The House of Morgan

by Ron Chernow

  Showing their new subordination to corporate clients, many Wall Street banks moved their headquarters to midtown. Now past were the days when supercilious bankers expected company chairmen to troop to them. Between 1950 and 1965, hardly any new construction occurred on Wall Street. Chase, a large downtown landlord, feared property values might fall. To protect the bank’s interests and restore faith in Wall Street, John J. McCloy and David Rockefeller worked out a deal with real estate mogul William Zeckendorf to create Chase Manhattan Plaza, one block from Wall Street.

  As part of this package, Chase had to find a buyer for its thirty-eight-story tower at 15 Broad Street. The natural buyer was the adjoining House of Morgan. When Zeckendorf broached the subject with Alexander in 1954, they had a highly revealing conversation:

  “We’re not real-estate people,” Alexander said. “We already have this beautiful little corner here. We play a special role in finance; we are not big, but we are powerful and influential, we have relationships. Furthermore, we don’t want to be big and don’t need the space.”

  “Henry,” said Zeckendorf, “you’re going to get married.”

  “What?”

  “Someday you are going to merge with another bank, a big one. When you do, this property will be in the nature of a dowry coming with a bride; you will be able to make a better deal with your partner.”

  “Morgan will never merge.”

  “Well, that’s just my prediction.”13

  Zeckendorf would later remind Alexander of this talk.

  Bankers who had survived the Depression shied away from property speculation, and Alexander bargained fiercely for 15 Broad. He got it for $21.25 million with a 3’/2-percent mortgage—terms so unfavorable for Chase that it later bought out the mortgage. Fifteen Broad was then joined internally to 23 Wall, which became the larger building’s triumphal entryway. The flamboyant Zeckendorf used the deal to conquer Morgan’s aversion to real estate lending and ended up getting loans from the bank. He later told of how a journalist he met while flying back to New York from a trip had coaxed him into stopping en route to attend a wedding at a nudist camp. By the time he arrived at a 23 Wall meeting, press photos had appeared of him with the wedding revelers. He thought this publicity might end his relationship with the decorous Morgans. Instead, every high officer, including Henry Alexander and George Whitney, turned out to hear the juicy details.

  Many Morgan people opposed a merger because they liked working in a small, paternalistic bank with terrific perks; they thought a merger would cheapen the genuine article. There was a deeper dilemma: if the bank merged with a bigger bank to increase capital—the only sensible reason for doing so—it would become the junior partner, and J. P. Morgan and Company would effectively cease to exist. Finally, though, a decision would have to be reached. But even in late 1958, Alexander was still bluffing about the bank’s self-sufficiency: “Some mergers are a good thing. But while I wouldn’t say it can’t happen here, we have no desire to merge. We’ve been doing very well, thank you, sticking to our last.”14 He told people, “We don’t have the urge to merge.”

  Henry Alexander solved the problem with brilliance and extraordinary luck. Around the corner at 140 Broadway stood the fat, sleepy, dowdy Guaranty Trust. Long on capital and short on talent, it was the mirror image of Morgans. Its huge lending limit was larger than that of all the Chicago Loop banks combined. A former Money Truster, it had been a Morgan ward after its disastrous sugar lending in the early 1920s. After merging in 1929 with the National Bank of Commerce—once known as Pierpont Morgan’s bank—it became New York’s second largest bank. In the 1930s, George Whitney chaired its trust committee and Tom Lamont its executive committee. It was a blue-chip bank with almost all of America’s top-one-hundred companies as customers. “We used to think of Morgans as a nice small bank,” remarked Guido Ver-beck, then a Guaranty officer. “Because of their lending limits, when they participated in large loans, they could only take a small share and they were very worried about it.”15

  Guaranty’s chairman was J. Luther Cleveland. An old-school banker, he had rimless spectacles, neatly brushed hair, and a somber mien. Curt and humorless, he tried to run the whole bank, and his autocratic style prompted an exodus of talented people. He was the imperious Mr. Cleveland to subordinates, and grown men quailed in his presence. His own son would pop up like a jack-in-the-box when he entered the room. Cleveland would let visitors wait in his outer office, then grill them when they came inside. Despite shareholder discontent and sluggish business, he snorted at the idea of branch offices and small checking accounts.

