Mr JP Morgan connection with White Star Line?

[Mike Spooner]

Hi Mark,
Just to clear up the finical arrangement for Olympic & Titanic. As you have pointed out to me that Mr J.P. Morgan did not bank role the project as so many books claim he did so. Even books claiming Morgan brought out White Star Line lock & stock barrel to!
I have to say your book is one of the rare book to explain on how the finance was raised for the project, through a Mortgage Debentures bonds scheme via banks in London.
1. Do you know what the commission rate the banks charged?
2. Did the value of the bonds increase over the years? If so how much by?

On the subject of your book the passenger figures for Olympic page 11, for first second and third class are different from the ones at the back of the book under Appendix I. Or were there the ones after the refit in 1913?
Also under Appendix II construction time. The shipbuilder completed her so quickly! I would agree on Olympic. But as for Titanic 7 months longer and Britannic 19 months longer to delivery! As any thing new production the first one is the prototype. Were by come to build the second one that should of been built in a shorter time! Or was there a problem here?

Best regards,
Mike.

 

[Mike Spooner]

Hi Mark,
Further my reply above.
I have copy of the Mortgage Debentures series first and second issue. From Mark Chirnside excellent book OLYMPIC * TITANIC * BRITANNIC.
The Mortgage whole issues of £3,375.000 is from two payment first and second. This is cover the cost of the three new ships from 1908-10th July 1914.
If at the time the ships were to cost WSL £1.5 million each that £4.5 million. That's a short fall of £1.125 million to come from somewhere? Plus WSL had two new tender ships built for the Olympic class ships Nomadic and Traffic. The cost of those two I take a guest of £100,000 each? The short fall Is now £1.325 million. Then there is the running costs and crew payment for the new tender ships. The only way to recover the costs is with paying passengers. Since the Olympic has got off to a rather poor start dew to lack of passenger sales and lost crossing from Hawke collision, followed on by expensive repair works. The Titanic Is now late on delivery. As I see it. It does not look very good as from a business point of view for the new Olympic class ships making any profits. In fact are they making a loss here?
When the Olympic is withdraw from service they will incur further very costly modifications in Belfast for six months. Also the lost of revenue crossing whist in Belfast.
So were is the money coming from?

Mike.

 

[Mark Baber]

White Star had many other ships.

 

[Mike Spooner]

Mark I am only looking at the profits of Olympic and Titanic. After all this is the high risk gamble they have taken on to beat off the competition.
I can see the years list of WSL profits. However which bank account does the profits go into: WSL or IMM?

 

[Mike Spooner]

Hi Mark,
I have looked at the The Oceanic Steam Navigation Company (White Star Line) figures as in your book.
I have a few questions I would to clear up.
If WSL have taken out a Mortgage with Glyn, Mills, Currie bankers for £3,375.000 from July 1908- July 1914. 60 months payment at 4.5% interest. If I am reading this right the 4.5 interest is added on to the £3,375.000. Giving a total payment of £3,526.875 over 60 monthly payment of £58,780. If defaulted on payment the 24 steam ships owned by WSL are at risk.
If the new ships Olympic and Titanic are estimated at £1.5 million each we can see there is a short fall here! Plus we must include the two new tender ships Nomadic and Traffic which is part of the project.
As quoted the cost of Olympic £1,764.659 to include the cost of the 1913 refit. However do we know the true cost of the Olympic before set for sail on her maiden voyage in June 1911?

IMM Company. I am referring to John Pierpont Morgan (1837-1913) Who died 31 March five years to the date that the knee of Titanic was laid down 31 March 1909. The IMM is made up into three groups.

The British Board of Directors: Americans Directors: Executive and Finance:
Sir Clinton E Dawkins (Chairman) C A Griscom ( President) C A Griscom
WJ Pirrie P A B Widener P A B Widener
L Bruce Ismay George W. Perkins George W Perkins
Henry Wilding James H Hyde E J Berwind
Charles F Torrey B N Baker Charles Steel
Charles Steel
John I Waterbury
E J Berwind

We can see this is very much a American company who have the voting power over the British and the finance say.
Morgan may not be on the board. But I can assure you he is the driving seat and it takes a brave person who does not agree with him, and has all chance of having to look for another job else were!
Morgan has the power to remove committee members of the board who feels are not up to the job. The first man to go is the President C Griscom who is replaced by a rather reluctantly B Ismay. Nigel Baker will also drop out. Who never had that commitment into IMM. Many ways it was Baker was to start the ball rolling in forming IMM. That he is his to sell off Atlantic Transport to Leyland Line. As quoted in Herbert Jefferson book Viscount Pirrie of Belfast. Which did not please Gricom as he could see would weaken his position in the Atlantic trade from the American side. At the time the Atlantic was dominated by the European shipping companies. The book goes on to say that Albert Ballin of Hamburg American Line wrote a letter 1891 to Baker of joining a relations between America and Germany in shipping affairs! The book also to say Pirrie wanted to prevent an alliance between ATL and Leyland Line! (Well that never happened).

