Commercial Paper Market
HIGH SPOTS IN THE EARLY HISTORY OF A. G. BECKER & CO.
Speech by Howell Murray, 1956-58
A. G. Becker & Co. had its roots in the 1870's, in Chicago,
when Herman Schaffner and Co. was established as a private bank.
In 1876, Chicago had half a million people. By the time A.G. Becker
& Co. was founded in 1893, as successor to Herman Schaffner,
the population was 1,200,000. The roots of the firm go way back,
as you see, to the beginning of Chicago as a financial center.
Herman Schaffner was married to Mr. Becker's sister and Mr. Becker
eventually became a junior partner in the Schaffner firm. From
1876 until 1893, Herman Schaffner & Co. handled bills receivable,
which were purchased from wholesalers and sold to banks. These
bills were the forerunner of what is known today as commercial
At the time, the banking laws of the State of Illinois were very
loose and private banks were numerous in Chicago. When the panic
of 1893 occurred, Herman Schaffner & Co. became involved,
and during the bank run of that year, Mr. Schaffner became depressed
and ended his own life. As a result, Herman Schaffner & Co.
failed. Everything that Mr. Schaffner owned went to the secured
creditors, as did all the assets of the junior partner, A.G. Becker.
The liquidation paid out about 10c on the dollar.
Mrs. Schaffner, Mr. Becker's sister, received $50,000 in life
insurance proceeds which creditors could not touch. She loaned
this sum to her brother to establish a new business. That was
the original capital of A.G. Becker & Co. in 1893. At that
time, Mr. Robert C. Schaffner, son of Herman Schaffner, was 16-17
years old, ready to enter Harvard, where his older brother Arthur
had gone. As there was no money in the family, he came to work
for his uncle. He was the first employee and remained with the
firm until his death in 1947, at which time he was Chairman of
Prior to 1893 when A.G. Becker & Co. was founded, it was
customary among so-called commercial paper brokers to handle their
paper on consignment. That is, they only paid their issuing customers
when they received payment from a purchaser. At the very inception
of the business, Mr. Becker did something that was very radical,
and frowned on by the New Yorkers and others. He said, "I
will not handle paper on consignment; I will buy it myself with
my own funds" -- and in those days we didn't have the high
powered credit department that we have today. Audits were more
or less unknown. Mr. Becker made up his own mind about a borrower,
paid for the paper with his own money, and then offered it to
the banks. That changed the whole conduct of the commercial paper
Mr. Becker felt that he wanted to repay, if he were able, the
money lost by unsecured depositors of Herman Schaffner & Co.
During the first 10 years, therefore, he withdrew just enough
money from his business to pay the living expenses of his family,
which included, at the time, a wife and three children. With the
remaining earnings, he sought out the depositors of Herman Schaffner
& Co. -- widows and orphans first, and then others - and paid
them off with 6 per cent interest. This was done in the case of
all but two depositors who had made things unnecessarily difficult
for Mr. Becker. A son of one of these people told me later that
once he heard the facts he didn't blame Mr. Becker for not paying
his father. At any rate, by 1902, Mr. Becker had paid off all
the creditors of this predecessor firm out of the earnings of
A.G. Becker & Co.
In 1902, David B. Stern, another nephew of Mr. Becker, graduated
from the University of Chicago and came into the firm. He remained
for more than 50 years, ultimately as Chairman of the board, retired
from an active association in 1954.
So you had the situation in which an uncle and two nephews were
early employees of the firm. Some years later, in 1921, James
H. Becker, son of the founder, came into the business. He became
president in 1947. In 1924, the year before A.G. Becker's death,
the little family management group was expanded to include others;
Lester Roth (now deceased), Frank F. Patton (who has since retired),
V.A. Johnston of our New York office, and I, were made Vice Presidents
of A.G. Becker & Co.
Now going back a little - in 1916, the Federal Reserve Act came
into being and commercial paper became the collateral behind the
Federal Reserve notes. This was just before we entered World War
I. This development had a great effect on our business, which
up until then was principally commercial paper.
