The Character that Built ‘The House of Morgan’

The House of MorganIn modern times, bankers are seen as greedy and evil men, immune to the proper good of society, the ultimate dollar chasers. But this was not always the case, and at one point in time it was the banker who helped form the moral backbone of the business community. It was their reputation for fair and balanced decision making that made the economy turn, that provided the capital for businesses to consolidate and grow, long before the times of World Banks and online trading markets. A banker was only as good as his word, and none were greater than JP Morgan. One of the few banks that has stood the test of time, the Morgan banks (started by JP’s father, Junius, and continued with JP’s son, Jack) have presided in one fashion or another over the history of modern business. But what is most interesting about this family is not the sheer magnitude of their dominance (JP single-handedly organized the bailout of the entire financial system in the Panic of 1907, a panic that saw the stock-market drop 50%), but how they came to be so dominant in an age of great political, societal, and financial change and uncertainty. At over 800 pages there is a lot to chew on, and the book starts to lag a bit towards the back half as the scope of the narrative broadens with the spawn of modern globalization. But the lessons on seizing opportunities from uncertainty, and on building world-class organizations that last across centuries is far and away worth the price of admission.

Executive Summary: High character of early figures led to strong business relationships and brand. But globalization over the decades eroded the need for relationships as competition sprung up and client’s gained access to more capital. As competition increased, relationships and morals declined, and banking became more commoditized, with short-term perspective. But the rise came from “doing high-class business in a high-class way,” and disciplined control to find low-risk, high-reward opportunities in an age of intense speculation.

Key Concepts:

  1. Success and Longevity through Culture and Morality
    1. “Never, under any circumstances, do an action which could be called into question if known to the world” – JPM
    2. Gentlemen Banker’s Code: “Do high-class business in a high-class way”
      1. No advertising, no price competition. Kept clients as dependents
    3. Also believed in keeping an air of mystic around yourself; self-control and reserve
      1. Junius Morgan (JP’s Father)– Solemn and business-like, always master of his emotions.
      2. Preferred silence, mystery to public. “Everyone should reduce their talk by 2/3rds”
  2. Pierpont (JP) Morgan Characteristics
    1. Had an idealism, a desire to set the moral code of society. Not just greedy like many others of his generation
      1. Believed in the work ethic, duties of the rich; Use their wealth for good, not pleasure
    2. “With his clear-cut sense of right and wrong, he quickly became accustomed to exercising leadership” – Deeply conservative, religious nature
      1. Had trouble delegating authority; and extreme micro-manager
    3. Wanted to add rigidity to a world he saw in flux. Hated disorder
      1. Real vice was “power to take […] a topsy-turvy financial world and turn it right.”
    4. Never mistook business for whole of life; $ was not the point. Loved travel and art
  3. House of Morgan Business Philosophy
    1. Power > money; Preferred a seat on company boards and stock options vs. cash payments when taking over a company
    2. Abhorred stock speculation, investment in young companies
      1. Strategy was to deal only with big, low-risk companies. Blue-chip, ‘Buy and Hold’
    3. JPMorgan and Company engaged almost solely in a wholesale bond and banking business. With glaring exceptions, it refused to water down standards. It recommended conservative investments, such as railroad bonds, but shied away from the tipsters art of plugging stocks”Wouldn’t take any deals on faith – “A man always has two reasons for the things he does: a good one, and the real one
      1. Therefore, not hit hard by Depression as not heavily invested in stocks.
      2. Made them appear high-character to others, especially in times of crisis
  4. The Decline of the House of Morgan: Due in part to loss of character
    1. Lost its etiquette. “Ran by bright, young executives, who seemed curiously devoid of larger political or social concerns in their narrow pursuit of profits”
      1. All accelerator, no brake. Companies started acting on impulse, no strategy
      1. But as clients gained access to their own capital, the need to compete rose.
      2. No longer about relationships; power tilted to client, forcing competition“The elite financiers [had] straddled all aspects of business. They had time to read, to ponder, to enter politics; the grey era of specialization hadn’t dawned”
    2. Led to a shift in desires from financing operations of industry to financing ownership of industry

——————————————————————————————————————————-

Other Notes/Quotes

  • Junius Morgan as a youth got a great offer to buy a partnership stake in a banking house, but stayed level headed. Didn’t leap at the fortune; instead, he reviewed the books and finances first to make sure it was a good thing
  • Jack Morgan (JP’s son): Relaxed manner. Delegated power, reached decisions thru consensus.
    • Through this methodology, Jack presided “over an institution of perhaps even larger power than the one ruled by his willful, rambunctious father”
  • Tom Lamont, Jack’s successor, tried to live a well-rounded, intellectual and artistic life.
    • But fell short of the ideals that he articulated. In trying to please too many people, he lost the habit of truth
  • “There is something about too much prosperity that ruins the fiber of the people. The remedy is for people to stop watching the ticker, and dancing to jazz, and return to the old economics of prosperity based around saving and working” – Tom Lamont
  • In WW2, Lamont thought that Americans were “too self-absorbed by materialism, and too coddled by peace to brace for violence”
  • On another prominent 1950s banker, Dwight Morrow: Always stressed, depressed that he didn’t get what he wanted out of life, but at the same time “he didn’t ask for things”
  • I want people who want to do something, not be someone” – Lou Preston

For Historical Context, A Summary of the Financial Ages:

  • Baronial Age (1850 – 1912) was characterized by immaturity of industry, government. Large-scale, nation-wide corporations were still being established, and so didn’t have the capital available that was needed, hence the need for bankers.
  • Diplomatic Age (1913 – 1948) is characterized by beginnings of globalization, rise of globally oriented finance as foreign governments began to industrialize.
  • Casino Age (1949 – Present) is characterized by matured companies/governments who could pay for their operations or obtain multiple sources of capital through other global financial firms, leading to increased competition. Also, rise of hostile takeovers as markets saturated and profit margins shrank.

 

I hope you find these notes to be useful and thought-provoking. Again, these are just my takeaways from the book and don’t encapsulate the entire message. If you’re interested in delving deeper and reading the book for yourself, and want to support the page, you can grab a copy here.

And if you want even more, here is a list of books within the same topic (19th Century Biographies) that I have found useful:

Happy Reading