The Business of Banking

Gower, Adam

doi:10.1007/978-3-319-90266-1_5

Adam Gower⁶

Part of the book series: Palgrave Studies in the History of Finance ((PSHF))

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Abstract

Probably, the most important component of Schiff’s banking expertise was his ability to assemble and manage syndications. Syndicating loans to groups of institutions and individuals was a primary methodology employed by banks in the late nineteenth and early twentieth centuries to bring to market large bond and stock issues. Kuhn Loeb assembled a syndicate to sell the Japanese loans. The background to and implementation of syndicates are described in this section. They were in large part to be vilified by later investigations.

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Notes

1.
Corrected opinion of Harold R. Medina, US Circuit Judge in United States of America, Plaintiff, V. Henry S. Morgan, Harold Stanley et al., doing business as Morgan Stanley & Co. et al., defendants, filed 4 February 1954, https://babel.hathitrust.org/cgi/pt?id=uc1.b3270652;view=1up;seq=2, accessed 9 July 2016, p. 27.
2.
Money Trust Investigation, pp. 57–80.
3.
Vincent P. Carosso, More than a Century of Investment Banking: The Kidder, Peabody & Co. Story (New York: McGraw-Hill, 1979), pp. 34–35.
4.
Corrected opinion of Harold R. Medina, p. 19.
5.
Vincent P. Carosso, Investment Banking in America: A History (Cambridge, MA: Harvard University Press, 1970), p. 47.
6.
Ibid., p. 35.
7.
Ibid., p. 48.
8.
Ibid., p. 44.
9.
‘How Great Loans Are Sold’, Commercial West, Vol. 7 (15 April 1905), p. 25.
10.
Manual of Statistics: Stock Exchange Handbook, Vol. 38 (New York: Manual of Statistics Company, 1905), p. 765.
11.
Carosso, Investment Banking, p. x.
12.
Ibid., p. xi
13.
Money Trust Investigation, p. 78.
14.
Carosso, Investment Banking, pp. 33–36.
15.
Ibid., p. 47.
16.
John Terret, ‘New York as a Bond Center’, Harper’s Weekly, Vol. 55 (18 November 1911), p. 13.
17.
Carosso, Investment Banking, p. 41.
18.
‘Rise of the Syndicate’, New York Times (4 May 1902), http://query.nytimes.com/mem/archive-free/pdf?res=940CE3D61130E132A25757C0A9639C946397D6CF, accessed 1 August 2016.
19.
Money Trust Investigation, pp. 57–80.
20.
Pak, Gentlemen Bankers, p. 15.
21.
Ibid.
22.
Money Trust Investigation, pp. 78–80.
23.
Adler, Jacob H. Schiff, Vol. 1, p. 180.
24.
Ibid., p. 182.
25.
Ibid., p. 183.
26.
Ibid.
27.
Ibid., p. 185.
28.
Letter from Schiff to James Alexander (President of the Equitable Life Assurance Society), 5 June 1905, as quoted in Adler, Jacob H. Schiff, Vol. 1, p. 188.
29.
Carosso, More than a Century of Investment Banking, p. 23.
30.
John Mason Hart, Empire and Revolution: The Americans in Mexico Since the Civil War (Berkeley: University of California Press, 2006), p. 149.
31.
Money Trust Investigation, p. 37.
32.
Pak, Gentlemen Bankers, p. 100.
33.
Testimony Taken Before the Joint Committee of the State of New York, to Investigate and Examine into the Business and Affairs of Life Insurance Companies, Doing Business in the State of New York (Albany: J. B. Lyon, 1906), Vol. 1, pp. 198–200. This committee came to be known as the Armstrong Committee after Senator William W. Armstrong, its chairman.
34.
Money Trust Investigation, p. 90.
35.
Jean Strouse, Morgan: American Financier (New York: Random House, 1999), p. 187.
36.
John Moody as quoted in ibid., p. 187.
37.
