nehemkis. I wouldn't 

Senator I^ng (interposing). Or others? 

Mr. Nehemkis. I wouldn't say exclusively, but my understanding 
is that it was a house that was famous for its utility business. 

Did I get your answer, sir? [to Mr. Stanley] 

Mr. Stanley. There are several Bonbright firms that had existed 
over a period of years. Those firms had been identified largely with 
utility financing, but it had done other business, particularly some of 
the firms. 

Mr. Nehemkis. Now, the 

~ Senator King (interposing). Pardon me, but there were several 
firms by the name of Bonbright? 

Mr. Stan'eey. Yes, sir. Not more than one at one time, but over a 
period of time there were several distinct firms. 

Senator King. Under the same management or same ownership? 

Mr. Stanley. Different management, Senator. 

Mr. Nehemkis. I believe you said, Mr. Stanley, that the other co- 
manager with you was the house of Kuhn, Loeb. Has not Kuhn, Loeb 
& Co. been particularly associated with railroad issues. 

Mr. Stanley. Well, they have done a great deal of railroad financ- 
ing. They have done a great deal of otner kinds of business over a 
long period, too. 

Mr. Nehemkis. You feel you can't answer my question in the form 
in which it was put to you ? 



CONCENTRATION OF ECONOMIC POWER 12063 

Mr. Stanley. I can't answer it precisely. I can express the opinion 
that they probably have done more railroad business — still, I don't 
know how much. 

Mr. Nehemkis. I think that is fairly helpful. Was not Morgan 
Stanley's total gross profits from security flotations, during this en- 
tire period that we have been discussing, $12,689,928? 

Mr. Stanley. That is correct — subject, of course, to all the deduc- 
tions that I have mentioned several times. 

Mr. Nehemkis. Right. Did not ^,774,280 or a little over 60 per- 
cent come from management fees? 

Mr. Stanley. Management compensation, yes. We pay ourselves 
part of that. 

Senator' King. You what? 

Mr. Stakley. We pay ourselves part of that. I don't know if that 
is clear, Senator. 

Senator King. No ; it is not. 

Mr. Stanley. Well, the management compensation is paid by all 
of the underwriters to the management. There might be 10 under- 
writers and each of the 10 pay something to the management. When 
we are one of the 10, as we always are, we pay ourselves that por- 
tion, you see. 

Senator King. Oh, vou take it out of one pocket and put it in the 
other ? 

Mr. St»anley. That's right. When we have taken the under- 
writing, or 20 percent of the underwriting, we pay ourselves 20 per- 
cent of the total, as managers. 

Mr. Nehemkis. Will Mr. George lYhitney please take the stand, 
and will you remain, Mr. Stanley? 

Senator King. May I ask one question before he does ? 

Grenerally speaking, Mr. Stanley, what would be the expenditures 
that would be paid out of the gross returns or gross profits? 

Mr. Stanley. The expenditures that any firm would have? 

Senator King. Yes; I am speaking of taxes or whatever they 
were. 

Mr. Stanley. Yes. Well, first, of course, there is the return on 
capital, that being the most important thing in the underwriting 
business, which, if idle for a long time — ov we may be busy at other 
periods. The business has peaks and valleys, you know. You do a 
lot of business or you don't do business for a long time. We did a lot 
of business in the first 2 years of our existence, and the last year 
we haven't done very much. As I said to Mr. Nehemkis, if we had 
been the owner of our preferred stock this past year, we wouldn't have 
received full dividends, because we didn't earn it. 

Senator King. Well, that is to say, you have to keep available a 
large amount of capital which brings no I'^turns whatever? 

Mr. Stanley. Right. We have to keep a staff of people who are 
available, if we want to maintain this existing form of investment 
machinery for the need of the market, so that they are available to 
perform certain expert services to a borrower, and they are compe- 
tent, experienced men. They have to be kept and paid whether we 
are busy or whether we are not. Of course, we have that overhead ; 
we have rent, we have taxes, all the things that any business has to 
pay in the way of expenses. 

Senator King. Have you ever made any computation as to the 
amount which might be considered as a profit after meeting all of 



12064 CONCENTHATION OF ECONOMIC POWER 

these obligations to whicli you have referred, taking into account the 
idle capital which for some periods would not be used and which, 
of course, calls for some compensation, and what would be the ulti- 
mate amount which would be regarded as a profit? 

Mr. Stanley, Well, you can t — I don't think you can in this busi- 
ness decide what would be an average return on capital over a period 
of time. The business is very "spotty." An awful lot depends on 
where you say "Yes" or ''No" as to going into certain issues. For 
example, during this period there were certain issues that were 
brought out on the market that didn't turn out very well, and the 
underwriters had substantial losses. If we had said "Yes" to the 
invitation to become an underwriter in those issues, we might not 
have had any money at alL or, rather, we might not have had profits 
anytliing like these that Mr. Nehemkis has brought forth, the gross 
profits. We didn't go into those issues, as it happened. 

Seniator King. Well, were there many corporations or investment 
bankers or companies in -the field during the period covered by the 
inquiries of counsel? 

Mr. Stani^y. I should say "Yes." 

Senator King. Was the field open to every investment company 
to bid for or enter into negotiations with corporations that were 
seeking capital? 

Mr. Stanley. The field was entirely open to anyone if the cor- 
poration wanted to do basiness with them. 

Sena,tor King. There was no coercion upon your part to compel 
them — corporations seeking money — to deal with you? 

Mr. Stanley. No, sir ; none at all, Senator. 

Senator King. I suppose the fact that you made a pretty good 
record, as evidenced by %iY. Nehemkis' questions, would bring to Mor- 
gan Stanley and those with whom they were associated considerable 
prestige, and people would have confidence in them and go to them 
when they had large flotations to make? 

Mr. Stanley. Well, all of us. Senator, I might say, have been in 
the business of investments for quite some time and knew a great 
many people in the business and in the big corporations. We had 
a certain, or we were supposed to have a certain knowledge of the 
business over that period, 

TESTIMONY OF GEORGE WHITNEY, J. P. MORGAN & CO., NEW 
yore:, N. Y.— Resumed 

ENUMERATION OF FORMER ACCOUNTS OF J. P. MORGAN & CO. UNDERWRITTEN 
BY MORGAN STANLEY & CO, INCORPORATED ACCOUNTS NOT UNDER- 
WRITTEN 

Mr. Nehemkis. Mr. Whitney, will you glance at the sheet spread 
out on the table there, indicating the originations and participations 
of the firm of Morgan Stanley, and run through that list and read 
off, if you wirll, the companies on that list which were formerly 
accounts of J. P. Morgan & Co.? 

Mr. Whttney. I don't know anything about that. 

Mr. Nehemkis. Do as I ask, if you will, Mr. Whitney. You are 
a banker and you have testified that you had 25 years' experience 
in. the banking business. That should be simple for a banker. 

Mr. Whitney. I think I can try to do that, Mr. Chairman. I 
am not sure that I can remember, but I will do my best. This is 
a sort of an unrehearsed — do you want me to read them aU ? 



CONCENTRATION OF ECONOMIC POWER 12065 

Mr. Nehemkis. Sure. You go down the list and tell me every 
one of those accounts which was formerly an account of J. P. 
Morgan.^ 

Mr. Whitney. All right. 

Consumers Power Co., no ; Dayton Power & Light Co., no ; Illinois 
Bell Telephone Co., yes ; Ohio Edison Co., no ; New York and Queens 
Electric Light & Power Co., no; Southwestern Bell Telephone Co., 
yes; New York Edison Co., no; Central Illinois Light, no; Consum- 
ers PoAver Co., no; Louisville & Nashville Railroad, yes; New York 
Central Railroad, yes, twice; Consolidated Edison Co., no; Pacific 
Telephone & Telegraph, yes ; Chesapeake & Ohio Railway, yes ; Cin- 
cinnati Union Terminal Co., yes; Chicago & Western Indiana, yes; 
Brooklyn Edison Co., yes — I mean, no, on that. What was your 
question, whether we did bond issues or 

Mr. Nehemkis. Whether they were an account of yours. 

Mr. Whitney. What do you mean by that, may I ask ? 

Mr. Nehemkis. Whether you did any form of financing, bonds, 
notes, stocks. 

Mr. Whitney. Crane Co., no; Niagara Falls Power Co., yes; 
Louisville & Nashville Railroad Co., yes; Chesapeake & Ohio Rail- 
way, yes; Indianapolis Water Co., I wouldn't know; New York 
Edison Co., no; Chesapeake & Ohio Railway, yes; General Motors 
Acceptance, twice yes; Cincinnati Gas & Electric Co., no; Amer- 
ican Telephone & Telegraph, yes; Central Hudson Gas & Electric, 
yes; Argentine Republic, yes; American Telephone & Telegraph 
again, yes; Consumers Power Co., no; Pacific Telephone and Tele- 
graph, yes; Ohio Edison Co., no. 

Great Northern Railway, I guess yes ; Government of the Dominion 
of Canada, yes — that's twice. 

Mr. Nehemkis. Just" keep to the corporate issues — well, ^ ahead, 
since you are doing it, you might as well do it all. 

Mr. Whitney. You interrupted my crain of thought. 

Mr. Nehemkis. I'm sorry ! 

Mr. Whitney. Argentine Republic, yes; Johns-Manville Corpora- 
tion, yes; Philadelphia Electric, yes; Argentine Republic, yes; South- 
ern Bell Telephone & Telegraph, yes; Crane Co.,, no; Phelps Dodge, 
no; Cincinnati Gas & Electric, no; Standard Brands, no; New York 
Telephone, yes ; Niagara Electric, twice, yes ; duPont, yes ; West- 
chester Lighting, no; Ohio Edison, no; Central New York Power, 
no. 

Consolidated Edison, no; Consumers Power, no; Duluth, Missabe 
and Iron Range Railway, yes; Consolidated Edison of New York, 
no; U. S. Steel, yes; Mountain States Telephone and Telegraph, 
no; Standard Oil of New Jersey twice, yes; "Southwestern Bell Tele- 
phone, yes; Public Service Electric and Gas, yes; New York Steam 
Corp., no ; Argentine Republic again, yes ; Dominion of Canada, yes ; 
Continental Oil, no — well, a predecessor company, a very different 
company we had then. 

Mr. Nehemkis. That's right. 

Mr. Whitney, Railway Express, yes ; Consumers Power, no ; East- 
man Kodak, no; Inland Steel, no. That wasn't their business 
anyway. 

1 "Exhibit No. 1762." 



12066 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. That was a participation. 

Mr. "Whitney. Oh, excuse me ! 

Mr. Nehemkis. I want to get the record straight. 

Now, Mr. Whitney, I want to thank you. That was a very refresh- 
ing experience, because I think j'ou have been overmodest about your 
memory heretofore. 

Mr. Whitney. Thank you ! 

Mr. Nehemkis. Now, Mr. Whitney, all railroad issues that you have 
enumerated on that sheet were former J. P. Morgan accounts? 
All Telephone issues were 

Mr. Whitney (interposing). Excuse me, sir, what was that? 

Mr, Nehemkis. I said all railroad issues that you enumerated — 
suppose we make it a little more systematic. I am going to show 
you this table of industrial and railroad issues managed or co-man- 
aged by Morgan Stanley during the period under discussion, and ask 
you to look at them and tell me if there is any railroad issue on this 
list that was not one that you enumerated a moment ago.^ 

Mr. Whitney. That is correct, except 

Mr. Nehemkis (interposing). Just hold it for a moment! 

Mr. Whitney. May I answer your question ? 

Mr. Nehemkis. Certainly. 

Mr. Whitney. That is correct, except the Great Northern Railway 
was at First National Bank. 

Mr. Nehemkis. But part of the old trio, that is 

Mr. Whitney (interposing) . No, no ; it wasn't, not a bit ! Excuse 
me! 

Mr. Nehemkis. All right. Now, hold that for just a moment. 
You see a number of industrial accounts there. All of those accounts 
w^ere formerly managed by J. P. Morgan & Co. except 

Mr. Whitney (interposing). You mean bond issues? 

Mr. Nehemkis. Bond issues — except — now, you pick out the ones 
that were not managed by J. P. Morgan & Co. 

Mr. Whitney. Well, Crane, it is down here twice; Phelps Dodge 
is here, and Eastman Kodak. Now, let me start again : Crane 

Mr. Nehemkis (interposing). Excuse me, but just to get the record 
plain on this, these are industrial issues underwritten by Morgan 
Stanley which were not formerly accounts of J. P. Morgan & Co. 
Proceed. 

Mr. Whitney. Crane Co., the Phelps Dodge Co., the Eastman 
Kodak Co., and I think Standard Brands. 

Mr. Nehemkis. One other. Shell Union Oil. 

Mr. Whitney. Wlio? 

Mr. Nehemkis. Oh, I'm sorry, that is not on your list. But that 
is one other account that you people didn't have. 

Mr. Whitney. I wouldn't know — one other. I didn't hear what 
you said to start with. 

Mr. Nehemkis. I said Shell Union Oil was not formerly an account 
of J. P. Morgan & Co. 

Mr. Whitney. Oh, no! And Continental Oil, of course, is so 
changed in its present situation, it is really not proper to say 

'See "Exhibit No. 1764-2," appondix. p. 12295. 



CONCENTRATION OF ECONOMIC POWER 12067 

Mr. Nehemkis (interposing). With reference to Standard Brands, 
is it not a fact, Mr. Whitney, that your firm organized and was 
instrumental in setting up Standard Brands? 

Mr. Whitney. We had something to do with it, but we weren't 
either of the two functions you suggested. 

Mr. Neiiemkis. Now, Mr. Chairman, may it please the committee, 
I would like to offer in evidence at this time these two tables from 
which we have been working, the source of the data having been 
furnished to us by Morgan Stanley & Co., Incorporated, in both 
instances. 

The Chairman. They may be received. 

(The tables referred to were marked "Exhibits Nos. 1764-1 and 
1764-2," respectively, and are included in the appendix on pp. 12293 
and 12295.) 

Mr. Nehemkis. Mr. Whitney, do you recall any company for which 
J. P. Morgan & Co. was formerly principal banker, which has floated 
securities through some house other than Morgan Stanley & Co., 
Incorporated ? 

Mr. Whitney. I couldn't possibly answer that question. I never 
thought of it before. 

Mr, Nehemkis. Will you do some thinking about it and send me a 
memorandum on it? 

Mr. Whitney. You mean check up e\eTy industrial company 
financed during the last few years ? 

Mr. Nehemkis. Somebody in your^ organization. We would like 
the committee to have the benefit of your advice on it.^ 

Mr. Stanley, do you recall any company for which J. P. Morgan & 
Co. was formerly principal banker which has floated securities 
through some other house than Morgan Stanley & Co., Incorporated? 

Mr. Stanley. I would like to be able to think about it, because I 
might miss some. I recall some at the moment ; perhaps I can think 
of more later. Those I recall are the Connecticut Light & Power 
Co., a subsidiary of the United Gas Improvement Co., which sold 
securities by Putnam & Co., of Hartford; Cincinnati Union Terminal 
Co., which sold some bonds through Lehman Brothers; the C & O. 
Railroad which sold securities through Halsey, Stuart, and Otis & 
Co. ; the Terminal Railroad of St. Louis, who sold securities through 
a syndicate headed by Halsey, Stuart & Co. 

Mr. Nehemkis. Mr. Stanley, do I follow you correctly that the 
three you have mentioned thus far, Terminal Railroad, C. & O., 
Cincinnati Union Terminal and Connecticut Light & Power 

Mr. Stanley (interposing). That is four. I would like to have 
the opportunity to think further about it. There may be many 
others, I don't know, 

Mr. Nehemkis. If you will and at your leisure send us a memo- 
randum, we will be very grateful.^ 

Mr. Stanley. I will be very glad to. 

Mr. Nehemkis. Now, Mr. Stanley, will you glance at the sheet ^ 
I am about to show you, the original of which is in evidence, and 

1 Mr. Whitney, under date of January 26, 1940, submitted the Information requested. 
It is included in the appendix on p. 12321. 

a See letters from Mr. E. H. York, Jr., Feb. 15, 1940 ; Peter R. Nehemkis, Jr., Esq., 
March 4, 1940 ; Mr. Harold Stanley, March 12, 1940, in the appendix, pp. 12321-12324. 

« "Exhibit No. 1764-1." 



12068 CONCENTRATION OF ECONOMIC POWER 

go over this very quickly and tell me which of these utility issues 
you recognize as having been managed or co-managed by Morgan 
Stanley. Just tell me first which of those you recognize as having 
been managed or co-managed by Morgan Stanley. 

Mr. Stanley. This entire list purports to be a list of certain utility 
issues managed or comanaged by Morgan Stanley & Co., and I have 
no doubt it is correct. Some of these companies, of course, sold — I 
think in all cases of these groups here the sales were in quite sub- 
stantial amounts of securities direct by private placement to insti- 
tutions. 

Mr. Nehemkis. Substantially you accept the table ? 

Mr. Stanley. It seems to be correct. It is subject to check. 

UTILITY UNDERWRITINGS BY :M0RGAN STANLEY & CO. INCORPORATED, WHICH 
WERE NOT UNDERWRITTEN BY J. P. MORGAN & 00. 

Mr. Nehemkis. All of this is subject to check. 

Will you pass it to Mr. Whitney ? Mr. Whitney, will you run over 
that list ^ and tell me which of those utility accounts were formerly 
accounts of J. P. Morgan & Co.? Take them by groups, the first 
one being the Consolidated Edison Co. of New York. Were any of 
that group formerly Morgan accounts? 

I\Ir. Whitney. No. 

Mr. Nehemkis. Take the next group, Commonwealth & Southern 
Corporation, any of that group of companies J. P. Morgan accounts? 

Mr. Whitney. No. 

Mr. Neheimkis. Turn to the next, Niagara Hudson Power Cor- 
poration, were any of those J. P. Morgan accounts? 

Mr. Whitney. Some of them in part, I mean, in other words, we 
had done isolated business for some of these; yes. Some we hadn't; 
Central New York we hadn't. 

Mr. Nehemkis. Will you indicate the ones for which you believe 
that some isolated financing had been done, subject, of course, to 
check ? 

Mr. Whitney. I would want to check them because I don't like 
guessing on something I haven't checked up, but we did once, many, 
many years ago, the Niagara Falls Power, and I have an idea it 
related to another. Central Hudson I think we did in Drexel. I 
wouldn't know. Buffalo Niagara we did some, and other people, 
if I recollect, did some, the Central New York Power, so that I think 
we may have done isolated transactions for Central New York 
Power. 

Mr. Nehemkis. Will you turn to the next section, Columbia Gas 
& Electric Corporation? 

Mr. Whitney. No. 

Mr. Nehemkis. United Gas Improvement Co. 

Mr. AVhitney. Through our Philadelphia office; yes, sir. 

Mr. Nehemkis. Public Service Corporation of New Jersey. 

Mr. Whitney. Well, back in the 1890's or something like 1900 
I guess it was, we did a piece of business for them in J. P. Morgan & 
Co. and since then Drexel has. 



I "Exhibit No. 1764-1." 



CONCENTRATION OF ECONOMIC POWER 12069 

Mr. Nehemkis. And the last, Indianapolis Water Co.? 

Mr. Whitney. Mr. Hall tells me that Drexel did. 

Mr. Nehemkis. The answer is that Drexel handled the last three 
pieces ? 

Mr. Hall,. Which three pieces? 

Mr. Nehemkis. Look at the chart ^ and refer to United Gas Im- 
provement Co., Public Service Corporation of New Jersey, .nd 
Indianapolis Water Co. — did Drexel handle all those three accomits? 

Mr. Hall. They did. 

Mr. Nehemkis. Mr. Whitney, to return to a former answer of 
yours, you said U. G. I. and Public Service Corporation of New 
Jersey appear in the J. P. Morgan scheme of things rather remotely 
in the past. Don't they appear latterly somewhat more contem- 
poraneously than perhaps you intimated? 

Mr. Whitney. J. P. Morgan & Co.? 

Mr. Nehemkis. Yes. 

Mr. Whitney. No, sir; we have never done any broad transac- 
tion, I don't think, in New York. In the New York part of our show 
I don't think we have ever done anything for U. G. I., and I say 
we did once 40 years ago for Public Service. 

Wait a minute, I apologize because I always think in terms of the 
New York end. Mr. Hall reminds me that some of these Common- 
wealth & Southern Corporation issues^ subheaded that way, Drexel 
did do business with. He had better identif}' it because I wouldn't 
know. 

Mr. Nehemkis. I think Mr. Hall had better be sworn. 

Mr. Whitney. I wouldn't know of my own knowledge at all. I 
have forgotten. 

Mr. Nehemkis (to Mr, Hall). Suppose you take the sheet.^ And 
will you be good enough to swear this person ? 

The Chairman. Do you solemnly swear the testmiony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God? 

Mr. Hall. I do. 

TESTIMONY OF PERRY E. HALL, VICE PRESIDENT, MORGAN 
STANLEY & CO., INCORPORATED, NEW YORK, N. Y. 

Mr. Hall. There is only one, and that would be the Ohio Edison 
under Commonwealth & Southern. 

Mr. Nehemkis. And you previously indicated, and Mr. Whitney 
accepted your statement, that U. G. I., Public Service of New Jersey 
and Indianapolis Water Co. had been formerly financed by DrexeH 

Mr. Hall. That is correct. 

Mr. Nehemkis. Mr. Whitney, do you recall when the United Cor- 
poration was organized? 

Mr. AVhitney. United Corporation — 1929. 

Mr. Nehemkis. Was not the United Corporation organized by J. P. 
Morgan & Co. and Bonbright & Co. ? 

Mr. Whitney. It was. 

1 "Exhibit No. 1764-1." 



12070 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. Mr. Whitney, I show you a letter which purports 
to be on the stationery of J. P. Morgan & Co., addressed to Lansing 
P. Reed, Esq. Will you look at it and tell me if you recognize this 
as being your stationery and the kind of file paper that normally 
appears in your shop? 

Mr. Whitnet. Yes. 

Mr. Nehemkis. This is a letter, may it please the committee, from 
Mr. Thomas S. Lamont, to Mr. Lansing P. Reed. Can you tell me 
who Mr. Lansing P. Reed is or was? 

Mr. Whitney. He was a member of the firm of Davis, Polk, Ward- 
well, Gardiner & Reed, who are our counsel. 

Mr. Nehemkis. I read to you this letter [reading from "Exhibit 
No. 1765"] : 

At Harold Stanley's suggestion — 

I presume he referred to you, sir? 
Senator King. What is the date of that? 
Mr. Nehemkis. January 2, 1929 [reading] : 

At Harold Stanley's suggestion, I am enclosing a batch of advertising circu- 
lars regarding various investment trusts. He — 

Referring again, I presume, to you, Mr. Stanley 

suggested that I call to your particular attention the Utility Equities Corpora- 
tion and especially the first paragraph thereof which I have marked. In this 
connection the names of two other investment trusts occurred to me, the 
purposes of which are in a way similar to the one proposed — - 

Bear this in mind, if you will, Mr. Chairman — 

in that they make little if any pretense of diversitication, and their purpose 
is obviously to insure continued control by the bankers (Lee, Higginson & Co.), 
and their clients. These are the Swedish American Investment Corporation 
and the Solvay American Investment Corporation. In the circular advertising 
the sale of their fixed obligations to the public, no mention is made of 
diversification. 

Now, I am oflfering this at this time because of this significant 
fact. This document was filed under United Corporation, and when 
I paused in my reading, the reference was to United Corporation. 

I offer it, sir. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 1765" and is 
included in the appendix on p. 12296.) 

Mr. Nehemkis. Mr. Whitney, were you not once a director of the 
United Corporation? 

Mr. Whitney. Yes, sir. 

Mr. Nehemkis. Would you be able to identify for me the report 
to the stockholders for the year ending 1934, and while you were 
not a director in 1938, I ask j'ou to tell me if the report I show you 
for the year 1938 looks familiar to you, and is the report. 

My. Whitney. Well, I can certainly identify the '34 one. I sup- 
pose it is fair to believe that that is the report that was issued in 
1938. 

Mr. Nehemkis. Before relinquishing these, since I don't have oc- 
casion to refer to them later, I would like to read into the record from 
the consolidated balance sheet sent to the stockholders in the year 
1938, the investments of the United Corporation in a mmiber of 
corporations which we shall have occasion to deal with later, and 



CONCENTRATION OF ECONOMIC POWER 



12071 



which we have in fact ah-eady discussed with you [reading from 
"Exliibit No. 1766-2'n : 



Companies 


Shares held 


Percent of 
total voting 
stock out- 
standing 




2, 424, 356 
2, 351, 007 

988, 271 
6, 066, 223 
1, 798, 270 

203, 900 


19.6 


Niagara Hudson Power Corporation, common stock 


23.4 
13.9 


The United Gas Improvement Co., common stock 


26.1 


The Commonwealth & Southern Corporation, common stock 


5.1 
1.5 







May I at this time, sir, offer these documents in evidence, as identi- 
fied by the witness? 

The CHz^rRMAi-f. Do you want them printed in the record? 

Mr. Nehemkis. I think it is rather important, sir, that they should 
be printed. 

Perhaps we can file them; we can always get access to them. 

Tlie Chairman. That will be better. 

Mr. Nehemkis. I think I have given the vital information. 

The Chairman. They may be accepted and filed. 

(The documents referred to were marked "Exhibits Nos. 1766-1 
and 1766-2" and are on file with the committee.) 

Mr. Nehemkis. Mr. Stanley, is it a pure coincidence that Morgan 
Stanley should do all the underwriting for companies whose stocks 
have been the principal investment of United Ccrporation? 

Mr, Stanley. Well, I don't know what you mean by a pure coinci- 
dence, but I would say that the reason the t we have done business for 
the companies, for the subsidiaries of the companies you mentioned, 
is because those companies asked us to. 

Mr. Nehemkis. Is it a coincidence, Mr. Stanley, that Morgan 
Stanley has done no underwriting for other utility companies? 

Mr. Stanley. I am not sure that Ave haven't. 

Mr. Nehemkis. Check me if you will. If I am in error, I am al- 
ways very happy to be so told. 

Just a moment before you do that; to the best of your knowledge at 
this moment, subject always to your privilege to check, can you give 
me an answer to those two questions, yes or no ? 

Mr. Stanley. May I have it read, please? 

Mr. Nehemkis. Read the second question. 

(The reporter read the question : "Is it a coincidence, Mr. Stanley, 
that Morgan Stanley has done no underwriting for other utility 
companies?") 

Mr. Nehemkis. Give me the answer to that. You have the privi- 
lege of checking that later. 

Mr. Stanley. May I have the question again? 

(The reporter read the question again.) 

Mr, Stanley. We have done other. 

Mr. Nehemkis. What is the answer to the question, is it a coinci- 
dence or not a coincidence? 

Mr. Stanley. Coincidence to what ? I don't get your meaning. 

Senator Kjng. It seems to me that is a dual question. Is it a coinci- 
dence—that is a question; and was there any underwriting of other 
organizations. 



12072 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. They were two questions, sir, quite. 

Senator King. It seems to me a man would have to be dexterous to 
know how to answer it. 

Mr. Nehemkis. I will repeat the first question : Mr. Stanley, is it 
a pure coincidence that Morgan Stanley should do all of the under- 
writing for companies whose stocks have been the principal invest- 
ment of United Corporation? Now may I have your answer? 

Mr. Stanley. I would say it has nothing to do with the ownership 
of United Corporation by these companies. 

Mr. Nehemkis. You can't answer that yes or no ? 

The Chairman. May I suggest, Mr. Nehemkis, that the question 
cannot possibly be clear to the witness, because he doesn't know 
what is in your mind as the alternative to a coincidence. 

Mr. Nehemkis. May I ask the witness if he will pass that ; I have 
his general answer, and see if he can answer my second question, 
which I believe was as follows : Mr. Stanley, is it a coincidence that 
Morgan Stanley has done no underwriting for other utility com- 
panies ? 

Mr. Stanley. But we have done other underwriting. 

Mr. Nehemkis. Than in that group formerly mentioned? 

Mr. Stanley. Yes; we have. They are on the group you have, 
some of them — all of them. 

"morgan STANLEY & CO., INC0RP0R.\TED, HA\T3 BEEN DOING BUSINESS "WITH 
THE CLIENTS WHICH FORMERLY HAD PATRONIZED J. P. MORGAN & CO." 

The Chairman. Doesn't this all boil down to this state of facts, Mr. 
Nehemkis, that the Morgan Stanley firm was incorporated after the 
banking law of 1933 had been passed, divorcing underwriting from 
banks, and that the Morgan Stanley firm took over the underwriting 
function of the old firm of J. P. Morgan & Co., and that it was 
established principally by old stockholders or old partners of J. P. 
Morgan or Drexel ; in other words, that the new investment companv 
was organized by the owners of the J. P. Morgan partnership for the 
purpose of carrying on the business which the banking house could 
no longer carry on, and that most of the investment underwriting 
business of J. P. Morgan went on over to Morgan Stanley? Now, 
that is the situation, is it not, and there is no dispute about that, is 
there? 

Mr. Nehemkis. I think the answers are all in the record. 

The Chairman. There is no dispute about that. 

Mr. Stanley. Only this, sir; we didn't take over anything. We 
formed a company to do business of the type of security business, 
investment business, that J. P. Morgan & Co. used to do, and I think 
it might tell the whole story of the formation of Morgi;n Stanley & 
Co. if you would permit me to put in the record two very short 
announcements made at the time of formation, one by Morgan Stan- 
ley & Co. and one by J. P. Morgan & Co. 

The Chairman. I think they have already been mentioned, but we 
will be very glad to have them. 

Mr. Stanley: 



CONCENTRATION OF EC0N0:MIC POWER 12073 

For release morning newspapers September 6, 1935 
Announcement of Morgan Stanley & Co.. Inc. 

A group of partners and staff members of J. P. Morgan & Co. of New York 
and Drexel & Co. of Philadelphia, formerly active in the securities business of 
the firms, have withdrawn and are forming a new organization for the under- 
writing and wholesaling of investment securities, to be known as Morgan 
Stanley & Co., Inc., Messrs. Harold Stanley. William Evving, and Henry S. 
Morgan, of J. P. Morgan & Co., Messrs. Perry E. Hall and Edward H. York, Jr., 
of Drexel & Co., and Messrs. John M. Young and A. N. Jones, heretofore mana- 
gers of the Bond and Statistical Departments of J. P. Morgan & Co., are to be 
the executive officers of the new corporation. Mr. Stanley will be the President 
of the new corporation. 

The new securities corporation will have a paid-in capital of $7,500,000, 
divided into common and preferred stock. The common shares, which have sole 
voting rights in the election of the directorate, are to be held exclusively by 
the officers and staff of the corporation. The preferred shares will be held by 
members of this group and by certain individual partners of J. P. Morgan & 
Co. The corporation will open its offices for business at No. 2 Wall Street, 
New York City, on September 16th next. 

For release morning newspapers September 6, 1935 

Statement of J. P. Moegan & Co. 

We have to announce with regret the resignation of the following members 
of J. P. Morgan & Co. and of Drexel & Co. who, with other valued members of 
our staffs, have, under the name of Morgan Stanley & Co. Inc., undertaken to 
organize and carry on a securities business of the character formerly handled 
by our firms: Harold Stanley, William Ewing, Henry S. Morgan, Perry E. Hall, 
Edward H. York, Jr. 

