Business: New Haven Down

A year ago Howard Shirley Palmer walked in through the accounting office to the presidency of New York, New Haven & Hartford R. R. when big, bluff John Jeremiah Pelley walked out to become special Washington pleader for the Association of American Railroads. Last week dry, quiet, abstemious President Palmer, whose father is still the Maine Central station agent at East Sumner, Me., dragged himself from a gloomy directors meeting in Manhattan’s Grand Central Terminal to perform the saddest duty that ever devolves upon a railroad man. He announced that the New Haven could not meet its obligations, was filing a reorganization petition under the Bankruptcy Act. Mr. Palmer’s announcement was hardly a surprise. Indeed, the stockmarket was so resigned to the huge collapse last week that shares of other carriers actually rose after the bad news was out. Alone in their decline were New Haven bonds, which dipped to 25¢ on the dollar, and New Haven stock which sold at an all-time low of $2.62½.

Immediate cause of New Haven’s troubles was refusal of the Interstate Commerce Commission to approve a $5,000,000 RFC loan, which the road needed largely to pay taxes. Terming New Haven’s estimates of next year’s revenues “optimistic,” the Commission was unable to certify, as it must do by law, that the road had reasonable expectations of meeting its fixed charges without financial reorganization. It was the first time that the I. C. C. had ever blocked an RFC loan to a major carrier.

In announcing the filing of his petition next day President Palmer dolefully remarked: “Fixed charges and guarantees in 1935 will total $19,600,000, approximately the same as the year 1929 . . . notwithstanding that gross revenues will be $70,000,000 which is less than half of the gross revenues in 1929. . . . Practically all of the company’s available collateral was taken by the Government in 1934 as security for loans obtained at that time. . . . Although during the past two weeks gross revenues show a substantial increase over the same period of last year, there is no assurance that this marked upturn is of a permanent nature. . . . The New Haven is faced with a possible substantial reduction in passenger fares: a large increase in pension payments; increase in taxes due to the Social Security Act; a substantial increase in its coal bill due to the Guffey Act. . . .” New Haven stems back to a 75-mi. line built in 1833 between New Haven and Springfield, Mass. Completion of New York & New Haven R. R. eleven years later provided through service from Manhattan to Boston but the two roads were operated separately until their consolidation in 1872 as the present New Haven. By the century’s turn the road had virtually rounded out its present 2,000-mi. system, criss-crossing rich, industrial southern New England like the lines on a man’s palm. It served, and still serves, the most densely-populated territory of any prime U. S. railroad. For 40 years New Haven paid uninterrupted dividends, never less than $7.50 per share annually, usually more. Its stock, sometimes selling above $250 per share, was a fiduciary favorite for widows & orphans, and the system was rated the strongest in the East. Then J. P. Morgan Sr. made the mistake of picking as New Haven’s head the late Charles Sanger Mellen, a gentleman who has been described as “glacial in human contacts, dictatorial to his subordinates, and subservient to his superiors.” Mr. Mellen and his bankers converted New Haven from a prosperous railroad into a shaky monopoly of all forms of transport in its territory. It bought street car lines, rapid transit lines, shipping lines. It bought into nearby railroads like Boston & Maine, Rutland and New York, Ontario & Western. One of its worst buys was New York, Westchester & Boston, an electric commuting line between Port Chester, N. Y. and The Bronx. Since 1928 alone Westchester has rolled up a total loss of $17,000,000 but New Haven has not been able to throw it into receivership because it guaranteed Westchester’s bonds.

By the summer of 1914 when the War crowded it off the front page, the New Haven scandal was the news of the day. Earnings had dwindled, maintenance had been neglected, and to the horror of investors, dividends had stopped. A series of ghastly wrecks had paved the way for a series of investigations. In its findings the Interstate Commerce Commission spiked the Mellen management as “one of the most glaring instances of maladministration revealed in all the history of American railroading.”

Anti-trust suits resulted in a dissolution decree, ordering New Haven to disgorge its non-railroad possessions. Some of the properties like Eastern Steamship Lines were sold but New Haven still owns the Fall River Line and innumerable trolley and bus systems. Fact was, New Haven could not gracefully disgorge because it had guaranteed millions of dollars of bonds of nonprofitable non-railroad subsidiaries which have hobbled it ever since.

Under subsequent managements New Haven gradually recovered until dividends were resumed once more in 1928, only to be stopped again in 1931. Throughout the Depression it was widely believed that Pennsylvania R. R., which controls about 17% of New Haven stock, would support its New England connection on a final showdown. Last week, however, Pennsylvania made no gesture of rescue.