BANKING: Gotterdammerung

At Wall Street’s head, in sun-flecked Trinity churchyard, lies the dust of Capt. James Lawrence beneath his self-written epitaph: “Don’t Give Up the Ship.” Dead with him is the naval tradition of wooden ships and iron men, of boarding parties and the cutlass: the soul of the new navy is in intricate organization, in armorplate, in complex fire-control mechanisms and in 16-inch guns.

Down the hill from Lawrence’s grave, where the head of Broad Street nudges Wall Street’s pinched bosom, stands the sedate seven-story building of J. P. Morgan & Co., its marble walls still pitted from the famed bomb explosion of Sept. 16, 1920. There last week a tradition no less glamorous than wooden ships, more weighty in world history than the U. S. Navy, symbolically died and was buried. Dust with Lawrence was the personal liability of its partners for the debts of J. P. Morgan & Co.; on April 1 and thenceforth it will be J. P. Morgan & Co., Incorporated. Dust was the tradition of personal responsibility in Morgan banking. For the soul of business today is in intricate corporations and impersonal directorates; it is bound by the steel hoops of Government supervision and of growing accountability to the public. With few exceptions it is no more the mirror of great individuals than are the streamlined Chevrolets that roll off the General Motors assembly lines.

But it was individualistic and it was shamelessly corrupt when the first J. Pierpont Morgan came to Manhattan in 1857 from the London banking house of his father, Junius Spencer Morgan, onetime New England drygoods merchant. Through the “Western Blizzard” panic of that year and for two years more, young, brusque, tough-fibered Morgan listened & learned as a Wall Street junior clerk. By 1860 he was in business as New York agent for his father’s George Peabody & Co., bought and sold foreign exchange through the Civil War. Also, he helped finance the sale to the Union Army of 5,000 carbines which later gave rise to a law suit.

Through the red flare of the Tragic Era, while Andrew Johnson was being laid on the cross and Philadelphian Jay Cooke, financier of the Civil War, was riding to ruin in the panic of 1873, J. P. Morgan walked cool and incisive, supremely confident of the future of America. At 32 he whipped Dan Drew, Jim Fisk and Jay Gould in their attempt to loot the Albany & Susquehanna R. R., saw its stock climb from $18 to $118 when he lifted the road out of receivership. It was his first real fight. Before gaudy Jim Fisk had left the Wall Street scene—murdered by the lover of one of his gewgaw women—Morgan was becoming a man to lean on as well as a foe to fight. It was to him that William H. Vanderbilt went to sell 250,000 shares of New York Central without disturbing the market. Morgan sold it all in England at $130 (the market), forced from Vanderbilt a seat on the directorate to guard his clients’ interests, took a profit of $3,000,000 besides. Through the financial marts of the world he became known as a man whose word, like that of his father Junius, could be trusted. In bargaining he was cold, sharp and merciless but when the deal was made no signature was needed.

Gruffly, naively, he voiced his credo for all to hear in the Pujo Committee (“Money Trust”) hearings in 1912: “I have known a man come into my office and I have given him a check for a million dollars and I knew that he had not a cent in the world. But a man I could not trust could not get money from me for all the bonds in Christendom. . . . The first thing is character, money cannot buy it.” And on that primitive rock of personal responsibility the House of Morgan built its power and fame, just as had the Rothschilds who financed the campaigns of Wellington, just as had the Fuggers of Augsburg who financed feudal Spain.

When panic struck New York in 1893, when 158 national banks went under and Coxey’s Army marched on Washington, it was to Morgan that Wall Street turned for aid. So, reluctantly, did President Cleveland. It was Morgan who headed the syndicate that fattened the U. S.’s dwindling gold supply, Morgan who saved the Government from defaulting on a $12,000,000 check when the subtreasury across from “The Corner” had only $9,000,000 in gold in its vaults. There was profit in the rescue, but (more important) there was power.

It was also Morgan who set out to reorganize sick U. S. railroads. Within five years he controlled one-sixth of the railroad mileage of the U. S. and the “Morgan roads” were earning $300,000,000 a year, half the total of receipts of the U. S. Government. Monopolist, individualist, snorting foe of Government interference, he dragooned railroad men into verbal agreements (in his library or aboard his Corsair} on noncompetitive freight rates, forced mergers right and left. Biggest defeat of his career was by the Big Stick of Theodore Roosevelt, who smashed his Northern Securities Co., organized (after a historic battle with E. H. Harriman) to merge Northern Pacific, Great Northern and the Burlington. He lived to see the ICC end by public regulation the rate wars he hated. He died seven years too soon to see legislators change their minds to favor railroad consolidation.

