The Story of J.P. Morgan, the Most Powerful Bank in America

On this day in economic and business history ...

Like many aspiring bankers of the mid-19th century, young John Pierpont Morgan got into the business of finance with the help of some old-fashioned family connections. From 1857 through 1871, J.P. Morgan worked his way up through the industry, first as a representative of his father's London-based firm, then as an independent agent for that firm under a self-named company. In 1864, the younger Morgan joined with Charles Dabney to form Dabney, Morgan, & Co., where he would remain for seven years.

It was on June 30, 1871, that J.P. Morgan finally moved on to form the bank that would bear his name for more than a century. Dabney, Morgan, & Co. was dissolved and replaced by Drexel, Morgan & Co., a partnership Morgan had formed with Philadelphia banker and Drexel University founder Anthony J. Drexel. This bank is the one from which today's JPMorgan Chase (NYSE: JPM  ) traces its most direct lineage, even though the Chase half of the megabank actually predates Morgan's firm by four decades.

Morgan's merchant bank was initially meant as a conduit for wealthy Europeans to invest in American business interests. This deep early connection to European interests would be of lifelong benefit to Morgan, whose occasional efforts to save America's gold-backed financial system in the days before the Federal Reserve were bolstered -- particularly in the Panic of 1893's aftermath -- by connections in Europe who would supply vital liquidity at his request.

Despite his pivotal role in stemming the panic, Morgan's firm did not escape the financial crash, and in 1893, Drexel, Morgan recorded its first million-dollar loss. Two years after the Panic (and the death of Drexel), Morgan changed his bank's name to simply J.P. Morgan & Co. This bank, "The House of Morgan," would be John Pierpont's base of operations during the most legendary stretch of banking power, wielded by only one man, that the United States has ever seen.

The first Morgan megadeal actually took place in 1892, when he brought Thomas Edison's company together with several other leading electric ventures to form General Electric (NYSE: GE  ) . Morgan's greatest triumph came in 1901, when he formed U.S. Steel (NYSE: X  ) , the first billion-dollar company in American history. A year later, Morgan merged farm-implement pioneer McCormick with other agricultural equipment companies to create International Harvester, the predecessor of Navistar. All three of these companies held spots on the Dow Jones Industrial Average (DJINDICES: ^DJI  ) for decades at a time, which -- when including JPMorgan Chase itself -- makes J.P. Morgan the only businessman in American history directly responsible for the creation of four Dow components, past or present.

It's also particularly notable that Morgan is responsible for creating two of the world's largest companies. U.S. Steel's billion-dollar market cap gave it a huge head start over its peers, and GE had a five-year run on top of the corporate world from 1993 to 1998.


Source: Historic American Engineering Record, taken by Martin Stupich.

Morgan also played a pivotal role in creating the Federal Reserve. As a "Fed of one," Morgan is virtually singlehandedly credited with stemming the Panic of 1907. His actions during the crisis included a last-minute buyout of Tennessee Coal Iron and Railroad by U.S. Steel that avoided a cascading chain reaction of brokerage bankruptcies -- the Lehman Brothers of 1907 was significantly overextended on Tennessee stock. This effort, ramrodded through antitrust concerns thanks to President Theodore Roosevelt's reluctant pledge of immunity, is generally seen as the move that ended the crisis.

Morgan's advanced age, combined with his unprecedented degree of influence, made many on Wall Street and Washington realize that there had to be a more reliable backstop to the financial system. Six years later, the Federal Reserve was formed. Morgan died the same year, leaving behind a legacy of financial modernization and lumbering megacorporations that would define American business before the onset of the Great Depression. Morgan left behind an estate worth about $80 million (equal to nearly $2 billion today), and on hearing of this sum, oil baron John D. Rockefeller was heard to quip, "and to think, he wasn't even a rich man."

J.P. Morgan & Co. continued to thrive after Morgan's death, as John Pierpont Morgan Jr. stepped into leadership of his father's bank. Under Junior's leadership, the Morgan bank became a major financier of World War I, and after the war it assumed management of Germany's reparation payments. The Great Depression and the subsequent sweeping financial reforms implemented during President Franklin D. Roosevelt's first term severely eroded J.P. Morgan & Co.'s power, particularly once the Glass-Steagall legislation forced it to get out of the investment-banking field. This led to the creation of Morgan Stanley (NYSE: MS  ) by J.P. Morgan's grandson Henry Morgan and former Morgan investment banker Harold Stanley in 1935. The new investment bank immediately became a major player on Wall Street, gobbling up a quarter of the entire industry's business during its first year.


Source: Michael Daddino via Flickr .

The J.P. Morgan name was abandoned in the 1950s in favor "Morgan Guaranty Trust." The bank used this name until 1988, and by the late '90s J.P. Morgan had built itself into a respectable (but not dominant) bank with a sterling brand. The merger that re-established J.P. Morgan as the leading name of its industry took place in 2000, when Chase Manhattan merged with the House of Morgan to create JPMorgan Chase. It is now the largest bank by assets in the world.

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