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The House of Morgan by Ron Chernow
An American Banking Dynasty and the Rise of Modern Finance
My Thoughts
The premise of the book according to the author is that “the story of The House of Morgan is the story of modern finance.” Covers the story of modern finance from 1838-1989, well researched and correlates nicely with other books from this era including Titan (Rockefeller biography) by the same author and The Power Broker by Robert Caro.
My Favorite Quotes
- More than any other factor; the caliber of the men recruited would explain the extraordinary staying power of the house of Morgan.
- Morgan bank tellers have a million dollar smile, they only smile if you have a million dollars.
Time period: 1838-1989
- Part One: The Baronial Age, 1838-1913
- Part Two: The Diplomatic Age, 1913-1948
- Part Three: The Casino Age, 1948-1989
Institutions
- J.P Morgan & Co. and Morgan Guarantee after the spin off of Morgan Stanley
- Morgan Stanley
- Morgan, Grenfell & Co based in London
- Morgan, Harjes & Co. (Paris Based, minor role in this book)
Key Places
- JP Morgan’s Famous Address was 23 Wall Street in New York
- Morgan Grenfell 23 Great Winchester Street in London
Key People
- Junius Spencer Morgan
- John Pierpont (J.P.) Morgan
- J. P. “Jack” Morgan
- Anthony Drexel
- George Peabody
- Edward Grenfell
- Henry Davison
- Thomas Lamont
- Dwight Morrow
- George Whitney
- Richard Whitney
- Russel Leffingwell
- Most US Presidents from 1838-1989
- Bob Baldwin (at Morgan Stanley)
- Lou Preston
Contemporary People and Events
- World War I
- World War II
- The Robber Barons
- Glass–Steagall Legislation signed June 16, 1933 marked the separation of commercial and investment banking. It Forced private banks to chose between deposits and securities businesses.
- Decision to spin-off of Morgan Stanley as an investment firm around September 5, 1935, as a result of the Glass-Steagall act.
- The Vatican had accounts with Morgan.
- The 1940s move from privately owned to publicly traded.
- JP Morgan merged with Guarantee in December 1958.
- Robert F. Greenhill and hostile takeovers.
- 1974 Greenhill was field marshal for Morgan Stanley’s first hostile takeover.
- 1975 Morgan Stanley completed change over to incorporation.
- The Morgan bank bailed out the City of New York in 1907, 1914 and 1933.
- 1981 Morgan Guarantee sold off it’s 33% stake in Morgan Grenfell.
- By 1985 Morgan Grefell was fully owned by the stock market.
- Black Monday. 1987 stock market crash. Bond market followed a similar pattern to that of the 1929 crash.
- 1989 partial repeal of Glass-Steagall act.
General Notes and Observations
- Early investors marked an automobile as not being practical and refused to invest money or give loans to Henry Ford.
- More than any other factor; the caliber of the men recruited would explain the extraordinary staying power of the house of Morgan.
- At one point Morgan Partners held 126 directorships in 89 corporations with 20 billion in assets.
- The Vatican took investment advice from Morgan bankers (Tom Lamont), the bank held papal securities in its custody.
- Any banker could underwrite securities, but only Tom Lamont (of JP Morgan) could lobby politicians, shape newspaper editorials, and sway public opinion. As an example:
Tom Lamont gave advice to Benito Mussolini. One example given, Tom told him that “Declaring that parliamentary government is at an end in Italy, such a declaration comes as a shock.” He advised him to make the explanation using this language, and then the Anglo-Saxons would understand: “The old forms of parliamentary government in Italy have proved futile, and have led to inefficient government and chaos. Therefore they had to be temporarily suspended and generally reformed.” - Japan claimed seven of the worlds 10 largest banks in the late 1980s.
Marketing practices of the early days of Morgan, known as the “Gentlemen Bankers Code”
- Did not advertise
- Did not post a name plate on the building
- Did not chase customers
- Did not open branches
- Customers could not switch banks without permission from their existing bank
Major customers of Morgan in which they also held board seats included:
All companies that held $1m or more on account.
- Railroads
- US Steel
- General Electric
- General Motors
- DuPont
- AT&T
- IT&T
- Montgomery Ward
- Kenicut Copper
- American Can
- ConEdison
- New York Central
- Ingersol Rand
- General Mills
Notes Specific to Part Three: The Casino Age, 1948-1989
Morgan bank tellers have a million dollar smile, they only smile if you have a million dollars.
The casino age marked the death of relationship banking.
Bankers became consultants and financial engineers.
Morgan Grenfell helped Rupert Murdoch purchase and take over his first newspaper in Europe.
25,000 businesses disappeared in the 1960s through mergers.
Creates conglomerate companies.
Created 18 of America’s 100 largest companies.
Robert F. Greenhill and hostile takeovers.
1974 Greenhill was field marshal for Morgan Stanley’s first hostile takeover. International Nicole Company’s raid on ESP.
Morgan Stanley took offense on takeovers. Goldman Sachs representing medium sized businesses took defense.
Wall Street gradually dividing into two camps of offensive and defensive.
Joe Flom vs defense specialist Marty Lipton.
JP Morgan and Company was the holding company and parent company of Morgan Guarantee.
In 1983, for the first time, international bond offerings passed global bank lending in scope.
Lou Preston led the bank in the 1980s.
References to Rule 415.
The emergence of leveraged buy outs in the 1980s. Taking companies private and turning around to take them public again shortly after and make a quick profit.
The Hobgoblins of of Sustained Prosperity
- Consumerism
- Greed
- Speculation
Stock index arbitrage trading by a computer program.
1987 beginning of banks performing hostile takeovers of other banks. Bank of New York took over another bank (Washington Irving) that was the first one.
1988 Hoffman Laroche $4.2 billion hostile takeover of Sterling. Sterling was the manufacturer of bayer aspirin. Kodak ended up buying it.
Junk bonds.
RJR Nabisco buyout.
Insider trading scandals.
As the 1980s ended, Morgan Stanley resembled an industrial holding company more than a financial services firm.
- Had stakes in 40 companies with over $7 billion in assets and 72,000 employees
- Part owner of food chains, paper-mills, textile plants and airplane engine makers
- These investments were making 40% returns
Related Summaries
Hope you enjoyed this and got value from my notes.
This is the 99th book read in my 2018 reading list.
Here is a list of my book summaries.