13 OCTOBER 1866, Page 7


Iwould be worth the while of one among our many amateur 1 financiers to calculate the sum in which Lord Sondes, Lord Harris, and Sir Morton Peto have fined the great body of railway shareholders. Is it twenty millions sterling, or fifty? The disclosures in the affairs of the great Company which those gentlemen have so outrageously mismanaged have already sent down the value of every railway share and debenture in the kingdom, and will, if investors are wise and the House of Commons remains choked with directors, permanently reduce confidence in that species of property. As matters now stand railway obligations of any kind are quite unfit for investments made in trust, or intended to remain for any considerable length of time. Despite the elaborate organisation of the companies, and Acts of Parliament by the dozen, and decisions by the volume, investors in shares, preference shares, and debentures have no security for their property except the personal honour of the directors, which may or may not be worth a straw. What company could offer to an ordinary investor ignorant of City secrets better guarantees than the London, Chatham, and Dover Railway ? If he asked as to their business, he found them in possession of a system of lines in a district choked with towns, villages, and houses till it looked even to inex- perienced err a perfect hive of possible or certain passengers, of the quickest route to the Continent, and of one huge cantle of the metropolis. Their energy had passed into a proverb, and their Parliamentary influence was so vast that it had become a joke to ask when they intended to bridge Bucking- ham Palace Gardens and turn Westminster Abbey into a sup- plementary station. Their direction was always harmonious, their meetings always placable, their Vice-Chairman a Peer who had governed, the Madras Presidency; their Chairman a Peer with estates in two counties, and the motto, "Esto quad esse uideris,"—Se *hat you seem to be. If the investors heard as half of them never heard, that the line was " a contractor's line," that was only an additional ground of reliance, for was not the contractor Sir Morton Peto, the man who supplied Government with a hundred gunboats in the twinkling of an eye, which gunboats made him a baronet and did not begin rotting till they were no longer wanted, the Parliamentary representative of the Dissenting interest, the man who had works in every continent, agents in every country, and suc- ceeded everywhere except when plundered by sharp Canadians ? A contractor's line, forsooth! Half at least of those who pur- chased the Company's shares and bonds did so because they thereby fell into the hands of a contractor whom nobody could doubt, whose integrity was only equalled by the marvellous comprehensiveness of his plans. How devise a security more perfect than a debenture signed by Lord Sondes, sold by Sir Morton Peto, guaranteed by a railway with sixteen millions of capital, secured by three times its own amount in stock ? Yet those who purchased it had better have bought Spanish Passives or Mexican Bonds, better have trusted a repudiating State or an insolvent empire, than have trusted either the solvency or the honour of the London, Chatham, and Dover Railway Company. The Com- mittee of Investigation appointed to inquire into its affairs has reported, and it appears that this Company, with its " magnificent energy," and Parliamentary influence, and Peers for chairmen, and a Baronet for contractor, is not only unable to pay the money it has borrowed, but borrowed it frequently on pretences which, were English law a little more stern in fixing individual responsibility, might bring all con- cerned within the grasp of the Courts. According to that Com- mittee, the recklessness of the Company has been almost superb, so grand has been the scale and so long the duration of its wastefulness. It has been in existence now many years, and out of 16,000,0001. which it has raised in that period has never ex- pended but 10,000,0001., having, as the Committee allege, though the Directors of coarse deny it, spent 6,057,0001. in rebate, interest, temporary loans, and dividends, having in fact wasted six millions sterling in order to expend ten on actual work. This extravagance in using money has been rivalled by equal recklessness in expending it. In addition to its own lines, it has bought or leased others, of which the Kent Coast Rail- way was leased for 45,4201. and loses 34,6491. a year, the Setenoaks Railway " as yet entails a loss," the Sitting- bourne and Sheerness Railway the same, the steamboat service "has been a loss," the Metropoliian Extension is a loss of the difference between half the receipts which alone the Company is authorized to spend in working it and the 72.8 per cent. of receipts which they do spend, and the cost of working the City lines " greatly exceeds the 50 per cent. allowed." Of the pur- chased lines only two seem to have been really profitable, and 50,0001. a year would, as we deduce from the Committee's report and the Directors' reply, cover their profits.

We quote these facts to show want of judgment, quite admitting that they are not conclusive, as many an undertaking will not really pay until it is completed, but there is worse to come. Ever since 1860 Sir M. Peto's firm have acted as sole wetnurse to the Company, feeding it with capital on a system which the Committee carefully explain. That firm subscribed for the whole share capital, sold the shares as best they could, had " three-fourths of the whole ordinary stock of the general undertaking deposited with them as security for losses," and were the sole contractors for the works besides. In other words, they were for financial purposes the controllers, for managing purposes the shareholders, and for working purposes the contractors—a' position which would try the virtue of an angel, and renders this little paragraph matter of no surprise. " The Committee cannot leave this part of the subject without expressing an opinion that proper care does not appear to have been taken to protect the interests of the Company with reference to the contracts for works. Not only was no competition invited, but the necessary precautions do not appear to have been taken in fixing the prices to be paid." The Directors say Sir W. Cubitt fixed the schedule of prices, which we dare say is correct ; but who tested the accounts, who, under the circum- stances, could test them to see that the schedule was adhered to in spirit as well as letter V As the shares became dis- credited debentures were more and more relied on, and were at last issued in defiance of Parliamentary regulations. The Company wanted to complete the eastern section, and to raise for it 1,070,0001. Accordingly it was arranged that "receipts should be given to the contractor for 429,7001. as received on deposit and in anticipation of calls on shares (though no such money was received), and in return that the contractor should give a receipt for the same sum on account of land and works.'' No payments passed, the shares being in fact fictions, but on the strength of them it would, had they been real, have been

