- Sep 21, 2017
Mr JP Morgan connection with White Star Line?
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?
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?
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.
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.
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?
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.