On this day in economic and business history …
Like many aspiring bankers of the mid-19th century, young John Pierpont Morgan got into the business of finance with the help of some old-fashioned family connections. From 1857 through 1871, J.P. Morgan worked his way up through the industry, first as a representative of his father’s London-based firm, then as an independent agent for that firm under a self-named company. In 1864, the younger Morgan joined with Charles Dabney to form Dabney, Morgan, & Co., where he would remain for seven years.
It was on June 30, 1871, that J.P. Morgan finally moved on to form the bank that would bear his name for more than a century. Dabney, Morgan, & Co. was dissolved and replaced by Drexel, Morgan & Co., a partnership Morgan had formed with Philadelphia banker and Drexel University founder Anthony J. Drexel. This bank is the one from which today’s JPMorgan Chase & Co. (NYSE:JPM) traces its most direct lineage, even though the Chase half of the megabank actually predates Morgan’s firm by four decades.
Morgan’s merchant bank was initially meant as a conduit for wealthy Europeans to invest in American business interests. This deep early connection to European interests would be of lifelong benefit to Morgan, whose occasional efforts to save America’s gold-backed financial system in the days before the Federal Reserve were bolstered — particularly in the Panic of 1893‘s aftermath — by connections in Europe who would supply vital liquidity at his request.
Despite his pivotal role in stemming the panic, Morgan’s firm did not escape the financial crash, and in 1893, Drexel, Morgan recorded its first million-dollar loss. Two years after the Panic (and the death of Drexel), Morgan changed his bank’s name to simply J.P. Morgan & Co. This bank, “The House of Morgan,” would be John Pierpont’s base of operations during the most legendary stretch of banking power, wielded by only one man, that the United States has ever seen.
The first Morgan megadeal actually took place in 1892, when he brought Thomas Edison’s company together with several other leading electric ventures to form General Electric Company (NYSE:GE). Morgan’s greatest triumph came in 1901, when he formed United States Steel Corporation (NYSE:X), the first billion-dollar company in American history. A year later, Morgan merged farm-implement pioneer McCormick with other agricultural equipment companies to create International Harvester, the predecessor of Navistar. All three of these companies held spots on the Dow Jones Industrial Average (Dow Jones Indices:.DJI) for decades at a time, which — when including JPMorgan Chase & Co. (NYSE:JPM) Chase itself — makes J.P. Morgan the only businessman in American history directly responsible for the creation of four Dow components, past or present.
It’s also particularly notable that Morgan is responsible for creating two of the world’s largest companies. United States Steel Corporation (NYSE:X)’s billion-dollar market cap gave it a huge head start over its peers, and General Electric Company (NYSE:GE) had a five-year run on top of the corporate world from 1993 to 1998.
Morgan also played a pivotal role in creating the Federal Reserve. As a “Fed of one,” Morgan is virtually singlehandedly credited with stemming the Panic of 1907. His actions during the crisis included a last-minute buyout of Tennessee Coal Iron and Railroad by United States Steel Corporation (NYSE:X) that avoided a cascading chain reaction of brokerage bankruptcies — the Lehman Brothers of 1907 was significantly overextended on Tennessee stock. This effort, ramrodded through antitrust concerns thanks to President Theodore Roosevelt’s reluctant pledge of immunity, is generally seen as the move that ended the crisis.