World War I could not have been won without a great expansion
of credit, and commercial paper was the avenue through which that
rapid expansion took place. At one time during that period, there
were two billion dollars worth of commercial paper backing Federal
Reserve notes - which today you can't find in your wallet, because
there aren't any. With the expansion of credit, there was a great
expansion in business, but money rates were kept low in order
for the Government to be borrowing at around 4 per cent.
Immediately on conclusion of the war, however, when this greatly
expanded credit rapidly had to be contracted, many large companies
collapsed. The larger the business, the more money was owed, and
many companies could not meet their maturing obligations. From
1919 to 1922 the Great Northern Railroad, for instance, put out
15-year non-callable 7s, and commercial paper was selling at 8
As money rates declined following the war, along with the contraction
of credit, the commercial paper business began to fall off. Mr.
Becker saw that the commercial paper business was in decline,
although, at the time, we were doing business with many of the
top companies of the country. The list of our clients read like
the Who's Who of American Industry.
This situation gave Mr. Becker and his associates an opportunity
not ordinarily available to a small house -- the opportunity to
get into the general securities business. During the period prior
to the war, when money rates were low and the banks wanted yields
higher than those available on commercial paper, the firm had
occasionally bought and sold note issues of half a million, or
a million, or even up to 2 or 3 million dollars. If paper rates
were 3 per cent, these note issues might be 5 per cent. We handled
several of them - for Liquid Carbonic Company, and, I remember,
U.S. Gypsum Company, and a number of other issuers.
So, in 1919, we decided to get into the general securities business.
Even at 8 per cent money rates, paper was not moving as rapidly
as we would like. We were selling half a million a day and had
a portfolio of $20 million. In that situation you are in the banking
business, whether you thought so or not. Also, in 1919, in order
to service our large borrowing accounts on the west coast, we
established branch offices in San Francisco, Los Angeles, Portland
and Seattle, all under Bill Eaton, who retired just last year.
Bill had been with Naumberg & Co., in New York, and wanted
to go west. He came in here and asked for a job, and we sent him
out to San Francisco. For several years, we had those west coast
paper selling offices.
We opened an office in St. Louis for the same reason. Walter
McEvoy, who was with us until his death a few years ago, went
down to handle that office. From there we serviced the whole south.
We also opened a New York office in 1919.
With these fundamental changes in the business, the organization
had to be generally expanded. The first head of our Bond Department
was a fellow named Jim Buck, who came to us from Halsey. He brought
in Frank Patton and also June Johnston. At the same time, Lester
Roth came into the accounting side of the business. So, having
no retail selling organization but having an unusual opportunity
to originate business, we made an alliance with Ames, Emerich
& Co.(which is an entirely different firm than was taken over
a year or two ago by Blair & Co.). Mr. Ames and Mr. Emerich
were the members of the firm, and they had one of the best security
selling organizations in town. But, they had no underwriting or
originating ability. On the other hand, we had the originating
ability and no retail sales organization. We had two bond salesmen
-- Patton and Johnston -- and two paper salesmen (outside the
branch offices) -- Gaylord Case and me. So we made a hook-up with
Ames, Emerich and began originating a lot of business from 1919
on, and taking Ames, Emerich in as partners. We made them and
ourselves a lot of money.
The original conception was that we were going to use our national
reputation with the banks as a means to get to private investors.
20 per cent of all the banks in the United States were on our
books at the time. So, when somebody from A.G. Becker & Co.
visited, he was no stranger. Our house was known, and that was
a great advantage. But, at the end of two years, if you had asked
us whether we would rather have the bank business, or the private
investor business, we would have said, "You can keep the
banks, for they easily panic, but the private investor business
is there all the time." That was the new basis on which the
present A.G. Becker & Co. was built.
Earlier, I mentioned U. S. Gypsum and Liquid Carbonic. As early
as 1911, Mr. Becker had financed Hart, Schaffner and Marx, selling
preferred stock issues for them for the amount of their assets
and $15 million worth common against good will. This was perfectly
alright. Today, that preferred has been paid off and, of course,
the common stock is very valuable.
