Morgan Grenfell Group Plc
Morgan Grenfell Group Plc
23 Great Winchester Street
London EC2P 2AX
(01) 588 4545
Wholly owned subsidiary of Deutsche Bank A.G.
Assets: £6 billion (US$10.85 billion)
Stock Index: London Ireland
Morgan Grenfell Group PLC is an investment holding company that offers international merchant banking and investment management services around the world. It has international operations in the Channel Islands, Europe, the United States, Asia, and Australia, and owns Morgan Grenfell Laurie, which provides commerical property services. With assets of nearly £6 billion, it is the second-leading merchant bank in Britain.
At its founding by philanthropist George Peabody in 1838, Morgan Grenfell was known as Peabody, Riggs & Company. The son of a leather worker, Peabody was born in South Danvers, Massachusetts (later renamed Peabody in his honor). After a few years of schooling, he went to work as a country-store clerk at age 11. He became a partner in a Baltimore dry-goods business at 19 and, over the next seven years, helped the business establish branches in New York and Philadelphia. After several visits to London, Peabody, already a rich man by 1838, decided to stay in the city and establish a merchanting firm.
Over the next decade, from his office in London, Peabody imported cotton, textiles, tobacco, and steel for British railways. He financed the operations with a sterling-dollar exchange, which gradually resulted in his shifting from merchanting to merchant banking. Much of Peabody’s profit came from backing American securities, which he bought at almost giveaway prices, with his personal funds. In the 1850s, he helped finance the American railway system, by which he profited handsomely. His successful bond sales in London stimulated the American stock market to reinvest in railroads, canals, and exports.
The wealthy banker was also a renowned host, holding lavish banquets for such guests as the Duke of Wellington. It was during one such occasion that he met Junius Spencer Morgan, a partner in a Boston dry goods firm. In 1854, Junius accepted a partnership at George Peabody and Company, which had become Europe’s leading American merchant bank. In 1864, the 70-year-old Peabody turned control over to Junius Morgan, who renamed the firm J.S. Morgan and Company. With the end of the Civil War, Morgan eagerly took advantage of the opportunities reconstruction offered for financing public utilities, consumer goods, and of course railroads, which had become the nation’s most important investment during the 1860s.
In 1864, under the direction of Junius Morgan, the company began a long tradition of issuing loans to foreign countries, including a £10 million loan to France in 1870 when the Prussians were beseiging Paris. The deal earned £1.5 million, making it the firm’s most profitable loan.
In 1862, Junius’ 25-year-old son John Pierpoint Morgan founded J.P. Morgan and Company in New York. Initially the firm operated as the American representative for his father’s company in London. J.P. Morgan began by marketing United States railroad securities abroad; by the turn of the century, it had become a leader in the consolidation and merger of railroads.
When Junius Morgan died in 1890, however, John Pierpoint Morgan returned to England to become chairman of J.S. Morgan and Company. Under his direction, the House of Morgan, as its American and European offices were collectively referred to, supervised the financial activities in the United States and much of Europe through the 19th and early 20th centuries. In 1905, J.P. Morgan’s son Jack returned from a 15-year stay at J.S. Morgan and Company in London to take an active role in the American firm, J.P. Morgan and Company, which had become a key player in the House of Morgan.
J. S. Morgan and Company became Morgan Grenfell and Company in 1910, when Edward Grenfell, a manager with the firm since 1900 and a partner since 1904, was named senior resident partner. Grenfell’s cousin, Vivian Hugh Smith, had also become a partner, in 1905. The cousins made Morgan Grenfell the focus of their lives and both eventually became senior managing directors of the merchant bank.
Meanwhile in New York, Jack Morgan continued to finance governments and invest in American securities, as his grandfather had done. During World War I, when Britain turned to the United States for food and industrial supplies, it found J.P. Morgan and Company was the best candidate to serve as purchasing agent in the United States. The company lent more than US$1.5 billion to Britain, France, and Russia and supervised the purchase of American war supplies by its allies. In fact, with the help of Morgan Grenfell, which served as liaison between the British government and J.P. Morgan and Company in the United States, the company loaned more money to European governments than any other institution. Thus Morgan Grenfell, because of its ties to both sides of the Atlantic, played a major role in helping to rebuild Europe after the war by coordinating reconstruction loans to the governments of Belgium, Austria, Italy, and Germany.
