Character first In a great book “Bond King”, the author, Timothy Middleton writes on J.P Morgan. “To John Pierpont Morgan, Livermore and Baruch, whom he knew, although only slightly, were children-literally. His own son J.P. Jr., called Jack, was born in 1867, three years before Baruch and ten years before < ?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Livermore. Whereas Livermore was born into a hardscrabble life and Baruch’s family was only prosperous, Morgan’s was both rich and important. When Bill Gross’s other two investment heroes were still in, short pants, Morgan’s father was establishing himself as one of the most important financiers on the planet, and his son was doing the same on his native soil, which he helped make the most important on the planet. The other two are the lesser figures in the Gross Trinity. Morgan is first, in memory as he was in life. The virtue he displayed was also core rather than tertiary-in Gross’s terminology, secular as opposed to cyclical. Gross’s quote is drawn from testimony Pierpont gave to Congress in which he implicitly rebuked his interrogators who insinuated that bankers lent only on the basis of crass commercial considerations. Historians divide themselves into those who believe men makes the times and those who think times make men. What history records as the era of “manifest destiny” found full expression in the considerable person of J. Pierpont Morgan. In his time, the most common motto on college campuses was carpe diem-seize the day. Pierpont seized an era. J.P. Morgan was born on April 17, 1837, in Hartford, Connecticut. His father, Junius Spencer Morgan; was a banker and a merchant; merchant, or investment, banking had its source in commercial letters of credit. Junius’s father, Joseph Morgan, was also a banker who carefully guided his son’s career. His mother, Juliet Pierpont, was from a venerable Yankee family of preachers and poets, one of whom wrote “Jingle Bells.” Pierpont was sickly, and would remain so throughout his 75 years of life. He inherited from his mother’s side a congenital skin disease, rosacea, which in his middle years distorted his nose into a venous purplish lump that frightened children. When Edward Steichen took his famous portrait photograph, Pierpont refused to sit for a profile, staring balefully into the camera head-on for two minutes and then leaving. His name was nearly as ponderous as his nose, and he was called by a variety of childish nicknames until, when he learned to write, he wrote his signature as J. Pierpont Morgan. His friends and family called him Pierpont ever after. Even when his partners were included, this was never a large number of people: Everyone else called him Mr. Morgan. What would become the House of Morgan was evolving in London, years before, where George Peabody, a merchant from Baltimore, had opened a bank to help direct British investments into the most promising American ventures. London was the financial center of the day and the United States was a burgeoning marketplace that needed capital for its river-borne commerce. Junius Morgan became Peabody‘s partner in www.capitalideasonline.com Page - 1 Character first 1854; when Morgan’s father had died a few years earlier, he had left an estate of more than $1 million. Peabody‘s firm would eventually become J.S. Morgan and Company. Junius would spend most of his life in London, with Pierpont eventually taking over the New York operations. In the son’s lifetime, America‘s subservient financial relationship with Great Britain would be reversed, with Pierpont playing the dominant role in this transformation. Pierpont enjoyed an unremarkable education, studying indifferently before taking an apprenticeship in Manhattan at the age of 20 with Peabody‘s U.S. agent, Duncan, Sherman & Company. (Jack Morgan was the first in his family to graduate from college.) The Panic of 1857 was Pierpont’s introduction to the woeful state of American finance. There was no central bank, the populist Andrew Jackson having dissolved it a generation earlier. States and even private banks issued their own currencies. The Peabody firm dealt mainly in the bonds of states and their public works, such as canals. The role of the federal government in fostering and regulating the national economy would remain rudimentary for most of Pierpont’s life, and indeed it was the vacuum in American financial leadership that Pierpont was to fill. Peabody was old and Junius Morgan took over the firm in 1859. It played only a minor role in financing the Civil War, as most of these bonds were underwritten by New York‘s Jewish firms, such as Kuhn Loeb, which had historic links with German financiers, who were strongly pro-Union. Pierpont did