Kidder, Peabody & Co.

Kidder, Peabody & Co.
Subsidiary (Inactive) of UBS AG
Industry Investment banking
Fate Acquired by PaineWebber
Founded 1865
Defunct 1994
Headquarters Boston, Massachusetts, United States
Products Financial Services

Kidder, Peabody & Co. was an American securities firm, established in Massachusetts in 1865. Its operations included investment banking, brokerage, and trading.

The Firm was sold to General Electric in 1986. Following heavy losses, it was subsequently sold to PaineWebber in 1994. After the acquisition by PaineWebber, the Kidder Peabody name was dropped, ending the firm's 130-year presence on Wall Street.[1] In November 2000, PaineWebber itself was merged with UBS AG.

History

Early history

Henry P. Kidder, co-founder of Kidder Peabody c. 1908

Kidder, Peabody & Co. was established in April 1865 by Henry P. Kidder, Francis H. Peabody, and Oliver W. Peabody. The firm was formed via reorganization of its predecessor company, J.E. Thayer & Brother, where the three founders had previously worked as clerks.

Francis H. Peabody, co-founder of Kidder Peabody c. 1908

Kidder, Peabody acted as a commercial bank, investment bank, and merchant bank. The firm had an active securities business, dealing in treasury bonds and municipal bonds, as well as corporate bonds and stocks. Kidder Peabody also actively traded and invested in securities for its own account.

In the aftermath of the 1929 stock market crash, Kidder Peabody was in a perilous situation. In 1931, Albert H. Gordon bought the struggling firm with financial backing from Stone & Webster. Since electric utilities were considered somewhat risky, Stone & Webster set up its own investment banking operation to finance their own projects through bond sales. Many of the utilities were municipally owned and Stone & Webster's investment banking unit served them in other offerings. Eventually, as fewer investment banking clients were engineering clients, there was an incentive to divest and merge the unit with another investment bank. Edwin Webster's father, Frank G. Webster, was a Senior Partner of Kidder Peabody, and Kidder had actively supported Charles A. Stone and Edwin as they started The Massachusetts Electrical Engineering Company, which later became Stone & Webster, in the 1890s.[2] Gordon helped rebuild Kidder Peabody by focusing on specific niche markets including utility finance and municipal bonds. Stone & Webster had thus become an integrated company which designed utility projects, built them, financed them, and operated them for municipalities.

Oliver Peabody, co-founder of Kidder Peabody c. 1908
Kidder Peabody's offices on Devonshire Street in Boston c. 1908

In 1967, Kidder Peabody helped to arrange a deal whereby the USDA's Commodity Credit Corporation invested $21.8 million in the failing Lebanese Intra Bank, a cornerstone of the Lebanese banking industry.[3] This move likely contributed to preventing a major financial crisis in Lebanon from worsening.

In the 70s, R&D and finance

Kidder Peabody was among the first Wall street firms to start and dedicate an entire department to financial research and development. In the Late 1970s, it hired Yale Professor John Geanakoplos to start an R&D department to research and analyse the connection between finance and mathematics. Gradually the department grew to contain 75 prominent academics, and continued to function till Kidder Peabody's closure. [4]

Kidder and the 1980s insider trading scandal

Gordon served as Kidder's chairman until selling it to General Electric in 1986. Soon after the GE purchase, a skein of insider trading scandals, which came to define the Street of the 1980s and were depicted in the James B. Stewart bestseller Den of Thieves, swept Wall Street. The firm was implicated when former Kidder Peabody executive and merger specialist Martin Siegel—who had since become head of mergers and acquisitions at Drexel Burnham Lambert—admitted to trading on inside information. Siegel also implicated Richard Wigton, Kidder's chief arbitrageur. Wigton was the only executive handcuffed in his office as part of the trading scandal, an act that was later depicted in the movie Wall Street.

With Rudy Giuliani, then the United States Attorney for the Southern District of New York, threatening to indict the firm, GE conducted an internal investigation concluding that Kidder executives had not done enough to prevent the improper sharing of information. In response, GE fired Kidder chairman Ralph DeNunzio and two other senior executives and stopped trading for its own account.

1994 bond trading scandal

Kidder Peabody was later involved in a trading scandal related to false profits booked over the course of 1990–1994. Joseph Jett, a trader on the government bond desk, was found to have systematically exploited a flaw in Kidder's computer systems, generating large false profits. When the fraud was discovered, it was determined that Jett had lost 75 million dollars over the four years instead of the apparent profit of 275 million dollars over the same period. The SEC later concluded Jett had committed securities fraud and banned him from the industry.

In the rush of bad press coverage following the disclosure of the overstated profits, General Electric sold Kidder Peabody's assets to PaineWebber for $670 million in October 1994, closing the transaction in January 1995.

September 11, 2001 terrorist attacks

On September 11, the former offices of Kidder Peabody (which were occupied by PaineWebber, as they had assumed the lease as part of the acquisition in 1994) were among many businesses impacted by the terrorist attacks. The company had offices on the 102nd Floor of One World Trade Center, also known as the North Tower. Two PaineWebber employees lost their lives.

Associated people

See also

References

  1. ↑ Kidder Peabody Name To Vanish -- Venerable Presence Fades After 129 Years. The Wall Street Journal, January 18, 1995
  2. ↑ "Stone & Webster 1889-1989 A Century of Integrity and Service" by David Neal Keller,p.20 ISBN 0-9623677-0-2
  3. ↑ New York Times, Oct 12, 1967.
  4. ↑ Geanakoplos, John. [www.yale.com "Financial Theory lecture ECON 251 (Devlivered April 2011)"] Check |url= value (help). www.yale.com. Yale University. Retrieved 19 May 2017.
  5. ↑ "Prince Abbas Hilmi". Egyptian Investment Management Association. Archived from the original on 2008-10-12. Retrieved 2010-10-09.
  6. ↑ "Lloyd Waring, GOP fund-raiser, former investment banker; at 95". The Boston Globe. November 5, 1997.
  7. ↑ "Obituaries: Mr. Robert England Grant, Sr.". Lake Placid News. October 31, 2014. Archived from the original on March 9, 2015. Retrieved March 7, 2015. Following WWII, he returned to Brown and graduated in 1948. Two years later, he graduated from the Harvard School of Business Administration where he earned an MBA...Bob began his business career with Kidder, Peabody & Co. in New York, and then Chicago working in investment banking and later in acquisitions. In 1957 he joined Plough, Inc., the inventors of Coppertone suntan lotion, and St. Joseph's aspirin, in Memphis as their Financial Vice President. And, from 1960 - 1969, he was Group Vice President for Textron, Inc. in Providence, R.I. He was instrumental in adding Bell Helicopter, and Speidel (twistaflex watch bands) to Textron. Bob left Textron to form Grant Capital Management Corporation, a venture capital firm which, soon after incorporation, made a significant investment in American Bakeries, Inc., the third-largest wholesale baking company in the United States. He was elected CEO and CFO and shepherded a remarkable financial turnaround for the company. He remained with American until his retirement.
  8. ↑ The Man in the Rockefeller Suit; Vanity Fair, January 2009.
This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.