by Jean Strouse
Morgan was free to withdraw his commitment in April 1902. If he had simply dissolved the provisional syndicate, the deal would not have gone through. He knew that with shipping profits down and no federal subsidy, the prospects for selling the combine’s securities looked bleak. On the other hand, his firm had invested nearly $4 million (a third of the $11 million paid for Leyland) in the merger, plus additional funds for building new ships, and a great deal of time and work. Also weighing in on the side of proceeding were the agreement he had negotiated with the Germans, the earnings history of White Star and Leyland, the inclusion of the Belfast shipbuilders, Harland & Wolff (whose costs were 30 percent lower than those of American yards), and political support from the U.S. President, cabinet, and Senate.
Still, it is surprising that he did not try to renegotiate terms with the shippers in 1902, given the industry downturn. Perhaps he thought the terms didn’t really matter, since the sums involved were small compared with U.S. Steel—or perhaps he expected the combination to help solve the industry’s problems. The purveyors of conventional wisdom had been skeptical about his ability to float securities for U.S. Steel, and the market had proved them wrong. In mid-April, he decided to go ahead.
On the nineteenth, his London partners leaked news of the shipping combine to the press. The next day, Morgan went to Paris with Anne, and on the twenty-second Henry Adams reported people wondering what would happen “if some morning he woke up dead.”
Morgan met his wife, the Laniers, and the Bacons in Paris at the Hôtel Bristol on April 20. Three days later, Fanny left for London and New York with her hired companion, a Miss Janes. Anne stayed on with her father in Paris.
London was in an uproar over his transatlantic trust. Just before the semiofficial announcement in the press, Ballin had told Germany’s London embassy that the Morgan bankers would try to present the combination “in the light of a big Anglo-American ‘community of interest’ agreement … the fact that it virtually cedes to the United States the control of the North Atlantic shipping business will be kept in the background, as far as it is possible to do.”
It wasn’t possible at all. The British government and House of Commons were “boulverséd [bowled over] by Morgan’s latest little combination,” reported Dawkins to Alfred (now Viscount) Milner, who was still British high commissioner in South Africa, on April 25: “Ships this time.” Britain’s politicians, preoccupied by the Boer War, had taken considerably longer than the Kaiser to recognize the “American peril” on the Atlantic, and by the time they woke up to the danger, three of their greatest maritime assets—Leyland, White Star, and Harland & Wolff—were disappearing into the maw of the Morgan trust.
Dawkins ruefully explained the situation to Lord Milner in light of England’s incontrovertible decline: “I don’t like it and wish that it were we who exported across the Atlantic and controlled the transportation from a vast hinterland to the coast,” but “the facts are that the Americans say [‘]we raise the wheat and cotton ferried over, we haul it thousands of miles to the Seas, we insist on a large share in carrying it further, and we back our claim with more spare money than you have, and that money can be realized and disposed of by a commanding genius at these games[’]”—i.e., by Morgan. The essential point, Dawkins thought, was that “under Morgan’s auspices the great railways and growing shipping lines in the U.S. have become as thick as thieves. The railways control all the Atlantic ports except New York, which remains an old-fashioned entrepôt port. Consequently the railways had begun to give and threatened to go further in giving preferential rates to cargo taking American boats, and our boats might have been squeezed out of all ports but New York.”
Berlin’s National Zeitung pointed out with more than a hint of schadenfreude that “The blow to England is all the greater since the German companies have been able to keep out of the trust and maintain their independence.”
Dawkins had discreetly tried to warn his friends in the government ahead of time—as had the chairman of Cunard, Lord Inverclyde—to no avail. In a nice display of outrage over information they had had for some time, ranking members of His Majesty’s government denounced Morgan’s “latest little combination” in April on grounds of national security and honor: the Royal Navy, they declared, had to be able to requisition freighters and passenger liners in times of crisis, and under no circumstances would English vessels fly the American flag. Having dominated world shipping for two hundred years, Britain was not about to let Morgan rule the waves.
