THE LAST PARTNERSHIPS Inside the Great Wall Street Money Dynasties phần 5 docx

house sales school to train the brokers in effective selling techniques.

But the product range was somewhat limited. Most of the sales force

pushed AT&T common stock only, and did not encourage margin

accounts from customers. That limited scope helped save the firm

from the worst ravages of the Crash of 1929. Ironically, it was the tra￾ditional private banking business that caused serious difficulties.

The stock market crash troubled Kidder Peabody, but the firm sur￾vived intact. But events in 1930 caused it to fail, creating a low point

in the firm’s history. The informal structure of the company came to

haunt it when many of its senior partners decided to retire, taking

their capital with them as they did. The new partners who had been

admitted over the years were never required to bring new money

with them, so the firm was suffering withdrawals of capital at the

same time as the Crash. In financial circles, the situation became

well-known and depositors began to withdraw their funds, creating a

situation not unlike that which befell Jay Cooke seventy years before.

The final blow occurred when the Italian government withdrew the

balance of its deposit, causing the firm to seek outside assistance in

order to survive. Kidder Peabody became the best-known victim of

the financial crisis of 1929 on Wall Street. The only question was who

would pick up the pieces so the firm could begin again.

In a move reminiscent of previous Wall Street panics, Kidder was

bailed out by J. P. Morgan. In times of financial distress, it was natu￾ral for larger, solvent firms to extend assistance to the smaller, and

1930 proved to be no exception. The original tab for the bailout was

$15 million. Kidder approached Morgan, who agreed to help out an

old banking friend. The negotiations lasted months. Morgan organ￾ized a bailout group consisting of New York and Boston banks and

several private investors, one of whom was Mortimer Schiff of Kuhn

Loeb. The group provided $10 million, while Kidder was required to

raise another $5 million on its own, which it did without much diffi￾culty. Just when all appeared well, however, the bank’s fortunes

quickly sank again. The $15 million was not enough, and a further

transfusion was needed to avoid catastrophe. Someone from the out￾side was needed to bring in both cash and fresh expertise.

The new talent came in the form of Chandler Hovey, Albert Gor￾don, and Edwin Webster. Although separated by twenty years in age,

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the three all had some connection, either direct or familial, to Kidder

in the past. Webster’s father, the founder of Stone & Webster, an engi￾neering firm, had worked for Kidder in the nineteenth century before

setting out on his own. Hovey, from an old Boston family, was Web￾ster’s brother-in-law, whereas Gordon was his classmate at Harvard.

The three reorganized Kidder Peabody, keeping the firm name intact

since its name and connections were considered its greatest assets.

No one from the old firm was taken as a partner, and the new firm

started in March 1931 with around $5 million in capital. Most of the

capital was provided by Webster’s father; Hovey and Gordon con￾tributed about $500,000 between them.12 The firm, with seats on the

NYSE and the Boston Stock Exchange, was back in business, but its

capital was only the size of Clark Dodge’s a century before.

Ironically, Kidder reorganized before the Glass-Steagall Act would

have required it two years later. At the time, it was no longer a full￾service private corporate bank but an investment banking partner￾ship, dedicated to the securities business alone. In 1931, it absorbed

a smaller house, Kissell, Kinnicutt & Co. of New York, and merged its

operations with its own, taking in a few of the firm’s partners as well.

Unfortunately, the reorganization came during the worst part of the

Depression. Kidder would be able to keep its head above water but

certainly did not report outstanding financial results for the balance

of the 1930s. But better days were coming, and Kidder waited for

them along with the rest of Wall Street.

Starting Anew

The new Kidder Peabody survived the ordeal of the 1930s but still

had a serious problem. Capital was becoming an issue on Wall Street

in the postwar years, and firms like Kidder were always short of it.

That situation was tolerable as long as underwriters had someone to

sell their new issues to, whether they were retail or institutional cus￾tomers. The old Kidder used Baring as an outlet for many of its

underwritings, but when that connection began to fade the firm was

left on its own to find investors. The new Kidder did not have the

same luxury and quickly was thrown into the frying pan of Wall Street

at a time when investment bankers were hardly popular. In addition,

Crashed and Absorbed: Kidder Peabody and Dillon Read

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