legal to issue debentures to one-third their amount. The statutory declaration was accordingly made, and the deben- tures for 356,0001. were issued, and are '• still outstand- ing." In other words, according to the report, the public or the bankers were induced to buy or accept in pledge 356,0001. of mortgages on a property which never had any legal existence at all. The Directors attempt an explanation of this affair, which may of course be perfect, but which is at present unintelligible, and do not state that the shares either are or ever were paid up as represented, while the Committee specifically declare the payments " feigned," entered simply to allow the manufacture of debentures. The transaction was in fact, if the Committee are right, exactly equivalent to raising a loan on deposit of manufactured title-deeds. Again, the Company wanted a million for City extensions, of which sum 300,0001. was subscribed by the Great Northern, and actually paid up. The remaining 700,0001. was subscribed by Peto and Co., but "it does not appear that any money was received or credited," yet 330,0001. of debentures were issued and pledged. The Company apparently did not like this particular transaction, and accordingly they mortgaged the works and raised some 328,0001., of which 303,0001. were paid to Peto and Co., "for the express purpose of retiring the pledged debentures." Messrs. Peto and Co. retired 180,0001. and used the remainder for other purposes, a transaction admitted by Sir Morton Pao himself, and which would be described by a judge in terms we may as well avoid. One more transaction we will give in the Committee's own words, for they do not admit of condensation :—

" On the 15th of August, 1864, a subscription contract for the above shares was executed by the following persons for the number of shares set opposite to their names, and an allotment-book was duly made up accordingly, stating the amount paid on the shares as appears below:

Name. Number of Shares. Amount Paid.

Bette, Edward Ladd 10,000 £126,000 Christian, Charles Ladd 5,400 67,500 Craropton, Thomas Russell 10,000 126,000 Hervey, John 3,000 37,600 Lowinger, Charles 3,000 37,500 Miller, Henry 4,000 51,000 Pete, Sir Samuel Morton 10,000

126,000 Roney, Sir Cusack Patrick 10,000 126,000 Trevethick, Frederick Henry 3,600 45,000 White, Thomas 1,000 ... 12,500

60,000 £755,000 No money was paid to the Company by any of the subscribers, but in the same month of August, 1864, debentures were issued to Peto and Co. for 390,0001., and in August, September, and October of the same year debentures were issued to the public for 110,000/., making together the full Parliamentary limit of 500,0001. It was not until August, 1865, that the shareholders passed a resolution consolidating the above shares into stock ; but nevertheless, immediately after the allotment had been made in August, 1864, the subscribing parties were entered on the register of proprietors as owners of fully paid-up stock for the whole 1,500,0001., and as early as October of the same year the Company ac- cepted and entered on the registers transfers from them, not of shares, but of stock fully paid up, although, in fact, no such stock existed at the time, and no such payment had been made. This stock forms part of the 2,207,300/. publicly sold in March last, before referred to. The only explanation given to the Committee of this remarkable transaction was that it was considered that loans could more readily be obtained on paid- up stock than upon shares."

Now, supposing the facts true, in what respect does that "re- markable transaction " differ from selling a gilt watch as a gold one? The Company and Messrs. Peto, as against each other, may plead one tolerably reasonable defence. They had become in the course of their vast transactions identical, and if they liked as partners to lend money to each other irregularly, why, as they must stand or fall together, the transaction could not signify to the public. Even that defence is unsound in part, the Directors not being proprietors of the line, but trustees for the shareholders other than Pete and Co. ; but even accepting that firm as sole shareholder, there remain the public. The public were asked to buy bonds to the extent of hundreds of thousands of pounds, on the faith of a statu- tory declaration that they were secured by stock of three times their value. They were, according to the Committee, in many instances not secured by stock of any value at all, but only by " feigned payments," and in other instances only by stock previously mortgaged, unknown to the purchasers, to its full legal value. Suppose it were law that a field could only be mortgaged for a third of its value, and Sir Morton Peto were first to mortgage it to the legal extent, and then without telling his second creditor to mortgage it again I What would be thought of that transaction ?—yet that was what, as the Committee report, was regularly done. In- deed, the case was worse, for in our example there would be the field, but in these transactions only the title-deeds of possible fields. We cannot see, if such transactions as these were legal or endurable, why the Company and Sir Morton should not have obtained an Act for a railway to Liverpool, entered shares for ten millions in the books, issued debentures for three millions on their own entries, sold the fictitious debentures on the strength of the non-existent security, and so built away comfortably till the credulity of the public was finally exhausted.

Of course every word of these charges, though signed by Messrs. Grosvenor Hodgkinson, W. E. Hilliard, J. H. Burbury, Thomas A. Hankey, W. Hartridge, F. Heritage, A. T. Hotham, C. Surgey, and G. C. Taylor, may be entirely disproved, but if they are not, the management of the London, Chatham, and Dover Railway is of itself sufficient to prove that railway securities are, for aught the public can ever tell, worse invest- ments than ordinaryspeoulative shares. No names are guaran- tees, no laws can assure the purchasers that the shares offered have been paid up, or that the debentures are guaranteed by any- thing except the seller's, word. If, on the other hand, they are proved conclusively, the shareholding public has only one thing to do, that is, to demand from Parliament that pending a better system, a Government officer shall sit as director at every board, as Mr. Juland Danvers sits at every Indian rail- way board, with no power, if they chose, to interfere, but with the obligation to sign the accounts, to see the law observed, and to publish at once to the shareholders anything that appears to him suspicious. The middle class has grown too effete to punish these great corporations and great contractors, and must ask the protection of the only power in the country which can be trusted not to steal, to save it from the effects of its own " enterprise," " business habits," and mania for self- government.