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Mr. SAUGSTAD. Yes, sir.

Mr CULKIN. Do those two disbursements cover the whole field of French subsidy?

Mr. SAUGSTAD. No, sir.
Mr. CULKIN. Including the 405,000,000 and the 90,000,000?
Mr. SAUGSTAD. No, sir.
Mr. CULKIN. There is more that you have not described ?
Mr. SAUGSTAD. Yes, sir; I have not finished.
The CHAIRMAN. Proceed.

Mr. SAUGSTAD. The next subject under French subsidies is the interest contributions on loans covering mortgages on ships built by French shipowners, either in France or in foreign countries. The appropriation for 1935 under this head is 21,500,000 francs, an amount at gold par equal to $840,000 or at current exchange to about $1,420,000.

Mr. SIROVICH. How is that contribution given to interest?

The CHAIRMAN. I think the witness will cover that entire field if he is just permitted to go ahead and develop that, and then ask questions.

Mr. SAUGSTAD. The interest contribution of the French Government is one-half of the interest charge on that portion of a loan underwritten by the Government itself with certain variations. Under the original law of 1928, it was found that the 50-percent liability of the Government resulted in some cases in the operator paying a very small sum and it was therefore fixed as a limit that no matter how low the interest rate fell the French shipowner must pay not less than 2 percent of the interest share on cargo ships, nor less than 3 percent on passenger ships. Does that answer your question?

Mr. SIROVICH. Yes.

Mr. SaugsTAD. Now, the developments under that policy were these: There was set aside an annual contribution by law of 6,000,000 francs for a term of 5 years. It was found that that amount of money was not necessary; so, in order to give a further aid, the French Government by subsequent amendments to the law authorized the expenditure of one-half of the interest rate on 85 percent of the loan, which would, in that case, cover not only the Government's position as the mortgagee, but also one-half of whatever interest might be paid to others holding interest in the ship. And finally, in 1931, the money still not having been expended, they authorized one-half of the interest contribution on the basis of 100 percent of the value of the vessel under construction. That, however, was made as a special contribution in the interest on account of the exchange rates at that time.

The basis on which these interest contributions are made rests upon the fifth subject that I outlined this morning, which is the extension of public credit by the French Government on mortgages on vessels. În 1928, the French Parliament authorized the Credit Foncier, which is the leading French real estate bank, to advance an amount of 200,000,000 francs annually for 5 years against ship mortgages. At the expiration of the 5-year period, the authorization was again extended for 4 years to a total amount of 125,000,000 francs annually. This means that the total authorization of that bank under its charter operations permits it over a period of 9 years to advance 1,500,000,000 francs, or an equivalent at gold par of about $59,000,000 and at current exchange rates about $100,000,000.

The extent to which the Government authorized the bank to underwrite the paper was 50 percent of the value of the tonnage under construction or building, but that limitation may be increased if the borrower, in addition to his mortgage on the vessel, adds a bank guarantee. In that case, the Credit Foncier may advance 70 percent of the value of the vessel.

The CHAIRMAN. That is for construction purposes? Mr. SAUGSTAD. Or for purchase. In addition, if the owner or borrower puts up additional collateral, the bank may advance 85 percent of the value of the vessel.

The financial results of that law up to the end of September 1934, the report of which covered only the first period of operationthat is, from 1928 to 1933-show that during the first period an amount equal to 441,235,000 francs had been advanced, of which 80.187,787 francs had been repaid; or, roughly, 18 perce of the loan. Do you want me to state for the record the tonnage and the amount involved? It is in these publications and it is a lengthy, detailed statement. I wonder if we could not merely extract it from the record here and insert it. The CHAIRMAN. Yes, insert it in the record. (The data above referred to is as follows:)

REORGANIZATION OF COMPAGNIE GÉNÉRALE TRANSATLANTIQUE

AND CONTRACT OF 1933

In 1933 the Compagnie Générale Transatlantique was completely reorganized by law and a new contract was concluded, covering three services previously operated under individual contracts. This was accomplished (1) by law of July 20, 1933, authorizing and covering the reorganization of the company; (2) by another law of July 20, 1933, authorizing the minister of the merchant marine to enter into an agreement with the Compagnie Générale Transatlantique, after that company had been reorganized; and (3) by the contract and regulations finally adopted.