You ask me were did I get that information the Britannic build was stopped due money owned to H&W?

The RMS Britannic - The Forgotten Sister

Quoted would not be ready for maiden voyage until early spring 1915. Reason for delay was finance. H&W was owned £585,000 from IMM!

If you have time Mark I am only too please to hear from your point of views.

Regards,
Mike.

[Edited to correct the non-functional url in the original. MAB]

 

[Mark Chirnside]

Mike,

I have looked at the The Oceanic Steam Navigation Company (White Star Line) figures as in your book.
I have a few questions I would to clear up.
If WSL have taken out a Mortgage with Glyn, Mills, Currie bankers for £3,375.000 from July 1908- July 1914. 60 months payment at 4.5% interest. If I am reading this right the 4.5 interest is added on to the £3,375.000. Giving a total payment of £3,526.875 over 60 monthly payment of £58,780. If defaulted on payment the 24 steam ships owned by WSL are at risk.

No, they have not taken out a mortgage with Glyn, Mills, Currie & Co.

The bankers helped them raise the funds by co-ordinating the issue of debenture bonds on White Star's behalf and taking the subscriptions from private investors who were almost entirely based in the United Kingdom. The bonds are typically called 'mortgage debentures'.

White Star have not borrowed £3,375,000. That is the authorised total. They did not borrow that much because they had no need to.

White Star borrowed £1,250,000 in 1908 and £1,500,000 in 1914. The 1908 bonds were due to be redeemed by 1922 and the 1914 bonds by 1943.

It should be noted that the issue prices of the 1908 bonds were higher than the 1914 bonds. The 4 1/2 percent interest coupon is based upon the par value of these securities.

I have already addressed your inaccurate comments about a 'shortfall' and JP Morgan's role.

The webpage linked doesn't display for me, however I think the information is incorrect.

Best wishes

Mark.

 

[Mark Chirnside]

Mike,

I appreciate your kind comments about my book. It was nice to see you briefly in Southampton last weekend at the BTS convention.

You have written a great deal in this thread about a subject which I know interests you a great deal. Unfortunately, I see very substantial inaccuracies in a lot of what has been said. I note that many of these factual errors have been addressed previously, so I will not do so again. What I do have time to do is address a few specific issues:

Were Morgan will ask Ismay to draw up a scheme to pay for the Olympic class ships under a Mortgage Debentures bonds from 1908-1914
From a banker point of view I can much more caution is been applied here. The authorised issue of £3,375,000 at 4 1/2% is to come under two mortgages. The first mortgage issue set for £1,500.000. The bonds payment of £100 each (ouch) today value £11,700 a rich man game indeed. However the mortgage does include 24 Steamships of the company should the general public not raise the required funds.
Want I be interested to know if the first issue mortgage payment was ever achieved? Or did Morgan make up the different? Come to think about it was the second mortgage issue ever achieved to? Or if short did they have to make up the different from WSL profits?

This isn't true.

The method of financing was discussed by IMM's board of directors who decided on this course of action. A simple contrast between the distressed market prices of IMM's 4 1/2% bonds at that time and their correspondingly elevated yield, against the healthy pricing of the debenture bonds issued by OSNC (White Star), makes it very clear why they did so.

The bonds issued in 1908 were for raising £1,250,000, not £1,500,000 (that was the 1914 issue). It is correct that they were denominated in £100, however the investors paid slightly less.

Your implication that 'the mortgage does include 24 Steamships of the company should the general public not raise the required funds' is incorrect. The ships in the fleet were assets held as security against the borrowing, just in the same way that a bank has your house as security against your failure to pay your mortgage. It had nothing to do with the 'general public' not raising 'the required funds'.

It's clearly recorded that OSNC raised all the money they sought to borrow.

On the general issue of comparing 1912 money with today, I wrote this on another forum recently:

The first problem is that she was billed in British Pounds, not American Dollars. In 1912, the Pound to Dollar exchange rate was about 5 to 1 whereas today it is about 1.3 to 1. Straight away, we have a huge difference depending on which currency you start with from 1912.

