Business & Finance: Wabash Blues

Of the Wabash Railway it has been said that "it begins nowhere and ends nowhere." That is not very complimentary to Buffalo and Omaha, its terminals, or to the mining districts of northern Michigan, which it reaches from Toledo with its Ann Arbor Railway (99% owned). But "somewhere" to a railroad is either a great seaport or the gateway of a populous, raw-producing hinterland. The Wabash developed a system 2,500 mi. long, with 4,500 mi. of track, 701 locomotives, 26,000 freight and 411 passenger cars. Last week this whole property, $358,000,000 in assets, passed out of stockholders' hands into receivership. The railroad industry saw its first major bankruptcy since Depression, looked on glumly as the stockmarket absorbed the news like a draft of poison.

Wabash 5½% bonds of 1975 broke 19 points, the 53 of 1939 17 points. Average price of 20 listed rail bonds made a new bear market low at 72.7 against 102.2 a year ago. The receivership surprised rail investors more than it should have. Bankers & brokers had known for months that Wabash must have help or failure was inevitable. The public, shocked at the news, had supposed aid would come from one of three sources: the Government, the road's bankers (Kuhn, Loeb & Co.) or Pennsylvania Railroad Co.. largest stockholder. The Wabash management tried all three sources before they gave up. The Government has a revolving fund supposedly to aid ailing roads but no adequate machinery has ever been devised to arrange the loans.† Kuhn, Loeb shied off. Last resort, the Pennsylvania, decided it had invested enough in a venture which now stands it a loss of $60,000,000. Pennsylvania's interest in Wabash began in 1927 when it anticipated that the Interstate Commerce Commission would allocate the Wabash to it under the Eastern railroads' four-party consolidation plan. Pennsylvania's wholly-owned subsidiary, Pennsylvania Co., was busy for the next two years buying up Wabash securities. By 1929 48.9% of all Wabash stock outstanding had been acquired. Pennsylvania Co. paid $63,041,000 for $67,580,000 par value of preferred and common stocks purchased. On the day of the receivership this investment had a market value of $2,744,000.

In 1930 the I. C. C., still pushing its own consolidation plan, ordered Pennsylvania to get rid of its Wabash stock. I. C. C.'s plan was to consolidate Wabash and Seaboard Air Line (put in receivership December 1930) into a fifth eastern trunk line to be known as System No. 7. This scheme has pretty well collapsed but the I. C. C. order has not been withdrawn.

Immediate cause of the receivership was a petition of T. J. Moss Tie Co. which said that the road was "completely insolvent," could not pay a tie bill of $49,651.95. There was no question of mismanagement in the petition. Federal Judge Charles B. Davis heard the petition in St. Louis, appointed as receivers Walter S. Franklin of St. Louis, Wabash's newly-elected president,* and Assistant General Counsel Frank Nicodemus Jr. of New York.