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

by Ron Chernow

  For commercial banks, exasperation over Glass-Steagall mounted as everything from car loans to mortgages was packaged as securities and placed beyond their reach. Preston quietly chafed at Volcker’s obstinacy. In a Fortune article in April 1986, he made a shocking admission: the Morgan bank had considered surrendering its commercial bank charter and simply becoming an investment bank. This would have sacrificed perhaps 20 percent of its business, forcing it to forgo checking accounts and deposit insurance. Although the statement apparently wasn’t a case of clever premeditation, Preston didn’t mind the uproar. Bob Engel reiterated the point: “If we became convinced that we would never get full expanded securities power, we would owe it to our shareholders to reconsider whether we still wanted to be a bank. We could still become a private bank—drop out of the Fed and the payments system.”7 Some of this was tactical bluster, but it revealed the impatience at 23 Wall.

  The 1929 crash had led straight to Glass-Steagall. Ironically, the 1987 crash would prove its undoing, as Black Monday deepened national discontent with Wall Street. Morgan Stanley and the other big securities houses looked increasingly like a cosy cartel protected by Glass-Steagall —an outcome quite different from that expected by the New Deal reformers, who wanted to bust up concentrated Wall Street power. Meanwhile, commercial banks were the clear casualties of the 1980s. The Latin American debt crisis showed that lending was now far riskier than trading. The crisis mocked the spirit of Glass-Steagall, which had tried to guarantee the stability of deposit banks. With foreign banks able to underwrite securities in the United States, Glass-Steagall seemed only to penalize American banks and invite them to make rash decisions. With Japan now claiming seven of the world’s ten largest banks, this competitive disadvantage was no small matter.

  In Senator William Proxmire, chairman of the Senate Banking Committee, the banks found an unexpected ally. He was willing to grant them power to underwrite stocks and bonds provided big commercial and investment banks didn’t merge. “Washington does not like the thought of Morgan Guaranty and Morgan Stanley making up after all those years,” said the Economist.8 As a J. P. Morgan director for ten years, Alan Greenspan had promised to excuse himself as Fed chairman from decisions affecting the bank. Yet Greenspan was the tutelary spirit behind a partial Glass-Steagall repeal. The banks had already secured permission to underwrite commercial paper and municipal revenue bonds. In January 1989, the Fed added limited powers to float corporate bonds. Among the first five banks streaming through the open gates was J. P. Morgan Securities—easily the largest such operation, with $400 million in capital and seven hundred employees. And in October 1989, it became the first American commercial bank since the Depression to float a corporate debt issue, managing a $30 million bond issue for the Savannah Electric and Power Company.

  There was a disquieting side to all this. Would banks soon underwrite corporate raids with junk bonds? Would they palm off Latin American debt on bondholders, as they had in the 1920s? And how would banks insulate depositors from any future risks in securities work? The concerns were genuine. But such problems would have to be dealt with by Congress and the wisdom of bank regulators, for the status quo had become more dangerous to the commercial banks than any risks introduced by expanded securities powers.

  The years ahead promise to witness the rise of vast universal banks at home and abroad, the Morgan bank certainly among them. In the view of Institutional Investor, commercial banks had “grandiose plans” to become “shimmering financial institutions as omnipotent as the old House of Morgan was prior to Glass-Steagall.”9 J. P. Morgan and Company was now a global entity, not just an American bank operating abroad. Three of its six top executives were non-American, as were half the people in its management-training program in New York. Every high official had served a tour of duty abroad.

  By 1989, the bank had outgrown its shrine at 23 Wall. Lew Preston wanted a personal computer on every banker’s desk, and trading desks required an exotic jungle of electric wiring. To accommodate a high-tech bank, Morgans bought a new forty-seven-story glass-and-stone tower at 60 Wall Street that was designed by Kevin Roche. It wasn’t custom-made for the House of Morgan, as 23 Wall had been. To save time and money, the bank bought a real estate package assembled by developer George Klein. First budgeted at $530 million, the cost overruns at 60 Wall pushed the price up to $830 million. In 1988, the Morgan bank borrowed $400 million from the Dai-Ichi Mutual Life Insurance Company to help finance the new tower. Preston said that he hadn’t picked the furnishings for his new office because Dennis Weatherstone might not like them. He thus mischievously telegraphed the message that Weatherstone, self-made son of a London transport worker, would succeed him as the first foreign-born bank chairman on Wall Street. On the eve of the bank’s departure for 60 Wall in the summer of 1989, reports circulated that the bank would have to cut ten percent of its work force, or about fifteen hundred people. It was another reminder that the days of paternalism and coddled, lifelong employment were long gone.

