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

by Ron Chernow

  During the founding of this project, Anne met two older women who would change her life. One was the stoutly mannish Bessie Marbury, the American theatrical agent for George Bernard Shaw and Oscar Wilde; the other was Elsie de Wolfe, the voguish former society girl and actress, now a famed interior designer for her work on the Colony Club. In 1908, Anne, thirty-five, entered into a menage a trois with these two women at their Villa Trianon in Versailles. With its formal gardens, topiary, and trimmed lawns, the Villa Trianon was an incongruously aristocratic setting for such a daring arrangement. De Wolfe designed a dressing room that fit Anne’s contradictory nature; on its formal mantelpiece were both a French bust and a leopard-skin velvet rug.

  Over the years, these three patrician ladies pioneered in many cultural areas. They opened a Broadway dance hall and sponsored Cole Porter’s first musical. They also took up many liberal and feminist causes. Anne supported the strike by women shirtwaist-workers, a largely Jewish group, inspected the sanitary conditions in factories, opened a temperance restaurant in Brooklyn, started a thrift association and vacation fund for young working women, and championed women’s suffrage. On December 31, 1908, she lunched at the White House to discuss social welfare with Teddy Roosevelt, who may well have savored the idea of Pierpont’s extreme discomfiture. Anne’s exposure to her father’s business friends bred considerable cynicism in her. When Lincoln Steffens once told her he liked Judge Gary of U.S. Steel, she said impatiently, “Oh, he’s too plausible. He has taken you in as he does others.”6

  Pierpont was outraged by Anne’s liberal, unconventional behavior. If the three women were discreet about their private affairs—even de Wolfe’s biographer shrinks from using the word lesbian—they threw gala parties that attracted attention. Bernard Berenson attended their gatherings, as did Pierpont’s mistress, Maxine Elliott, who had acted with de Wolfe. The chain-smoking Anne was in an agonizing situation. As one of the world’s richest young women, she was relentlessly courted by titled Europeans. Scandal sheets frequently reported her upcoming engagement to the French count Boni de Castellane, which never came about. All the while, she dove deeper into causes and took stands that aligned her with her father’s critics.

  The facts of the rift between Pierpont and Anne are fragmentary. De Wolfe’s biographer Jane S. Smith says Pierpont thought that Bessie Marbury had poisoned Anne’s mind against him. She apparently told Anne that Pierpont used her to cover up his trysts with mistresses when Anne accompanied him to Europe on Corsair III. Pierpont’s other children violently disagreed with this interpretation. Pierpont’s middle daughter, Juliet, bristled at references to de Wolfe, while Jack was deeply upset by Anne’s behavior. In her memoirs, Marbury handled the controversy tactfully: “Mr. Morgan was patriarchal in his views. The emancipated woman enjoyed no favor in his eyes, therefore as his daughter, she grew up determined that she must think for herself. ”7 She also said of him, “To acknowledge defeat was foreign to his temperament. He was always loyal to his mistakes.”8

  Pierpont was wounded by the estrangement. “It broke her father’s heart when she elected to part from him,” one of Anne’s friends told Clarence Barron.9 As we have seen, Pierpont could be grimly implacable when crossed, and he blamed Bessie Marbury for stealing away his daughter. Hence, he found an ingenious way to torture her. Marbury coveted the French Legion of Honor and believed she deserved it for her work in officially representing French dramatists in the English-speaking world. By chance, in 1909, Robert Bacon, the ex-Greek God of Wall Street, was named ambassador to France. Bowing to Pierpont’s wishes, he made sure she was denied the honor. Knowing that the House of Morgan objected prevented Bessie Marbury from ever receiving the government award—even after she spent years raising money for France and donated her Versailles home as a hospital during World War I. De Wolfe won the Croix de Guerre, and Anne was decorated as a commander of the Legion of Honor for running an ambulance corps and performing relief work. But Marbury—notwithstanding letters of praise from former presidents Roosevelt and Taft—couldn’t overcome the French fears of offending Morgan interests. Even beyond his grave, Pierpont Morgan would not be thwarted.

