(3 of 9)
Brokerage. In connection with straight banking, most banks buy and sell stocks for their customers. Unlike ordinary bankers J. P. Morgan has a seat on the N. Y. Stock Exchange, his partners have seats on other stock exchanges. Though they execute no orders on the floor by having memberships they, as brokers, can collect commissions (paying part to other brokers who actually execute their orders). Such commissions helped to pay the overhead. Recent example: H. F. Loree had Morgan buy 500,000 shares of New York Central for the Delaware & Hudson. '
For a general "average" picture of Morgan's banking business in "normal times," this will serve: $400,000,000 in deposits, $100,000,000 in cash and call loans, $150,000,000 in U. S. bonds, $50,000,000 in municipals and other bonds, the rest in loans and stocks. From the profit in the difference between say 1% paid on deposits and say 3% earned, deduct clerical expenses and overhead (less than for most banks because there are few small transactions) and add brokerage commissions. There is Morgan & Co.'s "straight banking" and brokerage profit, probably $8,000,000 a year more or less, a safe and satisfactory business.∙
Deals. But after the partners have invested their depositors' money in safe and liquid securities, they have still their capital (net worth) which they can employ in deals. The capital of the House of Morgan amounts to less than $100,000,000 (it passed that mark in 1929, was $119,000,000 at the close of that year, stood at $53,000,000 at the close of 1932). Morgan deals are of two kinds:
1) Bonds. The firm as a wholesaler of securities floats bond issues through syndicates. Because of its prestige it gets the pick of the business, the securities which are easiest to sell, of foreign governments (of England and Germany, for example), of great corporations without number. The margin of profit is small but because it gets the cream of the securities, the turnover is sure and rapid. If an issue of tens of millions can be floated over night, what if the profit is only $100,000? That is enough for a night's work.
But for many firms such a profit is not enough over a period of years to pay for the much greater losses which are sure to come sometime when an issue goes sour. Morgan & Co.'s net profits on bonds are due to having fewer losses than most houses. In the last 14 years, Morgan & Co. has headed syndicates which distributed $6,000,000,000 worth of bonds. Of these $2,000,000,000 have already been repaid. Forty percent of all their foreign bonds have been repaid. Of the balance 30% were selling, last week, above the offering price. Only in railroad bonds, heavily supervised by the U. S. Government, was there a bad showing.