‘How the Wall Street Syndicates Operate’, New York Times (25 September 1905), http://query.nytimes.com/mem/archive-free/pdf?res=9E03E0D6173DE733A25756C2A96F9C946497D6CF, accessed 1 August 2016.
38.
Carosso, Investment Banking, p. 32. See also Lewis B. Franklin, ‘The Formation of Syndicates’, Magazine of Wall Street, Vol. 15 (1915), pp. 452–453.
39.
Carosso, Investment Banking, p. 55. See also Donham, ‘Underwriting Syndicates’, p. 177.
40.
Franklin, ‘The Formation of Syndicates’, pp. 452–453
41.
Corrected opinion of Harold R. Medina, p. 25.
42.
Ibid., pp. 22–23.
43.
Pak, Gentlemen Bankers, p. 8.
44.
‘How Great Loans Are Sold’, p. 25.
45.
Letter from Schiff to Kahn, 25 July 1905, JSP: Reel 676.
46.
Otto Kahn, The Marketing of American Railroad Securities: Memorandum for the Interstate Commerce Commission (Kuhn, Loeb & Co., 1922), p. 48.
47.
Pak, Gentlemen Bankers, p. 17.
48.
Ibid., p. 16.
49.
Ibid., p. 19.
50.
Franklin, ‘The Formation of Syndicates’, pp. 452–453.
51.
Schiff as quoted in Carosso, Investment Banking, p. 145.
52.
Charles W. Gerstenberg, ‘The Underwriting of Securities by Syndicates’, Trust Companies, Vol. 10, June (1910), p. 328.
53.
Redlich, The Molding of American Banking, Vol. 2, p. 375.
54.
Louis D. Brandeis, Other People’s Money and How the Bankers Use It (Mansfield Centre, MA: Martino, 2009). First Published 1914, p. 44.
55.
Report of Governor Hughes’ Committee on Speculation in Securities and Commodities (New York: Committee on Speculation in Securities and Commodities, 1909), https://archive.org/details/reportofgovernor00newyuoft, accessed 9 July 2016, p. 7.
56.
‘Some Good Bond Advertising’, Banker’s Magazine, Vol. 74, March (1907), p. 425.
57.
Donham, ‘Underwriting Syndicates’, p. 177.
58.
Letter from Schiff to Robert Fleming, 25 January 1905, JSP: Reel 325.
59.
Strouse, Morgan: American Financier, p. 547.
60.
Pak, Gentlemen Bankers, p. 18.
61.
Ibid., p. 100.
62.
Ibid.
63.
Carosso, More than a Century, p. 20.
64.
Kahn, The Marketing of American Railroad Securities, p. 5.
65.
Ibid., pp. 8–9.
66.
Ibid.
67.
Testimony Taken Before the Joint Committee of the State of New York, Vol. 1, p. 222.
68.
‘Syndicate Ethics: How Subscribers Are Expected to Come in Without Exercising Any Choice—Authority of the Managers Absolute’, New York Times (24 September 1905), http://query.nytimes.com/mem/archive-free/pdf?res=9E07E0D7103AE733A25757C2A96F9C946497D6CF, accessed 1 August 2016.
69.
Franklin Escher referring to Lewis B. Franklin, ‘Syndicates’, Bankers’ Magazine, Vol. 87, December (1913), p. 664.
70.
Testimony Taken Before the Joint Committee of the State of New York, Vol. 1, pp. 259–261.
71.
‘Syndicate Ethics’.
72.
Ibid.
73.
United States Investor (6 May 1899), p. 584.
74.
Ibid.
75.
Ziegler, The Sixth Great Power, pp. 5–11.
76.
Carosso, Investment Banking, p. 38.
77.
Letter from Schiff to Wilson, 7 October 1871, JWP: 1870–1871.
78.
Franklin, ‘The Formation of Syndicates’, pp. 452–453.
79.
Carosso, Investment Banking, p. 54.
80.
Donham, ‘Underwriting Syndicates’, p. 175.
81.
Money Trust Investigation, p. 33.
82.
Report of Governor Hughes’ Committee, p. 4.
83.
Ibid., p. 5.
84.
Ibid., p. 5.
85.
Ibid., p. 9.
86.
Ibid.
87.
Money Trust Investigation, p. 36.
88.
The other five lenders were the Chase National Bank, the Hanover National Bank, J. P. Morgan, the National Bank of Commerce and the National City Bank.
89.
Money Trust Investigation, p. 37.
90.
Carosso, Investment Banking, p. 29.
91.
Ibid.
92.
Report of Governor Hughes’ Committee, p. 12.
93.
Ibid.
94.
Ibid.
95.
Ibid., p. 7.
96.