The withdrawal of these partners and associates, and theii* formation of a 
separate and independent securities company, is, we consider, a logical step 
following upon our firm's decision a year ago, to carry on our banking business 
rather than the securities business; thus acting in accordance with the banking 
and securities provisions of the Banking Act of 1933, recently confirmed by 
the Banking Act of 1935, just enacted. We believe that the members of the 
new organization will be able, with the ample experience which they have 
heretofore had, to serve usefully the investment interest of the community. 

The firms of J. P. Morgan & Co. and Drexel & Co. will continue as heretofore 
to carry on their business as private bankers. 

The Chairman. Now you said in answer to my question that J. P. 
Morgan & Co. did not transfer this business, or words to that effect? 

Mr. Stanley. Right. 

The Chairman. But as a matter of actuality, though there was no 
legal transfer of this business, the new firm of Morgan Stanley & 
Co., composed of former partners and associates of J. P. Morgan 
& Co., did, as a matter of fact, carry on most of the old J. P. Morgan 
investment-banking business ? 

Mr, Stanley. It did, as a matter of fact, if I may say, do a very 
considerable amount of business with people who had formerly done 
business with J. P. Morgan & Co. and with people who Mr. Ewing, 
Mr. Hall, and myself had individually done business with. 

The Chairman. And you were not, of course, confined to that busi- 
ness which had formerly been transacted by J. P. Morgan ? You did 
other business ? 

Mr. Stanley. We did. 

The Chairman. And would do other business that would come 
across the thresh6ld ? 

Mr. Stanley. We would be very glad to. 

124491 — 40— pt. 23 18 



12074 CONCENTRATION OF ECONOMIC POWER 

The Chairman. But it is a fact, nevertheless, that the great ma- 
jority of the old business and the old clients followed the Morgan 
partners into the new firm. 

Mr. Stanley. A great many of the old clients of J. P. Morgan & 
Co. did business with us after we were formed, yes, sir; people we 
had known for years. 

The Chairman. Would it be proper to say most of them did? 

Mr. Stanley. Yes ; I think so. 

The Chairman. In other words, with very few exceptions, the 
new firm of Morgan Stanley & Co. have been doing the business with 
the clients which formerly had patronized J. P. Morgan & Co. 

I say just as a plain matter of fact ; it has no implications of any 
kind to iliy mind at all. It is just a plain matter of fact. That is 
what happened. 

Mr. Stanley. Quite right, sir; excepting with very few exceptions 
I am not quite sure of the figures. I think there was quite a substan- 
tial amount of business done with people who had never done business 
with J. P. Morgan & Co. before. 

The Chairman. And it would be a simple matter for you and Mr. 
Nehemkis to get together and outline what business has been taken 
over, what percentage — I shouldn't use the words "taken over," what 
business is now carried on by Morgan Stanley that formerly had 
been carried on by J. P. Morgan. Is that the situation as you under- 
stand it? [to Mr. Nehemkis]. 

Mr. Nehemkis. No, sir. Mr. Whitney has identified the three 
industrial accounts that were new accounts not handled by his firm ; 
Mr. Stanley has given testimony that the only old accounts that 
his firm did not handle were four accounts, three of which his nrm 
lost through competitive bidding; Mr. Whitney Jias testified that all 
of the utility business that Morgan Stanley has done today was with 
companies in which United Corporation, which had been organized 
by Mr. Whitney's firm, had heavy investments in ; and Mr. Stanley, 
if I understand correctly, is a little bit confused by my second ques- 
tion that had the word "coincidence" in it, but which simply means 
that I find no record of new financing of utility business by Morgan 
Stanley & Co. other than accounts that belonged to the United Cor- 
poration group. 

Mr. Stanley. I testified that United had nothing to do with it. 

Mr. Whitney. Mr. Chairman, may I make a comment then? I 
didn't testify to that. I testified as to the first part of what Mr. 
Nehemkis stated but I never had an opportunity, I never was asked 
the question about confining this to United Corporation. Mr. Stan- 
ley's statement and your statement, rather, is absolutely correct -of any 
understanding of what has happened. United Corporation I can say 
unequivocally hasn't been a factor in this in any possible, conceivable 
way. 

The Chairman. I don't see much difference between what Mr. 
Nehemkis has said and what the chairman said, nor what the wit- 
ness said. I don't see any dispute here. 

M'-. Nehemkis. I think they are now all in agreement. 

The Chairman. Then what is it all about? 

Senator King. Was the Stanley company that yom aided in organ- 
izing required, compelled, legally' or morally, to take over any clients 
that formerly had patronized J. P. Morgan & Co. ? 



CONCENTRATION OF ECONOMIC POWER 12075 

Mr. Stanley. No, sir. 

Senator King. You had the rijjht to select clients as and when and 
where you pleased? 

Mr. Stanlet. Absolutely, sir. 

Senator Kii^G. And to take over any or all of the former clients 
of J. P. Morgan & Co. if they came to you ? 

Mr. Stanley. If they were willing to do business with us. 

Senator King. And you went out, as I understood the testimony, 
and did obtain other clients in addition to those who had been the 
clients of J. P. Morgan & Co. ? 

Mr, Stanley. We did. 

Senator King. You were an independent corporation? 

Mr. Stanley. Absolutely, sir. 

Senator King. No strings upon you, so you were not compelled to 
take only J. P. ]\Iorgan clients but you could take clients from any 
source you pleased? 

Mr. Stanley. Absolutely. 

Senator &ng. And have done so? 

Mr. Stanley. We have. 

The Chairman. Of course, there is perfectly clear from all of the 
testimony throughout this hearing a fact which we all knew before, 
that J. P. Morgan & Co. were probably the leading bankers in the 
United States, if not the world, and that most of the strong corpora- 
tions in the United States at some time or another passed through 
its portals. J. P. Morgan & Co. did a lot of the financing business. 
Now that the Banking Act has separated two functions that were 
formerly merged, JNIorgan Stanley in the investment field has suc- 
ceeded to a similar dominant position that J. P. Morgan formerly 
held. 

Mr. Stanley. Senator, I am \evy glad to say that some of the for- 
mer clients have been willing to select us to be their bankers in the 
investment field. 

Senj^tor King. I see no impropriety in 'hat. 

Mr. Stanley. I don't, sir. I am prouc of it. 

The Chairman. It isn't a question of impropriety so far as the 
question takes note. It is a question of the actual concentration of 
the bulk of this business. Now, that carries no implication of wrong- 
doing or violation of the law, or anything of that kind, but it is a 
physical fact that is of tremendous importance in the economic his- 
torj^ of the United States. 

Mr. Stanley. Lots of good business we don't get, Senator, that we 
would like to have. 

The Chairman. You are not satisfied with the large proportion 
that you now have? 

Mr. Stanley. Well, I would like to do more. 

The Chairman. It was ever thus. 

Mr. Stanley. We haven't had much since July, Senator. We are 
running in the red. 

Mr. Nehemkis. Mr. Chairman, may I proceed? 

The Chairman. It is now 12 1'SO. 

Mr. Nehemkis. I don't know what to do. I promised some of our 
witnesses that we would get them back to their - families before 
Christmas. I am kind of worried. 



12076 CONCENTRATION OF ECONOMIC POWER 

The Chairman. One reason I interrupted was in the hope that it 
might clarify the matter and make it unnecessary to go into so much 
detail. I really don't think there is any dispute about this. 

Mr. Nehemkis. You have done it magnificently and I am not 
going to cross-examine. If I may have the committee's indulgence 
for 15 minutes more, then I think we can come to a good stopping 
point. 

Mr. Whitney, I want to read to you testimony of your senior 
partner, Mr. Thomas Lament, given in connection with the hearings 
before the Wheeler Railroad Committee.^ I think you recall them, 
don't you? 

Mr. AVhitnet. Yes, sir. 

PROPORTIONS IN WHICH PREFERRED STOCK OF MORGAN STANLEY & CO., 
INCORPORATED, IS HELD BY PARTNERS OF J. P. MORGAN & CO. 

Mr. Nehemkis. Will you follow me as I read? 
This is Mr. Lamont [reading] : 

We have no interest in the profits of Morgan Stanley & Co. 
Question. You get dividends upon preferred stock, do you not? 
Answer. — 

By Mr. Lamont, who always is the answerer here. 

We get interest on our preferred stocl£. 

Question. You get dividends upon the preferred stock, do you not? 
ilr. Lamont. Those are limited dividends, simply a return on capital. 
Question. If they make any profits — - 

Referring to Morgan Stanley — 

you get a profit out of the business, do you not? 

Mr. Lamont. No, we do not get a profit out of it. 

Question. Through dividends? 

Mr. Lamont. I do not call that a profit out of the business, I call that interest 
on capital. 

Question. It comes from earnings, does it not? 

Mr. Lamont. It derives of course from the profit of the earnings of the 
business. 

Question. It comes from interest upon the earnings? 

Mr. Lamont. Certainly. 

Question. The other way, you had it as a partner, and now you have it from 
interest. 

Mr. Lamont. Oh, by no means now. The way you put the question, Senator, 
would indicate that we had an interest in the profits of Morgan Stanley & Co., 
whereas we do not. We get interest on capital. The dividend on the pre- 
ferred stock is limited to a certain amount, and we have no interest in the 
equity. 

At this moment Mr. Whitney interposed. 

Mr. Whitney. The preferred stock is owned by individuals, not by the firm. 

Mr. Whitney, in what proportions is it owned? 
Mr. Whitney. You mean the total amount? 

Mr. Nehemkis. In what proportions is the preferred stock owned 
by individuals? 

Senator King. Of what? 

Mr. Nehemkis. Morgan Stanley, sir. 

' See "Investigation of Railroads, Holding Companies and Affiliated Companies" pur- 
suant to S. Res. 71 (74th Congress), Part G, pp. 2026-7. 



CONCENTRATION OF ECONOMIC POWER 12077 

Mr. Whitney. Mr. Chairman, I agree that this matter has been 
summed up by you completely. The answer to that question is this, 
that when these gentlemen we have been talking about this morning 

decided to split off from us completely into an independent 

Mr. Henderson (interposing). May I ask that Mr. Wliitney give 
us an answer in accordance with our custom, and if be has an ex- 
planation he may make it. 

Mr. Whitney. Very well. At the time of the organization there 
were, I think, 8 partners of the 16' at that time who contributed in 
varying degrees purely for their own accounts, personal accounts, 
outside of the firm, the' amount of preferred stock that Mr. Nehemkis 
mtroduced this morning. 
The Chairman. Did you say 8 out of 16 ? 
Mr. WnrrNEY. Eight out of the sixteen partners. 
Mr. Stanley. There were 17 partners at that time. 
The Chairman. Seventeen persons were partners at that time of 
J. P. Morgan & Co., is that right? 
Mr. Whitney. Yes. 

The Chairman. And of that 17, 8 

Mr. Whitney (interposing). I find it is nine — nine contributed 
in varying amounts for their own personal accounts. 

The Chairman. Nine of them contributed part of the preferred 
stock of Morgan Stanley & Co. ? 

Mr. Whitney. Yes, sir; at the time. There are 8 of the living 
partners out of 14 who have no interest whatever in Morgan Stapley, 
leaving 6 living partners of J. P. Morgan & Co. who have an interest 
of about 44 percent of this nonvoting stock. 
The Chairman. Six out of how many ? _ _ 

Mr. Whitney. Out of 14. The remaining 8 are obviously — 
or rather, to put it more accurately, those 6 are obviously the re- 
maining partners who are the more well-to-do older partners. The 
8 of the younger partners, who are more directly charged with 
day-t0;day operation of the firm have no interest. 

From the inception, Mr. Henderson — perhaps I was putting this 
back end to, but from the inception this has been completely sepa- 
rated. It is not lumped in any way. It is an individual investment 
by those individuals. As death and various things come to oper- 
ate, the preferred stock finds its way into trusts. I, myself, for 
instance, transferred it to two trusts of which my family are bene- 
ficiaries, and I have absolutely no interest in it. In other words, 
there has never been anything but a totally individual investment 
in the matter, and nothing to do with J. P. Morgan & Co., from the 
inception to this day, and as unfortunately death takes its toll, that 
percentage is going to further decrease. 

The Chairman. Legally the two are separate entities? 
Mr. Whitney. Absolutely. 

The Chairman. There can be no question, of course, of that. That 
is the legal status of any corporation. But the fact remains, of course, 
that those who controlled Morgan Stanley were formerly part:i^rs 
of J. P. Morgan & Co. 

Mr. Whitney. Yes, sir, who elected, however, to split off entirely 
from us to form a completely independent organization, and what 



12078 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis refers to in the testimony before Senator Wheeler 
back 2 or 3 years ago, is, of course, the fact that the older partners, 
the more well-to-do partners in 1935, did grubstake these partners 
and associates, and they got a limited return that has already been 
testified to. 

While the conversation at that time with Senator Wheeler was a 
question of dividends and interest, it is true that it was a grubstake 
they put up as an investment to enable the new company to hava 
adequate capital. But in the nature of the thing, from its inception, 
it was fully acknowledged by the partners who went in that it was 
going to be their private investment. That was the theory of it. We 
wanted to comply absolutely in every respect with the law. This 
money was put up and we were entitled, as capital is, to primary 
return, and it took the form obviously of preferred stock rather 
than a note, so that "interest" and "dividends" did not get mixed 
up in that way. But it was capital, a grubstake given by the old 
Morgan partners to the other men who elected to go off in the other 
venture, to enable them to do business. 

The Chairman. And while you say the two are distinctly legal 
entitles, it nevertheless is true, as Mr. Stanley has testified in answer 
to my question, that the great bulk of the investment banking busi- 
ness of the J. P. Morgan company did find its way to Morgan 
Stanley. 

Mr. Whitnet. Because, as has been testified, it flows with indi- 
viduals rather than with the name. 

The Chairiman. Of course, J. P. Morgan & Co. has never made 
any effort to keep business away from Morgan Stanley & Co. 

Mr. Whitney. Certainly not. 

Mr. Nehemkis. Mr. Chairmxan, I regret, and I think you know how 
deeply I regret to say it, but Mr. Whitney's answer to my question 
is completely unresponsive. 

The Chairman. He probably w^as led away from the question by 
the interruptions. Perhaps you may restate the question. 

Mr. Whitney. I didn't mean to be. May I have it agahi? 

Mr. Henderson. Mr. Nehemkis will state it. 

Mr. Nehemkis. I read to you from your previous testimony : 

Mr. Whitney. The preferred stock is owned by individuals, not by the firm. 

My question: In what proportion is it owned, Mr. Whitney? You 
testified a moment ago that there were 8 partners who subscribed 
originally to preferred stock. Now tell me very simply, did these 
8 partners subscribe for preferred stock of Morgan Stanley in the 
same interest as their capital interest in the firm of J. P. Morgan 
& Co.? 

Mr. Whitney. No ; certainly not. 

Mr. Nehemkis. Then tell me how they did it. 

Mr. Whitney. I am/ really not meaning to be unresponsive but I 
don't know what you mean ; in proportion to what ? To their means, 
I should say. 

Mr. Nehemkis. Ah ! Mr. Whitney, I think you do see 

The Chairman (interposing). Now, now — 

Mr. Nehemkis (interposing). 1 withdraw that, I apologize. 



CONCENTRATION OF ECONOMIC POWER 12079 

PARTNERS INTERESTS IN J. P. MORGAN & CO. IN RELATION TO THEIR 
PREFERRED STOCK TNTERESTS IN MORGAN STANLEY & CO., INCORPORATED 

Mr. Nehemkis. Did the eight partners of J. P. Morgan & Co., who 
subscribed for preferred stock in Morgan Stanley & Co., subscribe in 
the same proportion as their capital interest in the firm of J. P. Mor- 
gan & Co. ? 

Mr. Whitney. No. 

Mr. Nehemkis. In what interest did they subscribe? 

Mr. Whitney. In accordance with their personal inclinations and 
means. 

Mr. Nehemkis. Mr. Chairman, in view of the answer I am con- 
strained to offer you-" — 

Mr. Whitney (interposing) . Do you still think it is unresponsive, 
because I am trying to do the best I can. You say in proportion to 
something. It c/ertainly wasn't in proportion to their interest. 

Mr. Nehemkis. I think Mr, Whitney is trying to do his best. I 
tried to frame the question several ways and he doesn't understand, 
so I think the appropriate thing for me now is to offer you a table 
which contains the answer and I offer you the answer and if Mr. 
Whitney desires 

The Chairman (interposing). By whom prepared? 

Mr. Nehemkis. It was prepared by the staff of the Investment 
Banking Section. 

The Chahjman. S. E. C. ? 

Mr. Nehemkis. Correct. 

The Chairman. From what records? 

Mr. Nehemkis. From the income tax reports of J. P. Morgan & Co. 

I offer it, sir. 

Senator King. Does that show the interest which each of the in- 
corporators of the Morgan Stanley company — would that show the 
interest each incorporator had in that company ? 

Mr. Nehemkis. That will show, sir, the proportionate interest of 
the eight partners, I think Mr. Whitney said, who subscribed to stock 
of Morgan Stanley in relation to their proportionate interest in the 
capital of J. P. Morgan & Co. The purpose of that table is very rele- 
vant, as you will see upon scrutiny. 

Mr. Whitney. Mr. Chairman, I finally tumbled to what Mr. Ne- 
hemkis is getting at, but, of course, a man's individual income taxes 
are on his own income, and my answer is even more certain than it 
was before that there was no proportion to our capital, because a man 
has other funds outside of the firm. If he has income — of course that 
goes in the income taxes. 

The Chairman. Let me hand you the exhibit ^ which has been 
tendered by Mr. Nehemkis and ask you to look at that and see 
whether or not it refreshes your recollection or enables you to answer 
the question. 

Mr. Whitney. I couldn't dare do this, because it is put in such 
a different way. Of course we haven't had access to Revenue De- 
partment figures. I would have to check it. If it would serve 
to expedite this, Mr. Steele and Mr. Lamont and Mr. Morgan were 
the three — Mr. Steele is now dead — ^they are the oldest and have 

1 "Exhibit No. 1766-3." 



12080 CONCENTRATION OF ECONOMIC POWER 

the three largest interests in our firm. You see, our income, our 
capital contributions to our office, and our percentage of earnings 
in the profits, if any, and losses, if any, have no relation whatever 
to capital. 

Mr. Henderson. Mr. Wliitney, in that connection, as I understand 
it (you will correct me if I am wrong) , you have two sets of arrange- 
ments so far as payments out of income are concerned. In the first 
case, the capital contribution receives a stated return in proportion 
to 

Mr. Whitney, (interposing). You are talking about us now? 

Mr. Henderson. Yes, J. P. Morgan '& Co. In proportion to the 
amount held by the individual partners. Then the balance, if any, 
is distributed on an entirely different basis? • 

Mr. Whitney. That is right. 

Mr. Henderson. It is distributed in accordance with some pre- 
determination by the partners and does not correspond to the cap- 
ital contribution. That is one of the ways in which the younger 
members are enabled to share in the results of the business that is 
created, isn't that correct? 

Mr. Whitney. Yes, subject to certain immaterial data, I mean 
differentials, but that is substantially correct. If we have a profit 
at all, there is a distribution made on quite different arbitrary 
grounds as between ourselves, one of which of them is obviously his 
return on capital, the other is division of profits, but no relation of 
capital among the rest of it. There is another predivision on still 
more arbitrary terms but that is a detail. 

Mr. Henderson. Mr. Stanley, in Morgan Stanley, preferred stock 
is entitled to a fixed return, is it not? 

Mr. Stanley. It is. 

Mr. Henderson. And this year you indicated you couldn't get 
it because ygu didn't earn it? 

Mr. Stanley. Right. 

Mr. Henderson. And the balance remaining, if any, is distributed 
according to basis other than the contribution of capital ? 

Mr. Stanley. Well, the balance remaining over 

Mr. Henderson (interposing). Will the reporter read back the 
question I addressed to Mr. Stanley? 

(The reporter read back the immediately preceding question of 
Mr. Henderson.) 

Mr. Stanley. I don't think the contribution of capital is involved, 
Mr. Henderson. Everyone knows what preferred stock is. A pre- 
ferred stock has dividends out of earnings and after they get their 
full amount they are entitled to, the common stock gets dividends. 

Mr. Henderson. I think that is the answer, except you have made 
it a usual thing. I asked you about your company. 

Mr. Stanley. In our company Avhat l have said is the case. 

Mr. Hendi.^son. That is, the Ijalance, if any, is distributed accord- 
ing to the owi ?rship of common stock? 

Mr. Stanley. Quite right, after the distribution of preferred 
dividends. 

Senator King. If I understood your answer, Mr. AVliitney, there 
are the two catogoi^ies into which the earnings or the profits of J. P. 
Morgan & Co. are placed, and the disti'ibution of those profits are 



CONCENTRATION OF ECONOMIC POWER 12081 

not with respect to the number of partners, but some of them have 
larger interests than others? 

Mr. Whitney. In both categories. 

Senator King. In both categories the younger partners perhaps 
have less capital, perhaps less of the profits than the older ones who 
have for years been interested in the business and furnished the 
capital ? 

Mr. WinxNET. Or the other way around in many instances; the 
larger capital people have less interest in the residual profits than 
the younger ones because we are less active in the business. But it is 
a perfectly arbitrary thing. 

But the point in this connection, if I may say so, was whether any 
of these presentations of Mr. Nehemkis may tie up mathematically 
and that I just don't know. 

The fact is that when it came to grubstake, as I said before, these 
gentlemen who were breaking off from our firm, it was done with 
no relation to anything except their personal inclination and their 
personal means, and if the record will show that clearly, I don't 
know how you can make mathematical calculations about anything, 
but that was the fact. 

Senator King. And the income-tax returns of individuals, partners, 
and those who are in the Morgan Stanley Co., would not reflect the 
amount of their interest in the Stanley company? 

Mr. Whitney, it wouldn't necessarily. It would have nothing to 
do with it because it was purely a voluntary contribution of in- 
dividuals. 

Mr. Henderson. May 1 ask a question there, Mr. Chairman? 

But the record of the capital contribution of each of the partners 
of J. P. Morgan & Co. would be shov/n in the return of J. P. Morgan 
& Co., would it not? 

Mr. Whitney. Not necessarily, because a man might have very 
substantial outside assets. 

Mr. Henderson. No, I think I said the capital contribution to 
J. P. Morgan & Co. by partners would be shown in the return 
rendered by J. P. Morgan. 

Mr. Whitney. For income-tax purposes? 

Mr. Henderson. Yes. 

Mr. Whitney. Oh, no. You are getting me out of my depth on 
income-tax returns, but that isn't shown. 

]\Ir. Henderson. I am not trying to trap you, Mr, Whitney, on thi? 
thing. 

Mr. Whitney. The return would be on our income. 

Mr. Henderson. Just a minute. 

(Off the record discussion between Senator O'Mahoney, Mr. Hen- 
derson, and Mr. Nehemkis.) 

Mr. Nehemkis. Mr. Whitney, you had an ojjportunity to examine 
somewhat casually the sheet shown you by the chairman, I believe. 
If the proportions in which the preferred stock is owned by the part- 
ners of J. P. Morgan & Co. is the same as their proportionate interest 
in the capital of the firm, it follows, does it not, Mr. Whitney, that 
the effect is the same as if the firm of J. P. Morgan & Co. owned the 
stock of Morgan Stanley & Co. Inc.? 

Mr. Whitney. Absolutely not. 

Mr. Nehemkis. I have no further questions. 



12082 CONCENTRATION OF EX30N0MIC POWER 

Mr. Whitney. May I explain that, Mr. Chairman, because it seems 
to me there is an inference in there. We have already testified to 
Mr. Senator Wheeler we didn't have it as a firm. The facts are 
exactly as I stated this morning, that certain individuals did it. It 
is well known that Mr. Steele and Mr. Lamont and Mr. Morgan are 
the three richest of our partners, probably, and they made the contri- 
butions in the largest amounts as a matter of public record, but the 
inference that Mr. Nehemkis attempts to draw there (because they 
contributed the largest amounts in both offices, in ours and in Mor- 
gan Stanley) is absolutely incorrect because it just isn't so. It was 
a voluntary contribution by individual people, subject to deaths, as 
has a,lready happened when Mr. Steele died last summer, in which 
case stock is already in the hands of his executors and it has been 
nothing, never has been anything, but an individual investment by 
the individual partners, at their own election, because they happened 
to have means to do it. 

Mr. Henderson. Now, Mr. Chairman, Mr. Whitney's statement was 
not directed to the supposition which counsel presented. In view of 
the delay, I suggest the statement presented by counsel, properly 
identified by those who prepared it, be introduced into the record. 

Sentaor King. Without further proof of the material, I don't see 
that it has any proper value. 

The Chairman. Now,^of course, it has not been identified by any 
person on the staflF. 

Mr. Henderson. We can identify it, just as we have identified 
other documents prepared by the staff. Responding to Senator 
King, it is my considered opinion that it does have a real bearing 
on the questions and the supposition addressed to Mr. Whitney by 
counsel. I ask for its introduction. 

Senator King. If there be no objection, it seems to me, after offer- 
ing proof as to the amount of capital which any of the partners of 
J. Pierpont Morgan had in this new concern 

Mr. Henderson (interposing). That is exactly what we want to 
present. 

Senator King. But to identify that with the income-tax return 
would not prove it, because any of them might have income fron> 
various sources, other sources ; so it seems to me that the only thing 
that is necessary for you, if that is material, is to ascertain — let me 
complete my statement — to ascertain the amount of capital of the 
Morgan Stanley Co. and by whom subscribed, and if some of the 
stockholders are members of J.' Pierpont Morgan then you are 
entitled to such inference as that wpuld 

The Chairman (interposing). May I say that the utmost latitude 
is allowed in hearings of this Idnd. We have not pretended at any 
time to enforce the rules of evidence. Many objections could have 
been made at any time during the whole proceedings of th+s com- 
mittee to testimony — I am not now referring to testimony or evidence 
offered by the S. E. C, but on the part of everybody who has come 
before the committee. This committee is sitting, not as a jury would 
sit, to pass upon a strict legal question, but in an effort to learn the 
fundamental facts about our economic system. 

Now, personally, I have no objection to the admi'ssion of this 
particular instrument. My questions to counsel and to Commis- 
sioner Henderson with respect to it, off the record, were all intended 



CONCENTRATION OF ECONOMIC POWER 12083 

to point out what I deemed to be its legal weakness as a legal offer of 
evidence. 

Now, this exhibit, as Mr. Nehemkis has stated, has been prepared 
by the staff of the S. E. C Obviously, that is not binding upon any 
of the witnesses before the committee because they had no part in it 
and they know nothing about it. It is prepared by your experts 
from your examination of income-tax returns. Now, it probably is 
accurate, but obviously it has no binding effect. 

This exhibit contains first a list of names of individuals presumably 
former members or present members of J. P. Morgan & Co. It con- 
tains a column which is labeled [reading from "Exhibit No. 1766-3"] : 

Approximate percentage of capital in J. P. Morgan <& Co. ♦ * *. As shown 
by the 1938 partnership income tax returns. 2% was paid to partners who died 
in that year. 

Now, those calculations were worked out by the staff of the 
S. E. C. 

Mr, Nehemkis (interposing) . On the basis of the partnership return 
of the firm. 

The Chairman. Now, the next column shows the [reading further] : 

Approximate percentage of Morgan Stanley & Co., Incorporated, preferred stock 
in comparison with total held by Morgan partners and their assignees, i. e., 
70,000 shares less 12,500 held by officers of Morgan Stanley & Co., Inc., as of 

8/31/39. 8.8% is held by assignees of partners. 

The exhibit shows that Charles W. Steele, deceased, held 36.6 
percent, approximately, of the capital of J. P. Morgan, and that he 
held approximately 34.8 percent of the new firm of Morgan Stanley 
& Co. Now, there is a diversion immediately. Thomas W. Lamont 
held 34.2 of the approximate percentage of capital in J. P. Morgan 
& Co.,' and he held 34 percent in Morgan Stanley; J. P. Morgan held 
9.1 percent of the first, he holds 5.2 percent of the second ; R. C. Lef - 
fingwell, 6.1 percent in the first, 5.9 in the second ; F. D. Bartow, 2.9 
percent in the first, 1.7 in the second; J. S. Morgan, 2.2 percent in 
the first, 4.9 percent in the second ; A. M. Anderson, 1.9 in the first, 
1.7 in the second ; George Whitney, 1.9 in the first, none in the second; 
H. P. Davison, 1.2 in the first, none in the second; Charles D. Dickey, 
0.9 in the first, none in the second ; Thomas S. Lamont, 0.6 of 1 percent 
in the first, none in the second ; Edward Hopkinson, Jr., a debit in- 
terest in the first and none in the second; Arthur E. Newbold, less 
than one-tenth of one percent in the first and none in the second. 

Mr. Whitnet. He is not a partner of ours, Mr. Chairman. 

The Chairman. Edward fetarr, Jr., less than one-tenth of 1 per- 
cent in the first and none in the second. 

Senator Kjng. You say he is not a partner ? 

Mr. Whitney. Neither of those two gentlemen are. 

The Chairman. H. Gates Lloyd, Jr., less than one-tenth of 1 per- 
cent in the first, 2.9 in the second, this percentage having been ac- 
quired under the will of Horatio G. Lloyd who had subscribed for 
approximately 4.8 % of the original issue, and at the time received 
approximately 4.9% of the income of J. P. Morgan & Co. 

Now, that is the exhibit. 



12084 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. May I suggest, just so the record may be clear, 
that we did not contend that heading which you read — that heading 
is not partners. 

Tlie Chairman. Yes; there is no title over the column. 

Mr. Stanli':y. May I say just one word? I couldn't follow the 
things you read then but I understood you to say that Mr. Steele and 
Mr. Lamont had thirty-odd percent of the preferred stock of Morgan 
Stanley & Co. Yes; the figures you read were, Mr. Steele. 3G percent 
of it — I suppose it is preferred stock; it says capital. Oh, wait a 
minute — the preferred stock — may I begin again? Memoranda 
which you read show Mr. Steele a holder of 34.8 percent of the pre- 
ferred stock of Morgan Stanley & Co., and Mr. Lamont as a holder of 
34 percent of preferred stock of Morgan Stanley & Co., whereas the 
fact is that at the end of August 1939 Mr. Stoele held 28.5 percent 
of the prefen-ed stock of Morgan Stanley and ]Mr. Lamont held 27.8 
percent of the preferred stock of Morgan Stanley & Co. I know 
nothing about the figures in J, P. Morgan & Co. 

Mr. NEHEMias. You will notice, however, that you are reading 
from different dates, don't you, Mr. Stanley? 

Mr. Whitney. Mr. Chairman, may I just say this, that we haven't 
any objection to that going in as long as the" record shows that income- 
tax returns of the individual partners have absolutely no relation to 
the capital that they may have in the firm except that obviously the 
fellows with the bigger capital in the firm probably get more interest 
in it than the fellows who have less. 

The Chairman. Well, of course, I read it into the record. It is in 
the record. 

Senator King. Mr. Chairman, may I say that the objection which 
I suggested a few moments ago was not to the introduction of evi- 
dence tending to show the interest which any of the partners of the 
J. Pierpont Morgan firm had in the Morgan Stanley company, but 
the point that I made was that if you attempted to show the income 
of the various individuals, that would not reflect anything as to the 
interest which they might have in J. P. Morgan & Co. or this com- 
pany, because the income might have been derived from a hundred 
other different sources. 

The Chairman. This column purports to show the general income. 

Senator King. So I have no objection at all to showing whatever 
interest of any of the partners of J. P. Morgan have in the Morgan 
Stanley company. 

Mr. Nehemkis. Thank you. 

