The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance
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A proxy fight, an attempt to elect a dissident slate of directors, was the favorite takeover device of the 1950s. It stacked the cards in favor of management, which could usually marshal more resources and out-gun the opposition. As a rich outsider, however, Young waged a campaign in the style of a national election, producing a flurry of press releases, newspaper ads, and even direct-mail pleas. The new age would witness many such loud, brassy, vituperative campaigns. Pierpont Morgan and Tom Lamont had waged their corporate struggles behind closed doors, dealing with like-minded bankers. In the New York Central battle, Young forced the sedate clubmen of Wall Street to fight in the open—where they felt naked and profoundly uncomfortable. Both sides spent over $ 1 million and grew so paranoid that they swept their respective headquarters in search of hidden microphones.
Robert Young did everything that gentlemen bankers thought undignified. He appeared on Meet the Press and promised to triple the railroad’s profits, evoking a vision of high-speed, futuristic train service. He hired a small army of three hundred vacuum-cleaner salesmen to telephone shareholders and even sued directors on the New York Central board, including George Whitney. Despite his own tremendous wealth and railroad empire, he managed to portray himself as a doughty little David combating the Goliath of the New York Central’s board.
Although it seemed tangential, Young spent much of the campaign assailing the House of Morgan. He urged companies to renounce their exclusive relations with Morgan Stanley and solicit competitive bids from other bankers. He blurred the identities of J. P. Morgan and Company and Morgan Stanley and lumped them together as the “Morgan crowd.” “He assumed that fighting one meant fighting both, plus Guaranty Trust and other banks,” said Clifford H. Ramsdell, then an Allegh-any vice-president.19 Young revived ancient myths that a single Morgan director on a board could bully the rest, claiming the “real issue” was whether the railroad would “continue to submit to a Morgan non-ownership board with countless conflicting interests.”20 The Brandeisian rhetoric is less notable than its application by a millionaire corporate raider in the middle of a takeover battle. The New Deal had only wanted to curb Morgan power; Robert Young wished to appropriate it.
There was an element of bear baiting in Young’s attacks on the Morgan interests. He must have known these proper gentlemen wouldn’t emerge from their clubs, roll up their sleeves, and resort to fisticuffs, they had no tactical repertoire for street fights, which they considered ill-bred and highly offensive. Morgan Stanley lacked any publicity apparatus and so found itself contending in a strange, alien world. “Young was beneath our respect,” said Perry Hall. “Why get into a public fight with a person like that?”21 In an unprecedented move, Morgan Stanley ran a large advertisement attacking Young and denouncing government-stipulated competitive bidding. However strong this seemed to Morgan Stanley partners, it was tame stuff compared with Young’s merciless guerrilla warfare.
J. P. Morgan and Company was no less baffled in countering Young. Like Saint Sebastian, it stood still taking the arrows. The bank dispatched an emissary to Allen Kirby and asked whether Young could please stop making such nasty statements in public. “Publicity is the only effective weapon we have and we are going to use it,” Kirby replied.22 In April 1954, the Morgan bank published an open letter from president Henry Clay Alexander denying Morgan control of the New York Central. Alexander noted that the bank couldn’t own stock and competed with several other banks on the railroad’s board. “You are wrong and I have a deep suspicion you know it,” Alexander lectured Young. “You think, no doubt, it is good propaganda in seeking stockholders’ votes . . . we welcome the opportunity to demonstrate once again that the theory of Morgan banker domination is a fantasy and a myth.”23 He called Young a Little Caesar setting up straw men. This was the closest 23 Wall ever came to invective.
Two months later, Young startled Wall Street when he won the proxy battle by more than a million votes. The speculators backed Young, as did the big retail houses, such as Merrill Lynch and Bache, whose margin accounts went for Young. Lifting his hands like a boxing champ—he didn’t mind rubbing it in—Young strode into the New York Central headquarters at 230 Park Avenue and sat down beneath a portrait of Commodore Vanderbilt. When the board met in June, no Morgan banker or Vanderbilt sat on it for the first time since the nineteenth century. The Visigoths had sacked the Holy City. Young’s board included Lila Acheson Wallace of the Reader’s Digest and Indianapolis publisher Eugene C. Pulliam—businesspeople from beyond the Wall Street pale. Ever since the 1930s, economists had commented on the separation of management from ownership in the modern corporation. Now a corporate raider had acted on that momentous shift.
