German Immigrants and J. P. Morgan’s Securities Underwriting Syndicates
The Immigrant Entrepreneurship project offers a transnational perspective on American history. Transaction records from the J. P. Morgan & Co. Syndicate Books help us understand how a transnational society of bankers networked funds around the world by forming syndicates to support the globalization process. Syndicate participation provided a way for many German immigrants and German-Americans to attain both economic success and social status in America.
Introduction to a Transnational Banking System
What is a transnational banking society? How and why did it form? The Merriam-Webster dictionary defines transnational as “extending or going beyond national boundaries or interests.” When members of different kinship groups collaborated across national boundaries to organize banking transactions, a transnational banking society was formed. This network of private bankers, whose origins could be found in cosmopolitan merchant culture, eventually funded railroads and consolidated dozens of American industries. As more and more immigrants arrived on American shores, this transnational banking system continued to grow and change. The interaction of German immigrants and German-Americans with people from different ethnic and national origins within this financial society is detailed in contract records from the J. P. Morgan & Co. private bank. The syndicate contract, which was created by these banking kinship groups for coordinating transactions, prescribed the risk- and profit-sharing arrangements between the groups. Viewing this network through its syndicate contracts allows for a better understanding of the struggles and accomplishments of immigrant entrepreneurs.
Members of the banking society shared three cosmopolitan, conservative values, none of which depended on the banker’s nationality: first, they believed that society was best organized as a hierarchy, not as an undifferentiated mass of people; second, they favored an investment policy that was conservative, and not characterized by quick speculation; and third, they believed that private property rights were inviolate, and thus not subject to interference by the state or other external forces. These values formed the basis of social interaction between the groups.
The value they placed on hierarchy shaped social interaction in several ways. Families led by strong patriarchs expected loyalty from kin who settled in faraway cities. Elites with specialized banking knowledge were easily distinguished from the masses who lacked such knowledge. Banking transactions could be complex because senior bankers could rely on juniors in the banking hierarchy to carry out many of the less complicated tasks. The emphasis on conservative investment policy manifested itself in choices regarding business strategy. Maintaining ample liquidity to honor commitments to clients and partners was a conservative strategy, and it meant that bankers could loyally fulfill payment pledges. A conservative investment policy facilitated a business strategy in which repeat business was sought from satisfied clients, as opposed to one-time transactions that earned quick commissions but left clients dissatisfied. A strategy that spread prudent risks among society members and avoided outsized risks yielded recurring profits over many generations. The value that society members attached to individual property rights meant that transactions would be structured to assure investors a return of their property, their principal, and interest. It meant that companies would keep the profits they earned from their businesses. Governments were not expected to expropriate private property from businesses, and this meant that bankers could keep the profits they earned in transactions that crossed national boundaries.
It was implicitly understood that, while national laws would be abided, these values transcended national laws and extended beyond national boundaries. These shared values allowed society members to operate confidently in business even when they found themselves separated by vast distances, in different polities, among different religious groups, and across different industries. The members were able to navigate among cultures and nationalities on account of their shared values. The Morgans in New York could predict the behavior of the Warburgs in Hamburg; the Rothschilds in London could predict the behavior of the Speyers in Frankfurt.
Why Study the Syndicate Books of J. P. Morgan & Co. Private Bankers?
Many international banking families existed, so why are the Syndicate Book records of J. P. Morgan & Co. the focus of this study? First and foremost, the Morgan records are the most complete and accessible. Archived at the Morgan Library and Museum in New York and bound together in twelve volumes, the Morgan Syndicate Books cover forty-three years, from 1879 to 1922, providing details on at least 1,605 transactions. Summaries of transactions, including the names of participants, are handwritten. Correspondence among the bankers most often appears in typewritten inserts between the pages. Such comprehensive documentation is simply not available for other banks. Secondly, Congressional testimony identified J. P. Morgan & Co. as the most prominent banking partnership in America at the beginning of the twentieth century, so the bank merits study for this reason as well.
The volumes preserved at the Morgan Library show that thousands of people were involved in the intricate task of raising the funds that transformed the American economy in the nineteenth and early twentieth centuries. When the names of businessmen featured in the Immigrant Entrepreneurship project are cross-listed with the names recorded in the J. P. Morgan & Co. Syndicate Books, it becomes clear that Germans and German-Americans were engaged with the Morgans in a variety of ways. Sometimes they belonged to Morgan’s syndicates; sometimes they formed rival syndicates. Sometimes they were unintended beneficiaries of the network’s funding arrangements; sometimes they were unintended casualties. Sometimes German-Americans raised funds through syndicates for new enterprises; sometimes they invested their excess wealth within the system to subscribe to new enterprises led by other entrepreneurs.
This essay examines four separate phases in the evolution of the international banking society. Additionally, it also describes the participation of Germans in each successive phase. The essay begins with the early period of merchant banking; it then moves on to two phases of private banking documented in the Syndicate Books, railroad development and industrial consolidation; finally, it looks at the struggles of the syndicate around the time of World War I.
Phase One: How the Merchant Banking Society Facilitated Trade
The transnational banking society started to develop in the eighteenth century, well before the Syndicate Book records begin. Simply put, the society emerged to facilitate merchant trade between markets in different nations. How did it accomplish that? It took weeks, or even months, for goods to travel from the places where they were produced to the places where they were ultimately consumed. What assurances did producers have of getting paid? Information about a buyer’s financial willingness or ability to pay was hard to come by, and when available, not always reliable. As the middlemen in transactions between buyers and sellers, merchant bankers became primary repositories of trade information. They knew about business conditions (e.g. whether credit was tight or easy, whether prices were high or low, whether the traded goods were plentiful or scarce), and they were also familiar with the reputations of the various buyers and sellers of goods.
Information was important, to be sure, but before trade could happen, other prerequisites had to be in place. In the absence of state-enforced contract fulfillment across international boundaries, trust was necessary – otherwise, no producer would load his goods onto a ship for delivery to a faraway customer. The banking society facilitated trade by making sure that producers were paid for goods purchased by distant buyers. How was trust established between the merchant bankers who served as the repositories of trade information? Trust emerged from the shared value system that existed independent of nation-state affiliation. Bankers could trust each other without necessarily knowing all of the producers and consumers of goods because they relied on the shared values of their transnational society. The enforcement mechanism for financial contracts was not the state but rather the social bonds that existed within a transnational banking society rooted in kinship loyalty.
This society was characterized by families with branches, clusters, or offices in the major trading cities of Europe and the United States. The Rothschilds had offices in Naples, Vienna, Frankfurt, London, and Paris, as well as a correspondent in New York. The Morgans had offices in London, Paris, New York, and Philadelphia. Signaling their commitment to the London market through their physical presence there, three generations of Morgan family members lived in London from the 1850s to the 1910s. The German-based Speyers had offices in London, New York, and Frankfurt. The Warburgs originated in Hamburg, but opened offices in New York and London, while the Seligmans were based in Frankfurt, but had offices even farther away in Paris, Amsterdam, Berlin, New York, San Francisco, and New Orleans. Loyalty to a hierarchical family structure meant that even though family members lived in different cities, they were likely to fulfill commitments to each other and to select only reliable customers in order to maximize the family welfare. For example, Jacob Schiff of Kuhn, Loeb & Co., another Frankfurt-based family firm, eventually became the center of a large extended family that included brothers, sisters, grandchildren, and great-grandchildren. In its dignity and simplicity, the relationship he maintained with all the members of his family could be likened to that of the patriarchs. J. Pierpont Morgan had a more complex familial configuration, but he shared the same head-of-family status as Schiff. Despite his estrangement from his second wife, Fanny, he was the uncontested family patriarch. His daughters, sons, grandsons, and nephews were present at frequent family gatherings and were employed at the family bank as well.