Senator King. And I think that counsel himself would admit that 
to tie it up to an income would not be any basis in determining the 
interest they might have in any company. 

Mr. Whitney. May I say one more word, Mr. ChaiiTiian, literally 
that the calculations are wrong anyway? [Laughter.] 

Dr. LuBiN. I don't understand what the basis of the table is, what 
the table is based upon. The income received by these partners as 
revealed by their income tax statements, then computed m terms of 
holdings — or is it a statement based upon returns from J, P. 
Morgan & Co. and stock of the partners — stockholders of the Morgan 
Stanley company — in which they specify their holdings of securities 
in either or both of these companies ? 



CONCENTRATION OF ECONOMIC POWER 12085 

Mr. Nehemkis. I'm sorry, I missed the crucial part of the last part 
of your question, but I would say from the jreneral import that I got 
from it, if it is the pleasure of the committee, perhaps the orderly 
way to do this job woidd be to put the technical man of the staff, 
who was charged with the responsibility of preparing this, on the 
stand and have him tell 

The Chairman (interposing). Excuse me, Mr. Nehemkis, but to 
answer Mr. Lubin's question, will you please read, as I did, the 
lieading 021 the first column? 

Mr. Nehemkis. I think the Senator is correct. If I just give you 
the headings — the first column which the Chairman read is entitled 
as follows: "Approximate percentage of capital in J. P. Morgan & 
Co.," and that is predicated upon the 1938 partnership income tax 
returns. The second column, Mr. Commissioner, reads as follows: 
"Approximate percentage" — approximate percentage, that is where 
Mr. Stanley was confused — "of Morgan Stanley & Co., Incorporated, 
preferred stock in comparison with total held by Morgan partners 
and their assignees," with appropriate deductions indicated in a 
footnote. 

Dr. LuBiN. I still don't feel tliat you have answered my question, 
namely, do these figures taken from the partnership income-tax re- 
turns, figures showing the incomes of the partners, and using those 
figures as the basis, do you compute their holdings of stock or 

Mr. Nehemkis (interposing). No, sir. 

Dr. LuBiN. Or did this income tax return reveal the actual 
holdings ? 

Mr. Nehemkis. The income tax material upon which this is predi- 
cated shows — and the figures we use — interest on capital. 

The Chairman. But you computed it from the interest? 

Mr. Nehemkis. That is correct, sir. 

The Chairman. That is the question which he is asking, the income 
tax return which you examinetl did not show the capital stock? 

Mr. Nehemkis. No, sir. 

The Chairman. It is a computation ? 

Mr. Nehemkis. Correct, sir. 

The Chairman. In other words, it is a conclusion of the person 
who prepared the table ? 

Mr. NEHEMias. That is correct. 

Senator King. And shows the income which is derived from other 
sources ? 

Mr. Nehemkis. No, sir. 

Senator King. That was the point that was not clear when I made 
my first objection. If you attempt to link this with the income 
which I^.lr. Morgan or anybody else had in other investments, it would 
wholly be irrelevant. 

Mr. Nehemkis. Right. But we don't do that. 

Mr. Whitney. May I point out, Mr. Chairman, that I didn't get 
until this minute that those income tax returns were of 1938; what 
has that got to do with contributions made to the capital stock of 
Morgan Stanley in 1935? 

The Chairman. Well, now, the witness is arguing; but, of course, 
there has been an awful lot of argument here. 

I think it is perfectly clear now. 



12086 CONCENTRATION OF ECONOMIC POWER 

(The table referred to was marked "Exhibit No. 1766-3" and is 
included in the appendix on p. 12296.) 

The committee will stand in recess until 2 o'clock, and we hope 
to finish at that time. 

(Thereupon, at 1:01 p. m., the committee recessed until 2 p. m. of 
the same day.) 

AFTERNOON SESSION 

The hearing was resumed after recess at 2 : 25 p. m. 

Acting Chairman King. Proceed. 

Mr. Nehemkis. Mr. Sidney A. Mitchell, take the witness stand, 
please. 

Acting Chairman King. Have you been sworn? Do you solemly 
swear that the testimony you are about to give in this proceeding 
shall be the truth, the whole truth, and nothing but the truth, so help 
you God ? 

Mr. Mitchell. I do. 

TESTIMONY OF SIDNEY A. MITCHELL, PRESIDENT, BONBRIGHT 
& CO., NEW YORK, N. Y. 

Mr. Nehemkis. Mr. Mitchell, will you state your full name and 
address, please ? 

Mr. Mitchell. Sidney A. Mitchell, Oyster Bay, N. Y. 

Mr. Nehemkis. Are you associated with the investment banking 
firmof Bonbright&Co.? 

Mr, Mitchell. I am. 

Mr. Nehemkis. Are you a partner of that firm ? 

Mr. Mltchell. It is a corporation that I am president of. 

Mr. Nehemkis. President of the corporation. How long have you 
been president of Bonbright & Co. ? 

Mr. Mitchell. The present Bonbright since it was organized in 
December 1938. I was president of a previous Bonbright from the 
time it was organized in 1933 until December 1938. 

organization of bonbright & CO., INC. 

Mr. Nehemkis. Is it not a fact, Mr. Mitchell, that Bonbright Sc 
Co., a predecessor of the present Bonbright, was instrumental with 
J. P. INIorgan & Co. in organizing the United Corporation ? 

Mr. Mitchell. It is not a fact, Mr. Nehemkis. 

Mr. Nehemkis. Do you care to make any additional comment 
or enlarge upon that? 

Mr. Mitchell. Yes; the Bonbright, which was organized in 1933, 
had no connection with any previous Bonbright company. 

Mr. Nehemkis. I merely had in mind Mr. Whitney's testimony 
this morning, which was a little bit different from wliat you said, 
but I accept what you say, sir. Has Bonbright & Co. ever been in- 
strumental in the financing of Niagara Hudson Power Corporation ? 

Mr. Mitchell. The Bonbright Co., which existed from '33 to '38 
was one of the underwriters of three issues of subsidiaries of the 
Niagara Hudson Power Co. 



CONCENTRATION OF ECONOMIC POWER 12087 

Acting Chairman King, May I ask a question? Did that first 
corporation, that Bonbright company, did it incorporate in 1938 
or was it merged into the present? 

Mr. MiTCHELX,. No; the present Bonbright — may I start in 1933? 
In 1933 the company which up to that time had been loiown as 
Bonbright went out of the investment banking business entirely. 
A new corporation was organized at that time, entirely separate and 
distinct, and in no way a successor to the one that went out of the 
investment banking business in 1933. It is that corporation. Sen- 
ator, the one that was organized in 1933, which was one of the 
underwriters of several bond issues of subsidiaries of Niagara Hud- 
son Power. 

Acting Chairman King. But the present company, of which you 
are the president, was that organized in '33 ? 

Mr. Mitchell. No; that was organized in 1938, December 1938. 

Acting Chairman King. Wliat became of the corporation in 1933? 

Mr. Mitchell. The corporation that was organized in 1933 was 
liquidated in 1938. 

Mr. Nehemkis. While we are on this historical development of 
the various Bonbright companies, were you associated with the old 
Bonbright company of 1933? 

Mr. Mitchell. I was the vice president of that company from 1926 
until 1933. 

Mr. Nehemkis. Have you always been associated with the various 
Bonbright companies? 

Mr. Mitchell. No; Mr. Nehemkis, because there have been some 
since 1890 sometime. My first connection with any Bonbright com- 
pany was in 1923. 

Mr. Nehemkis. 1923. I think I have those dates fixed now. Was 
there any other banking house associated in the financing of Niagara 
Hudson Power securities? 

Mr. Mitchell. Do you mean subsequent to 1933 ? 

Mr. Nehemkis. Correct. 

Mr. Mitchell. There were a great many. 

Mr. Nehemkis. Can you tell me whether Schoellkopf , Hutton • & 
Pomeroy were associated in that financing ? 

Mr. Mitchell. I remember they were. 

Mr. Nehemkis. And can you tell me any other house? 

Mr. Mitchell. Morgan Stanley. 

Mr. Nehemkis. Now, Mr. Mitchell, did you ever have occasion to 
discuss with any of the officials of Morgan Stanley & Co., Incor- 
porated, the problem of the respective participations in the under- 
writings of the Niagara Hudson Power Corporation ? 

Mr. Mitchell. I did. 

Mr. Nehemkis. With whom did you have such discussion. 

Mr. Mitchell. I had those discussions when the first issue 

Mr. Nehemkis (interposing). I said with whom? 

Mr. Mitchell. With Mr. Stanley and I believe Mr. Hall. 

Mr. Nehemkis. Mr. Perry Hall? 

Mr. Mitchell Mr. Perry Hall. 

Mr. Nehemkis. Can you identify the period of time about when 
you had these discussions ? 



12088 CONCENTRATION OF ECONOMIC POWER 

Mr. Mitchell. Very definitely, because they arose wlien the first 
public issue was made of any subsidiary of the Niagara Hudson 
Power Co., subsequent to 1933 when our firm — the Bonbright of 
1933 — when that firm did business, and when we heard that this 
financing was about to be done I had a discussion at that time with 
Morgan Stanley & Co. as to the position which Bonbright & Co. 
might obtain in that financing. 

Mr. Nehemkis. Mr. Mitchell, did you not also in connection with 
this discussion which you have referred to, enter into an informal 
agreement or understanding with the two officials of Morgan Stanley 
that you have mentioned a moment ago as to the underwriting of 
securities of Niagara Hudson system, or as to the proportion of the 
amount 6f underwriting that your company would obtain in such 
underwriting? 

Mr. MiTCiiEix. You are referring, I presume, to testimony I gave 
in the i)rivate hearing of the Niagara Hudson case? 

Mr. Nehemkis. I am, sir. 

INFORMAL UNDERSTANDING RELATIVE TO FUTURE ITNANCTXG OF NIAGARA 
HUDSON POWER CO. SYSTEM BETWEEN BONBRIGHT & CO. AND MORGAN 
STANLEY & CO., INCORPORATED 

Mr. Mitchell. As I remember, in the autumn of 1938. In order to 
have that testimony have the meaning which it should have, it must 
be considered against the chronological context — if I may i^ut it 
that way — of events. The first discussions I have said which I had 
with anyone of Morgan Stanley relating to a subsidiary of the 
Niagara Hudson Povver Co. was, I believe, in the year 1936, and the 
first issue was discussed, the refunding of some bonds of the Niagara 
Falls Power Co. My discussion at that time was in connection with 
the interest which Bonbright might have in that particular issue. 

As a result of those discussions Bonbright received a certain in- 
terest in that particular issue. 

Mr. Nehemkis. Do you recall — forgive me for interrupting you — 
do you recall what the interest \yas at this time? 

Mr. Mitchell. I think it was around 10 percent, Mr, Nehemkis. 
1 don't remember exactly, but I can get it for you if you want it. 
That issue was done. We think we did our job successfully as an 
underwriter in those bonds. The next issue that came along was 
sometime in 1937. I believe the spring of 1937, but I am not sure, 
and it was the Buffalo Niagara Electric Service Co., some such name. 
In that issue we also had an interest which I think was not exactly 
the same percentage of the total issue, but somewhere nearl}- the 
same. When that issue came on we again discussed the matter with 
Morgan Stanley & Co. We pointed out that in the last issue we 
had had a certain interest that we had performed in a certain way 
in the last issue; we hoped our interest in that particular company, 
which was then under consideration, would be at least as good as it 
liad been in the preceding one. Fortunately it was. 

If I may just finish. 

Mr. Nehp:mkis. Yes, sir. 

Mr. Mitchell. I just want to give you the background of this 
particular thing. Then the third issue came along; it was in, I 
believe, the autumn of 1937, and in that issue — that Mas the Central 



CONCENTRATION OF ECONOMIC POWER 12089 

New York Power Co. — in that issue v.e ajrain discussed with Mor^^an 
Stanley what position we miji^lit hope to obtain for ourselves, and I 
believe that our position a<]jain was slif^htly different fi'om what it 
had been before, but nevertheless in the same o;eneral neifjhborhood. 

Actino- Chairman King. AVere those separate issues? 

Mr. Mitchell. Three entirely separate issues, Senator. 

Actino^ Chairman King. Of different corporations^ 

Mr. Mitchell. Of different subsidiary companies of the Niagara 
Hudson Power Co. Now the reason I am sayin<>- that, IMr. Nehemkis, 
is this. Over a period there from '36 to the end of '37 there were 
three different issues of subsidiaries of this company. It so hap]Dened 
that the discussions about our participation in any one of those issues 
was apropos of that particular issue. It so happened that in the 
issue we did a certain job and had a certain interest and did a certain 
job. As in the second issue, presumably because of our performance 
in the first, we were given a comparable interest; we did also a fairly 
good job in that. When the third one came the same thing hapi)ened, 
you see? Now in the autumn of 1938, I believe it was at that time, 
I think this is a fact, but you know more about this than I do, 
the Niagara Hudson Power Co. applied to be declared not to be a 
subsidiary of the United Corporation. We were suddenly told by 
somebody that the S. E. C. wanted to hold hearings at 120 IBroadway 
and would I appear at sudi a time. I did. 

The question then that was asked me was, "Did you ever have any 
arrangement with Morgan Stanle}' or understanding or sometliing 
with Morgan Stanley regarding your financing of Niagara Hudson 
Power Co."? I said at that time, "Based upon the history as it had 
developed in those three preceding issues done in '36 to the time 
of this hearing, that we had" — I believe I used the word — "an in- 
formal arrangement." 

Mr. Nehemkis. Tliat is correct. 

Mr. Mitchell. Subsequently that was in your questionings and so 
on; you kept referring to an agreement or an understanding or some- 
thing of that sort. We discussed — you asked a lot of questions, and 
so on, and we discussed this. At the end of the period I think I 
stated, or Mr. Lesser, I believe, stated — and I have it here, because 
perhaps it is the best explanation of this thing. Mr. Lesser stated 

Acting Chairman IQng (interposing). Who is Mr. Lesser? 

Mr. MiToiiELL. He is on the staff of the S. E. C, Senator, and 
conducted this private hearing I am speaking of. Mr. Lesser stated, 
"Am I correct when I say that your understanding with Morgan 
Stanley about Bonbright participation in the future business of 
Niagara Hudson, is it an informal understanding based on hope and 
expectation and desirability of the continuance of the relationshij), 
rather than any formally legally enforceable contract?" 

The answer was, "You are correct." 

"It is an understanding, isn't it?'* Mr. Lesser said. "It is not only 
your feeling but it is their feeling." 

And my answer to that was, "That is what we hope. If tliey don't 
share that feeling there is nothing w^e can do about it. My under- 
standing with our friends at Morgan Stanley is that if any piece of 
Niagara's business comes up that they have anything to say about that 
insofar as they have anything to say, and consider it for the best 
interests of the business to so state, that they would suggest to the 

124491 — 40 — pt. 23 19 



12090 CONCENTRATION OF ECONOMIC POWER 

company that Bonbright and Schoellkopf have substantial interest 
hi the business, which interest would be identical, but there is nothing 
we could do about it if Morgan Stanley won't do it, and there is 
nothing Morgan Stanley can do about it if the company won't agree." 

Now, that is based on the previous relationships that accrued. 

Mr. Nehemkis. Thank you very much, Mr. Mitchell, for that very 
good explanation of your conversations and the results therefrom. 
Now, may I ask you this question : Is it your impression that what 
you refer to as "expectation and hope" has materialized insofar as 
your house is concerned? 

Mr. Mitchell. No; I was extremely disappointed in the arrange- 
ment that we nmde, Mr. Nehemkis. 

Mr. Nehemkis. Just how were you disappointed? 

Mr. Mitchell. Well, I had hoped very much that we might have 
a larger interest in this first issue of subsidiaries than we have. 

Mr. Nehemkis. So that your hope and expectation was shattered 
only insofar as degree was concerned ? 

Mr. Mitchell. Yes; I suppose that is right. 

Mr. Nehemkis. Now, Mr. Mitchell, I am going to show you a table ^ 
which shows the relative participations in utility issues managed or 
co-managed by Morgan Stanley & Co., Incorporated, and it will con- 
tain the amount of the participation of your firm — I should say your 
company, excuse me — and the other company that you spoke of, 
Schoellkopf, Hutton & Pomeroy, in a number of issues of Niagara 
Hudson Power Corporation. Would you glance at this for me, 
please, Mr. Mitchell? 
''Senator King. Does that relate to the issue of 1938? 

Mr. Nehemkis. Yes, sir. Do you see the percentage participa- 
tions there, Mr. Mitchell? 

Mr. Mitchell. I see you have under Bonbright 50 percent. Fifty 
percent of what? 

Mr. Nehemkis. Of what Morgan Stanley received. 

Mr. Mitchell. Oh, is that the percentage? 

Mr. Nehemkis. Yes. Will you run down the various issues and 
tell me the amount that your firm received in relation to the amount 
Morgan Stanley received? ' 

Mr. Mitchell. Niagara Falls Power Co. — wait a minute. I had 
better start at the beginning of your list. Central Hudson Gas & 
Electric Corporation, 4^^ percent preferred, 340,400 — what is that, 
dollars or shares? 

Mr. Nehemkis. Dollars — I think there is a dollar sign there. 

Mr. Mitchell. It must be shares. Morgan Stanley 

Mr. Nehemkis (interposing). Just give me the percentage 
amounts. 

Mr. Mitchell. Moi'gan Stanley 100 percent, Bonbright nothing. 
Niagara Falls Power Co. 31/0 's of 1966, Morgan Stanley 100 percent, 
Bonoright & Co., 50 percent. Buffalo Niagara Electric Corporation 
31/^'s of 1967, Morgan Stanley 100 percent, Bonbright 50.8 jpercent. 
Buffalo Niagara Electric Corporation Serial Debentures of '38-52 
(that was done at the same time), Morgan Stanley 100 percent, Bon- 
bright 50.8 percent. I think tliose were underwritten pro rata with 
the bonds. Central New York Power Corporation, 3%'s of '62, Mor- 

1 "Exhibit No. 1767-1." 



CONCENTRATION OF L1.0NOMIC POWER 12091 

gan Stanley 100 percent, Bonbright 49.5 percent. I don't know 
anything about these figures ; I assume they are correct. i 

Mr. Nehemkis. And you may always have the privilege of correct- 
ing them if you so desire. While you have that before you, Mr. 
Mitchell, will you also give us the percentage participation in rela- 
tion to the Morgan Stanley amount and Schoellkopf, Hutton & 
Pomeroy ? 

Mr. Mitchell. They are just the same. 

Mr. Nehemkis. As yours? 

Mr. Mitchell. As ours. 

Senator King. Who is that? 

Mr. Mitchell. Schoellkopf, Hutton & Pomeroy. 

Mr. Nehemkis. Would it not appear, Mr. Mitchell, that the hope 
or expectation which you spoke of earlier has been realized? 

Mr. Mitchell. Well, no ; because I thought you said that I satis- 
fied you as to the amounts we had in this participation and I told 
you I wasn't 

Mr. Nehemkis (interposing). You thought you should have more? 

Mr. Mitchell. We hoped to receive more. 

Senator ICeng. May I ask a question? I understood that in the 
first issue you referred to, you got 10 percent, and now you got 45? 

Mr. Mitchell. No, Senator; we had about 10 percent of the total 
securities issued, underwritten. In Mr. Nehemkis' tabulation is what 
our percentage is in relation to Morgan Stanley's, the amount of 
bonds underwritten by Morgan Stanley & Co. 

Senator King. And you got 45 percent? 

Mr. Mitchell. And we had about half as much. We underwrote 
about half as much as Morgan Stanley underwrote but I believe 
Morgan Stanley underwrote only about 20 percent of the total issue. 

Senator King. So that Morgan Stanley didn't underwrite the entire 
amount ? 

Mr. Mitchell. No, no, sir; there were a great many underwriters. 

Senator King. And vou had the same amount that Morgran Stanle.v 
had? ' ' 

Mr. Mitchell. That — no, we had approximately one-half. 

The Chairman. That is, Morgan Stanley had 20 percent, you had 
10, and, that was the total of 30 percent of the entire issue ? 

,Mr. Mitchell. That is correct, sir. 

Mr.' Nehemkis. So that I find, Mr. Mitchell, that in four issues, 
the Niagara Power Co. 31/^'s, the Buffalo Niagara Electric Corpora- 
tion 31/2's, the Buffalo Niagara Electric Corporation series of deben- 
tures, and the Central New York Power Corporation S%\ Bon- 
bright had substantially half of what Morgan Stanley did, and I 
also find that exactly the same percentages apply to Schoellkopf, 
Hutton & Pomeroy. Now, do you happen to know, Mr. Mitchell, 
whether a similar informal understanding, hope, or expectation ex- 
ists between Bonbright; Morgan Stanley; Schoellkopf, Hutton & 
Pomeroy; and the following houses: Brown Harriman; The First 
Boston; Smith, Barney; E. W._ Clark & Co., with reference to 
Niagara Hudson Power Corporation's financing? 

Mr. Mitchell. Well, Mr. Nehemkis, first, may I say I have no 
idea of what there is with these other companies, nor do I think 
it is quite right or correct to say a similar understanding and so on, 
because what I am trying to make clear to you and that is the only 



12092 CONCENTRATION OF ECONOMIC POWER 

reason I mention this chronological — development of our interests — 
is to point out to you that our discussion arose in connection with 
the Niagara Power Co. That is the first issue Ave knew anything 
about. In that issue, we had an amount in relation to Morgan 
Stanley's, which as I say, is approximately 50 percent. All right; 
another issue comes along, we want to have at least as good a posi- 
tion as Ave have had in the previous one, but there was no future — 
when the interests in the first issue were settled, there was no com- 
mitment as to any future issue nor is there today any. 

Mr. Nehemkis. Yes; I think I understand, Mr. Mitchell. 

Mr. Mitchell. I wanted to make that perfectly clear. 

Mr. Nehemkis. I think I follow you, quite. 

Now, Mr. Chairman, may it please the committee, the reason I 
asked the witness Avhether he had any personal knowledge of a 
similar — you embarrass me, Mr. Mitchell — "hope"; I don't know quite 
the word to describe it. 

►Senator King. "Expectation." 

Mr. Nehemkis. "Expectation," as between Brown Harriman; First 
Boston; Smith, Barney; and E. W. Clark, is that I find that in the 
same issues that we have been discussing with this witness, these 
houses all always received the same amount; 22.9 percent or 22.8 
percent ; but it never varies. So I just inquired. 

Mr. Mitchell. Mr. Nehemkis, apropos of that, do you mind if 
I interject, as it may perhaps help your question ? 

Mr. Nehemkis. Oh, please do so ! 

Mr. Mitchell. Commonwealth Edison Co., with which Mr. Stuart 
is very familiar, has been engaged in quite a large refunding pro- 
gram. I don't know, it amounts to two or three hundred million. 
It was recently completed. The interest that Bonbright, I believe, 
had in the first of five or six different individual issues, to carry out: 
this program, was "X," say; the interest that Bonbright had in 
the second issue was again, '^" percent; the interest that Halsey, 
Stuart had in the first was so much. Presumably the underwriters 
in the first issue acquitted themselves to the satisfaction of the com- 
pany and therefore, when it came to having another issue, they 
naturally turned to the same underwriters; that is the normal pro- 
cedure, it seems to me, in any professional relationship, and this is 
distinctly a professional relationship. 

Mr. Nehemkis. Quite. Mr. Mitchell, may I ask you one other 
ouestion? Have you always conferred with Mr. Stanley and Mr. 
Hall and possibly other officials of Morgan Stanley & Co. each time 
a new piece of financing of Niagara Hudson Power arose? 

Mr. Mitchell. We have always discussed it with them ; yes. Now, 
whether we have had to go and fight hard to have the same position 
or not in one issue, as against having to do it in another, I can't 
say. I don't think so. I think we have discussed the matter each 
time it came up. 

Mr. Nehemkis. Yes. Well, as you recall in your mind at this 
time, do you have any recollection as to whether you had to discuss 
each time exactly what the percentage participation would be? 

Mr. Mitchell. I don't think so. I am sure, for instance, in Com- 
monwealth Edison, we never did. I think we were merely notified 
by Halsey, Stuart what it was and they said this is being "done just 
like the last issue, and every interest was about the same. 



CONCICNTRA.TION OF ECONOMIC POWER 12093 

Senator King. Did Halsej', Stuart have the entire issue under- 
written ? 

Mr. Mitchell. Commonw^aUh Edison, Senator, tliey managed, yes. 

Mr. Nehemkis. Well, now, in the Niagara Falls Power 3i/i>'s of 
'66, do you recall at this time whether you discussed the percentage 
participation, what it would be, or was it just taken for granted? 

Mr. Mitchell. Oli, very much, because that was the first issue, 
Mr. Nehemkis, and therefore it was very important for us. 

Mr. Nehemivis. Now, in the next one, the IBuffalo Niagara Electric 
Corporation o^/jS, was there any discussion about the percentage 
participation? 

Mr. Mitchell. There may have been. I am not sure about that, 
although I r(>nicmber ver}' distinctly in connection with the fii'st piece 
of business of that holding company subsidiary. 

Mr. Nehemkis. But ^-ou are not clear about the subsequent ones? 

Mr. Mitchell. I am not ; no, I don't remember. 

Mr. Nehemkis. Mr. Chairman, I should like to offer in evidence 
this table which we have been discussing. The source is based on 
the registration statements relating to the respective issues on fi!e 
with the Securities and Exchange Commission. 

The Chairman. It may be received. 

(The table referred to was marked "Exhibit No. 1767-1" and is 
included in the appendix on p. 12297.) 

Mr. Nehemkis. I have no further questions, sir, unless the com- 
mittee desires to examine Mr. Mitchell. 

The Chairman. Do the members of the committee desire to ad- 
dress any qutestions to Mr. Mitchell? If not 

Senator King. Any issues to which you have referred, did any 
one company underwrite the entire amount and then confer with 
others with respect to the allocation of the issue to various invest- 
ment companies? 

Mr. Mitchell. No, Senator. I believe the — I don't — I assume 
that tlje arrangement was that the company picked out someone with 
whom it wished to deal, as the managing underwriter, so to speak, 
and after discussion with the company what — I mean after discus- 
sion with the underv^'riter, told the underwriter what other under- 
writers should be included, and there were 5 or 10 or 15, I don't 
remember how many there were, and each of them bought the bonds 
directly from the company itself rather than having one of the 
underwriters buy them all and sell them to the others. 

Senator King. Was that the plan which is usually adopted, or 
has been adopted for years, in connection with the disposition of 
securities ? 

Mr. Mitchet.l. Ever since the Securities Act was passed. 

Senator King. But anterior to that time? 

Mr. Mitchell. No ; not before that time because then we were able 
to have banking groups, and it very frequently happened that one 
house would buy the entire issue and then would sell it to a banking 
group, of which it was a member. 

Senator King. Was it the custom then for the companies to select 
a person, or the banking company, which would be their representa- 
tive, and underwrite' or dispose of the entire issue? 

Mr. Mitchell. Very definitely, Senator. 



12094 CONCENTRATION OF ECONOMIC POWER 

Senator King. That has been the custom for many years? 

Mr. Mitchell. Yes, sir. 

Senator King. There was rivalry between the various banking in- 
stitutions, was there? 

Mr. MiTCHFXL. Most acute, sir. 

Senator King. For the acquisition, if I may use that term, of the 
various issues? 

Mr. Mitchell. Very much so. 

Senator King. And the company, the investment company, that 
offered the best terras, was it the custom to have the issuing company 
select that organization, that investment company as its represen- 
tative? 

Mr. Mitchell. I don't think it was so much a question of the invest- 
ment company that offered the best terms. I think it was more a 
gradual development of a relationship over a period of years. I 
think I can explain that perhaps by 

Senator King (interposing). Kather professional, as you used that 
expression ? 

continuity of banker relationship 

Mr. Mitchell. It seems so exactly to me. For instance, under — 
well, we have done business — the individuals who are now in Bon- 
bright & Company, have done business — have been the people who 
have negotiated contracts, written prospectuses, studied financial 
plans and so on, for certain companies over a long period of years. 
Now, when those companies have some problem, some financial prob- 
lem, to do, they come and consult those same individuals. That 
happens all the time. 

I was rather astounded this morning, for instance, in this hearing, 
to see that so much time was being spent in trying to find out 
whether or not corporations who had done business with J. P. Morgan 
in the past were doing business today with Morgan Stanley & Co. 

Senator, I can think of nothing iriore natural than that ; I mean, 
if, for instance, I should have to employ a counsel and had employed 
a certain counsel for 15 years, whose advice on various legal matters 
we have had and he has always done it satisfactorilj^ and knows 
the whole background and history, what is more natural than I 
should go back to him again? Now, if he happens to be a partner 
in the firm of Davis Polk or something, in the beginning of my 
relationship, and then subsequently goes out on business for himself, 
under another name, with no connection with Davis Polk, that doesn't 
mean he isn't the same man that he was before. He is the same 
friend of mine who lias given me this satisfactory advice. Naturally, 
I therefore go to him again. 

Senator King. In that sense, then, it is professional, that is a pro- 
fessional relation which ensues, much the same as between a client 
and his lawyer? 

Mr. Mitchell. Quite right. Senator, and may I add just one 
more thing to that point, because it is something I think does concern 
the staff of the Securities and Exchange Commission, and that is 
this, that it seems to me that the very fundamental principle of the 
Securities Act tends to emphasize this continuity of relationship. 
For instance, in your A-2, your registration statement under the 
Securities Act, responsibility for which we must take as investment 



CONCENTRATION OF ECONOMIC POWER 12095 

bankers, as well as the company, there are various questions. Among 
them, for instance, is this: Financial changes and so on since the 
year 1922. That all has to go in 

Then yoi: have one whole section of the Securities Act where it 
says, '"Important developments of the last five years." Well, now, 
we are all liable for misstatements and the company is liable for mis- 
statements. If the company has had a relationship with a certain 
banking house, say, or certain individuals, who are now engaged 
in the investment banking business, since 1922, an intin.ate rela- 
tionship with them, when it comes to prepare this statement — and 
the liability for a mistake in this statement is very great, sir — 
when it comes to prepare this statement, I should think it would 
do it with a great deal less worry if it had the assistance in the 
preparation of that statement of people who had been intimately 
associated with it since the date to which these questions refer. 

So, it seems to me there is, first, a professional character, and 
always has been, to this business, and it seems to me, second, that 
under the present way the business is done, the importance of that 
continuity of relationship is emphasized even more than it was prior 
to tne passage of the Act. 

Mr. Henderson. My. Mitchell, have you read all the testimony 
that has been given at these investment banking hearings ? 

Mr. MrrcHELL. I have not, Mr, Henderson. 

Mr. Henderson. Well, I suggest that you do, because it will, I 
think, serve to care you of any wonder why we have gone into detail 
as to continuing relationships. If you will note, as you go through 
that record, some of the stubborn resistance to the intimation that 
there was a continuity or a continuing group, you will perhaps 
realize why the S. E. C. put on the kind of hearing that it did. 
I suggest that, and strongly recommend it to you. 

Mr. Mitchell. Thank you. 

Mr. Nehemkis. Thank you very much, Mr. Mitchell, for having 
come down here. 

Mr. Chairman, I ask Mr. Alexander to step forward to help me 
identify some documents. 

TESTIMONY OF HENRY C. .ALEXANDER, J. P. MORGAN & CO., NEW 
YORK, N. Y.— Resumed 

Mr. Nehemkis. Mr. Alexander, will you glance at this batch of 
material which was prepared by your firm and tell me whether you 
recognize it to have been so prepared? 

