The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance

by Ron Chernow

  As British children were evacuated from London, the House of Morgan proudly did its duty. No cause warmed Jack Morgan’s blood more than England at war. Gray and tired, he went to a West Fourteenth Street pier for the arrival of almost four hundred British children aboard two ocean liners. There he met the eleven-year-old Lord Primrose and two of Lord Bicester’s grandchildren, all with governesses and nurses in tow. They would be his wartime guests at Matinicock Point, along with three other City Smith offspring. “Jack Morgan lived in considerable Victorian splendor, with armed guards all over the place,” recalled Charles E. A. Hambro, who spent part of the war with the Harry Morgans in New York before rushing back to play on Eton’s cricket team in 1943, “and there was Lord Primrose in isolation with the old boy.”17 In a further caretaker service for Britain, the vaults of J. P. Morgan and Company received British government rowing trophies, along with two Gutenberg Bibles.

  Chartering George Whitney’s old boat, the Wanderer, Jack transferred Corsair IV to Britain for war service. He donated many of its interior decorations, from a blue rug to wicker deck chairs, to a “Bundles for Britain” benefit at Gimbel’s, and Harry Morgan sold his Grumman amphibian plane to the Canadian government for use in coastal patrols. After France fell, a British visitor at 23 Wall expressed fear for the future. “Our turn is next,” he told Jack. “The Huns will let loose on us a blitz that will be hard to withstand.” Jack brimmed with emotion. “My good friend,” he said, “you need not be downcast for a single moment. I tell you, Britain will never give in, never, never, never!”18 His fecund imagination now had fresh cause to picture pursuing Germans. In escaping from London raids, young Luftwaffe pilots would empty surplus bombs over Wall Hall, and in October a load blew out the mansion’s windows. For safekeeping, his silver collection was brought into the 23 Great Winchester vaults that housed the Vatican gold.

  Morgan Grenfell was depopulated as partners entered government service, a logical culmination of the firm’s activities during the Diplomatic Age. It was already something of a branch office for the Bank of England, the Treasury, and the Foreign Office. Francis Rodd, who had explored the southern Sahara in the 1920s and won a medal from the Royal Geographic Society, was posted to Africa, while Willy Hill-Wood spent much of the war in Washington as a U.K. censor. Lord Bicester and Lady Sybil converted their Oxfordshire estate, Tusmore, into a fifty-bed convalescent home, as other British country houses were turned into barracks or troop hospitals.

  Monty Norman recommended Tom Catto for a new, unpaid position as financial adviser to the chancellor of the Exchequer, Kingsley Wood. A short, shrewd, dignified Scot of humble background, Catto had been a Morgan Grenfell partner since 1928. Before that, he had managed the large Indian merchant house of Andrew Yule and Company, owned by Morgan partners in London and New York. He had the exotic, global connections of an empire-building entrepreneur, having done deals with Vivian Smith in the Middle East and Russia. He and John Maynard Keynes were assigned rooms on opposite sides of the chancellor’s office; Keynes to represent the independent, theoretical view; Catto, the practical, banking side. They were soon dubbed Catto and Doggo, and Lord Bicester, with muted glee, reported to 23 Wall that Catto was liberally throwing out many of Doggo’s impractical ideas. Monty Norman preferred dealing with Catto, who would succeed him as governor, perpetuating Morgan Grenfell’s charmed access to the Bank of England.

  With much of Europe under Nazi control, Churchill knew he had to woo America with all the wit, charm, and energy at his disposal. He faced a new opponent, an organization equally determined to keep America out of the war—America First. Formed by two Yale graduate students, R. Douglas Stuart, Jr., and Kingman Brewster, it was a response to the William Allen White committee and promptly recruited Charles Lindbergh. Through his America First speeches, Lindbergh destroyed the last remnants of the hero worship he once aroused. Stumping the country, he would claim that “the three most important groups which have been pressing this country toward war are the British, the Jewish and the Roosevelt administration.”19 He talked of insidious Jewish influence in the American government and media.

