Investment Banking – 1910 to 1918
Investment Banking Initiated – 1910 to 1918
In late 1910, A.G. Becker joined James Forgan (President of the First National Bank of Chicago) and other leading Chicago bankers in a well-publicized New York gathering of the nation’s leading bankers and members of Congress to discuss “national currency issues.” This and other similar gatherings starting with the creation of the National Monetary Commission in 1908 (as a result of the 1907 panic) and would slowly lead to creation of the Federal Reserve System in December 1913. As earlier noted, during this period Mr. Becker’s reputation was becoming national in scope. About him the New York Times reported that his “influential and honorable relations to large affairs are almost as well understood in this city (NYC) as in Chicago.”
With the creation of the Federal Reserve System there were questions as to the effect this new central banking system would have on the business of commercial paper houses. There was likely a serious discussion of these questions between A.G. Becker and his second in command, Bob Schaffner. The conclusions of these discussions were reported in an article in the April 1914 issue of The Journal of Political Economy, published by the University of Chicago.
In this essay, it was Schaffner’s conclusion that the new central banking system would result in a larger amount of loanable funds in the country, lower interest rates, and greater liquidity for commercial paper by reason of the ability of holders to re-discount their positions directly with a Federal Reserve Bank. It was Schaffner’s conclusion that, all things considered, the new central banking system would be favorable to the commercial paper business, its dealers, and the nation’s money market.
In May 1911, A.G. Becker & Co. completed its first public underwriting and distribution of a longer-term security (preferred stock) when it co-managed - with New York based Ladenburg, Thalmann & Co - a $5 million issue for Hart, Schaffner & Marx, one of the nation’s leading clothing manufacturers. The company was based in Chicago and the owners were relatives of the Becker family. Over the next few years, on an occasional basis, the firm underwrote and distributed other capital issues, entirely preferred stocks and short-term notes, such as the two year Gold Notes of the American Rolling Mill Company (later Armco Steel) offered in 1912, and the four year notes of U.S. Gypsum offered in 1913. Mr. Becker continued his relationship with Westinghouse, having been reelected as a Director in June 1914.
A few months earlier, in February, Mr. Becker must have been saddened with the death of Henry Greenebaum, an early employer and friend of many years, who died in his eightieth year. For more about Henry Greenebaum, see Appendix 3.
World War I broke out in Europe in July 1914. In quick succession, Germany invaded Belgium, the United Kingdom declared war on Germany, and Germany declared war on France. In early 1915, Germany began unrestricted submarine warfare against merchant vessels. Soon Germany was battling Russia.
In early 1915, when popular sentiment in the U.S. about the European war was still ambivalent, the German government raised two loans of $10 million each in the U.S. As F. Cyril James noted in The Growth of Chicago Banks, Chicago was the second largest “German” city in the world. “Pro-German sentiment was probably stronger in and around Cook County than any other part of the U.S.” The first loan, a bond issue with a longer-term maturity, was sold with a 5% coupon at 84, to yield 6%, proceeds going to the German Treasury, with repayments in Deutsche marks. The second loan was for nine months, repayable in $US, with the proceeds to remain in the U.S. for the “establishment of commercial credits in the U.S.” It is clear from the Tribune’s report of these financings that A.G. Becker & Co. participated prominently - and rather singularly in Chicago and the Midwest - especially in the nine-month issue.
In 1916, in response to an order from the German government, German companies with assets abroad were directed to sell or otherwise liquidate those operations and bring that capital back to Germany. For some years, the Hammermill Paper Company, in Germany, was owned by two uncles who sent their nephew, Ernst Behrend, to Erie, Pennsylvania, to manage the plant and business they had established there in 1899. Given the German government’s directive, the uncles wished to sell the property to their nephew. Young Behrend, now a U.S. citizen, unsuccessfully approached a number of Wall Street firms to provide assistance to a group of American investors he had assembled to purchase the American business. In due course, he met Robert Schaffner. Following an analysis, Schaffner and associates worked out a purchase plan including debt financing of $1,500,000. The problem was that title documents for the Erie property were needed to complete the deal and they were in Germany. Through contacts, Becker and the German owners arranged for the German non-armed cargo-carrying submarine Deutschland, to deliver (to New London, it is believed) the needed documents to the United States in the submarine’s final blockade-running voyage. For many years of Hammermill’s existence as an independent company, it was a loyal client of Becker.
It is interesting that in an early 1917 offering of a mortgage bond issue of Interstate Iron & Steel, the issuer mentioned, in the description of its business, that it had never “accepted any munitions orders, [its] records having been based entirely on regular domestic business.” Shortly after this issue, the U.S. declared war on Germany and American troops landed in France. National popular sentiment rather quickly shifted from German sympathy to being rather intensively anti-German.
In 1916, A.G. Becker & Co. joined Ladenburg, Thalman in underwriting the common stock of the Mitchell Motor Car Co., and in a convertible preferred stock issue of the Hupp Motor Car Company. Both offerings were “highly successful.” Becker was also a participating underwriter in a Willys-Overland offering, Willys at that time being the second largest car manufacturer in the U.S. By this date, America’s automobile industry was broadly developing.
New Federal Reserve System
While these events were taking place, the Federal Reserve System was created and in operation by late 1914. As mentioned earlier, the new Act made commercial paper eligible collateral for advances from a System bank. It was soon reported that some $2 billion of commercial paper was outstanding and available as collateral for such advances. Robert Schaffner’s prediction was on the mark.
In 1893, the firm started business in Chicago on the sixth floor of 100 Washington. The office personnel included Mr. Becker and a staff of four. Offices were moved a year later to 154 LaSalle Street where the firm was located for some twenty-four years. In April 1917, there was a grand opening at the firm's third location at 199 LaSalle. The staff had grown to twenty-five employees - eleven seated in front of fourteen standing, with Mr. Becker in the center of the seated group. Seventeen of the total group are identified by name, including A.G. Becker, David Stern (on the far right and Secretary), Robert Schaffner (on the far left and Treasurer), Howell Murray, and Walter McEvoy. The group included seven women who must have provided key support as employees in the Chicago office.
On November 11, 1918, in the forest of Compiegne, France, an armistice between German and Allied Powers went into effect, ending fighting on the Western Front after 52 months of war. This led to the negotiations at the Paris Peace Conference concluding with the Treaty of Versailles signed on June 18, 1919. The treaty provided for Germany and her allies to accept responsibility for causing all the loss and damage of the war, for Germany to disarm and make certain territorial concessions, and for Germany to pay reparations as determined by a Reparations Commission established in 1921.