The dynastic aspect of these family relationships increased clients’ trust in the international banking network’s ability to fulfill financial contracts. If a banker’s son, son-in-law, or grandson was also a banker, then the family might be expected to maximize its profits over the lives of several generations, thus increasing the likelihood that promises involving long-term obligations would be kept. Indeed, dynasties of at least eighty years existed at the Morgan bank and at Kuhn, Loeb & Co. as well. At Morgan, founder Junius Spencer Morgan (1813-1890), his son J. Pierpont Morgan (1837-1913), and his grandson Jack Morgan (1867-1943) were the principals from 1854 to 1940. Solomon Loeb (1828-1903), his son-in-law Jacob Schiff (1847-1920), his grandson Mortimer (1877-1931), and his great-grandson John (1904-1987) were active in Kuhn, Loeb from 1867 to the 1940s. Other forms of banking organizations, such as partnerships, could also be expected to maximize profits over the lives of all the partners. On the other hand, a banker operating outside a dynastic family or partnership might find it profitable to renege on transactions because he lacked the motivation to generate profits for the benefit of future generations. Thus, family reputation can be viewed as a private, non-governmental mechanism that provides incentives to assure contract fulfillment in the absence of a third-party enforcer.
Since many families shared those values and had relatives in distant lands, one might guess that many families entered the merchant banking business. That was not the case, however, since the barriers to entering the business were so high. It took a long time, for instance, for different family members in different cities to build up knowledge about business conditions and individual merchants. Trust was earned only when a reputation for fulfilling contracts was established, and this required generations of repeated, reliable behavior on the part of banking families. High barriers to entering the banking society meant that it remained an elite network.
The Morgans, an Anglo-Protestant Family, and their German Connections
Junius Spencer Morgan, an Episcopalian descended from seventeenth-century Welsh immigrants from Boston, went to London in September 1854 to become George Peabody’s junior partner in merchant banking. Financing the iron rail trade was the primary line of business for Peabody & Co. through the end of the American Civil War. George Peabody, a Boston Protestant, had also built a reputation in London for offering American state securities used in railroad finance. The dynastic aspect of the merchant bank emerged in August 1857, when Junius’ son, twenty-year-old Pierpont Morgan, joined Peabody’s American correspondent firm in New York. On October 1, 1864, when George Peabody retired, Junius’ firm became known as J. S. Morgan & Co. Six weeks later, on November 15, 1864, Pierpont’s office in New York was reorganized as Dabney, Morgan & Co. J. S. Morgan & Co., with about 350,000 pounds sterling in capital ($1.75 million in 2010), was the engine behind Pierpont’s New York office.
The Philadelphia-based Drexel merchant bank, whose Catholic founders had emigrated from Austria in the early 1800s, used J. S. Morgan & Co. as its London correspondent. When Anthony Drexel invited Pierpont to become a Drexel partner, Dabney, Morgan & Co. was dissolved, and on July 1, 1871, Drexel, Morgan & Co. opened for business in New York with about $1 million in capital. The Morgans benefitted from the arrangement, namely because they were able to obtain a large portion of Drexel’s Philadelphia trade credits to sell to their London clients. The Drexels benefitted by having access to Morgan’s London investors. Eventually, the deaths of Junius Morgan and Anthony Drexel led to a reorganization of the partnership between the two families. On January 1, 1895, J. P. Morgan & Co. was formed with partners J. S. Morgan & Co. of London and the Paris-based firm Morgan, Harjes & Co., which had been started by the Drexels in 1868.
Pierpont formed personal connections to Germany from a young age. Early on, Junius Morgan decided that his son would learn German and French, the essential languages for international finance, so he arranged for Pierpont to be schooled on the Continent. As a youth, Pierpont attended preparatory school in French-speaking Vevey, Switzerland, and in April 1856, he began his university studies at the University of Göttingen, which was located midway between the German financial centers of Berlin, Hamburg, and Frankfurt. While there, Pierpont learned German and excelled at mathematics; upon his graduation, he visited Berlin, Wiesbaden, and Cologne. Later in life, after establishing a preeminent reputation in New York, Pierpont cultivated a personal relationship with none other than Kaiser Wilhelm II. A mutual interest in yachting brought the two men together in 1902, 1911, and 1912.
In general, German financial interactions with Americans deepened and broadened as the nineteenth century progressed. Moreover, the provision of short-term merchant finance by the transnational network eventually extended to the provision of long-term financing of railroads. This occurred because of the way in which American railroad companies paid for iron rails purchased in Britain. They paid in long-term IOUs, bonds, not in cash. British producers could then either hold the bonds to maturity, collecting interest along the way, or sell them in a secondary market for cash. German-Jewish merchant bankers played an important role in developing the European market for those bonds. As early as 1850, Speyer & Co. in Frankfurt made a market in American railroad bonds. The Illinois Central and the New York Central & Hudson railroads had transfer offices in London as early as 1852. By 1850, Louis von Hoffmann & Co. also made an active market between New York and Germany in American railroad bonds. Lazarus Hallgarten went to New York from Frankfurt in 1848, and by 1867, Hallgarten & Co. was a thriving brokerage house with many German customers. In the late 1860s, German investors had encouraging experiences with American sovereign bonds. Despite the negative outcome of the famous Confederate Cotton Loan sold by Parisian private banker Emile Erlanger to some Germans in Frankfurt, Germans profited in general by buying Union bonds at a discount and collecting full face value for them when the United States paid off its Civil War debt. As more American investment opportunities emerged, it was natural, therefore, for American private bankers like the Morgans to reach across national boundaries to German banking houses as partners in the funding network.
The Morgans’ London office did more business with continental Germans, while its New York office did more business with German bankers who had immigrated to New York. For example, in September 1865, J. S. Morgan & Co. in London invited Fruhling & Goschen to join the syndicate to underwrite Erie Railroad bonds. In the late 1860s and 1870s, when sovereign debt underwritings presented another alternative to the bread and butter trade of merchant lending, J. S. Morgan & Co. partnered with the German private bankers Bischoffsheim & Goldschmidt in an unsuccessful attempt to win the contract for the conversion of the Union’s short-term debt into long-term bonds. In October 1868, when J. S. Morgan & Co. sponsored a Chilean railroad loan, large portions of the successful offering were allotted to the Stern Brothers and Bischoffsheim & Goldschmidt. J. S. Morgan & Co. also cooperated with Frankfurt’s Sulzbach Brothers as early as November 1870 in funding European government loans.
The Morgans’ New York office did more business with German-American members of the international banking society. The growth of the banking society in America was attributable in no small measure to the immigration of members of German-Jewish banking families to America. The Jewish German-American houses even had office locations near each other in New York, congregating around Broad Street and along Pine Street, just off Wall Street. What prompted members of three of the most prominent banking houses, the Seligman, Speyer, and Kuhn-Loeb-Warburg families, to extend the transnational financial system to America?
Opportunities emerged for German-Jewish houses with access to different pools of capital when it became clear that the Morgans and Kidder Peabody, with their primary ties to English capital, could not meet the demand for merchant and railroad transactions. That this was a new growth phase in the development of the international banking network is evidenced by the fact that J. S. Morgan & Co. in London continued to deal with continental German-Jewish houses, such as Bischoffsheim & Goldschmidt, whose bases were primarily in London and Germany.
By maintaining close relationships with family members in Germany, the Seligmans, Speyers, and Kuhn-Loeb-Warburgs gained a competitive advantage over the Anglo-Saxon Protestant firms. Speyer & Co. was founded in 1845 in New York by Philip and Gustav Speyer, the sons of Joseph Lazard Speyer, the founder of the Speyer banking family in Frankfurt. They transitioned from foreign exchange dealers and merchandise importers to private bankers. J. & W. Seligman was founded in 1862 in New York and Frankfurt by Joseph Seligman, a native of Bavaria, with capital amassed from humble beginnings in America as a peddler. In 1864, the Seligmans established a branch in London; other branches followed in Paris, Amsterdam, Berlin, San Francisco, and New Orleans. Each Seligman bank was in the charge of a brother or some other close relative.