  Despite the impact of Lindbergh’s speeches, the nightly terror in London engendered a wave of sympathy for Britain. Strengthened by his November 1940 reelection, Roosevelt stepped up efforts to aid England. He and Churchill negotiated an exchange of fifty old U.S. destroyers for eight British air bases in the West Indies. By late November 1940, Lord Lothian sounded the alert regarding a looming British cash crisis, and in early December, Churchill told Roosevelt the time was coming when England would “no longer be able to pay cash.”20

  During this desperate autumn in Britain, the House of Morgan and the Roosevelt administration were reunited in a campaign to provide all aid short of war. This rapprochement produced a sense of mutual relief. After chatting with Roosevelt at the White House, Leffingwell told him on December 24, 1940, that “whatever differences there may have been about domestic affairs, I and my colleagues are heart and soul with you for unlimited material aid to Britain and for national defense.”21 That weekend, Roosevelt was broadcasting a fireside chat in support of Britain, and Leffingwell offered some pointers. “When you say ’give,’ you mean give or lend goods, guns, ships, planes, munitions and whatnot . . . you are not interested in giving England a bank account, but in giving her the things she needs.”22 In his radio address, Roosevelt exhorted Americans to make the United States “the great arsenal of democracy,” and a week later he asked Congress to enact a lend-lease program that would let Washington guarantee payment for British war orders in the United States and lease supplies indefinitely. There would be no immediate cost to the Allies. Roosevelt hoped that the Lend-Lease Act would avert another war debts/reparations mess after the war. Churchill called it “the most unsordid act in the history of any nation.”23 Morgan support of the plan is notable in that it precluded any repetition of the bank’s financing role in World War I.

  As Lindbergh and other isolationists testified against the Lend-Lease Act, Roosevelt and Treasury Secretary Morgenthau sought a dramatic way to rebut charges that Britain had billions of dollars in idle assets salted away around the world. They decided to ask for an act of bloody public self-sacrifice—nothing less than the sale of a major British industrial holding in America to show that Britain had exhausted all options before pleading for aid. In March 1941, on the eve of congressional passage of lend-lease, Roosevelt and Morgenthau notified Whitehall that it would have to consummate an important sale at once. The White House itself selected Britain’s single most valuable industrial possession in America—the American Viscose Company, a subsidiary of the Cour-taulds’ textile empire. With seven plants and eighteen thousand employees, it was probably the world’s largest rayon producer. Washington urged extreme haste and imposed a seventy-two-hour deadline for announcing the sale.

  The British found this need to demonstrate faith to an old friend degrading. A somber delegation, including Tom Catto, broke the news to chairman Samuel Courtauld, who reacted in exemplary fashion. He asked only one question: “Was the sale essential in the national interest, whatever the hardship on him and his company?”24 When Catto replied that it was required by the essential interests of wartime finance, the patriotic Courtauld fell on his sword. The Courtaulds’ board was given thirty-six hours to make arrangements—surely the fastest such major divestment in history.

  To sell American Viscose to American investors, J. P. Morgan and Company recommended to the British Treasury that Morgan Stanley and Dillon, Read manage the sale, with 23 Wall providing the necessary bank loans. The handling of the sale rankled the British for years. In unsettled, wartime conditions, it was hard to know what price might attract American investors. Textile shares had been fluctuating wildly, and underwriting tasks that normally took weeks were compressed into days. While Britain received $54 million, the seventeen-firm syndicate headed by Morgan Stanley and Dillon, Read resold the shares publicly for $62 million, pocketing the diffe
rence. Some Britons—most notably Winston Churchill—thought they had been fleeced by the bankers. At the time, the Courtaulds’ directors claimed the company’s tangible assets alone were worth $128 million. Obviously, there was a fantastic discrepancy.

  After the war, Churchill described the sale in dryly cynical terms: “The great British business of Courtaulds in America was sold by us at the request of the United States Government at a comparatively low figure, and then resold through the markets at a much higher price from which we did not benefit.”25 When Harold Stanley read this description in a 1949 newspaper excerpt of Churchill’s memoirs, he was shocked. Through Lord Harcourt of Morgan Grenfell, he made extensive efforts to get Churchill to modify it. He even tried to draw on Churchill’s old friendship with his wife, Louise (formerly Mrs. Parker Gilbert), who had aided Churchill when he had an accident in New York years before. In revising his book, Churchill agreed to delete the impression that the bankers were too richly rewarded for their services. But he wouldn’t budge in his opinion that American Viscose had fetched far less than its intrinsic worth. At the time of the sale, it was agreed that the matter would be referred to a three-man arbitration tribunal. In bitter postwar litigation, Courtaulds received additional compensation from the British government.

