Shaken Empire (Cont'd)

Samuel Insull has not bothered to conceal a mild contempt for bankers. Last week the bankers had him, tied and bound, in their hands.

But what could they do with him? Perhaps nothing except to let him loose-- "Biggest Man" in Chicago.

The center of Mr. Insull's power is the control of the gigantic utility companies supplying to Chicago and vicinity electricity, gas, street car and electric railroad, and other services. Never, of course, did Mr. Insull own more than a small fraction of these companies which grew to a combined size of over $850,000,000. But he ruled them, a veritable tsar. He knew how to handle the public (partly by making his customers stockholders). He knew how to handle the politics. He knew how to handle bankers in the bull market days --simply ordered them to sell the securities he gave them.

But his only stock-control of Chicago's nervous system lay in two investment trusts which he formed at the height of the bull market. Into these trusts--Insull Utility Investments, Inc., and Corporation Securities Co.--he put all his own utility stocks. Not only Mr. Insull realized the strategic value of these Chicago properties. The small handle by which he exercised control was tempting to Cyrus Eaton's Continental Shares, which aggressively accumulated large blocks of the stocks. Other interests that might have merged their holdings also threatened the Insull kingdom. But using millions of the public's money and considerable banking accommodation, Mr. Insull's trust acquired a working control of the three giant operating companies, namely about 17% of Commonwealth Edison, 29%, of Peoples Gas, 11% of Public Service of Northern Illinois, and 29% of Middle West Utilities, some of whose principal affiliates have important working arrangements with these Chicago companies.

As market conditions became worse & worse the temporary bank loans became fixtures. Last week, the common stocks of his trusts were practically worthless, and the notes and preferred stocks held by the public brought only nominal prices. What the trusts owed at the banks was barely equal to the market value of the utility stocks which they had put in the banks as collateral. So the two investment trusts, which had working control of Chicagoland's utilities, went into receivership. That was how the banks, principally the Chicago bankers, had got Insull.

If the bankers desire to put the tsar out of Commonwealth Edison, Peoples Gas and Public Service of Northern Illinois, they can. presumably, do so. But last week, as a "reorganization committee" was being formed, no one suggested that they would. Tsar Insull may have lost his entire personal fortune. But who could take his place as tsar in Chicago? No banker was looking for the job.

Also into receivership last week went Middle West Utilities Company. That was a different story. Middle West Utilities is the great nation-spanning owner of hundreds of power plants, mostly in little towns, as mapped in TIME April 18.

Chicago has been Insull's lightly-held kingdom. Middle West is the utility empire sprawled somewhat shapelessly through 5,321 small cities and towns serving 6,000,000 people. It was acquired financially in the financially halcyon days. Mr. Insull could lose this village-empire and still be a great man if he controlled Chicago. But, again, it seemed that no one was prepared to take over the reins of power. That section of Middle West which lay, illogically, in New England and along the Atlantic, heavily involved with New York banks, might be taken away and attached to some large Eastern, possibly Morgan-sponsored, system. This was, however, stoutly denied last week. As for the midwest part of Middle West, stretching from Texas to Canada, the problem was to effect financial reorganization of the parent company without disturbing the profitable operation of all its 119 subsidiary parts.

For this task Federal Judge Walter C. Lindley in Chicago appointed as receivers: 1) Edward Nash Hurley, politico-businessman who once headed the U. S. Shipping Board and last month procured both Republican and Democratic conventions for Chicago; 2) Charles Alexander McCulloch, who recently bolstered the business of the late John R. Thompson one-arm-chair cafeterias; 3) Samuel Insull. When an. objection against Mr. Insull's appointment was made, Judge Lindley exclaimed: "This company is Samuel Insull's own child. His appointment is not improper because if he were excluded the company would miss the benefit of his intimate knowledge of its affairs." He made each receiver post a $100,000 bond and warned, "I expect an impartial administration of the assets of this company."

The only surprise in appointing Samuel Insull was that Samuel's brother Martin was not appointed. Brother Martin has been president of Middle West, and a great speechmaker up and down the Mississippi-Missouri Valley. Recently Samuel Insull Jr., smart son of a smart father, had been supplanting Uncle Martin in control of Middle West. Uncle Martin was out. Although Father Samuel would act officially as receiver, it was possible that Son Samuel would continue to be the practical cost-cutting manager of the sprawling empire.

What directly threw Middle West into receivership was $4,000,000 unsecured notes in the hands of the public, the first $10,000,000 of which would fall due June 1. Besides this obligation, Middle West owed the banks $30,000,000. If bankers forced the receivership, it was New York bankers, not Chicagoans. Although the Chicago banks may have Mr. Insull's personal fate in their hands because of the receivership of the Insull trusts investment, it is strong New York banks which are owed most money by Middle West.

Reorganization is a long process. That Middle West could be reorganized without affecting a kilowatt in its 5,321 towns seemed altogether probable last week. Assuming moderate patience on the part of bankers, the various regional subsidiaries of Middle West seemed to be financially solid. The aforementioned Eastern division caused the most immediate concern.

Samuel Insull's heart was primarily in Chicago with the three giant operating companies which he had brought up from childhood. He issued a statement that they were unaffected by the gyrations of the holding company securities. Their earnings were nearly as good as ever. The credit of Commonwealth Edison and Peoples Gas still stands high--have money in the bank, can easily refinance the millions of notes coming due. Public Service of Northern Illinois has less money in the bank but no one doubted its ability to get whatever money it needed at a reasonable price.

Thus, in the home town, the Insull achievement stood firm as billions of bulbs twinkled and millions of suppers were cooked. Squarely Samuel Insull faced his crisis late in life and at a time when he was preparing to take a large part in Chicago's Exposition celebrating 50 years of electric light. "My greatest ambition in life is to hand down my name as clean as I received it," he said. "It's just that. It isn't a question of money or anything else."

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