  J. Luther Cleveland was an expert practitioner of relationship banking. He sat in a gloomy office, a dark, sleep-inducing room, attending to a single document on his desk. “It was a list of ten names,” recalled A. Bruce Brackenridge, then with Guaranty and later a group executive at Morgan Guaranty. “These were ten very important clients to the bank. He made sure that he called them periodically to let them know he was interested in their business.”16 A former Oklahoma oil banker, Cleveland had a powerful array of oil clients, including Cities Service and Aramco, the four-member consortium (today’s Exxon, Mobil, Texaco, and Chevron) with exclusive rights to pump Saudi Arabian oil on very sweet terms. To stay on good terms with his board, he played poker with the directors. One oil director even packed a rare $10-thousand bill in his wallet, always ready for a quick game. The whole operation, ex-employees allege, was riddled with cronyism. “The only loan I ever saw Cleveland approve was a stock option loan to a crony of his,” said a Guaranty banker. “It was later criticized by bank examiners.” Adding to Guaranty’s troubles was a paralyzing conservatism left over from the sugar debacle. “It was more important not to lose money than to make money,” remarked Frank Rosenbach, then a Guaranty credit analyst.17

  Eventually Cleveland’s monstrous ego precipitated a board rebellion. When a director asked who could replace him, Cleveland thundered, “Nobody!” So the board opened merger talks with Henry Alexander in order to dump Cleveland. The last straw came when Ford Motor, dismayed by Guaranty’s handling of its pension fund, switched the fund to Morgans. The board told Cleveland he couldn’t be doing a very good job if he couldn’t keep his largest account. At first, Guaranty’s board came to 23 Wall with a proposal for a new bank called Guaranty Morgan—an insufferable thought to Alexander. A year later, in December 1958, with mounting frustration over Cleveland, the board swallowed hard and consented to Morgan Guaranty. When the autocratic Cleveland assembled his vice-presidents to break the news, it was the only meeting of the bank’s officers anyone could remember having ever taken place.

  In taking over a bank four times the size of J. P. Morgan and Company, the press likened Morgans to Jonah swallowing the whale. Alexander had engineered the dream deal. Guaranty was strong in railroads and public utilities. While J. P. Morgan was the lead bank for U.S. Steel, Guaranty had Bethlehem Steel. While Morgan had Kennecott Copper, Guaranty had Anaconda. While Morgan was peerless in the northeastern United States and Western Europe, Guaranty was well-connected in the South, the oil patch, the Middle East, and Eastern Europe. It had historic branches in London, Paris, and Brussels, having been the U.S. Treasury’s agent in Europe during World War I. Guaranty had provided financing for Thomas Watson’s IBM in the 1920s, and several of its executives had grown rich investing in the company. It held more American Express deposits than any other bank. And it claimed the account of Huntington Hartford and the A&P. What a prize!

  On Wall Street, people said that Guaranty had really merged with Henry Alexander. When Bill Zeckendorf came to congratulate him, Alexander said, “You know, I’ve often thought of that conversation we had and how right you were.” “I wasn’t right, Henry,” Zeckendorf replied; “I was wrong.” “How so?” asked Alexander. “You’re not the bride,” Zeckendorf answered.18

  Alexander chaired the merged bank while Luther Cleveland played almost no part, retiring after a year. Tommy S. Lamont and Henry P. Davison
, Jr., became vice-chairmen, with Dale Sharp as president—the sole Guaranty person to retain a top post. While 23 Wall and 15 Broad were refurbished for the merged bank, Alexander and the others temporarily moved into Guaranty’s offices at 140 Broadway. Far from feeling defeated or humiliated, the Guaranty troops in the trenches felt liberated by the advancing Morgan army. The one grievous error Alexander made was not notifying Morgan Grenfell of the merger until an hour before it was publicly announced. It was a terrible blow to the London bank, especially since Guaranty had a large, competitive London office.