  PIERPONT’S relationship with Jack improved in his last years, perhaps in reaction to his troubles with Anne and Fanny. Nobody doubted that Jack would take over at the Corner, if only because the bank needed the Morgan name and money. Jack was no slouch and ably handled affairs in his father’s absence. Yet he didn’t have Pierpont’s gargantuan ego. Since boyhood, he had been plagued by secret doubts about himself—it wasn’t clear to him whether he had the intestinal fortitude to head a banking empire. In 1910, he had a collapse that was diagnosed as strain and fatigue. So for a number of reasons, he wanted a strong lieutenant, a powerful regent to take charge of the bank on a day-to-day basis. He preferred the role of constitutional monarch, shaping policy and delegating authority.

  Two people competed for the position—Harry Davison and George Perkins. Perkins carried several liabilities. He was always shadowed by the insurance scandal from his years at New York Life. But the cause of Perkins’s downfall would be that he saw himself as a king in his own right, not simply a Morgan vassal. At his Riverdale estate, he had nine servants, a swimming pool, a ballroom, and a bowling alley. In 1906, he bought the world’s largest custom-made car—an eleven-foot French monstrosity with ebony woodwork, a writing desk, and a washstand-table. His worst sin may have been not showing due deference to the Morgans. He sneered at Jack and thought he was more highly qualified to run the bank. He sometimes made decisions without consulting the Morgans. In 1910, Pierpont told Harry Davison in London that Perkins had defied his wishes on a financing arrangement for the Studebaker Company, news that Davison passed along to Perkins. Perkins then wrote to Pierpont saying, “I am very deeply disturbed by one remark that Davison made, viz., that you felt I had gone ahead and deliberately disregarded an understanding with you and concluded the business to suit myself.”10 Six months later, Perkins left the bank. He was apparently forced out. Tom Lamont later said that Perkins “didn’t leave of his own accord. Morgan thought he had been a little second-rate on some deals.”11 When he resigned, Perkins took $5.5 million of his own securities out of the bank—one of many fortunes harvested at the House of Morgan.

  For those skilled at reading the tea leaves, it grew clear that Henry Pomeroy Davison would become chief operating executive. After he became a partner in January 1909, he seemed to have almost exclusive access to Pierpont in his library. As was clear in the 1907 panic, the handsome Davison had star quality, a square-jawed toughness noticed by everyone on Wall Street. He had grown up in a small Pennsylvania town, the son of a farm-tools dealer and poor relation in a family of bankers. He skipped college when Harvard denied his scholarship application. He had a steely, distinguished look—long eyebrows, hair parted down the middle, and a wide, firm mouth.

  Davison started out working for a bank in Bridgeport, Connecticut. One bank director was P. T. Barnum, who liked him and invited him to join a weekly whist game. In 1893, Davison married Kate Trubee, and they moved to New York so Harry could start work at the Astor Trust Company. One day, a crank appeared at his teller’s window, pointed a gun at Davison, and passed him a $1-million check he wanted to cash, payable to “The Almighty.” The cool, quick-witted Davison figured out a way to foil the holdup. He doled out the money in small bills and kept saying in a loud, reverential voice, “A million dollars for the Almighty.”12 This gave a bank guard time to notify the police, who arrested the man.

  Davison rose quickly as a protege of George F. Baker, Pierpont’s jowly, side-whiskered chum and head of the First National Bank. He moved from the Astor Trust to another Baker bank, the Liberty. Then Baker said, “Davison, I think you’d better move your desk up here with us,” and he became a First National vice-president. While there, he organized Bankers Trust in 1903, assisted in the 1907 panic negotiations, and represented Wall Street on Senator Aldrich’s National Monetary Commission. These exploit
s won the attention of Pierpont, who later said, “I always believe everything Mr. Davison tells me.”13

  Anecdotes about Davison convey vigor, geniality, and self-confidence. Manly and decisive, he shot moose in Maine and elephant, buffalo, rhino, hippos, and antelope during a shooting trip up the White Nile. Once he dreamed he was a small-town Pennsylvania bank clerk. In a sweat, he couldn’t balance the books. When he awoke, his wife asked what had happened. “I finally solved the problem; I bought the bank,” he replied.14 Immensely sociable, he seldom sat down to dine at his North Shore estate, Peacock Point, with fewer than twenty guests. Taking people under his wing, he had a way of guiding them, sometimes brusquely and a bit intrusively. He was the great talent scout in Morgan history and brought Tom Lamont, Dwight Morrow, Ben Strong, and John Davis into the bank’s orbit.

