J.P. Morgan & Co.
|Fate||Acquired by Chase Manhattan Bank in 2000|
|Founders||J. P. Morgan|
|Headquarters||New York City, New York, US|
J.P. Morgan & Co. was a commercial and investment banking institution based in the United States founded by J. Pierpont Morgan and commonly known as the House of Morgan or simply Morgan. The firm is a direct predecessor of two of the largest banking institutions in the United States and globally, JPMorgan Chase and Morgan Stanley. Today, J.P. Morgan is the wholesale banking arm of JPMorgan Chase.
In 2000, J.P. Morgan was acquired by Chase Manhattan Bank to form JPMorgan Chase & Co., one of the largest global banking institutions. Today, the J.P. Morgan brand is used to market certain JPMorgan Chase wholesale businesses, including investment banking, commercial banking and asset management. The J.P. Morgan branding was revamped in 2008 to return to its more traditional appearance after several years of depicting the "Chase symbol to the right of a condensed and modernized "JPMorgan".
Between 1959 and 1989, J.P. Morgan operated as the Morgan Guaranty Trust, following its merger with the Guaranty Trust Company of New York.
The origins of the firm date back to 1854 when Junius S. Morgan joined George Peabody & Co. (which became Peabody, Morgan & Co.), a London-based banking business headed by George Peabody. Junius took control of the firm, changing its name to J.S. Morgan & Co. in 1864 on Peabody's retirement. Junius's son, J. Pierpont Morgan, first apprenticed at Duncan, Sherman and Company in New York City, then founded his own firm with a cousin, J. Pierpont Morgan & Company, in 1862. J. Pierpont Morgan & Company traded in government bonds and foreign exchange. It also acted as an agent for Peabody’s. Junius, however, considered some of Pierpont’s ventures to be highly speculative. So, Pierpont took on a more senior partner and the firm was known first as Dabney, Morgan and Company (beginning in 1864), then Drexel, Morgan & Co. (in 1871). In these firms, Pierpont used his Peabody connection to bring British financial capital together with rapidly growing U.S. industrial firms, such as railroads, who needed financial capital. The Drexel of Drexel, Morgan & Co. was Philadelphia banker Anthony J. Drexel, founder of what is now Drexel University.
The House of Morgan
On Junius’ death in 1890, Pierpont Morgan took his place at J.S. Morgan and Company. After Drexel’s death, Drexel, Morgan reorganized in 1895 and became J.P. Morgan and Company, eventually becoming one of the most powerful banking companies in the world and helping to transform the United States from an economic novice into the strongest industrial power in the world at that time. 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, an anarchist bomb exploded in front of the bank, killing 38 and injuring 400. Shortly before the bomb went off, an unknown person placed a warning note 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 United Kingdom and made a deal with the Bank of England to make J.P. Morgan & Co. the sole underwriter of war bonds for the 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 profiting from the financing and purchasing activities of the two European governments.
Glass–Steagall and Morgan Stanley
In 1933, the provisions of the Glass–Steagall Act forced J.P. Morgan & Co. to separate its investment banking from its commercial banking operations. J.P. Morgan & Co. chose to operate as a commercial bank, because after the stock market crash of 1929, investment banking was in some disrepute and commercial lending was perceived to be more the profitable and prestigious business. Additionally, many within J.P. Morgan believed that a change in the political climate would allow the company to resume its securities businesses but that 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 spin off its investment banking operations. Two J.P. Morgan partners, Henry S. Morgan (son of Jack Morgan and grandson of J. Pierpont Morgan) and Harold Stanley, founded Morgan Stanley on September 16, 1935 with $6.6 million of nonvoting preferred stock from J.P. Morgan partners. At the beginning, Morgan Stanley's headquarters were at 2 Wall Street, just down the street from J.P. Morgan, and Morgan Stanley bankers routinely used 23 Wall Street when closing transactions.
Morgan Guaranty Trust
In the years following the spin-off of Morgan Stanley, the securities business proved robust, while the parent firm, which incorporated in 1940, was a little sleepy. By the 1950s J.P. Morgan 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. The two banks already had numerous relationships between them and had complementary characteristics as J.P. Morgan brought a prestigious name and high quality clients and bankers while Guaranty Trust brought a significant amount of capital. Although Guaranty Trust was nearly four times the size of J.P. Morgan at the time of the merger in 1959, J.P. Morgan was considered the buyer and nominal survivor and former J.P. Morgan employees were the primary managers of the merged company.
Return of J.P. Morgan & Co.
Ten years after the merger, Morgan Guaranty established a bank holding company called J.P. Morgan & Co. Incorporated, but continued to operate as Morgan Guaranty through the 1980s before beginning to migrate back to 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 bank to underwrite a corporate debt offering 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.
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 was prevalent. Chase Manhattan 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. In 2000 Chase, which was looking for yet another transformational merger to improve its position in investment banking, merged with J.P. Morgan to form JPMorgan Chase & Co.
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. In 2011, JPMorgan Asset Management was ranked number two in Institutional Investor's Hedge Fund 100 ranking, with $54.2 billion in assets under management.
2012 Trading losses
Executives from JP Morgan Chase & Co were embroiled in the 2012 “London Whale” scandal, facing potential charges over a trading debacle that cost the bank more than $6.2 billion. The firm’s two former traders, Javier Martin-Artajo and Julien Grout, were accused of deliberately understating losses on trades in the firm’s books.
- Morgan: American Financier by Jean Strouse
- Drexel's father, Francis Martin Drexel, founded Drexel & Company, which was a predecessor of Drexel Burnham Lambert; DBL collapsed in 1990.
- "New York Bank History". Scripophily.com. Retrieved 2007-08-02.
- On July 13, 1989 J.P. Morgan & Co. underwrote 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)
- "The 2011 Hedge Fund 100 Ranking". Institutional Investor, Inc. May 12, 2011.
- Emily Flitter and David Henry (15 August 2013). "Ex-bosses at JPMorgan unlikely to face charges in 'Whale' scandal". Reuters.
- Carosso, Vincent P. The Morgans: Private International Bankers, 1854-1913. Cambridge, MA: Harvard University Press, 1987.
- Carosso, Vincent P. Investment Banking in America: A History. Cambridge, MA: 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. New York:HarperCollins, 2005.
- Geisst, Charles R. Wall Street: A History from Its Beginnings to the Fall of Enron. Oxford University Press. 2004. online edition
- Moody, John. The Masters of Capital: A Chronicle of Wall Street. New Haven, CT: Yale University Press, 1921.
- Morris, Charles R. The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supereconomy (2005) ISBN 978-0-8050-8134-3
- Pak, Susie J. Gentlemen Bankers: The World of J.P. Morgan. (Harvard University Press, 2013) excerpt, 1890s-1930s
- Strouse, Jean. Morgan: American Financier. Random House, 1999. 796 pp. ISBN 978-0-679-46275-0