On Wall Street, crestfallen financiers wondered why the Morgan houses hadn’t mounted a more spirited defense or formed an informal syndicate to keep the road in friendly hands. Fortune asked, almost plaintively, “Why did Morgan not use its prestige?”24 The answer was partly that the Morgan houses were still smarting from the New Deal controversies. As president Henry Alexander said, “We don’t try to run other people’s business and there have been so many charges in the past that we want to avoid the appearance of doing so.”25 While Young played on old associations, J. P. Morgan power stood at its modern nadir. Young’s success had proved, paradoxically, that bankers didn’t control the railroads. The lack of a more tenacious banker defense also reflected the decaying fortunes of the roads. Morgan Stanley hadn’t handled a major public offering for the New York Central since 1936. There just wasn’t that much business at stake.
The Morgan houses had one last sour laugh on Robert Young. Like many hostile raiders, he was ignorant of the true state of his target. And the New York Central was bankrupt. All those slick passenger trains that had dazzled Young were losing money, and freight traffic was being siphoned off by trucks and planes. Young appointed Alfred E. Perlman as the railroad’s president, the first Jew to hold that position. When they first examined the Central’s books, Young said, “Al, aren’t you afraid?” Perlman replied, “No, but we’d better get to work.”26
During the 1957 recession, the New York Central, battered by heavy losses, opened merger talks with its historic rival, the Pennsylvania Railroad. In January 1958, the Central skipped its dividend payment, which plunged Young into a terrible state of depression. For a long time, he had struggled with deep psychological problems, veering between brisk optimism and deep melancholia. A close friend, Edward Stettinius, Jr., son of the late Morgan partner, had once found him sitting alone in his Newport library, staring absently into space while a gun lay on his desk. Perhaps after so much brave talk, his failure with the New York Central was too shameful for him to face. On January 25, 1958, he went into the billiard room of his Palm Beach mansion, the Towers, picked up a shotgun, and shot himself to death.
THE chummy world of Wall Street bankers and corporate executives that so enraged Robert Young reached its peak in the 1950s and began to slip. In this high noon of industrial power, before the European economies rebounded or the Pacific rim threatened, the United States dominated automobiles, steel, oil, aluminum, and other heavy industries. As investment banker to big smokestack firms, Morgan Stanley was in an enviable position. Like a caretaker of a cache of crown jewels, it didn’t need to scout out new wealth. The sole objective was to stand guard over the franchise—the superb client list inherited from the old House of Morgan. As the firm’s William Black later said, “All you needed to do in the 1950s was to execute superbly on client business.”27
In pleasing clients, a smooth golf swing or a convivial party style was the standard weapon in the investment banker’s arsenal. By modern standards, it was a very sociable, leisurely world, with two-hour lunches at the Bond Club still in fashion. The master at entertaining clients was Perry Hall, the managing partner from 1951 to 1961. Where Harold Stanley was gray and austere, Hall was pleasantly brash and garrulous, blessed with a salesman’s patter. Freckled and chunky, he had a broad face and penetrating eyes.
He terrified subordinates, charmed women, and lorded it over corporate chieftains. He could sell refrigerators to Eskimos. Like Andre Meyer of Lazard Frères or Sid Weinberg of Goldman, Sachs, he was on a first-name basis with every American CEO. “He would shout at presidents and thump the table and tell them what he thought,” said one person who observed him in those years. “His relationship with all those tycoons was unique.”
Hall had emerged from an F. Scott Fitzgerald world where Princeton eating clubs and Yale secret societies were the passports to Wall Street success. A 1917 Princeton graduate, he had sat next to Fitzgerald in many classes, due to the alphabetical proximity of their names. (Hall was unimpressed by Fitzgerald’s prose and insisted that several forgotten classmates were superior stylists.) For Hall, Ivy League sports provided his all-purpose pantheon of heroes. Whatever his partner’s business accomplishments, for example, Harold Stanley remained for him captain of the Yale baseball and hockey teams. Hall hired his own successor, Bob Baldwin, two weeks after watching him play baseball for Princeton. A varsity letter was perhaps the most eloquent letter of introduction at Morgan Stanley.