  TWENTY-THREE Wall had always reflected the House of Morgan. From the moment you stepped through the doors and stood beneath the radiant Louis XV chandelier, with its nineteen hundred crystal pieces, you could feel the self-confidence of the place, the massive weight of tradition. It had a splendid touch of theater about it. As the bank transferred to 60 Wall Street, there was talk of selling 23 Wall, which Lew Preston denied. “It’s a monument,” he said wistfully. “It’s really got no value to anybody except us.”10 The little temple of finance, which had witnessed more history than any American banking house, was now a costly relic from a vanished world of civility.

  Would any banking house ever again have the mystery of the old House of Morgan? Probably not. The Morgan partners were adornments of a world too closed and too collusive by today’s more egalitarian standards. The spacious vision and cultivation of Tom Lamont, Dwight Morrow, and Russell Leffingwell sprang from a world of small partnerships and few competing sources of financial power. They worked on a quieter, slower Wall Street and could afford to be gentlemen and scholars.

  Much of the bank’s special flavor derived from its global outlook. As a conduit for capital transfers between America and Europe, the old House of Morgan had naturally looked abroad and was uniquely cosmopolitan at a time when America was still provincial and isolationist. Now the rest of the country had caught up. The Morgan bank’s foreign connections, once incomparable, might today be matched by those of many foreign ministries, central banks, or even multinational corporations. Financial power has become widely dispersed among American, European, and Japanese firms. No single firm will ever again be as lordly or preeminent as the House of Pierpont and Jack Morgan.

  The old House of Morgan’s power stemmed from the immature state of government treasuries, companies, and capital markets. It stood sentinel over capital markets that were relatively small and primitive. Today, money has become a commonplace commodity. A company in need of capital can turn to investment banks, commercial banks, or insurance companies; it can raise it through bank loans, bond issues, private placements, or commercial paper; it can draw upon many currencies, many countries, many markets. Money has lost its mystique, and banking, therefore, has lost a bit of its magic.

  The Morgan story is the story of modern finance itself. A Pierpont Morgan exercised powers that today are dispersed among vast global banking conglomerates. The activities once performed by a knot of side-whiskered men in mahogany parlors are now spread across trading rooms around the world. We live in a larger, faster, more anonymous age. There will be more deals done and more fortunes made, but there will never be another barony like the House of Morgan.

  ACKNOWLEDGMENTS

  Although I didn’t realize it at first, this was a propitious time in which to write a history of the House of Morgan, perhaps the first time anyone could do it justice. Secrecy has always been a Morgan fetish, and almost all earlier works were based on secondary sources and some guesswork. In recent years, however, n
ew archives have opened up, offering a clear glimpse into the shrouded Morgan world and allowing a more authoritative account. As members of a private bank before 1940, Morgan partners had a proprietary feeling toward their papers and freely donated them to educational institutions. Consequently, the bank has lost control over much of its own records for the pre-World War II period—a curious and, I suspect, uncomfortable situation for such a secretive institution.

  The life of Pierpont Morgan has inspired about ten books—and merits the attention. He is a figure of inexhaustible fascination. But the post-1913 history of the bank has remained virgin territory, even though it was the heyday of global Morgan power. Only a thin, academic volume, published in 1984, chronicles the life of J. P. Morgan, Jr., and I wanted to remedy that extraordinary omission. So while I have done some fresh research on nineteenth-century Morgan history, I have strongly emphasized the bank’s twentieth-century history. The post-World War II story of the three Morgan houses was, mysteriously, a total blank. Hence, this is the first all-inclusive history of the Morgan empire ever to appear.

