J.P. Morgan & Co.
From Wikipedia, the free encyclopedia
J.P. Morgan & Co. was a commercial and investment banking institution based in the United States founded by J. Pierpont Morgan and was known commonly as the House of Morgan and is the predecessor of several of the largest banking institutions in the United States. Between 1959 and 1989, J.P. Morgan operated as the Morgan Guaranty Trust.
In 2000, J.P. Morgan was acquired by Chase Manhattan Bank to form JPMorgan Chase & Co., one of the largest global banking institutions. Today, J.P. Morgan has been rebranded as JPMorgan and is used to describe certain of JPMorgan Chase's wholesale businesses including investment banking, commercial banking and asset management.
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[edit] History
[edit] Early History
The origins of the firm date back to 1854 when Junius S. Morgan joined a London-based banking business headed by George Peabody. Over the next ten years, Junius took control of George Peabody & Co., changing the name to J.S. Morgan & Co. Junius's son, J. Pierpont Morgan, came to work with his father and would later found what would later become J.P. Morgan & Co.
J.P. Morgan & Co., was founded in New York in 1871 as Drexel, Morgan & Co. by J. Pierpont Morgan and Philadelphia banker Anthony J. Drexel.[1] The new merchant banking partnership served initially as an agent for Europeans investing in the United States.
[edit] The House of Morgan
In 1895, Drexel, Morgan & Co. became J.P. Morgan & Co. (see also: John Pierpont Morgan). It financed the formation of the United States Steel Corporation, which took over the business of Andrew Carnegie and others and was the world's first billion-dollar corporation. In 1895, it supplied the United States government with $62 million in gold to float a bond issue and restore the treasury surplus of $100 million. In 1892, the company began to finance the New York, New Haven and Hartford Railroad and led it through a series of acquisitions that made it the dominant railroad transporter in New England.
Built in 1914, 23 Wall Street was known as "The Corner" and "The House of Morgan," and for decades the bank's headquarters was the most important address in American finance. At noon, on September 16, 1920, a terrorist bomb exploded in front of the bank, injuring 400 and killing 38. Shortly before the bomb went off, a warning note was placed in a mailbox at the corner of Cedar Street and Broadway. The warning read: "Remember we will not tolerate any longer. Free the political prisoners or it will be sure death for all of you. American Anarchists Fighters." While theories abound about who was behind the Wall Street bombing and why they did it, after twenty years of investigation the FBI rendered the file inactive in 1940 without ever finding the perpetrators.
In August 1914, Henry P. Davison, a Morgan partner, traveled to the UK and made a deal with the Bank of England to make J.P. Morgan & Co. the monopoly underwriter of war bonds for UK and France. The Bank of England became a "fiscal agent" of J.P. Morgan & Co. and vice versa. The company also invested in the suppliers of war equipment to Britain and France. Thus, the company profited from the financing and purchasing activities of the two European governments.
[edit] Glass-Steagall and Morgan Stanley
In the 1930s, all J.P. Morgan & Co. along with all integrated banking businesses in the United States, was required by the provisions of the Glass-Steagall Act to separate its investment banking from its commercial banking operations. J.P. Morgan & Co. chose to operate as a commercial bank, because at the time commercial lending was perceived to be more profitable and prestigious business in the post depression era. Additionally, many within J.P. Morgan believed that a change in the climate would allow the company to resume its securities businesses but it would be nearly impossible to reconstitute the bank if it were disassembled.
In 1935, after being barred from securities business for over a year, the heads of J.P. Morgan made the decision to spinoff its investment banking operations. Led by J.P. Morgan partners, Henry S. Morgan (son of J. Pierpont Morgan) and Harold Stanley, Morgan Stanley was founded on September 16, 1935 with $6.6 million of nonvoting preferred stock from J.P. Morgan partners. In its infancy, Morgan Stanley was headquartered at 2 Wall Street, just down the street from J.P. Morgan and Morgan Stanley bankers routinely used 23 Wall Street for transaction closings.
