On this day in economic and business history ...
June 16 is a particularly eventful day for American business. Several of the world's most iconic companies were founded on June 16ths throughout history. Let's take a quick look at the origins of these businesses -- and at some other important events in the history of American capitalism that also happened to take place today.
Birth of the blue oval
Ford Motor (NYSE:F) was officially created on June 16, 1903. This was almost exactly seven years after Henry Ford first successfully test-drove an automobile he'd built himself. It was not Ford's first effort at building a car company -- two earlier efforts had foundered -- but it would be his last, as the world well knows. Ford Motor was an immediate success and began paying dividends to its private shareholders later that year.
Here's an example of how transformative Ford's influence was on the auto industry: Only 11,235 motor vehicles were built in 1903, and about 15% of them were Ford autos. In 1909, the year after Ford built its first Model T, total production had risen to 124,000 passenger cars. When the 10 millionth Model T rolled off the assembly line in 1924, it was one of 3.2 million passenger cars built that year, and more than half of them were Fords.
Tabulating a dynasty
IBM (NYSE:IBM) was created on June 16, 1911, as the result of a merger between three technically inclined manufacturing businesses. It was known as the Computing-Tabulating-Recording Company until 1924 -- the same year that Ford built its 10 millionth Model T. CTR, as it was sometimes known, traced its origins to an inventor named Herman Hollerith, who devised a punched-card tabulator that offered tremendous time savings for enterprises (like the U.S. Census) engaged in the tedium of tallying up vast quantities of data. However, it wasn't Hollerith who built IBM into the business-services behemoth you know today. Much of IBM's character was formed during the tenure of the two Thomas Watsons, a legendary father-and-son executive pair that guided the company for more than half a century. You can read more about IBM's origins and its Watson-driven rise to prominence when you click on this link.
Another business-oriented computing leader begins
Oracle (NYSE:ORCL) also began its life on the same date as its longtime peer IBM, as it was founded on June 16, 1977, as Software Development Laboratories. In fact, IBM has a great deal to do with Larry Ellison's decision to create the company that would grow into one of IBM's greatest challengers in software-focused business services. A research paper published in IBM's Journal of Research and Development during the mid-1970s clued Ellison into the principles of relational database management, which remains the core of Oracle's business today. IBM didn't see the value in commercializing the concept, and their loss became Ellison and Oracle's enduring gain -- Oracle has since grown to become the second-largest software company in the world, worth two-thirds of what IBM is today.
Maybe you should have stuck to the city
The City Bank of New York -- forerunner to Citigroup (NYSE:C) -- was formed in New York City on June 16, 1812, just as the United States was about to enter its second war with England. According to Citi itself, the bank began with $2 million in capital and 22 employees. Revolutionary War Col. Samuel Osgood is credited with founding the bank, and he brought the lessons he'd learned as director of the Bank of North America to bear on expanding banking in then-finance-unfriendly New York City. Strange as it may seem, there was a time when New York City didn't like the financial industry, and it took the bank more than a year to get chartered. Despite this opposition, Osgood persevered, and the City Bank took up residence on Wall Street alongside the Bank of New York and the Bank of the United States.
Citi has expanded enormously in the ensuing 200 years, although the recent financial crisis showed that this growth was sometimes more trouble than it was worth. Today, Citi counts more than 200 million customers in more than 160 countries and territories. It's one of the largest banks in the world by both assets and market cap, with $1.9 trillion in assets and a market cap of more than $140 billion.
The wall that was broken
The last major global financial crisis brought about legislation many have credited (rightly or not) with preventing the sort of meltdown that occurred in 2008. That legislation, the Banking Act of 1933, is popularly known as Glass-Steagall, and it became law with the stroke of President Franklin D. Roosevelt's pen on June 16, 1933.
Glass-Steagall created the Federal Deposit Insurance Corporation to backstop floundering retail banks up to a certain amount per customer account. However, it was Glass-Steagall's restrictions on the activities of these banks that we usually refer to when we invoke this law. The bill prohibited chartered banks from engaging in stock ownership, restricting them to government bonds or indirect holdings on behalf of a customer. Further rules set up a supposedly iron wall between commercial and investment banks that would last until 1999. Citigroup was the driving force behind the destruction of Glass-Steagall, as it sought to merge with insurer Travelers and could not legally do so while the iron wall stood in place.
It wasn't until passage of the Gramm-Leach-Bliley Act that the wall between commercial and investment banking was completely torn down. However, Glass-Steagall had been supported by several other key pieces of banking legislation throughout the Depression and postwar eras. By 1999, these supports were virtually destroyed, so it's difficult to claim that Glass-Steagall alone saved us, or that its absence alone doomed the financial system.