Jay Cooke, founder of the bank
Jay Cooke & Company was a 19th century American bank that lasted from 1861—1873. It was the first "wire" brokerage house, which used telegraph messages to confirm with clients the purchase and sale of securities.[1] Jay Cooke & Company's principal location was in Philadelphia, Pennsylvania. It also maintained branches in New York City and Washington, DC.[2] The bank would last until the Panic of 1873 when the company overextended itself in railroad securities.
Background[]
Jay Cooke founded Jay Cooke & Company with William E.C. Moorhead. Cooke controlled two-thirds of the bank, while Moorhead had a one-third interest. Cooke's brothers, Henry and Pitt, also joined the firm. Later HC Fahnestock and Edward Dodge would become partners. After 1870, Dodge held the Cooke & Company seat on the New York Stock Exchange.[3]
Civil War[]
During the American Civil War, Cooke & Company sold hundreds of millions of dollars in Union government bonds. Its reputation among investors around the world enabled the bank to sell these bonds when other brokerages could not.[4] Secretary of the Treasury Salmon Chase asked Cooke to try to sell the government's new $500 million issue of 5-20 bonds. These 5-20s paid six percent interest (in gold) and matured in 20 years, but were callable in five years. Cooke used numerous agents from a variety of professions to sell these bonds to support the Union war effort. This included small bankers, insurance agents, and real estate professionals. Since Cooke & Company was the first "wire" brokerage house, which used telegraph technology to confirm security sales, the firm could support a fractured sales strategy. The sales effort took place throughout the country, but Cooke was able to organize it all by using the telegraph to coordinate sales. Thus, Jay Cooke & Company became the first "wire house" using its central point in Philadelphia to coordinate sales throughout the country via telegraph.[5]
After the war[]
After the war, Cooke & Company continued to fund its investments through the sale of US treasuries. After the Black Friday scare, however, it became apparent that Cooke & Company would have to finance its investments through additional means. The firm turned to investing in railroads in order to maintain its previous earnings. In 1870, the Northern Pacific Railroad made Cooke & Company its exclusive bond agent. Cooke, however, had difficulty marketing the bonds to investors. He ended up controlling a 75 percent stake in the company, overextending his own bank. As this liability became public, investors began withdrawing money from Cooke & Company.[6]
Panic of 1873[]
The Panic of 1873 spread throughout the United States after a run on the Jay Cooke & Company bank. Cooke & Company had written liabilities against expected returns from the sale of its Northern Pacific Railroad bonds. When the bank could not sell enough bonds to meet its obligations, its operations were suspended. When the New York Stock Exchange heard the announcement of Cooke & Company, equities plummeted causing a chain reaction of bank runs and failures.[7]
Collapse[]
Bankruptcy commenced soon after the collapse. Many of the junior partners at Cooke did not suffer when the bank collapsed because they anticipated the failure and had divested from assets that would crumble if Cooke became insolvent. The government seized most of Cooke's larger estates while Cooke moved to one of his smaller properties. Many of Cooke's allies in the banking business soon collapsed, including Livermore, Clews & Co and Fisk & Hatch.[8]
References[]
- ↑ Geisst, Charles R. (2005). Wall Street: A History: from Its Beginnings to the Fall of Enron. Oxford University Press. p. 54. ISBN 9780195170603.
- ↑ Snowden, Clinton A. (1909). History of Washington. The Century history company. p. 207.
- ↑ Geisst, Charles R. (2001). The Last Partnerships. McGraw-Hill Professional. p. 21. ISBN 9780071369992.
- ↑ Snowden, p. 207.
- ↑ Geist (2004), pp. 53-54.
- ↑ Geist (2004), pp. 60-62.
- ↑ Markham, Jerry W. (2002). A Financial History of the United States. M.E. Sharpe. p. 293. ISBN 9780765607300.
- ↑ Geist (2001), p. 37