DEVELOPMENTS LEADING TO REORGANIZATION

In 1931 the Government of France officially recognized a serious financial crisis in the operations of the Compagnie Générale Transatlantique. The company's accounts for 1930 showed a deficit of 30,423,079 francs ($1,192,584), as compared with a gross profit of 107,306,354 francs ($4,206,409) and a net profit of 16,781,928 francs ($657,851) for 1929. The company had ordered many Fessels during recent years, and payments due shipyards by 1931 totaled 276,000,000 francs ($10,819,200). Due to the depression in world trade, 30 of the company steamers were laid up.

Plans for reorganization came up for consideration in the French Parliament in December 1931. These included: (a) Temporary reduction in capital and partial write-off of operating deficit, subsequent increase of capital to be supplied by another French steamship company and a shipbuilding company; (b) a moratorium on the annuities of 35,000,000 francs ($1,372,000) excessprofit duties due the French Treasury; (c) increase in subsidies to the New York line to 25,000,000 francs ($980,000) for 4 years, and 20,000,000 francs ($784,000) for the next 10 years; and (d) reimbursable advances of 160,000,000 frapes ($6,272,000) from the French Treasury, or a Government guaranty of a loan in that amount.

The Chamber of Deputies passed such a bill the latter part of December 1931, but when it was received by the Senate, that body refused to take it under consideration and in refusing consideration of the bill indicated that no gentral program of relief would pass the French Senate without a careful analysis of the company's activities up to that time, and that further administration of the company would be along reorganized lines.'

Accordingly, the Senate and Chamber of Deputies both voted a temporary appropriation of 110,000,000 francs ($4,290,000) in February 1932, in order to cover the estimated deficit of the company's operations for the first half of 1932. This sum was advanced by the French treasury to the company, to be entered on the books of the company as a debt to the French treasury that must be refunded.

On April 9, 1932, a law was passed by the French Parliament authorizing the Government to guarantee a loan not to exceed 68,748,000 francs ($2,681,17-) for completion of the building program of the Compagnie Générale Transatlantique, the Government to take mortgages on real estate and floating equipment as security for the loan."

PARLIAMENTARY INVESTIGATION

During 1932 the difficulties of the Compagnie Générale Transatlantique were thoroughly aired in the French Parliament. The entire investigation of the company's affairs was subject to study by parliamentary committees and to floor devates. The debts of the company on July 31, 1932, were, in round numbers, 1,800,000,000 francs ($70,200,000). About 531,000,000 francs ($20,986,200) were well secured. Badly secured debts amounted to 1,272,000,000 francs ($49,986,600), which were written down to about 143,000,000 francs ($5,619,900), so that the total indebtedness of the company remained at about 1,000,000,000 francs ($39,300,000), enough to require 90,000,000 francs ($3,537,000) annually for interest and amortization.

In July 1933, as stated, the French Parliament adopted the proposed Govern. ment plant for reorganization of the company. The bill rallied the full support of both houses and the Minister of Merchant Marine, in reporting the proposition, declared that when he assumed office and began to consider the problem of the company, he was faced with a choice between liquidation and national considerations, which resulted in the program finally presented for adoption.

In discussing the proposal the Minister of Marine stated that during the past 20 years the company received an average of 6,500,000 francs ($253,500) for maintenance of service between Havre and New York in exchange for carrying 10,000,000 francs ($390,000) worth of mail, according to rates paid foreign countries for similar services, and in addition transported gratuitously officials and government cargo representing 10,000,000 to 12,000,000 francs a year.

In respect of the Normandie, the minister stated that over 400,000,000 francs ($16,580,000) had already been expended on that vessel. He stated then the new management had reduced overhead and operating expenses by 122,000,000 francs ($4,704,000).

