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Mr. SIROVICH. He just guarantees the interest?
Mr. SAUGSTAD. Yes, sir.
Mr. SIROVICH. Not the principal?

Mr. SaugstAD. No, sir. If money is borrowed from the private organization he is empowered to apply the same interest contribution features to loans for ships as he is on loans from the official institution.

Mr. SIROVICH. And the interest is 7 percent?
Mr. SAUGSTAD. I cannot say that. It varies.
Mr. SIROVICH. That is what you stated before.
Mr. SAUGSTAD. I do not believe I stated that, did I?
Mr. SIROVICH. Yes; you did.

Mr. SAUGSTAD. I said the official institution was selling bonds at about 5 percent. I do not recall saying 7.

I might say, further, on this private institution, that it is of considerable importance. It has an enormous number of branches which reach into all parts of Italy and has, incidentally, a representative in New York.

Mr. SIROVICH. What is that capitalized for? You said the other was capitalized for 57,000,000—I mean the private one.

Mr. SAUGSTAD. The official is capitalized at 100,000,000 lire.

Mr. SIROVICH. The second one, that has 100 different agencies throughout Italy?

Mr. SAUGSTAD. 150,000,000 lire. It had total resources of about 1,454,000,000 lire as of December 31, 1933, which amounts at the gold par value of the lira to about $76,000,000. So, it is a larger institution.

Mr. SIROVICH. You are talking about the second or the first one? Mr. SAUGSTAD. I am talking of the private institution now.

Mr. SIROVICH. The private institution is greater than the national organization?

Mr. Saugstad. Yes, sir. During 1933 the net earnings of the organization were more than 5,000,000 lire, or $271,000.

Mr. SIROVICH. And that is on a capitalization of how much?
Mr. SAUGSTAD. 150,000,000 lire.

Mr. SIROVICH. Well it is larger than the one you said had been created by the Government, which was for a capitalization of $57,000,000 to be divided over a period of 7 years.

Mr. SAUGSTAD. Yes, sir; it is larger.
Now you asked a moment ago concerning the financing of the Rex.
Mr. SIROVICH. And the Conte di Savoia.

Mr. SaugsTAD. I am not entirely familiar with the operations of the loans to that company; I can just recite some instances that we have picked up from time to time and which came primarily through private sources.

Mr. SIROVICH. Who operates the Rex and the Conte di Savoia?

Mr. SAUGSTAD. The Italia combine, that new combination of the three big companies, the Lloyd Sabaudo, the Navigazione Generale Italiana, and the Cosulich.

Mr. SIROVICH. How much did it cost to construct the Rex and the Conte di Savoia?

Mr. SAUGSTAD. I cannot say as to that. We have a statement which shows that the entire annual loan limit of this official institute for 1930 was advanced in 1930 to the Lloyd Sabaudo in the amount

of 150,000,000 lire each, or a total of 300,000,000 lire that year for the construction of the Rer and the Conte de Savoia

Mr. SIROVICH. Three hundred million lire?

Mr. Saugstad. Yes, sir. In other words, we assume or know from these reports that at least $15,625,000 was the sum advanced on the construction of the two ships, but we have no knowledge that is all of the money that is advanced toward them.

Mr. SIROVICH. What is your opinion of the cost of these two ships, judging them by the Bremen and the Europa, the Normandie, and the Queen Mary? They have a tonnage of about 56,000 tons; have they not, or more?

Mr. SAUGSTAD. No, sir; the Rex's gross tonnage is 51,000. I have no professional knowledge of the probable cost of the ships, but I should say apparently all the large ships, if we consider the estimates on the Normandie and on the Queen Mary, would run somewhere between $25,000,000 and $30,000,000 each.

For your information, at this point, while it is irrelevant to this particular subject, I might say a word about the financing of the Normandie which we did not touch upon the other day.

In the autumn of 1934 when the Minister of Merchant Marine of France appeared before the French Parliament in support of his budget, he made the positive statement to the House of Deputies that the French Government would be obliged to pay not only thecost but the financing of the Normandie. He said that when the ship entered service, which is scheduled to be June 7 this year, they will be obliged to increase the operations contract to the French line, or they will have to find some other way of financing the vessel. He said that during the first part of this year, he was going to introduce & bill before the House of Deputies providing for the payment of the entire cost of the ship and her financing, and he indicated that that cost was to be 800,000,000 francs. That does not necessarily mean that the cost of construction of the vessel would be that the actual cost of the construction of the vessel; but it means the cost of construction plus whatever financing charges she has already incurred.

