Kahn Explains

The Capital of the U. S. is no summer resort. Last week Washington's quasi-tropical sun, blazing down upon the Capitol, did its best to drain the vitality of all men who went about their business there. And perspiration stood upon the white fringed brow--as round and far more sunburned than the Capitol dome-- of Senator Duncan Upshaw Fletcher. The venerable Senator might have been spared that ordeal. He might have returned to his constituents and sat with proper refreshment under the palm trees where the Atlantic laps on Florida's coral strand. His age, 74, entitled him to that surcease. Forty years as a holder of public office--in the Florida Legislature, as Mayor of Jacksonville, as U. S. Senator (for 24 consecutive years )--have dowered him richly with the privileges of seniority. Yet he stayed in Washington, by his own choice, in the service of his country. As chairman of the Senate Banking &Currency Committee he still had the incompleted task of investigating the nations bankers with the aid of the committee's diligent counsel. Mr. Pecora. Of Mr. Fletcher's colleagues, Senator Glass had gone home and Senator Couzens to London. The committee was thereby relieved of two members who, when John Pierpont Morgan was on the stand, more than once took the direction of the inquiry into their own hands. Senator Fletcher insisted upon going on without them. Never in his long political career had he been privileged, uninterrupted, to do so outstanding a public service. Last week in the course of that service he had the pleasure of shaking hands with famed Partner Otto Kahn of America's second biggest private banking house: Kuhn, Loeb. Not having met Mr. Kahn before, he was not only pleased but surprised to hear the banker, who prides himself on being one of the artistic intelligentsia, lard his testimony day after day with such comments as the good Senator would have expected to meet in any "liberal" paper.

At one moment Mr. Kahn paused to remark, "I know a great deal must be changed; I know the time is ripe to have it changed." At another he damned stock gambling. Again & again he declared in a dozen different ways how deeply the excesses of 1929 had shaken his faith in the capitalistic system: "We can only plead that we were young and that we were learning, and all experience is a costly experience."

In the face of these disarmingly human opinions the Senator could well believe Mr. Kahn when he said (after admitting that some of his securities had been sold to his daughter on Dec. 30. 1930 establishing a tax loss of $117.000): "If there is one subject on which my knowledge is less than it is on income tax returns. I do not know it." Senator Fletcher was last week much vexed because the biggest news of the hearing did not come out while he was presiding. Behind his hack United Press newshawks ferreted out a fact, given to the committee in confidence, that Kuhn, Loeb is controlled by four of its eleven partners: Felix Warburg with an 18% interest, Otto Kahn with a 14% interest, young John Schiff (son of the late Mortimer Schiff, who inherited his father's interest in the firm) 13%, Elisha Walker, 13%.* Also, 8% of the profits go into a pool for the senior partners. The remaining 34% are divided among the seven lesser partners, of whom the five juniors are exempted from sharing in losses. Capital contributed to the firm by the chief partners: John M. Schiff $6,500,000 Felix Warburg 6,000,000 Otto Kahn 2,500,000 Elisha Walker 1.000,000. The facts brought out in the testimony itself were less novel, paralleled generally the discoveries about Morgan & Co.: P: Mr. Kahn had paid no income taxes in 1930, 1931, 1932. P: Kuhn, Loeb like Morgan & Co. had invited friends to share in its stock notations, its list including Percy A. Rockefeller, Charles E. Mitchell, Albert H. Wiggin, W. H. Williams, Newcomb Carlton, Leonor F. Loree. Robert S. Lovett, Samuel Rea, Frederick H. Ecker. P: Kuhn, Loeb from 1927 to 1931 had netted $12,000,000 in floating 64 bond issues and $2,930,000 in floating six stock issues.

P: Kuhn, Loeb advised the Pennsylvania Railroad when it wished to buy other roads for future consolidation to form the Pennroad Corp. and offer its common stock to the Pennsylvania stockholders. For assistance in floating this issue Kuhn, Loeb got options on four blocs of 125,000 Pennroad shares each and exercised two of them at a profit of $2,701,000. P: Asked about Kuhn, Loeb's flotation of $90,000,000 in bonds (now in default) for the Mortgage Bank of Chile, Mr. Kahn exclaimed poignantly: "Ah that is a very sore point!" After selling the bonds to the public, Kuhn, Loeb had advanced $8,000,000 of its own money, now also tied up, and its actual losses amounted to $600,000 compared to a profit of $370,000 on the issues sold.

*Newest partner, able Elisha Walker, 53, made his name as head of the investment house of Blair & Co. and later headed Transamerica Corp. A bankless banker after Amadeo Peter Gianninni ousted him from Transamerica (TIME, Feb. 22, 1932), he joined Kuhn, Loeb.

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