The financial community was more pragmatic. Gaspard Farrer at Baring Brothers told James J. Hill: “If the U.S. have the money and desire to own ships assuredly nothing we can do will prevent her: & I would rather JPM bought our old ones at high prices than build new ones when prices are low.”
As of April 23, “JPM” was on vacation. Cables about the shipping trust followed him to Paris and then Aix, where news of the Northern Pacific raid had cut his holiday short the previous spring. In 1902 he issued occasional instructions as he traveled, but turned most of the wired queries back to his partners. On April 24, when Dawkins asked for advice about the combination’s capitalization and voting trust, Morgan replied from Paris: “Difficult in fact impossible for me to instruct or act at this distance without papers and agreement before me, all questions must be decided in NY unless some questions asked me direct.” The next day, informed that costs for White Star’s new tonnage were far higher than estimated—the calculations had been based on “conjecture” since the line’s president, J. Bruce Ismay, had “refused to give us figures”—he wired, “Have no suggestions make quite satisfied you all can adjust it without me, but if needed will come to London for the purpose of further meeting.”
Steele and Dawkins tried to adjust it without him, but Ismay kept coming up with new conditions and demands. Appealed to again at Aix, Morgan advised, “It does not seem to me safe to continue make concessions placing ourselves at mercy of Ismay in the management for which we are personally morally responsible”—he was even willing to leave White Star out of the combine.
The consolidation as it tentatively took shape in May kept White Star in, along with Griscom’s INC, the ATC, Leyland, and another British freight carrier, the Dominion line. It did not include Holland-America, as Ballin had wanted, but acquired a controlling interest in its stock. Griscom would be president of the still-unnamed enterprise, with headquarters in Philadelphia, and the bankers took familiar steps to insure supervisory control: Morgan himself would sit on a five-man voting trust, along with Steele, the Philadelphia streetcar magnate P.A.B. Widener (a major INC stockholder and a participant in the U.S. Steel syndicate), Ismay, and W. J. Pirrie of Harland & Wolff. Dawkins would be vice president in London. Griscom, Widener, Steele, and Perkins would sit on the board of directors.
Capitalization for the consolidation was calculated at $170 million—$60 million each of preferred and common stock, and $50 million in cash, to be raised through syndicate bond sales. The Morgan partners had hoped to purchase most of the constituent properties with securities of the new trust, just as they had for U.S. Steel, but the shipping industry downturn, the dubious prospect of dividends, and the subordination of the equity to $50 million of bonded debt meant that the shares were expected to sell well below face value ($100) by the spring of 1902—the preferred at about $85, the common at $35—and the bankers proceeded to sweeten parts of the deal.
White Star’s shareholders had agreed in 1901 to take 75 percent of their price ($24 million) in preferred stock of the new trust and $8 million in cash. In 1902 the line’s owners insisted on an additional $7 million in cash, plus a bonus of half a share of new common stock with each share of preferred. As a result, exactly at the moment Morgan might have been expected to renegotiate terms more favorable to the consolidation—asking the sellers to take a lower price in a worsening market—he did the opposite: he gave White Star more than he had initially promised. Since the $24 million in preferred had a market value of about $
20 million in 1902, he made up the difference with common stock worth about $4 million (face value $12 million), plus $7 million cash. In addition, the combine bought the partnership that managed White Star for an additional $2.5 million in cash and stock worth about $2.4 million.
The size of the syndicate’s $50 million underwriting was determined by the need for three major outlays of cash: $17.5 million to the White Star owners and managers; $11 million to repay the money advanced to purchase Leyland in 1901, plus interest; and $17 million for new ships—the combine took over the shipbuilding loans made by the Morgan bank in 1901, as well as commitments other lines had made to buy new tonnage. The cash requirements amounted to $46.5 million, and at the end of April 1902—a week after the Morgan bank set the deal in motion—syndicate members were asked to put up 25 percent of the $50 million they had pledged in exchange for bonds.
