JP Morgan (1837-1913), founder of a leading institution

As one of the most influent American businessmen at the beginning of the 20th century, John Pierpont Morgan saved the US financial system more than once. He also initiated several important mutations of the US financial industry.

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Born on April 17, 1837 in Hartford (Connecticut), John Pierpont Morgan is the son of Junius Spencer Morgan and Juliet Pierpont.

Junius Spencer Morgan is a businessman which career takes a new turn when he meets George Peabody, a Boston merchant who has become in a few years one of the most prominent bankers in London. Junius Spencer Morgan will become his partner at George Peabody & Co in 1854 and his successor when Peabody retires in 1864 (the firm name will then change to JS Morgan & Co).

Junius Morgan raises his son, John Pierpont, to become his successor and sends him to study in the best European institutions. John Pierpont leaves Connecticut and spends his adolescence in a private institute in Switzerland, then joins the University of Gottingen in Germany. At 15, he has already visited the major cities of the world. During his youth, he is well exposed to an international environment and will be throughout his life as comfortable in the City in London as in Wall Street in New York.

In Germany, he completes his studies at the age of 20. He enters the finance industry in an era when the United States neither have a central bank or a well defined banking legislation with a first job as an accountant in Duncan Sherman & Co. in 1857. This financial institution represents George Peabody & Co. in the United States. Morgan learns about the financial world from that first job and he witnesses his first bankruptcy triggered by the collapse of Ohio Life & Trust.

He joins the family business in 1861. During the American Civil War, he works for the London office as well as the New York office. He earns a lot of money during the war by representing the Union in the United Kingdom. This includes negotiating loans for the Union, financing the purchase of weapons, speculating on gold. He then creates a firm, Dabney, Morgan & Co which specializes in securities of railroad companies. JP Morgan grows further with a partnership with Anthony Drexel when Drexel, Morgan & Co is created in 1871.

At the age of 35, JP Morgan is already a prominent financier even though this is only a beginning. In the railroad companies sector, Morgan buys shares of certain stakeholders or request voting rights. He issues bonds at a rate the railroad companies can afford and request a cost reduction. His partners and he take the control of most of the railroad companies little by little. He is part of the board of directors of the ten biggest railroad companies while his partners are part of the boards of about fifty other companies.

In 1898, Morgan has the control of over 78400 kilometers of railroad which represent more than half of the US railroad at this time.

Besides his participation in the railroad companies, Morgan makes other investments that will contribute to shape the evolution of the United States. He then starts in 1870 to fund the works of Thomas Edison on electricity. A few years later, in 1891, Morgan will organize the merger between Edison General Electric and Thomson-Houston Electric Company. This will avoid a dangerous competition between the two firms and will allow for a standardization of the equipments and services.

In 1890 when his father dies, Morgan takes over JS Morgan & Co in London and in New-York. He changes the name to JP Morgan & Co in 1895. The firm works closely with Drexel & Co in Philadelphia, Morgan, Harjes & Co in Paris and Morgan, Grenfell & Co in London.

John Pierpont Morgan creates the bigger company in the world!

In 1901, Morgan creates the bigger company in the world by merging Federal Steel Company and Carnegie Steel. The market capitalization of the resulting company reaches 1.4 billion dollars which is more than huge for the time. The acquisition of Carnegie Steel by Morgan for a total amount of 480 million dollars eclipsed Theodore Roosevelt nomination acceptance speech in a time when the US federal budget did not reach 300 million dollars per year. In 1902, J.P. Morgan purchased the McCormick Harvesting Machine Company and Deering Harvester Company, along with three smaller agricultural equipment firms to form International Harvester which quickly becomes a giant of the sector.

Morgan financial successes and immense wealth soon aroused jealousy in the public opinion and the political world. Morgan came under criticisms of politicians, willing to become the masters of the game, whereas he several times provided support to the U.S government:
-In 1895 Morgan led a syndicate of bankers which provided the government with $ 100 million in gold, in order to limit the reduction of country’s reserve due to speculation and concerns of European investors. This intervention resulted in spurt of confidence and restart of gold exportation to Europe. The Morgan’s consortium ended up with $ 7 million profits.

-In 1907, Morgan helped the U.S. government to cope with another major crisis. Massive speculations, related exceptional crops of the two previous years, and the collapse of several large companies during the summer, led to the removal of $ 3 billion from the banking system. Foreign bankers then asked the U.S government for loan repayments. Morgan cut short a trip and rushed back home to meet with the main financiers of the nation. Facing a lack of solution and support, Morgan agreed with the issuance, by the clearing house, of certificates that can be used as cash by the most weakened banks (competitors could then use these certificates as well as cash and compete with Morgan whose bank was very liquid). The following week-end, $ 15 million were used by the consortium of banks.

A few days later, it took 48 hours to Morgan to provide a solution to the City of New York which was on the verge of bankruptcy. He advanced another $ 25 million to the presidents of Trusts who needed financial infusion. They agreed on loan terms defined by Morgan and signed acknowledgements of debt prepared by his staff.

Morgan did save the banks, the market and forced the American president who had put him on the spot to eat humble pie. But his support to the United States had only increased his reputation of formidable banker. Indeed, later, he has been subjected to several investigations that have made him bitter.

Like most of rich and influent people in the United States, Morgan gave much of his wealth to philanthropic and charitable organizations, hospitals, schools, and was also a great art collector. When he died in Rome in 1913, his personal wealth was valued less than $ 75 million (around $ 3 billion today), half of it in art works, manuscripts and books. Much of his collection went to the Metropolitan Museum of Art.

Even if we do not know that behind the name "JP Morgan" there was a man prior to the financial institution, JP Morgan remains nearly 100 years after the death of its founder a leading institution in the world of investment banking: a great reward for a man who was the most influent financier of his time.

Paul Monthe March 2008

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