In 1925, a move to return England to the gold standard, which was abandoned in 1919, was initiated by Montagu Norman, governor of the Bank of England. In response, Benjamin Strong, governor of the Federal Reserve Bank of New York, spearheaded the bank’s loan of US$200 million to the Bank of England, while J. P. Morgan and Company loaned the British government US$100 million. The loan was a profitable one for Morgan Grenfell as well, which gained £100,000 in commission along with a healthy share of the US$2 million commitment fee.
In the United States, as part of President Herbert Hoover’s New Deal, the Banking Act of 1933 required J.P. Morgan and Company to narrow its interests by choosing between investment and commercial banking. Its choice, commerical banking, meant the company could no longer underwrite securities issues, which caused it to lose prestige in Europe, as well as much control of its investments. Because the move also limited J.P. Morgan’s relationship with Morgan Grenfell to banking, Morgan Grenfell became an incorporated limited liability company in order to continue its financial business in the United States, thus forming Morgan Grenfell and Company Limited in 1936.
The firm soon found new markets when Vivian Smith succeeded Edward Grenfell as senior managing director after Grenfell’s death in 1941. In his new position, Smith spent much time abroad, extending the company’s business to Africa, Latin America, and especially India and the East. He remained head of Morgan Grenfell until his death, in 1956.
Lord Catto, son of Sir Thomas Catto, who joined the bank in 1928 and had become its largest individual shareholder by 1933, came on board in 1948. Growing up in his father’s shadow gave Catto a unique perspective of Morgan Grenfell as he watched the firm evolve over the century. The future chairman once remarked that the bank remained much the same from the 1920s, when his father joined, until the 1960s. The pace quickened, however, in the 1960s, when the bank increased its involvement in corporate finance, investment management, and Eurobonds. In an effort to prepare for the deregulation of London business, it also expanded its securities operations.
Also throughout the 1960s and 1970s Morgan Grenfell took part in several joint ventures with Morgan Stanley and Morgan Guaranty Trust (the result of the 1958 merger between J.P. Morgan and Guaranty Trust). Morgan Guaranty still owned a third of Morgan Grenfell and most of the British bank’s international ventures were undertaken in cooperation with its American cousins.
When Lord Harcourt, a great-grandson of J.S. Morgan and former economic minister at the British Embassy in Washington, became chairman of Morgan Grenfell in 1968, “the really major changes happened,” according to Catto. Prior to Harcourt’s term as chairman, the company had remained a conservative merchant bank, underwriting more than half of England’s fixed-interest loans in the oil, chemical, and steel industries. But industry was changing, and with those changes came a need for banking skills in leasing, export finance, and foreign exchange. In 1967, Harcourt appointed Sir John Stevens, then head of the treasury delegation and economic minister in Washington, as senior director in charge of international business. Stevens, a former executive director at the Bank of England, sparked a period of rapid expansion for Morgan Grenfell when he decided that the firm should become an international bank based in the United Kingdom, rather than a London bank with overseas interests. In 1969 Morgan Grenfell (Overseas) Ltd. was incorporated to support international growth. In 1970, Stevens became executive vice chairman of the bank, which was incorporated in the United Kingdom in 1971 as an investment holding company. But he never saw his strategy come to fruition: Stevens died in October, 1973, leaving the bank’s future to Lord Catto, chairman of the executive committee.
Under the guidance of William Mackworth-Young, who succeeded Stevens as chief executive, Morgan Grenfell quickly rose from a bank with 200 employees and £150 million in assets to an international player with a leading reputation in the British takeover arena. By 1975, Morgan Grenfell had opened 20 offices worldwide, compared to one overseas office in 1969 and had established several new international subsidiaries, in profitable markets like Singapore and Switzerland. In addition, it began financing projects for exporters in the United Kingdom and evolved as a key advisor and provider of major loans for industrial companies in many of the Organization for Economic Cooperation and Development (OECD) countries.
