Chasing Down History

By John Steele Gordon

In the last column I wrote about the curious origin of the Bank of the Manhattan Company. Another major antecedent company of what is today JPMorgan Chase was Chase National Bank, founded by John Thompson in 1877.

Thompson had been born in Peru, Massachusetts, in 1802. After a stint as a lottery dealer in Albany, New York, he moved to New York City in 1832 and became a dealer in bank notes. At that time state-chartered banks issued bank notes and there were thousands of different issues—some sound, some fraudulent.

In 1836, Thompson founded Thompson’s Bank-Note Reporter, a weekly that sought to sort out the good notes from the bad ones. (Thompson’s Bank-Note Reporter is the progenitor of today’s American Banker, which due to its name is often assumed to be published by the American Bankers Association, although it remains an unaffiliated publication. In fact, it took its name a decade after the founding of ABA, which leaves any blame for the confusion at the feet of American Banker’s long-ago owners.)

Thompson was forced into bankruptcy in the panic of 1857 but was soon back on his feet, and in 1863 he co-founded the First National Bank of the City of New York, the ancestor of today’s Citigroup. He soon brought on board the 23-year-old George F. Baker who would come to dominate that bank for many years.

In 1877, Thompson and his sons withdrew from First National and founded Chase National Bank, named in honor of the late Treasury Secretary and Chief Justice Salmon P. Chase.

Chase was mainly a wholesale bank, dealing with other banks and large corporations rather than retail customers. But in 1911, Albert Wiggin became president, and Chase began a period of rapid expansion. Its deposits soared from $91 million that year to more than $2 billion 20 years later through a series of mergers.

In 1929, Wiggin was part of the consortium of bankers headed by J. P. Morgan and Co. that tried to shore up the stock market on Black Thursday. But he was also looking out for his own interests. He sold short 42,000 shares of Chase National Bank, reaping a profit of about $4 million, despite his fiduciary duty to the other stockholders.

This was not, at the time, illegal, although it was certainly thought improper. In the congressional hearings in 1933 that investigated Wall Street practices, the lead investigator, Ferdinand Pecora, wrote: “In the entire investigation, it is doubtful if there was another instance of a corporate executive who so thoroughly and successfully used his official and fiduciary position for private profit.” One of the reforms the hearing led to was the “Wiggin Provision,” which forbids corporate directors and others with fiduciary duties from shorting shares of the companies they work for.

In 1955 Chase National Bank merged with the Bank of the Manhattan Company. Although Chase was a far larger institution and had originally intended to acquire the smaller bank, it turned out that Aaron Burr’s 1799 charter contained a poison pill. Besides allowing a company ostensibly created to provide Manhattan with clean water to open a bank, the charter also forbade the sale of the company unless the stockholders unanimously agreed to it.

Therefore, the merger was structured as a purchase of Chase by the Manhattan Company, to form Chase Manhattan Bank. In 1961, the well-known graphic design firm of Chermayeff and Geismer designed the octagon logo that has symbolized Chase ever since. For years it was thought to be a stylized cross section of a wooden water pipe, harking back to the original charter of the Manhattan Company, but Ivan Chermayeff himself later debunked the story.

With the merger, Chase Manhattan became one of the largest banks in the country—a distinction its successor firms have continued.

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About Author

John Steele Gordon

John Steele Gordon, the ABA Banking Journal's "From the Vault" columnist, is an acclaimed economic historian. His books include An Empire of Wealth, Hamilton’s Blessing and The Great Game.