As the last managing partner from the old House of Morgan, Hall never modified his conviction that FDR was the “worst enemy the U.S. ever had.”28 Hall had worked at the Guaranty Company, survived the 1920 bomb blast, and become a bond manager at J. P. Morgan and Company in 1925. After the 1929 crash, Jack Morgan separately summoned Hall and Charles Dickey. He asked Dickey to become a J. P. Morgan partner and Hall to become a Drexel partner in Philadelphia. Jack, it seems, had bungled his instructions to offer both young men Drexel partnerships. The error deeply wounded Hall and led to a Morgan Stanley tradition of having two people present at important announcements. In 1935, Hall moved over to the new Morgan Stanley, which he liked to regard as his personal creation. He was boastful, but invested his vanity with considerable charm. “We were the crème de la cième,” Hall remarked. “Everybody was jealous of us.”29
Hall was perfectly suited to the relationship banking of the 1950s. He would entertain clients while shooting wild turkeys in South Carolina or fishing near his house in Woods Hole, Massachusetts. (At age seventy-three, he was still powerful enough to harpoon a 552-pound sword-fish.) An amateur golf and tennis champ, he attracted corporate executives who wanted to test their game. Hall would perform elite missions for clients and behaved like a member of their family. When a General Motors chairman was upset by his daughter’s plans to marry a Pakistani, Uncle Perry went to reason with the young woman. He asked whether her children would get into the right schools, have the right friends, and so on. She was persuaded. Such services made General Motors an untouchable Morgan Stanley client in the 1950s.
Hall admired Tom Lamont and his prankish spirit. Once, at an all-night party on Gramercy Park, Hall got separated from his wife. Wandering about, he came upon Marlene Dietrich and Salvador Dali in a doorway. Hall told the actress that he had idolized her ever since The Blue Angel. His wife, Alice, then appeared, and Hall pretended not to know her. “Hey, blondie,” he called to her. “Wanna try this bed?” Alice sat down, pretended to test the bed. “This feels pretty good,” she replied. Later Dietrich cornered Hall. “Did you know that woman?” “I never saw her before in my life,” Hall replied. “You’re the freshest man I ever met,” said Dietrich and stormed off. Hall treasured this anecdote more than he did the biggest General Motors or U.S. Steel underwriting.
Morgan Stanley people were extremely bright—like the old House of Morgan, the firm rewarded intelligence—but investment banking didn’t require an enormous amount of financial ingenuity. Inflation was low, currencies were stable, and the securities business was relatively straightforward—if you had the right clients. Underwriting spreads were fat in industrial issues. Right off the bat, Hall told his young recruits from Princeton and the other Ivy League schools to coddle their clients and study their needs. “I’m interested in the man who can bring the business in,” he said. “Leave the rest to the business school students. Once you do the deal, put on your hat and go home.”30 With securities issues pretty standardized, companies had little incentive to shop around among investment banks; the astrophysicists had not yet arrived on Wall Street. That Morgan Stanley offered an extra, indefinable mystique was all the inducement most clients needed to remain loyal.
After the New Deal, it was vital to prepare a good securities prospectus and comply with the new legislation. Investment bankers had to exercise “due diligence” and testify to the accuracy of offering documents. Wall Street feared the legal liability that came with the securities laws. Here the firm’s secret weapon was the profane, irreverent Allen Northey Jones, who had headed the J. P. Morgan bond department. A Trinity College alumnus, Jones enjoyed tweaking his partners and would grouse within earshot of Hall about “those goddamn stupid Princeton bastards.”31 Son of an impoverished Episcopal minister, bald, and moon-faced with bulging eyes, Jones would chug around the office in red suspenders, smoking a pipe.