REORGANIZATION

Reorganization of the Compagnie Générale Transatlantique was carried out, as stated, under provisions of law of July 20, 1933. The law prohibited the minister of the merchant marine from entering into new agreements with the company unless all provisions of the act were complied with,

The reorganization was to be effected within 4 months and was to be accepted by the creditors, stockholders, and bondholders, and in such a manner that the amount of the company's indebtedness and the new capital together should not exceed the value of the fleet, depreciation being calculated at the rate of 4 percent for cargo vessels, 5 percent for combination passenger and cargo vessels, and 5 percent for passenger vessels, land, buildings, and securities. It was provided also that vessel tonnage should be subject to a reduction of at least 15 percent in valuation, and that the value of the Normandie, then under construction, should be the value of the expenditures made for its construction.

The floating property valuation was to be based at December 31, 1932, and was to be computed in accordance with rules for industrial amortization. The value of the fleet was reduced to 1.057,738,327 francs ($41,252,000), which compares with the valuation of floating and real property at 1,598,681,861 francs ($62,349,000) on December 31, 1931.

1 Trade Commissioner Paul Malone, June 22, 1932, Paris. 2 Journal Official, Apr. 12, 1932.

STOCKHOLDERS

Stock- and debenture-holders' meetings were held in September 1933 for the purpose of voting on the new financial organization.

The old capital was canceled with the exception of the A shares at 9,000,000 francs, held by the Government, which were reduced by 60 percent. The shareholders received temporary bonds (actions de jouissance) in place of their shares at the rate of 1 for every old share of 600 francs or 4 of 150 francs. These are voting shares and are entitled to a preferred dividend of 6 francs at the same time as new capital is entitled to a dividend.

DEBENTURE HOLDERS Various debentures were reduced by 60 percent, both as regards interest and reduction of capital. Amortization was to be resumed on January 1, 1934, and was to be completed on the dates fixed on the original arrangements. As compensation for the loss of 60 percent, debenture holders were to receive: (1) 10 percent of the nominal value of their debentures in B capital shares, and (2) 50 percent of the nominal value of the debentures in beneficiary shares, on the basis of 1 share for 2 debentures of 1,000 francs or 4 of 500 francs.

CREDITORS

The amount due sundry creditors was 1,695,000,000 francs ($66,105,000). This was reduced to 1,143,000,000 francs ($44,577,000). Two hundred and eight million francs ($8,112,000) was paid in capital shares, and 28,000,000 francs (81.100,000) in debentures with variable income. The terms of settlement of the remaining 907,000,000 francs ($35,400,000) were to be arranged with each creditor individually. As compensation for the reduction of 552,000,000 francs ($21,500,000), creditors received beneficiary shares and bonds of variable revenue, or any other authorizations that might be created with a view to making the financial reorganization possible. It was determined that such beneficiary shares were to be issued, 1 per 1,000 francs.

The Minister of Finance was authorized under the law to accept a reduction of the credits of the Government to the Compagnie Générale Transatlantique in the proportion at most equal to that of the credits of the same class held by third parties, but the stocks of the company received by the Government by way of compensation cannot be transferred without legislative authorization.

NEW CAPITAL

New capital was authorized at 218,476,950 francs $8,521,000), including 8.476.970 francs ($331,000), represented by 56,513 A shares of 150 francs, with special voting rights, and 210,000,000 francs ($8,190,000) of B shares of 150 francs each, reserved for the company's creditors and debenture holders. There was to be issued in addition 450,871 temporary bonds (actions de jouissance) without nominal value, which were to be handed over to the old shareholders, and 625.000 beneficiary shares, which the debenture holders and creditors were to receive for reduction in their credits.

The Government was given preferential right to participate in increased capital, and the Minister of the Merchant Marine was officially authorized to assure such services of the company as he might deem necessary, at the expense of, and for the responsibility of the company and the creditors.

Finally, the board of directors was authorized to issue debentures of 150 francs each. with variable income (342 percent minimum, eventually raised to 5 percent through a participation in the profit), reserved for the creditors, and to contract for a loan of 150,000,000 francs in ordinary bonds or debentures, the limit fixed by the same law which also authorized the Minister of Finance to offer the Government's guaranty for the service of the company, and for both the interest and amortization of loans, which were to be negotiated by the company for the purpose of refunding bills which must be paid immediately following the financial reorganization. For the security of any such guaranties the Government was authorized to accept mortgages on buildings, vessels, and assets of the company.