Like the Seligmans, Abraham Kuhn and Solomon Loeb came to America as dry goods merchants, not as merchant bankers. They opened a private bank in New York in 1867 after managing merchandise and clothing stores in Lafayette, Indiana, and Cincinnati, Ohio. Their firm did not rise to prominence until it was headed by Solomon Loeb’s son-in-law Jacob Schiff, who had worked for the Warburgs in Hamburg in 1873 before immigrating to America. In 1875, he was invited to join the Kuhn, Loeb partnership. Other marriages helped fortify the German-Jewish banking network: Felix Warburg eventually married Jacob Schiff’s daughter Frieda. Paul Warburg, a member of his family’s Hamburg banking house, M. M. Warburg & Co., married Solomon Loeb’s daughter Nina and came to America to join Kuhn, Loeb as a partner in 1902. Isaac Newton Seligman married Guta Loeb, another daughter of Solomon Loeb, creating a kinship tie between the Seligman and Kuhn, Loeb banks.
Phase Two: Private Bankers Fund American Railroads
Why were the transnational bankers significant? What did their networks of syndicated transactions allow them to accomplish? Of the 165,000 miles of railroad track laid by 1903, two-thirds was sponsored by the Morgan and Kuhn, Loeb banks. Of the $9 billion in railroad capitalization in 1903, about three-quarters was attributed to railroads primarily funded by the two banks. The bankers became known as private bankers, rather than “mere” merchant bankers, as their tasks expanded to funding the construction of the American railroad infrastructure. More than ever, they connected pools of accumulated savings to projects that crossed national boundaries and required large amounts of funding. The financial contract was no longer just a matter of assuring that a cotton grower in Alabama or Georgia was paid for his bales by a cotton spinner in Manchester or Bremen. Now the bankers had to make sure that an American railroad builder would generate enough cash flow to fulfill a thirty- or fifty-year promise to pay interest and principal back to a group of diverse European investors. To do this, they refined the syndicate system, so that groups of bankers (none of whom had sufficient risk tolerance or access to capital on his own) could participate in formalized collaborations by engaging in contracts among themselves to match savers in one country with investment projects in others. Both the contracting group and the agreement itself were called syndicates. Ultimately, contract enforcement still relied on the shared social values of the transnational society – the same mechanism that had worked so well during the decades of pure merchant banking.
The key risk undertaken by syndicate members was to promise the railroad its money should the bankers fail to sell the securities by a certain date. Therefore, the private bankers had to trust that each participating member was both willing and able to provide cash to the railroad if security sales went poorly. Trust ran so deeply among the members that sometimes the syndicate contract was written, sometimes it was unwritten. “These things are so much a matter of custom and of business honor, that legal questions rarely arise among the syndicate members,” a prominent attorney wrote in 1909. Contemporary economists commented on how crucial it was for the bankers to keep their word: “The underwriter’s guarantee to the new company is the source of their power. Without making the promise and fulfilling it the bankers would be impotent.”
Furthermore, an important distinction was drawn between private bankers who did underwriting (the risk-bearing function) and the selling group of bankers who specialized in distributing the securities among small banks, trust companies, or wealthy individuals. Based on market conditions, the underwriters determined the interest rate, collateral details, and the length of time to maturity of the bond; in exchange, they often earned between 2% and 6% of the proceeds raised for bearing most of the risk. The selling group took much less risk and often earned only .25% to .75%. Members of different strata of the hierarchy could depend on each other to play their assigned roles, because all the members were loyal to the hierarchical system.
The syndicate contracting system allowed each banking group to maintain a flexible allocation of its limited but ample capital. A single group, for instance, could originate a transaction with an important railroad client; by inviting participation from other groups, however, the originating bank did not have to put too many of its eggs in one basket, so to speak. It was Kuhn, Loeb’s policy to organize a syndicate for any business exceeding the bounds of what the firm wanted to keep itself. The originators could own a part of the transaction, yet still own small portions of transactions originated by many other bankers. Selling groups could distribute a variety of bonds originated by numerous private bankers, meeting the needs of their many diverse investors. In summary, this system, which was strongly influenced by German-centric private bankers who shared values with elites of other nationalities, religions, and ethnicities, funded billions of dollars of American railroad construction while allowing bankers the flexibility to spread risk and maximize information production.
Without a shared value system, the selection of syndicate members might have been a prohibitively complex task. Trust among the bankers was so great that everyone invited to participate in an offering accepted. Refusal meant never being invited again, exclusion from enormous streams of future profits. One contemporary biographer of Morgan attributed the following quote to him: “You can stay out, but do not think that you will share with us again.” During the Armstrong insurance investigation of 1905, Schiff explained that participation in a syndicate was permitted to members of its “circle of friends,” and he noted that his firm retained the right to decide the amount that would be allotted to an individual or a firm. “Nobody participates in a syndicate by any right,” he explained, but rather through “the good will” of his company.
When asked about his participation in a J. P. Morgan & Co. syndicate, Mayor W. R. Grace of New York, a Catholic who had emigrated from Ireland to America in 1865, recounted the invitation and acceptance process from the viewpoint of an individual. One day in 1901, he received by mail a very brief communication signed by J. P. Morgan stating that he had been allotted participation in the underwriting of the U.S. Steel Company to the extent of $100,000. Solely on the basis of his faith in Morgan, Grace accepted the invitation to subscribe but was only called upon for $8,000 of his commitment. He inferred that this first payment was for the purpose of providing working capital for immediate use by U.S. Steel, as indeed it was. He might have been compelled to pay the full $100,000 and to receive and hold the stock. In due time, Grace received his proportion of the underwriting syndicate’s profits, which amounted to another $8,000. The whole invitation and subscription process became so automatic that one contemporary Morgan biographer noted: “When the paper is sent around for some charity, perhaps a church benefaction, Mr. Morgan, from force of habit, writes down the names of his friends with the amounts opposite which they are destined to contribute!”
Letters inserted in the Syndicate Books also reveal how the bankers addressed one another. Their word choice, for instance, typically suggests personal rather than distant relationships. Their mutual cordiality and respect can be seen in the use of language such as “we accept with thanks” or “to our regret, we have been unable to make you a larger allotment.” Also telling is their use of first- and second-person pronouns (“we” and “you”), instead of more sterile third-person forms like “the firm” or “the bank.” Letters were signed by hand with distinctive bold signatures as opposed to faint scrawls. Valedictions such as “Truly yours” and “Very truly yours” express esteem while also emphasizing the importance placed on truth and integrity. The choice of paper testifies to the bankers’ elite status in a material world. Expensive heavy vellum (which is stiff but not brittle one hundred years later) was engraved, not imprinted, with office addresses. Moreover, the customary brevity of the correspondence suggests the syndicate members’ familiarity with one another. Firming up a million-dollar commitment required only a twenty-word response from Morgan and a one-day turnaround to Kuhn, Loeb & Co., meaning that the members knew how much each banker could afford and were able agree to without hesitation – otherwise put, they knew where the liquidity was. Dates indicate speedy replies, with neither party wanting to hold up the other during the complex process of coordinating large transactions among a dozen or more participants.
Cooperation and Competition between the Morgans and Jewish German-American Banks in the Building of America’s Railroads, 1879-1895
A system of cooperation and competition between Anglo-American and German-American private bankers developed over time. The competitive advantage of each family cluster was the knowledge they possessed about the risk tolerance and investable capital available among their clients as well as information about investment opportunities. Accurate information meant that transactions could be priced more efficiently and that funding could be organized more quickly. Why would competitors be motivated to cooperate with each other in the pursuit of certain business opportunities? Over-reliance on ties between Episcopalian Anglo-American firms or German-Jewish firms would have created redundant paths to the same information about clients and markets. Non-local ties were fundamental in expanding and understanding the financial terrain. The inclusion of a German-Jewish partner in an Anglo-Episcopalian transaction meant that each group learned more about the market, the railroad company, and the liquidity status of the other bankers. The Morgan partnership and the Kuhn, Loeb partnership often extended invitations to join each other’s syndicates, but in relatively modest dollar amounts. If cash had been plentiful and risks low, cooperation among the banks might not have been necessary. But capital was relatively scarce and risks were high, given the uncertainty associated with building up America’s railroad network. At this point, we will turn to the Syndicate Books, which demonstrate how Morgan both competed against and collaborated with these German-American bankers.
