Washington, D. C., April 29, 1935. Hon. Burton K. WHEELER,

United States Senate, Washington, D. C. MY DEAR SENATOR WHEELER: On request of Mr. R. C. Behrens, vice president of the St. Louis Union Trust Co., I am enclosing a statement in reference to the proposed legislation affecting holding companies. Sincerely yours,


STATEMENT OF THE St. Louis UNION Trust Co., OF St. Louis, Mo., BEFORE


The St. Louis Union Trust Co. acts in a fiduciary capacity for a great many trust estates which contain securities that will be affected by the enactment of bill H. R. 5423. The securities supervised by us which will be affected by this bill have a value in excess of $40,000,000. Only a few of the securities in these trust estates were purchased by us, while a great majority of these issues were bought in good faith by individuals and entrusted to us for supervision and safekeeping for the benefit of their dependents. A great many beneficiaries of these estates have authorized us to act for them in regard to this bill.

The St. Louis Union Trust Co. has a capital and surplus of over $12,000,000. It is the oldest trust company in Missouri and transacts the largest volume of trust business in the State. There is no person connected with this institution who can be classed as a director. officer, or representative of any utility company which comes under the jurisdiction of this bill. We are definitely in favor of all fair and equitable regulation of utility holding companies which is designed to protect the consumer, the investor, the operating company and the holding company from certain malpractices and abuses which may have occurred in the past. However, we are strongly opposed to any legislation, such as proposed, that will be harmful to the investor and work hardships on the operating and holding companies

We are chiefly concerned for our purposes with title 1 of the Public Utility Act of 1935. Titles 2 and 3 of the act have to do with the operation of various utility systems and have been discussed before your committee by the officers of utility companies who are more familiar with utility business; although it should be borne in mind that many sections of titles 2 and 3 will adversely affect the interests of investors.

We will consider under title 1 only those sections of major importance which will have, if enacted, an injurious effect upon investors.

Section 7B provides that it shall be unlawful after January 1, 1937, for any registered holding company, or any subsidiary thereof which is an electric utility company to own or have an interest in any company which is engaged in the production or transportation of natural gas. (The Securities Exchange Commission may extend the dissolution date of Jan. 1, 1939, under certain circumstances.)

The effect of section 7B would be to enforce companies to sacrifice a part of their interests or business on or before January 1, 1937, at probably extremely low prices bought about by a statutory dissolution. The sale of these assets at low prices would leave little if anything remaining for the equity holders.

Section 7D provides that it shall be unlawful after January 1, 1937, for any registered holding company to have any interest in an electric utility company and a gas utility company serving the same territory, unless a State commission shall expressly approve such action. (The Securities Exchange Commission may extend the dissolution date to Jan. 1, 1939, under certain circumstances.)

The effect of section 7D would be to give State commissions the power to decide whether or not a company may own electric and gas properties operating in the same area. In the event that the State commission does not expressly approve the ownership of the two properties, a forced liquidation of a part of the business would be necessary and would result in the company and its stockholders obtaining only a fraction of the fair value of the properties so liquidated.

Section 10B, part 1, 2, and 3, provide that after January 1, 1938, the Securities Exchange Commission must compel every registered holding company and every subsidiary thereof to dispose of all securities or capital assets of such companies whenever it appears that the continued ownership is not necessary or appropriate to the operations of a geographically and economically integrated system, or that the corporate structure or continued existence of any such company unduly

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. or unnecessarily complicates the structure of the public-utility system of which it is a part, or is detrimental to the subsidiary companies thereof or to investors or consumers. (Under certain conditions, the Securities Exchange Commissio: may defer action for a period not extending beyond Jan. 1, 1940.)

Section 10B, part 4, provides that immediately after January 1, 1940, every registered holding company must dispose of all securities or be reorganized or dissolved insofar as it may be necessary to make every such company cease to be a holding company. (Under certain circumstances, the commission may permit a registered holding company to continue after Jan. 1, 1940. However, sex companies would be able to qualify under this provision.)

The effect of section 10B would be to force a liquidation of the assets of almost all holding companies in the next 242 years. As a result, it would be necessary for these companies to convert their assets into cash in order to pay off at par or better all bonds, debentures, other creditors and preferred stock of the holding companies. Under these circumstances, it would seemingly be impossible to obtain a fair value for these assets, and, in all likelihood, there would be little if anything remaining for the common stockholders. In a large percentage of cases, the preferred stockholders would receive only a fraction of the par value of their investments.

We believe that the bill as a whole and particularly the above sections is so drastic and so harmful to investors that, if passed, it would result in irreparable damage to the investor. The utility business is comparatively young and is still in the early stages of technological development. Moreover, the industry is in continual need of capital for expansion, and the injury done to honest investors by enactment of this bill would destroy for a long period of time the present capital market of utility companies and which over the longer term would eventually result in poorer service for consumers.

In addition, the beneficiaries of our trusts and estates will suffer great losses if this bill is passed in its present form. This institution believes in and advocates fair regulation of holding companies and is in no sense protesting against any legislation which endeavors to accomplish this. However, we have been entrusted with a great many funds for supervision and safekeeping for the benefit of a large number of beneficiaries whose income and well-being are absolutely dependent thereon. It is for the protection of these beneficiaries that we are asking you not to approve this bill in its present form.

We are taking the liberty of making the following suggestions believing that they may be of some aid in formulating a bill that is constructive and in the interests of investors.

1. Accounting practices of holding companies should be strictly regulated by the Federal Government so as to make them uniform and not deceptive to the public. Earnings statements should be published monthly and full publicity given to all financial transactions. General corporate information concerning the holding company and subsidiaries should be filed with the Commission. (It should be borne in mind that the better companies already comply with most of this section.)

2. Upstream loans should be prohibited. Loans from holding companies to operating companies should be allowed only if the State commission expressly approves the loans. In the absence of a State commission, the Securities Exchange Commission should have the power to approve or reject said loans.

3. The Federal Power Commission should have control of all interstate rates not already controlled by State commissions.

4. The holding companies should have the right to acquire securities in operating companies when expressly approved by State commission, or in the absence a State commission, the Securities Exchange Commission shall have the power to approve such purchase.

5. It would seem unnecessary, in our opinion, to consider further regulation of the issuance of securities by either holding companies or operating companies The Securities Exchange Commission already has power to regulate, and does regulate effectively, the issuance and sale of all securities.

In order to incorporate the above points into a fair and equitable bill, "? suggest that the House Interstate and Foreign Commerce Committee appoints small committee representing the interested parties. This committee can meti immediately and prepare legislation in the next week or so that would be fair ari just to the public, the consumer, and the investor. We ask that the House Interstate and Foreign Commerce Committee consider this proposal as a constructive attempt to foster legislation that will fairly regulate and effectively control pubicutility holding companies and their subsidiaries.


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