The formation of the Oregon & Transcontinental Company put Mr. Villard in control of the Northern Pacific. Mr. Villard’s financial strength in later years was due mainly to the support of German interests, notably the Deutsche Bank of Berlin; but his hold on the bank and on his followers was partly due to his real ability and resourcefulness, and partly to his confident predictions of results which sometimes he was but frequently was not able to attain. One of the company’s first acts after his appearance was the declaration of a scrip dividend upon the preferred stock. The question had been raised in the course of his fight for control, and he perhaps felt it incumbent upon himself to show the sincerity of his contentions; at any rate, the annual report for 1882 contained a statement that the surplus earnings since 1875 had been used for construction instead of being distributed as dividends, and that the sum of $4,667,490 was therefore properly due to the preferred stock. On the strength of this the directors resolved that a dividend of 11.1 per cent be declared, for which there were to be issued obligations of the company bearing 6 per cent interest, payable at the end of five years, but redeemable after one year at the pleasure of the company upon thirty days’ notice, in amounts of not less than 20 per cent to each holder. The policy thus initiated was plainly non-conservative and unsound. It may be true that as a general principle new construction should be paid for out of capital rather than out of income account, yet this is subject to qualifications; and the Northern Pacific had been and was in so precarious a condition that not a dollar of its resources could safely have been alienated. The sequel came in 1883 when the annual report admitted that there had been an excess of expenditures on account of construction and equipment of $7,986,508 over the cash receipts from the proceeds of the $40,000,000 general mortgage bonds, sales of preferred stock, and other sources;[562] and when by October of the same year the deficit had been increased to $9,459,921, and a circular from President Villard stated the additional cash requirements to amount to $5,500,000.[563] Relief had to be sought in an increase of indebtedness. On October 6, 1883, the directors authorized a second mortgage for $20,000,000 upon the property, subject to the consent of three-fourths of the preferred stock, and in a circular explained that they had accepted a proposition of Drexel, Morgan & Co., Winslow, Lanier & Co., and August Belmont & Co. to take $15,000,000 of the issue at 87½, less 5 per cent commission in bonds, with a six months’ option to take $3,000,000 more on the same terms. The stockholders assented,—they could do nothing else,— a suit for an injunction was denied, and the syndicate exercised its option. The result was an increase in bonds issued from $39,522,200 to $61,635,400, of which the greater part was accounted for by the new mortgage.