Even aside from the currency conversion issue, depending on whether you convert the 1912 values into modern money using inflation, wage growth or GDP you get an enormous disparity. Wages have grown faster than prices over time and the difference adds up enormously over a period of more than a century.

If we look at the British Pound in 1912 and convert to 2017 values, the differences are enormous:

£1 in 1912 in 2017:
£94.11 (real wage adjusted);
£364.2 (labour earnings adjusted);
£562.5 (relative income);
£877.5 (relative output).

If we look at the United States Dollar in 1912 and convert to 2017 values, we see substantial differences as well:

$1 in 1912 in 2017:
$26.10 (real wage adjusted);
$55.10 (household purchasing power);
$115 or $173 (relative labour earnings - 'unskilled' and 'skilled');
$151 (relative income);
$516 (relative output).

(data from MeasuringWorth).

Using British Pounds and adjusted for British real wages, we get Titanic's cost as £147,188,040; or relative output gets us £1,372,410,000.

Using United States Dollars and adjusted for American real wages, we get Titanic's cost (using 1912 conversion rates) as $198,387,144.

If at the time the ships were to cost WSL £1.5 million each that £4.5 million. That's a short fall of £1.125 million to come from somewhere?

Olympic and Titanic each cost over £1.5 million. Titanic's cost was closer to £1.6 million (according to Mark Warren's research). Olympic's cost was closer to £1.8 million including the costs of the 1913 refit. Britannic cost almost £2 million.

There is no issue of a shortfall.

The company never intended to finance construction solely through borrowing by the issuance of bonds.

Nor did they raise equity.

The remainder came from organically generated capital (OSNC's profits). Further, they were able to finance it at the same time as paying out substantial proportions of profit in dividends.

Best wishes

Mark.

 

[Mike Spooner]

Mike,

I appreciate your kind comments about my book. It was nice to see you briefly in Southampton last weekend at the BTS convention.

You have written a great deal in this thread about a subject which I know interests you a great deal. Unfortunately, I see very substantial inaccuracies in a lot of what has been said. I note that many of these factual errors have been addressed previously, so I will not do so again. What I do have time to do is address a few specific issues:



This isn't true.

The method of financing was discussed by IMM's board of directors who decided on this course of action. A simple contrast between the distressed market prices of IMM's 4 1/2% bonds at that time and their correspondingly elevated yield, against the healthy pricing of the debenture bonds issued by OSNC (White Star), makes it very clear why they did so.

The bonds issued in 1908 were for raising £1,250,000, not £1,500,000 (that was the 1914 issue). It is correct that they were denominated in £100, however the investors paid slightly less.

Your implication that 'the mortgage does include 24 Steamships of the company should the general public not raise the required funds' is incorrect. The ships in the fleet were assets held as security against the borrowing, just in the same way that a bank has your house as security against your failure to pay your mortgage. It had nothing to do with the 'general public' not raising 'the required funds'.

It's clearly recorded that OSNC raised all the money they sought to borrow.

On the general issue of comparing 1912 money with today, I wrote this on another forum recently:

The first problem is that she was billed in British Pounds, not American Dollars. In 1912, the Pound to Dollar exchange rate was about 5 to 1 whereas today it is about 1.3 to 1. Straight away, we have a huge difference depending on which currency you start with from 1912.

Even aside from the currency conversion issue, depending on whether you convert the 1912 values into modern money using inflation, wage growth or GDP you get an enormous disparity. Wages have grown faster than prices over time and the difference adds up enormously over a period of more than a century.

If we look at the British Pound in 1912 and convert to 2017 values, the differences are enormous:

£1 in 1912 in 2017:
£94.11 (real wage adjusted);
£364.2 (labour earnings adjusted);
£562.5 (relative income);
£877.5 (relative output).

If we look at the United States Dollar in 1912 and convert to 2017 values, we see substantial differences as well:

$1 in 1912 in 2017:
$26.10 (real wage adjusted);
$55.10 (household purchasing power);
$115 or $173 (relative labour earnings - 'unskilled' and 'skilled');
$151 (relative income);
$516 (relative output).

(data from MeasuringWorth).

Using British Pounds and adjusted for British real wages, we get Titanic's cost as £147,188,040; or relative output gets us £1,372,410,000.

Using United States Dollars and adjusted for American real wages, we get Titanic's cost (using 1912 conversion rates) as $198,387,144.



Olympic and Titanic each cost over £1.5 million. Titanic's cost was closer to £1.6 million (according to Mark Warren's research). Olympic's cost was closer to £1.8 million including the costs of the 1913 refit. Britannic cost almost £2 million.