  Tom Lamont said that to young bankers on Wall Street, Davison “was not simply a leader. He was a king, an idol, if you please.”15 Lamont was Davison’s most important find. After college, he had worked for two years as a reporter on the New York Tribune. (Later he would brilliantly parlay this fleeting experience into an image of himself as an old newspaperman.) After salvaging a failing import-export house through clever newspaper advertisements, he renamed it Lamont, Corliss and Company. On Wall Street, he acquired a reputation for straightening out troubled companies. This caught the attention of Harry Davison, his neighbor in Englewood, New Jersey.

  Tom Lamont never pushed or clawed his way to the top. He did everything easily, jauntily, effortlessly. In 1903, at the age of thirty-three, he was returning home on the commuter train to Englewood when Harry Davison took his life in hand. As he entered the car, Davison was, musing about choices for a secretary-treasurer post at the new Bankers Trust. When Lamont appeared, Davison saw his man. Lamont laughed at the offer. “But I don’t know the first thing about banking. All my brief business life I have been borrowing money—not lending it.” “Fine,” said Davison, “that’s just why we want you. A fearless borrower like you ought to make a prudent lender.”16 It was a momentous intuition.

  Lamont followed in Davison’s footsteps, taking his spot as vice-president at First National Bank in 1909. In late 1910, Pierpont summoned him. “You see that room over there? It’s vacant,” he said. “Beginning next Monday, I want you to occupy it.”17 Lamont professed bewilderment. “But what can I do for you that is worth while?” he asked. “Oh, you’ll find plenty to keep you busy, just do whatever you see before you that needs to be done.”18 Was Lamont’s reluctance simple candor—or splendid calculation?

  Interestingly, with both Davison and Pierpont, Lamont refused the crown being proffered. He told Pierpont he had a dream of traveling three months each year. Far from being put off, Pierpont said, “Why, of course, take off as much time as you like. That is entirely in your hands.”19 He advised Lamont to take a cruise down the Nile, bringing along a couple of nurses for his children. There was again a certain guile in Lamont’s handling of the offer. He must have known that Pierpont spent months abroad each year. Was he holding up a mirror to the old tycoon, saying tacitly, “Look here, don’t I remind you of yourself in younger days?” Behind Lamont’s urbane charm stood a man of exceptional talent, the more winning for its being presented with such apparent modesty.

  To complete preparations for the succession, Pierpont made his final disposition of J. S. Morgan and Company in London. Stipulating that it survive for only a generation, or as long as Pierpont lived, Junius had permitted his name to be used posthumously. Now the twenty years was about to elapse. Jack explained that “as we approached 1910, Father said, ’You will have trouble enough when I die without having to think of a new name for this firm, and I suggest that we should now change it to Morgan Grenfell & Co., and make J. P. Morgan & Co. partners in it, they to keep one million pounds in capital.’ ”20

  On January 1, 1910, Morgan Grenfell was born. If it bore, for the first time, a British name, its prestige was guaranteed by its New York money and connections. While Teddy Grenfell’s name lent a protective British coloring in the City, the capital remained largely American. Before 1910, Pierpont and Jack had been partners of J. S. Morgan and Company. Under the new dispensation, J. P. Morgan and Company itself would be a partner in London and draw half its profits along with Drexel and Company in Philadelphia. Significantly, this arrangement never worked in reverse. Partners at Morgan Grenfell in London or Morgan, Harjes in Paris would thus hold second-class citizenship within the Morgan universe. The Morgan dynasty was always carefully arranged so that 23 Wall Street remained primum inter pares.

  DURING Pierpont’s last year, he was beset by calamities, as if the gods were punishing him on a scale worthy of his grandeur. His shipping trust, the International Mercantile Marine, faced stiff competition from the Cunard Line, which had built the swift and luxurious Mauretania and Lusitania with British government subsidies. To counter Cunard, J. Bruce Ismay, president of the IMM, and Lord Pirrie, the shipbuilder, decided to build a pair of mammoth ships. Pierpont, always partial to grandiose ventures, approved the plan. The ships were White Star’s Titanic and Olympic. The House of Morgan even lobbied the New York Harbor Board for a hundred-foot extension of a Hudson River pier so it could receive the twin ships.