Mr. Alexander. I do. 

Mr. Nehemkis. What does <:hat material represent? What are 
the various subject matters referred to in that material? 

Mr. Alexander. The deposits of various corporations at certain 
month ends. I think that is over a 5 -year period, sir. Also, the 
amount of loans made by J. P. Morgan & Co. to the various corpo- 
rations outstanding as of the end of each of the last 5 years. It 
also covers the securities owned by J. P. Morgan & Co. in these com- 
panies as of the end of each of the last 5 years. 

Mr. Nehemkis. Thank you very much, Mr. Alexander. 

May the documents identified by the witness be filed with the 
committee. 



12096 CONCENTRATION OF ECONOMIC POWER 

The Chairman. They may be 30 filod. 

Mr. Nehemkis. Mr, Alexander 

Mr. Henderson (interposiriii). Just a minute, Mr. Nehemkis. 

(Off-the-record discussion.) 

Mr. Nehemkis. ]\Ir. Chain 11:111. I withdraw my request and I ask 
leave of the committee that this material be kept in the files of the 
Securities and Exchanoe Conunission. 

The Chairman. Very Avell. 

(The documents referred (o wore marked "Exhibit Xo. 17(37-2" 
and are on file with the Securities and Exchange Commission.) 

Mr. Nehemkis. IVfr. Alexander, T sliow you a letter addressed to 
your firm dated March 0, 1939, requesting:- certain data from your 
firm, and your reply thereto.' Will you examine it and tell me 
whether or not it is a true and correct copy? 

Mr. Alexander. It is. 

Mr. Nehemkis. I offer it in evidence. 

The Chairman. It may be received. 

(The letters referred to were marked "Exhibits Nms. 1768-1 and 
1768-2"- and are included in the appendix on p. 12298.) 

Mr. Nehemkis. ISIr. Alexander, I show you a table \^'hich your firm 
has prepared in response to our request, ^jiving the financing by 
J. P. Morgan & Co. of Consolidated Gas Co. and subsidiary issues, 
together with the profits of your firm. Will you examine this and 
tell me whether you caused this slieet to be pi-eparecl in response to 
our request? 

Mr. Alexander. I did. Mr. Nehemkis. These are partioipaticms 
by J. P. Morgan & Co. in financing headed by other houses. 

Mr. Nehemkis. I offer it in evidence, Mr. Chairman. 

The Chairman. Without objecti(m it is so ordered. 

(The table referred to was marked "Ex1\ibit No. 1769" and is in- 
cluded in the appendix on p. 12310.) 

Mr. Nehemkis. I want to oifer one other table which relates to 
the subject matter heretofore discussed. This table, Mr. Chairman, 
shows the participations of Blyth & Co. in Morgan Stanley issues 
relating to Consolidated Edison Co. and certain other issues, together 
with the profits of Blyth & Co. in that financing. The data has been 
supplied to us by Blyth & Co., and has been identified by Mr. Charles 
E. Mitchell at the time he appeared before tliis conunittee. 

The Chairman. It may be admitted. 

(The table referred to was marked ""Exliibit No. 1770" and is in- 
cluded in the appendix on p. 12312.) 

Mr. Nehemkis. Mr. Chairman, ISIr. Arthur Pean, who represents 
Mr. Mitchell's firm, has asked that I correct my statement. I said 
the "profits" of Blvth & Co. Mv. Dean requests that the record show 
"gross profits" of Blyth & Co. 

I now offer a table showing relative participations in utility issues 
managed arid co-managed by Morgan Stanley & Co., Incorporated, 
during the period 1935 to 1939, with reference to Consolidated Edison 
and subsidiary financing. The source of this data, may it please the 

' For additional Information pertinent to tlie above tostinionj', see letter of October 10, 
U»."!>, Irvins S. Olds to I'etor R. Nehemkis, .Jr., appendix, p. 12S:;o. and lettttr of Novem- 
ber 15, 1030, Peter R. Ncheml<is, .Ir., to llenrj ('. Alexander and re' ly of December 7, 
lli:'.'.i. tlioretn, aii-pendix, p. I'l.'.H. 

'J. P. Morgan & Co., under date of October 20. lOr.O. submitted a partial revision o£ 
"Exliibit No. 1708-2." It is included in tbe appendix on p. IL'itL'o. 



CONCENTRATION OF ECONOMIC POWER 12097 

committee, is based on registration statements relating to the re- 
spective issues on file with the Commission. 

The Chairman. Without objection the table may be admitted. 

(The table referred to was marked "Exhibit No, 1771" and is 
included in the appendix on p. 12314.) 

Mr. Nehemkis. I now offer in evidence, may it please the com- 
mittee, a table relating to the financing of Consolidated Edison Co. 
of N. y., Inc., andt its subsidiaries by Morgan Stanley & Co., Incor- 
porated, for the period September 16, 1935, to June 30, 1939. This 
is predicated upon data supplied by Morgan Stanley & Co,, 
Incorporated. 

(The table referred to was marked "Exhibit No. 1772" and is in- 
cluded in the appendix on p. 12315.) 

Mr. Nehemkis. Mr. Chairman, I had hoped to have the pleasure 
of discussing with the committee and with Mr. Leffingwell this after- 
noo]i certain data on deposit accounts, and their significance, and so on. 
The people at J. P. Morgan & Co., have worked very hard to make this 
material available. Mr. Alexander tells me there has been a force of 
17 people working night and day for some time. Unfortunately, the 
material was made available to us only this morning. While I have 
no doubt that it is accurate in all respects, I don't feel under the 
circumstances that I want to ask the committee to discuss it with me 
when the staff has not had sufficient time to examine it. So with 
the committee's indulgence, may I ask that we defer that phase of 
our presentation which we hoped to give you this afternoon until a 
later time when we shall have analyzed it. 

The Chairman. Very well. 

Mr. Nehemkis. Will Mr. George Whitney and Mr. Harold Stanley 
return to the witness stand, please ? 

TESTIMONY OF GEORGE WHITNEY, J. P. MORGAN & CO., NEW 
YORK, N. Y.; AND HAROLD STANLEY, PRESIDENT, MORGAN 
STANLEY & CO. INCORPORATED, NEW YORK, N. Y.— Resumed 

QUESTION OF AVHETHER PROCEEDS OF ISSUES UNDERWRITTEN BY MORGAN 
STANLEY & CO. INCORPORATED, WERE PLACED ON , DEPOSIT WITH J. P. 
MORGAN & CO. 

Mr. Nehemkis. Mr. Stanley, do you know whether or not several 
companies for which Morgan Stanley & Co. has underwritten securi- 
ties have placed all or part of the proceeds of their issues on deposit 
with J. P. Morgan & Co. ? 

Mr. Stanley. I don't know as a matter of fact, but I assume some 
of them have. 

Mr. Nehemkis. Did you not, Mr. Stanley, have occasion to under- 
write an offering in 1938 which for the purposes of the record will 
be knowni as corporation No. 1 ? 

Mr. Stanley. I assume that is the correct date. We underwrote 
securities of that corporation, but I don't know the date. 

Mr. Nehemkis. Mr. Whitney, wall you look at the sheet which Mr. 
Alexander has and tell me the amount of the credit entered to corpo- 
ration No. 1? 

Mr. Whitney. Credits? 

Mr. Nehemkis. Yes, 



12098 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitney. You mean from the top of this list? 

Mr. Nehemkis. Yes. 

Mr. Whitney. In March '37, $750,000; September 7, same year, 
$750,000 ; another $750,000, March '38 ; a million dollars in August 
'38; $500,750 in September; a million dollars in November; and 
$21,084,865.78 in December '38. 

Mr. Nehemkis. It was that last figure that I was interested in. 
Do you know whether that happens to be the p'boceeds in part or 
in whole of the underwriting by Morgan Stanley ? 

Mr. Whitney. Yes ; paid to their account. 

Mr. Nehemkis. Mr. Stanley, did not corporation 2 have occasion 
to underwrite with you a substantial offering in 1937 ? 

Mr. Stanley. They did. 

Mr. Nehemkis. Now, Mr. Whitney, if you will glance at the sheet 
before you and tell me the amount of the credit entered to cor- 
poration No. 2? 

Mr. Whitney. Well, it was $17,000,000 June '37. 

Mr. Nehemkis. Is that the amount of the proceeds in whole or in 
part of the underwriting that Mr. Stanley referred to ? 

Mr. Whitney. I assume so. 

Mr. Nehemkis. Could you find out if you are uncertain at this 
time ? 

Mr. Whitney. This company had an account with us and they 
credited it, I presume that it is. There may have been some other 
credits, incidentally. 

Mr. Nehemkis. Mr. Stanley, in connection with corporation No. 3, 
did you not have occasion to do a substantial amount of underwriting 
for corporation No. 3 in 1937? 

Mr. Stanley. We did. 

Mr. Nehemkis. Mr. Whitney, if you will glance at the correspond- 
ing sheets and tell me whether or not the proceeds in whole or in 
part of that underwriting were credited to the account of cor- 
poration No. 3? 

Mr. Whitney. I find here a credit to that corporation of $48,- 
750,000; withdrawal, $44,500,000. 

Mr. Nehemkis. Mr. Stanley, did you not have occasion (when I 
say "you," you understand I mean the corporation) to underwrite 
a substantial amount in 1937 for corporation No. 4? 

Mr. Stanley. Yes. 

Mr. Nehemkis. Mr. Whitney, will you look at your sheet and tell 
me the amount of the credit entered to corporation No. 4? 

Mr. Whitney. There are several large credits. 

Mr. Nehemkis. The first one. 

Mr. Whitney. $9,951,000 in one month. That is a rather active 
account. 

Mr. Nehemkis. As far as you know, would that represent in whole 
or in part the proceeds of that underwriting? 

Mr. Whitney. I should assume so. 

Mr. Nehemkis. Mr. Stanley, did your organization have occasion 
to do some underwriting in 1937 for corporation 5 ? 

Mr. Stanley. We did. 

Mr. Nehemkis. Mr. Whitney, will you look at your sheet and tell 
me whether the amount of the credit entered to corporation No. 5 is 
the result in whole or part of the proceeds of that underwriting? 



CONCENTRATION OF ECONOMIC POWER 12099 

Mr, Whitney. Which year? 

Mr. Nehemkis. '37. 

Mr. Whitney. I find an entry or credit of $21,700,000; the follow- 
ing month a withdrawal of $18,000,000. 

Mr. Nehemkis. Mr. Stanley, did not your firm have occasion to 
underwrite in 1937 for corporation No. 6? 

Mr. Stanley. Correct. 

Mr. Nehemkis. Mr. Whitney, will you tell me the amount of the 
credit to corporation 6? 

Mr. Whitney. '37 one month a credit of $21,578,000, but that again 
is a very active account. I don't know if all of that is the result of 
that credit. 

Mr. Nehemkis. I am sorry ; I didn't hear your answer. 

Mr. Whitney. I say I find in one month a credit for that corpo- 
ration of $21,578,000, but that is a very active account, and I there- 
fore don't know whether that is the amount of the credit as the 
result of this operation. 

Mr. Nehemkis. Will you get that information for me ? ^ 

Mr. Whitney. Yes; but there is $53,000,000 deposits and $49,000,- 
000 taken out during the year in that corporation. I don't know 
what the amount of the 

Mr. Stanley (interposing). The issue was $20,000,000. 

Mr. Whitney. It probably is that plus normal credits. 

Mr. Nehemkis. Your answer to my question is, "Yes?" 

Mr. Whitney. I assume that is correct. 

Mr. Nehemkis. Mr. Stanley, did you have occasion to underwrite 
for corporation 7 in 1938? 

Mr. Stanley. Yes. 

Mr. Nehemkis. Mr. Wliitney, what is the amount of the credit to 
corporation 7 resulting in whole or in part from the proceeds of that 
underwriting? 

Mr. Whitney. There is nothing in these figures of mine 

Mr. Nehemkis (interposing). What is the amount of the credit? 

Mr. Whitney. The largest single month of credit was $9,900,000; 
31 months. 

Mr. Nehemkis. Mr. Stanley, without having me ask the question, 
tell me if that isn't the month in which the underwriting occurred? 

Mr. Stanley. The underwriting occurred in July of that year. 
The issue was $81,000,000. 

Mr. Nehemkis. Mr. Stanley, did you have occasion in 1938 to un- 
derwrite for corporation 8? 

Mr. Stanley. Yes; we did. 

Mr. Nehemkis. WiU you give me the corresponding information, 
Mr. Whitney? 

Mr. Whitney. Well, there are some very big credits, but I think 
here is one of $49,876,000. 

Mr. Nehemkis. Is that the credit resulting in whole or part from 
the proceeds of" the underwriting ? 

Mr. Stanley. I don't know. The size of the issue was much 
larger than that. The issue was twice the size. 

^ Mr. Whitney, under date of January 26, 1940, submitted the information requested. 
It is included in the appendix on p. 12321. 



12100 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitney. A withdrawal of $44,000,000. 

Mr. Nehemkis. Do you know, Mr. Whitney, whether the figure 
you gave represents in whole or part the proceeds of the underwrit- 
ing? 

Mr. WnrpNET. Certainly not the whole, and while it is a very 
active account I should think it is very probable it is a portion of 
it; i.t is a very active account and in that year there were over $80,- 
000,000 of credits and $93,000,000 of withdrawals. 

Mr. Nehemkis. Mr. Stanley, did Morgan Stanley & Co. do any 
underwriting in the year 1938 for Corporation 9? 

Mr. Stanley. Th^ did. 

Mr. Nehemkis. Will you examine your sheets, Mr. Wliitney, and 
tell me the same information that you have been giving me hereto- 
fore? What is the credit to the account for Corporation 9? 

Mr. Whitney. No credit around that time at all. 

Mr. Nehemkis. Check with Mr. Stanley on that again. 

Mr. Whttney. I can tell you for '38 the only credit was $8,000,000. 

Mr. Nehemkis. I will ask Mr. Stanley to look at his material 
and find out when the underwriting took place. 

Mr. Whitney. We have a credit for January of $8,000,000 and 
nothing in April. 

Mr. Nehemkis. As to the credit account of $8,000,000, does that 
represent in part the proceeds of the underwriting ? 

Mr. Whitney. I haven't the remotest idea. 

Mr. Nehemkis. Can you find out ? 

Mr. Whitney. Yes. I will ask the company. 

Mr. Nehemkis. And you will advise the committee? 

Mr. Whitney. I will ask the company if they will advise the 
committee, or if they will authorize me to advise the committee; I 
will do so.^ 

Mr. Nehemkis. All right. You don't have that information? 

Mr. Whitney. I wouldn't know. It is just an ordinary credit. 

Mr. Nehemkis. That is all. Thank you very much. 

Senator King. I would like to ask if the questions are for the pur- 
l)ose of indicating that the Morgan Stanley company did consider- 
able banking with J. P. Morgan & Co. and obtained credits when 
they made certain underwritings ? 

Mr. Nehemkis. Not quite, Senator. It simply indicates that a 
portion of the proceeds of the underwriting done by Morgan Stanley 
& Co. found their way to J. P. Morgan & Co., the bank, and we 
merely have been talking about numbers that represent corporations. 

Senator King. I understand, but for the purpose of indicating, 
as I understand it, that they did their banking with the Morgan 
company ? 

Mr. Nehemki-s. That is right. 

Senator King. And when they would underwrite obligations and 
incur obligations they would obtain loans or credits from J. Pierpont 
Morgan and then would repay the credits which they obtained? 

The Chairman. With respect to these certain companies, Morgan 
Stanley & Co. handled certain underwriting and J. P. Morgan & Co. 
were bankers. 

Mr. Nehemkis. That- is right. 



1 See footnote on p. 12099. 



CONCENTRATION OF ECONOMIC POWER 12101 

Mr. Stanl,ey. May I say that as far as Morgan Stanley is con- 
cerned we provided certain companies with a certain amount of funds. 
They did with those funds what they wanted after they got them. 

Mr. Whitney. The only comment I would like to make is that 
these were all accounts we had had deposit relations with for varying 
lengths of time, sometimes a long time, sometimes not a long time, 
and we cleared the transactions. Payment by Morgan Stanley was 
made to them in our books and then it was entirely at their disposi- 
tion. It was purely a bank clearing transaction. 

Mr. Stanley. Paid by check. 

Mr. Whitney. Paid by check, certainly. 

Mr. Nehemkis. Mr. Whitney, I'm sorry, I had hoped I was 
through, but I want to ask one question wliich might clarify the issue 
a bit. Can you tell me in general whether or not J. P. Morgan & Co. 
performs fiscal services of various kinds for corporations who have 
occasion to underwrite securities thnmgli Morgan Stanley & Co., 
Incorporated ? 

Mr. Whitney. Fiscal? I don't know what you mean. 

Mr. Nehemkis. Registrarships. coupons 

Mr. Whitney (interposing). Oh, certainly, but we do it for a lot 
of people. 

Mr. Nehemkis. That is right, but it just happens that you do it for 
corporations that do their underwriting through Morgan Stanley? 

Mr. Whitney. I would assume we must. 

Mr. Nehemkis. And you have sup])lied us with that information? 

Mr. Whitney. Yes; among others. 

Mr. Nehemkis. No further questions. 

The Chairman. Are these gentlemen excused? 

Mr. Nehemkis. They are. 

The Chairman. Are they excused for Christmas? 

Mr. Nehemkis. For Christmas. 

The Chairman. Merry Christmas, gentlemen, and thank you so 
much. 

Mr. Nehemkis. Mr. Russell Leffiingwell, please. 

The Chairman. Do you solemnly swear that the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God ? 

Mr. Leffingwell. I do. 

TESTIMONY OF RUSSELL C. LEFFINGWELL, J. P. MORGAN & CO., 

NEW YORK, N. Y. 

Mr. Nehemkis. Mr. Leffiingwell, will you state your full name and 
address for the record, please? 

Mr, LErriNGWELL. Russell C, Leffingwell, Oyster Bay, N. Y. 

Mr. Nehemkis. And you are a partner of J. P. Morgan & Co. ? 

Mr. Leffingweix. I am. 

Mr. Nehemkis. Were you not former Under Secretary of the 
Treasury Department of the United States? 

Mr. Leffingwell. I don't want to be too exact about the words 

Mr. Nehemkis (interposing). Assistant Secretary. 

Mr. Leffingwell. The office of Under Secretary had not been 
created. I was Assistant Secretary, 



12102 CONCENTRATION OF ECONOMIC POWER 

The Chaikman, That was during the administration of "Woodrow 
Wilson? 

Mr. Leffingwell. During the administration of Woodrow Wilson 
and under the three secretaries of the Treasury who served him, Mr. 
McAdoo, Mr. Glass, and Mr. Houston. 

Mr. Nehemkis. Mr. Leffingwell, will you tell me in what year you 
became a partner of J, P. Morgan & Co. ? 

Mr. Leffingwell. In 1923, July 1. May I just add further identi- 
fication? I am a New York lawyer, and practiced law from 1902, in 
general practice, until 1917 when I went to the Treasury, and from 
1920 to 1923 when I returned to the practice of law. 

Mr. Nehemkis. Thank you very much, sir. 

Mr. Leffingwell, glancing at the sheet which I have made available 
to you for your convenience, because I note j^ou have no papers with 
you, is it not true that as of September 30, 1939, the total assets of 
J. P. Morgan & Co. were $640,000,000-odd ? 

Mr. Leffingwell. It is. 

increases in holdings or government obligations by j. p. morgan & 

CO. BETWEEN 1934 AND 1939 

Mr. Nehemkis. A comparison of the first statement published by 
J. P. Morgan & Co. on December 31, 1934, with that published on 
September 30, 1939, shows that total assets have increased, that total 
deposits have increased. 

Senator King. Assets or deposits? 

Mr. Nehemkis. Well, deposits make up the former ; they both have 
increased. Cash likewise has increased. The holdings in United 
States Government securities has increased. State and municipal 
bonds have increased, and loans and advances have not increased; 
capital has not increased; surplus in partners' balances has not in- 
creased. Total capital in surplus has not increased. However, in 
this period, Mr. Leffingwell, deposits did increase over 60 percent? 

Mr. Leffingwell. I accept your figure. 

Mr. Nehemkis. Subject to your correction, sir. Similarly, Govern- 
ment securities increased over 33i/^ percent, and I note that State 
and municipal bond holdings increased over 350 percent. 

Mr. Leffingwell. I accept it. 

Mr. Nehemkis. Capital decreased by one-fifth? 

Mr. Leffingwell. I accept that. 

Mr. Nehemkis. The increase in deposits, I take it, permitted the 
large increase in Government securities, would you say? 

Mr. Leffingwell. Excuse me. 

Mr. Nehemkis. The question was, did the increase in deposits over 
this period of time permit the large increase in holdings of Govern- 
ment securities? 

Mr. Leffingwell. Yes, sir; I should think so. 

Senator King. You utilize your profits for the acquisition of Gov- 
ernment securities so you can get some little interest? 

Mr, Leffingwell. Of course, it all goes into one total; it is not 
earmarked, but the increase in deposits is reflected in part. 

Mr. Nehemkis. Now, most of these Government securities are 
wholly tax exempt, are they not, sir? 



CONCENTRATION OF ECONOMIC POWER 12103 

Mr. LEFTiNGWELii. Well, I would have to get an analysis of that. 
I wouldn't be able to say, because, as you know, the Government 
issues a variety of issues, some of which are wholly tax exempt and 
some of which are not wholly tax exempt, and I am not at all sure 
how that stands in relation to the portfolio. 

Mr. Nehemkis. Would you make it available at some later date, at 
your convenience? 

Mr. Leffingwell. Yes.^ 

Senator King. For my information, is it not a fact that the greater 
part of the Government securities have been taken up often at the 
itnvitation of the Government by various banks throughout the 
United States, so they can get some little interest upon the deposits, 
and the greater part of the forty-odd billion dollars of bonds,' the 
greater pari; of those issues, have been taken up by the banks? 

Mr. Leffingwell. I think that is probably true. Of course, during 
the war. Senator, we made a very great effort to get wide distribu- 
tion of the Government's obligations through the Liberty Loan or- 
ganization, and that waSj I think, a most important achievement of 
the U. S. Treasury during that period. Under these conditions, dif- 
ferent policies are necessarily followed, and the Government securi- 
ties tend to be held by the banks. 

Senator King. And insurance companies? 

Mr. Leffingwell. And insurance companies and I suppose other 
great companies. 

Senator King. But most of the 

Mr. Leffingwell (interposing). But I have no statistical infor- 
mation on it. I have no doubt that the Treasury would have 

Mr. Nehemkis (interposing). Mr. Leffingwell, I have before me 
some calculations which appear on the large sheet that has been made 
available to me, and I observe that the total of Government securities. 
State and municipal securities, held by J. P. Morgan & Co., for the 
year 1934, was, roughly, $257,000,000; that its deposits during the 
same period were $338,000,000; and for the year 1935, the total of 
Government obligations. State and local, were $342,000,000, as com- 
pared with $473,000,000 of deposits ; and for the year 

Mr. Leffingwell (interposing). These figures are not on here, so 
I am accepting them as you run along. 

Mr. Nehemkis. I had expected my assistant to give you one so 
you might follow me. Here is a copy. 

Mr. Leffingwell. Thank you. 

Mr. Nehemkis. I think I was about to come to the year 193(3 , 
that is the third one down, Mr. Leffingwell. The total of Govern- 
ment, State, and municipal securities was $360,000,000 and the de- 
posits for the same year $479,000,000. In 1937 the total of State 
and local securities was $280,000,000, and deposits $395,000,000. In 
1938 I find that the holdings of Government, State, and local securi- 
ties was $352,000,000 and the deposits with your firm w^ere $521,000,- 
000 ; and as of September 30, 1939, the total of your holdings in Gov- 
ernment securities, State and local, were $386,000,000 and your total 
deposits, $590,000,000. 

* Mr. Leffingwell, under date of February 2, 1940, submitted the Information requested. 
It Is included in the appendix on p. 12337. 



12104 CONCENTRATION OF ECONOMIC POWER 

Mr. Leffin<TweIl, has it not been contended that the great propor- 
tion of bank deposits are not being put to use in private industry? 

Mr. LeffIngwell. I have heard a great deal about that ; yes. 

]\Ir. Nehemkis. Has there not been an increasing proportion of 
bank deposits invested in tax-exempt securities? 

Mr. Leffingwell. Well, of course, that broad question involves 
the practice of a great many people and I haven't followed it statis- 
ticall3% but there is a j^lain tendency in your figures Avhich I accept 
to an increase in government securities, so far as our bank is con- 
cerned. I would have to look this subject up in a broader field, but 
I wasn't thinking you were going to ask me about that. 

Mr. Nehemkis. I'm sorry, but my question is sufficiently general. 

Mr. Leffingwell. I don't doubt that what you say is so. 

Mr. Nehemkis. Now, tax exemption makes this kind of invest- 
ment that we have been speaking of especially attractive to banks, 
does it not? 

Islv Leffingwell. Well, I should think it made it very attracti^•e 
to banks. I should tliink it made it very attractive to piivate per- 
sons. 

Mr. Nehemkis. In fact, over 80 percent oi the earning assets of 
J. 1'. Morgan & Co. as of Septernbei* 30, 1931), Avere invested in such 
t;ix-exempt securities ? 

Mr. Whitney. Oh, no; nothing like that. 

Senator Kino. Can you give a percentage figure? 

PROPOSAL BY MR. LEFFINGWELL TO ABANDON POLICY OF TAX EXEMPTION 
ON CERTAIN G0VERN3IENT OBLIGATIONS 

Mr. Whitney. No ; but that is assuming that all our govenunents 
are tax exempt and, of course, they are not. 

]\Ir. Leffingwell. You are speaking of a subject that has interested 
me very much. If I seem to ramble too much, bring me back to 
earth. 

Mr. Nehemkis. No, sir; you are doing verj^ well; it is a pleasure. 

Mr. Leffingwell. You remind me of what happened to me 22 
years ago. Twenty-two years ago I proposed on behalf of Secretary 
McAcloo the abandonment of the policy of exemption, exem})ting 
government securities from taxation, and in the second Liberty bond 
bill, authority was given by Congress to issue bonds without exemp- 
tion from supertax. That is a rough statement. 

Under Secretary McAdoo's authority — I was very green in the 
Treasury then; I expounded this question for the Treasury — and I 
have always been a firm believei' in the policy which I understand 
Secretary Morgenthau advocates, of withdrawing tax exemption from 
Government securities of future issues. Necessarily, the Treasury 
never for a moment contemplated the possibility of removing tax 
exemption from outstanding issues which contain a different sort of 
obligation. But I have always felt withdrawal of exemption de- 
sirable — I have always favored it — for future issues of Government 
securities. 

Now, so far as a bank portfolio is concerned, I say this because I 
want you to understand that as to the matter of public policy, I have 
never ceased to advocate, either in public life or in private life, the 
adoption of a policy of taxing government securities, never. 



CONCENTRATION OP ECONOMIC POWER 12105 

Senator King. Now, you know, Mr. Leffingwell, do you not, that 
that is a subject on whicli there have been sharp differences of 
opinion? 

Mr. Leffingw^ell. I do ; I do indeed, Senator. 

Senator King. Many believe it is to the advantage of the govern- 
ment itself to issue securities, bonds, of the character which it now 
issues, that is, bearing interest, because they will be more salable, they 
will bring a higher price in the market, and in the long run, it's ad- 
vantageous to the government. Isn't that one view ? 

Mr. LErriNGWELL. Absolutely, absolutely. And 

Senator King (interposing). So you are not the last word? 

Mr. Leffingwell. I am not the last word. 

Senator King. You are not the last word in that question. 

Mr. Leffingavell. No, but I was afraid I wasn't going to get in 
my first word, Senator. [Laughter.] 

Senator Kjng. Well, I am not deciding whether the last word or 
the first word is the better. 

Mr. Leffingwell. I don't ask anybody to agree with me, but 

Senator King (interposing). However, while you are on the sub- 
ject, Mr. Wilson and his Secretaries of the Treasury, Mr. McAdoo, 
Mr. Houston, Mr. Glass, did not agree with you ? 

Mr. Leffingvitell. Oh, I beg your pardon ! Mr. Wilson, Mr. Mc- 
Adoo, Mr. Glass, and Mr. Houston all supported that policy. 

Senator King. Well, then they didn't carry it out. 

Mr. Leffingwell. That was carried out in the second, third, and 
fourtji Liberty Bond issues. 

S'^natoi King. With respect to surtaxes? 

Mr. Leffingwell. A¥ith respect to surtaxes. And the only reason 
why we didn't put it into effect in respect to normal taxes was that 
we were of the opinion in the Treasury, when we were selling bonds 
in the denominations of $50 and $100 and $200, that the attempt to 
collect normal taxes on them would cost more money than it would 
come to. 

Mr. Miller. May I ask a question of Mr. Leffingwell? 

Mr. Nehemkis. Certainly, sir. 

Mr. Miller. In making such large investments of bank portfolios 
in U. S. Government obligations, aside from the high-credit standing 
of theee obligations, would you say that the tax exemption or the 
tax benefits contained in these various issues was as important as the 
marketability, the ready marketability, in large amounts? Was that 
the .guiding or the most important thing? 

Mr. Leffingwell. Well, frankly, Mr. Miller, I think plainly the 
problem of the banker is to invest monies deposited with him safely 
and in such a way that he can meet the demands made upon him by 
its depositors; in other words, that his first obligation or charge is 
the care and safety of the money entrusted to him, and that the safest 
thing he can buy, or could buy, is a short-time obligation of the Gov- 
ernment of the United States; and I should say, speaking only for 
my own opinion, that in answer to your question specifically, a liquid 
investment of a first quality is a consideration that impels bankers to 
invest their portfolio in U. S. Government securities. 

You promised to stop me if I rambled on to a point where I bored 
you, Mr. Nehemkis. You know, for 4 days I have sat here and 
listened to other people talk. [Laughter.] 

124491 — 40— pt. 23 20 



12106 CONCENTRATION OF ECONOMIC POWER 

Mr. Nehemkis. It is too much of a privilege, Mr. Leffingwell, to 
take advantage of your kind offer. 

Mr. Leffingwell. I haA^e given a great deal of thought to the ques- 
tion which you asked, Mr. Miller, and which you began, Mr. Nehem- 
kis, asking. About the question of public policy in relation to tax- 
exempt securities, %vhich is no business of mine as a banker — I just 
wanted you to know of my philosophy with regard to the subject. I 
hcve the greatest deference for the opinion of others who have a 
difffci-ent view, and I don't for a minute mean to suggest that I know 
all about it. But, unquestionably, our object in buymg securities or 
in making loans is to see that the money's that are deposited with us 
are safe and liquid. Now, I have an extraordinarily interesting com- 
ment on 'that subject that I found in the Federal Reserve Bulletin as 
long ago as September 1933. It interested me so much that I thought 
I might read you just a sentence. 

The growth of large-deposit balances to the credit of individuals and financial 
concerns refects the accumulation of idle funds, awaiting investment, and also 
explains, in part, the active demand for securities. 

Now, there is just one other thought — one more quotation — and 
that is taken from the* then Assistant Director of the Division of Ee- 
search and Statistics of the Federal Reserve System, Mr. Lauchlin 
Currie. He attributed that growth of deposits "to the Government's 
borrowing and spending program," and "to the addition to our gold 
stock," which has resulted from the flight of money from Europe. 