Long before that day came, “Pierponti-fex Maximus” had reached out into industry, capped all his financial feats when he created the first billion-dollar corporation, United States Steel. Meanwhile he merged Manhattan banks, planted their directorates with Morgan partners. In the crash of 1907 (he was then 71) Wall Street and the Secretary of the Treasury again leaned on his broad, round shoulders, followed his leadership in guaranteeing the deposits of weak New York trust companies. By no means the richest man of his age (Rockefeller, Carnegie, Mellon, others owned more) he was superior to any in sheer personal influence. Never the biggest bank in New York, by 1911 his house and its close associates did, in the estimation of John Moody, “practically control the financial destinies of America.”

When death came to old J. P. in 1913, U. S. finance and the House of Morgan ceased to be a one-man show. Ruddy, Anglophile, grouse-hunting J. P. II “Jack” (to a very few friends) Morgan had been carefully reared by his father in the traditions of personalized private banking. But his own and his father’s flair for men surrounded him with partners whose brilliance obscured everything but the Morgan name. Stotesbury, Stettinius, Cochran, Lament, Morrow, Davison—such men made the term “Morgan partner” a semi-mythical synonym not only for (at one time) $1,000,000 a year, but for financial diplomacy on an international scale. When War came, it was Partners Henry P. Davison and Dwight W. Morrow who led the House of Morgan into its second great era. Early embracing the English cause, by 1918 the House had underwritten $1,400,000,000 in Allied loans, had netted some $4 millions as purchasing agent for the Allies, and had more than doubled its capital funds.

After the war those funds almost doubled again, reached $118,604,000 by 1929. But the postwar boom was not a Morgan boom. The partners specialized in bonds (U. S. railroad, utility, Italian government, German Dawes& Young plans) until late in the stock boom, then limited their stock distributions (Standard Brands, Johns-Manville, sprawling United Corp., ill-fated Alleghany) to rich individuals and friends. When the crash came, it was once more the House of Morgan that led the bankers’ rescue syndicate: a $240,000,000 attempt to dam the flood of sales. But the effort was futile. When realistic Partner Thomas W. Lamont informed the Stock Ex change’s Board of Governors of the pool, his own words skewered the situation: “There is no man nor group of men who can buy all the stocks that the American public can sell.” And while Wall Street still leaned on the Morgans, the public now leaned on the Government. An era had ended.

On powerful individualism, on personal banking freedom the twilight began to fall with the New Deal. The Banking Act divorced deposit banking from underwriting; three Morgan partners, including bland Henry S. Morgan (J. P.’s younger son), accordingly split off to form a new partnership, Morgan Stanley & Co. J. P.’s elder son, Junius Spencer, stayed on as a Morgan partner. The foreign loan busi ness was dead; its epitaph the Johnson Act which forbids U. S. sale of securities of governments defaulting to the U. S. Government. Meanwhile Morgan partners were retiring, dying; from the partnership their heirs drew millions for inheritance and inheritance taxes. By last year’s end the House of Morgan’s capital funds (net worth) had shrunk from $118,604,000 to $39,156,000. Of its $671,519,000 assets, 61.5% consisted of tax-free government bonds, of which only 4.5% was out working for U. S. industry.

The “Morgan-First National” influence in 1935 was estimated (by a National Resources Committee report) as still reaching into $30,210,000,000 worth of U. S. railroads, utilities, industries, banks.

Yet some of the proudest Morgan nurselings (like General Electric) had long since outgrown their Morgan links, were financing themselves from depreciation.

Last week, to reporters summoned to “The Corner,” genial J. P. Morgan him self announced his house’s submission to the times. He handed out typewritten copies of a statement saying that J. P. Morgan & Co. was applying for incorporation as a bank and trust company, implying that partners would become stockholders on a pro rata basis. Also implicit was the conclusion that as stock-holders die their heirs will liquidate their holdings and that some of them may go into the hands of the public.

Prime aim of the change was to perpetuate the business, protect it from the tax-sharpened threat to partners’ funds.

For the top-flight Morgan partners are aging—J. P. is 72, Thomas W. Lamont, 68—and new partners are not to be found behind every stump. The death of Charles Steele last August was a heavy blow. (According to SEC estimates his partici pation in Morgan capital amounted to 36.6% — $9,150,000 exclusive of surplus.) His heirs have already withdrawn $5,000,000. Another aim of the change was to widen the business into the profitable trust field, in which Morgan has sent many a whopping account to “Morgan banks” like Guaranty Trust, Bankers’ Trust, First National, New York Trust.

Incorporated, † the House of Morgan will separate itself from its Philadelphia office, Drexel & Co., which will become an underwriting house (and open its own New York branch). Morgan Inc. will hang on to its foreign companies, Morgan Grenfell & Co., Ltd., of London and Morgan & Cie of Paris. On the block for sale will go J. P. Morgan’s and Soi Junius’ seats on the New York Stock Exchange. And off to the financial wars will go a new House of Morgan, still a giant, in a new suit of clothes.

† Private banks still operating in Manhattan: Brown Brothers, Harriman & Co., Heidelbach, Ickleheimer & Co., Laidlaw & Co. and Macy’s Bank.