The reported gross tonnage of the Normandie is 75,000 gross tons, which makes her considerably larger than the two Italian ships.

Mr. SIROVICH. While on that question, you said the bill in the House of Deputies would call for an appropriation of about 800,000,000 francs; is that right?

Mr. SAUGSTAD. Yes, sir.

Mr. SIROVICH. At the current rate of exchange, of about 16 francs for a dollar, it would mean almost $50,000,000 just for the cost of construction and operation of the Normandie?

Mr. SAUGSTAD. Just for construction.
Mr. SIROVICH. Not for operation at all?

Mr. SAUGSTAD. No, sir. "The Minister of Merchant Marine said he had to make some special arrangement for the amortization of that ship.

Mr. SIROVICH. Could a company amortize in the lifetime of a ship, which is 20 years, $50,000,000?

Mr. SAUGSTAD. I do not see how the French line possibly could, under its contract.

Mr. SIROVICH. That is what I am trying to find out. So that there really is a direct subsidy there, and how much only time can tell?

Mr. SAUGSTAD. I have no way of knowing at all. I might add that we have estimates on the cost of the Normandie running between $27,500,000 and $30,000,000; so that the added charges indicated by the Minister must have referred to the finance charges that she has already incurred under construction.

It might be of interest for the record to state, also, in connection with that ship, that at the time of her launching the new head of the C. G. T. made the statement that Great Britain, France, Germany, and Italy might well consider the advisability of a conference to consider the enormous cost of that type of vessel.

The CHAIRMAN. In fact, it has been suggested over there in Great Britain, in a speech of the House of Parliament, that they might well consider an international conference on the limitation of the size of super liners.

Mr. Saugstad. I did not know that; but I thought it was particularly interesting that the President of the owning company would make a remark like that at the time of the launching of the vessel itself.

The CHAIRMAN. As I recall, that statement was made in the House of Commons.

Mr. SAUGSTAD. I have no knowledge of that.
Mr. SIROVICH. I think it is found in your book, too.

Mr. SAUGSTAD. Possibly. I might add just a word of explanation as to the possible reason for the laying down of the Normandie, to begin with. It really was laid down under a contract which the company signed in 1912, which provided for the construction of four vessels during the life of the contract, which was to run for 25 years. The war period relieved the company of certain contract conditions.

The last ship to be constructed under that contract was to be equal in size and speed to any ship afloat. That was the contract specification, and the ship was so laid down and many think that this was a cause of the financial difficulties of the French Line itself.

Mr. SIROVICH. How many knots is this Normandie supposed to make?

Mr. SAUGSTAD. I believe she is supposed to have more than 28 knots of speed. Trade discussion revolves around 28-knot cruising speed with possibly a 4-knot reserve.

Mr. SIROVICH. And the Rex, when she won her blue ribbon, how many knots did she make?

Mr. Saugstad. She averaged on that run 28.92 knots per hour. She is said to hold all speed records for the North Atlantic crossing, and this record was made in August 1933. By the way, if it is of interest to the committee, I have a few photographs of the Rex here, if you

would like to take a look at her interior decorations. Mr. SIROVICH. I have been on her, and also on the Conte di Savoia. Mr. SAUGSTAD. They are magnificent ships.

Mr. SIROVICH. Yes. And the Savoia is a few thousand tons less than the Rer.

Mr. SAUGSTAD. Yes.

Mr. SIROVICH. Have you any figures to determine whether the Rex and the Conte di Savoia are losing or making money?

Mr. SAUGSTAD. I have no knowledge of that.

To return to the 300,000,000 lire loan made to these two vessels, we might add that the bond issue which was floated to raise the necessary funds was offered in single denominations of 500 lire each, with interest at 6% percent, of which the Italian Government guarantees 2 percent. The interest runs from January 1, 1932, and is payable twice a year, and the bonds are supposed to be redeemable in 13 years, in 6-month quotas. The bonds were offered to the public at 480 lire, plus interest from January 1, 1932, which, according to the prospectus, means a net yield of about 7.4 percent to the investor.

They are a liability of the Institute of Maritime Credit and are guaranteed by its capital of 100,000,000 lire, which we have referred to, its reserves, which at that time were 6,000,000 lire, and the credit of 300,000,000 lire of the Italia Co. which owns the ships.

At the time of the loan, the institute took a mortgage on the vessel property of the combine, which included about 20 ships, including the Rex and the Conte di Savoia, plus the Augustus, the Roma, and all of the Conte vessels. I presume the total tonnage included in that must have been from 150,000 to 175,000 gross tons, covered by that mortgage.