In addition to those two factors which have led to this expan- 
sion of deposits, I should add, I think, the devaluation of the dollar 
which makes gold worth $35 an ounce instead of $20.67 an ounce. 
Obviously, when the gold comes in, more dollars aie printed against 
it than were under the old arrangement. 

This expansion of deposits which is reflected in our statement, 
as you correctly said — well, I have a notion that in the 5 years 
since we were put out of the investment banking business, our de- 
posits have about doubled. That is not surprising. I don't know 
how it runs through the country, but there is nothing unusual about 
it. Bank deposits have increased enormously, and they have in- 
creased because of these two factore which Mr, Lauchlin Currie, 
with authority, mentions, plus the one I mentioned, which is only a 
footnote to his. But those things are not in the very nature of the 
case things which lead to the revival of confidence and activity in 
business if you stop to think about them. We had to go along those 
lines. I was in complete agreement with the decision of the Govern- 
ment to suspend payment or "go off" gold. I knew of no other solu- 
tion for the problem than going off gold in 1933. But while there 
was the basis for deposit inflation in this high price of gold in terms 
of the dollar, it was in the very nature of the case a thing that did 
not give confidence. So the very set of circumstances which created 
deposits, that same thing tended to sterilize them. It was both a 
necessary thing and a sort of "scaring" thing for business, that we 
had to go off gold. 

Well, similarly, the Government's borrowing and spending pro- 
gram carried with it, of necessity, a sense of apprehension, and in 
many phases it of necessity involved competition Avith business; so 
that the Government's borrowing and spending, which expanded de- 



CONCENTRATION OF ECONOMIC POWER 12107 

posits, at the same time carried with it this somewhat deflationary 
or sterilizing antidote. You had stimulus and depressant at the 
same time operating on the economic system. 

Now, those things were two. Third, the incoming gold came over 
for fear of the war ; came over for fear of revolution in Europe ; came 
over because of Hitler and because of Stalin and because of the dis- 
tressed condition of the world. That gold that came in created 
dibposits. But at the same time the thing that brought it here 
created fear. 

So you have both an inflation of deposits and an inflation of the 
I)ublic debt. The three major factors that operated to bring those 
about, brought with them a brake, a slow-down. So you have the 
extraordinary phenomenon of an immense inflation of deposits, im- 
mense inflation of public debt, and no inflation at all of prices, and 
no recovery of business. 

Mr. Nehemkis. We were speaking earlier, Mr, Leffingwell, of the 
fact 

Mr. Leffingwell (interposing). Must you stop my speech? If I 
could have one more sentence or perhaps 2 more minutes. 

Mr. Nehemkis. I am sorry, sir; I hadn't intended to be rude. 

ADVOCACY BY MR LEFFINGWELL OF POLICY PEKMITTING PRICE INCREASE ^ 

Mr. Leffingwell. Mr. Chairman, am I keeping you too long? 
You weren't a bit rude, Mr. Nehemkis; you have been very generous. 
I just wanted to complete that thought. Now, we have on the 
whole — and this, Mr. Chairman, I know, from what you said in pub- 
lic and from what I have read in the newspapers of the view of the 
committee, you will reject, but I know you will permit me a hearing. 
We have had many things pressing toward a higher level of costs for 
business. We have had a pressure, one with which I sympathize, for 
better wages, a pressure for better working conditions, absolutely 
necessary and inescapable pressure for relief and a great burden of 
taxation, and yet taxation is wholly inadequate to meet the expendi- 
tures of the Government. 

All these things reflect themselves in the costs of business and, on 
the other hand, we have had policies of the Government, well thought 
out, intended to prevent inflation, which are directly and effectively 
directed toward preventing prices from rising. Now, if business 
must meet rising costs, and an extraordinarily heavy burden of taxa- 
tion and pay higher wage rates, and provide much better working 
conditions, and pay the bills for relief, and at the same time you are 
going to keep prices down, then I guarantee to you that business will 
go bankrupt, because business cannot forever pay higher taxes, meet 
higher costs, and stand the same level of prices. 

The Chairjuan, What is the conclusion that you say you know that 
the chairman would reject? 

Mr. Leffingwell, The conclusion is that we must accept the view 
that you must either curtail relief, which you cannot do, and must 
reduce the tax burden, which you cannot do, or you must consent to 
permit prices to rise — or else you must admit that the profit system 

' In this connection see also memorandum subsequently submitted by Mr, LeflBnewell 
and entered in the record as "Exhibit No. 2163," appendix, p. 12338. 



12108 CONCENTRATION OF ECONOMIC POWER 

is dead, the capital system is dead, and we are going to have a man- 
aged economy. 

We have had a very much managed economy for 22 years. 1 was 
guilty of trying to manage it somewhat when I was in the Treasury. 
We had a managed deflation in 1937 and '38, intended to prevent 
inflation, but the effect was drastic deflation. 

The Chairman. Of cour3e, Mr. Leffingwell, some Members of 
Congress, particularly those who come from agricultural States, 
have been vei-y anxious to bring about a certain rise in prices because 
they felt that would be the only w^ay in which the farmer and the 
rancher could operate at anything like a profit. I think that the 
criticism of price rises recently has not been directed toward an 
adequate compensation for products, whatever they may be, but 
toward an undue manipulation of prices to make them— to raise 
them out of proportion to what the costs justified. 

Mr. Leffingwell. Well, Senator 

The Chairman (interposing). I didn't Avant you, Mr. Leffing^vell, 
to place any rejection of any policy in my mouth, because I am not 
conscious of having rejected anything like that. 

Mr. Leffingwell. I am perfectly delighted to hear it; it is music 
to my ears. I was so fearful that you had espoused the cause of 
price controls. 

The Chairman. I find a lot of people around the country, and 
particularly in some of the financial journals, have assumed my con- 
clusions for me. I don't recognize myself frequently in what I 
read about the chairman of the committee. 

Mr. Leffingwell. Then if I have performed no other service 
I have performed a great one in getting you to make that state- 
ment, Senator. I am delighted. 

Dr. LuBix. Mr. Chairman, may I ask a question? 

The Chairman. Certainly. 

Dr. LuBiN. It doesn't have a definite bearing upon what Mr. 
Nehemkis asked, but bearing upon what Mr. Leffingwell said in 
regard to cost. Is it your general opinion that actual labor costs 
in terms of unit costs of production are higher today than they 
were, let us say, oh, in 1936 or 1928 or 1929 ? 

Mr. Leffingwell. I am afraid I couldn't answer that in terms 
of unit costs of production. As I look at the experience of busi- 
ness in the country, it appears to me that the ratio, that the ratio 
of profit is steadily being squeezed in between those two forces. Is 
that not so, sir? 

Dr. LuBiN. The reason I asked it was that I think pretty gener- 
ally most of us don't distinguish between changing wage rates and 
changing labor costs. Such evidence as this committee has had 
from various people who are in the operating end of industry gives 
pretty definite — leads' to the belief pretty definitely that modern 
technology, greater efficiency and operation, better distribution 
methods, and so forth, have really cut costs rather markedly, and 
that the increased wages have more than been ofi'set by the in- 
creased productivity of labor during the last decade or two. 

Mr. Leffingwell. I should undoubtedly accept that. I think 
that the really distressing problem is that while Ave haA'e been get- 
ting better wages for those fortunate people who are employed, the 



CONCENTBATION OF ECONOMIC POWER 12109 

management of our economy has been failing conspicuously for ten 
years to get a better pay roll in the pockets of all possible employees. 
That is the most distressing phenomenon of our managed money 
and our planned economy, and I think that it is due to th« fact that 
the wage bill in terms per man is very high and the tax bill is very 
high and the burden of indebtedness is very, very high. 

The Chairman. But is the wage bill high in terms of output? 
Now, for example, take the automobile industry, a modern auto- 
mobile is produced at a much lower wage cost in terms of the actual 
product than it was 15 or 20 years ago, and that is what has enabled 
the motor industry to reduce prices to advantage. 

Mr. Leffingwell. Of course, that would be an absolutely con- 
trolling factor if one were to assume that tliis was a moribund or 
obsolete or senescent economy. To my mind it is a juvenile economy. 
I realize that there are those who think that the frontiers have met 
and that we are aged and exhausted, and that we have no future. 
To my mind, this is just an infant sort of a country and I don't 
know who is going to iiiAent the next thing, but I know that the 
energies, the imagination, of the American people have risen to every 
opportunity that has been presented them, and I believe that the 
oportunities of the future are far greater that the oportunities of 
the present. 

The Chairman. You are expressing a point of view that the chair- 
man has frequently expi'essed. 

Mr. Henderson. Mr. Leffingwell, in the first days of the hearings 
of this committee, my distinguished colleague here, Senator King, 
asked me whether I thought that we had stopped growing, and 1 
responded, in the vernacular, bv saying, "There's life in the old gal 
yet." 

Mr. Leffingwell. Tliat's splendid, only I don't even think she is 
an old gal. [Laughter.] 

Senator King. Anybody that w.-mld despair for this Government 
in vie^y of the conditions and confusion in all parts of the Avorld, it 
seems to me, is a pessimist of the first water. This Nation has got 
to lead other nations by its example and I agree entirely with Mr. 
Leffingwell, the future of this country is better than it has been in 
the past. 

Mr. Leffingwell. I really think you ought to give 130,000,000 
people a little more ro])e. t think, going back to the time when I 
had official burdens, however insignificant, we got into a phase 
of trying to manage all of us. It was necessary, we had a great big 
war on our hands, and I can be forgi\'en for thinking we did a 
sweP job. But then we sort of relaxed, and I think we relaxed most 
exaggeratedly, as you all do. That Avent on for 10 years 'and we 
had another major crisis, and we had to manage things again, we had 
to do "most drastic things. I have said we had to do that. I cannot 
agree with those wliom I greatly respect, who criticize that decision: 
I think it was inevitable. 

But I don't think we ought to go too far. I think we want a 
system of free enterprise, and I believe in those old-fashioned Ameri- 
cans being let loose on the plains and the rivers and the harbors, and 
the hilltops, and I think they will work out their destiny. I think 
they will do a superb job all over again, and I really believe the 



12110 CONCEKXRATTON OF ECONOMIC POWER 

relief of the world abroad, the future of mankind, depends on their 
havin": oportunity to do that. 

Senator Kino. Less regimentation, less discouragement of invest- 
ment so many of these deposits in the banks drawing only small rates 
of interest, such as banks can pay, would be beneficial so it could be 
utilized in the expansion of business and in the creation of new 
business activities. 

Mr. Henderson. Mr. Chairman, this committee is contemplating 
what we have termed a free-for-all public discussion. I think we have 
found candidate No. 1 for that. 

Mr. Leffingwell. Thank you very much; I would be grateful for 
the opportunity. 

The Chairman. Of course, I think Mr. Leffingwell's comments 
should not be permitted to pass without just another little addition. 
There is the implication in what you say that the Government has 
undertaken an undue degree of management. You say, of course, 
that government has done this in the past. It did it when you were 
a part of Government because it had to do so, and there is a tendency 
now to say that the Government has done too much of this particular 
thing, but it should never be overlooked that during the past 6 years 
there has been practically no alternative proposal offered, except iipon 
the part of certain unreconstructed Democrats like Senator King 
here. 

Now, Senator King from the outset was opposed to the N. R. A. 
Take that as an example. 

Senator King. The Supreme Court said I was right — unanimously. 

The Chairman. I was not a member of the Senate at the time, so 
I can speak as an observer. 

Senator King, And I think you agreed with me. 

The Chairman. I am speaking now as an observer. The signifi- 
cant point is that before any inferences may be drawn out of any 
policy it must be remembered that that bill was adopted by a prac- 
tically unanimous vote, and that there was no division, no political 
division, with respect to it. So today when I hear people talking 
about Government regimentation, and too much spending, for ex- 
ample, as in the case of the W. P. A., I can't forget that when the last 
appropriation bill, for example, for W. P. A. was passed there wasn't 
a single vote cast against it in the Senate of the United States, for 
all the criticisms, and there were only 23 votes cast against it in the 
House. So it was a program that was adopted because there was no 
alternative program. 

In measuring our conclusions we must bear facts like that in mind, 
it seems to me. 

Senator King. May I make one addendum ? When Mr. Leffingwell 
was in the Government we had a great war on. We called for more 
than 2,000,000 men, we had to send ships abroad, we called for large 
expenditures, we contracted a debt up to twenty-six billions of dol- 
lars in the prosecution of that very great war. So in the prosecu- 
tion of war, as a rule, economic as well as political laws are silent. 
We bow to the necessity and the preservation and protection of our 
country, and if we get into another war undoubtedly there will be 
a system of regimentation which will be very obnoxious, but will be 
essential to properly prosecute the war. 



CONCENTRATION OF ECONOMIC POWER 12111 

TAX-EXEMPT INCOME TO J. P. MORGAN & CO. AND ITS PARTNERS 

Mr. Nehemkis. Mr. Chairman, I hate to return to such mundane 
matters as Government securities and their attractiveness to banks, 
but I suppose one must. 

You say, Mr. Leffingwell, that tax exemption makes the kind of 
investment you have been describing to us especially attractive to 
banks, and I think I commented at the time that about, well, over 
85 percent of the earning assets of J. P. Morgan & Co., as of Septem- 
ber 30, 1939, were invested in such Government securities, and I 
think you have already indicated that the same thing is true to a 
greater or less degree on the part of banks throughout the country? 

Senator King. That is true, is it not, you indicated that you 
thought that? 

Mr. Leftingwell. I accept the figures as to J. P. Morgan & Co., 
but 

Mr. Whitney. Eighty percent of our assets would be $520,000,000, 
and our total tax exempts are $385,000,000, because unfortunately 
at that time we had $200,000,000 of cash which we were not able to 
invest in anything. 

Senator King. The point I was making related to the question of 
Mr. Nehemkis, that the banks, generally, throughout the United 
States have a very large amount of their deposits held in Government 
securities. 

Mr. Leftingwell. I think what I was trying to say (before I 
forgot myself and entered into this larger field) in answer to Mr. 
Miller, is, that after all, the object of the banks is to get a safe 
investment for their money and, of course, the safest investment for 
this money is Government obligations. And the pertinence of my 
general remarks is that there aren't other good loans being offered 
to the banks in sufficient volume, and I was attempting to show why 
there were not other good loans being offered to the banks in suffi- 
cient volume. 

As far as tax exemption is concerned, under the same conditions 
which exist today if the Government were to be selling other taxable 
securities, I should not expect to see the banks' portfolios change. 

Mr. Nehemkis. This income that is tax exempt to incorporated 
banks is not exempt to the stockholders of such bands, is that correct ? 

Mr. Leftingwell. The dividends are not exempt, but of course the 
income 

Mr. Nehemkis (interposing). I meant dividends. However, Mr. 
Leffingwell, whatever is tax-exempt income to the firm of J. P. Mor- 
gan & Co. is tax-exempt income to the partners personally, is that 
not true? 

Mr. Leffingwell. That is correct. 

Mr. Nehemkis. Are not all of the expenses of J. P. Morgan & Co, 
charged against taxable income, pursuant to section 25 (a) (5) of 
the Revenue Act ? 

Mr. Leffingwell. I suppose expenses are a deduction from total 
income. 

Mr. Nehemkis. So there is in most years, Mr. Leffingwell, little if 
any income taxable to the partners of J. P. Morgan & Co. ? 



12112 (X)NCKNTRATIOX OF KCOXO.MIC POWEli 

Mr. Leffingwkll. Not most years. When years are as bad as some 
have been tliere isn't any taxable income, but in many years our 
taxable income has been very great and our taxes liave been very 
great. 

Mr. Nehemkis. Mr. Leffingwell, is not substantially the entire in- 
come of the part]iers of the firm exempt from Federal income tax? 

Mr. Lefi'ingwell. It depends entirely upon the year, I think. 

Mr. Nehemkis. In 1938 it was entirely exempt, was it not, sir? 

Mr. Leffingwell. I don't remember. 

Mr. Nehemkis. Would you accept my statement, subject to cor- 
rection ? 

Mr. Leffingwell. Yes. 

Mr. Nehemkis. So in 1938 the partners f)f J. P. Morgan & Co. 
paid no income taxes on their earnings of nearly $4,000,000 from 
the firm? 

Mr. Leffingwell. 1 don't know Avhclher that is (rue or not. I 
don't know whether the earnings were $4,000,000. 1 kn(nv that if 
they paid no taxes it was because there was no taxable income. 

Mr. Nehemkis. Do you have any comment on that, Mr. Whitne}'? 

Mr. Whitney. On this last? 

Mr. Nehemkis. Yes; do you want to correct it? 

Wr. Whi'inet. No. I have a lot on your earlier things. You 
must remember we have tO' make earnings before taxes are due, and, 
of course, our holdings of governments are not wliolly tax-exempt. 
In running a bank, as Mr. Leffingwell indicated, you have to run 
your portfolio on what the market has to ofter. The figures you 
gave of 85 percent was after the deduction of cash. You could 
have made that percentage higher if you had taken out real estate 
and Oilier things, like cash, that have no income. Our total assets 
tell a different story. On that I can't sj)eak. I would have to look 
it up. I don't like to guess, but I am sure all our holdings of gov- 
ernments arc far from being tax-exempt, except insofar as they are 
all tax-exempt on noi-mal income. As to the nuuiicipals, yes, that 
would be true — $05,000,000. But I am not compete] it to talk about 
taxes, I only know we have to pay them. 

Mr. Nehemkis. As I said earlier, 1 deeply regret we can't have 
the pleasure of having Mr. Lelfingwell's discussion on that very vital 
problem of the role and function of bank deposits, and I hope that 
Mr. Leffingwell wilh^be able to do that with us at some later date. 

I have 110' further questions, sir. 

The (-HAIRMAN. Are there any more ([uestions to be addressed to 
Mr. Leffingwell? 

Thank you very much, sir. 

Any other witness this afternoon? 

Mr. Nehemkis. No, sir. 

The Chatkman. What is your program now? 

Mr. Nehemkis. As I understand, we meet again with the com- 
mittee some time after the new year, the date to be fixed by the 
committee, is that correct? 

Senator Kin(!. I suggest we leave 4t to be fixed by the committee 
and Mr. Henderson, and then we can give ample -notice to all 
witnesses. - - 



CONCENTRATION OF ECONOMIC POWER 12113 

The Chairman. Thank you very much, Mr. Whitney. 

Mr. Whitney. We are discharged? 

The Chairman. You are dismissed for the present. I will wish 
you a Merry Christmas now. 

The committee will stand in recess then, so far as the investment 
banking hearing is concerned, until the call of the Chair. 

Tomorrow, in this room, the hearing upon certain phases of the 
insurance problem, whicli has been going on in Room 357, will be 
i-esumed. The Chair wishes to urge all members of the committee 
who may possibly do so to attend this insurance study. 

The committee will now stand in recess. 

(Whereupon, at 4:05 p. m., an adjourmnent was taken subject to 
call of the chairman.) 



APPENDIX 



Exhibit No. 165&-1 

[From files of Federal Communications Commission] 

In view of any possible attempt of the opposition to the National Bell 
Telephone Company or others to buy up a majority interest in said Company, 
and of the danger to the interests of the minority if this should be accomplished 
the undersigned hereby agree in respect to the stock in said National Bell 
Telephone Co. owned by them and to the amount placed opposite their names 
as follows : — 

They will not sell any part of said stock except to the subscribers of this 
paper unless all of said subscribers agree to sell all of said subscribed stock 
and have the opportunity to do so, at a price satisfactory to each : they will 
not agree to give proxies to vote upon said stock to any other than some of 
the said subscribers. 

This agreement is to remain in force until April 1st, 1880, but it may be 
terminated at any time with the unanimous consent of the subscribers, but not 
without. It is not to be binding unless at least 3,700 shares are subscribed 
Boston, April 2nd. 

W. H. Forbes, 300 shares; J. Malcolm Forbes, 100 shares; H. L. 
Higginson, 635 shares; Y. S. Gardner, Jr., 75 shares; C. E. 
Perkins, per W. H. F., 150 shares ; Thomas Sanders, 500 shares ; 
Thomas A. Watson, 300 shares; George L. Bradley, 525 shares; 
W. G. Saltonstall, 25 shares; Arthur W. Slake, 100 shares; C. S. 
Bradley, 218 shares; Francis Blake, Jr., 325 shares; R. S. Fay, 
100 shares; A. Lochranets, 100 shares; J. N. A. Griswold, by 
W. H. Forbes, 100 shares; H. S. Russell, by W. H. Forbes, 
150 shares ; C. C. Jackson, 50 shares ; C. Williams, Jr., 50 shares. 

Boston, Dec. 15th, 1879. 

We the undersigned, mutually agree to release each other from all the obli- 
gations of the above written agreement. 

W. H. Forbes, H. S. Russell, by W. H. Forbes, J. N. A. Griswold, 
by W. H. Forbes. C. E. Perkins, by W. H. Forbes, Geo. L 
Bradley, T. A. Watson, C. Williams, Jr., Thomas Sanders, 
W. G. Saltonstall, H. L. Higginson, R. S. Fay, A. Lochranets, 
Francis Blake, Jr., Arthur W. Slake. J. Malcolm Forbes, C. C. 
Jackson, John L. Gardner, Jr., C. S. Bradley. 

[Presidents File No. 1879 Apl 2 Agreement Not to sell. Release Room 1124 — 195 Bwy. 
N Y C. A T & T. Co. Inv. C. anyst.j 

12115 



12116 



CONCRNTRATTON OF KCONOMK' POWKR 



Exhibit No. 1659-2 

[From files of Fedprnl Communications Commission] 

Amickfcan Ti'XEphone and Tfxecrai'h Company and Tekdecessors 



ScHEiJULE la. — List of Directors of Predecessors Prior to 1900 With Tlcejr Terms 
of Office Including Directorships Held hy 'I'hem in American Telephone and 
Telegraph Company 



Name of Director 



(a) 



Bell, A. O 

Hubbard, C. E 

Hubbard, O. G 

Sanders, T 

Watson, T. A '. 

Bradley, C. S- 

Cochrane, A 

Silsbee, G. Z _ 

Saltonstall, W. a... 
Goodspeed, J. II ..- 

Sturgis, J 

Bradley, G. L 

Bailey. T. B.. 

Forbes, W.H 

Blake, F., Jr 

Fay, R. S 

Emerson, C 

Driver, W. R 

Whitcomb, C. M, . 
Devonshire, R. W. 

Bowditch, C.P 

Minturn, R. B 

Hudson, J. E 

Clapp, C. 

Phillips, G. L 

Madden, O. E 



Vail, T.N... 



1-28-89 
5-20-(J3 



Stone. P. S 

Perkins, C. R 

French, C. J 

Stockton, H 

Blake, S 

Howe, H. S. 

(A) Jodirates director was in and out during periodl 



Bell Tel- 
ephone 
Company 
(Associa- 
tion) 

(b) 



New Eng- 
land Tel- 
ephone 
Company 

(0 



8-1-77 
7-2-8.'-. 
8-1-77 
7-2-85 
8-1-77 
7-2-85 
8-1-77 
7-2-S5 
8-1-77 
7-2-85 



Bell Tel- 
ephone 

Company 
(Corpo- 
ration) 

(d) 



2-2-78 
5-20-03 

2-2-78 
1-30-82 

2-2-78 
5-26-03 

2-2-78 
1-30-82 

2-2-78 
1-30-82 

2-2-78 
l-2»-89 

2-2-78 
1-30-82 

2-2-78 

2-2-85 



f 1-2.5-97 
\ 5-26-03 
f 1-30-82 
t 9-19-87 



f 1-30-82 
\ l-25;-8'l 
1-30-82 
5-26-03 
1-16-91 
1-28-95 
1-27-90 
5-26-03 



1-30-82 
10-1-00 



1-28-84 
26-91 



{1: 

/ 9-19-87 
1 1-27-90 



7-20-78 
.'i-26-03 
7-20-78 
6-21-80 
7-20-78 
5-26-03 
7-20-78 
1-30-82 
12-31-78 
6-21-80 
1-30-82 
5-26-03 



1-30-82 

10-8-84 

7-20-78 

12-31-78 

f 7-20-78 

\12-31-78 

7-20-78 

1-30-82 

7-20-78 

12-31-78 

12-31-78 

9-19-87 

(12-31-78 

I 1-30-82 I 



National 
Bell Tel- 
ephone 
Company 

(e) 



3-10-79 
5-26-03 
3-10-79 
4-12-82 
3-10-79 
5-26-03 



3-10-79 
4-12-82 
3-10-79 

3-8-86 
3-10-79 
4-12-82 

4-7-79 
3-10-90 



6-21-80 
9-13-S2 
6-21-80 
5-26-03 



9-10-,S9 

5-20-03 

f 10-8-84 

t 5-26-03 



1-30-82 
9-2-00 



9-13-82 
9-10-89 



9-9-91 
.'V-26-03 
9-19-87 
V»-10-90 



3-10-79 
4-12-82 
3-10-79 
4-7-79 
3-10-79 
9-19-87 
3-10-79 
4-12-82 
.3-10-79 
3-12-82 



4-12-82 
5-26-03 
3-10-90 
3-11-95 
4-12-82 
5-26-03 



.5-12-82 
10-1-00 



4-12-82 
3-10-84 
4-12-82 

3-8-86 
4-12-82 

3-9-91 



3-10-84 
5-9-91 



3-8-86 
.5-20-03 
9-19-87 
3-10-90 



American 
Bell 

Telephone 
Company 

(0 



9-9-U 
12-10-21 
3-31-80 
12-16-21 
5-14-80 
12-10-97 
5-14-80 
8-7-11 



5-14-80 
3-11-85 
.5-14-80 
3-28-1 1 
3-31-80 
.5-1 4-80 
3-31-80 
11-29-86 



3-31-80 
3-26-06 
3-31-SO 
3-2'.)-21 (A) 
3-31-80 
10-11-97 
3-31-80 
3-28-11 
3-31 -SO 
3-28-82 
3-31-SO 
,5- 14-80 



3-31-80 
.5-14-80 
3-31-80 

12 16-21 (A) 
5-14-80 

3-20-07 (A) 
3-29-81 
7-13-87 
1 1-29-86 
lO-l-OO 
3-28-82 
C>-20-88 



3-2,5-02 
4-16-20 



3-11-85 
5-14-07 



7-13-87 
5-14-90 
3-26-89 
5-8-89 
5-iS-89 
12-16-21 



American 
Telephone 
and Tele- 
graph 
Company 

(g) 



5-9-00 
8-24-28 



5-9-00 
8-7-1 1 



1-6-93 
4-10-19 



5-9-00 
3-26-06 
.5-9-00 
3-30-15 (A> 
9-2-85 
9-23-97 (A) 
5-9-00 
1-19-13 



5-8-90 

5-7-92 

11-30-85 

3-20-07 (A) 



3-<>-86 
lO-I-OO 

3-9-86 
5-24-88 



»-14-S5 
5-7-92 
3-2.5-02 
4-16-20 



5-9-00 
5-14-07 



9-19-87 
5-8-90 



12-24-96 
3-2-31 



CONCENTRATION OF ECONOMIC POWER 12117 

Schedule la. — Li^f of Directors of rrcdcccssorfi Prior lo lUOO With Their Terms 
of Office. IncludirKj Directorships Held by Thon in American Telephone and 
'J'elcyraph Compavy — Continued 



Name of l^ircclor 
(a) 


Bell Tel- 
ephone 
Company 
(A«socia- 
tion) 

(b) 


New Eng- 
land Tel- 
ephone 
Company 

(c) 


Bell Tel- 
ephone 

Company 
(Corpo- 
ration) 

(d) 


National 
Bell Tel- 
ephone 
Companp 

(e) 


American 

Bell 
Telephone 
Company 

(f) 


American 
Telephone 
and Tele- 
graph 
Company 

(g) 










/ 3-10-90 
\ 5-26-03 
/ 3-9-91 
1 5-26-03 
3-1) -95 
,5-26-03 






















Ware, C. P.. 














f t-28-95 
1 5-2G-03 


9-2-on 

5-26-03 




Hutchinson, W. S : 
















Amory, C. W 


f 3-26-95 
1 3-28-11 
/ 3-26-95 
1 8-21-19 


9-23-97 


Williams, M . 










.5-9-00 


Milne, 0, P .- 








f 3-8-97 
1 5-26-03 


3-26-18 


/ 3^30-97' 
\ 3-28-11 
f 1-19-98 
1 2-19-04 




Coolidge, T. .r., Tr 








3-25-19 
,5-9-00 


Forhos, J. M 










4-14-12 
5-9-00 















Exhibit No. 1659-3 



[From files of Federal Communieafions Commission] 
American Bell Telephone Company 

ScHEPUi.E lb. — Officers and Members of E-reeutive Committee Years TS85 to 1900, 

Inclusive 



Name 
(a) 


E.xecu- 

tive 
Com- 
mittee 

(b) 


Presi- 
dent 

(c) 


Vice 
Presi- 
dent 

(U) 


Tre?5- 
urer 

(e) 


Clerk 
(f; 


Auditing 
Com- 
mittee' 

(g) 


Hubbard, C. E 










/ 3-31-85 
\2G-28-21 




Driver, W. 11 








f 3-3 I -85 
I 3-31-14 






f 4-3-85 

1 3-29-98 

/ 4-3-85 

1 3-30-87 

1 3-29-92 

3-30-97 

4-3-85 

1 3-31-86 

3-28-93 

3-27-94 

3-20-95 

I 4-9-07 


4-3-85 
3-29-88 








Forbes. W. H 












Bowditch, C. P 


/ 4-3-85 
\ 3-30-87 












































/ 3-30-87 
\ 3-29-88 


Cochrane, A 






















































Saltonstall, W. O 










f 4-3-85 
1 3-30-87 


Clapp, C .. 


f 3-31-86 
) 3-29-88 
/ 3-30-87 
I 10-1-00 
/ 3-29-88 
1 4-1-89 


























Hudsdn, J. E. 


4-1-89 
3-28-01 
3-29-88 

4-1-89 


3-30-87 

4-1-89 


















Stockton, H 
















Blake, F.. , _.. 








r 3-29-88 
) 3-28-01 


Howe, n. S 


f 3-30-97 
I 4-3-11 
f 3-29-98 
1 4-9-07 












::::::::. 











Amoiy, C. W._ 































' From April 3, 1885 to March 30, 1887, known as the Standing Committee for Auditing the Accounts, 
and from March 28, 1899 to March 28, 1901, the Committee on Treasurer's Accounts. 
' Pen.Moned between 1914 and 1917. 



12118 



CONCENTRATION OF ECONOMIC POWER 



Exhibit No. 1659-4 

[From flies of Federal Communications Commission] 
Amebican Telephone and Telegeaph Company and Peedecessoe Companies 

Schedule 2. — Per Cent of Equity Ownership hy Directors, Other Officers and 
Their Family Relations as of Selected Dates From July 9, 1877 to Septemher 
16, 1935 ^ 

BELL TELEPHONE COMPANY (ASSOCIATION) 



Date 



(a) 



July 9, 1877.. 
July 20, 1878. 



Total out- 
standing 
shares 



(b) 



} 5, 000 



Per Cent of Outstanding Shares Held By 



Directors ' 



(c) 



Other 
Officers 



(d) 



FamilyRe- 
lations > 



(e) 



Directors, 

Other 

Officers 

and Family 

Relations 

(0 



100.00 



NEW ENGLAND TELEPHONE COMPANY 


February 12, 1878 - 


2,000 
2,000 


100. 00 
28.20 






100 00 


March 10, 1879 


8.05 


5.40 


41.65 








BELL TELEPHONE COMPANY (CORPORATION) 






July 20, 1878 - 

March 10, 1879 


4,600 

4,500 


75.24 
54.25 


1.76 
1.11 


19.82 
19.66 


9e.82 
75.02 


NATIONAL BELL TELEPHONE COMPANY 


March 10, 1879 


7,250 


55.04 


0.10 


21.26 


76.40 








AMERICAN BELL TELEPHONE COMPANY 







December 8, 1880 
March 28, 1885... 
March 31, 1890... 
March 30, 1895... 
March 31, 1900... 



