48 Wall Street
Certain corporations come to bear the impress of a single, dominant individual, and for more than 200 years the Bank of New York has exemplified the fiscal policies, character, and even the temperament of its chief founder, Alexander Hamilton. The patrician lawyer was famous for his brilliant theories of finance, for his personal elegance, and for his staunch conservatism; his bank must be said to share all three characteristics. The Bank of New York has remained a pillar of strength during this country's many panics and depressions, able to weather the financial storms that have sunk so many more aggressive institutions by preserving a conservative lending policy and high liquidity. Indeed, so blue-blooded is the bank's history that one is tempted to ascribe its long-established, understated strength less to sound fiscal strategy than to what its founder would have called "good taste."
There are simply certain things the Bank of New York does not do, has never done, and will never permit--or would not have, that is, until the year 1982, when its new chairman, J. Carter Bacot, began a program of acquisition and restructuring designed to pull his aristocratic bank into the decidedly plebeian 20th century. Bacot appears to be succeeding; the bank is rated the tenth-largest financial institution in the United States and has acquired a very modern reputation for iron competitiveness. Whether the Hamiltons, Roosevelts, and Rikers whose names grace the list of past bank directors would be entirely pleased with these changes it open to some doubt, but their approval is probably not of much interest to Mr. Bacot and his new generation of leaders.
The period immediately following the Revolutionary War was a time of fiscal chaos for the newly-independent states. Incredibly enough, at that point there was only one bank in all of North America, which had opened its doors in Philadelphia in 1781. The colonies had long depended for their medium of exchange on a haphazard mix of barter, wampum, foreign coins, and a vast array of colonial currencies, none of them of much value beyond the immediate vicinity of their printing. In such a confused climate it was difficult to transact business, and in 1784 a group of men in New York decided to create a bank that would help stabilize the precarious situation, in a profitable manner. The leader of this group of citizens was Alexander Hamilton, the distinguished former congressman, revolutionary colonel, and co-author of the Federalist Papers. Though only 27 years old, Hamilton was already looked upon as a brilliant statesman with special expertise in the areas of economics and banking. At a time when the country lacked not only banks but also banking laws, Hamilton devised the constitution for what would soon be called the Bank of New York, insisting on a host of policies that were soon adopted as standard practice for all modern banks. In particular, he and the other directors agreed that the bank would sell its original stock for specie only--that is, its capital would consist of gold and silver instead of the land mortgages then backing most of the shaky colonial currencies. Having quickly raised $500,000 in capital, the bank's 13 directors elected General Alexander MacDougall as president and opened its doors at 159 Queen Street on June 9, 1784. New York City finally had its first bank.
The original bank directors included many of the city's leading businessmen: Isaac Roosevelt had made a fortune refining sugar, creating the wealth which later would help raise two of his descendents to the presidency of the United States; MacDougall was not only a successful merchant but had risen to the rank of major general during the war; and Comfort Sands was one of the city's most prominent shippers and importers. The list of shareholders was equally impressive, leading one early social scientist to note that of the 15 New York families reputed to keep carriages in 1804, four of them were at some time represented on the bank's board of directors. From the beginning, the bank's aristocratic heritage helped it gain the confidence of the city's business community.
Prospering immediately, the bank began a string of consecutive dividend payments never to be broken. It was also helpful that its young founder, Hamilton, became the secretary of the treasury of the United States in 1789, fostering a long intimacy between the bank and both state and national governments. Hamilton relied on "his bank" to perform services useful to the new and struggling government, such as loaning it $200,000 in 1789, and two years later buying up large quantities of government bonds to keep their price from falling sharply. In return, as secretary of the treasury, Hamilton did his best to protect the bank during difficult times, fighting to keep government funds in the bank even after the new Bank of the United States (also his creation) established a branch in New York. In this he was ultimately not successful, but it is clear that the bank enjoyed what would now be considered unethical treatment at the hands of its founder.
In 1789, the bank moved to its present location at the corner of Wall and William Streets. By that time, the American banking system had begun to evolve and stabilize its financial markets, and by 1800 the bank had its first competitor in New York, Aaron Burr's Manhattan Company. The city was growing at a frantic pace, however, and there was plenty of business for the plethora of banks soon to follow. The Bank of New York always had the advantage over its rivals of being the first and most prestigious of the New York banks, enabling it to adopt a posture somewhat above the fray of the marketplace. At a time when the young country was being rapidly populated with a variety of shaky frontier banks, the Bank of New York was able to further its reputation for prudence by moving slowly and thoughtfully toward a portfolio of well-secured, stable loans. In 1822, the bank significantly increased its resources and strengthened its image overseas by borrowing $250,000 from two London banks. Already it was known in Europe not only as the largest bank in New York, but also as the safest bank in the United States.