The tension of cooperative rivalry is played out in the Syndicate Books, first through sovereign debt transactions and then through railroad debt and equity transactions. We will begin by examining evidence regarding the Speyers’ role in Morgan’s transactions. The gold bond issued by the U.S. during the Cleveland administration in 1895 was a crucial transaction, not least because it preserved America’s adherence to the gold standard. The offering prompted the Morgans and the Speyers to engage in complicated relations that testified to the complexity of businesses transactions across national boundaries. Stressing his connections and experience in handling large loans in Europe, James Speyer assured Treasury Secretary John G. Carlisle that his firm would contribute to the success of the offering. In the end, the government awarded the contract to Morgan, who set about forming a syndicate that included the Rothschilds as co-leaders. (SB JPM1, 20) In addition to the Rothschilds, who were represented by August Belmont, Morgan invited a number of New York-based, German-centric firms to participate in the syndicate: Ladenburg, Thalmann, & Co; L. von Hoffmann & Co.; Heidelbach & Ickelheimer; Kuhn, Loeb & Co.; Lehman Brothers; and Hallgarten & Co. For its part, Speyer & Co. eventually tried to organize a rival syndicate for the follow-up transaction but failed at that too. In the next transaction, however, Speyer was granted an allocation from a London-organized syndicate that consisted of the Rothschilds and J. S. Morgan & Co. The London-based Morgan partnership offered Speyer & Co. a 15% share. The transaction was hugely popular and was offered to the public some 7.5 points higher twelve days later.
In February 1887, Morgan banks cooperated in the Speyer- and Hallgarten-led reorganization of the Houston & Texas Central Railway. In January 1888, during the Morgan-led Chesapeake & Ohio bond syndicate, Speyer & Co. participated along with Deutsche Bank in the C&O’s reorganization. Competition between the houses occurred when George Roberts, president of the Pennsylvania Railroad, asked Drexel Morgan & Co. to include the English branch of Speyer & Co. in a March 1893 bond offering. The deal eventually went to Kuhn, Loeb. Rivalry was evident when Speyer, after managing one deal for the Lake Shore and Michigan Southern Railway in March 1897, was overlooked for participation in a later, Morgan-led deal for the same railroad. More extensive relations existed between the Kuhn, Loeb network, headed by Jacob Schiff, and the Morgans than between the Speyers and the Morgans. Between 1894 and 1914, Kuhn, Loeb & Co. was the fourth most frequent Morgan participant, after First National Bank, National City Bank, and Kidder Peabody, accounting for about 11% of the $1.9 billion ($49 billion in 2010) in Morgan underwritings. From the New York state insurance industry investigation in 1906, we know that Kuhn, Loeb & Co. had marketed nearly $1.4 billion ($35.8 billion in 2010) in securities between 1900 and 1905, a large amount, but significantly less than J. P. Morgan & Co.
Typical cooperation between the Morgan and Kuhn, Loeb groups in the Syndicate Books appears when Kuhn, Loeb invited the Morgans to participate in their underwritings and vice versa. In September and October 1886, Morgan joined two syndicates led by Kuhn, Loeb. In a Missouri Pacific transaction, Morgan received a $1.5 million allotment out of a $7 million deal; and in a St. Paul Minneapolis and Manitoba transaction, Morgan received a small allotment, $45,000 out of a $2 million total. Less frequently, the two groups co-managed offerings. In August 1886, Morgan co-managed the reconstruction of Jay Gould’s Texas and Pacific Railway with Kuhn, Loeb. Furthermore, Kuhn, Loeb participated in the Morgan-led Erie Railroad reorganization in February 1894 along with Vermilye & Co., an old pre-Civil War firm of Dutch immigrants. This demonstrates that Anglo-centric, German-centric, and Dutch-centric firms collaborated.
Rarely did the Morgan banks ask to be included in syndicates led by rival firms, but there were exceptions. The Louisville & Nashville (L&N) was one such case. By the late nineteenth century, the Morgan banks had already served the railroad in a variety of capacities, and they never lost interest in sponsoring the company’s securities. In January 1890, when L&N turned to Kuhn, Loeb to manage the sale of 6,609 shares of its stock, Morgan asked Schiff for a large 3,000 share in underwriting participation. Though the two firms were more apt to be rivals than partners, Kuhn, Loeb honored the earlier Morgan connection with the railroad and granted them the entire 3,000 share request. The stock sold poorly. Less than half the issue was placed, and the group was left with total losses of some $64,000.
In one arena, however, the Morgans stood apart from the German-centric houses. Unlike Seligman, Kuhn, Loeb & Co., and Speyer, J. P. Morgan often played the role of “lender of last resort” during financial crises. For instance, only J. P. Morgan & Co. and New York Clearinghouse banks participated in the loan syndicate that was formed (but never called upon) to forestall a panic in December 1902. (SB JPM3 p. 125) Similarly, German-American private bankers did not participate in syndicates formed in 1907 to solve a settlement crisis on the floor of the New York Stock Exchange during the October Panic of 1907. (SB JPM5, 8)
In the context of building up America’s railroad network, special mention should be made of two German immigrants whose biographies appear in the present project, railroad magnate Henry Villard and engineer Albert Fink. The Syndicate Books document how Henry Villard, born Ferdinand Hilgart in Speyer, Germany, played a pivotal role in the development of the Northern Pacific Railroad from 1880 to 1883. (Villard did not introduce the Morgans to Northern Pacific, but he did introduce them to Deutsche Bank.) The first Morgan-led syndicate contract on behalf of Northern Pacific was signed on November 30, 1880; it provided for the sale of $40 million in Northern Pacific bonds through a syndicate co-headed by Drexel Morgan & Co., Winslow Lanier & Co., and August Belmont & Co. (SB DM1, 182). The Commercial and Financial Chronicle called the sale the largest transaction in railroad bonds ever made in the United States.
After becoming president of the Northern Pacific in September 1881, Villard involved Deutsche Bank in the 1882 and 1883 tranches. Northern Pacific was Deutsche Bank’s first foray into American railroad financing. After the railroad collapsed under Villard’s management in August 1893, the Morgans successfully reorganized it, much to the relief of Deutsche Bank’s customers in Germany. As a result, the Morgans earned an enduring reputation in Berlin. Researchers note how Deutsche Bank’s loyalty to Morgan, which was based solely on his commitment to his partners, kept the Germans involved during the long process of reorganization. In the absence of a Morgan office in Germany, the firm’s connection to Deutsche Bank helped the Morgan banks access German capital to facilitate large-scale financing projects for the next century. The Morgan bank retained Northern Pacific as a client for decades after that first transaction in 1880, funding at least thirteen more transactions (SB DM1 through JPM9, various) through 1918.
Albert Fink’s relationship with the Morgan syndicates was less direct than Henry Villard’s. The Morgan syndicates were essentially the funding sources that engineers like Fink relied upon to finance the construction of their new bridge designs. Both of the railroads with which Fink was associated, the Baltimore & Ohio (B&O) and the Louisville & Nashville (L&N), were long-term Morgan clients, from the period right after the Civil War to the twentieth century. The Morgans participated in syndicate financing for the L&N in the mid-1870s, around the time when Fink worked there, even though Barings in London was the principal banker for the L&N.
Perhaps Fink’s interests became most aligned with Morgan’s when Fink advocated the formation of railway associations. Like Morgan, Fink believed that cooperation among the main eastern trunk systems would allow for more efficient transportation than wild competition. Morgan’s reorganizations in the 1890s of the Southern Railway, the Erie System, and the Reading System reflected the same cooperative principles that Fink espoused when he created the Southern Railway and Steamship Association (1875-76) and the New York Trunk Line Association (1877).