73,500 

96,021 

112, 971 

205,000 

'258,863 



40.13 
12.91 
5.13 
3.95 
1.37 



3.83 

.02 



12.44 
8.53 
6.31 
6.45 
3.67 



56.40 
21.46 
11.44 
10.40 
5.04 



AMERICAN TELEPHONE AND TELEGRAPH COMPANY 



March 17, 1905 

March 31, 1910 

March 31, 1915 

March 19, 19^0 

March 17, 1925 

March 14, 1930 

September 16, 1935. 



1,315,514 


1.88 


2, 592, 894 


2.31 


3, 579, 779 


1.30 


4,420,615 


.80 


8, 915, 329 


.57 


13,909,697 


.73 


18, 662, 276 


.06 



' Information as of March 31, 1900 and prior dates was compiled from the stock records of the companies. 
Data on per cent of outstanding shares held by directors of American Telephone and Telegraph Company, 
were obtained from compilations made by the company. 

> From July 9, 1877 to March 31, 1900, Includes percentage of shares held by directors as trustees or agents. 
From March 17, 1905 to September 16, 1985, the percentages are for shares owned by directors. However, 
if 271,104 shares Of->American Telephone and Telegraph Company common stock, held by American Bell 
Telephone Company and voted by Frederick P. Fish, Piesident, were Included, the percentage for March 
17, 1905 would be 18.65. 

* The per cent of outstanding shares held by family relations of directors and otter officers of the com 
panies prior to 19C0 is computed on the basis of holdings of individuals with the same surname. 



CONCENTRATION OF ECONOMIC POWER 



12119 



Exhibit No. 1659-5 



No. S-26-E 
Inv. CA 

Dept. Treasury 
File 012.11 



Table No. 1. — Stock Outstanding and Numier of Stockholders 





Shares Out- 
standing ' 


Number of 
Stock- 
holders 


Averaee Shares Per 
Stockholder i 


Nearest Available Record Date to Annual 
Meeting 


Including 

A. & P. Co., 

B. T. S. Co., 
and Trus- 
tees for 

Employees 


Excluding 

A. & P. Co., 

B. T. S. Co., 
and Trus- 
tees for 

Employees 


1926 - - 


9, 234, 772 

8, 915, 329 

7, 472, 728 

7, 088, 913 

5,601,252 

4, 435, 246 

4, 420, 615 

4,419,495 

4, 358, 965 

3, 958, 633 

3, 848, 239 

3, 579, 779 

3, 446, 377 

3, 440, 960 

3, 243, 617 

2, 682, 422 

2, 592, 894 

1, 909, 205 

1, 525, 280 

1,315,514 

1,315,514 

1,315.514 

1, 270, 689 

1,097,164 

877, 480 

621, 271 

258, 863 

258,863 

258,863 

236,500 

215,000 

205,000 

200,000 

174, 995 

150,000 

125,000 

112, 971 

100, 000 

98, 521 

98, 021 

98,021 

96, 021 

96,021 

.59.500 

59,500 

59,500 


356, 525 

349, 191 

299. 498 

256, 041 

197, 825 

146, 490 

124, 172 

113,860 

88, 851 

73, 600 

66, 938 

61,512 

56, 946 

52, 080 

49, 064 

40,686 

37, 594 

28,545 

24,189 

18.549 

17,542 

17,055 

16, 121 

11, 887 

9,609 

7,858 

6,961 

6,863 

6,886 

6,474 

5.778 

5,572 

5,247 

4,542 

3,945 

3,501 

2,734 

2,066 

1.770 

1,818 

1,826 

1,607 

1,532 

973 

724 

540 


25.2 
25.5 
24.9 
27.7 
28.3 
30.2 
35.5 
38.8 
49.1 
53.8 
57.5 
58.2 
60.5 
66.2 
66.2 
66.2 
68.8 
66.9 
63.1 
70.9 
75.0 
77.1 
78.8 
92.3 
91.3 
79.1 
37.2 
37.7 
37.6 
36.5 
37.2 
36.8 
38.1 
38.5 
38.0 
35.7 
41.3 
48.4 
55.7 
53.9 
63.7 
59.8 
62.7 
61.2 
82.2 
110.2 


2.5.1 


1925 .. -- -. -- -- -- 


25.5 


1924 


24.8 


1923 


27.6 


1922 


27.9 


1921 . 


29.7 


1920 - 


34.4 


1919 - 


38.5 


1918 . - 


47.9 


1917 


52.1 


1916 


55.6 


1915 -. 


66.2 


1914 


60.2 


1913 


63.5 


1912 


66.1 


19U 


62.0 


1910 


66.8 


1909 .. - .. -- 


66.9 


1908 


63.1 


1907 


70.9 


1906 


75.0 


1905 . .. 


77.1 


1904 


78.8 


1903.. 


92.3 


1902. 


91.3 


1901... 


79.1 


1900. .. .. 


37.2 


1899 


37.7 


1898 


37.' 6 


1897 


36.5 


1896 .. 


37.2 


1895 


36.8 




38.1 


1893 


38.5 




38.0 


1891 


35.7 




41.3 


1889 


48.4 


1888 


55.7 


1887.. 


53.9 




83.7 


1885 


59.8 




62.7 


1883 


61.2 




82.2 


iS^l 


110.2 







' Excluding shares held in name of A. B. T. Co. and treasury stock. 



12120 



('f)\('p:NTRA'ri()X OF !•:'•( )X()Mir rowi:i{ 



No. S-26-F 
Inv. CA 
D«pt. Treasury 
File 012.11 



Table No. 2. — Finmuidl Interest of T,arije Stockholder r,'^ 

IToUlors of !000 Shares and Over 20 Lartrcst Stockholders 



Nearest Available lU'cord Date 1" ADiiiial 
Moctinj; 


Nunihor 


.Shares 
Held 


% of Stock 
Outstand- 
ing 


Shares 
Held 


% Of Stock 
Outstand- 
ing 


1926 . -- 


425 

43'.» 

367 

3K5 

342 

203 

327 

385 

416 

391 

389 

373 

368 

371 

377 

296 

304 

198 

163 

155 

165 

180 

176 

166 

108 

82 

25 

10 

23 

19 

18 

14 

16 

11 

10 

7 

11 

10 

n 

12 
11 
13 
9 

8 
8 
11 


1,113.920 

1,136.816 

902, 206 

980, 423 

769. (iOl 

617.419 

749, 738 

906, 407 

978, 161 

877, 48.S 

906, 730 

877, 036 

904. 223 

958, 757 

981,522 

698, .llil 

740, 102 

577. 056 

4.58, 9r.8 

403, 465 

398, 580 

411,610 

402, 793 

37,5,312 

284, 624 

167, 649 

40, 100 

28,313 

39. 62S 

36,516 

45. 360 

2,j. 87 1 

28.916 

22, 857 

19,277 

11,930 

17,655 

18,503 

23. 579 

22. 660 
19,918 
23, 371 

23, 650 
14.824 
16.837 
27, 383 


12.1 
12.8 
12.1 
J 3. 8 
13.7 
1.3.9 
17.0 
20.5 
22.4 
22.2 
23.6 
24.5 
26.2 
27.9 
.30.3 
26. 
28.5 
30.2 
30.0 
30 7 
30.3 
31.3 
31.7 
34.2 
32.4 
27.0 
15.5 
10.9 
l,'-..3 
15.4 
2i.l 
12.6 
14.5 
13.1 
12.9 
9.5 
15.6 
IS. 5 
23.9 
23.1 
20.3 
24.3 
24.6 
24.9 
28.3 
46. a 


400,819 

398, 770 

306, 779 

325. 176 

231.640 

173,6.35 

193,021 

202, 039 

216,884 

221,421 

2:«,631 

224. 765 

234, 393 

233.2:il 

258, 000 

209,846 

221,663 

258, 720 

216, 209 

192, 479 

149.5.55 

146,367 

143,398 

140, 420 

149, 766 

86, .541 

35.023 

31,810 

38. 628 

37, 462 

47, 120 

31,123 

32 476 

2<».511 

26.853 

21,730 

23,610 

26. 380 

31.365 

28, 651 

27, 263 

27, 9.53 

31.841 

21.648 

24. 114 

33, 190 


4.3 


1925 -. - - 

■1924 

1923 . - 


4.5 
4.1 
4.6 


1922 . .- -- - 


4.1 


1921 _ --- 

1920 -- -- 

1919___. .--- 

1918 _- - -- 

1917 

1916 -- - - 


3.9 
4.4 
4.6 
5.0 
5.6 
0.1 


1915 - .- -- 


6.3 


1514 ... _ 


0.8 


1913 

1912 -- 


6.8 
8.0 


1911 

1910 -- 


7.8 

8.e 


1909 . — -. 


13.6 


1908.. ._ 


14.2 


1907 

1906 -. --- - 


14.6 
11.4 


1905 .— - -- -. - 


11.1 


1904 


11.3 


1903 

1902 --- 


12.8 
17.1 


1901 -. I. 


13.9 




13. 5 


1899 . - -. 


12.3 




14.9 


1897 


15.8 




21.9 


1895 


1.5.2 
16.2 


1893 -- 


16.9 


1892 

1891 

1890... - ._- : 

1889 .. . 


17.9 
17.4 
20.9 
26.4 




31.8 


1887 . . 


20.2 




27.8 


1885 


?0, 1 




33. 2 


1883 - 


,36. 4 




40. 5 


1881 


55.8 







■ Excludinp A. &. P. Co., H. T. S. Co., and trustees for employees. Stock outstaudins includes shares 
carried 'n these names hut excludes holding's of A. B. T. Co. and treasury stock. 



CONCENTRATION OF ECONOMIC TOWER 



12121 



No. S-2G-II 
Iiiv. CA 
Dept. Tie;i.sury 
File 012.11 



Tabll No. 4. — Financial Interest of the Directors 



Nearest Available Record Tiatc to 
Annual .Mci'tiiii); 



1926 
1925 
1924 
1923 
1972 
1921. 
1920 
1919 
1918 
1917. 
1916. 
1915 
1914 
1913. 
1912. 
1911. 
1910 
1909. 
1908. 
1907. 
1906. 
1905. 
1904 
1903. 
1902. 
1901 
1900 
1899. 
1898 
1897. 
1896. 
1895. 
1894. 
1893. 
1892. 
1891 
1890 
1889. 
1888. 
1887. 
1886. 
1885. 
1884 
1883. 
1882. 
1881. 
1880. 



Board of Directors 



Shares 
Held 



50, 892 
50, 894 
77, 205 
(17, 132 
43, 409 
27, 749 
38, 036 
43,471 
50, 507 
47,575 
46, 713 
46,451 
45, 912 
55, 677 
58,571 
55, 829 
59, 7S3 
25,511 
31,796 
24, o97 
29, 193 
^4, 809 
24,553 
32, 456 
12,866 
6,025 
2, 198 
2,445 
2,978 
4, 542 
0, 007 
5,955 
6,818 
6,073 
5,530 
5,110 
5,615 
7,398 
7, 376 
7,556 
8,168 
8,089 
8! 158 
7,104 
8,041 
13,181 
9,144 



%of 
Stock 
Outstand- 
ing! 



0.6 

.6 

1.0 

.9 

.8 

.0 

.9 

1.0 

1.2 

1.2 

1.2 

1.3 

1.3 

1.6 

1.8 

2.1 

2.3 

1.3 

2.1 

1.9 

2 2 

l!9 

1.9 

3.0 

1.5 

1.0 

.9 

.9 

1.2 

1.9 

2.8 

2.9 

3.4 

3.5 

3.7 

4.1 

5.0 

7.4 

7.5 

7.7 

8.3 

8.4 

8.5 

11.9 

13.5 

22.2 



Present Board of Directors 



Nuniber 
Holding 

Stock 
1926-1912 



Shares Helil 



Number 



50, 892 
50, 894 
77, 157 
65, 992 
42, 32;i 
2V,980 
27, ,580 
26, 761 
27,031 
26, 654 
26, 968 
26, 505 
25, 286 
26, 147 
23,617 



%of 

Holdings 

in 1926 



100.0 
100.0 
150.6 
128.7 
82.2 
54.0 
53.2 
51.6 
52.1 
51.4 
52.0 
61.2 
48.7 
50.4 
45.4 



' Excluding shares held in name of A. B. T. Co. and treasury stock. 



124101 — 40 — pt. 2."? 21 



12122 



CON(;KNTltATION (JF ECONOMIC I'OWEII 



No. S-2C>-J 
Inv. CA 
Dept. Q'roasury 
File 012.11 

Table No. 



6. — Degree of Control by Large Stockholders'^ 



Nearest Availal)!e 


Estimated Mini- 
mum Num'-jcrof 
Stockholders 
Owning Majori- 
ty of: 


Shares Held By 
Holders of 1000 
Shares and Over 


Shares Held By 
20 Largest Stock- 
holders 


Shares Held By 
Board of Direc- 
tors 


Record Date to 
Auuual Meeting 


Shares 
Out- 
standing ' 


Shares 
Voted at 
Annual 
Meet- 
ings ' 


%of 
Majority 

Out- 
itanding ' 


%of 
Majority 
Voted at 
Annual 
Meet- 
ings' 


%of 
Majority 

Out- 
standing 2 


%of 
Majority 
Voted at 
Annual 
Meet- 
ings • 


%of 
Majority 

Out- 
standing I 


Majority 
Voted at 
Annual 
Meet- 
ings' 


1926 


23,000 

21,000 

12,000 

13,000 

11,000 

8,000 

6,800 

5,700 

4,500 

3,600 

3,400 

3,300 

2, 750 

2,750 

1,150 

1,100 

1,500 

775 

775 

775 

675 

675 

025 

500 

400 

400 

400 

400 

400 

400 

225 

225 

225 

225 

200 

200 

200 

200 

110 

110 

110 

110 

110 

75 

50 

19 


8,500 

7,500 

3,000 

3,250 

1, 5(10 

2,000 

1,750 

1,750 

1,700 

1,500 

1,500 

900 

900 

8o0 

375 

350 

325 

225 

240 

250 

300 

220 

225 

230 

110 

108 


24.1 
25,5 
24.1 
27.6 
27.4 
27.9 
33.9 
41.0 
44.8 
44.3 
47. 1 
40.0 
52. 5 
55.7 
60.5 
52.1 
57. 1 
00.4 
00.2 
G1.4 
60.6 
62.6 
6.3.2 
08. 4 
64.8 
54.0 
31.0 
21.9 
30.6 
30.9 
42.2 
2.S. 2 
28.9 
26.1 
i.5.7 
19. 
30.3 
37.0 
47.9 
46.2 
40.6 
48.7 
49.3 
49.8 
56.6 
92.0 


37.1 
39.0 
37.9 
43.6 
43.3 
45.2 
52.6 
67.5 
70.3 
68. ,2 
72.9 
79.8 
86.1 
«7.9 
101.7 
86.9 
94.8 
83.7 
78.0 
78.5 
72.4 
77.2 
75.2 
77.4 
97.0 
91.9 


8.7 
9.0 
8.2 
9.2 
8.3 
7.8 
8.7 
0.1 
9.9 
11.2 
12.1 
12.5 
13.6 
13.5 
15.9 
15.6 
17.1 
27.2 
28.4 
29.2 
22.8 
22.2 
22.6 
25.6 
34.2 
27.8 
27.0 
24.6 
29.8 
31.8 
43.8 
30.4 
32.5 
33.8 
35.8 
34.6 
41.8 
52.8 
63.8 
53. 6 
55.8 
58.4 
66.2 
72.6 
81.0 
111.6 


13.4 
13.7 
12.9 
14.5 
13.0 
12.7 
13.5 
15.0 
15.6 
16.7 
18.8 
20.4 
22.3 
21.4 
26.7 
26.1 
28.4 
37.5 
36.7 
37.4 
27.2 
27.4 
26.8 
28.9 
51.0 
47.5 


1.2 
1.2 
2.0 
1.8 
1.6 
1.2 
1.8 
2.0 
2.4 
2.4 
2.4 
2.6 
2.6 
3.2 
3.6 
4.2 
4.6 
1.6 
4.2 
3.8 
4.4 
3.8 
3 8 
6.0 
3.0 
2.0 
1.8 
1.8 
2.4 
3.8 
5.6 
5.8 
6.8 
7.0 
7.4 
8.2 
10.0 
14.8 
15.0 
15.4 
10.6 
16.8 
17.0 
23.8 
27.0 
44.4 


1.7 


1925 


1.7 


1924 


3.2 


1923 


3.0 


1922 


2.4 


1921 


2.0 


1920 


2.7 


1919 . 


3.2 


1918 


3.6 


1917 


3.6 


1916 


3.8 


1915 . 


4.2 


1914 


4.4 


1913 


5.1 


1912 . .. .- 


6.1 


1911 


6.9 


1910 


7.7 


1909 


3.7 


1908 


5.4 


1907 


4.8 


1906 


5.3 


1905 -- 


4.7 


1904 


4.6 


1903 

1902 


6.7 
4.4 


1901 ---- 

1900 


3.3 


1899 










1898 










1897 . 










1896 - 










1895 










1894 










1893 










1892 - 










1891 










1890 










1889 










1888 










18f7 










li 6 - .- 










ISpS 










1884 . 










1883 










1882 










1881 





















« Excluding A. B. T. Co., A. & P. Co., B. T. S. Co., and trustees for employees. 

> Excluding shares held In name of A. B. T. Co. and treasury stock. 

• Including unvoted shares in the name of A. <St P. Co., B. T. S. Co., and trustees for employees. 



CONCIOMTKATION OK lOrOiNO.MIC I'OWKlt 



J 21 23 



N(.. S 26 'J'K 
Tnv. CA 
Dopf. Trcnsnry 
F'lo 012.11 



'J'Aiti.i'. No. 7. - I'oitnlinl Cnntrnl hy IHivciors 





Shares Hold B 


y: 


% of Total 
to Stock 
Outstand- 
ing! 




Nearest Available Record Date to Annual 
Meeting 


Board of 
Directors 


A.&P.Co., 
B. T. S. Co., 
and Trust- 
ees for Em- 
ployees 


Total 


% of Total 
to Shares 
Voted > 


192.'. . 


50, 892 
50,894 
77, 205 
67, 132 
43, 409 
27, 749 
38.036 
43, 471 
50.507 
47, 575 
46, 713 
46, 451 
45, 912 
55, 677 
58,571 
55,829 
59, 788 
25, 511 
31, 796 
24, 597 
29,193 
24, 809 
24,553 
32,456 
12, 866 
6,025 
2,198 
2,445 
2,978 
4,542 
6,007 
5, 955 
6,818 
6,073 
5,530 
5,110 
5, 615 
7,398 
7,376 
7,556 
8,1.58 
8,089 
8.153 
7,104 
8,041 
13, 181 
9,144 


51. 538 
20. 253 
35, 858 
23,251 
86, 1S7 
85,288 
152, 392 
39, 448 
104,911 
126, 926 
127,523 
122, 336 
19, 359 
134, 528 
.531 
159,832 
82, 906 


102, 430 

71, 147 
113,063 

90.383 
129, 596 
113,037 
190. 428 

82, 919 
155,418 
174, 501 
174. 236 
168, 787 

65, 271 
190, 205 

59, 102 
215, 661 
142. 694 

25,511 

31, 790 
24, .597 
29, 193 
24, 809 
24, 553 

32, 456 
12, 866 

6,025 
2,198 
2,445 
2,978 
4,542 
6,007 
5,955 
6,818 
6, 073 
5,530 
5,110 
5,615 
7,398 
7.376 
7,556 
8,158 
8,089 
8,158 
7,104 
8,041 
13, 181 
9,144 


l.I 
.8 
1.5 
1.3 
2.3 
2.6 
4.3 
1.9 
3.6 
4.4 
4.5 
4.7 
1.9 
5.5 
1.8 
8.0 
5.5 
1.3 
2.1 
1.9 
2.2 
1.9 
1.9 
3.0 
1.5 
1.0 
.8 
.9 
1.2 
1.9 
2.8 
2.9 
3.4 
3.5 
3.7 
4.1 
5.0 
7.4 
7.5 
7.7 
8.3 
8.4 
8.5 
11.9 
13.5 
22.2 


1 7 


1925 


1 2 


1924 


2.4 


1923 


2 


1922 


3 6 


1921 


4.1 


1920 . 


6 7 


1919 - _ 


3.1 


1918 


5 6 


1917 


6.6 


1916 ^ 


7.0 


1915 - .- 


7.7 


1914 


3.1 


1913 


8 7 


1912 . . 


3 1 


1911 


13.4 


1910 


9 1 


1909 


1 8 


1908 




2.7 


1907 




2 4 


1906 




2.7 


1905 




2.3 


1904 . 




2 3 


1903 




3.3 


1902 




2 2 


1901 




1.7 


1900 






1899 . . 






1898 






1897 - 






1896 






1895 






1894 






1893 






1892 






1891 






1890 . 






1889 






1888 . - . 






1887 






1886. 






1885 . 






1884 






1883 


- 




1882 




1881 






1880 















' Excludes holdings of A. B. T. Co. and treasury stock. 

' Includes unvoted shares of A. & P. Co., B. T. S. Co., and trustees for employees. 

F. H. B. 
H. C. H. 



12124 



CUNCENTltA'J'ION OF lOCONO.MlC I'OWEli 



Tai{I,e No. H.- Esllmated Number of Stocic holders in Addition to Lnrr/c Jloldcrs 
and in Addition to Directors Necessary To Control Annual Meeting — Based 
Upon Residual Average Shareholdings^ 





Estimated Number of Holders Necessary to Control 
Annual Meetini,' in Addition to: 


Nearest Available Hocoril Date to Auuual 
MeetiuR 


Holders of 
1000 Shares 
and Over ' 


20 Largest 
Stockholders' 


Hoard of Di- 
rectors 


Board of Di- 
rectors Plus 

A. & P. Co.. 

B. T. S. Co., 
and Trustees 
for Employ- 
ees 


1926 - - 


8.'>, 7un 

80, 194 
67, 928 
53, 282 
41,905 
29,407 
23, 796 
14, 273 
11,187 
11,098 
7,954 
5,271 
3,286 
2,905 


108, 277 
103, 036 
87, 238 
73, 132 
57, 816 
41 883 
37, 577 
31,094 
25, 885 
22, 493 
19, 377 
16,629 
14, 552 
14, 537 
11,605 
10,441 
9,174 
7,446 
6,874 
5,309 
6,029 
5,640 
5,605 
4,277 
1,894 
1,405 


118,416 
113,290 
93, 733 
79, 905 
62. 524 
45, 408 
46.090 
34,113 
28.363 
24,869 
21, 794 
IS, 973 
16,917 
16,590 
13, 963 
12, 3-25 
11,052 
10,065 
9,012 
7,025 
7, 102 
6,708 
6, 605 
5,047 
3,115 
2,249 


116,346 

112 4.'(S 


1925 -. 


1924 - 


92, 275 


1923 


78, 705 
59, 413 


1922 


1921 - 


42,517 


1920 . ... - 


36 221 


1919 ... 


33, 077 
26,200 


1918 -- . 


1917 


22 400 


1910 - 


19, 471 


1915 


16,769 


19H . . - ... - 


16, 592 


1913 --- 


14, 434 


1912 


13, 955 


19U 


2,331 

848 
2, 399 
2, 923 
2, 233 
2,877 
2,270 
2,445 
1,783 
142 
252 


9,691 


1910 


9,781 


1909 


10, 065 


1908 . - . 


9,012 


1907 

1906 

1905 . 


7,025 
7,102 
6, 708 


1904 


6,605 


1903 


5,047 


1902 


3,115 


1901 --- 


2,249 







' In the computations for this table, unvoted shares of the A. & P. Co., B. T. S. Co., and trustees for 
employees have been included in shares voted at annual meetinRS, and these holdings as well as those of the 
.\. B. T. Co. have been excluded in determining average holdings outside of the groups of large holders 
indicated. 

2 Excluding A. B. T. Co., A. & P. Co., B. T. S. Co., and trustees for employees. 

No. S-2G-L 
Inv. CA. 
DepL Treasury 
File 012.11 



COXCENTKATION OF ErONOMK^ POWER 
Exhibit No. ICIO-G 



12125 



American Tclvyhonc and TvU't/rajih Comimnij and Predecessor, American Bell 
Telephone Company — Long Term, Debt Issues — 1880 to li)05, Inclusive 

[From files of Securities and Exchange Commission] 









Selling 




Com- 




Name of Issue 


Year 
Issued 


Principal 
Amount 


Price 
Per $100 
Principal 
Amount 


Net 
Proceeds 


peti- 
tive 
Bid- 
ding 


To Whom Sold 


American Bell Telephone 














Company: 














Coupon Convertible 6% 


18S0-1881 


$470, 000 


$100 


$476, 000 


No.... 


Pro Rata to Stock 


Notes. 












hoUlers. 




1S81 


l.-i, 000 


136. 33 


20, 450 


(') 


m 




1881 


9,000 


140 


12, 600 


(') 


' (') 


Convertible G% Coupon 


1882-1883 


045,000 


100 


045, 0(X) 


No.... 


Pro Rata to Stock- 


Notes. 












holders. 


Seven Per Cent Deben- 


18&8 


1,987,500 


100 


1,987,500 


No.... 


Pro Rata to Stock- 


ture Bonds. 












holders. - 




1888 


12,500 


Various 


14,002 


0) 


Lee, Higginson & Co. 


Ten-Year Debenture 4% 


1898 


5, 000, 000 


100. 771 


5, 038, 550 


Yes.._ 


Do. 


Coupon Bonds. 


1899 


3,000,000 


102. 327 


3,069,810 


Yes... 


R. L. Day & Co. 




1899 


2,000,000 


101.71 


2, 034, 2(X) 


Yes... 


Estabrook & Co., R. 
L. Day & Co. and 

Verrailyne & Co. 


American Telephone and 














Telegraph Company: 














Four Per Cent Collateral 


1900 


7,000,000 


95 


6, 650, 000 


No.... 


Kidder, Peabody& Co. 


Trust Bonds. 


1900 


3, CH)0, 000 


90-97 


2, 895, 000 


No___. 


Do. 




1901 


5,000,000 


95 


4, 750, 000 


No.,.. 


Do. 




1902 


313,000,000 






No 


Do. 




1905 


20, 000, 000 


'"""94.I9' 


i8,"838,'666 


Yes... 


Do. and Baring Bros. 
& Co., Ltd. 


Three-Year 5% Oold 


1904 


'20, 000, 000 


97.77 


19, 554, 000 


Yes... 


Speyer & Co. and Lee, 


Coupon Notes. 












Higginson & Co. 



' Sold at auction. 

2 Data not available. 

3 Delivered to Kidder, Peabody & Co. in exchange for $12,000,000 par value of preferred stock and 
$8,000,100 par value of common stock of Western Telephone and Telegraph Company, successor to Erie 
Telephone and Telegraph Company. Alternative s'lle price on the first $7,000,000 of these bonds delivered 
to Kidder, Peabody & Co., in case the Erie Company reorganization did not materialize, was 95. 

* $25,000,000 principal amount of Pour Per Cent Collateral Trust Bonds pledged as collateral to this 
note issue. 



ExHiDiT No. 1659-7 
[From files of Fcdoral Communications Commis.sion] 

(Handwritten:) I*. F. Filo. P./.l/OS. A. A. M. 

Lee, PIiggin.son & Company, 
//// State Street, Boston, April S, I'JOJ,. 
Personal. 
H. 

Frederick P. Fish, Esq., 

President, Anicriean Telephone <£ Telc(jraph Co., 

Boston, Massachusetts. 
]My Dear Mr. Fish : I was with Jim Storrow in New York yesterday and 
came back last night, in case there should be anything for me to do here about 
this bond business. 

Of course, we agree with your views entirely that you need a new market, 
and we think this can be accomplished by dealing with Speyer. We know as 



_[2126 COXClOXTUA'llOX OF I'lC.uNo.MIC I'OWKli 

well an anybody can that the To'-eylioiKi securities are as good as can be, but 
th(!y bave imt iiitere.sled liic pubiie yet, oulside of New Kn^hiud, very luueb. 
aiKi (be ectmiiaiiy lias mil liol ilie slaudiiii; wbieh it deserves aiul wbieli iL wili 
liHve by and by. The JS'ew Yorkers aie always shy of new things from this 
part of the country. We tluuk Speyer can help lo distribute the securities 
elsewhere. 

As regards figures, may I call your attention to the fact that there are 
plenty of railroad notes of companies well known to be strong and in good 
hands, and these notes sell at 5% and thereabouts. The 4i^% notes of the 
IVnnsylvania road have hung lire terribly. More than that, there are plenty 
of luilroad note.-j to come, as everybody knows. If the Telephone company 
wants money and wants a new markec, it will probably have to pay for it, 
just as everybody does who is not well kuown. 

It seems to me, if I were on your board, that I should vote to lake money, 
if it were offered, in quantities enough to make the company easy and pay the 
])rire needed. It is, after all, a very small matter on short securities. Most 
of the.se railroad notes are two years, and that seems to bo a good kniglh of 
note; and perhaps they can be made a little longer. If tJie time could be left 
to the bankers, it W(mld bo not less than two years; it would be made longer, 
if it could be managed, and might give good results. 

If you v-/ant me today, or if I can offer any advice of \alne, I am at yoiu- 
service. 

I am speaking to you with perfeci, frankness, just as I have for the last 
thirty years lo the directors of tlie Chicago, Burlington & Quincy Railroad 
Co., with whom I have had intiuiatc relations. They were very apt to ask 
about the times and about what I thought with regard to this or t'other point, 
whether I bought a loan or not; and I always found that by treating them 
with entire openness and considering tiieii problems, I got on much better. I 
think they recoguized that fact, and I think it did them g-^^-^n At any rate: 't 
was much easier for me to procet_Ti in chat way, and I can fairly sa^ that we 
have dealt with no railroad in the counn-y, in wbifb deijlinu.'^ v^e have made 
less money than with the Chicago, Ijurliugton & Quin'-. We always paid 
them every penny we could afford for loans and not iiuruQuently jaid thevi 
too much. 

I do not believe it is wise for a coiporation to get the last penny on it3 bom is 
or notes. Notes cannot fall much in price ; bonds can fall very heavily. If 
the dealers or the investors or bot^h ;-:ee l>onds very heavy on the market, the 
next time the company w^ants money it is remembered and costs more than it 
should. 

Forgive me for offering my wisdom ( V) nua.sluMl, and believe nie. 
Yours truly, 

II. I.. llmrnNsoN 



FxiiiiaT No. lO-T.^-S 

[From fili'^s of KciIi'imI ('(iniiiiitiiic.-il ions < 'onuiiis.^ion 1 

MAKcm 7, 1902. 
Personal. 

Francis L. Hink, Esq., 

Vice-President, First Naiional Hank. 

2 Wall Street, Neic York. 
My Deak Mk. IIine: 

I am now in a position to as.sent definitely to the proposition which I dis- 
cus.=:ed the other day with Mr. Baker and yourself. 