  After congressional passage of Lend-Lease on March 11, 1941, Roosevelt approved a long list of supplies to be shipped to England. The progressive wing of the isolationist movement resented not only its defeat on Lend-Lease but also Roosevelt’s about-face in his attitude toward Wall Street and the House of Morgan. That April, Senator Burton Wheeler of Montana, who had pursued Morgans in the railroad hearings, castigated Roosevelt for inviting the “money changers” and “Wall Street lawyers” into his camp. He angrily noted that people such as Willkie and Lamont were suddenly portrayed as “liberals,” while progressives were being styled as “Tories, Nazi sympathizers, or anti-Semites” because of their opposition to U.S. participation in the war.26

  While attacked by progressives as warmongers, the House of Morgan was actually engaged in a hidden feud with its British friends for taking the opposite position. Tom Lamont had helped Roosevelt lobby for Lend-Lease yet insisted that the United States not enter the war. Ostensibly, this was so America could remain an arsenal for England, but there were also festering sores from the 1930s feuds. Lamont and Catto at the British Treasury shared their own diplomatic back channel, and Lamont’s letters became increasingly petulant. In May 1941, he wrote a remarkable letter to Catto, full of bile and defending the U.S. failure to go to war:

  If the American people have seemed sluggish in coming to Britain’s aid, nevertheless, it must be acknowledged that the U.S.A. is the first nation to go all-out in their opposition to Hitler without having faced an immediate, desperate threat to its existence. On that point does not America deserve praise for such progress rather than implied criticism for its slowness? Every country in Europe, including Britain, waited almost until Hitler had his thumb on its windpipe before it waked up and got started.

  Most English people look upon America, because it was (150 years ago) a British colony, as simply a younger, perhaps more vigorous, less polished England. That picture is emphasized by our former habit of calling England ’the Mother Country.’

  At this point in the letter, Lamont dredged up the quarrels of the 1930s. He recalled Britain’s double cross on German debt and its unwillingness to make payments on the World War I debt, which might have won American sympathy. He recalled how in 1935 he had begged Neville Chamberlain to consider a commercial treaty with the United States to create goodwill for England in America, saying it might be needed in some future crisis. “Mr. Chamberlain smiled an icy smile and was not interested in American good will.”

  The letter ended by implying that British snobbery toward America was no less galling to Lamont than were the financial betrayals of the 1930s. He referred to an inequality behind the fraternal Anglo-American facade: “Meanwhile, Britain, with the exception of a few of us, has, as I have intimated, never shown any great interest in America unless or until she needed America’s help desperately. Tens of thousands of Americans would journey annually to the other side. But I can number on the fingers of less than my two hands the number of eminent British persons who have ever been interested to visit America.”27

  It seemed a strange time to kick the British, who had suffered the winter bombings in London, Coventry, and Plymouth. Those radical American pamphleteers who had portrayed the House of Morgan as fawning, uncritical Anglophiles—how startled they would have been by this letter from Lamont. He showed it to Leffingwell, who actually thought it sounded too apologetic. “If I were talking to Americans, I might be saying the same things,” Leffingwell confessed, “but talking to Britishers I think it unduly encourages their sense of superiority to colonials and Americans.”28

  Tom Catto replied with gallantry. To be sure, he was a high Treasury adviser and afraid to alienate an influential American. But Catto also had considerable personal skill in handling delicate matters. He wrote a letter of such dignity that it perhaps reminded the J. P. Morgan partners of why Britain’s restoration as a world financial center had for decades been such an emotional issue with them:

  I was much interested in your letter and you must never think that hitting straight from the shoulder on such matters upsets me in any way. We have known each other too many years for that. . . . Whatever our shortcomings and however short our memory may be, we are cheered and encouraged by the knowledge that your great country is with us in our struggle. We have entire confidence that in the end that will mean victory! . . . It is a long road that has no turning. When we reach that turning, I believe Hitler and his gangsters will get a surprise. . . . Do not worry about us. We are all cheerful. We have had a few knocks but we can take them, indeed one hears less of the proverbial British grousing in these times than in days of peace.29

  LATER Lamont would tell of the time when a “heavy fire curtain” fell between J. P. Morgan and Morgan Grenfell, and the House of Morgan was internally divided.30 One partner didn’t live to see the curtain rise. Teddy Grenfell—Lord Saint Just—died ten days before Pearl Harbor. In the late 1930s, he’d had heart and lung problems and was frail and bedridden for months at a time. Doctors recommended golf at Sandwich or West Indian cruises with his wife to restore his health.