He enjoyed shocking people. Once, when the partners were interviewing a new recruit, he bellowed at the nervous young man, “Are you spoiled?” When the interviewee said he had been lucky in life and was indeed spoiled, Jones jumped up, barked “Hire him and send him to me,” and walked out.32 In new recruits, he inculcated a meticulous attention to detail. He would dump a thick prospectus in a rookie’s lap and tell him there was a single error and the young man had until the next morning to find it. He wanted Morgan Stanley to produce the best prospectuses, and corporations counted on the firm to shield them from legal problems. This led to such manic perfectionism at Morgan Stanley that Harvard MBAs proofread every SEC submission. If the old Wall Street was a restricted club, it had the luxury of exercising extreme care in the kind of business it did.
Northey Jones trained a generation of Morgan Stanley partners. If a trainee wished to learn railroad finance, Jones would sit with him late at night, poring over maps of a railroad’s tracks and unlocking the company’s secret business strategies. His dedication was total, almost monastic. A perennial bachelor, he glanced at his watch one Saturday and sprang to his feet. “I’ve got an appointment in half an hour,” he said. The appointment was for his wedding. Jones did as much as anyone to ensure Morgan Stanley’s reputation for excellence.
The influence of Harry S. Morgan, Jack’s younger son, was more elusive. He probably stayed at Morgan Stanley out of a sense of family duty and actually spent more time yachting than issuing securities. He worked beneath a framed certificate of U.S. Steel shares from Pierpont’s 1901 issue. Harry had a classic Morgan resume—commodore of the New York Yacht Club, trustee of the Metropolitan Museum of Art, General Electric director, Harvard overseer. His North Shore estate at Eaton’s Neck, near Huntington, included a manor house, cottages for butler, chauffeur, and gardener, a swimming pool, and an eight-car garage. Sometimes crusty, he was also kindly and gentlemanly and fairly popular at the firm—with reservations.
Like his father, Harry was wary of the public and obsessively private. In the 1960s, Princeton made a pitch to house the Morgan papers and sent several distinguished scholars to lobby him over lunch. When they had finished their presentation, Harry startled them by saying, “I’m sorry to tell you gentlemen, there are no Morgan papers.” Faces dropped. Arthur Link, a noted Woodrow Wilson scholar, stammered, “But there must be Morgan papers.” Harry said his father had warned him to scatter or destroy any papers, lest the government get hold of them and again harass the Morgan family as Pujo and Pecora had. In fact, there were papers, a rich collection, which Harry eventually left with the Pierpont Morgan Library.
Perry Hall was somewhat disdainful of Harry Morgan, whom he felt occasionally got in the way. “The other partners were jealous and annoyed at the continued presence of an older man who contributed nothing in their view but yet held the reins in his hand,” said someone close to the firm. “This got more and more true as time went on.” In 1956, there was a bruising fight over whether Harr
y’s son Charles F. Morgan would be made a partner. Harry had retained legal title to the Morgan name, which he threatened to withdraw unless his son were brought into the firm. To other partners, it seemed that Charlie was a pleasant fellow with little interest in, or special aptitude for, banking. After some testy exchanges, Harry traded his rights to the Morgan name for Charlie’s partnership.
Charlie Morgan would be the only partner in Wall Street history to serve primarily as office manager—he often sat behind heaps of construction blueprints. Years later, when a new partner arrived for his first day, he was told that the man down on his knees fixing his doorknob with a screwdriver was his new partner Charlie Morgan. “If ever two people, father and son, were miscast in life, it was Harry and Charlie Morgan,” sighed an ex-partner. When Morgan Stanley moved uptown to the Exxon Building, Charlie supervised the installation of the new telephone system.
After the Charlie Morgan feud, so much residual anger remained that when Harry’s younger son, John, was proposed as a partner, an antinepotism rule was invoked. (The rule was passed after one partner, the son-in-law of a prominent partner, proved to be an alcoholic.) Morgan Stanley now rebelled against the Morgans. Thus John Adams Morgan, who even bore his great-grandfather’s bulbous nose, was blackballed. “Harry Morgan was told, ’You’ve got Charlie, that’s enough,” said an ex-partner. The irony was that John A. Morgan proved the son most interested in finance and later headed the corporate finance departments at both Dominick and Dominick and Smith, Barney.