How a Different Financial System was Developing in Germany: The Emergence of Deutsche Bank
Two important changes in Germany, each associated with the emergence of the nation-state, had long-lasting implications for America’s financial system: the chartering of Deutsche Bank in 1871 and the nationalization of the Prussian railroads, which was completed by 1890. After German unification in 1871, Deutsche Bank became a state-sponsored (rather than family-sponsored) international banking concern; for the first time, the syndicate included a member whose interests were aligned with a single nation-state. The nationalization of the Prussian railroads meant that investors who had held stocks and ownership claims in private German railroads needed a different place to invest their funds once the newly formed German state, under the leadership of Chancellor Otto von Bismarck, bought their shares from them.
Deutsche Bank, which had been granted a banking license by the Prussian government back in 1870, was emblematic of the cradle-to-grave banking organization that developed in Germany, or what we now call the universal banking model. Branch banking represented one key difference between the German and American systems. Deutsche Bank had established branches in Berlin, Bremen, and Hamburg by 1872; these were followed by branches in Frankfurt am Main, Munich, Dresden, and Leipzig by 1901. An extensive bank branching network meant that as individual businesses grew, Deutsche Bank could fund larger scale projects for them with its large scale deposit base. Therefore, the financing needs of any German business could be met by a single bank from the time the business started until it matured. Indeed, Deutsche Bank financed the Baghdad Railway, along with large industrial concerns like Krupp and Bayer. Information about risky ventures was produced inside a single banking institution as businessmen first borrowed from the bank, established a reputation for profitability, and then relied on the bank to offer common equity and arrange long-term financing, with the bank acting as the monitor for outside investors. This long-term customer relationship meant that Deutsche Bank monitored its loans to businesses in a way that stabilized the German financial system. In America, however, where banks were prohibited from establishing branch networks, the scope of banking operations was limited to lending the comparatively modest sums deposited by savers within a bank’s immediate location. Not surprisingly, as American companies grew – and as their financing needs grew as well – many firms outgrew their local banks and had to turn to larger financial firms. In the absence of a branch banking system, an elaborate network of commercial banks, state banks, trust companies, insurance companies, and private banks emerged to finance large-scale American business needs. This likely made capital more expensive in America than in Germany.
The nationalization of the German railways was the second structural change that affected American markets. By 1890, the purchase of privately owned Prussian railways was largely completed, leaving shareholders and other owners flush with investable cash. Between 1876 and 1890, Bismarck’s nationalization policy had put 2.8 billion marks of cash ($66 million in 1890, or $1.6 billion in 2010) in the hands of former German railroad stock owners, accounting for about 20% of the value of shares of all German equity in 1902. It is likely that American railroad investment opportunities, especially those vetted by Deutsche Bank, would appeal to those investors.
The Syndicate Books demonstrate how the Morgans bridged the German and American systems by including the new Deutsche Bank in its syndicates for profitable American railroad projects. Because of the link between Deutsche Bank and J. P. Morgan & Co., depositors from all over Germany had access to American capital market projects monitored by Deutsche Bank, and Americans had access to new sources of German funds, making larger American railroad projects more feasible.
By 1879, when the Syndicate Book records begin, Deutsche Bank had been chartered and gathering deposits for eight years. As mentioned previously, the Northern Pacific transaction was the first collaboration between the Morgans and Deutsche Bank. The Morgans collaborated with Deutsche Bank in other syndicates, too, such as the Cataract Construction Co. to develop hydroelectricity at Niagara Falls (1890) and the Mexican sovereign debt issue of 1898. The relationship soured a bit, however, after Edward Adams (Deutsche Bank’s agent in America) challenged Pierpont Morgan’s authority on the Northern Pacific board of directors. Morgan was irritated by the incident, and as a result, he became more receptive to overtures from Dresdner Bank, which became a more frequent syndicate partner in the following years.
Phase Three: How the Banking Society Consolidated American Industry
Why did American industry consolidate so rapidly between 1895 and 1905? One of the most significant features of the economy in the period from 1867 to 1896 was the general decline in price level, a twenty-nine year deflationary spiral. Price declines in capital intensive industries that produced non-differentiated end products, such as steel and copper, motivated monopoly formation. Consolidating many smaller firms into a monopoly, or a trust as they were known, was a business strategy that permitted control of output quantities, thus ensuring that prices would remain high enough to stay in business during deflation. The role of the private banker in such transactions was to organize a new corporation, to guarantee collection of the stocks and bonds of the merging companies, to sell the securities of the new company, and to supply working capital to the new company. The volume of securities underwritten by syndication during this period was enormous. During the years 1902-1912, the house of Morgan originated more than $1.9 billion ($46 billion in 2010) in new securities. Kuhn, Loeb & Co. underwrote an estimated $821 million between 1897 and 1906 ($21 billion in 2010). 
The syndicate system was an ideal facilitator of business consolidation for at least two reasons. First, the system went a long way in mitigating uncertainties about gaps in regulations that varied from state to state. Likewise, it was flexible enough to mediate differences between merging companies. Business consolidation, reporting requirements, formation, organization, and liquidation had to be handled differently according to a business’ state of domicile. Raising funds for new businesses meant navigating all of that variance and uncertainty. Private bankers were able to spend money on the lawyers who were needed to knit all of these transactions together. By the beginning of the twentieth century, for example, a private banker may have needed two to three months and $10,000 or more to investigate a corporation planning a $2-10 million bond issue. Second, the syndicate system facilitated consolidation because investors could trust that the private bankers who organized the trusts would resolve squabbles among the consolidating firms, thereby ensuring the success of the combination and the preservation of the bankers’ and investors’ reputations.
What did inclusion in a Morgan consolidation mean to German immigrant entrepreneurs? In 1904, John Moody succinctly described the significance of receiving Morgan’s backing for a business: it signaled that that business would likely succeed. Moody wrote: “His corporations all have an element of advantage which prevents them from ever becoming subject to the merciless competition of indiscriminate rivals. Other less secure companies will go to the wall, the Morgan properties will contain additional elements of strength which in the worst of times will add vastly to their security.” Indeed, researchers have found that companies organized by the Morgans had greater access to liquidity during economic disruptions than companies organized by other firms.  Additionally, research has shown that new debt issues organized by private bankers generally signaled that a larger investor base had been formed for a company. Investors from greater distances relied on private bankers to certify and monitor the company’s operations; this differed from the earlier era in which local investors monitored the company themselves.
German-Americans and German immigrants such as Charles Stadler, brothers Adolph and Leonard Lewisohn, Ferdinand Sulzberger, and Charles M. Schwab, each of whose businesses were part of Morgan’s consolidations, bore witness to the truth of Moody’s remarks. Moreover, other German-Americans, such as the Ringling brothers, Isidor Straus, and Benjamin Altman, were indirect beneficiaries of Morgan consolidations. Additionally, Jewish German-American private bankers benefitted from their inclusion in Morgan consolidations, because these transactions represented a new line of business for them and generated substantial fee income. Finally, the ripple effect of various Morgan consolidations surely benefited thousands of German-American businessmen whose names went unrecorded in the Syndicate Books. We will now examine some instances documented in the Syndicate Books in which German-Americans played key roles.