manage one small deal in those years, however, cabling his father with early news of the North’s victory at Vicksburg in 1863 and allowing the elder Morgan to snap up American bonds in London before the news became public, and thus to benefit when they rallied. When Peabody died in 1869, Pierpont arranged his funeral. He was Junius’s sole surviving son, and nineteenth century merchant banks were family affairs; it was inconceivable that Pierpont would follow another career. This was also true of his son, Jack, who had wanted to be a doctor but was condemned to join the family firm by what Ron Chernow, in The House of Morgan (Simon & Schuster, 1990) calls the “Gentleman Banker’s Code.” Pierpont was a conventional and even archetypal WASP: white, Yankee, Episcopalian. He was deeply religious and adhered to a strong moral code; his word was always his bond, and all his deals were concluded with handshakes. He pursued art collecting and philanthropy with as much attention as he gave to work, which was considerable. At the same time, however, he was dangerously romantic. His first marriage was to Amelia Sturgis, who was dying of tuberculosis when he married her and perished on their honeymoon. Her name was considered sacred in his household, and he venerated her memory tenderly. She was his one true love and his more enduring marriage, in 1865 to Francis Louisa Tracy, whom he called Fanny, was ultimately hollow. www.capitalideasonline.com Page - 2 Character first Morgan’s famous yachts were as much pleasure barges as anything else, and he indulged in constant affairs at home and in Europe. When Junius ruled the firm from London, he was vying principally with the two established merchant banking families of the time, the Rothschilds and the Barings. In 1870, when France was under attack by Prussia, it sought financing in London, and turned to Morgan. Barings was aligned with Prussia and the Rothschilds abstained, assuming France would lose. Morgan organized a syndicate that, while it extracted harsh terms from the French, nevertheless floated the bonds. Junius risked his own fortune when military reversals sent the bonds down and he bought them to support their price. France lost the war but did not repudiate the bonds, restoring their price to par and delivering a genuine fortune to Morgan. The deal also made his reputation. Back at home, Pierpont had grown into an imposing man: more than six feet tall and stocky, with penetrating hazel eyes. He always dressed formally, wearing different hats according to the season and sometimes sporting checkered vests. He was making a reputation for himself of dealing fair-and strong. His most important early deal, in 1869, turned on a small New York railroad that was being fought over by Jay Gould and Joseph Ramsey. Pierpont was hired by Ramsey to wrest back control of his road from the raider. Morgan hatched a bold scheme. He located an upstate judge who ousted the Gould forces from the railroad’s board, and meanwhile arranged for a friendly merger of the line with a larger, raid-proof road. In addition to his fee, he extracted from the deal a seat on the board of the merged road. Although he remained a banker throughout his life, and represented what came to be known as the Money Trust, he was likewise a powerful businessman, a robber baron of that Gilded Age. He never amassed the huge fortune of Andrew Carnegie or John D. Rockefeller but he had more power than either of them. More power, in fact, than anyone in that headstrong era, as he was to demonstrate to President Theodore Roosevelt in the Panic of 1907, the resolution of which was to become his climactic achievement. Junius had arranged, meanwhile, for an important Philadelphia banker, Tony Drexel, to form a partnership with his son. The Drexels could see that New York was supplanting their native city as the United States‘ financial center, and the firm of Drexel, Morgan, and Company was formed in 1871 to unite the two families. (It would remain Drexel Morgan until 1910, when it became J.P. Morgan and Company.) Two years later the firm established its headquarters at 23 Wall Street, on the opposite corner of Broad Street from the New York Stock Exchange. Also that year, Pierpont also helped engineer a seismic shift in his firm’s importance when it led a syndicate that captured half of $300 million refunding of the nation’s Civil War debt. www.capitalideasonline.com Page - 3 Character first The entire deal would otherwise have gone to Jay Cooke, Drexel’s chief financial rival in Philadelphia. J.S. Morgan and Company as well as Barings also participated in Pierpont’s syndicate, the first time the son delivered a substantial financial prize to his father, rather than the reverse.