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Financing the Future: J.P. Morgan Takes Off

Article Overview: Following the American Civil War, Morgan decided to get involved in the railroad business. Taking what he had learned both from his father and his own investment banking experience, Morgan began to purchase railroad companies that he noticed were struggling to stay afloat. He used his shrewd investment skills to take control of the notable Albany, Susquehanna, Philadelphia, New England and other railroad lines. Morgan then began to promote them to European investors, famously managing to sell 87% of New York Central Railroad stock without driving down the price.

Financing the Future: J.P. Morgan Takes Off

Following the American Civil War, Morgan decided to get involved in the railroad business. Taking what he had learned both from his father and his own investment banking experience, Morgan began to purchase railroad companies that he noticed were struggling to stay afloat. He used his shrewd investment skills to take control of the notable Albany, Susquehanna, Philadelphia, New England and other railroad lines. Morgan then began to promote them to European investors, famously managing to sell 87% of New York Central Railroad stock without driving down the price.

In a process that came to be known as ‘Morganization’, he would reorganize the railroad line, reduce its debt and place men loyal to him in control. Despising competition, Morgan sought to reorganize the entire system, encouraging corporations to buy up their regional competitors. Thus, by 1900, most of the American railroad system was owned by just 30 cooperating corporations and by 1902, over 5,000 miles were in Morgan’s direct control.

At this time, there was a wide wave of mergers occurring throughout the U.S in which Morgan was heavily involved. In 1891, Morgan coordinated the joining of Edison General Electric and Thomson-Houston Electric Company to form General Electric Co. This company would later go on to become the country’s primary manufacturing company of electrical equipment. Morgan also financed the creation of the Federal Steel Company, which he would later merge with Andrew Carnegie’s Carnegie Steel Company to form the U.S. Steel Corporation. Morgan had bought out Carnegie to create America’s first ever billion-dollar corporation. He was also later involved in the development of the International Merchant Marine and the International Harvester.

Morgan would continue to play a large role in the country’s economy, maintaining particularly close ties to the U.S. government, who would ask for his financial assistance on more than one occasion. After refinancing the federal debt under the Grant administration, Morgan also loaned the U.S. Army money to pay for the Western Indian Wars. During the 1893 Depression, Morgan coordinated a loan to the government in order to rescue the Treasury, which had sold too much gold and was nearing bankruptcy.

In 1895, after the death of Anthony Drexel, Morgan rearranged Drexel, Morgan & Co. into J.P. Morgan & Co. But, it was the banking panic of 1907 that would most earn Morgan his solid reputation. The U.S. was on the brink of a financial crisis, with interest rates soaring, investors rapidly selling their stocks and people demanding their money back from banks who were unable to recover their loans. One hour before the exchange closed at 3pm, Morgan negotiated with numerous bank presidents for a $25 million line of credit to market investors causing cheers to erupt on the floor of the NYSE. Morgan had now become a legend.

Ironically, the U.S. government tried on different occasions to challenge Morgan’s dominance. It charged two of his companies with antitrust violations and investigated Morgan himself, bringing him before a Congressional hearing in 1912. However, Morgan and his operations came out of the whole ordeal relatively intact.

Morgan was also a generous philanthropist, loaning much of his extensive art collection to the Metropolitan Museum of Art, of which he was president. He also contributed to the New York Botanical Garden and the American Museum of Natural History, and his private library eventually became the public Pierpont Morgan Library under his son’s direction.

By the time Morgan died in 1913, he had created an empire worth $80 million – today’s equivalent of $1.2 billion. J.P. Morgan has now become J.P. Morgan Chase & Co. and remains one of the world’s leading financial services firms and one of the biggest banks in the U.S. with $1.2 trillion in assets.

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Article Tags: american civil war, american railroad, andrew carnegies, carnegie steel company, close ties, dollar corporation, edison general electric, european investors, general electric co, international harvester, investment skills, jp morgan, new york central railroad, place men, railroad business, railroad stock, railroad system, regional competitors, shrewd investment, thomson houston



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