In the meatpacking industry, consolidation resulted in the “Big Five” producers: Morris, Armour, Swift, Cudahy, and Wilson. The Wilson Company emerged from a consolidation of the business of Schwarzschild & Sulzberger – a company in which German-American Ferdinand Sulzberger was prominent. Financing for the Big Five, not surprisingly, often originated in the Midwest, near the livestock railroad terminals. In the Pujo hearings, the Chicago banks and trust companies were identified as the fourth ring of contacts in Morgan’s banking network. In 1909, the Morgans accepted participation in a syndicate to finance Morris & Co. for $250,000 out of $10 million ($247 million in 2010) in bonds from First Trust and Savings Bank of Chicago. (SB JPM5, p. 165) In 1916, Kuhn, Loeb jointly led a syndicate with National City Bank for Armour & Co., allotting a $3.75 million syndicate interest out of $20 million in bonds to J. P. Morgan & Co. (SB JPM8, p. 173) Three years later, in 1919, Illinois Trust and Savings Bank of Chicago allotted J. P. Morgan & Co. a $250,000 participation out of $25,000,000 notes ($315 million in 2010) for Swift & Co. (SB JPM9, p. 89)
Exclusion from Morgan’s Midwest financing network may have hurt German immigrant entrepreneur Henry Miller’s meatpacking conglomerate in California. Miller’s rival in western meatpacking markets was Gustavus F. Swift. Better access to eastern finance syndicates may have allowed Swift to fund his modern meatpacking plant in San Francisco after the Great Fire of 1906. Ultimately, Miller did not manage to stave off competition from the Chicago-based, Morgan-funded organization of meatpackers who had attempted to take over the West Coast meat market by forming the Western Meat Company in 1891. Swift ultimately proved to be a winning firm in western meatpacking while Miller’s firm declined in the 1910s and 1920s.
The Syndicate Books contain no evidence that J. P. Morgan & Co. provided funding to German-Americans George Hormel and John Rath. The specialty firms founded by Hormel and Rath thrived despite the existence of syndicates formed on behalf of mass-market producers. Rath specialized in frankfurter products, thus differentiating himself from the Big Five producers, who manufactured pork products. Hormel focused on sausage specialties. These specialty firms found it easier to keep prices high and stay profitable during the long deflationary period.
Also caught up in the wave of late-nineteenth-century consolidations was the copper industry. At first, brothers Adolph and Leonard Lewisohn, two first-generation immigrants from Hamburg, were hindered by Morgan when his syndicates financed the Rockefellers, their copper mining rivals. Later, the Lewisohns benefited from their participation in large copper smelting consolidations supported by Morgan-backed syndicate financing. In 1899, National City Bank, H. H. Rogers, and William G. Rockefeller formed the Amalgamated Copper Company syndicate to combine numerous copper mines, especially the Anaconda in Montana with Rockefeller- controlled mines in the Lake Superior region. J. P. Morgan & Co. underwrote $1,000,000 of National City’s $50,000,000 participation ($1.36 billion in 2010). (SB JPM2, p. 48) The Lewisohns did not participate in the amalgamation; shortly thereafter, production in their Butte, Montana, mine almost ceased on account of competition from their new rival.
However, when the Lewisohns joined with H. H. Rogers and the Rockefeller interests to form the American Smelting and Refining Co. (ASARCO) from various copper processing companies, they benefited from the very start from immediate access to syndicate financing. J. P. Morgan & Co. participated in three syndicates formed for ASARCO, the first led by Moore & Schley and the next two by Kuhn, Loeb & Co. In this instance, Kuhn, Loeb’s participation was not surprising: Adolph Lewisohn’s son, Samuel, had married Margaret Seligman, the daughter of Isaac Seligman and Guta Loeb of the Kuhn-Loeb family. In the Moore & Schley transaction, which occurred in 1899, the Morgans took a token $200,000 participation in a $27 million transaction ($732 million in 2010) for the purchase of ten smelting properties. (SB JPM2, p. 48) In the two Kuhn, Loeb transactions, the Morgan bank took considerably larger stakes. In 1905, it took a $1 million participation in a $25 million ($639 million in 2010) transaction (SB JPM4, p. 72); and in 1910, it took a $1 million participation in a $15 million ($355 million in 2010) bond offering. (SB JPM6, p. 85)
In the malting industry, the American Malting Company consolidated many smaller firms; in doing so, it was financed by a Morgan-led syndicate dated September 1897 and capitalized with $30 million ($814 million in 2010). (SB JPM1, p. 221) Wealthy German-Americans and Jewish German-American private bankers were among the syndicate participants; they included Alvin Krech; L. von Hoffmann & Co.; and Kuhn, Loeb & Co. Krech, an Episcopalian born to two German parents in Hannibal, Missouri, in 1858, was the president of Equitable Trust Co. The funds were used to buy thirty-eight malt houses, ten of which were in Chicago, seventeen in New York State, and at least three in Milwaukee. Forty-one grain elevators were also purchased by American Malting.
Many malters with German surnames participated in the combination: William Buchheit of Watertown, Minnesota; Krauss-Merkel Malting of Milwaukee; Charles Stadler Malting Co. of New York; Jacob Wechler of Erie, Pennsylvania; J. Weil Malting Co. of Chicago; and Neidlinger and Sons of New York. A first-generation German-American, Charles Stadler was born in the Palatinate (part of Bavaria) in 1848 and had immigrated to America with his family in 1851. Stadler served as president of American Malting from 1900 to 1916. When the combination struggled to overcome a bad harvest in 1901 and 1902, Temple Bowdoin, a Morgan partner, chaired the reorganization committee that set the company back on firm financial footing.
The marquee syndication of Morgan’s career occurred on February 26, 1901, when he formed the United States Steel Corporation, America’s first billion-dollar firm ($29.1 billion in 2010) (SB JPM 2 p. 210). German-Americans benefitted from their participation in this syndicate in two immediate ways: 1.) acceptance of an invitation to participate was both lucrative and indicative of inclusion in Morgan’s elite community, and 2.) Charles M. Schwab attained celebrity status as the first president of the consolidated company. Inclusion in this syndicate may have differed from inclusion in others. In the U.S. Steel transaction, wealthy individuals played a far more prominent role than they did in typical underwritings. Therefore, inclusion on the list of 300 syndicate members may have been an important marker of social elitism. The list of Germans and German-Americans on the U.S. Steel deal is lengthy, even though the amounts allocated were relatively small. A relatively small amount, $4.5 million out of the $200 million preferred stock issue ($5.3 billion in 2010), was allocated to the German-centric syndicate network. Of this, Kuhn, Loeb & Co. was allotted the largest amount, $1 million. The list of German financiers who participated in the syndicate included, among others, Ladenburg, Thalmann & Co.; Speyer & Co.; Hallgarten & Co.; Lewisohn Brothers; J. & W. Seligman & Co.; L. von Hoffmann & Co.; Heidelbach & Ickelheimer; Wasserman Brothers; Knauth, Nachod & Kuhue; and Gustav E. Kissel. (SB JPM2, 210)
Charles M. Schwab, a third-generation German-American and president of Carnegie Steel in 1900, had lobbied J. Pierpont Morgan to carry out the consolidation. After it was complete, he ran U.S. Steel, sealing his reputation as a steel industry leader for decades. All four of Schwab’s grandparents were Roman Catholic immigrants from Germany. Born in Williamsburg, Pennsylvania, Schwab started his career at Andrew Carnegie’s steelworks in the engineering division; in 1897, at age thirty-five, he became president of Carnegie Steel Co. After clashing with Pierpont Morgan and Elbert Gary on the board of U.S. Steel, Schwab left Carnegie in 1903 to run Bethlehem Shipbuilding and Steel Co. in Bethlehem PA.
