THE LAST PARTNERSHIPS This page intentionally left blank. THE LAST PARTNERSHIPS Inside the Great Wall Street Money Dynasties Charles R. Geisst McGraw-Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto McGraw-Hill abc Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. Manufactured in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a data- base or retrieval system, without the prior written permission of the publisher. 0-07-138261-5 The material in this eBook also appears in the print version of this title: 0-07-136999-6. All trademarks are trademarks of their respective owners. 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CONTENTS ACKNOWLEDGMENTS ix TIMELINE xi INTRODUCTION 1 1 The Yankee Banking Houses: Clark Dodge and Jay Cooke 9 2 “Our Crowd”: The Seligmans, Lehman Brothers, and Kuhn Loeb 40 3 White Shoes and Racehorses: Brown Brothers Harriman and August Belmont 81 4 Crashed and Absorbed: Kidder Peabody and Dillon Read 114 5 Corner of Broad and Wall: J. P. Morgan and Morgan Stanley 157 6 Corner of Wall and Main: Merrill Lynch and E. F. Hutton 209 7 Unraveled by Greed: Salomon Brothers and Drexel Burnham 240 8 The Last Holdouts: Goldman Sachs and Lazard Freres 282 CONCLUSION 314 NOTES 317 BIBLIOGRAPHY 325 INDEX 329 vii Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use. This page intentionally left blank. ACKNOWLEDGMENTS I would like to thank the following, all of whom helped contribute information not found in the usual sources: Victor Grey of the Rothschild Archive in London; Meg Ventrudo of the Museum of American Financial History in New York; Steve Wheeler, archivist at the New York Stock Exchange; and the staff of the Georgetown University Library special collections department. Kelli Christiansen of McGraw-Hill was instrumental in helping keep the narrative on track and helped oversee the book process from beginning to end. My wife, Margaret, deserves special thanks for her extraordinary patience while the book was being written. ix Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use. This page intentionally left blank. TIMELINE 1818 John A. Brown & Co. founded 1832 Vermilye & Co. founded 1836 S. & M. Allen & Co. (founded 1808) fails 1836 Enoch Clark founds Clark Dodge & Co. 1837 August Belmont & Co. founded (dissolved in 1924) 1838 Drexel & Co. founded 1848 Lazard Freres founded (continues today) 1858 Lehman Brothers founded 1861 Jay Cooke leaves Clark Dodge & Co. to found Jay Cooke & Co. 1864 J. & W. Seligman founded 1864 George Peabody & Co. becomes J. S. Morgan & Co. 1867 Kuhn Loeb founded 1869 Goldman Sachs & Co. founded 1871 Drexel & Co. merges with J. S. Morgan & Co. to become Drexel, Morgan & Co. 1873 Jay Cooke & Co. fails 1873 Jay Cooke’s son-in-law reestablishes firm as Charles D. Barney & Co. 1894 J. S. Morgan & Co. becomes J. P. Morgan & Co. 1903 E. F. Hutton founded 1905 Vermilye & Co. becomes William Read & Co. 1910 Salomon Brothers founded 1914 Merrill Lynch founded 1920 William Read & Co. becomes Dillon Read 1930 Brown Brothers merges with Harriman family interests to become Brown Brothers Harriman (continues today) xi Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use. Timeline 1934 Drexel, Morgan & Co. reverts to its original name, Drexel & Co. 1934 J. P. Morgan & Co. spins off Morgan Stanley (J. P. Morgan continues today) 1937 Charles D. Barney acquires Edward B. Smith & Co. to form Smith Barney & Co. 1966 Drexel & Co. acquires Harriman Ripley & Co. to become Drexel Harriman Ripley 1970 Drexel Harriman Ripley becomes Drexel Firestone 1971 Drexel Firestone merges with Burnham & Co. to become Drexel Burnham 1974 Kidder Peabody acquires Clark Dodge & Co. 1976 Drexel Burnham merges with William D. Witter and acquires the name of a major investor in Witter to become Drexel Burnham Lambert 1981 Salomon Brothers merges with Phibro to become Phibro-Salomon (becomes Salomon Brothers again in 1985) 1984 Shearson American Express acquires Lehman Brothers 1987 E. F. Hutton bought by Shearson 1990 Drexel Burnham Lambert files for bankruptcy 1994 Shearson American Express divests Lehman Brothers, which continues today as Lehman Brothers 1997 Smith Barney merges with Salomon Brothers to become Salomon Smith Barney, today a unit of Citigroup 1997 Bankers Trust & Co. acquires Alex. Brown & Co. 1997 Dillon Read acquired by Swiss Bank Corp. 1997 Morgan Stanley merges with Dean Witter to become Morgan Stanley Dean Witter 1997 Alex. Brown acquired by Bankers Trust. Continues today as unit of Deutsche Bank 1999 Goldman Sachs sells initial public offering xii THE LAST PARTNERSHIPS This page intentionally left blank. INTRODUCTION FOR MORE THAN 150 years, their names were synonymous with Wall Street. The most successful be- came the subjects of folklore, envy, and political vilification, and noto- rious symbols of wealth and power. No longer household names today, in the nineteenth century many had barroom songs and jingles writ- ten about them. Before there were sports stars and pop musicians dominating the news, they were among the first true celebrities in the country. They were, of course, the famous names behind the great Wall Street partnerships. Some became extremely well known, while others preferred to remain behind the scenes and tend to business without attracting much attention. Their heyday was from the War of 1812 to the end of World War II, when most Wall Street securities firms were still organized as partnerships. A roll call sounds much like the social register of New York, where most made their livings. Without their business success, many of the country’s cultural institutions would probably not have developed as significantly as they did. The Metro- politan Opera, Metropolitan Museum of Art, and many of the other significant cultural and educational institutions benefited from their partners’ largesse over the years. The names on the buildings of many college campuses read like a Who’s Who of banking, especially those names famous before World War II. The rise of the famous Wall Street banking dynasties is a testimony to the rags-to-riches stories of the nineteenth century. A young immi- grant came to the United States from Northern Europe and set up his own humble business, usually peddling sundries door-to-door around 1 Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use. THE LAST PARTNERSHIPS the South or Midwest. Within several years, he graduated to the dry goods business and was quickly opening stores in different states before gravitating to New York. In another few years, he and mem- bers of his family were in the banking business, financing bills of exchange and trading stocks and bonds. In twenty to thirty years, his firm was one of Wall Street’s elite.