We will sell to Mr. Baker and his associates 1.^,000 shares of the stock of the 
American Telei)hone and Telegraph Company, at loS^, with the understanding 
that Mr. Baker is to have the oi)<ion to take 25,t>00 additional shares of the 
stock within a few days after his return from the south, and at the same price, 
if he desires to do so. If he coiicludes that he would like to have 35,000 addi- 
tional shares, rather than 25,000, I have no doubt that we shall be able to meet 
his views on that point. 

It is our expectation to elect I\Ir. Baker and Mr. Waterbury to the Board of 
Directors of the American Telephone and Telegraph Company at the annual 
meeting, which will be held on March 25, 1902. 



CONCENTRATION OF ECONOMIC POWER .12127 

I need not repeat that we understand that it ia the purchaser's intention that 
this stoclj is to be held as an investment, although, of course, no binding agree- 
ment to that effect is to be expected. 

I think that I have now stated our entire understanding, and should be glad 
to have you confirm my statement and indicate to me when you would like to 
have the certificates for the 15,000 shares delivered and the names in which 
these shares are to be placed. 
Very truly yours, 

F. P. Fish, President. 

[Source: Private Letter Book I.] 



No. 29. 

Geo. F. Baker, President. 
II. C. Fahnestock, V. Pres. 
Francis L. Hinb, v. Pres. 
Charles H. Stout. V. Pres. 
C. D. Backcs, Cashier. 
W. G. Snow, lAsst. Cashier. 
H. Fahnestock Ass(. Cashier. 
Geo. F. Bakidr, Jr., Asst. Cashier. 

First National P>ank, 
AVw York, March 8, 1002. 
F. P. Fish, Esq. 

Prcst., Am. Tel. & Telegraph Co., 

Boston, i/(/.s.s'. 
Deab Mb. Fish : Replying to your favor of the 7th instant, I beg to hereby 
confirm the agreement entered into by you with Geo. F. Baker, Esq., namely, 
that he and his associates shall accept upon presentation by you at the First 
National Bank of New York, 15,000 shares of the stock of the Amecican Tele- 
phone and Telegraph Company at 153%, and that they shall have the privilege 
of accepting 25,000 @ 35,000 shares additional at the same price within a few 
days after Mr. Baker's return from the South. Also that Mr. Baker and 
Mr. Waterbury shall be elected as members of the Board of Directors of the 
American Telephone and Telegraph Company at their meeting to be held on 
March 25, 1902. 

As indicated over the telephone, we should be glad to have a certificate of 
100 shs in name of Geo. F. Baker, 100 shs in name of John I. Waterbury, 14,800 
shs in name of W. J. Nevius. 

(300 shares of the latter to be in six certificates of 50 shares each). 
Yours, very truly, ' 

' F. L. HiNE, V. P. 
[Source: President's file 12373.] 



Source : President's file 12373. 

Geo. F. Baker, President. 
H. C. Fahnkstock, V. Pres. 
Francis L. Hine, V. Pres. 
Charles H. Stout, V. Pres. 
C. D. Backus, Cashier. 
W. G. Snow, As-it. Cachier. 
H. Fahnestock, Asst. Cashier. 
Geo. F. Baker, Jr., Asst. Cashier. 

First National Bank, 
New York, Mch 25', 1902. 
F. P. Fish, Esq. 

Prest., Am. Telephone d Telegraph Co., 

Boston, Mass. 
Dear Sib: Referring to your letter of March 7th, I hereby accept for myself 
and associates the option to purchase 35,000 shares of your stock at 153%, the 
same to take effect this date. The arrangement for the delivery of the certifi- 
cates and payment of dividends as arranged by you with Mr. Waterbury will 
be entirely satisfactory. Yours, truly, 

Geo. F. Baker. 



12128 CONCENTRATION OF ECONOMIC POWER 

Exhibit No. 1059-9 

[From flies of Federal Communications Commission] 

Pkoposed Plan of Financing 

Report of Messrs. Leverett, Sherwin aud Driver. February 16, 1905 

Frederick P. Fish, President 
Edward J. Hall, 
Thomas Sherwin, 
C. Jay French. 

Vice Presidents 
Charles Eu.Sfi'is Hubrard, Secretary 
William R. Driver, Treasurer 

AmbkiCAn Telephone and Telehraph Company 

Boston, February 16th, 1905. 

plan of financing proposed by MR. WATERBURY AND ASSOCIATES 

Frederick P. Fish, Esq., 

Dear Sir: In order that there may be no question as to the exact points 
which are discussed in this letter we will briefly summarize the p'an under 
consideration. 

A syndicate to buy — 

(a) $15,000,000 of our bonds expiring in ten years instead of 1929. 

(b) $35,000,000 four per cent bonds analogous to our present bonds con- 
vertible into stock at $130 at any time, say, after three years and before 
eight years, and to run, say, twenty to twenty-live years. 

(c) $50,000,000 of the same type of convertible bonds, if we have the power 
to offer them, with an option on the part of the syndicate to take $50,000,000 
more of the same kind. 

The $100,000,000 which the syndicate are bound to take are to be paid 
in installments on fixed dates, the series of installments of the first $50,000,000 
being completed in August 1906 and of the installments of the second $50,000,- 
000 in December 1907, with the right to anticipate at any time payment of 
any part or all of the first $50,000,000 and at any time after August 1906 
payment of any part or all of the second $50,000,000. If payments are antici- 
pated, the syndicate, at our request, will hold the money until we want it and 
allow 3% interest. 

Omitting the price to be paid for the bonds, this is the whole of the plan. 

The distinctive and controlling feature of this plan is the issue of converttt)le 
bonds, and at the threshold of our inquiry we are met with the question of 
the power of this company to issue such bonds, as the indenture of July 1, 
1899, under which our present collateral trust four percent bonds are issued, 
makes no provision for the issue of convertible bonds. 

It has long been laid down by text writers, supported by numerous decisions, 
that in the absence of special enabling statutes authorizing a different dis- 
position of its stock, a corporation, upon the issue of new stock, must dis- 
tribute that stock pro-rata to its then existing stockholders. In other words, 
each stockholder, upon the issue of new stock, has the right to take a pro- 
portionate part thereof. Some cases have gone so far as to hold that the stock- 
holders are entitled to have this new stock at par. Such is not the rule in 
New York, according to the recent case of Stokes vs. Continental Trust Co., 
91 N. Y. Sup., 239. But it would seem to be the law in that state that a 
stockholder is entitled to take his pro-rata share of now stock at the same 
price it may be offered to other stockholders or to others. 

This is a general rule of law and subject to exception. For example, it 
would not apply in case of the purchase of specific property for stock, where 
the corporation is authorized to issue stock for other consideration than 
money; nor would it apply in the case of the conversion of bonds into stock, 
if the corporation is authorized to issue convertible 'bonds. Other cases may 
be imagined in which the rule would not apply. 

But the rule would make strongly against the right of a corporation to Issue 
convertible bonds unless' specifically authorized, except in cases like the one 
mentioned below (this company having in the treasury of The American Bell 



CONCENTBATION OF ECONOMIC POWER 12lr2^ 

Telephone Company $27,000,000 of its old stock which can be disposed of by our 
directors as they see fit). 

The Stock Corporation Law, section 2, in empowering stock coriwrations 
(among them telephone companies) to issue bonds and secure the same by 
mortgage, requires the consent of the holders of not less than two-thirds of the 
capital stock of the corporation, and provides that the directorsTTinder such 
regulations as they may adopt and when authorized by such consent (i. e. of the 
holders of two-thirds of the capital stock), may confer on the holder of any 
debt or obligation secured by such mortgage the right to convert the principal 
thereof, after two and not more than twelve years from the date of the 
morgage, into stock of the corporation. This is the only New York statute unon 
this svbject affecting this company. 

The application of the above to the plan in question is not difficult. So far 
as the firbt $35,000,000 of the bonds is concerned it would not be necessary to 
issue new stock in order to enable this company to perform its covenant of 
conversion. The $27,000,000 of stock now held by The American Bell Telephone 
Company wold be ample and available for the purpose. But inasmuch as further 
new stock would be needed to carry out the remaining features of the plan, it 
would hardly seem necessary to draw upon the stock held by The American Bell 
Telephone Company ; for all the stock required could be authorized by one vote of 
our stockholders. 

Is action by tiie sto'^'kholders necessary? Not for the first $35,000,000, because 
the $27,000,000 of stock neetled for the purpose of conversion are within the 
control of the board of directors. But we are of the opinion that it would be 
required for the remaining issues for the reasons above given and for the further 
reason that such is the express requirement of the enabling sThtute. The very 
fact that it was thought necessary to make such an enabling statute would create 
a presumption that such power did no otherwise exist. 

We are concerned with the question of power to issue convertible bonds and 
not with that of policy, although it might be worth while to consider whether, 
if the power exists, it is expedient to issue, without consulting the stockholders, 
so great an amount of convertil)le bonds as is contemplated by the plan as a 
whole, with the possible attendant issue of so large a block of stock. 

THE PLAN IN DETAIL 

Examining the plan in detail, we find that at first an issue of $15,000,000 of 
our bonds is contemplated, to run ten years instead of until 1929, the date of 
payment of our collateral trust four per cent bonds. Can these short term 
bonds be issued under the indenture of trust dated July 1, 1899? That indenture 
provides for the issue of bonds, all to be substantially of the tenor therein set 
forth, except that bonds bearing a less rate of interest than that specified in the 
form given in the indenture may be issued thereunder. The exception of the 
rate of interest would of itself indicate that all other provisions of the bond are 
to remain unchanged and that the time of payment can nqt be changed. It is at 
least doubtful if bonds of a shorter period can be included thereunder by agree- 
ment with the trustee, as all the bonds already issued would have an interest 
in the terms under which the later bonds are to be issued. If short term bonds 
are issued a failure to pay these bonds at maturity would be a default under 
which all the securities of the trust might be sold and must be sold at the 
request of one-fourth in interest of the bondholders. This is a radical change in 
the plan of the trust established by that indenture. 

We take it that the $35,000,000 of bonds required by section (b) of the plan 
could be our regular collateral trust four per cent bonds if desired. As stated 
above the directors have within their control the required amount of stock — 
that now^ in the treasury of The American Bell Telephone Company. Bonds 
in the regular form provided by the indenture could be issued, and appended 
to each bond a separate covenant on the part of the American Telephone and 
Telegraph Company to make the conversion. If the conversion were made, the 
bonds when surrendered under the terms of the conversion would come back 
into the possession of the American Telephone and Telegraph Company. If 
the instrument containing the covenant for conversion was not stamped on the 
bonds but made in a separate instrument appended to the bonds, it might be 
removed from the bonds and the bonds reissued. But it is to be noted that 
the amount of collateral once placed in the hands of the Old Colony Trust 
Company, Trustee, to secure these $35,000,000 bonds, must always remain in 
its hands and cannot be withdrawn even if it be thought desirable to cancel 



12130 CONCENTRATION OF liJCONOMIC POWER 

them. Indeed the bonds themselves must, if they are to be used, remain out- 
standing. New bonds cannot be substituted for them, except under the provision 
for mutilated bonds, in the first paragraph of the indenture. 

As stated above, it would probably be found more desirable, if convertible 
bonds in greater amount than $35,000,000 are to be issued, to issue them all 
under a new indenture instead of issuing $3r),O0O,0OO under the indenture of 
July 1, 1890, and the balance under a new indenture. The indenture of 
July 1, 3899, as stated above, makes no provision for an issue of convertible 
l)onds. 

BUSINESS C0N8ID1':BATI0NS 

There is one serious business objection to the adoption of the convertible 
bond feature of this plan. The bonds, when placed upon the market, being of a 
greater value, would to a large extent lessen the demand for our collateral 
trust bonds, as the market would undoubtedly give preference to the convertible 
bonds. This would be an important fact for those of our present bondholders 
who may wish to dispose of their bonds. 

Undoubtedly we need not, in our policy of financing, limit ourselves to our 
own serious detriment in order to protect those who have heretofore purchased 
our previous issues of bonds, but we should bear in mind, in deciding upon a 
policy, that we must ourselves necessarily be in the market to sell further 
issues of our collateial trust bonds; because in May 1007 $25,000,000 of these 
bonds will be released by the payment of the $20,000,000 of notes for which 
they are now held as collateral. In July 1908 the bonds of The American Bell 
Telephone Company will be payable, thereby making the collateral theretofore 
held for such bonds available for the issue of $10,000,000 of our collateral trust 
bonds. As stated above, this collateral having once been deposited with the 
trustee under the indenture cannot be withdrawn ; and consequently this com- 
pany will have $35,000,000 of bonds which it must sell in order to avail itself 
of the assets deposited under that indenture. 

It would, therefore, seem to be highly desirable, as a business proposition, not 
to issue convertible bonds if it can be avoided, as these $35,000,000 bonds would 
be available in any scheme which did not require the is.sue of convertible bonds. 

AVAILABLE ASSETS 

Are we in a position to make a contract according to this plan? 
The stocks and bonds which this company possesses, including 
what we are to receive within i. short time, stand on our books 
at $143, 000, 000 

Of these there have already been deposited with the Old Colony 
Trust Company under the indenture of July 1, 1899, (the value 
here stated being that at which they stand on our books) 60,000,000 



Balance 77, 000, 000 

Of this the following are not available for deposit under that 
indenture : 

Western T. & T. Co. (because the indenture of 
trust does not permit the deposit of the stock 
of this company, as it is not a licensee) $13,000,000 

Certain stocks of struggling companies, like the 
Cent. N. Y., Cent. Union, N. Y. & Penn., and 
Ches. & Pot., which should l>e kept in hand for 
the future financing of these companies 7, 500, 000 

20, 500, 000 

Leaving a balance of 5(3, 500. (XK) 

If a n(»w indenture is to be prepared, there may be added to this 
the following: 

Western T. & T. Co. preferred $12, 000, (KK) 

Real Estate 2. 250, 0(K) 

Long Line Construction 31,000,000 

So. Bell Indebtedness, say 10, (MK), 000 

OlluT notes, say 4,000,000 

59, 250, (X)0 

115,750,000 



CONCEN'J'RATION OF ECONOMIC POWER 12131 

TIhtc is, in arMltion to tli(> ;ii)ove notes, thf notos of tlie abo,ve monlionod 
struggling: companies amonntins? to about $10,000,000 but these notes, for the 
reason al)Ove stated, should, if possible, be kept within the control of this 
company. 

In order to issue the $100,000,000 of bonds above called for, if a margin 
equivalent to the margin provided for in the present indenture of trust be called 
for, $133,333,3^,3 of assets would be required therefor. The assets in hand would 
hardly be .suflBf^ient to furnish this amount of security, not to speak of security 
for the $50,000,000 of further bonds on which the syndicate is by the plan to 
have an option. For this latter $50,000,000 provision must be made with 
securities that will be obtained in the future. Consequently the option on this 
further $50,000,000 should not be available before the expiration of several 
years from date. 

It is to be noted in this connection that the company has cash in hand suf- 
ficient to pay all its obligations until the current Summer ; that for the two years 
succeeding, including the payment of the $20,000,000 of notes maturing in 
May 1907, the probable requirements of the company will not be much, if 
any in excess, of $70,000,000; and that upon the payment of the above notes 
$25,000,000 in bonds will be in hand for the future financing of the company. 

RESULT OF PLAN 

If, under the above plan, the bonds net this company 89 (90 with, say, 1% 
for expenses) and the option to take the stock is exercised at the expiration 
of three years from date, the transaction would be equi,\alent to the sale of 
the stock in three years at $ll5.70 (that is, 89% of 130) with a payment mean- 
while by this company of about 4%% per annum for the money; or, to state 
the transaction in another way. it would be equivalent to a sale of the stock 
at 130 and a payment meanwhile by us of 8% per annum on the money. If 
the option was exercised at the end of eight years, it would be equivalent to 
about 5%% for the money, and the rate would increase as if the option were 
exercised earlier. The purchaser is free to take the stock or not according to 
the state of the market. 

CONCLUSIONS 

Our conclusions are, that 

(l)It would be undesirable, from a business point of view, to issue con- 
vertible bonds. 

(2) In order to Issue convertible bonds above $35,000,000, consent of two- 
thirds of the stockholders would be required, and this would be difficult to 
obtain. 

(3) It is much more desirable to issue bonds under the present indenture 
of trust, for the present needs of the company, up to, say, a total of $100,000,000. 
If more than $100,0(X),000 of bonds are to be issued, it might be well to con- 
sider whether it is not advisable to make an issue of bonds under another 
indenture of trust which would fall due at some other date, as the amount 
falling due in 1929 would otherwise be excessive and probably burdensome 
for the company to finance at one time. 

(4) Short time bonds (that is to say, payable in ten years) cannot be issued 
under the present indenture. 

(5) We doubt the expediency of financing the company for so long a period 
of time as the proposed plan contemplates, especially as it would have the 
effect of tying up our assets and of rendering more diflBcult the use of them 
in the financing, consolidation, and development of our sub-companies. 

(6) In preference to the plan under consideration, we should recommend 
the issue this year of a limited amount of stock and bonds, say, one in ten 
of stock to present stockholders and $15,000,000 in bonds to be sold to bankers. 
Of course it would be preferable to finance for a year or two more if a satis- 
factory arrangement can be made through a syndicate. A plan for marketing 
abroad stock or stock and bonds would be very desirable. 

To our minds there is another risk in the proposed plan which should be 
had in mind. If a bankers syndicate should be formed under the proposed 
plan, who should pool their bonds or place them in trust, the trust so formed, 
by exercising the option given for the conversion of bonds, would have the 
power to acquire so near an absolute controlling interest in this company as 
practically to control the whole assets of the company, which they could use 



12132 CONCENTRATION OP ECONOMIC POWER 

for any schemes of financing that they saw fit. In short, having nearly one- 
half of the entire issued, capital stock of the company, they could consolidate 
this company with other companies, or make any other arrangment in regard 
to its future financing that they saw fit. This is a great and extremely A'aluable 
option and is equivalent, until the bonds are distributed or sold to the public, 
to a surrender of the powers of management by the present officers and stock- 
holders to a body of bankers who may work to the disadvantage of the present 
stockholders in the promotion of other schemes of consolidation. 

We cannot see in the present condition of the company any urgency which 
calls for a method of financing so drastic as this plan. 
Respectfully, 

Geo. V. Leverett, 
Thomas Sherwin, 
Wm. R. Driver. 

The foregoing plan assumes that the convertible bonds to be issued there- 
under will not be offered to our stockholders. We understand that it is now 
proposed to modify this plan by making an offer of these bonds to our stock- 
holders. This would remove one of the serious legal objections to the plan. 
It would not, however, give authority to the directors to offer the Fifty Mil- 
lions, on which it is proposed to give the syndicate an option, that is to say, 
the third Fifty Millions of the plan, because there is not sufficient stock at 
the disposal of the directors to make such a contract. All of the other ob- 
jections to the plan as stated in the foregoing opinion slill subsist. In addi- 
tion, if say. One Hundred Millions were to be offered to our stockholders at 
one time the question of the good faith of the offer would be at once raised, 
inasmuch as it couldn't be fairly expected that our stockholders would be in a 
position to take so large a block at once. 
Respectfully, 

Geo. V. LEVERErT, 
Thomas Sherwin, 
Wm. R. Driver. 

[Source: President's file 17614.] 



Exhibit No. 1659-10 
[From flies of Federal Comiuunicatious Coiuinission] 

Febbuaey 15, 1905. 
Messrs. J. P. Morgan & Co., 

^ Broad and Wall Streets, New York City. 

DEijfR Sirs : We find so many practical and technical difficulties In the scheme 

suggested in our conference last Friday, that it will be some time before wv5 shall 

"be in aiposition to take the matter up on its merits. Absolutely no time will be 

lost iji making such investigations as are necessary to a proper consideration 

of the plan. 

I shall hope to call on Mr. Steele some time Friday, to talk with him a few 
minutes about .some of the legal difficulties. 
Very truly yours, 

F. P. Fish, President. 
[Source: Private Letter Book IV.] 



Exhibit No. 165i>-ll 

[From tiles of Federal Comniuiiications Commission] 

(Handwritten:) P. F. File. 6/3/08. A. M. 

United States Senate, 
Washingtmi, Feb. 15, 1905. 
Private 

Dear Mb. Fish : I am beginning to think that we ought to raise the neces.«;ary 
money by the sale of four per cent collateral bonds witlu)ut the conversion clause. 
We surely can find some one who will buy tliem at a reasonable price. The other 
proposition is intricate and uncertain, and might lead to a great deal of trouble. 
I write you about it now, thinking that you might want to intimate to the people 



CONCENTRATION OF ECONOMIC POWER 12133 

in New York that some of your people do not look with favor on their plan, but 
of course do us you think best about this. 

If you wish to talk with me on the telephone you can call me up at the Senate 
any time after 11 o'clock tomorrow or Friday, and at the Arlington Hotel previous 
to that or in the evening. 

Very sincerely yours, 

W. M. Crane. 
Mr. F. P. Fish, 

15 Dcy Street, Nciv York, N. Y. 



Exhibit No. 1059-12 

[From files of Federal Comiiiunieations Commission] 

February 20, 1905. 
John I. Waterbury, Esq., 

Manhattan Trust Company, Wall d Nassau Streets, New York City. 
My Dear Mr. Waterbury : Knowing the deep interest you have in securing an 
arrangement by which our financial matters may be adjusted for a long time, 
I regret to say that the Executive Connnittee has determined that it is not wise 
for us to consider at present the comprehensive scheme of financing submitted to 
us by Messrs. J. P. Morgan & Company and Messrs. Kidder, Peabody & Company 
at our recent interview. I have so notified those two firms. 

There are certain practical and legal difficulties in the way of dealing with 
the matter on broad lines at the present time which may ultimately be elinjinated 
but which now seem to us controlling. 

We are submitting to a number of banking houses which have expressed an 
interest in our securities a memorandum copy of which I enclose. 
Very truly yours, 

F. P. Fish, President. 
(Enclosure) 
[Source: Private Letter Book IV.] 

February 20, 1905. 
Messrs. J. P. Morgan & Co., 

Broad and Wall Streets, New York City. 
Dear Sirs: Our Executive Committee has given careful consideration to the 
proposition which you and your associates made to us a week ago last Saturday 
for the purchase from our Company of certain securities to be issued by it. 

The Committee has decided that at the present time it is not expedient for the 
Company to enter into such a comprehensive -scheme of financing as that sug- 
gested, on the lines proposed. 

Thanking you for the pains you have taken in this matter, I remain. 
Very truly yours, 

F. P. Fish, President. 
[Source: Private Letter Book IV.] 

February 20, 1905. 
George F. Baker, Esq., 
First National Bank, 

4 Wall Street, New York City. 
My dear Mr. Baker: After most careful consideration our Executive Com- 
mittee has determined that we can not take up at present negotiations on the 
lines suggested by Messrs. J. P. Morgan & Company and Messrs. Kidder, Pea- 
body & Company at our recent interview. There are practical. and legal difli- 
culties in the way which seem to us, for a time at least, to be controlling. 

I enclose a copy of a memorandum that we are submitting to a number of 
banking houses wliich have intimated a desire to consider any issue of secu- 
rities that we might make about this time. 

I shall hope to see you in New York at an early date. 
Very truly yours, 

F. P. Fish. 

Presideyif. 
(Enclosure) 
[Source: Private Letter Book IV.] 



12134 CONCENTltATlON OF ECONOMIC: I'OWKK 

ExHiDiT No. 1059-13 
[From files oi' Federal Comuiunicatiou.s Commission] 

Aug. 14, 1905. 

Deae RIb. Winsob: In view of my understanding with my Executive Com- 
mittee that the entire financial question should go over until fall, I am not 
sure that I am at Liberty to go so far into the facts and figures with you as 
you would like, as per your suggestion at the Exchange Club today. At any 
rate, I shall have to bring the question before my Committee. 

You will remember that I said, after my return from California, that I saw 
no reason why you and I should not talk over your general plan or thought on 
the subject (provided we could do so without prejudice or any danger of incur- 
ring the slightest obligation) for such preliminary consideration would make the 
work in the fall, if we take it up, more easy. Dealing with the "facts and fig- 
ures" as you suggest would go far towards instituting negotiations and a possible 
approach to a committal. This, of course, must be avoided. 

If you feel that you can not tell me the general nature of your plan, without 
going into the figures, it seems to me most probable that everything will have 
to go over till fall, as I doubt if my Committee would support me in taking 
action now, which might be inconsistent with our conclusion to do nothuig at 
present. I should have said all this to you this noon but my ihind did not work 
quickly enough. 

Sincerely yours, 

(Signed) F. P. Fish. 
Robert Winsoe, Esq. 

[Source: Private Letter Book IV.] 



ExHiiiiT No. 10.09-14 

[From flies of Federal Communications Commission] 

Wall Steickt, Corneb Nassau, New York, 

November 21st, 1905. 

Deai Mb. Fish : If you will pardon a running comment which occurs to Mr. 
Baker and myself after reading over tlio proposed circular to the stockholders, 
you will, I think, have a better notion as to how we are impressed in our efforts 
to judge of the draft from the point of view of the stockholder, who, after all, is 
the person we desire to reach. 

The statement as to the business and operations of the Company might, we 
think, be followed by the further statement that the companies are gaining in 
those portions of the country in which they have continuously prospered etc. etc., 
omitting any reference to conditions which are generally known to exist. 

This followed by a description of the company's investments and advances, 
and by the statement that in order to meet the continual increasing demands 
for a comprehensive and national service such as only this company can give, 
requires constant development of facilities and further outlay. 

A statement of the present amount of the issued capital upon which divulends 
are paid, and a short table which will show at a glance the outstanding bonds 
and debenture notes of all kinds, including The American Bell Telephone Com- 
pany's bonds. 

The increased requirements of the company have heretofore been met by 
issues of stock or of debentures, or by the issue of debenture notes. 

The development of the company has now reached a stage when the Directors 
believe that the Interests of the stockholders will be best conserved by author- 
izing another form of security that will enable the company to negotiate advan- 
tageously for addiional moneys that are required to meet the enormously in- 
creasing business of the company, so that it may be prepared to meet market 
conditions as they occur, and provide for financing the Company for an ex- 
tended period should It be found practicable to do so. 

The Directors believe that in addition to the right to secure money by the 
further issue of stock and of its four per cent, collateral bonds, they should be 
authorized to negotiate for the issue and sale of convertible bonds as the money 
for the necessary development of the business could probably be obtained at a 
better rate than if the Company was confined to the forms of financing to which 
It has heretofore been limited. 



CONCENTRATION OF ECONOMIC POWER 12135 

While the present financial condition of the Company is sufficient for all it3 
purposes until well into 1906, the Directors nevertheless are of the opinion that 
action should be taken upon the recommendation in order that the stockholders 
may derive every advantage in securing money for the future purposes of the 
Company. 

I trust we have met your request as desired, and tha*^ if we can be of further 
service you will not hesitate to command us. 
Yours faithfully, 

John I. Wateubtibt. 

F. P. Fish, Esq., 

Preset. Amer. Tel. & Tel. Co., Boston, Masn. 

(Enclosure.) 

[Source: President's file 15941.] 



Exhibit No. 1659-15 

[From files of Federal Communications Commission 1 

Kt>ow Aix MEN BY THESE PRESENTS, that the undersigucd, stockholder in the 
American Telephone and Telegraph Company, does hereby coastitute and appoint 
Alexander Cochrane, Nathaniel Thayer, John I. Waterbury and William R. 
Driver, attorneys of the undersigned, with power of substitution to each, for 
and in the name of the undersigned to vote upon all stock of the uudersigned 
in the American Telephone and Telegraph Company at the special meeting of 
the stockholders of said Company to be held on Thursday, the twenty-first day 
of December, 1905, for the purpose of acting upon the question of authorizing 
the issue of convertible bonds, and at any adjournment of said meeting, with 
all the powers the undersigned would possess if personally present. A majority 
of such of said attorneys as shall be present and shall act at the meeting (or 
if only one shall be present and act, then that one) shall have and may exer- 
cise all of the powers of all of said attorneys hereunder. 



Decembee 1905. 



[From files of Federal Communications Commission] 

American Telephone and Telegraph Compant, 

No. 15 Dey Street, New York, March 12, 1901. 
Enclosdd please find notice of the Annual ]VIeeting of the Stockholders of this 
Company. _ 

It is important that your stock be represented at this meeting, in order that 
the presence of a quorum may be ensured. 

A blank form of proxy is enclosed, which, if you cannot be present in person, 
you are requested to sign and send to some one in your confidence for use, or 
to William R. Driver, 125 Milk Street, Boston, if that be more convenient. If 
sent to Mr. Driver, the proper United States Internal Revenue stamp will be 
aflixed and duly cancelled by him. 
A. stamped envelope Is enclosed for use, if you choose to send the proxy here. 

Chaeles Eitstis Hubbabd, Secretary. 
[Subject File No. 012.11. Treas. Dept. A. T. & T. Co., Inv. C. Augat.] 



[Subject File No. 012, Treasury Dept. A. T. & T. Co., Inv. C. Augat.] 

Know all men by these presents, That I, the undersigned Stockholder in 

the American Texephone and Telegraph Company, do hereby appoint 

true and lawful Attorney, with power of substitution, for me and 

in my name to vote at the Annual Meeting of the stockholders in said Company, 
to be held in New York, March 26, 1901, or at any adjournment thereof with 
all the powers I should possess if personally present. 

March , 1901. 



12136 OONCENTUATION OP ECONU.MKJ I'OWEK 

Exhibit No. 1059-16 

tFiom tilcu of American Telephone and Telcgrapli Company] 

Dkcembek G, 1905. 
P. F. 15923 
Pcrsoual 

Charles H. Davis, Esq., 

25 Broad Utrcct, New York City. 

My DiiVK Mu. Davis: Your letter of DecQiiiber 5 comes to hand today. I am 
very glad to hear from you and if you care to call on mo in New YurV. next 
Tuesday at my office 15 Dey Street, I should like to talk the situation over 
with you. 

It does not seem to me w'se at the present time that we should commit 
ourselves to olfering to the stockholders any convertible bonds that may be 
issued, for the market conditions might be sucli that the most desirable trade 
possible for the Company and the stockholders would be o)ie that could not give 
the stockholders the opportunity to subscribe for the bonds. 

My own belief however is that if we ever issue such bonds, the conditions 
are likely to be such that an offer to the stockholders would be wise and 
proper. 

Of course you understand that we have no plans for financing at the present 
time and there are no negotiations whatever looking to the sale or issue of 
such bonds. We simply concluded that it would help the Company very much 
to have this form of financing open to it and therefore the DirectoLs ask for 
tl'.e requisite authority. 
Very truly yours, 

F. P. Fish, President. 

American Teiei'Hone and Tei-EuRAph Company, Special Meeting op 
Stockholuers, December 21, 1905 

Dec. 21, 1905. 

"RrmliKd, That the Directors be and they are hereby antliorized to issue 
from time to time, when and as it may be necessary, for the transaction of 
the business of the Company, or for the exercise of its corporate rights, privi- 
leges, or franchises, or for any other lawful purpose of its incorporation, con- 
vertible bonds of the Company, not exceeding, in the aggregate, one hundred 
and fifty million dollars ( $150,000, (XK)) in such denominations, at yuch rate of 
interest and for such periods of time as they may determine, and tJjoy are 
hereby authorized to confer upon the holders of such bonds the right <^o convert 
the principal thereof, after two and not more than twelve years from the date 
of such bonds, into stock of the corporation at such raie, not- less than par, 
as the Directors may fix, and under such regulations as they may adopt." 