  In May 1911, Pierpont attended the Belfast christening of the Titanic and studied the spot on B deck where his personal suite would be. It would contain a parlor and promenade deck, with timbered walls in Tudor style, and there would be special cigar holders in the bathroom. Though Pierpont and Vivian Smith of Morgan Grenfell both booked spots for the April 1912 maiden voyage, both had to cancel.

  Reports of a North Atlantic disaster reached Pierpont in France on the eve of his seventy-fifth birthday. “Have just heard fearful rumor about Titanic with iceberg,” he wired New York. “Without any particulars. Hope for God sake not true.”21 As the news spread, European reporters tried to track Pierpont down. When he was finally located in a French chateau, he seemed devastated. “Think of the lives that have been mowed down and of the terrible deaths,” he said.22

  Over fifteen hundred people perished, including John Jacob Astor IV, George Widener, the son of P. A. B. Widener, and Benjamin Guggenheim. Survivors were picked up by the Cunard Line’s Carpathia. It was a crowning disaster for the shipping trust, unleashing denunciations against both White Star and Morgan himself. The British-run but American-owned ship was charged with many deficiencies—an insufficient number of lifeboats, a crew who ignored warnings of icebergs, a poorly organized rescue, even failure to put binoculars in the crow’s nest. Newspapers depicted luxurious staterooms laid out for Pierpont and others as proof of a misplaced emphasis on winning the carriage trade from Cunard rather than on safety.

  Though the Morgan partners had long regarded White Star chairman Bruce Ismay as abrupt and ill-mannered—he had often threatened to quit—they stuck by him at first. Jack deplored the public drubbing that Ismay took, cabling the message that “from telegraphic accounts his treatment New York infernally brutal.”23 Later, Jack and Pierpont insisted he resign his post. The Titanic was the last nail in the coffin of the shipping trust. Although the cartel enjoyed a brief revival as Morgan’s Export Department sent war supplies to the Allies during World War I, that wasn’t enough to keep it afloat. In October 1914, Jack Morgan decided it had to default on its bonds. Almost four years after the Titanic went down, White Star conceded responsibility in court, paying out $2.5 million in damages.

  IN 1912, the crusade against the trusts had already reached a thunderous crescendo as much of the presidential campaign revolved around Pierpont and his enterprises. Morgan represented everything that had bothered Americans for a generation—factories thrown up helter-skelter across the landscape, brutal mergers, a carnival atmosphere on Wall Street that produced boomlets and busts in crazy, unending succession. A newspaper cartoon from 1912 shows Pierpont jovially sitting atop a heap of gold coins and dollar bills, clutching industrial plants and office buildings in his fist; the
legend reads: “I have not the slightest power.”24 Indeed, the Morgans saw themselves not as financial pirates but as public benefactors. When Harry Morgan was born in 1900, Jack noted a resemblance to Pierpont and said he only hoped his son would help as many people in his lifetime as Pierpont had in his. This sense of virtue contrasted with the reality of their being the target of public calumny, leaving the Morgan family angry and bewildered.

  Progressive Democrats criticized the trusts as cruel and inefficient and destructive of the entrepreneurial spirit. Bellwether of the new mood was Woodrow Wilson, then governor of New Jersey. He accused Republican-supported tariffs of shielding the trusts from foreign competition. In January 1910, while still president of Princeton, he had lectured an audience of New York bankers, including Pierpont and George F. Baker, on their duties, saying banking was “founded on a moral basis and not on a financial basis” and chiding them for penalizing small businesses.25 As Wilson spoke, Pierpont gloomily puffed on his cigar; afterward, injured, he told Wilson the remarks seemed directed at him. Wilson, saying he meant no offense, contended that he spoke merely of principles.

  That the Democrats attacked Morgan wasn’t surprising. Far more telling was how he became a divisive issue among Republicans and helped to split the party in 1912 over several issues. One involved a Morgan syndicate formed with the Guggenheims in 1906 to exploit the copper of the Kennecott Glacier in Alaska. This “Morganheim” group, as it was dubbed, had launched a veritable financial invasion of the state, buying up steamship lines, coal fields, and canneries and investing $20 million in a railroad to carry copper ore to Prince William Sound on the coast. The press lampooned this “second purchase of Alaska,” and one cartoonist introduced a composite monster called Guggenmorgan.