Change of Life

Of all utility super-holding companies, J. P. Morgan's United Corp. was the biggest and fell the hardest. United now looks back ruefully on its ten checkered years of existence and hopes that it has finished taking its licking. In this connection it announced last week its first step toward quitting business as a utility holding company and setting up as an investment trust. It reported that in the past three months it had invested nearly $2,500,000 in 15 leading common stocks (Chrysler, DuPont, General Electric, etc.).

United Corp. was created Jan. 7, 1929, when J. P. Morgan and Co., in common with most U. S. elevator boys and other brokerage hangers-on, was somewhat overexuberant. Morgan & Co. and its "good neighbor" Bonbright & Co., put up $20,000,000, plus common stocks of great utility systems, giving United $150,000,000 in assets. They installed softspoken, aristocratic George Henry Howard as president of the new utility combine. Howard was one of the smartest graduates of the informal law school that the late Dwight Morrow ran at Simpson, Thacher & Bartlett's Manhattan lawshop, before Morrow became a Morgan partner. Howard's best known contemporary in the Morrow schoolroom was his close friend, modest Floyd Bostwick Odium, with whom he collaborated in founding Atlas Corp., top-flight investment trust.

United's first year was its easiest. On its first birthday, it celebrated the doubling of its assets (to $323,307,177). During the first half of 1930--in the lull that preceded the worst of Depression--United stubbornly bought more utility stocks, by June had increased its assets another 67% to $539,585,596. By March 1931, when U. S. business began a steep two-year nose dive, United had increased its assets to a peak of $594,603,470. Two years later during the famed investigation which sired the Securities Exchange Act, Inquisitor Ferdinand Pecora brought out that at that peak the "United group" controlled 22-to-23% of U. S. electric production, some 22% of gas output; and that its half billion dollars of common stocks had brought under Morgan domination a utility empire* ("worth" $4,297,000,000).

In March 1931 occurred another event which was to be one of the most momentous in United's history. It boosted its holdings to a dominant (22.1%) interest in upper New York's giant utility, Niagara Hudson Power Corp. (assets then $784,298,192). This deal elevated someone new to a dominant position in United: an extraordinary young banker named Floyd Carlisle, who has always been thought of as a "Morgan man," and is today the No. 1 U. S. utility magnate. Carlisle then ran and still runs the St. Regis Paper Co., which happened to own 4,070,000 shares of Niagara Hudson common. By an exchange of stock, United became the largest stockholder of Niagara Hudson and Mr. Carlisle's St. Regis Paper Co. became the largest stockholder in United--owning 2,170,666 shares (15%) against 1,670,000 shares owned by the Morgan-Bonbright interests.

In 1935 SEChairman Joe Kennedy and his aide, SEC General Counsel Judge Johnny Burns (who had been Massachusetts' youngest Superior Court member) became annoyingly literal about applying SEC's Public Utility Holding Company Act of 1935 to United. United and SEC remained at war for three years.

By 1938 United was no longer a united family. Its chief counsel (also a director) was none other than former SEC General Counsel Johnny Burns. He and belly-laughing Floyd Carlisle wanted to play ball with SEC immediately. Chief on the opposite side of the table in United's board room was Morgan Partner George Whitney.

On March 28, 1938 the Supreme Court settled matters by ruling the Holding Company Act valid. The first price of compliance with the Act was the resignation of Banker Whitney, two other friendly banker directors. But Niagara Hudson's Floyd Carlisle was re-elected to the United board--as the representative of "a large investing interest." United announced it would register as a holding company.

Next, United announced that it would write down its $581,285,157 paper assets to $144,528,214. In this $436,756,943 write-off--one of two stupendous deflations of book values in the history of the inflating utility industry*--SEC concurred. Before the year was out United made still another obeisance to Bill Douglas and SEC: it registered as a holding company. In doing so President George Howard announced that United intended to reduce its holdings in its four main holding company investments (eventually to less than 10% of each) that it "has determined to continue as an investment company and. as opportunity permits, to diversify its portfolio and participate in the financing and underwriting of new capital issues in the public utility and other fields." As a first step United asked permission to invest $8,000,000 of its $12,400,000 of cash in industrial common stocks. Last March SEC gave consent; last week United showed that it had begun to act.

United has still to invest the remaining $5,500,000 of its market fund, but prefers to wait a little longer--until Danzig pops or recovery clicks. Meanwhile, United's management also waits for opportunities to switch out a wad of its $144,528,214 of utility stocks, and use that capital to become an investment banker, underwriter and integrator to U. S. utilities and other major industries. If it does so, it will have enough capital to operate on a scale that will make other underwriters look puny--among them the still friendly Morgans, whose divorced Morgan, Stanley & Co. has a capital of considerably less than $15,000,000.

*WALL STREET UNDER OATH--Ferdinand Pecora --Simon &Schuster ($2.50).

*The other: Electric Bond & Share Co.'s Depression (1931) $441,387,724 scale-down.

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