Fifty years in Wall Street

by Henry Clews

Being competitors of the banks they shared their business, and so prevented or limited their natural growth, and forced many of the bank consolidations that have since taken place. At the end of June, 1902, their deposits had mounted up to $1,525,887,000. Here was an increase of $1,114,228 in ten years to about half of the total individual national bank deposits of the country, for these on July 16, 1902, were $3,098,875,772. Moreover, in the city of New York the trust company deposits exceed, or did exceed, the individual deposits of the national banks, those of the latter on September 15, 1902, aggregating $603,565,374, while on June 30, 1902, the deposits of the trust companies, as shown by their semi-annual reports to the State Superintendent of Banking, were $760,776,124. This comparison is a very suggestive revelation of where the money goes and how the trust companies prosper at the expense of the banks.

In 1902, again, a few leading factors, or influences, controlled American finance, and shaped the real financial history of the year. These were the good corn crop, following the bad one, and other satisfactory harvests; the overstraining of American bank resources to supply the vast requirements of the new trust and flotation enterprises when the capital and currency of the country were required for its regular trade and ordinary business; the enormous increase in our foreign importations contemporaneously with a very heavy decrease in our exports; the great rise in the price of the raw materials used in our manufactures, as well as in the cost of labor; the strenuous efforts of large speculative capitalists to extend and hold permanent control of their respective railway and industrial enterprises and undertakings; the reckless and unprecedented Vesuvius-like eruption of speculation in railroad and other stocks by wealthy and newly enriched Western stock operators known as “the Chicago Crowd” and “the Pittsburg Crowd,” respectively, aided by heavy bank loans at high rates; and finally the refusal of the public to follow them any longer as buyers. This accords with what I have said about the influence of the conservative banks and bankers in calling a halt on the wild speculation for a rise which raged up to the latter part of September in that year.

The exploit, in 1902, of John W. Gates, backed by his speculative associates, in buying a majority of the Louisville & Nashville Railway stock, was his last successful venture to make a big haul of millions on the Stock Exchange. After that he and they met with very heavy losses in their continued efforts to boom stocks. But Mr. Gates was paid a profit of ten millions of dollars on his Louisville & Nashville purchases by J. P. Morgan & Co., a partner in that firm having made the bargain with him at the Waldorf-Astoria Hotel, at three o’clock in the morning, after it had been discovered that Mr. Gates had really bought control of the stock.

It transpired, in evidence, that Mr. Perkins had gone there at that hour for this purpose, and found Mr. Gates in bed. The object in giving him so large an amount above what he had paid for the stock he had just bought was to get him out of the way as a mischief-maker, for with him in control of the Louisville & Nashville, there was no telling what he would do to demoralize the Southern Railway system. He was looked upon as a bull in a china shop, to be coaxed and tempted out, regardless of expense, before he began to toss the crockery with his horns.

So when he said to Mr. Perkins, “As you want the stock so badly, to keep the Belmont board in control and protect the Southern Railway, I will let you have it if you will pay me ten millions more than it cost,” the proposition was promptly accepted; and the deal was closed on this basis. The Louisville & Nashville and the Southern Railway companies were supposed to have been jointly interested in the purchase, but the Gates stock was finally turned over to the Atlantic Seaboard Air Line.

Buying control of the Louisville & Nashville by Mr. Gates was a far bolder operation than President Hill’s purchase of the stock of the Burlington & Quincy for the Great Northern, or than the Moore Brothers’ purchase of control of the Rock Island and their subsequent great inflation of its stock and bonded debt, because Gates bought it merely as a speculation, without any desire to manage the road. He was fortunate in being able to sell it so easily to those he had frightened by his daring coup.

It is interesting to compare the leading influences, or principal factors, in Wall Street in 1903 with those of 1901 and 1902. Stock Exchange transactions in that year were very much smaller than in 1902, but not nearly as much so as the total in 1902 had fallen below those of 1901, the year of the greatest activity and excitement in this memorable speculative period. The sales in 1903 aggregated 161,099,800 shares, against 188,497,600 in 1902 and 265,945,700 in 1901. The largest total on any one day in 1903 was 1,539,000, against 1,996,000 in 1902 and 3,202,200 in 1901. The largest in any month in 1903 was that of January, 16,002,300, against 26,568,000 in April, 1902, and the smallest in 1903 was 10,731,000 in November, against 7,884,900 in June, 1902.

The barometer of the iron trade was still rising at the opening of 1903. Good crops had been gathered and were being sold at good prices; railway earnings were large, and railway companies were making heavy expenditures for new equipment and improvements, and every department of business and manufacturing industry seemed prosperous, with the iron trade enjoying its full share of that prosperity. So heavy, indeed, was the demand for iron and steel that the capacity of our works was unequal to it, and we were importing iron and steel largely, as we had been in 1902.

But in June the iron industry experienced one of its time-honored lightning changes. That barometer suddenly fell. The demand subsided with surprising celerity in all lines, and by November prices in some of these were fifty per cent. lower than in January. The boom in the iron trade which commenced in 1899 was at an end after lasting for four years. At the end of the year, however, the trade began to revive, and 1904 witnessed a slow but steady improvement in it, as the reports of the United States Steel Corporation’s earnings have shown. Consequently that highly inflated company, after being forced in 1903 to suspend dividends on its common stock, was encouraged to continue them at seven per cent. on its preferred stock. But this carried cold comfort to the hundreds of thousands who had been impoverished by buying these stocks at the high prices at which they were floated here and in Europe.

Before the end of 1903 liquidation on a large scale in stocks had run its course and exhausted itself, and the market quieted into comparative steadiness; and in 1904 we had, on the whole, nothing more than a dull trading market, with the outside public very largely absent. But there has been a general tendency toward slow improvement, although the net earnings of both railways and industrial companies have, on the average, shown a heavy shrinkage, a reflection of the reduced volume of trade and more or less industrial depression following the overstimulated boom of previous years. Just as 1901 was the year of the most unbridled and unrestrained inflation, 1902 witnessed a constant battle against the tendency to a downward reaction, and 1903 saw and felt the reaction, which was all the more severe because it had been so long delayed.