  Luckily, the new archives dovetailed with my emphases. After years of vacillation, Harry S. Morgan finally donated a rich trove of family and business papers to the Pierpont Morgan Library before he died in 1982. Though sketchy in the George Peabody-Junius Morgan-Pierpont Morgan era, it contains a comprehensive set of Jack Morgan’s papers. To this the library has added the papers of Martin Egan, bank publicist of the interwar period. I would like to thank the indispensable David W. Wright, as well as Inge du Pont and Elisabeth Agro of the library for steering me through these materials. And I warmly applaud John P. Morgan II and the Morgan family for allowing me to quote generously from the papers, despite their reservations about my use of some controversial material.

  I have drawn heavily on the voluminous Thomas W. Lamont papers at Harvard and the Russell C. Leffingwell papers at Yale. Thanks to the courtesy of his grandson, Daniel P. Davison, I had access to Harry Davison’s cable book. To a lesser extent, I have used the George W. Perkins papers at Columbia, the Edward R. Stettinius papers at the University of Virginia, and the Dwight W. Morrow papers at Amherst College. I also quote from several oral histories collected at Columbia University, most notably that of George Whitney. I would like to thank the staff members of all these institutions, especially Florence Lathrop at Harvard; Judith Schiff and William Massa at Yale; and Ronald Grele at Columbia. For the post-World War II period, I drew on materials from the Harry S. Truman Library, the Dwight D. Eisenhower Library, the John Fitzgerald Kennedy Library, the Lyndon B. Johnson Library, the Gerald R. Ford Library, and the Jimmy Carter Library.

  Together, these unpublished papers offer a vast record of the bank’s intrigue over many decades. Delving into such archives, I felt as if I were an explorer hacking his way through a lost continent and uncovering majestic, moss-covered ruins. I hope I have communicated a fraction of my daily excitement. These records do more than merely supply fresh details about familiar events. In many instances, they write brand-new chapters in our history, especially about the bank’s dealings with Italy, Germany, Mexico, and Japan. My research strongly convinced me that financial history is a sadly neglected stepchild of the history profession.

  Two of the three Morgan banks were receptive to my project. I received the contract for this book right before the Guinness scandal, which threatened to complicate access to Morgan Grenfell people. But when I spent two months in London in 1987, the firm did something extraordinary: they threw open their files to me without restriction. They installed me in a conference room and brought me soot-blackened files from a warehouse near the Thames. I examined records touching on controversies from the early 1900s right up through the 1960s and 1970s. Whether the firm’s intention was to show confidence in its integrity after the Guinness scandal or to emphasize its scandal-free years, I do not know. But I was touched and impressed by its generosity. I would especially like to thank Desmond Harney for squiring me about 23 Great Winchester and Kathleen Burk, the Morgan Grenfell historian, who showed a true collegial spirit and sent me three chapters of her official history in galleys. I regret that their late arrival did not permit me to acknowledge her contribution in my footnotes.

  J. P. Morgan and Company reacted with some ambivalence to my first appearance, fearing association with the suddenly notorious Morgan Grenfell. Yet here, too, timing worked in my favor, for in shifting toward investment banking, the Morgan bank has adopted a higher profile. Despite an initial reluctance, the bank ended up handling the book with customary polish and set up many appointments, including interviews with every living chairman, past and present. I treasured the bribery of the Morgan lunches, the best publicity weapon ever devised. Fred Allen and Jack Morris were consistently courteous, intelligent, and professional in rendering assistance. They are a class act. I would also like to thank Melanie Smith for arranging access to the bank’s in-house library, which has some fine unpublished memoirs.

  Alone among the Morgan banks, Morgan Stanley refused cooperation and wouldn’t consent to a single interview. The decision surprised me less than the way it was handled. Both management and publicity man Peter Roche tried to lower an iron curtain around the firm. They discouraged people, current and retired, from talking to me. When I wrote to Parker Gilbert and Dick Fisher deploring this adversarial atmosphere and asking for an explanation, I didn’t receive a reply.