Critics in the English financial press said the trust had based its prices on the most prosperous year in the history of shipping, which yielded healthy profits to the British companies but so inflated the value of the combination that most of its stock represented aqua pura. The bankers had heard these charges before.‡
The financial problems of the new trust were quickly relegated to the background by its political problems. Dawkins and Jack cabled Morgan at Aix in early May that British Cabinet ministers were determined to prevent “English lines passing under American control”: the politicians had “every confidence in you and spoke of you in highest terms,” but were worried about the future, and wanted the English lines “put on same basis as German.” Morgan’s partners had said no change was possible now that the contracts were signed, but suggested “some way could be found” of meeting British objections once the merger went into effect. To “the Senior” they reported, “[We] said we are quite sure you will gladly see them on your return. This they welcomed.”
Morgan kept the British government waiting while he completed his spa cure, but appeared in London for dinner with the Colonial Secretary, Joseph Chamberlain, toward the end of May. He had known Chamberlain and his Bostonian wife, the former Mary Endicott, for years.§ They lived at No. 40 Princes Gardens, just down the Exhibition Road from Princes Gate, and Morgan had watched with interest as his neighbor, the wealthy owner of a screw factory, moved into national politics—first as the Liberal Unionist heir apparent to Gladstone, more recently as a militant imperialist appointed to the Conservative Colonial Office. Chamberlain was strongly in favor of an Anglo-German alliance, a cause that was not helped when the Kaiser denounced British ministers as a set of “unmitigated noodles.”
The slim, stylish Secretary, who invariably wore a monocle in his eye and a fresh orchid in his lapel, met Morgan in London “hot” with rage—partly at British shipowners for putting business above patriotism, partly at the Germans for having negotiated an independent treaty with the trust, and partly at the Americans for jeopardizing Britain’s national interests. Over dinner, Morgan promised to commit the new company not to transfer British ships to any foreign register for fifty years, and offered to meet most of the remaining political objections. To his surprise, Chamberlain rejected all his proposals, hinting that the British government might simply buy the White Star line’s best ships.
In that case, Morgan said, the government would have to pay up to 40 percent more than the liners were worth, which would only put money in the combination’s pockets for building better, faster ships. (That the combination was paying more than the companies were worth apparently did not enter the discussion.) The loss would not even temporarily set the trust back, since its German and Dutch partners could lend ships.
Then, apparently speaking not only for America’s commercial interests but for its foreign policy as well, Morgan “went on to say impressively,” reported Dawkins, “that while no formal alliance between [the British] and the U.S. could take place[,] nothing would do more to establish a good understanding and feeling between the two countries than community of business interests”—and that evidence of British hostility, such as buying White Star ships, would induce the American government “to exert itself.” Whether or not Morgan had authorization to issue this threat is unclear.
Chamberlain did not back down. According to Dawkins, the American financier left the dinner “very sore and astonished and inclined to withdraw all his offers.” Though a skillful diplomat with men in high places who fundamentally agreed with him, Morgan was tone-deaf to the sensitivities of people whose interests did not coincide with his own, and Britain’s intransigence in 1902 genuinely took him by surprise. He “expected to have been received with open arms on his arrival,” observed one of his English friends a few days later, “as the man who had done our country a good turn. Instead of this, he had been everywhere cold-shouldered, having been suspected of filching our mercantile ships.”
The deal with the Germans granted them partnership status in the maritime trust. Instead of treating the British as partners, Morgan was forcing them to surrender sovereignty at sea, and had not taken into account how they would hate acknowledging the economic superiority of the United States.
Dawkins and Jack quashed a suggestion from New York in late May that the name of the new combine reflect “American control.” The only way to prevent defensive British government action, they warned, was “to suppress as much as possible the national aspect of the matter and emphasize the commercial advantages only.” In early June, Morgan named the trust the International Mercantile Marine.