Exhibit No. 1G59-17 

[ Krom tiles of Federal Coininunieations C"oniiiiis.sion] 

December 15, 1905. 
Personal. 

W. L. Putnam, Esq., 

HO State Street, Boston. 
My Dear Mu. Putnam: I trust that we are to have the support of the Lowell 
stock at the special stockholders' meeting in New York. I write this because I 
observe that the proxy has not yet come in. 

The proxies generally are coming in, and the more I think the matter over, 
and the more I hear of the views of those whose opinion is of value, the more 
thoroughly satisfied I am that the Directors should have the power for which 
they ask. 

Very tndy yours, 

F. p. Fish, President. 
[Source: Tresident's Letter Book 41. > 



CONCENTRATION OF ECONOMIC I'OWEK 12137 

December 15, 1905. 
P. F. 15,961 
" 15,988 
George Babciay Moffat, Esq., 

5 Nassau Street, New York City 
My Dear Mr. Mofiat: I regret extremely that I was unable to see you iu 
New York this week, as I intended. I had so much to do that was unexpected 
that I did not have the opportunity to communicate with you. 

I sincerely hope that we are to have your support in getting, at our meeting 
next Thursday, the power to issue convertible bonds. 

The matter has received most careful consideration, and we are all satisfied 
that if this additional authority is given to the Directors it will be to the advan- 
tage of the stockholders and the Company. 

I am not able at this moment to put my hand on the letter from you which 
I received a few days ago, and I should thank you very much if you would 
write me again upon receipt of this, telling me exactly what is your attitude and 
giving me the opportunity of writing you at greater length if you are not 
entirely satisfied to advise those with whoui you come in contact to act affirma- 
tively with reference to the proposition that will come before the meeting. 
Very truly yours, 

F. P. Fish, President. 

(Handwritten.) Gov. Crane is trying to see you this afternoon or tomorrow 
morning to talk the matter over with you. 
[Source: President's Letter Book 41.] 



Mr. Fish: Mr. Driver telephoned from New York just now (11:55 A. M.) to 
say that Marsden J. Perry had not sent in his proxy (8,750 •shares), and that 
Francis A. Cranston, Providence, had withdrawn liis (l,2fK) shares). As this 
last seems to indicate a change of mind you may want to take notice of it. 

G. D. M. 

December 15, 1905. 

[Source: President's file 15947.] 

December 15, 1905. 
P F. 15.947 
Marsuen J. Pi3{RY, Esq., 

Providence, R. I. 

My Dear Mr. Perry: i trust that you are in favor of giving the Directors of 
the Company the power to issue convertible bonds, and that you will either be 
present at the meeting or send us your proxy. 

If you have any doubt as to the advisability of having the Directors in a 
position where they can negotiate for the issue of convertible bonds, I shall be 
glad if you will do me the favor to give me a chance to talk the matter over 
with you. 

Mr. Francis A. Cranston, of Providence, who sent in his proxy, has withdrawn 
it. I should be very sorry if this meant that he disapproved of the plan. 

Perhaps you will take the trouble to call me on the telephone at your 
convenience. 

The proxies are coming in well, and, as far as I can judge, those whose 
opinion I most value believe with me that the Directors should have the power 
to negotiate for the issue of convertible bonds if conditions are favorable to that 
sort of security. 

Very truly yours, 

F. P. Fish, President. 
[Source: President's Letter Book 41.] 



(Stamped:) Received Dec. 19, 1905 A. B. T. Co. 

American Tetji'Hone and Telegraph Company, 
No. 15 Dey Street, New York, N. Y., Dec. 16, 1905. 
Mr. Joseph S. Fay," Jr., 

31 State St., Rm. J,06, Boston, Mass. 
Dear Sir: For the purpose of the special meeting of stockholders called for 
Tlinrsday, December 21st, it is necessary that two thirds of the capital stock 
should act. 

Your proxy has not been received. 
124491— 40— pt. 23 22 



12138 CONCENTRATION OF ECONOMIC POWER 

If the proposition meets your approval, and if you do not expect to be present 
at the meeting, will you kindly execute and return the accompanying proxy? 

As the time is short, I shall be glad if you can find it convenient to give this 
your early attention. (Handwritten:) 5440 Shrs. 
Respectfully yours, 

F. P. Fish, President. 
(Handwritten :) 

Dear Sir: I do not approve of Ihe proposed issue because in the ResolutioL 
of the Directors they fail to state that the bonds shall first be offered to the 
stockholders. I consider this very important so shall not send proxy. 
Yours truly, 

J. S. Fay, Jr. 

(Handwritten:) 15947 Dec. 18, 1005. L. B. 41/372. See L. B. 41/338. 

Marsden J. Perry 

UNION TRUST COMPANY BUIIJ)ING 

PRO^^DBNCE, R. I., Dec^mier 16, 1905. 
Dkar Mk. Fisn: I most heartily endor.se your plan for the issue of convertible 
bonds, and supposed I had executed and .sent my proxy long ago, but on my 
return from New York I find your letter, and the only inference is that I have 
neglected my "plain duty". I, unfortunately, have no influence with Mr. Cran- 
ston, or I would volunteer to see him and attempt to secure his proxy, but there 
are, you know, some men to whom success, even in a moderate degree is an 
offence. 

Faithfully yours, 

Marsden J. Perry. 
One enclosure. 



( Handwritten : ) File 

Office of S^h Low 

30 East 64th Street, New York 

December 18th, 1905. 
Dear Sir: I have received a second copy of the circular of your Company, 
dated November 29th, 1905, and a second request for my proxy, to be used at 
the meeting of the Company to be held on the 21st inst. I am not sending my 
proxy, for the reason that I do not believe in the plan proposed. 
Yours, very truly, 

Seth Low. 
F. B. Fish, Esq., 

rresidcnt of the American Telephone <G Telegraph Co., 

1.5 Dey Street, New York City. 



ExHiniT No. lf;59~18 

[Krom flics of American Telcplione and T(>Io;,'rni)h Company] 

JANUARY 27, 1906. 
p. F. 16078 
William Salomon, Esq., 

Messrs. William Salomon & Co., 25 Broad Street, 'New York. 
My DEi\R Mr. Salomon: I was out of town when your telegram was received. 
Nothing has been done as yet, but the conditions are such that I must be 
very careful in all cases not to give any encouragement to any parties in the 
matter referred to. 

I very much appreciate your continued interest in our financial affairs, and it 
would give me great pleasure to be in a position to utilize your very efficient 
organization and capacity ; but there are innumerable considerations that must 
be taken into account, and it is entirely impossible for me to say what can or 
can not be done. 

Thanking you for your telegram, I remain. 
Very truly yours, 

F. p. Fish, President. 
[Source: President's Letter Book 42.] 



COXOENTRATIOX (iF ]';('()NC)MT(' I'OWEU 12139 

(Handwritten:) 16078. Jan. 30, 1906. LB 42/95. See LB 42/35, 38. 
(Handwritten:) File 6/3/08 A. A. M. 

^^'ILLIAM Salomon & Co. 

BANKERS 

25 Broad Street New York 

Jan. 29, 1900. 

Mr. F. P. Fish, 

President, American Telephone & Telegrafih Co., Boston. 

De.\r Sib: I beg to confirm telegrams exchanged between us and receipt 
this morning of your land letter of January 27th, for which accept my best 
thanks. 

I shall be much obliged if you will let me know whether you are going to be 
in New York within the next few days, so that I might have an interview with 
you ; or if you are not going to be here, whether you would permit me to send 
one of my partners to Boston to have a talk with you in respect to the matter 
referred to. 

I understand from your telegram and letter that the matter is still open, 
and I would like to learn whether it may be possible to allow me to make for 
myself, associated with a satisfactory group, a competitive offer. Your policy 
has always been that of allowing competitive tenders to be made and I do 
not understand from your letter that it is your intention to follow a different 
policy in this instance. 

I am 

Yours truly, 

W. SAT.0MON. 

S. B. 

January 30, 1900. 
P. F. 16078 
WirxiAM Salomon, Esq., 

Messrs. William Salomon & Co., 25 Broad Street, New York. 

My Dear Mr. Salomon : Your letter of January 29 comes to hand this morning. 

I shall be in New York early next week — probably Tuesday — and should 
of course be glad to see you, or any representative of yours at any time. 

As you assume, the matter is still open, but I am not at present in a position 
to state whether or not we shall be in a position to allow competitive tenders, 
as has been the case heretofore. 

In former years I should have given the same answer up to the time when 
our poli^-y was determined for the particular case, for I am satisfied that each 
time you must deal with the existing situation on its merits. 

While, therefore, I should be very glad to talk the matter over with your 
representative, I should feel bound to refrain from committing myself in the 
slightest degree to aiiy policy, until the time comes for action, when I shall be 
forced to adopt and adhere to some definite position. 

I greatly appreciate your willingness to participate in our financial arrange- 
ments, and it would give me great pleasure to deal with your firm if matters 
took such a turn as to make it possible so to do. You undoubtedly recognize 
the complexities of my position, and I trust that you understand that all that I 
am saying is said in the most friendly spirit, but in view of the necessities of our 
business situation. 

Very truly yours, 

F. P. Fisn, Prcsideni 

[Source: I'l-csidcnCs I^etter Book -12.] 

Exhibit No. 1059-19 

[From files of Amorioan Telephone .'ind Telogiapli Company] 

December 10, 1905. 
P. F. 15922 
Edgab Speyeb, Esq., 

Lothhury, London, England. 
My Dear Mb. Speyer : I was very glad to receive your cablegram and to 
know that you are of the same mind as when I had the pleasure of talking 
with you last September. 



12140 CONCENTRATION OP ECONOMIC POWER 

Nothing can be or will bo dono in the way of financing, at any rate for a few 
weeks. I should l)e only too glad if, when the time came, it were possible to 
take the matter up on exactly the lines referred to in your cablegram. You 
will understand, however, that it may not be in our power to do this. 

Meanwhile, nothing is being done, and the whole question is open for such 
aetion as shall seem best and most expedient. 

Thanking you for communicating with me on the subject, I remain, 
Very truly yours, 

F. P. Fish, President. 



(Handwritten:) P. F. File. 0/3/08. A. A. M. 

Washington, D. C, 

January 27, JD06. 
Personal. 

Mr. F. P. Fish, 

J25 Milk Street, Boston. 
Dear Mr. Fish : — Mr. Storrow called on me at the hotel last evening. From 
what he said I judged that he and his friends would be quite well satisfied 
with a two-thirds interest in the proposed syndicate providing Mr. Morgan 
would withdraw his objections to Mr. Speyer. I presume that he will \make 
this known to you when he sees you. That being the case, Mr. Winsor ought to 
be able to induce Mr. Morgan to withdraw his objections. I will call you on 
the telephone Tuesday. 
Sincerely yours, 

W. M. Crane. 



(Handwritten:) File. 6/3/08. A. A. M. 

S-Mc 

Lee, Higginson & Company, 
J/J, State Street, Boston, Fehriiarij 1, 1906. 
Fredbhiick p. Fish, Esq., 

President, American Telephone d Telegraph Co., 

119 Milk Street, Boston, Mass. 
Deak Sir : In order that there may be no misunderstanding about our posi- 
tion, I beg to say that, representing a syndicate formed by Messrs. Speyer & Co. 
of New York and ourselves, we would be glad to have an opportunity to bid on 
svich new securities as the Telephone Company may contemplate issuing. 

At present, we do not know sufficient details as to the character of the securi- 
ties and the amount to be issued, to formulate an offer. 

If the Company should desire us to consider the characteristics to be given 
the new securities, and to advise the Company as to our opinion, either with 
or without a bid, we shall be glad to do this. 

If we should purchase an issue of securities from you, we should make an 
especial effort to interest European investors ; and perhaps it may be of inter 
est to you to know that we should have directly associated with us, and pre- 
pared to join with us in offering the s<>curities abroad, among others, the follow- 
ing banking interests : 

England (London) : Speyer Brothers. 
Holland (Amsterdam) : Teixeira de Mattos Brothers. 
North Germany (Berlin) : Deutsche Bank. 

South Germany (Frankfort-on-Main) : Lazard Speyer-Ellissen. 
We are ready to make an offer for these securities on short notice, if we 
are put in a position by the Company to do so. 
Very truly yours, 

Lee. Higginson & Co. 



Exhibit No. 1659-20 

This agreement, made this 8th day of February, 1006, between the American 
Telephone and Telegraph Company, a corporation of the State of New York 



COXCENTIIATION OF ECONOMIC POWER 1214t 

(hereiniifter calk-d the Cuinpuuy), party of the first part, and J. P. Morgan & 
Company, Kuhn, Loeb & Company, Kidder, Peabody & Company and Baring 
Brothers & Company, Limited, (hereinafter called the Bankers), of the second 
part, 

WITNESSETH : 

The Company is about to make an issue of bonds amounting to one hundred 
and fifty millions dollars, dated March 1, 1906, payable to bearer, or if rej:is- 
tered to the registered holder at the office or agency of the Company in New 
York, New York, or Boston, Massachusetts, in gold coin of the United States 
of America, of the present standard of weight and fineness, on the first day 
of March, 1936, with interest at the rate of four per centum per annum, 
payable at either of the offices or agencies aforesaid in like gold coin, semi- 
annually on the first days of March and September in each year, to the holders 
of the coupons thereto annexed, on presentation and surrender thereof; which 
bonds aie to be convertible at the option of the holder into common stock of 
the Company at any time after three years and within twelve years from the 
date thereof at the rate of one share of stock for $140 of the principal of 
such bonds under suitable conditions. The bonds are to contain a provision 
that in case the Company shall at any time before the expiration of the period 
of convertibility issue, sell or permit to be sold, any stock in addition to the 
present stock outstanding in the hands of the public (amounting to $131,r>.'51,400) 
except in exchange for convertible bonds, the rate of conversion thereafter 
shall be determined by adding to the sum representing the value of said 
$131,551,400 of stock at $140. per share, the sums actually received in cash 
for all such additional stock issued or sold, not including stock issued for 
convertible bonds, and dividing the aggregate of such sums by the said 1,315,514 
shares of present outstanding common stock, increased by the number of shares 
of such additional stock issued or sold, exclusive of the stock issued for con- 
vertible bonds. Both principal and interest of said bonds shall be payable 
without deduction for any tax or taxes which may be imposed by the laws of 
the United States of America, or of any State, county or municipality therein, 
and which the Company may be required to pay or deduct therefi'om. 

They are to contain a further provision that they may be redeemable by 
the Company at any time after eight years from ^he date thereof at 105 
per cent, and accrued interest, on giving notice of such intention to redeem 
by publication thereof for twelve weeks in two newspapers of the City of New 
York and the City of Boston, Massachu.setts, and also in London, and, if 
requested by the Bankers, in two Continental centres. They shall be redeem- 
able in whole, or from time to time in part, and if in part the bonds to be 
redeemed shall be drawn by lot in the usual manner. 

Whenever such right to redeem shall be exercised the holder of the bonds 
to be redeemed shall have the privilege of converting the same in accordance 
with the terms of the bonds at any time (not later than March 1, 1918) up to 
thirty days before the day of redemption. 

The bonds are to contain a provision for the registration of the principal 
thereof, in New Y''ork City and Boston, Massachusetts, and for the certifi- 
cation thereof, by some Trust Company ; and a provision relieving the officers, 
directors and stockholders of the Company from any liability of any kind 
with respect thereto. 

It is therefore agreed by and between the parties hereto as follows: 

First. The Company agrees to sell to the Bankers, and the Bankers agree 
to purchase from the Company, One hundred million dollars of such issue at 
the price of 95 and accrued interest ; less a commission of 2V2 per cent, on 
the par value of said bonds, said bonds to be taken and paid for as follows : 

Bonds of the par value of $10,000,000 on each of the following dates: April 
15th, 1906, July 15th, 1906, October 15th. 1906. January 15th, 1907; bonds of 
the par value of $30,000,000 on A'tII 15th, liX)7 ; and bonds of the par value 
of $10,000,000 on the followinr dates; July 15th, 1907, October 15th, 1907. Janu- 
ary 15th, 1908. 

The Bankers are to have the right to demand the delivery of said $100,- 
000,000 of bonds in any sums prior to the date or dates so specified, on paying 
therefor the purchase price. 

If the engraving and printing of said bonds shall not have been completed 
before the day of delivery, receipts shall be issued therefor as a temporary 
substitute. 

Second. In consideration of said agreement of purchase, the Bankers shall 
have the option to purchase the balance of said issue, amounting to $50,000,000, 



12142 CONCENTltATlON OF ECONOMIC I'OWEll 

until October 1st, 1908, at 98'/; and accrued interest, less a commission of 2Vj 
per cent, upon the par value of the bonds, but in the event of the exercise of 
such option prior to January 2nd, 1908, the said bonds shall not be delivered 
until that day. 

Thikd. The Company shall not issue any unsecured bonds or notes in addi- 
tion to .said issue of convertible bonds (except obligations payable in less 
than one year and to an aggregate amount not exceeding $10,000,000), unless 
there be paid into the treasury of the Company additional money from the 
sale of stock, in which case the Company may issue additional unsecured 
bonds or notes to an amount equal to the money so paid into the treasury 
of the Company. This provision shall be included iii the bonds if the Bankers 
so elect. 

FouETH. If the Company shall hereafter execute any mortgage on its prop- 
erty and franchise, or any new collateral trust indenture covering collateral 
now owned by the Company or acquired with the proceeds of said bonds, it shall 
provide for the security of the convertible bonds herein provided for on equal 
terms with any other obligations secured thereby; but this shall not prevent the 
issue of collateral trust four per cent, bonds, under the present indenture secur- 
ing them, to the amount now permitted thereby in view of the amount of 
collateral already deposited. 

Fifth. If at any time ninety-five per cent, of said bonds shall have been 
redeemed or converted, the restrictions of the two preceding paragraphs of this 
agreement shall cease to be operative. 

Sixth. The liability hereunder of each of said four firms of bankers shall 
be limited to one-third of the aggregate obligations of the Bankers. 

Seventh. The said bonds and the trust indenture, as to their form and 
legality, shall be subject to the approval of tlie counsel of the respective parties. 
Dated, February 8th, 190G. 

American Telephone & Telegraph Company, 
By F. P. Fish, President. 
J. P. Morgan <& Co. 
KuHN, Loeb & Co. 
Kidder Peabody &. Co. 
Baring Brothers & Co., Ltd. 
by Kidder Peabody & Co. 



February 13, 1906. 
Messrs : J. P. Morgan & Company, 
KuHN, LoED & Company, 
Kidder, Peabody & Company, 
Baeing Brothers & Company, Limited. 
Gentlemen: Referring to the agreement dated February 8, 190G, between 
this Company and yourselves, touching the i.ssue by this Company of Thirty- 
Year Convertible Four Per Cent Gold Bonds, dated March 1, 1906, and amounting 
to $150,000,000, I understand that you have agreed that article Third of said 
agreement shall be modified to read as follows : 

"Third, During the term of said bonds the Company shall not have out- 
standing at any one time unsecured bonds or notes in excess of $150,000,000 
(except obligations payable in less thr.n one year and to an aggregate amount 
not exceeding $10,000,000), unless there be paid into the treasury of the Com- 
pany additional money from the sale of stock, in which case the Company may 
is.sue additional unsecured bonds or notes to an amount equal to the money so 
paid into the treasury of the Company. This provision shall be included in the 
bonds, if the Bankers so elect." 

Will you kindly write me a letter confirming your agreement. 
Very truly yours, 

F. p. Fish, President. 

New York, Feb. 13, 1906. 
The American Telephone & Telegraph Company. 

Dear Sirs : Referring to your favor of even date herewith, we accept the 
modification therein pioposed of our contract of February Sth, 1906, so that 
Paragraph Third of said contract shall read as follows: 

"During the term of said bonds the Company shall not have outstanding at 
any time unsecured bonds or notes in excess of $150,000,000 (except obligations 



CONCENTllATION OF K(X)NO]\IIC POWEIJ 12143 

payable in less than one year and to an aggregate amount not exceeding 
,$l(MltlO,()(l(l), miloss there I)e paid into tlie tieasury vf 1Iie ("(inipany additional 
jiioncy ti(!ni the sale ol' stock, in wliich case (he Company may issue additional 
unsecured houds or notes to an amount c<iual to the money so paid into the 
treasury of the Company. 

"This provision shall be included in the bonds if the Bankers so elect." 
Yours truly, 

J. I'. MoiiGAN & Co., 

KUIIN, IX)EI! & Co., 

Ivinnicii, Peabouy & Co., 

I'.AKING lIUOTHKliS & C(»., Ivi'l)., 

P.y Kiunraj, Peabody & Co. 



ExHiniT No. 1(m!)-21 

AMEiiicAN Telephone & TexegRxVpu Company — Conveiitible I'.onus Syndicate 

Referring to the Agreement between the undersigned and the American 
Telephone &. Telegraph Company, dated February Sth, 1900, providing for the 
purchase from that Company of $100,000,000 face value of Four per cent. Con- 
vertible Gold Bonds and for an option upon $.50,000,000 additional of such 
bonds, it is agreed between the undersigned that the business under said agree- 
nient is divided in the following proportions: 

J. P. Morgan & Co., Twenty-five (2.5) per cent. 

J. S. Morgan & Co., Five (5) per cent. 

Kuhn, Loeb & Co., Twenty-two and one-half (22'/;) pier cent. 

Kidder, Peabody & Co., Twenty-five (2.5) per cent. 

Baring Brothers & Co., Limited, Twenty-two and one-half (22i/.) per cent. 

Dated, New York, February 14, 190G. 

J. P. Morgan & Co., 
Kuhn, Loeb & Co., 
Kii)ni;K, Pkabouy & Co., 
Baking Bkotheks & Co., Tyr'n., 
By KiDDEit, Peabooy & Co., Ally's in fad. 

(ITandwritten :) Accepted. J. S. Morgan iV: Co. 



Exhibit No. lG.50-22 

[From files of Federal Communications Commission] 

Appendix 10 

American Telephone & Telegraph Company Convertible Four Per Cent Gotj) 
Bonds Syndicate Agreement February 15, 1906. 

J. P. Morgan & Co., Kuhn, Loeb & Co., New York ; Kidder, Peabody & Co., Boston ; 
Baring Brothers & Company (Limited), London. 

Agbe3:ment, made the fifteenth day of February, 1906, by and between J. P. 
Morgan & Company, Kuhn, Loeb & Company, Kidder, Peabody & Company and 
BAraNG Brothers & Company, Limited (hereinafter collectively called the "Bank- 
ers"), parties of the first part, and the subscribers hereto (hereinafter called, 
severally, "Subscribers," and, collectively, the "Syndicate"), parties of the second 
part : 

Whereas, The American Telephone & Telegraph Company (hereinafter called 
the "Company") has made with the Bankers an agreement, whereby, among 
other things, the Company is to sell, and the Bankers are to purchase, upon the 
terms, in said agreement provided, one hundred million dollars ($100,000,0001 
face value of Convertible Four Per Cent. Gold Bonds of the Company of the issuB 
described in the statement of the Company, dated February 12, 1906, of which ^ 
copy is annexed hereto ; and 

Whereas, the Subscribers desire to form a syndicate to purchase said bonds 
from the Bankers at 94^4 per cent, of their face value together with accrued 



12144 CONCENTRATION OF ECONOMIC TOWER 

interest, said bonds to be paid for on the following dates, with the right to antici- 
pate any of the payments, viz. : 

$10,000,000 bonds on April 5, 1906, 

$10,000,000 " " July 5, 1906, 

$10,000,000 " " October 5, 190G, 

$10,000,000 " " January 5, 1907, 

$30,000,000 " " April 5, 1907, 

$10,000,000 " " July 5, 1907, 

$10,000,000 " " October 5, 1907, 

$10,000,000 " " January 5, 1908. 

Now, THEREFORE, in Consideration of the premises and of their mutual promises, 
the parties hereto agree and the Subscribers severally agree, each with the others, 
and with the Bankers, as follows : 

I. Each Subscriber shall indicate in his sub.^cription hereto the total amount 
face value of convertible bonds for the purchase of which he is or shall be bound 
on account of the maximum Syndicate obligation to purchase $100,000,000 face 
value of convertible bonds at 94i/^ per cent, of their face value and accrued inter- 
est ; and, to the extent of the purchase price of the bonds so indicated in his 
subscription, each Subscriber will make to the Bankers cash payment for the 
purposes herein indicated, when and as called for by the Bankers, without ref- 
erence to the receipt or the possession by the Bankers or by the Subscribers of 
any of the said convertible bond.s. The several Subscribers shall be called upon 
to make payments of cash, in respect of their several subscriptions, only ratably 
according to the several amounts thereof, but to the full extent of his own under- 
taking each Subscriber shall be so responsible regardless of performance or non- 
performance by any other Subscriber. In the same proportion each Subscriber 
shall be entitled to share in the benefits, and shall bear any loss, resulting to the 
Syndicate under this agreement, exceiJt as otherwise herein provided. Notliing 
in this agreement contained shall constitute the parties hereto partners, or shall 
render any of the Subscribers liable to contribute more than the amount of his 
subscription. Originals hereof shall be signed by the Bankers and retained by 
them, but counterparts may be signed by the Subscribers, and all shall be taken 
and deemed one original instrument. 

II. In the same manner as other Subscribers, the Bankers may severally 
become Subscribers hereto ; and, as such Subscribers, they shall be liable for all 
subscriptions by them made, and in all respects entitled to the same rights and 
benefits as any other Subscriber. The Bankers may severally purchase or be 
interested in the purchase of any of the convertible bonds herein mentionetl, 
and may deal with the Syndicate in the same manner as other persons. Any 
Subscriber hereto may, on his own account, make any agreement with any other 
Subscriber or with any other person, syndicate or corporation. This agree- 
ment shall bind and benefit ratably, not only the parties hereto, but their 
respective successors, survivors, assigns, executors and administrators. All 
rights and powers of J. P. Morgan & Co., of Kuhn, Loeb &. Co. and of Kidder, 
Pealiody & Co. hereunder shall vest in the copartnership firms now bearing 
those names, respectively, and in tlie successors thereof as from time to time 
constituted, without further act or assignment. Any of said Bankers may 
delegate any of their powers and authority under this agreement to any of the 
other Bankers. Nothing herein contained shall be construed as creating any 
trust or obligation whatsoever in favor of any person or corporation other 
than the Subscribers, nor any obligation in favor of the Subscribers except 
as herein expressly provided. The term "convertible bonds" whensoever herein 
used shall be deemed to include receipts or certificates issued for payments on 
account of the purchase price of such bonds. 

III. Each Subscriber in his subscription hereto shall give an address, to which 
notices, calls or other communications may be sent ; and any notice, call or other 
communication addressed to any Subscriber at the address so given, and either 
left at such address or mailed, shall be deemed actually given to such Sub- 
scriber, and shall be sufficient for all the purposes hereof. If any Subscriber 
shall fail so to furnish his address to the Bankers, he shall not be entitled to 
any notice of calls, or any other notice hereunder, and he shall be deemeii to 
assent to any action of the Bankers. The Bankers may issue to the several 
Subscribers receipts in respect of payments made herciuider, of such tenor 
and form as they may deem suitable. Such receipts, and all rights and obli- 



CONCENTRATION OF ECONOMIC POWER 12145 

gations hereunder of the respective Subscribers may be made transferable in 
such manner and on such terms and conditions as tlie Banljers may prescribe; 
but no transfer liereunder shall be valid unless assented to in writing by the 
Bankers, and, unless otherwise expressly provided in such assent, tlie transferor 
shall continue liable for the payment of the unpaid part of the transferred 
subscription until the same shall be fully paid. 

IV. The Banliers, in their discretion, may release any Subscriber. In case 
any Subscriber shall fail to perform any of his undertakings hereunder, or 
shall be released by the Bankers, other Subscribers may be received to take 
the share of the Subscriber so failing to perform his undertakings or so released. 
In case of the failure of any Subscriber or his transferee to perform any of 
his undertakings hereunder as r.nd when called for by them, the Bankers, on 
behalf of themselves and of the Syndicate shall have, and at their sole and 
exclusive option may exercise, the right to exclude such Subscriber or his trans- 
feree from all interest in or under the Syndicate ; and, in their discretion, 
without any proceedings either at law or in equity, in such manner and on 
such terms as they shall deem expedient, they may, for the benefit of the 
Syndicate, dispose of such participation hereunder or of any interest or right 
of such Subscriber or of his transferee hereunder, and thereupon all interest' 
and right of such defaulting Subscriber or his transferee hereunder shall cease 
and determine. At any public sale hereunder of any interest or right of any 
Subscriber or his transferee, the Bankers, or any party hereto, may purchase 
the same for their or his own benefit, without accountability; but notwith- 
standing any sale, \Yhether public or private, the defaulting Subscriber shall 
be responsible to the Bankers for the benefit of the Syndicate for all damages 
resulting from any such failure on his part, not exceeding the amount unpaid 
on his subscription hereto with lawful interest. 

V. The Bankers shall have full power, in their discretion, from time to time, 
to make with the Company any additional agreements, relating to the pur- 
chase and sale of the convertible bonds herein mentioned, as, in the exercise of 
their unlimited discretion, they may deem expedient, and also, from time to 
time, to modify and perform said agreement with the Company and any other 
agreements they may make with the Company hereunder, as they may deem 
expedient. The Bankers shall be under no responsibility in respect of the form 
or validity of the convertible bonds or of any receipts or certificates, nor for 
the delivery of bonds by the Company in exchange for any receipts or certificates 
which may be issued for payments on account of the purchase of bonds, nor 
for the performance of any agreement contained in any such receipts or cer- 
tificates. 

VI. The Bankers shall have authority, from time to time and at any time, to 
incur such expenses as they may deem proper in carrying out, or in endeavor- 
ing to carry out, this agreement, or in connection with the preparation, execu- 
tion or examination of the securities which may be the subject of this agree- 
ment, or in doing any act or thing which they may deem to be in the interest 
of the Syndicate, and all such expenses shall constitute and shall be a prior 
charge in their favor upon any and all moneys and bonds, by them received 
or held hereunder. Any and all moneys by them received hereunder shall be 
held by them as Bankers in general account. They shall also have power and 
authority finally to fix and to pay all compensations of depositaries, brokers, 
agents and counsel, or others; and in the expense account may be included 
brokers' commissions to the Bankers or any of them on sales or purchases of 
bonds at the rate usually paid. 

VII. The Backers shall have full power, as in the exerci.se of their unre- 
stricted discretion they shall deem to be for the best interests of the S.vndicate, 
from time to time, during the life of the Syndicate, in such manner, upon such 
terms and for such prices as they shall deem expedient, to sell and dispose of 
any and all bonds that may be subject to this agreement. In case of any such 
sale the proceeds thereof shall become and be subject to this agreement ; and, 
as managed, used and finally distributed by the Bankers under the provisions 
of this agreement, the same shall be accepted by the Syndicate in full and final 
discharge of any and all obligation and liability of the Bankers hereuiider. 
During the life of the Syndicate the Bankers, in such manner, at such prices, 
on such terms and in such amounts as they may deem expedient, shall have 
power, for account of the Syndicate, to make purchases of the convertible bonds 
or receipts or certificates representing bonds or rights which may be accorded 



12146 CONCKNTRATION OP ECONOMIC POWER 

to stockholders to subscribe for bonds, and they may resell any such bonds, 
receipts, certificates or rights which they may have purchased; and, in their 
discretion, they may make any further undertakings of any kind with any 
persons concerning any such bonds, receipts, certificates or rights. They may 
apply towards any suc