  After the merger was consummated on April 24, 1959, Alexander summoned the combined staff and indoctrinated its members with Morgan groupthink: “I want all of you to know—as the relatively fewer Morgan people here know—that an important element of your career path will be how well you train the people underneath you to replace you.”19 This close-knit corporate culture, which stressed the group over the individual, would distinguish Morgan Guaranty from other Wall Street banks, which functioned as collections of contending egos.

  Even with swollen ranks, Alexander kept up the traditional meetings with department heads. Although Morgans had been stingy with titles, Alexander liberally handed out promotions in order to smooth relations with Guaranty officers. In merging the two banks, petty problems of style proved most intractable. There was prolonged squabbling about a typographical style for the stationery. Since both banks used mono-grammed silver in their dining room, weighty talks occurred over silverware and matchbook covers.

  In April 1960, Junius S. Morgan celebrated the merger with a luncheon for eight hundred people at his North Shore mansion, catered by Louis Sherry’s. Jack’s elder son was even less suited for banking than his brother, Harry, and had remained in the business out of family loyalty. The colossal Morgan energies had petered out in this pleasant but somewhat ineffectual generation. Junius, a commodore of the New York Yacht Club, had yearned to be a marine architect, and his home was full of model ships in glass. Generous, charming, but lacking ambition, he’d become another Morgan male lashed to the wheel of the family dynasty. Though he put on pinstripes and fedora each morning, he never quite looked the part. “Junius was the nicest man you’ve ever known,” a colleague remembered. “But he should have been in the Navy. He didn’t know anything about banking and it was pitiful to watch him.”

  That luncheon would be Junius’s farewell to the bank. Tall, and handsome in an old patched jacket, he greeted his guests in the doorway of his forty-room stone mansion, Salutation, a place of faded elegance and English furnishings. Seven massive glazed Ming pottery figures stood in the main hall’s niches. Shaking hands, Junius stood by his wife, Louise, whose cardigan had a hole in it. Described by some family members as artistic and eccentric—by others as pushy and spoiled—Louise yearned to “touch up” John Singer Sargent’s portrait of Jessie Morgan. She bred golden Labradors, and dozens of them ran about the tents and tables, the twenty acres of gardens, the tennis courts, and the swimming pool. Six months later, at age sixty-eight, Junius died from a sudden attack of ulcers while on a hunting trip in Ontario.

  By merging with Guaranty, the House of Morgan regained its status as the world’s largest wholesale bank. Suddenly flush, with over $4 billion in deposits, it now stood fourth in size behind First National City, Chase Manhattan, and Bank of America. But this didn’t tell the whole story of its corporate strength. It had an unmatched number of corporate accounts, ten thousand including ninety-seven of the hundred biggest U.S. companies. By the mid-1960s, the newly merged bank would do more corporate lending yearly than the next five competitors combined.

  The new bank produced fears of a sort missing since the New Deal. But they were expressed by other banks, not by Washington. Twenty years before, a Morgan-Guaranty merger would have raised impassioned shouts of protest in the populist heartland. Now there were only mild peeps, notably from Texas Congressman Wright Patman, who wanted to stop the merger on antitrust grounds. Approving it, New York State banking authorities noted certain altered facts of the Casino Age: corporations could now bypass banks and turn to life-insurance companies for capital, raise money through bond issues, or finance expansion from retained earnings. As banks lost their special position as providers of capital, the old fears of excessive bank power disappeared as a major issue in American politics.

  At first, the Kennedy years looked auspicious for Morgans. Although his father had been snubbed by Jack Morgan and the financial establishment, President John F. Kennedy wanted to court Wall Street to counteract his slim victory over Nixon. “He was also financially conservative,” remarked C. Douglas Dillon. “A lot of people didn’t realize that. I think it was the influence of his father.”20 He turned to Robert Lovett, then of Brown Brothers Harriman, for advice on cabinet selections. Lovett suggested John J. McCloy, Douglas Dillon, or Henry Alexander for Treasury secretary. Apparently Alexander had the appointment sewn up but then made a strategic blunder. After Kennedy spent an hour with him during the campaign, Alexander declared his support for Nixon. “I don’t think there is any question that the head of the Morgan bank . . . would have received the job,” said Robert Kennedy of Alexander’s faux pas. “Jack felt that this was a personal insult.”21 Dillon won the job. Alexander probably wouldn’t have fit into the Kennedy cabinet anyhow. Even as cabinet selections were being considered, he was telling bankers, apropos of Nixon’s defeat, “Let’s not, as businessmen, wall ourselves off or sulk in our tents.”22

