Why big banking is not always good

A version of this article appeared in the Autumn 2021 issue Strategy + Business.

Inside Money: Brown Brothers Harriman and the American Way of Power

By Zachary Carabel, Penguin Press, 2021

Businesses often find it difficult to maintain their position for long periods of time. A large percentage of restaurants fail within a few years of opening. According to InnoSite, the average company in the S&P 500 lasts about 17 years on that index. And as the great thinker Geoffrey West notes, it is possible that companies, like animals, may have a natural lifespan.

Of course, there are outsiders. One of them is Brown Brothers Harriman, a merchant / investment bank that traces its origins to almost 200 years ago, and is the subject of an interesting new book, Inside the money. Historian Zachary Carabel (published: We were graduate school classmates in the last millennium) is not only a curious family and personal history, but also a lesson in how to balance risk and ambition against responsibility and longevity — and why growing up isn’t always good.

Farm survival is even more significant because U.S. financial history is often read as a string of booms, bubbles, busts, and bailouts. The panic of 1837. The panic of 1857. Civil war. The panic of 1907. Great Depression. The Great Depression. In finance, leverage শক্তি that is, debt — is a force that allows companies to raise more than they can afford. It is a force that can crush them if the situation changes. And the Brown Brothers have partially improved by avoiding excessive leverage. Today, the bank primarily “acts as the custodian of trillion-dollar global assets,” Carabel wrote. “Its culture revolves around service.”

These policies may not ignite the imagination of young MBAs. But it works over time, especially when you look at banking as a multi-generational endeavor. Alexander Brown, born in Ireland in 1764, came to Baltimore in 1800 and set up shop as a linen importer. He sent his son William to Liverpool and quickly established a transatlantic concern; He sent another son, James, to New York. Alexander’s utterances include “Schumacher, stay to your end” and “Don’t deal with people whose character is in question. It makes your mind restless. It’s better to lose business.”

With the emergence of New York as a dynamic hub of capital, the firm developed into a major financier of the trade – buying ships to transport goods, especially cotton and issuing bonds. “Almost in total [US]The 35 100 million trade between the United States and Great Britain in 1835, for which the Brown Brothers alone accounted for $ 11 million, writes Carabel. It’s a piece of paper, and it’s a piece of paper delivered to others. “One of those classes of paper was the traveler’s check.

After the death of James Brown in 1877, the firm – now under James Crosby Brown, son of James – maintained a certain isolation from the animating spirits of the era. When Andrew Carnegie, the magnet who first merged US Steel, the $ 1 billion corporation, arrived at the scene, John Crosby advised his junior partners: “Carnegie and the concerns he represents are very rich and his business is very efficient. At the same time, they are big borrowers and a bit difficult to deal with. “

We didn’t ask ourselves what size we should be to fill the business. We asked what business we should do to match our size. “

With the end of John Crossby’s reign and the beginning of a new century, the bank maintained its low profile and restraint – without exception. The firm syndicated a debt to Nicaragua, and became involved in the Central American country’s governance in 1912, closing “as the owner and governor of its national bank responsible for financing and as the controlling shareholder of the country’s main railways.” In 1930, following the stock market crash, Brown Brothers merged with WA Harriman’s Bank to form Brown Brothers Harriman, and in 1934 split into two: a commercial bank (Brown Brothers Harriman) and an investment bank (Brown Brothers Harriman & Company). “The firm, unlike many on Wall Street that were angry at New Delhi, was open to reform and thoughtful control,” Carabel wrote.

In the following decades, the Brown Brothers became more known for initiating public careers of key players in establishing foreign policy than their financial transactions. Among its partners is Robert Lovette, who is a Harry S. Served as Secretary of Defense under Truman and Prescott Bush, a senator from Connecticut and father and grandfather of U.S. presidents. Maintaining a partnership long after Wall Street colleagues went public, Brown Brothers agreed to provide the annoying but necessary (and profitable) services: “Global Custody Institutional Wealth Management, Forex, Fund Accounting, Cash Management.” And it doesn’t worry too much about the league table. One partner put it this way: “We haven’t asked ourselves what size we should be in order to get involved in the business. We asked what business we should do to match our size. “

The Brown Brothers, whose revenue is around 2 2 billion, could be a minor player among the Wall Street giants. But Carabel concludes that the size of the firm is actually a symbol of success. The number of companies of any kind that have been around for two centuries has disappeared. The bigger the better. But that doesn’t always make a company permanent.

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