Much of the bank’s activity in the last few decades of the 20th century has centered around financing expansion projects in countries such as Brazil, Iran, Iraq, Japan, Nigeria, Oman, and the Soviet Union. In 1975, Morgan Grenfell issued several loans to finance what was then the largest overseas project handled by the company—the construction of a major steel mill for Aco Minas in Brazil. Although the project began in a flourishing economy, work eventually came to a halt when recession hit in the late 1970s and early 1980s. As the price of steel dropped, so too did enthusiasm for the steel mill project; the first phase of the project was not completed until 1986.
The Soviet Union also became a key market for Morgan Grenfell’s international corporate finance activity. After signing a £25 million line of credit with the country, Morgan Grenfell financed 80% of the business conducted between the United Kingdom and the Soviet Union between 1972 and 1988. In 1977, the firm established an office in Moscow, becoming the first merchant bank to be represented in the Soviet Union.
Another important change in the 1970s was an increase in competition between Morgan Grenfell and its two American cousins. These companies had traditionally cooperated in ventures and avoided competing with each other. As the market became increasingly global and growth was achieved primarily through international expansion, this unofficial policy of cooperation was increasingly set aside. The last ties between Morgan Grenfell and Morgan Guaranty Trust (now J.P. Morgan & Co.) were cut in 1981, when Morgan Guaranty disposed of its 33% shareholding.
The name Morgan Grenfell Group PLC was adopted in 1986, when the firm became a public company. Since going public, however, Morgan Grenfell has faced numerous problems. Several top managers were involved in financial scandals, among them Geoffrey Collier, who was charged with insider trading. In the mid-1980s, the Guinness affair dominated headlines in the United Kingdom. Guinness, a liquor distributor that Morgan was helping to take over Distillers, had allegedly bought some of its own shares in an effort to keep the Guinness price high before the takeover. Although the official investigation, which was directed at Guinness and not Morgan, began in 1989, the team that had helped to build Morgan from the 1970s to the 1980s—including Graham Walsh, former head of corporate finance—resigned when the scandal first came to light in 1986. Chairman Lord Catto also left soon after.
In May, 1987 John Craven took over as head of Morgan Grenfell in the wake of the Guinness scandal. That year was a mixed one for the firm. While Morgan Grenfell celebrated its position as the leading adviser in U.K. public takeovers for the sixth consecutive year, its stock-broking subsidiary, Morgan Grenfell Securities, struggled for market share in the U.K. Also that year, the group merged two of its units in he United States, Cyrus J. Lawrence Inc. and Morgan Grenfell Inc., to form C. J. Lawrence, Morgan Grenfell Inc.
While profits were £41.8 million in 1987 despite the stock market crash, Morgan Grenfell lost £19.2 million after taxes the following year. The loss was due in part to Craven’s decision to abandon the securities business in December of that year, which reduced its employee ranks by some 450 and substantially reduced overhead. And indeed, profits began to rise significantly in 1989.
But 1989 brought other complications. That fall, suitors began to dance around Morgan Grenfell. France’s Banque Indosuez announced in October that it had acquired a 14.8% stake in the company. When Barclays de Zoete Wedd proved unable to save Morgan Grenfell from Suez, Morgan Grenfell accepted a £950 million bid from Deutsche Bank, West Germany’s largest bank, bringing to an end more than 150 years of independence.
Morgan Grenfell & Company Ltd.; Morgan Grenfell Securities Holdings Ltd.; Morgan Grenfell Asset Management Ltd.; Morgan Grenfell Laurie Holdings Ltd.; C. J. Lawrence, Morgan Grenfell Inc.
Hoyt, Edwin P., Jr. The House of Morgan, New York, Dodd, Mead & Company, 1966; Burk, Kathleen. Morgan Grenfell 1838–1988: The Biography of a Merchant Bank, Oxford, England, Oxford University Press, 1989.