In 1916, before we had an organized bond department, A.G. Becker
& Co. financed Hammermill Paper Co. It is a rather interesting
story. Mr. Ernst Behrend was sent over from Germany by his two
uncles, who were paper manufacturers, to run the Hammermill Paper
Company, which they owned in the U. S. If you know your history,
you know that the Kaiser, in 1915-1916, directed that all German
nationals bring their investment capital back to Germany. There
was pressure on these two German uncles to sell their American
investment. Ernst Behrend had by that time become an American
citizen and he wanted to buy out his uncles. They had to sell.
He shopped all round Wall Street and LaSalle Street for financing.
Finally Mr. Schaffner met up with him and A.G. Becker & Co.
financed the purchase of the German ownership by the American
company. So our banking relations with Hammermill started in 1916
and have been very close ever since. Mr. Schaffner and Mr. Becker
were on the Hammermill board during their lifetimes and James
Becker succeeded his father on that board and today still represents
A.G. Becker & Co.
The Fred Ruping Leather Company is another issue which we underwrote
in those early days.
In 1915, the German Government borrowed a number of millions
of dollars in one-year notes which we underwrote and sold jointly
with Kuhn, Loeb. These notes were paid off in 1916 before we were
One of the first deals we handled after we had an organized bond
department, in 1920, was a $50 million dollar issue of l-to-3
year notes of Sears Roebuck & Co. That was the biggest deal
at that time which had been financed in Chicago. And it was done
on the basis of a friendship between Julius Rosenwald and Mr.
Becker, even though Goldman Sachs was on the Sears Board. That
was quite sensational at the time.
In 1925, June Johnston went to New York to run our office there,
already established for six years. We had by that time purchased
the building which we continued to occupy until December, 1955,
and rented part of it to Cowen. That was the start of our eastern
In the meantime, we had some kids just out of college join us
-- like McCosh, Mabie and Baird -- and Herb Schaffner, and they
all started hopping bells around here. Those four fellows came
in about 1919. McCosh, Baird and Mabie have never worked anywhere
but A.G. Becker & Co.
Mr. Becker was very successful in both his investments and his
business. When he died he owned stock in more banks in Chicago
than any other man. He made his success in betting on young men,
not only in the underwritings we handled, but in the banks to
which we sold our merchandise. There was an period there for some
15 years or so when there were three or four times as many outlying
banks as there are today. A fellow would come out of the Continental
or the First and go out to an outlying section and want to start
a new bank. The first person he came to see was A.G. Becker, and
if A.G. Becker liked him, and had confidence in him, he always
bought stock and rode with him.
Now another aspect of the business: we've had our ups and downs.
We haven't always hit the ball on the nose. We've lost money on
a number of companies, sometimes in great big chunks. Every time
we lost money Mr. Becker said "We made a commitment and we'll
go through with it." He didn't know the meaning of the word,
"welsh." We have given up business on principle -- sometimes
a little difficult to do -- but if Mr. Becker didn't believe that
a man was 100 per cent honest and able, and particularly honest,
he had no time for him.
Another thing about Mr. Becker. It is one thing to hit an oil
well and pay off your debts (and that's a very creditable thing
to do). But, it is quite different if you work like hell for 10
years, don't know whether you are going to get ahead or not, and
still seek out people who have lost money on you, and then have
the satisfaction of paying them back with interest. That single
feat gave Mr. Becker a standing in banking circles both in Chicago
and New York that no man has ever exceeded. That kind of a man
at the head of a business could not possibly fail to infect everyone
who came into this organization - he did his nephews, he did me,
and he did everybody who's followed after him. And his ideals
are just as much alive today in this firm as during the days when
he walked in the office door. That is a wonderful thing to have
said about a firm. You will find as you go around, particularly
among older people, that they will give you instances of the kind
of integrity that is synonymous with A.G. Becker & Co.
This has been some high spotting of the early history of A.G.
Becker & Co. No firm in Chicago goes back as far as we do,
although others many have fine histories as well. But there are
some things about A.G. Becker & Co. that make it a unique
organization. In fact, I know of no other like it. This business
is the shadow of one man - Mr. Becker, who was one of the finest
gentlemen it has ever been my privilege to know. I consider it
a privilege to have worked for him for 10 years before he died.
Posted: December 26, 2006