[edit] Morgan Guaranty Trust
In the years following the spinoff, the securities business proved robust while the parent firm, which incorporated in 1940,[2] was a sleepy firm and by the 1950s it was only a mid-size bank. In order to bolster its position, in 1959, J.P. Morgan merged with the Guaranty Trust Company of New York to form the Morgan Guaranty Trust Company. As a result of the numerous relationships between the two banks and the complementary characteristics (J.P. Morgan brought a prestigious name and high quality clients and bankers while Guaranty Trust brought significant amounts of capital). Although Guaranty Trust was nearly four times the size of J.P. Morgan at the time of the merger in 1959, the newly-formed Morgan Guaranty was managed primarily by legacy J.P. Morgan employees and J.P. Morgan was considered the buyer.
[edit] Return of J.P. Morgan & Co.
Although ten years after the merger, Morgan Guaranty would establish a bank holding company called J.P. Morgan & Co. Incorporated, it would continue to operate as Morgan Guaranty through the 1980s before beginning to migrate back toward the use of the J.P. Morgan brand. In 1988, the company once again began operating exclusively as J.P. Morgan & Co.
Also, in the 1980s, J.P. Morgan along with other commercial banks pushed the envelope of product offerings toward investment banking, beginning with the issuance of commercial paper. In 1989, the Federal Reserve permitted J.P. Morgan to be the first commercial banking to underwrite a corporate debt offering[3] In the 1990s, J.P. Morgan moved quickly to rebuild its investment banking operations and by the late 1990s would emerge as a top-five player in securities underwriting.
[edit] JPMorgan Chase
By the late 1990s, J.P. Morgan had emerged as a large but not dominant commercial and investment banking franchise with an attractive brand name and a strong presence in debt and equity securities underwriting. Beginning in 1998, J.P. Morgan openly discussed the possibility of a merger and speculation of a pairing with banks including Goldman Sachs, Chase Manhattan Bank, Credit Suisse and Deutsche Bank AG were prevalent.[4] In 2000, Chase Manhattan Bank, which had emerged as one of the largest and fastest growing commercial banks in the United States through a series of mergers over the previous decade, was looking for yet another transformational merger to improve its position in investment banking. On September 13, 2000, Chase Manhattan Bank announced the acquisition of J.P. Morgan & Co. for $30.9 billion.[5][6]
The Gramm-Leach-Bliley Act, passed just a year earlier, repealed the restrictions of Glass-Steagall and allowed consoldiation of investment banking and commercial banking operations allowing for the merger of J.P. Morgan and Chase as well as the purchase of Donaldson, Lufkin & Jenrette by Credit Suisse earlier in 2000.
The combined JPMorgan Chase would become one of the largest banks both in the United States and globally offering a full complement of investment banking, commercial banking, retail banking,asset management, private banking and private equity businesses.
[edit] References
- ^ Drexel's father, Francis Martin Drexel, founded Drexel & Company which was a predecessor of Drexel Burnham Lambert, which collapsed in 1990.
- ^ New York Bank History. Scripophily.com. Retrieved on 2007-08-02.
- ^ On July 13, 1989 J.P. Morgan & Co. undrwrote an offering of 9.20% notes for Xerox Corporation, the first corporate debt offering underwritten by a commercial bank in the United States since 1933.
- ^ J. P. Morgan Weighs Merger And Cuts Jobs (New York TImes, 1998)
- ^ BANKING'S BIG DEAL: THE TREND; A Deal Built on Weakness, and Strength (New York Times, September 13, 2000)
- ^ BANKING'S BIG DEAL: THE OVERVIEW; CHASE IS REPORTED ON VERGE OF DEAL TO OBTAIN MORGAN (New York Times, September 13, 2000)
- Carosso, Vincent P. The Morgans: Private International Bankers, 1854-1913. Harvard U. Press, 1987. 888 pp. ISBN 978-0674587298
- Carosso, Vincent P. Investment Banking in America: A History Harvard University Press (1970)
- Chernow, Ron. The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance, (2001) ISBN 0-8021-3829-2
- Fraser, Steve. Every Man a Speculator: A History of Wall Street in American Life HarperCollins (2005)
- Geisst; Charles R. Wall Street: A History from Its Beginnings to the Fall of Enron. Oxford University Press. 2004. online edition
- John Moody; The Masters of Capital: A Chronicle of Wall Street Yale University Press, (1921) online edition
- Morris, Charles R. The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supereconomy (2005) ISBN 978-0805081343
- Strouse, Jean. Morgan: American Financier. Random House, 1999. 796 pp. ISBN 978-0679462750
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