The Relation of Trust Companies to Industrial Combinations, as Illustrated by the United States Shipbuilding Company

By L. Walter Sammis, Esq., Editorial Staff New York "Sun”

THE RELATION OF TRUST COMPANIES TO INDUSTRIAL COMBINATIONS, AS ILLUSTRATED BY THE UNITED STATES SHIPBUILDING COMPANY

By L. WALTER SAMMIS, ESQ.

Editorial Staff New York Sun.1

The industrial combinations of to-day are not the simple result of business conditions; neither are they, as they actually exist, the simon-pure offspring of economic principles. Trusts are made, not born. They are in part creatures of invention which find their origin in the brain of the promoter whose inventive faculties are stimulated by the desire for unearned wealth. "Necessity is the mother of invention," even as applied to the invention of a trust, but the necessity in this case is not a necessity created by economic laws, but the necessity of the promoter.

Trust companies and similar institutions sometimes bear the same relation to industrial combinations as manufacturers do to the product of the mechanical or scientific inventor's brain. They produce it, place it on the market, and find purchasers for it, compensating themselves, by getting the largest obtainable profit for the least possible risk or responsibility.

Through the protracted legal proceedings against the United States Shipbuilding Company, the public has had an opportunity to observe the methods by which an industrial combination was actually financed.

My purpose is to produce a photograph of how it was done, not a thesis on how it should be done.

I deal with this topic in my personal capacity, and not in any sense as representing any other body or bodies of men, and without reflecting the views of any one else.

It is my good fortune to be a member of the editorial staff of the New York Sun, but it must be distinctly understood that neither the substance nor the language of this article has been submitted to any of my associates, nor is the New York Sun in anywise responsible for my statements.

It is important that my position shall be clearly understood as to combinations of capital, commonly called trusts, and also as to trust companies," both actual and nominal.

Whatever may be said in this article with reference to the morale of the Shipbuilding Trust must not be understood as defining, or even reflecting my attitude towards all combinations. I do not take the position that the combination movement in itself is bad, nor that all combinations are evil-producing in their results; and it is too palpable to require affirmation, not only that trust companies were originally fiduciary institutions, but also that many of them remain so, in the true sense of the word, to-day.

The United States Shipbuilding Company was incorporated under the laws of the State of New Jersey, by dummies furnished for the occasion, on June 17, 1902, with a subscribed capital of $3,000. On July 3d following, the capitalization was, on paper, increased to $45,000,000 in stock and $26,000,000 of bonds. On the 11th and 12th of August the United States Shipbuilding Company purchased the Union Iron Works, the Bath Iron Works, Limited, The Hyde Windlass Company, The Crescent Shipyard Company, The Samuel L. Moore & Sons Company, The Eastern Shipbuilding Company, The Harlan & Hollingsworth Company, The Canda Manufacturing Company and the capital stock of the Bethlehem Steel Company, paying for them $6,000,000 in cash, $14,050,000 of bonds and $28,000,000 of stock. The entire amount of securities disposed of to acquire these companies and to provide $1,500,000 working capital and to pay the profits of the various persons and institutions concerned in the promotion amounted, at par value, to $69,500,000. For this $69,000,000 of securities the combination received, besides the required cash working capital of $1,500,000, constituent companies which, omitting the Bethlehem Steel Company, were valued later by competent men at $12,441,518.26. The Mercantile Trust Company was the Trustee under the first mortgage on the Shipbuilding plants, securing $16,000,000 of bonds. and the New York Security and Trust Company was the Trustee under the mortgage on the capital stock of the Bethlehem Steel Company, which was also a second mortgage on the Shipbuilding plants, securing $10,000,000 of collateral mortgage bonds.

The Trust Company of the Republic was banker for the issue of the bonds, and, through its President, advanced large sums of money, much of which was obtained by borrowing on Shipbuilding securities. When the crash came the Trust Company of the Republic was able to figure up a cash loss of $982,334.

With the fall of the United States Shipbuilding Company my story has nothing to do. My theme is the methods by which it was established, false and insecure as that establishment was, and my story must end at the point where it was left to stand alone, for at that point it reached its meridian.

To a full understanding of the matter it is necessary to take up