A Lion In The Street

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Upon men so fatigued there fell, during the second weekend of the panic, a blow that threatened to wipe out all their past efforts. The brokerage firm of Moore & Schley, it suddenly developed, was in desperate straits. Grant B. Schley, head of this company, belonged to a syndicate that controlled a small independent steel plant called the Tennessee Coal & Iron Company. Schley’s firm had put up the money for the purchase, receiving T. C. & I. stock as collateral. It had then deposited this stock in banks as collateral for time loans. Now these time loans were falling due, but Moore & Schley lacked the cash to meet them. Under normal circumstances there would have been no great tragedy in this for anyone but Moore & Schley; the banks would have simply sold the T. C. & I. stock. However, this stock, being owned by a small group, had not been actively traded on the Stock Exchange for some time. Its price had been held steady around 130, yet the market as a whole had declined precipitously in recent months. Should the banks attempt to dispose of the stock, it would probably have to fall at least fifty or sixty points before buyers could be found for it, wiping out Moore & Schley, of course, but also gravely embarrassing the banks and perhaps triggering a general collapse of the whole stock market.

When this situation was called to Morgan’s attention on Friday, November 1, he concluded at once that Moore & Schley must be saved; the problem was how to save them. The simplest way was to lend them money, but they needed about $25,000,000, and after two weeks of panic such a sum seemed impossible to raise. So another of the innumerable conferences of those desperate days was convened at the Morgan Library on Saturday morning. Lewis Cass Ledyard, lawyer for the T. C. & I. syndicate, presented this conference with a “brilliant” plan. Why not have the United States Steel Corporation purchase the Tennessee Coal & Iron Company? No money need be raised, for the steel company could simply exchange some of its own bonds (in which the public had confidence) for the T. C. & I. stock.

Morgan, who dominated U.S. Steel, quickly grasped the possibilities of this transaction. Here was a chance to add a valuable property to the steel trust and at the same time avert trouble on the stock market. Perhaps, if the deal could be combined with a final settlement of the trust company problem, the whole panic would be ended. He ordered a meeting of the finance committee of U.S. Steel for that very afternoon. At that meeting, however, he ran into unexpected opposition. Some of the members were afraid that the merger would provoke an antitrust suit. Henry C. Frick, a powerful member of the committee, argued vehemently against the idea on the ground that the Tennessee Company had extremely high costs of production and would not be a valuable addition to U.S. Steel. Morgan retaliated by saying that its coal and ore deposits alone were worth the cost. Finally, after much debate, the committee voted to make two offers to Moore & Schley. They would buy the stock at ninety dollars a share or they would lend Moore & Schley $5,000,000. But both propositions were turned down by the brokers because neither would yield enough cash to save them, and the conference broke up.

In desperation Perkins sent a Morgan accountant to go over the books of the Tennessee Coal & Iron Company in hopes that he could make a more favorable report as to its condition. Perkins also persuaded Schley to send for the president of the company, who might be able to make a better case in argument with Frick. On Sunday afternoon the U.S. Steel finance committee met again in the Morgan Library. After much argument the T. C. & I. men were able to convince Frick that a new rail mill, just being completed, would enable them to produce more efficiently than in the past. Finally the finance committee voted to offer par for the T. C. & I. stock (paid for in U.S. Steel bonds valued at 84) provided that President Theodore Roosevelt would approve the merger, that the transaction would definitely save Moore & Schley, and that some other arrangement could be worked out to save the two struggling trust companies.

Frick and Judge E. H. Gary, chairman of the board of U.S. Steel, left at once for Washington to see Roosevelt. While they were en route attention reverted to the two trust companies. Expert investigators had by now prepared detailed reports on the value of their assets which showed that the Trust Company of America was completely sound and the Lincoln Trust no more than a million dollars short of being able to pay off all its depositors, but under panic conditions these assets could not be liquidated. All Sunday night the Library was buzzing with conferees; at three in the morning there were about 125 financiers in the building, while outside knots of reporters waited for word on the debates. But there was no statement forthcoming. Finally at five in the morning the conference broke up, the directors of the Lincoln Trust Company having decided not to open their doors that day.

Monday morning, November 4, was in many ways the most disheartening time of the whole crisis. Cables from London indicated that American securities were falling there in morning trading. Should Wall Street follow this trend, many brokers would be caught without funds to meet their margin requirements. The Lincoln Trust Company’s failure to open might produce a wave of further runs.