History of the Louisville & Nashville Railroad

10 Scandal and Reorganization, 1884

10 Scandal and Reorganization, 1884 In 1884 the conflicts within the L & N burst into the open. Rumors about the strife among the directors had been circulating for some time, but as long as the road remained prosperous Baldwin could ignore their effect. By 1883, however, even that prosperity was being questioned. Outside observers complained that a cloak of secrecy had been dropped over the company's financial affairs. It was known that Baldwin, like Newcomb before him, had incurred heavy new obligations, but the nature and extent of those obligations were not divulged. The flow of information and data from the L & N offices slowed to a trickle, and much of what was released seemed contradictory and inaccurate. The true state of the company's affairs became almost impossible to fathom, and management did nothing to clarify the situation. Under these circumstances questions and rumors arose from every quarter. No one doubted the system's earning capacity; in fact earnings continued to increase at a gratifying rate. The most important unanswered question concerned the precise nature of the company's obligations. Without specific information on that point, no one could accurately estimate the system's earning ability or assess the value of the stock. Nor was the physical condition of the system described in any detail, an omission that especially clouded the status of newly acquired roads which might require large expenditures for betterments. The investor searched in vain 1 9 6 HISTORY OF THE LOUISVILLE & NASHVILLE RAILROAD for answers to these questions in the Annual Report, for that document grew progressively shorter and more ambiguous during Baldwin's reign. As the sources of information dried up, the L & N's reputation in the financial community receded steadily. Bereft of data, bankers and investors could only speculate upon the state of its affairs, the activities of its officers, and the reasons for their surreptitious behavior. For a time the company's powerful strategic position and its tradition of efficient management induced observers to accord it the benefit of the doubt, but by 1883 the symptoms of weakness were too serious to dismiss. Reports of internecine turmoil persisted stubbornly, and to them were added vague hints of improper use of company funds by certain officers. The system's debt position remained unclarified, and the company's credit standing collapsed despite the healthy growth of earnings. As stories of a pressing need for capital gained currency, the price of L & N stock floated downward . The election of Jay Gould, Thomas Fortune Ryan, and Russell Sage to the board intensified rumors that the company was becoming a speculative vehicle. Already, in August of 1882, Baldwin had been forced to pass the semi-annual dividend. From that point on, matters deteriorated steadily until they reached a tumultuous climax in the spring of 1884. Downward Spiral Dissatisfaction with Baldwin was present from the beginning of his presidency and concerned, among other things, the extent of his devotion to L & N affairs, the wisdom of his expansion policy, and the nature of his Wall Street connections. The doubling of the company's mortgage debt between June 30, 1880, and June 30, 1881, excited apprehension over the L & N's solvency and was partially responsible for a decline in L & N stock that commenced during the winter of 1882. In December of 1881 the stock hit a low of 99; in January it reached 92 and in February sank to 67 V4. To some extent the concerted operations of a few Wall Street bears aggravated this decline, but an atmosphere of uncertainty aided their efforts immeasurably. Rumors of a large floating debt cropped up repeatedly . It was said that the stock was being supported at an artificially high level by a clique of operators and would soon collapse amidst the general dissension of the directors. The city of Louisville was reported anxious to dispose of its stock in the road. The combined weight of these accounts demanded some explanation from the company's officers, but none was forthcoming. Baldwin remained aloof, attributed the reports to Wall Street operatives, and said only that they were "almost all lies—at least they are in the manner they are stated."1 SCANDAL AND REORGANIZATION, 1 8 8 4 1 9 7 That ambiguous rejoinder did nothing to reassure uneasy stockholders . The L & N's floating debt stood around $3,800,000 in February of 1882, an increase of about $2,000,000 in eight months. While the figure...