In 1830, a number of the bank's directors helped to found the New York Life Insurance and Trust Company, a similarly patrician corporation which 100 years later would merge with the bank. The 1830s were marked by continued economic growth, often fueled by excessive speculation in the newly created banks and industrial companies. The pyramiding of securities reached such a point that when the Bank of England shut off all credit to the United States, it sparked the national panic of 1837, one of the worst in American history. In what would become its typical fashion, the bank rode out the storm easily, having never indulged in dubious loans and always keeping a larger-than-normal amount of cash on hand. It therefore had fewer nonperforming loans than many other banks, as well as liquid capital to allay the anxieties of its depositors, thus avoiding both prongs of the panic. Such conservative banking policies, which often earned for the bank adjectives like "stodgy" or even "inert," became considerably more appealing in times of panic and depression, and largely account for the bank's continued existence over the past 200 years.
In 1853, New York banks took an important step when they formed the New York Clearing House Association, an instrument through which the banks could settle their daily accounts with each other in a single, secure location. But the clearing house soon took on another, more important function: bringing together all banks and pooling a part of their assets became a line of defense against the danger of massive deposit withdrawal during panics. Any bank facing a grave depletion of funds could receive a loan from the clearing house to keep it afloat until the crisis had passed. Unfortunately, it required another panic to illustrate this potential of the clearing house. As it did 20 years before, the Bank of New York came through the panic of 1857 without suffering any real damage.
The greatest challenge was yet to come, however. By the late 1850s it was clear that civil war was inevitable and for New York banks this was particularly ominous. Over the years, New York had become the center of the booming cotton and clothing trade between England and the southern states, with shipments in each direction stopping at the port of New York and often changing hands there. At the time of the outbreak of the Civil War in 1861, southern planters owed various northern banks an estimated $300 million, making the banks' attitude toward the war more complicated than geography might imply. Furthermore, in 1861 as today, New York banks dominated finance in all of the United States: some $92 million of the country's $126 million in total deposits rested in the vaults of Manhattan banks. The support of the New York bankers was therefore crucial to the success of the Union cause.
Despite the huge losses involved, the financiers threw themselves behind the North without reservation. In August, 1861, Secretary of the Treasury Salmon Chase asked a group of banks for a $150 million loan to equip the Union army, which he quickly got; the Bank of New York eventually held about $3 million in government paper. Unfortunately, Chase insisted on receiving specie for the government notes, assuming that the gold would circulate through the economy and back to the banks. It is no surprise, however, that the gold was promptly snatched up and held by a populace faced with the uncertainties of war, leaving to the various state currencies the role of basic fiscal exchange. Since these were of little use beyond the borders of their issuing states, the federal government was soon forced to print its first "greenbacks" in 1862. To ensure that these were accepted as sound currency, congress passed the National Banking Act the following year. This important measure for the first time regulated all subscribing banks under a federal code, stipulating that if a bank left one-third of its capital with the government, it could loan up to 90$ of that amount in the form of the new federal currency or other securities. The danger posed by grossly undercapitalized banks was thus reduced, and in July, 1865 the Bank of New York joined the rapidly growing system, becoming the Bank of New York, N.B.A.
The bank came through the war with its usual health intact, actually raising dividends from 3$ to 5$ by 1865. The postwar years followed a pattern of frenzied boom period leading to overspeculation, panic, and depression. Though severe, the panic of 1873 and the lean years afterward also had little effect on the bank's overall strength; once again, its conservative loan philosophy spared it the worst effects of typical boom-and-bust cycles. Both in 1873 and in the less acute crash of 1884, the other New York banks looked to the Bank of New York as a haven, relying on its cash reserves for critical loans and on its overall leadership for guidance and support. Toward the close of the 19th century, the bank was, as it had been a hundred years before, New York's largest and most respected financial institution, its list of shareholders a veritable roll call of the city's most famous families. In a time of stupendous economic growth, however, it was not long before the bank lost its claim to being the city's largest, settling instead, as the 20th century began, for the title of most elegant.
The turn of the century saw the bank's increasing involvement in foreign-exchange banking, especially in Latin America. Herbert Griggs, who in 1901 began what would become the longest tenure as president in the bank's history, brought to the position much expertise and interest in the foreign-exchange business, further accelerating the bank's expansion in that area. Even though the bank was no longer New York's largest, the early decades of this century were highly profitable ones for the company as World War I became something of a bonanza for the American economy in general and banks in particular. From a net income of about $400 million in 1900, profits rose to some $820 million in 1917, the year of America's maximum war effort. All of the important New York banks worked closely with the government to finance the war; the Bank of New York by itself loaned about $38 million, and also offered various other services to Washington. The loans were highly profitable, and by the end of the war the bank was more than ready for the 1920s.