  Alexander was drawn into one historic episode in the Kennedy White House, however—JFK’s confrontation with U.S. Steel chairman Roger M. Blough over a steel-price increase in 1962. The administration had applied pressure to the steelworkers’ union to accede to a moderate wage settlement in exchange for price restraint by management. So Kennedy felt double-crossed when Blough came to him on April 10, and informed him of a 3.5-percent price increase. This was the betrayal that prompted Kennedy’s famous outburst: “My father always told me that all businessmen were sons of bitches, but I never believed it until now.”23

  While Kennedy started a campaign against the price increase and resorted to harsh invective against businessmen, the administration cast about for more discreet ways to influence U.S. Steel. Henry Alexander was on the company’s board, and John M. Meyer, Jr., of Morgans was on its executive committee. Robert V. Roosa, under secretary of the Treasury and former Brown Brothers Harriman partner, telephoned Alexander and asked him to appeal to Blough. The House of Morgan no longer had the mythical power to rescind a U.S. Steel increase, but Alexander might have gotten Blough to soften his anti-administration rhetoric at a news conference during the standoff. After Blough finally responded to Kennedy’s pressure and rolled back the increase on April 16, Alexander accompanied Blough on a series of meetings to repair relations with the White House.

  Still, the Kennedy years provided a politically friendly environment for bankers, who were no longer the bogeymen, as they had been in the 1930s. The Morgan bank even got giddy and overreached itself. In 1961, finally catching deposit fever, Alexander decided to drop Morgan’s ancient aversion to retail business. By affiliating with six large upstate banks, he hoped to create America’s biggest bank, a holding company monstrosity called Morgan New York State. “The basic idea was that the bank would have a Cadillac division and a Chevrolet division,” explained Bruce Nichols, a partner with Davis, Polk, and Wardwell. The stately Morgans would suddenly have 144 offices in places like Oneida and Binghamton. It turned out there was some vestigial fear of bankers among the populace, and Morgans had awakened it. James J. Saxon, JFK’s comptroller of the currency, torpedoed the move on antitrust grounds. Some believed the bank had bungled things by proposing an overly grandiose plan. Afterward, Alexander sighed to colleagues, “Well, we’ll just have to stick to wholesale banking.” Later the bank would feel that Saxon had saved it from a ghastly mistake.

  When the Morgan Guaranty entourage swept back into the renovated Corner, the building’s i
nterior mirrored a new era of banking. Everything was open: the glass-and-marble enclosures had been torn down. The signature rolltops, with their secret cubbyholes, were traded for flat, leather-topped mahogany desks. An enormous Louis XV chandelier, of a sort found in old German and Austrian palaces, now shed a rich glow over the room; the old mosaic panels were covered with apple-green fabric. The grandeur remained, but the old mystery had vanished. The most important change was that this banking floor—once the entire bank—was now just a gorgeous anteroom for the 15 Broad Street skyscraper, although top officials kept their offices on the second floor of 23 Wall. As if showing off its disregard for mundane concerns of cost, the bank rejected proposals to expand its short landmark building. Standing in the perpetual shade of skyscrapers. 23 Wall probably remained the least cost-effective use of real estate in the world.

  SHORTLY after the merger, American banking began to wriggle free from its regulatory confines. Under Eisenhower, bankers had dreamed of deposits: in pursuit of billions in beautiful deposits, Henry Alexander had wooed Guaranty. But as interest rates floated up to a heady 4.5 percent by the late 1950s, corporate treasurers were loath to leave behind interest-free deposits (“compensating balances”) in exchange for loans. In what some bankers thought heresy, Morgans helped clients move their deposits into higher-yielding money market instruments. As George Whitney told critics, “My customers are not stupid.”24