There is no issue of a shortfall.

The company never intended to finance construction solely through borrowing by the issuance of bonds.

Nor did they raise equity.

The remainder came from organically generated capital (OSNC's profits). Further, they were able to finance it at the same time as paying out substantial proportions of profit in dividends.

Best wishes

Mark.

Hi Mark,
Thanks for the reply as so little is discussed of the finance arrangement for Olympic class ship, to the point the money is falling out of the sky for the ships!
So we can take it the Mortgage Debentures scheme was a success. I see the this matter was discussed with the IMM board of directors beforehand and if that is the case Mr JP Morgan would of had the last say in the financial arrangement.
I strongly believe if the Lusitania and Mauritania were never built, the Olympic class ships would of never been built!
Just clear up another matter I have read in the build of Britannic was come to a stop as due too much money own to H&W. A figure of £570,000! True or false?
In the profits from WSL would of IMM have a say in the matter or taken a percentage cut?

Regards,
Mike.

 

[Mike Spooner]

Thanks Mark for your quick reply. I am getting a better understanding of the financial arrangement. I am now thinking who is at risk here if the bonds did not take off? The bonds at £100 each today value £11,700 a rich man game indeed. Do you know if the 4.5 % rate was to increase over the years?
The White Star borrowed £1,250,000 in 1908 and £1,500,000 in 1914. Do you know what interest rate they had to paid?

The website of Britannic is: The RMS Britannic - The Forgotten Sister
Is this website information reliable?

Best regards,
Mike.

[Edited to correct the non-functional url in the original. MAB]

 

[Mark Chirnside]

Afternoon Mike

They raised the funds they needed and borrowed them at a good interest rate, so yes I would say it was a successful financing.

I see the this matter was discussed with the IMM board of directors beforehand and if that is the case Mr JP Morgan would of had the last say in the financial arrangement.

There's no evidence to support your assumption.

J P Morgan (the guy we're talking about - NOT J P Morgan junior, that is) was not on IMM's board of directors or any of its committees. Given the choices available and the ultimate distinction between borrowing the funds at a higher rate of interest or a lower rate of interest, the merits of the method of financing the directors chose should be self-evident!

Just clear up another matter I have read in the build of Britannic was come to a stop as due too much money own to H&W. A figure of £570,000! True or false?

The payments schedule for Britannic (the third 'Olympic') consisted of five instalments to H&W at pre-determined points, in the same way as her sisters and virtually all other ships constructed at this time. There is no record in H&W's files of this being altered. If someone is making a claim - where did you read this? - then they need to support it with evidence.

I wonder if the reference is to the third Britannic (completed 1930).

In the profits from WSL would of IMM have a say in the matter or taken a percentage cut?

The White Star shareholders (ultimately IMM except for a couple of shares) received dividends from their shareholdings, which were paid out of the profits generated. White Star was paying healthy dividends on its ordinary shares whereas IMM did not pay dividends on either its preferred or ordinary shares.

If you see percentages quoted for dividends, you need to bear in mind that these were expressed in a different way to today, when a dividend yield is expressed as the annual dividend paid as a proportion of the share price.

Best wishes

Mark.

 

[Mike Spooner]

Mr JP Morgan connection with White Star Line?

 

[Mark Baber]

See my message of 19 April 2002 in How do you class Titanic Irish British or American

 

[Mike Spooner]

Wow the response I got back over the many years from 2002 on is quite some else. I have to say it did rather stray of the point of Morgan connection with WSL.

I can see national pride is at stake here. It remind me of that rather standing joke between; A Scotsman, Englishman and a Irishman.

Yes the Irish's in Belfast should be proud of there contribution in the build of Titanic. But there are just not just the Irish's working at H&W, as there were Scottish and English working there too. No doubt other nations will have there claim as well.

Worth reminding if it wasn't for a English man called Mr E Harland and Germany men Mr G Wolff with Mr G Schwabe who started H&W shipyard there would of never been a H&W and NO Olympic class ships ever built. Even the company chairman Mr W Pirrie was not born in Ireland. Quebec City in Canada. His family tree show he was from Scotland. His father James was the first Pirrie born in Belfast. But he turned his back on Ireland and went to Canada in the timber business.

At the time there was no Ireland split between North and South that came about under home rule in 1921. Ireland was under the British rule from London. Therefore all were British!"