Along with the rest of the nation, the bank was soon doing more business than ever. In the heady atmosphere of that decade, even the staid Bank of New York began to hunger for a dramatic increase in its capital--for a way to recoup some of the ground it had lost to younger and more aggressive rivals. In 1922, the bank announced its merger with the New York Life Insurance and Trust Company. The merger was a natural fit, and with little strain the two companies became the Bank of New York and Trust Company, relocating in 1928 to a new 32-story building immediately adjacent to the old bank headquarters. Deposits at the new bank, now once again chartered under state (as opposed to national) banking law, totaled $78 million and continued to climb during the bountiful years leading up to October, 1929.
As its history might predict, the bank sailed through the great panic of that year with little damage. Even the worst of all modern depressions could not upset the carefully managed portfolio at the Bank of New York, which actually increased its total deposits during the slump's most dangerous early years. While 4,600 banks across the country closed their doors, the Bank of New York took an asset depreciation of $6 million without breaking stride, continuing to rack up profits every year and paying its normal, healthy dividends on time and without anxiety. The bank actively supported President Roosevelt's radical attempts to halt the economy's slide. Later the Bank of New York worked along with the nation's other financial institutions in funding the enormous war effort from 1941-1945. In times of crisis such as these, the bank's long and stable history gave to it a special importance in the eyes of the business world.
Since World War II the Bank of New York has undergone a gradually accelerating transformation into a more modern financial institution, most obviously in the form of a series of mergers and acquisitions. In 1948, the bank merged for the second time, joining forces with the Fifth Avenue Bank of mid-town Manhattan; in the mid-1960s it added Empire Trust Company. In 1968 the bank was incorporated as the Bank of New York, Inc., and the next year added the "Company" now in its name when it absorbed six subsidiaries. Between 1969 and 1974, the bank acquired four more small banks. Its next large acquisition came in 1980, when it bought the Empire National Bank and in 1987, it bought the Long Island Trust Company. More significant than any of these moves, however, was the 1982 elevation of J. Carter Bacot from president to chairman of the bank. It has been Bacot's vigorous leadership that has, in the words of one financial analyst, "dragged BONY into the 20th century." A relatively young 49 when he took over, Bacot has shown little patience with the bank's traditional posture of high-toned inertia.
Bacot's changes have been in four basic areas. He sold off the bank's upstate retail branches, concentrating all of its retail business in the greater New York metropolitan area, especially in more affluent Long Island and in the counties north of New York City. Second, Bacot was far more daring in his loan philosophy, dealing more quickly and in larger amounts than the bank had usually allowed. Loans of up to $60 million have become common as the bank has focused its portfolio in the areas of commercial industry, Wall Street securities firms, utilities, and the oil and gas industries. Third, the chairman ended the bank's long ambivalence about the role it wanted to play in the financial world, giving up all pretensions to investment banking and the capital markets to concentrate on becoming a large regional bank. Much of the bank's income is now generated by processing the daily transactions of securities brokers, an activity which, strictly speaking, is not even in the banking field.
Finally, in 1987, Bacot confirmed the bank's place in the rough and tumble of modern business when he initiated a year-long hostile takeover bid for S.B. Irving Trust Bank Corporation, a Wall Street neighbor whose $24 billion in assets were slightly larger than those of the purchaser. When the dust had settled, and Irving Trust was merged with the Bank of New York on December 30, 1988, Bacot had created the nation's tenth-largest bank holding company, one well-positioned for further expansion. The takeover was universally praised by financial analysts (except those at Irving, which fought the takeover), who felt that the two banks' similar interests would mesh together quite well. All in all, a very tidy merger, and not one anyone would have expected of the bank before its recent sea change. No doubt the frankly aristocratic traditions of the Bank of New York will linger on in one form or another, but Bacot seems convinced that even blue blood can be made to circulate faster than was once thought seemly.
Principal Subsidiaries: The Bank of New York; The Bank of New York Trust Co.; The Bank of New York Trust Co. of Florida, N.A.; The Bank of New York Life Insurance Co., Inc.; ARCS Mortgage, Inc.; Beacon Capital Management Company, Inc.; The Bank of New York Commercial Corp.; B.N.Y. Holdings (Delaware) Corporation; The Bank of New York International, Inc.; BNY International Investments, Inc.; BNY Leasing, Inc.; BNY Financial Corporation; BNY Personal Brokerage, Inc.; Wall Street Data Services; Wall Street Trust Co.-California; The Bank of New York Consumer Leasing Corp.; The Bank of New York Overseas Finance N.V.; BNY Australia Limited.
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