He returned to Paris immediately after his unsatisfactory dinner with Chamberlain, to meet Adelaide and Sybil Douglas, the Markoes, Charles Lanier, and Anne. The last unmarried Morgan child, Anne had replaced Louisa as both parents’ preferred traveling companion. She was the least conventional of the siblings, and bore a strong resemblance to her father—tall, square-jawed, and beautifully dressed at a hefty 170 pounds. She also had his energy and strength of will. Like Louisa, she learned to manage the often-conflicting demands of her estranged parents. In New York she brought some of her social life home to entertain Fanny at 219 and Cragston. Abroad, her presence in Pierpont’s entourage helped allay Fanny’s anxieties about his other female companions (Anne’s letters home never mention Adelaide). It also gave her more freedom and experience of the world than a single young woman could otherwise have.
The Morgan party left Paris on May 28, 1902, traveled quickly through Switzerland, stopped in Verona to see Juliet’s tomb, and went on to Venice to meet Corsair and her crew. Crowds lined up to see the magnificent yacht anchored in the Grand Canal opposite the Piazza San Marco, hoping for a glimpse of “Il Morgan.” The Americans explored Venice for two days, then sailed down the Dalmatian coast and through the Isthmus of Corinth to Athens. Living aboard Corsair, they toured Byzantine churches and the Erechtheum. At the National Museum they inspected the fabulous gold treasure discovered by Heinrich Schliemann at Mycenae and one of the famous bronzes recently recovered from the sea near the island of Antikythera. Then they proceeded to Delphi, Corfu, and across the Strait of Otranto to Brindisi. “Quiet day on Corsair,” noted Anne in her diary on June 8: “Father leaves 5:30 for London.”
Her father left for London to dine with the King. Dawkins had continued trying to placate the British Government—“I’ve talked my tongue nearly off,” he moaned to Milner—and decided to enlist a higher authority: “I hoicked my old man over from Venice to dine with Edward Rex.” At dinner with the British monarch on June 11, Morgan said he thought he could get the United States to enter into an Atlantic convention with Britain to guarantee the IMM’s merchant ships against third-party competition, and repeated the offer he had made to Chamberlain in May—that no British ships built by the combine would be transferred to foreign registry. The King was due to be crowned in two weeks. He left Morgan “quite reassured and comforted for the moment,” judged Dawkins. “But to bulldoze E.R. for the moment is perhaps no great feat.”
Morgan returned to Venice on June 13. His party sailed
down the Italian coast to Naples, then went by train to Rome. Dawkins complained to Steele that “JPM … shows a marked inclination for the present at any rate, to pull out of business more and more and any arguments or facts to be put before him have to be compressed into small concentrated doses like patent medicine.”
Junius Morgan had not begun to “pull out of business” until he was over seventy, then ceded complete control of the bank to his eager, competent heir. He had so carefully directed Pierpont’s education and professional training that he did not seem, when he finally retired, to be giving anything up. He simply handed his authority on, and regarded his son’s ascent with uncommon pride.
Pierpont was taking no comparable steps to fashion his son into an instrument of dynastic succession. He delegated authority to other men—Coster, Bacon, Perkins, Dawkins, Steele—but as he turned his attention away from work in the early years of the new century, he did not set up an alternate chain of command. His partners had to beg him, not always successfully, for direction and advice.
That a man so intent on shaping the American future should have done little to prepare for his own decline seems both paradoxical and fitting. He lived entirely, almost carelessly, in the present, and if he followed his anxieties about his health to their logical conclusion—that someday he was going to “wake up dead”—it fueled his sense of how much he still had to do. He had always wanted to do more than work. In his twenties and thirties he had taken periodic years off to explore Europe and restore his “nerves.” Even in good health he insisted on annual sojourns abroad. In his sixties he had begun to direct his “Titanic” energies to collecting art, but he only partly wanted to let go of affairs at 23 Wall Street. After George Perkins rescued a railroad in the South from manipulation by Bet-a-Million Gates in April 1902, Jack noted shrewdly that “the Senior pretends to feel disgusted that JPM & Co. should be called upon always when there comes a question of saving the situation.” Morgan wanted the huge responsibilities he had shouldered all his life, along with the acclaim they brought; he also wanted freedom to do as he pleased.