Old capital authorized was 450,000,000 francs ($17,550,000), of which there was out. standing Dec. 31. 1931, 258,000,000 francs ($10,062,000) common stock B and 12,000,000 francs ($468,000) priority stock B.

* There were outstanding Dec. 31, 1932 110,133,000 francs ($4,295,000) in 3-percent boods : 8.800,000 francs ($343,000) 'in 4-percent bonds : 156,370,000 francs ($6,098,000) in 5-percent bonds; 87,140,000 francs ($3,398,000) in 414-percent bonds.

Distribution of profits, after making all allowances provided in the operating contract, was authorized as follows: (1) 5 percent to A and B shares, plus, eventually, the necessary sum to complete to 5 percent the dividend of the 3 previous years; (2) 6 francs per temporary bond (actions de jouissance) : (3) 10 francs per beneficiary share. These allowances are to be reduced proportionately in case the profit should be insufficient to allow a full distribution. Any balance left after this distribution is to be divided as follows: Foursevenths to the capital shares, one-seventh to the temporary bonds (actions de jouissance), and two-sevenths to the beneficiary shares.

THE GOVERNING BOARD

The law provided that the company must reserve to the Government the right to designate a number of administrators, proportionate to its participation in the capital of the company, and that the number of such administrators may not be less than one-third of the total number. The Government representatives are appointed for a period of 6 years, and have the same rights on the board as other directors. They must send each year to the three ministers interested, within 30 days following the annual meeting, a report of the company's operations during the past year, especially so far as the interests of the State are concerned.

The new board was elected on November 20, 1933, and comprised 18 memhers, 10 of which were appointed by the Government, 6 elected by the sharehoiders, and 2 representing the sea-going and shore employees. The 10 representatives of the Government were: M. Marcel Olivier, Honorary Governor General of Madagascar; M. Henri Cangardel, shipowner; Messrs. Marraud and Peytral, former ministers; M. Robin, colonial governor; M. J. Marie, of the Merchant Marine Department; Messrs. Haguenin, Baumgartner, Le Bec and Laure, of the Ministry of Finance. Shareholders elected M. Edmond Delage. naval and shipping editor of the Temps; Admiral Grandclement; M. M. de Groucy, former official of the Finance Ministry: M. Morain, former prefect of police: M. Morard, president of the Chamber of Commerce of Algiers; M. H. du Pasquier, president of the Chamber of Commerce of Havre, and of the Havre Port Authority. The two representatives of the sea-going and shore personnel were not named at that meeting.

Governor-General Olivier was unanimously elected chairman, a position he held on the provisional board, and . Cangardel was appointed director general, they being, with M. H. du Pasquier, the only members of the old board to be retained."

COMPAGNIE GENERALE TRANSATLANTIQUE CONTRACT OF 1933 The 1933 contract between the French Government and the Compagnie Generale Transatlantique is a comprehensive document, comprising (1) a law authorizing the Minister of Merchant Marine to conclude a contract; (2) the agreement; (3) supplement to agreement, covering insurance of the Normandie; and (4) list of duties or regulations annexed to the contract in 9 chapters. The contract covers the services of the Compagnie Generale Transatlantique between France and North America, between France, Mexico, the Antilles, and Central America, and between Mediterranean France and North Africa.

I. AUTHORITY

The contract was authorized by law of July 20, 1933, which authorized the Minister of Merchant Marine, after financial reorganization of the company. to conclude a contract in behalf of the Government, the contract being annexed to the law. The enabling act provided that in purchases of equipment by the Compagnie Generale Transatlantique from the highest bidder, the French Workingmen's Associations, represented in a list determined by the Ministers of Labor and Merchant Marine, and organized under the Labor Code, should benefit by the provisions of the decree of October 1, 1931.

5 An interesting statement was attributed to Chairman Olivier at the launching of the Normandie in October 1932, when he raised the question of what he termed a * Washington Disarmament Conference on large, fast, expensive vessels, suggesting that Great Britain, Germany, France, and Italy should seriously consider the enormous cost of the competitive construction of superliners.

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