Business: House Divided

Into the small, dim reception room at No. 23 Wall Street, Manhattan, filed some 30 subdued newshawks one afternoon last week. At 4 p. m. J. P. Morgan & Co. would issue one of its rare statements. Most of the newshawks knew what the statement concerned: division of the House of Morgan into two parts. One would continue commercial banking, which the firm elected to retain under the provisions of the Banking Act of 1933. The other part would re-enter the securities business in a new form and under a new name.

After a short wait, a guard ushered the newsmen into the long, narrow partners’ room with its line of flat-topped desks. The desks were deserted but at the far end beneath a looming portrait of John Pierpont Morgan Sr. stood the firm’s traditional spokesman, Partner Thomas Lamont, flanked by Partners George Whitney and Harold Stanley. The newsmen crowded in about the fireplace while Mr. Lamont announced the resignation of three Morgan partners, two partners of Drexel & Co., the Philadelphia affiliate.

Retiring Morgan partners are Harold Stanley, William Ewing and Henry Sturgis Morgan, second son of the firm’s aging head. The two Drexel partners are Perry E. Hall and Edward H. York Jr. Also leaving are two key Morgan employes, Manager John Maurice Young of the bond department and Manager Allen Northey Jones of the statistical department.

“Under the name Morgan Stanley & Co., Inc. [they have] undertaken to organize and carry on a securities business of the character formerly handled by our firm,” said Mr. Lamont. “We believe that the members of the new organization will be able, with the ample experience which they have heretofore had, to serve usefully the investment interests of the community.”

Then Mr. Stanley revealed that he would head the new concern, that it would start with $7,500,000 of capital, that it would open for business Sept. 16 at No. 2 Wall Street. Unlike J. P. Morgan & Co., the new house will not be a partnership but a closed corporation. Capital will be provided by sale of $500,000 of common stock and $7,000,000 of preferred, a good deal of which will be bought by certain of the 17 remaining Morgan partners. But all the common stock, which carries the sole right to elect directors, will be held exclusively by the executives and employes of the new corporation, thus insuring its complete independence.

It was unthinkable from the start that all of J. P. Morgan’s partners could find good use for their talents within the confines of commercial banking. Before the Senate Banking & Currency Committee in Washington two years ago, Mr. Morgan revealed to a surprised audience that “straight” banking, not underwriting, was the backbone of Morgan profits. But a number of partners have always devoted their time to securities. During the previous 14 years, J. P. Morgan & Co. had floated more than $6,000,000,000 of bonds and was by all odds the world’s premier house of issue. Wall Street welcomed the re-entry into the securities business as the resurrection of an enduring and familiar institution, symbolizing, perhaps, the return of peace & prosperity.

Indeed, the Morgan announcement was construed marketwise as having almost as bullish implications as President Roosevelt’s later pronouncement (see p. 11). In the little grey house at the corner of Broad & Wall Streets there was evidently considerable faith in the future of the securities business if not in the future of the whole U. S. Rival firms which have been industriously collecting business scattered by New Deal legislation were not so pleased, and stock in First Boston Corp., currently the leading U. S. investment bankers, dropped $4 per share on the announcement. But the stanch and stolid New York Herald Tribune burgeoned with a lead editorial, rumbling heartily: “Few more pleasing news items have come out of Wall Street in recent years than this . . . announcement that the long and honorable tradition of the House of Morgan in the field of investment banking is to be perpetuated through a new firm in which the Morgan family will be directly represented.”

J. P. Morgan has two sons, Junius Spencer, 43, and Henry Sturgis (“Harry”‘), 34. By last week’s division Son Junius apparently becomes heir to the banking tradition, Son Harry to the securities tradition. Born in London, Harry Morgan married Charles Francis Adams’ daughter Catherine one week after graduation from Harvard in 1923. He went promptly to work and was admitted to the firm six years later along with two other sons of partners—Thomas Stilwell Lament and Henry Pomeroy Davison. Harry Morgan is youthful in appearance but by reputation he has the money-making drive of his late grandfather.

The Stanley of Morgan Stanley & Co. (there is no comma, no hyphen) was the Morgan utility expert, having been admitted to partnership in 1928 when the firm was exploring the power industry. His father was William Stanley, engineer, inventor (thermos bottles) and founder of what is now General Electric’s works in Pittsfield, Mass. Born nearly 50 years ago in Great Barrington, Mass., Son Harold was the eldest in a family of nine, and his brother Clarance is now head of the Mellons’ Union Trust Co. in Pittsburgh. After graduation from Yale where he led the intercollegiate championship hockey team of 1908, Harold Stanley took a turn at banking, later entered J. G. White & Co., big utility engineering and financing concern. In 1915 he shifted to Guaranty Trust Co., was president of its security affiliate by the time Mr. Morgan was ready for him. Brilliant, reserved, athletic and stubborn, he lives quietly in suburban Greenwich, Conn.

Morgan Stanley’s third Morgan man is William Ewing, one of few partners who ever worked up within the firm. His chief interest used to be securities, as was that of the two Drexel partners. With the House of Morgan’s potent industrial connections, which will certainly not be impaired by the division, Morgan Stanley will undoubtedly take its place as one of the foremost underwriting firms in the U. S.