Out of Hock

According to Professor Raymond Moley, the New Deal mounted its economic horse and rode off in all directions about the time accordion-pumping Tommy Corcoran usurped the role of FDR enchanter previously played by guitar-plucking Will Woodin of American Car & Foundry. Woodin economy soon was forgotten, Woodin himself died, but left behind in the Treasury was an American Car & Foundry alumnus, Walter Joseph Cummings. Last week Mr. Cummings was conspicuous for a second time in recent years.

He was first publicly noted in 1933. Then Chicago's biggest bank, the Continental Illinois, which had taken a bad licking in Willys Overland, and on Insull securities, was the first big time U. S. bank to step up and take advantage of Jesse Jones's offer to buy preferred bank stock with RFC funds. To get new capital Continental sold him $50,000,000 worth.

The terms of the sale were: 1) that Continental would cut the book value of its common stock from $75,000,000 to $25,000,000 (thus keeping the total capitalization unchanged); 2) that Continental would buy back its preferred from RFC at least $250,000 every six months; 3) that until the preferred was retired RFC should have voting control of the bank; 4) that all directors had to be approved by RFC. The most important result of the deal was that Jesse Jones's good friend Walter Joseph Cummings was made chairman of the board, salary $75,000 a year.

There was soon some criticism of Banker Cummings. In his spare time he was Treasurer of the Democratic National Committee. Another full time job he held down (at $15,000) was as trustee of the bankrupt Chicago, Milwaukee, St. Paul & Pacific Railway. He was also a co-receiver for Chicago Railways Co. and director of half-a-dozen big U. S. corporations, among them the Maryland Casualty Co., then in debt to the RFC to the tune of $17,500,000. The late great Republican Senator James Couzens moved to investigate the ethics of Mr. Cummings' $90,000-plus annual salary intake from RFC babies while he was Treasurer of the Democratic party. But the Democrats collected a good war chest and won the 1936 election, and all was forgotten.

Meanwhile Continental Illinois did better than it had agreed in buying back the RFC preferred: in 1936, $5,000,000; in 1937, $10,000,000; in 1938, $10,000,000 more. Continental Illinois common shares, which sold at $60 in 1934, are now selling around $87. An interesting sidelight: Preferred Representative Cummings, who in 1937 owned only 104 shares of his own common, reported a year later that he held 3,019 shares and today reports holdings of 5,019 shares, owns more Continental common than any other director.

Last week Mr. Cummings cut the umbilical cord between his bank and RFC, announced that Continental Illinois would buy back the last $25,000,000 of its preferred in one batch.

To Jesse Jones, who likes to get RFC's money back, this was presumably good news. On the other hand, Banker Jones also likes to keep a grip on key properties like Continental Illinois--it has a useful fiscal finger in many pies, especially railroads and bankruptcies, which have given it large profits, the RFC much useful information.

Last week from Government banksters in Washington came a cry that Continental Illinois is undercapitalized. Its common, which was increased by stock dividends as the preferred was retired in 1936-38, stands at $50,000,000 (its surplus is $20,000,000). This amounts not to the traditional 10% but to only 4.1% of deposits. However, Continental Illinois has nearly as much cash and governments ($1,111,078,283) as deposits ($1,212,371,248) and was as solvent as could be. Onetime RFC Employe Cummings was in a position to tell Boss Jones to go whistle.

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