ROYAL BANK OF SCOTLAND FINANCE AND INVESTMENT As one who
has consistently championed the rights of rail stock- holders and on occasion advocated the purchase of several of the junior stocks, I must confess to surprise and disappointment at the terms on which the Government proposes to effect its nationalisa- tion plan. Admittedly, recent buyers of home railway securities have little to complain of from the capital standpoint. In most instances the take-over prices, assuming, as one must, that Mr. Dalton really intends to give investors a stock Which is fully worth its par value, are somewhat higher than current market quotations. The rub comes on the income side, and here it seems to me that the Government cannot escape the charge of foul play simply by arguing that the selected valuation basis of Stock Exchange prices is all that need be taken into account. It has been apparent for a very long time that the cheaper money process, on the one hand, flanked by the uncertainties which have produced high yields on many home rail stocks on the other, was bound to produce a dilemma whenever the nationalisation question arose. By taking Stock Exchange prices at the basis for valuation, the Government has neatly dodged all the really awkward issues and made no attempt whatever to resolve the problem of railway stockholders' income.
THE INCOME PROBLEM
Just how drastic is the sacrifice in income which the Government's proposals impose may be judged by contrasting the cost of servicing the £1,020,000,000 of Government stock required to complete the purchase price with the k43,000,poo war-time rental. If one assumes, as seems reasonable enough, that Mr. Dalton intends to offer a 29 per cent. stock as his compensation medium, the annual cost would be only roughly L25,5oo,coo. In other words, there is a drop of k17,5oo,00o in income—leaving out the £2,000,000 of outside revenue which the railways had at their disposal during the war— which somehow or other has to be faced by the various classes of rail stockholders. Even in -938, which was a bad year for the rail- ways, aggregate net revenue for the four main line companies was L29,000,000. In 1937 it amounted to L37,000,000, both these figures excluding any revenue from the London Passenger Transport Board. One scarcely dares to mention the £57,00o,000 of standard revenue which in the dim past the railways were supposed to be allowed to earn.
While everybody will recognise that at present railway net revenues are running at very low levels, it is no argument that this justifies the Government in putting over a harsh deal. What has happened— and here the Conservative Government must shoulder a large part of the blame—is that the railways have been faced by quite unfair operating conditions. They have not been given a square deal in relation to road competition, nor has there been any adequate adjust- ment of charges to the rising level of costs. Now, it seems, the Government has chosen to take advantage of this situation by adopt- ing as its basis for compensation the low Stock Exchange prices which unfair conditions have produced. All sorts of anomalies which had crept into market valuations are perpetuated and given a legal application in the Government's scheme, and in one or two instances, notably London Transport " C " stock and London Transport 3 per cent. Guaranteed stock, the proposed take-over terms ride roughshod over investors' rights.
POLICY FOR HOLDERS
What are home rail stockholders to do? Individual circumstances vary, but I see no reason why, in the majority of instances, stocks should be sold immediately for reinvestment purposes. Current market quotations are rather below the proposed take-over prices, and it is surely safe to count on the receipt by holders of the half- yearly dividends due in February. The net amount in some in- stances, such as Great Western and L.M.S. Ordinary, L.N.E.R. Second Preference and Southern Preferred, are such as to be well worth collecting. There is also a hope—by no means a forlorn one— that the powerful opposition which is being organised among rail investors, large and small, may result in some improvement in the Government's purchase terms.
Previous page