Redlich, The Molding of American Banking, Vol. 2, p. 375.
97.
Testimony Taken Before the Joint Committee of the State of New York, Vol. 1, p. 442.
98.
Ibid., p. 567.
99.
Ibid., pp. 442–443.
100.
F. Hendricks, ‘Superintendent Hendricks’ Report on the Equitable Life: A Detailed Record of Systematic Graft’, Underwriters’ Review, Vol. 15 (10 January 1905), p. 273. See also Testimony Taken Before the Joint Committee of the State of New York, Vol. 1, pp. 884–885.
101.
Testimony Taken Before the Joint Committee of the State of New York, Vol. 1, p. 449.
102.
Ibid., pp. 441–448.
103.
Richard D. Wyckoff, ‘The Old vs. the New Idea in Capitalizing an Enterprise’, Magazine of Wall Street, Vol. 15, No. 2 (1914), p. 93.
104.
‘How the Wall Street Syndicates Operate’.
105.
Report of Governor Hughes’ Committee, p. 5.
106.
Corrected opinion of Harold R. Medina, p. 22.
107.
‘Handling Japan’s Loans: Tremendous Tasks Involved in So Large an Issue, 20,000 Individual Holders’, New York Times (18 June 1905), http://query.nytimes.com/mem/archive-free/pdf?res=9900EFD7133EE733A2575BC1A9609C946497D6CF, accessed 1 August 2016.
108.
Ibid.
109.
Ibid. See also letter from Jacob H. Schiff to Mortimer Schiff, 13 July 1905, JSP: Reel 688.
110.
Manual of Statistics, p. 765.
111.
‘Extraordinary Demand for Bonds’, Chicago Tribune (1 February 1905), p. 12.
112.
Letter from Schiff to Otto Kahn, 2 June 1904, JSP: Reel 688.
113.
Algernon Ashburner Osborne, ‘Speculation on the New York Stock Exchange, September 1904–March 1907’, in Studies in History Economics and Public Law, Vol. 56 (New York: Columbia University, 1913), p. 21.
114.
Ibid., p. 18.
115.
Commercial and Financial Chronicle, Vol. 80 (21 January 1905), p. 195.
116.
Henry D. Baker, ‘The Insatiable Demand for Bonds’, Commercial West (4 February 1905), p. 11.
117.
Letter from Schiff to Revelstoke, 14 July 1905, JSP: Reel 679.
118.
Baker, ‘The Insatiable Demand for Bonds’, p. 11.
119.
Manual of Statistics, p. 765.
120.
‘Foreign Government Securities’, The Economist (21 May 1904), p. 885. Retrieved from The Economist Historical Archive, 1843–2011, Web, accessed 13 November 2015.
121.
Nathan Sussman and Yishay Yafeh, ‘Institutions, Reforms, and Country Risk: Lessons from Japanese Government Debt in the Meiji Era’, Journal of Economic History, Vol. 60, No. 2 (2000).
122.
Toshiki Tomita, ‘Japanese Government Bonds 100 Years Ago’, NRI Papers, No. 90 (1 June 2005), p. 4.
123.
Tomita, ‘Japanese Government Bonds 100 Years Ago’, p. 4.
124.
Sussman and Yafeh, ‘Institutions, Reforms, and Country Risk’, p. 459.
125.
Tomita, ‘Japanese Government Bonds 100 Years Ago’, p. 17.
126.
Osborne, ‘Speculation on the New York Stock Exchange’, p. 44.
127.
Commercial and Financial Chronicle, Vol. 80 (21 January 1905), p. 194.
128.
‘How Great Loans Are Sold’, p. 25.
129.
Ibid.
130.
Metzler, Lever of Empire, p. 48.
131.
‘Jacob H. Schiff: The Pioneer of American Foreign Financing’, pp. 452–454.
132.
Redlich, The Molding of American Banking, Vol. 2, p. 387.

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Gower, A. (2018). The Business of Banking. In: Jacob Schiff and the Art of Risk. Palgrave Studies in the History of Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-90266-1_5

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DOI: https://doi.org/10.1007/978-3-319-90266-1_5
Published: 20 June 2018
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-90265-4
Online ISBN: 978-3-319-90266-1
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