Back to the subject of Mr JP Morgan input into WSL. I have to say I see this this is far from straight forward case. I certainly see JP Morgan a extremely successful banker in many ways a one of Tycoon of the century. But it come at a price to become the top of the pile is far from been Mr nice guy. Morgan has got quite a chilling personality about him and knows how to get what wants at all cost. He is so use to getting his own way in USA and is quite staggering what he has under his control of the US economy. More power that any Presidents who will find him quite impossible to control.

The first question I have ask myself why does he need more power with an oversea shipping business. At the age of 65 you would think on the lines of retiring reap the benefits of your fortunes you have made. Morgan in the business sense is stepping into a mine field with the North Atlantic shipping companies which is dominated by European companies with very shrewd business men who know the business well. With growing frustration of US economy becoming the largest in the world by 1890, yet so little is using American ships. Is this the reason why he been drawn into it?

Morgan has no experience in the shipping business and needs sound advice to take on such a bold move. He about to find out dealing with oversea politics is far from a push over and even the US Government are not keen on the idea too. This is a high risk adventure and the overseas Governments are very weary of his plan. I can see he is to stray of the business plan by including passenger liners as it is cargo shipping companies are required?

Want was Morgan thinking at the time? As there was a big drop in the shipping business 1899-1902. His is thinking there I a bargain to be have here? Yet he lands up paying far more that bargain price from the ones who know the shipping business better than he does.

Forming International Mercantile Marine Company was the longest deal in time Morgan that ever took with another other deal. Even the steel corporation company Untied Steel Corporation company took only 12 weeks yet with far larger figures of over $500 million. As for IMM nearly two years of hard bargaining and to justify to the British Government demands. He had a clear warnings this was not another American company push over.

The six shipping companies are:
White Star Line
Leyland Line
American Line
Atlantic Transport Line
Red Star Line
Dominion Line

How much he has paid for the Stock Shares is not quite clear for all the companies. WSL a figure of 32 million dollars. Leyland 11 million dollars and the rest seems to be around about 10 million dollars. It would appear Morgan has not brought the British ships but just the stocks.

The company IMM is to have $120 million capital stocks. 60 million preferred stock 6% cumulative per year and 60 million common stocks at limited of 10% dividends per year. However want you ask for doesn't always mean what you get!

O though I am not a banker but seeing from an outsider point of view looks like a high risk business deal by not owning the British ships. Bankers are very cautious when dealing with money and not running a charity shops. The deal he has made with the two biggest Germany shipping company's looks like very much the benefit for them too!

For a man of Morgan calibre in the banking world, one wanders is he starting to lose his marbles for such a poor deal?

When looking into the deal of buying the Andrew Carnegie steel company and largest he ever made that too was rather lose and slap dash and certainty did not make the profits he had hope for to!
When floated IMM on the stock exchange at $100 minimum payment. Today price $2,700 a rich man game indeed. Morgan had a figure in his head of $85 for preferred stocks and $55 for common stock. This would soon drop to $35 for preferred stock and $15 for common stock plus a pile of unsold stocks. With no dividends pay out Morgan knew he is in trouble here within the first year of trading. On the bright side White Star was making a profit but not can be said for other shipping companies within the syndicate. With cash flow problems were a further $50 million is injected into IMM to save the company!

1904 Morgan will change the President Mr C Griscom whom he feels he was not up to the job and gave him poor advise! The man he wants was Mr Albert Ballin from Hamburg American but he quick to see the mess IMM is in and turns down the job. Where reluctantly Mr B Ismay is to take the role. There is no doubt as hard Ismay may try to turnaround the share stocks prices but they just keep falling and the lack of buying them to. As recorded nearly preferred stock 80% were unsold.

Now the bombshell were Morgan was overconfident than Cunard would join his combine but pulled the rugged under his feet from the help of the British Government, who giving them a special very low rate of 2.75% over twenty years period for £2.6 million, for new state of the art high speed luxury liners Lusitania and Mauretania ships. Plus a £15,000 per year for the maintaining of the ships.
This is the last thing Morgan wants to spend more money to compete against the new Cunard ships. Were Morgan will ask Ismay to draw up a scheme to pay for the Olympic class ships under a Mortgage Debentures bonds from 1908-1914

From a banker point of view I can much more caution is been applied here. The authorised issue of £3,375,000 at 4 1/2% is to come under two mortgages. The first mortgage issue set for £1,500.000. The bonds payment of £100 each (ouch) today value £11,700 a rich man game indeed. However the mortgage does include 24 Steamships of the company should the general public not raise the required funds.
Want I be interested to know if the first issue mortgage payment was ever achieved? Or did Morgan make up the different? Come to think about it was the second mortgage issue ever achieved to? Or if short did they have to make up the different from WSL profits?