the world of private banking
the world of private banking
the world of private banking
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THE ANGLO-AmERIcAN HOUSES IN tHE NINEtEENtH CENtURy 123<br />
Joseph declined, and his Jewish heritage and formerly immigrant status were<br />
allegedly crucial factors in reaching that decision. The Seligmans became <strong>the</strong><br />
financial agents <strong>of</strong> <strong>the</strong> US government for <strong>the</strong> transmission <strong>of</strong> funds overseas. Where<br />
<strong>the</strong> Seligmans differed markedly from <strong>the</strong> Rothschilds was in <strong>the</strong>ir involvement<br />
in sponsoring securities issues <strong>of</strong> many <strong>of</strong> <strong>the</strong> largest American railroads. With<br />
branch <strong>of</strong>fices throughout Western Europe, <strong>the</strong>y were in a favourable position to<br />
identify potential investors for millions <strong>of</strong> dollars’ worth <strong>of</strong> new securities. Like<br />
<strong>the</strong> Morgans, <strong>the</strong> Seligmans were active participants in underwriting public debt<br />
issues and a wide range <strong>of</strong> corporate securities.<br />
Kuhn, Loeb & Co.<br />
The origins <strong>of</strong> Kuhn, Loeb & Co. echo <strong>the</strong> backgrounds <strong>of</strong> <strong>the</strong> Rothschilds and<br />
Seligmans. Abraham Kuhn and Solomon Loeb were born to German-Jewish<br />
parents. They began <strong>the</strong>ir business careers as small-town merchants in rural<br />
Indiana, <strong>the</strong>n moved to Cincinnati, and finally settled in New York City in 1867. 15<br />
Their firm remained a minor player in <strong>the</strong> US investment <strong>banking</strong> field until Jacob<br />
Schiff, who married Loeb’s daughter Theresa, became directing partner in <strong>the</strong><br />
1880s. In time, Schiff rose to become widely recognized as <strong>the</strong> nation’s second<br />
leading investment banker, ranking behind only <strong>the</strong> influential J.P. Morgan. 16<br />
Schiff was born in Frankfurt in 1847 into a fairly prosperous German-Jewish<br />
household. Well-educated in European schools, he migrated to New York City in<br />
1865 and subsequently joined Kuhn Loeb in 1873. Under Schiff’s management,<br />
<strong>the</strong> partnership relied on its close connections with a network <strong>of</strong> correspondents in<br />
London and on <strong>the</strong> continent to identify investors for American railroads searching<br />
for new capital. Kuhn Loeb’s outstanding performance demonstrates that a<br />
transatlantic ownership pattern was not essential for long-term pr<strong>of</strong>itability; but<br />
its success does suggest quite strongly that at least one important <strong>of</strong>fice supervised<br />
by a partner with tremendous authority had to be located in <strong>the</strong> financial centre <strong>of</strong><br />
<strong>the</strong> nation from which <strong>the</strong> demand for investment capital arose – in this case New<br />
York City. The Barings and Rothschilds failed to take heed <strong>of</strong> this organizational<br />
imperative; <strong>the</strong>y concentrated on <strong>the</strong> supply side <strong>of</strong> <strong>the</strong> capital equation, not <strong>the</strong><br />
demand side, and lost <strong>the</strong>ir position <strong>of</strong> leadership in <strong>the</strong> Anglo-American market.<br />
Kuhn Loeb differed from its competitors in o<strong>the</strong>r ways as well. Unlike <strong>the</strong><br />
Barings, Rothschilds, Morgans, and Seligmans, this firm never depended in its<br />
formative years on business originating in <strong>the</strong> public sector. Instead, Kuhn Loeb<br />
tied its fate to <strong>the</strong> <strong>private</strong> market – <strong>the</strong> booming US railroads. Again, an expanding<br />
financial market had encouraged fur<strong>the</strong>r specialization. Kuhn Loeb is <strong>the</strong> only<br />
15<br />
Carosso, Investment Banking in America, pp. 19–20.<br />
16<br />
C. Adler, Jacob Schiff: His Life and Letters (Garden City, NY, 1928); and F. Redlich,<br />
The Molding <strong>of</strong> American Banking: Men and Ideas (New York, 1968).