the world of private banking
the world of private banking
the world of private banking
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
124<br />
THE WORLD OF PRIVAtE BANKING<br />
investment house in this survey that rose to prominence almost exclusively by<br />
serving <strong>the</strong> financial requirements <strong>of</strong> corporate enterprises.<br />
Schiff also disagreed with Morgan about <strong>the</strong> importance <strong>of</strong> placing<br />
representatives <strong>of</strong> <strong>the</strong> major investment <strong>banking</strong> houses on <strong>the</strong> boards <strong>of</strong> directors<br />
<strong>of</strong> <strong>the</strong> railroads that <strong>the</strong> bankers routinely financed. Morgan thought <strong>the</strong> presence <strong>of</strong><br />
his partners on boards <strong>of</strong> directors was prudent and necessary since <strong>the</strong>y served as<br />
watchdogs for investors in cases <strong>of</strong> gross railroad mismanagement. Schiff believed<br />
that regular monitoring was unnecessarily time-consuming – except, <strong>of</strong> course, in<br />
dire circumstances. The exceptions to his general rule applied after a thorough<br />
reorganization <strong>of</strong> a given railroad’s capital structure by court-appointed trustees,<br />
persons who were frequently none o<strong>the</strong>r than <strong>the</strong> investment bankers <strong>the</strong>mselves.<br />
Schiff’s reluctance to become closely associated with <strong>the</strong> management <strong>of</strong> <strong>the</strong><br />
railroads that Kuhn Loeb had financed prevented him from becoming a lightingrod<br />
for public criticism to <strong>the</strong> same extent as J.P. Morgan.<br />
This is an instance where anti-Semitism may have rebounded in Kuhn Loeb’s<br />
favour. Many American railroad leaders were unwilling, except during a crisis, to<br />
add anyone with a Jewish background to <strong>the</strong>ir corporate board <strong>of</strong> directors. That<br />
prejudicial attitude helped keep Kuhn Loeb out <strong>of</strong> <strong>the</strong> glaring gaze <strong>of</strong> <strong>the</strong> public<br />
spotlight. In contrast to J.P. Morgan, Schiff was never subpoenaed to appear before<br />
a congressional committee investigating <strong>the</strong> so-called ‘money trust’. Under <strong>the</strong><br />
circumstances prevailing in <strong>the</strong> early twentieth century, Schiff and his partners<br />
were quite happy to play second fiddle to <strong>the</strong> House <strong>of</strong> Morgan.<br />
Conclusion<br />
Over <strong>the</strong> three centuries spanning <strong>the</strong> period from 1600 to 1900, <strong>the</strong> Anglo-American<br />
financial-services sector became increasingly large and more sophisticated. The<br />
general trend was away from an early emphasis on <strong>the</strong> foreign-trade sector and<br />
more toward <strong>the</strong> burgeoning US capital market, which literally exploded in <strong>the</strong><br />
second half <strong>of</strong> <strong>the</strong> nineteenth century. The flow <strong>of</strong> money was always westward;<br />
Europeans with surplus capital aided US economic development in almost every<br />
imaginable way. As <strong>the</strong> financial markets ripened, greater specialization emerged.<br />
The multi-functional merchant-<strong>banking</strong> houses lost market share as <strong>the</strong> nineteenth<br />
century progressed, and <strong>the</strong>y were superseded by <strong>banking</strong> enterprises that had a<br />
narrower scope.<br />
Initially, <strong>the</strong> Anglo-American market was institutionally fragmented, but<br />
<strong>the</strong> maturation process advanced steadily after 1750. The leading firms created<br />
transatlantic networks <strong>of</strong> agents or branch <strong>of</strong>fices to expedite transactions <strong>of</strong><br />
all varieties involving both merchandise and financial services. Trade-related<br />
activities predominated through <strong>the</strong> War <strong>of</strong> 1812. In <strong>the</strong> 1820s Anglo-American<br />
merchant bankers became simultaneously involved in <strong>the</strong> US capital markets,<br />
helping to locate European investors for a series <strong>of</strong> capital-intensive transportation<br />
projects. These portfolio investments stalled momentarily after <strong>the</strong> Panic <strong>of</strong> 1837,