Germans benefitted from the Morgan syndicates in the electrical industry in different ways. The successful syndicate that the Morgan bank organized for Edison General Electric Co.’s initial public offering of stock on March 20, 1890, was largely composed of Germans. (SB DM2, 157) Henry Villard reappears in the Syndicate Books as the primary German banker in the Edison transaction after first appearing in the Northern Pacific transaction. Villard had returned to Germany after being dismissed as the president of the Northern Pacific Railroad. After getting to know Werner Siemens and continuing to cultivate his relationship with Georg Siemens, the first president of Deutsche Bank (Georg’s father’s cousin was a founder of Siemens & Halske), Villard reprised his role as a connector of projects in need of capital from Deutsche Bank. Deutsche Bank took two-thirds of the G. E. offering, or $2,259,333 out of $3,630,000 ($55.8 million out of $89.7 million in 2010). Other German private banks that participated in the offering were Kuhn, Loeb for $400,000 and Heidelbach & Ickelheimer for $108,000. Germans and Jewish German-American bankers thus became the principal owners of Edison’s combined properties. The G.E. Edison offering also benefited Germans and Americans by facilitating a technology transfer from Germany to America. General Electric used a portion of the proceeds from the transaction to buy technology from Siemens & Halske in Germany. The letter outlining the technology transfer is reproduced here. (SB JPM2, 58)
In the retail industry, Benjamin Altman of B. Altman & Co. and Isidor Straus of Macy’s became indirect beneficiaries of the syndicate financing network when newly consolidated electric street rail systems built stops near their Manhattan stores. Altman was at 34th Street and 5th Avenue; Macy’s was at 34th Street and 6th Avenue. The new Pennsylvania train station at 32nd Street and 7th Avenue funneled customers from New Jersey to both stores, while the Interborough Rapid Transit (IRT), which stopped at 34th Street and 6th Avenue, brought customers from the city right to Macy’s basement. (IRT was the private company that started operating the New York City subway system in 1904.) J. P. Morgan & Co. financed both the Pennsylvania Railroad and Interborough Rapid Transit, participating in at least nine IRT transactions between 1905 and 1913 and eleven Pennsylvania Railroad transactions between 1884 and 1920.
But Straus and Altman may have been disadvantaged when J. P. Morgan & Co. funded their competitor, Lord & Taylor, which was located at 38th and 5th and led by John Claflin. (SB JPM5, 136; JPM6, 64) In 1909, the United Dry Goods Company issued $20 million in capital stock ($494 million in 2010) and combined the Associated Merchants Company with several other retailers. Then, in 1910, United Dry Goods bought Lord & Taylor, paying with a new issue of common stock underwritten by J. P. Morgan & Co. The consolidated United Dry Goods Co. likely provided stiff competition to B. Altman’s and Macy’s.
In the entertainment industry, the Ringling brothers, second-generation German-Americans, were unintentional beneficiaries of Morgan-led financing syndicates. When the Morgans organized financing to buy land and rebuild Madison Square Garden, public entertainers gained an important platform on which to improve their profitability. For the Ringling brothers, whose travelling circus had sixty rail cars and 500 staff members by 1902, the key to maximizing profits was minimizing travel costs by performing in one location for as long as possible. Part of the reason why the Ringlings acquired the Barnum & Bailey circus in 1907 was to assume P. T. Barnum’s lease on Madison Square Garden. In 1909, the Ringlings performed in that venue for the very first time. They profited immensely, clearing one million dollars. From that point on, the circus began every season with a four-week stand in Madison Square Garden.
J. P. Morgan & Co. organized at least two syndicate financings for Madison Square Garden. The first transaction in 1886 (SB DM1, p. 213) raised $1 million ($23.9 million in 2010) to buy an aging warehouse from the New York and Harlem Railroad Co., which was controlled by the Vanderbilts, seventeenth-century Dutch immigrants to America. The Morgans had begun acting for the Vanderbilts in 1879, when William H. Vanderbilt sold a large block of New York Central and Hudson Co. stock in London. Pierpont Morgan may have been motivated to solve a “warehouse problem” to serve his very important clients. Then, in 1891, the Morgans organized the loan that funded the rebuilding of the Garden (with Jacob Schiff and Ladenburg, Thalmann & Co. as participants).
Phase Four: Private Bankers during the First World War
During the Wilson neutrality, there was dissension between, but also within, private banking houses. With cultural ties to England, the Morgans were stalwart supporters of the Allied cause, and as such served as fiscal agents in America for France and Great Britain. The German-Jewish houses, unsurprisingly, were divided in their loyalties. Prior to World War I, Kuhn, Loeb had had important transactions with the Central Powers. In 1900, in conjunction with National City Bank, they had issued 80 million German marks in Treasury Notes, and in 1912, in association with National City Bank and Kidder, Peabody & Co., they had issued $25 million in Austrian Treasury Notes ($580 million in 2010). Kuhn, Loeb partner Otto Kahn and Mortimer Schiff (Jacob Schiff’s son and another Kuhn, Loeb partner) did not share Jacob’s loyalty to Germany. However, when the Russian czar’s government fell in 1917, Kuhn, Loeb & Co. advised the Allies’ bankers that there was no longer any impediment to their participation in Allied financing. Once America declared war on the Central Powers (Germany, Austria- Hungary, and Turkey) in 1917, all bankers rallied around the cause of selling war bonds.
Two changes altered the dynamic of the transnational banking society during the war. First, it became apparent that America, with its 3,000,000 purchasers of war bonds, had developed into a credit powerhouse. It was no longer a borrower of funds from Europe; rather, it was becoming a supplier of funds to it. Second, it was clear that Jewish German-American houses no longer benefited from their access to pools of available German capital. German savings had been depleted in the war effort, and rebuilding Germany would require much of what little capital remained. Morgan’s British network did not fare as badly as the German network because less British infrastructure was destroyed.
Nationalism, as a value, seemed to play a greater role after World War I. More transactions were organized to fund governments as opposed to companies, and financing sovereign governments became a bigger source of revenue for the banking network.  Furthermore, after the war, private bankers had less influence on corporations, since companies came to rely more on internally generated earnings as a source of financing than on external sources of debt or equity financing.
German immigrants did not arrive in America to find a pre-formed financial system. On the contrary, they played an important role in its formation. They provided links to the Fatherland for financing American industries through Jewish German-American family banking partnerships and Deutsche Bank. The impact of Kuhn, Loeb & Co. alone on the American system was substantial. As discussed previously, they organized $1.4 billion in syndicate financing on their own, and they were also the fourth most frequent participant in Morgan-organized underwritings.
Many German-American immigrant entrepreneurs are listed in the Syndicate Books. Moreover, the syndicate financing system influenced numerous industries in which German-Americans operated even if they were not specifically identified in the Syndicate Books. What the books reveal is that those immigrants who were able to work in multi-ethnic environments, who were adaptable to changes in the macro environment, and who shared values with a transnational banking society were among those who succeeded in attaining social status and economic success by raising capital through Morgan’s financial network. Shared values supported both cooperation and competition.
Finance took place in a diverse social milieu. If the Morgans had only worked with a narrow Anglo-Protestant elite, they might only have earned acclaim among that group. Because they worked with a diverse transnational society, their reputation was much broader. English Episcopalians (Morgans) , German Jews (Kuhns, Loebs, Warburgs, Speyers, and Seligmans), Austrian Catholics (Drexels), and French Jews (Rothschilds and Erlangers), all members of the transnational banking society, met the needs of Dutch-American (Vanderbilt), Irish-American Catholic (Grace), and German-American Catholic (Schwab) customers. What guaranteed a satisfactory outcome was adherence to three values, none of which depended on nationality: loyalty within a family hierarchy, adherence to conservative investment philosophies (which included loyalty to the customer), and a commitment to inviolate individual private property rights. After World War I, the emergence of the state as the primary contract enforcer and the rise of nationalism led to many changes in the global financial system, not least of which was the reorganization of family-centered firms into partnerships and stockholder-owned organizations.
 Merriam-Webster’s Collegiate Dictionary, Twelfth Edition (Springfield, MA: Merriam-Webster, Inc., 2010).
 Vincent Carosso, The Morgans: Private International Bankers,1854-1913 (Cambridge: MA, Harvard University Press, 1987), 287-91; Susie J. Pak, Gentlemen Bankers: The World of J. P. Morgan (Cambridge, MA: Harvard University Press, 2013), 3, 48, 59, 82, 221; Christopher Kobrak, Banking on Global Markets: Deutsche Bank and the United States, 1870 to the Present (New York: Cambridge University Press, 2007), 3-4, 8.
 Lars Maischak, German Merchants in the Nineteenth-Century Atlantic (New York: Cambridge University Press, 2013), 4-6, 31.
 Report of the Committee Appointed Pursuant to House Resolution 429 and 504 to Investigate the Concentration of Control of Money and Credit submitted by Mr. Pujo to the 62nd Congress 3rd Session of the House of Representatives, Report 1593, February 28, 2013 (Washington, DC: Government Printing Office, 1913), 1-258, 129.
