Business: Dear Jesse: . . . Dear Mr. Vanderbilt: . . .

New York Central R. R. has a problem. It owes $63,000.000 to a group of ten big banks headed by J. P. Morgan & Co. and George Fisher Baker’s First National. It owes another $27.000.000 to RFC. Even on Central’s billion-dollar balance sheet $90,000,000 of bank and RFC loans is an ominous item. The money was borrowed in the depths of Depression when Central was draining its cash into its huge development program on Manhattan’s West Side.

Its creditors were never really worried about getting their money back, though deficits have been a Central rule since 1932. The problem is the carrier’s, not its creditors’. But a possible solution developed hot correspondence between hard-hitting Jesse Holman Jones, RFChairman, and hard-hitting Harold Stirling (“Mike”) Vanderbilt, executive committee chairman of New York Central R. R.

The fact that Mr. Vanderbilt’s bankers could demand payment at any moment is what bothers Mr. Jones. It does not bother Mr. Vanderbilt so much because he knows his bankers have no intention of calling their loans. Indeed, with money-lending what it is today, the bankers are only too glad to accommodate him. Behind his much-publicized, diligent playing with yachts and bridge hands, Mr. Vanderbilt is a quiet-loving, diligent businessman who applies his able mind to the affairs of his clan’s biggest heritage, the New York Central Lines. Each winter business day he conscientiously posts himself at his executive desk in a gilt-topped tower straddling Park Avenue. And while Mr. Jones worries about Mr. Vanderbilt’s problems, Mr. Vanderbilt occasionally worries about Mr. Jones.

Having twice been rebuffed on a suggestion that the bankers make their loans payable at some definite date five or ten years in the future, Mr. Jones advanced another solution last summer. To replace the $90,000,000 of short-term debt, he urged that Mr. Vanderbilt issue $90,000,000 of bonds paying 4% interest. Mr. Jones was willing to buy $45,000.000 of those bonds, which would cancel Central’s debt toRFC and leave$18,000,000 to apply on Mr. Vanderbilt’s debts to the bankers.

Mr. Jones knew perfectly well that the public would never buy new 4% Central bonds when they could pick up old Central issues in the open market that would yield them 4¾%. So he proposed to sweeten the new bonds with the privilege of converting them into Central common stock at $25 per share. Since Central stock once sold above $200 per share, this conversion feature was calculated to give the bonds a pleasant speculative flavor.

To this feature Mr. Vanderbilt objected strenuously, arguing that it was too high a price to pay for having his problem solved. If all the bonds were converted, it would add 3,600,000 shares to his capitalization, nearly a 50% dilution of stockholders’ equity.

Banker Jackson Eli Reynolds of First National and Morgan Partner George Whitney had a more immediate objection: they thought that with the current low estate of rails they would have a pauper’s hard time selling a 4% Central bond, conversion feature or no. Moreover, by selling the bonds as Mr. Jones suggested, they hinted that he was tricking them into “an underwriting . . . forbidden by [New Deal] law.” And, listing all the other objections they could think of, together with a counterproposal (put both bank and RFC loans on a six-month-notice basis), Messrs. Reynolds & Whitney wrote Mr. Vanderbilt, who forwarded the letter to Mr. Jones with a covering note. Mr. Vanderbilt began cajolingly: “Dear Jesse:

“. . . candidly, and I know you will forgive me for being frank, I cannot see what useful purpose is served by the publication of interviews. … I feel that repeated public reference to financial plans which cannot presently succeed is distinctly harmful to our company and might militate somewhat against the eventual successful culmination of some such issue. It would seem that our creditor banks also have such a thought in mind “Sincerely yours. . . .”

This sort of letter put no tenderness in Mr. Jones’s heart, no amenities on his tongue. Sternly he dictated: “Dear Mr. Vanderbilt:

“… I appreciate that some bankers and corporate officials do not like publicity. . . . One very good way to avoid further publicity of this character would be to put your finances in order. “I certainly have no desire to annoy you or your bankers, but would be derelict in my duty if I did not do what I could to assist in correcting what I know to be an unhealthy situation. . . .” And, most tartly: “If Messrs. Reynolds and Whitney would try half as hard to effect such a program as I have suggested, as they do in advancing reasons why it cannot be done, your financing problems would be solved.

“Very truly yours. . . .” Despite his sternness, “Dear Jesse” extended for two months $15,600.000 of “Dear Mr. Vanderbilt’s” RFC note falling due last week. But he also had an afterthought: “Dear Mr. Vanderbilt:

“The Reynolds-Whitney letter . . . imputed to me a proposal that the banks violate the law-which is not true; assuming to themselves more scrupulous ethics. In order that there may be no possible misunderstanding … I am releasing the correspondence.”