THE LAST PARTNERSHIPS Inside the Great Wall Street Money Dynasties phần 4 pdf

man rebuilt the transcontinental link so that it regained the superior

place in east–west transportation that it was intended to occupy after

the Civil War. Then he began to clash with the top financiers on Wall

Street and usually won the battles. The battle for control of the Union

Pacific was one notable example. In 1895, J. P. Morgan rejected the

idea of reorganizing the Union Pacific, which had been tottering on

the brink for years. The Treasury was demanding its money from

loans made during the post–Civil War period, and a major battle was

developing concerning who would win the right to put the railroad

back on its feet. Harriman crossed swords with Jacob Schiff of Kuhn

Loeb, who had designs of his own on the reorganization. But Harri￾man proved that he could raise the necessary capital to rebuild the

line at a rate cheaper than Schiff could provide. Kuhn Loeb eventu￾ally capitulated and reorganized the railroad according to the Harri￾man plan. Harriman himself was named chairman of the board and

later president of the railroad.

In 1901, competing interests flared anew when the Northern

Pacific Railroad again raised its head. Since the days of Jay Cooke, the

railroad had had a troubled history under various managements

before a war for its control developed. Harriman began to buy stock

in the line to compete with its major shareholder James J. Hill, a

Morgan customer. Using Kuhn Loeb to help him finance his venture,

he successfully bought a large block of its stock before it came to the

attention of Morgan and Hill. The buying set off a frenzy on Wall

Street and the two forces bought more stock than actually existed,

forcing prices to rise astronomically to more than $1,000 per share, a

gain of more than $900 in one week alone. Then the collapse came, as

the short sellers ran for cover and finally had to settle to cover them￾selves at a loss at a negotiated price. The New York Times ran the

story, giving it much drama when it said that “the greatest general

panic that Wall Street has ever known came upon the stock market

yesterday, with the result that before it was checked many fortunes,

the accumulation in some cases of years, had been completely swept

away.”9 The panic, in reality, was a short one and the market soon

regained its footing, but the battle underlined the importance of rail￾roads and finance in the economy—and the importance of personali￾ties in helping move market prices.

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The battle for control resulted in the formation of a holding com￾pany, called the Northern Securities Company, that was controlled by

both warring factions. This was the sort of organization Morgan had

had in mind years before when the ICC was formed, and the antimo￾nopolists quickly seized upon the newly formed company, using it as

a rallying point. The United States subsequently filed suit in court

claiming that the holding company was a monopoly of railroad inter￾ests, and the Supreme Court agreed, striking down the company as an

illegal combination designed to restrain trade. Undaunted, Harriman

went on to build railroads nevertheless and had elaborate plans to

develop a railroad empire outside the United States, stretching from

Siberia to Manchuria. But the grand plans were interrupted by his

death in 1909. The American railroad baron did not live to see

his international plans come to fruition. Fortunately, his sons had

become able financiers in their own right and would see that the fam￾ily tradition was carried on.

Moving Toward Merger

Harriman’s name, like those of so many nineteenth-century finan￾ciers, lived on because he was able to pass his legacy to his offspring.

While he made his reputation in the nineteenth century, the family

name in banking was not established until the twentieth. His oldest

son, William Averell Harriman, founded W. A. Harriman & Co. in

1919, and in the 1920s he and his younger brother, E. Roland Harri￾man, founded Harriman Brothers & Co. Both were investment bank￾ing houses, actively engaging in the sorts of deals the senior Harriman

had put together during his lifetime.

The 1920s boom brought many new companies to market, and the

trend underlined the need for a merger partner for the Browns. More

capital would be needed if the firm was to compete effectively in the

new environment. In the years prior to the Crash, all of the major

New York banks added underwriting to their sphere of activities, usu￾ally through securities affiliates. Stock underwriting was not as popu￾lar as bond underwriting for the banks, and many, including Brown

Brothers, accumulated a large number of bonds on their books that

were unsold at the time of the Crash. Once economic activity began

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to diminish, the bonds were difficult to sell and severe strains were

placed upon the partners’ capital. Brown Brothers had accumulated a

large amount of South American bonds, and they proved especially

difficult to sell.10 The partners realized that they had a problem on

their hands. Years before, Baring Brothers in London had suffered a

collapse because of South American bonds and had required a

bailout. Realizing that the Crash was just not another market “break,”

in 1920s parlance, the Browns saw that a merger with the Harrimans

began to make more and more sense.

The Browns and the Harrimans had been friendly for decades, and

members of the families had been at Yale together as undergraduates.

The announcement of the merger was made jointly by Brown Brothers

managing partner Thatcher Brown and E. Roland Harriman. The mar￾riage brought together the Browns’ long tradition of conservative bank￾ing and a fresh infusion of capital from Harriman. Ironically, it was

announced in the New York Times on the same day (December 12,

1930) that the failure of the Bank of United States in New York was

announced, the largest commercial bank failure in American history.

The bank collapsed under suspicions of fraud and graft, taking $300

million worth of customer deposits with it. Without a merger, the fate

of the two houses could have been quite different, because many

bankers and brokers were suffering the effects of the Crash. One of the

partners from Harriman Brothers joining the new bank was Prescott

Bush, father of future U.S. president George H. W. Bush.

Clearly, access to the Harriman fortune through the sons was the

prime motivating force behind the merger. The Harrimans were a

growing but yet not major force on Wall Street when the merger

was announced. But the combined firms instantly became a Wall

Street powerhouse, ranking alongside Kuhn Loeb and J. P. Morgan

as investment banks with considerable influence. When Congress

passed the Glass-Steagall Act during Franklin D. Roosevelt’s first

one hundred days, however, the powerhouse status proved to be

ephemeral. Investment and commercial banking were separated by

the act, and banks had one year to choose which side of the business

they wanted to engage in. Brown Brothers chose commercial bank￾ing, not so much a radical choice as a natural return to the company’s

nineteenth-century roots.

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