Kidder, Peabody & Co.

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

Kidder, Peabody & Co. was a U.S.-based securities firm, established in Massachusetts in 1865. Its operations included investment banking, brokerage, and trading.

The Firm was sold to the General Electric Company in 1986 and following heavy losses 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[edit]

Early history[edit]

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 through a reorganization of its predecessor company, J.E. Thayer & Brother, where the three founding partners 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 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 by focusing on specific niche markets including utility finance and municipal bonds. Stone & Webster had been an integrated company which designed utility projects, built them financed 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 and Co. 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 probably contributed to preventing a major financial crisis in Lebanon from worsening.

Kidder and the 1980s Insider Trading Scandal[edit]

Gordon served as Kidder's chairman until selling it to GE 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 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 that revealed Kidder executives hadn't 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[edit]

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[edit]

On September 11, the former offices of Kidder, Peabody (which were occupied by Paine Webber, 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 Paine Webber employees lost their lives.

Associated people[edit]

  • Prince Abbas Hilmi, Vice President of Kidder, Peabody & Co. / Executive Director of Kidder, Peabody International Investments (1986–1989)[4]
  • Lloyd B. Waring, Vice President of Kidder, Peabody & Co.[5]

See also[edit]

References[edit]

  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. ^ "Prince Abbas Hilmi". Egyptian Investment Management Association. Retrieved 2010-10-09. 
  5. ^ "Lloyd Waring, GOP fund-raiser, former investment banker; at 95". The Boston Globe. November 5, 1997.