 Vincent Carosso, Investment Banking in America (Cambridge, MA: Harvard University Press, 1970), 20; Ron Chernow, The Warburgs (New York: Random House, 1993); Naomi W. Cohen, Jacob Schiff: A Study in American Jewish Leadership (Hanover, NH: University Press of New England, 1999); Pak, Gentlemen Bankers, 48, 81; Barry E. Supple, “A Business Elite: German-Jewish Financiers in Nineteenth-Century New York,” Business History Review, vol. 31, no. 2 (1957): 143-78
 Supple, Business Elite, 145.
 Ibid., 150.
 Cyrus Adler, Jacob Henry Schiff: a Biographical Sketch (New York: The American Jewish Committee, 1921), 62.
 Jean Strouse, Morgan, American Financier (New York: Harper Collins, 1999), 191.
 Carosso, The Morgans, 44, and Pak, Gentlemen Bankers, 219
 Pak, Gentlemen Bankers, 7 and 198.
 Benjamin Klein and Keith Leffler, The Role of Market Forces in Assuring Contractual Performance, Journal of Political Economy, vol. 89, no. 4 (August 1981): 615-41, 616.
 Furthermore, there were rules in some localities that prevented or permitted certain groups from providing banking services. Many Germanic regions had removed the moneylending and exchange business function from the Christian community by allowing it to Jews. On the other hand, one German trading center, the city of Bremen, gave certain Christian elites, such as the Meier and Lurman families, a special civic status that allowed them to legally engage in overseas trade. See Maischak, German Merchants, 70 and 95.
 Carosso, The Morgans, 15 and 44. Miles Morgan was the son of a Welsh merchant who worked in Bristol, England. He arrived in Boston in January 1636.
 Ibid., 51.
 Ibid., 56-57.
 Ibid., 105.
 Dan Rottenberg, The Man Who Made Wall Street: Anthony J. Drexel and the Rise of Modern Finance (Philadelphia: University of Pennsylvania Press, 2001), 185.
 Ibid., 135.
 Ibid., 138-41.
 Ibid., 305.
 Ibid., 134.
 Ibid., 61.
 Herbert L. Satterlee, J. Pierpont Morgan, An Intimate Portrait (New York: Macmillan Company, 1940), 383, 530, 548.
 Mira Wilkins, The History of Foreign Investment in the United States to 1914 (Cambridge, MA: Harvard University Press, 1989).
 Ibid., 98.
 Ibid., 120.
 Carosso, The Morgans, 117.
 Ibid., 116-17, 129, 204.
 Pak, Gentlemen Bankers, 105.
 Supple, Business Elite, 143-78.
 Carosso, Investment Banking, 11.
 Supple, Business Elite, 155.
 Carosso, Investment Banking, 19.
 Cohen, Jacob Schiff, 6.
 Carosso, Investment Banking, 88.
 Pak, Gentlemen Bankers, 81.
 John A. Moody, The Truth about Trusts, A Description and Analysis of the American Trust Movement (New York and Chicago: Moody Publishing Company, 1904), 439.
 Carosso, Investment Banking, 53.
 Ibid., 61.
 W. G. Langworthy Taylor, “Source of Financial Power,”Journal of Political Economy (June 1905): 353.
 Carosso, Investment Banking, 57.
 Carl Hovey, The Life Story of J. Pierpont Morgan (New York: Sturgis & Walton Company, 1911), 214-16.
 New York, Joint Committee of the Senate and Assemble of the state of New York to Investigate and Examine into the Business and Affairs of Life Insurance Companies Doing Business in the State of New York (The Armstrong Hearings), 7 volumes (Albany: Brandow Printing Company, State Printers, 1906), vol. 2, 1326.
 Hovey, Life Story, 214-16.
 Ibid., 214-16.
 Joel Baum, Timothy J. Rowley, Andrew Shipilov, and You-Ta Chuang, “Dancing with Strangers: Aspiration Performance and the Search for Underwriting Syndicate Partners,” Administrative Science Quarterly 50 (2005): 536-75, 536
 Pak, Gentlemen Bankers, 17-18 and Carosso, Investment Banking, 59.
 Carosso, The Morgans, 343.
 Ibid., 332.
 Ibid., 332.
 Ibid., 359.
 Ibid., 362.
 Pak, Gentlemen Bankers, 18.
 Carosso, The Morgans, 122.
 Ibid., 362.
 Ibid., 362.
 In October 1880, the railroad’s newly elected president, Frederick C. Billings, approached Drexel Morgan about raising the large amounts of money needed to build 1,600 miles of main line from Glendive, on the Yellowstone River in east central Montana, to the Pacific Coast. See Carosso, The Morgans, 250.
 Ibid., 249.
 Kobrak, Deutsche Bank, 92.
 Ibid., 221 and 223.
 Lothar Gall, The Deutsche Bank 1870-1995 (London: Weidenfeld & Nicholson, 1995).
 E. M. Earle, Turkey, The Great Powers and the Bagdad Railway (New York: Macmillan, 1923); Jonathan S. McMurray, Distant Ties: Germany, the Ottoman Empire and the Construction of the Baghdad Railway (Westport, CT: Praeger, 2001).
 Jeffrey Fear and Christopher Kobrak, “Banks on Board: German and American Corporate Governance, 1870-1914,” Business History Review 84 (Winter 2010): 703-36.
 Charles W. Calomiris, “The Costs of Rejecting Universal Banking: American Finance in the German Mirror 1870-1914” in The Coordination of Activity Within and Between Firms, eds. N. Lamoreaux and D. M. G. Raff (Chicago: University of Chicago Press, 1995).
 William Otto Henderson, The Rise of German Industrial Power 1834-1914 (Berkeley and Los Angeles: University of California Press, 1975), 212.
 Kobrak, Deutsche Bank, 104.
 Ibid., 119 and 416
 Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867-1960 (Princeton, NJ: Princeton University Press, 1963), 32.
 Naomi R. Lamoreaux, The Great Merger Movement in American Business, 1895-1904 (New York: Cambridge University Press, 1985), 16.
 Ibid., 87.
 Carosso, Investment Banking, 69.
 Ibid., 56.
 Moody, Truth, 484.
 Ibid., 485.
 Carlos D. Ramirez, “Did J. P. Morgan’s Men Add Liquidity? Corporate Investment, Cash Flow and Financial Structure at the Turn of the Twentieth Century,” The Journal of Finance, vol. 50 no. 2 (June 1995): 661-78.
 Jonathan B. Baskin and Paul J. Miranti, Jr., A History of Corporate Finance (New York: Cambridge University Press, 1997).
 The Pujo hearings, 131. The innermost ring was J. P. Morgan & Co., First National Bank, and National City Bank; the second ring was Kidder, Peabody & Co. and Lee, Higginson & Co. of Boston; the third was Kuhn, Loeb & Co.; the fourth was the First National Bank of Chicago and the Illinois Trust & Savings Bank.
 Moody, Truth, 289.
 Moody, Truth, 290.
 Robert Hessen, Steel Titan: The Life of Charles M. Schwab (Pittsburgh: University of Pittsburgh Press, 1990).
 See Gall, The Deutsche Bank 1870-1995.
 SB JPM4, 80; SB JPM5 46, 160; SB JPM6 68,168,196; SB JPM7 55, 63, 123)
 SB DM1, 66; SB DM2, 196; SB DM3, 206; SB JPM2, 186, 249; SB JPM3, 262; SB JPM4, 58; SB JPM8, 103, 123; SB JPM9 47, 123, 171)
 Gene Plowden, Those Amazing Ringlings and Their Circus (Caldwell, Idaho: Caxton Printers, 1967), 84.
 Ibid., 101.
 Adler, Jacob Schiff, 19.
 Ibid., 19.
 Pak, Gentlemen Bankers, 161; Carosso, Investment Banking, 235.
 Baskin and Miranti, History of Corporate Finance, 162.
 Pak, Gentlemen Bankers, 224.