the world of private banking

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THE WORLD OF PRIVAtE BANKING
size of the US federal debt grew enormously, and new opportunities for private
bankers immediately arose. Almost simultaneously American railroads sought to
raise millions of dollars to finance the expansion of track into the far western
States plus improvements in existing lines, mainly the purchase of steel rails. The
tremendous volume of American securities generated in the second half of the
nineteenth century produced favourable conditions for additional specialization
by the Anglo-American houses. Some banking partnerships which had previously
provided a mix of routine trading and capital-market services decided to forego
the trade sector and to concentrate their energies on investment-banking functions.
The Peabody/Morgan organization was the most prominent private banking firm
to readjust its strategies in response to these changing conditions. Originally a
merchant-banking house that offered a full range of diverse financial services in
the Anglo-American market, the Peabody firm was carried forward by the father/
son team of Junius and John Pierpont Morgan, and under their leadership it had
evolved into primarily an investment-banking firm by the 1870s.
The second section of this chapter addresses, in sequence, the activities of the
leading Anglo-American banking houses in the nineteenth century. Chronology
orders this discussion. I start with the earliest entries into the market and then
move forward to the late arrivals. The six firms discussed are the Barings, Browns,
Rothschilds, Peabody/Morgan, Seligmans, and Kuhn Loeb.
The Barings
The Barings were the first important Anglo-American merchant banking house,
and based on their overall performance, the Barings were the most accomplished
within this class of nineteenth-century business enterprises. The partners were
involved in more diverse commodity and financial markets over a longer period
of time than any of their competitors. The Barings were also more geographically
diversified than any of their Anglo-American competitors, since the partners also
conducted an extensive business in Canada, Latin America and the Far East.
The partners were different from other Anglo-American houses too because of
their involvement in loan contracting in the London market for European clients,
which included the massive bond issues of several governments, including
England and France. In these activities, the Barings competed directly with the
Rothschilds.
The firm was established by three Baring brothers in 1763 with offices in both
Exeter and London. The partners began as merchants and only later diversified
into the provision of supplementary financial services. This same pattern of
internal development prevailed in all six of the firms discussed in this chapter.
Clear evidence of the Barings’ early successes in diversifying the scope of their
operations was their inclusion on the list of contractors authorized to market the
British government’s £20.5 million loan of 1800.