  Grenfell belonged to a vanishing species—the diplomatic banker. His work was often an inseparable blend of private and public purpose. Cool and dapper, he had been a Morgan sphinx, cloaked in mystery, working unseen in the top echelons of government and finance. “English Bankers and Houses are very much more secretive than those in New York,” he told Lamont, and secrecy was his unchanging creed.31 He believed implicitly in the wisdom of his class, country, and profession and had no patience with reformers. His mind was acute, his predictions unerring, his tailoring immaculate, and his pose debonair. But his sympathies were limited and his tolerance dim. He saw bankers defending immutable truths against political folly and public ignorance. He would have been misplaced in the coming Casino Age, when governments, not private bankers, would assume financial leadership. So strong was Gren-fell’s friendship with Jack Morgan that his death would weaken the tie between the New York and London houses.

  EVEN with Europe at war, Tom Lamont didn’t shed his Panglossian tendency to predict favorable outcomes in world affairs. He expected Japan to refrain from war against the Allies, not from any scruples, but because self-interest dictated that it be on the winning side. Three weeks before Pearl Harbor, he told Walter Lippmann that if Japan “were on the losing side she would lose complete influence in the whole Pacific region and would sink there to the status of a second or third rate power. . . . I may be 100% mistaken, but I am really not worried at all about the Far East for the moment.”32 On December 7, 1941, Japan attacked Pearl Harbor, and yet another Lamont illusion was shattered. In the most eloquent expression of disgust with Japan, Lamont joined that year with Henry
Luce in merging eight China aid groups into United China Relief. The Japanese presence on Wall Street was abolished as the New York State superintendent of banks seized the assets of the Yokohama Specie Bank, Japan’s fiscal agent before the war.

  U.S. entry into the war in 1941 repaired the breach within the House of Morgan. With the United States and Britain fighting side by side, Morgan partners revived the belief that their countries were destined to rule the world jointly. In a new spirit of forgiveness, Lamont took to citing English, Scottish, and Irish blood in American veins as the country’s real source of strength. Vindictive toward Britain two years before, Russell Leffingwell said warmly, “To my mind the only thing worth fighting for is to save England and the British Empire. For that I would shed every drop of blood in my own veins, and let many millions of Americans shed theirs too.”33

  J. P. Morgan and Company resumed its customary role of defending the mother country. When Life magazine published an open letter saying the war shouldn’t be fought so Britain could keep her empire, Lamont sparred with Henry Luce. The bank had known Luce well ever since his Yale classmate Henry P. Davison, Jr., became the first investor in Time magazine and a company director. Lamont now told him that America had its own imperialism and backed its own Latin American dictators: “Why do we yell about ’imperialism’ when we are busy day and night scheming to get the whole Caribbean under our control and sweeping all of Latin America into our orbit by lavish loans and diplomatic manoeuvres?”34

  A new rapport between Roosevelt and Jack Morgan was evident in November 1941, when labor leader John L. Lewis ordered a strike against captive coal mines owned by the steel companies. When Roosevelt appealed for patriotic restraint, Lewis said his adversary should also be restrained. “My adversary is a rich man named Morgan, who lives in New York,” he declared.35 To Roosevelt, Lamont protested this insinuation that U.S. Steel was just a tool of Jack’s. Not only did Roosevelt side with Jack—a novelty in itself—but he did so with a new geniality. A class traitor no more, he told Lamont: “I was really angry at Lewis’ unwarranted, untrue, and demagogic statement about Jack. . . . When you see Jack, tell him for me not to concern himself any more about Lewis’ attack, for after many years of observation, I have come reluctantly to the conclusion that Lewis’ is a psychopathic condition.”36