The Corner for March 21, 2014

This month marks the 101st year since the death of John Pierpont Morgan and recently the 2012 mini series “The Men Who Built America” was rerun. The series features a number of late 18th and early 20th century industrialists and financiers including Morgan.

Over the years there has been more folklore connected with this man than anyone of his standing. The son of one of Boston’s most successful merchants, Morgan’s heritage was based in traditional mercantilism. This familiarity with the financial community was significantly responsible for his early business relationships. In 1854 Pierpont’s father moved his family to England to become a partner in one of its most prominent banking houses, George Peabody & Company. This was the foundation of Pierpont’s financial training and the creation of the House of Morgan.

Morgan matured during the period many historians refer to as the “institutionalization of American investment banking.” He eventually returned to America from England, worked as a clerk on Wall Street, formed his own firm, and later went into business with Anthony Drexel to form Drexel, Morgan & Company. Morgan and Drexel built a banking and investment business of superior quality and character. The senior partners were experienced, diligent and prudent businessmen. The name of the firm was changed to J.P. Morgan after Anthony Drexel’s death. Between 1870 and 1913 Morgan was responsible for implementing many of the policies followed by private investment bankers for nearly 50 years.

Morgan was not merely a financial wizard playing the game of high finance. He was regarded as a prominent “Victorian banker.” Morgan associated himself with a host of royalty and was sought after by statesmen, industrialists and bankers throughout the world. His willingness to risk his own capital (not just other peoples’ money) to build his firm, finance and reorganize the railroads, provide gold to the federal government and organize a multiplicity of new industrial organizations, provided him not only tremendous financial success but experience in refining entrepreneurial skills. The internal dynamics of Wall Street’s most prestigious house conflicted with his growing desire for a private personal life. He shunned journalistic sensationalism and publicity.

Pierpont inherited a legacy of conservatism characterized by diligent review of his employees’ performance as well as his own business transactions. He was not the richest man in the country, by any means, but through his prestigious character and the confidence he inspired, he was able to combine the resources of the most esteemed bankers and industrialists of the time. Much of Morgan’s power was derived from his global connections and operations. He was in a preferred position to act as a conduit between European and U.S. business interests.

While people know J.P. Morgan by name, they are often mystified by the particulars of his business. As a practitioner of high finance, Morgan cultivated a discreet style. Confidentiality and reputation were required by Morgan’s clients. For old American money and the aristocracy, the Morgan bank symbolized the cornerstone of fiscal conservatism. It was not how much you had, but your character that determined whether you did or did not do business with Morgan.

Morgan concentrated on blue chip corporations and governments, organizing large credits and securities issues and trading foreign exchange. What gave Morgan his tantalizing mystery was his government connections.

Much like the old Rothchilds and Barings, he was entrenched in the power structure of many countries, especially the United States, England and France. The old Morgan partners were financial ambassadors whose daily business was often intertwined with affairs of state. No other American private banking house was more deeply rooted in the traditions of merchant banking; its trans-Atlantic connection more firmly entrenched, than the Morgan firm. Morgan was a banker’s banker.

The fallout from the 1907 Panic led to congressional hearings. After the 1912-13 Pugo Investigations and Morgan’s death, the lead attorney for the investigation, Sam Untermyer (who was not a friend of Morgan) stated, “Morgan was animated by high purpose and he never knowingly abused his almost incredible power.” It was not only Morgan’s business policies and methods that were steeped in tradition; his entire life style was that of an affluent Victorian banker. “His word was absolutely good,” said Theodore Roosevelt, a Morgan rival.

“When he made a promise, he kept it; and untruthfulness and any kind of meanness or smallness were alike wholly alien to his character,” the former president asserted.

Though his immense power and bold assertiveness has been controversial, the fact is, that given Morgan’s conservative business practices and personal character, he cannot be compared to more the peripheral figures of the time or even now. Unlike many, Morgan was not a high roller given to speculating with others’ capital, engaging in reckless business relationships and practicing financial irresponsibility. The central theme of Morgan and his bank was conservatism.

Morgan stood for a way of business and life of personal responsibility, personal control under personal supervision and personal confidence. Wisdom and prudence dominated his character and “The House on The Corner” of 23 Wall Street.

Quote of the Week: “Because a man I do not trust could not get money from me on all the bonds in Christendom.”—JP Morgan

Bart Ward is the chief executive officer of Ward & Co. Ltd., an Anoka-based registered investment adviser – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.

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