Open for Bids

The Pennsylvania Railroad Co.'s tart-tongued president, Martin Withington Clement, was once asked by the Interstate Commerce Commission why he let Manhattan's Kuhn, Loeb & Co. underwrite a Pennsy bond issue. Snapped he: "I deal with whom I please."

Last week, the ICC drastically curbed the right of Pennsylvania's Clement --and all other U.S. railroaders -- to deal where they pleased. In a historic, 26,000-word report that wound up a 20-year-old fight, the ICC ordered: after June 30, railroad bond issues above $1,000,000 must be sold through competitive bidding.

This resulted from Pennsy's attempt last July to sell a $28,483,000 bond issue of its subsidiary Pennsylvania, Ohio & Detroit Co. through Kuhn, Loeb, which had long been handling most of their refinancing. As usual, prompt objection had come from peppery Cyrus Eaton, boss of Cleveland's Otis & Co., and from publicity-shy, dapper Harold Stuart of Chicago's Halsey, Stuart & Co. Champions of competitive bidding from way back, they cried that the traditional system of financing through private negotiation be tween underwriters and railroads had al lowed Kuhn, Loeb and Manhattan's Morgan, Stanley and Co. to monopolize U.S. railroad financing. This, they complained, not only cost the railroads plenty of cash in higher underwriting fees, but throttled Middle Western underwriters. Eaton and Stuart lost the Pennsy financing to Kuhn, Loeb, but forced the ICC into exhaustive hearings and a showdown on the whole competitive bidding issue.

The ICC was unable to discover conclusive evidence that the railroads would get better prices for their issues through competitive bidding. It found it "reason able to believe" that they would. Sensibly, it held that only an actual test would tell how the system will work out. As a pre caution, the ICC left a big loophole in its ruling: competitive bidding can be waived by the ICC on specific bond issues.

But there was no doubt that the ruling was a resounding victory for Eaton and Stuart. It threatened to end Wall Street domination of the railroad field for good.

For Middle Western underwriters, the ruling could not have come at a better time. Hungrily, they licked their lips at the prospect of underwriting a huge share of the $500.000,000 in bonds which U.S. railroads may float in the next three years.

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