The insurance on the Rex and the Conte di Savoia is said to be in the neighborhood of 6,000,000 pounds sterling about one-half of which was underwritten by the private insurance market; that is 2,000,000 is reported to have been taken by Lloyds and about 750,000 pounds by all of the other marine markets of the world. Mr. Hart. A total of 6,000,000 pounds?

Mr. SAUGSTAD. A total of 6,000,000 pounds, yes, sir. Owing to the inability of the private market to absorb the insurance the Italian Government in 1932 authorized the National Insurance Institute to cover the balance until the delivery of the two ships. The coverage included construction and equipment, trials, total loss or abandonment–the institute being authorized to insure these risks separately, either directly or through affiliate companies. The entire matter was managed for the account and in the interest of the Government. The beneficiaries were the builders, the policies being jointly held by the Italia Co. and the National Insurance Institute.

The amount of coverage under the decree was not to exceed the amount not covered in the private insurance market. The premiums were placed in a special fund deposited with the National Insurance Institute, to be managed by a special committee comprising two officers of the Institute, one representative each from the Departments of Communication, Finance, Corporations; one representative of the Italian Shipping and Aeronautic Register; one representative of the National Facist Confederation of Marine and Air Navigation Concerns; one representative of the company affiliated with the National Insurance Institute administering the special coverage, and a representative of the Italian Reinsurance Union. The Instituté, incidentally, was authorized to use 3 percent of the premiums for administrative expenses.

That is all the information I have on the possible financing or insurance of those two vessels.

I might say, while we are on the general subject of maritime credit and financial assets of the Italian shipping companies, that in January 1933, there was instituted or organized an institute of industrial reconstruction, whose purpose it was to extend long-term loans to industries partaking of the character of public utilities and in need of fresh capital. Those orgnizations had a capital of 100,000,000 lire subscribed by the State-controlled deposit loan bank and two State-controlled insurance companies. The institute was authorized to raise funds through bonds guaranteed by the State.

No shipping loans were listed in the authority, but special authority later was given to absorb all of the 4,176,000 shares of new stock in the Italia combination not otherwise taken up.

Apparently the purpose of this organization is to extend financial aid to companies who need reorganization. As to what securities they may exact in the way of mortgages on vessel tonnage, I have no knowledge.

Mr. Sirovich. What is the name of that organization?

Mr. SAUGSTAD. It is the Institute of Industrial Reconstruction, organized in January 1933.

Mr. Sirovich. Is that like the Reconstruction Finance Corporation?

Mr. SAUGSTAD. It might have some similar powers; I do not know. Are there any further questions on the finance policies of Italy?

Mr. SIROVICH. Outside of Genoa and Trieste, have they any construction yards in Italy?

Mr. SAUGSTAD. I am not familiar with that, sir.

The CHAIRMAN. That covers the subject of Italy, does it, Mr. Saugstad?

Mr. SAUGSTAD. No, sir; I have one more subject I would like to deal with; that is, the construction subsidies directly.

The 1926 subsidy, program of Italy included a policy of direct subsidies to shipbuilding yards. This policy rests basically on the lack of coal and ores necessary for the heavy industries in Italy and accordingly the policy provides for certain bounties, tariff reductions on materials, and direct payments to Italian shipyards in the construction of ships.

The basic law covering ship construction bounties in Italy is that of July, 1926, modified in 1929. It is of general scope, but its application is restricted by the power vested in the Minister of Communications to determine what ships shall be entitled to its benefits within certain limits. The law itself directs the Minister to give precedence to ships building for the subsidized lines whose plans have been approved by him. He is authorized to deny the benefits of the law to any vessel of which the hull is not 20 percent complete or for which the contract for propelling machinery has not been placed within 6 months after he has approved the plans, if the ship is less than 6,000 gross tons; within 8 months, if the ship is between 6,000 and 8,000 tons; within 11 months, if the ship is between 8,000 and 12,000 gross tons, and within 14 months if the ship is over 12,000 gross tons.

The shipbuilding bounties are of two kinds--tariff bounties and construction, repair and alteration bounties.

The tariff bounties are designed for the benefit of Italian steel and metal manufacturers, to whom shipbuilders must pay higher prices for domestic shipbuilding materials. Under the law of 1926, an annual appropriation of 26,000,000 lire ($1,368,000 at stabilized exchange) is authorized as a tariff bounty until July 1938. A portion of the materials used may be imported free of duty. Thus, duty-free foreign materials for the construction of machinery up to a limit of

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