  I am most grateful to those former Morgan Stanley partners who did cooperate. They were a tremendously impressive group—pound for pound, the most informative and perceptive people I talked to. Many of the interviews lasted several hours and more than compensated for the lack of official cooperation. Far from being disloyal, they performed a real service and enhanced my appreciation of the firm. Their enthusiasm made me doubly regretful of the current leadership’s intransigence.

  In writing the section on the Casino Age, I performed over a hundred interviews to get an “inside” feel comparable to that of the two earlier sections, which were based on hundreds of books and tens of thousands of unpublished documents. Since Morgan bankers would sooner swallow cyanide tablets than name clients, this was no small feat. A mute breed schooled in confidentiality, they weren’t accustomed to talking openly about their business. This makes me especially grateful to the people I interviewed. Some patiently sat through talks that started in the morning and ended at dusk. Others typed out page after page of impressions. I am humbled by their generosity, which I cannot adequately repay. The pleasure of their company was one of the real pleasures of writing the book. I felt privileged to share their reminiscences.

  Lest anyone take offense at a misplaced emphasis, I will simply list all those who answered questions in person, by phone, or by mail. My special thanks to the descendants of Jack and Pierpont Morgan, Dwight Morrow, Tom Lamont, George W. Perkins, Harry Davison, Russell Leffingwell, George Whitney, Vivian H. Smith, Teddy Grenfell, Thomas S Gates, Jr., Montagu Norman, Nancy Astor, and Charles Lindbergh for permitting me to quote from their unpublished papers. I owe a special debt to Edward Pulling, Paul and Cecily Pennoyer, and Laura Phillips, who not only answered questions, but permitted me to reprint photographs from their family albums. I especially thank those whose situation required that their names be omitted from the following list of acknowledgments: David Band, John Baylis, David Bendall, Jerry E. Bishop, H. P. K. den Boesterd, A. Bruce Brackenridge, William D. Brewer, James R. Brugger, Dr. Nicola Caiola, Rupert F. J. Carrington, Robert Carswell, Lord Stephen G. Catto, Randall Caudill, Dorothy B. Colby, Frank W. Colby, J. E. H. (“Tim”) Collins, Edward Costikyan, Daniel P. Davison, Harry Davison II, C. Douglas Dillon, David Douglas-Home, Robert G. Engel, Edgar Felton, Max M. Fisher, John Douglas Forbes, George S. Franklin, Helena Franklin, John B. Fraser, Evan Gal-braith, Robert A. Gerard, Jackson B. Gilbert, S. Hazard Gillespie, Victor Got-baum, Raphael de la Guerronniere, Perry E. Hall, Charles E. A. Hambro, Keith R. Harris, Carl Hathaway, Robert K. Heimann, Robert A. Henderson, Michael Hildesl
ey, Sir David Basil Hill-Wood, Longstreet Hinton, Guy Huntrods, Shiro Inoue, William M. Isaac, Robert Isom, Sir Martin Jacomb, Lord Roy Jenkins, Fred W. Kirby, Corliss Lamont, Edward M. Lamont, Ralph F. Leach, Jerome Levinson, Anne Morrow Lindbergh, Robert V. Lindsay, Jack Loughran, John McDaniels, Luis S. Mendez, John M. Meyer, Jr., Damon Mezzacappa, George S. Moore, Catherine Adams Morgan, Constance Morrow Morgan, Sir Jeremy Morse, Bruce Nichols, Sir Leslie O’Brien, fane Nichols Page, Walter H. Page, Ellmore C. Patterson, the late Frances Tracy Pennoyer, Joseph L. Ponce, Shep-pard Poor, Lewis T. Preston, Thomas L. Pulling, Clifford H. Ramsdell, Charles Rawlinson, Judson P. Reis, William Rhodes, Frank Rosenbach, Eugene Rotberg, George W. Rowe, Charles Ryskamp, William Salomon, David T. Schiff, Frederick H. Scholtz, Anthony M. Solomon, Andrew Spindler, Irvine Sprague, William Sword, David Taylor, Fred Tetzeli, Alexander C. Tomlinson, William D. Toomey, Guido Verbeck, Peter Vermilye, Fred Vinton, Norma Walter, Anthony Weighill, John Weinberg, Christopher Whittington, and Robert J. Wynn.