The techniques bankers had developed to finance railroads now were employed to launch the industrial giants and mergers of the 1890s and early years of the twentieth century. Kidder, Peabody participated in many of the transactions that transformed privately held enterprises into publicly owned companies. Before 1900 the Boston Stock Exchange was the principal market for industrial securities and Kidder, Peabody was among the first of the major houses to offer these issues. It participated in converting Procter & Gamble from a family partnership into a publicly owned corporation, and the firm took an active part in sponsoring, planning, and helping distribute the securities of several major consolidations, among them the American Sugar Refining Company, P. Lorillard & Co., New England Cotton Yarn, a company with which the firm remained closely associated, National Shawmut Bank, an early bank merger, and American Telephone & Telegraph (AT&T), one of the first major utility holding companies.
At a time when telephone securities were not widely held outside New England and the company and its subsidiaries needed huge amounts of capital for expansion and improvements-an estimated $200 million in five years-Kidder, Peabody was one of the first major houses to develop a national and international market for AT&T bonds. The firm negotiated its first offerings for the company in 1899, an issue of collateral trust bonds for $7 million and another for $3 million, followed by still another for $5 million the next year.
But Kidder, Peabody did more than finance the company's early expansion. It also helped AT&T strengthen its position in a rapidly growing and, at the time, highly competitive business. In 1901, together with AT&T president Frederick P. Fish, Kidder, Peabody helped plan the reorganization of the Erie Telegraph & Telephone Co., a financially troubled corporation with subsidiaries in six Middle Western states and Texas. The reorganization not only extended AT&T's facilities but, more important still, virtually eliminated its most powerful rival, the Telephone, Telegraph, and Cable Co., an independent corporation that had sought to use the Erie Company to challenge the Bell System's dominance of the telephone business. Except for a $20 million issue of notes sold competitively to Speyer & Co. and Lee Higginson & Co. in 1904, Kidder, Peabody continued to serve AT&T as its principal Boston bankers. In 1905 the firm, together with Baring Brothers, submitted the winning bid for $25 million of AT&T bonds, $5 million of which Kidder, Peabody sold privately. The Barings took $6.5 million, with the remainder being offered for public subscription in Boston, New York, and through correspondents, in Chicago, St. Louis, and Amsterdam. AT&T's continuing and mounting need for capital, amounts far greater than could be obtained from its traditional sources, led Kidder, Peabody to secure the assistance of J. P. Morgan & Co. and Kuhn, Loeb & Co. The three firms, together with Baring Brothers, became AT&T's chief bankers, heading most of the syndicates that sold the company's securities, the first of which was organized in March 1906 to distribute $150 million of convertible bonds. The issue was offered to the public in installments over a two-year period, with Kidder, Peabody responsible for sales in New England. Meanwhile, the firm also helped sell the securities of AT&T's subsidiaries. Between November 1909 and September 1912, Kidder, Peabody distributed nearly $68.5 million of bonds for the New York Telephone Co. The firm's expanding role in the financial affairs of AT&T and its operating subsidiaries, particularly its activities in enlisting the aid of Chicago brokerage houses to use their "best efforts" to develop new markets for telephone securities, made Kidder, Peabody one of the largest distributors of these issues in the United States.
During the early years of the twentieth century when Kidder, Peabody was making a specialty of telephone securities, the firm also participated in launching the United States Steel Corporation, the nation's first billion-dollar corporation. Kidder, Peabody was one of the two private banking houses (Morgan's firm was the other) that was included in the underwriting syndicate to distribute United States Steel's common stock. The firm also sponsored and distributed the securities of other smaller companies, not only in New England but throughout the United States. The corporations served by Kidder, Peabody included interurban trolley lines, gas and electric utilities, light and heavy industrials, regional railroads, textiles, mines, as well as banks and trust companies.
When foreign governments first started borrowing in the United States, Kidder, Peabody also participated in these operations. In 1900 and 1901 the firm, together with J. P. Morgan & Co. and its Philadelphia partnership (Drexel & Co.), distributed millions of British consoles. During the next few years Kidder, Peabody helped sell four other foreign government loans, all sponsored by groups headed by either Morgan & Co. or Kuhn, Loeb. These included issues for Japan (1905), Argentina (1909), Austria (1912), and in the latter year a small offering by the city of Tokyo. Kidder, Peabody's foreign exchange, letter of credit, and acceptance business also contributed to the firm's reputation as a foreign banking house. In 1907 the Italian government made Kidder, Peabody its bank of deposit, an account which the firm was to hold until 1931.
Unlike some private banks, notably the House of Morgan and Kuhn, Loeb, which were primarily originators and wholesalers of new securities, Kidder, Peabody was one of the few national firms that provided a full range of investment banking services. It originated, purchased, and underwrote securities, sold some of them in large blocks to wealthy individuals, to institutions such as life insurance and trust companies, and to brokerage houses across the country, which resold them to investors. And it also kept sizable amounts of the issues it sponsored for its own clients, many of whom were individuals of modest means. Not a few of these small sales involved only one or two bonds or a few shares of stock.
Boston continued to remain Kidder, Peabody's principal office, even though New York City had been the nation's investment banking center for almost a half century. But as the firm's securities business expanded so did its New York operations, and the representative office at Wall Street that was opened by Magoun in 1868 was made a branch three years later and operated under the Kidder, Peabody name.
Like most other private banking houses of the late nineteenth and early twentieth century, Kidder, Peabody's policies were determined entirely by the partners, whose numbers always remained small. At no time did the firm have more than a dozen partners, and it only reached that number in 1928. The first new partner, Magoun, was admitted in 1872, a year after he had been put in charge of Kidder, Peabody's New York City branch. No one else was invited to join the partnership until January 1886, when Thomas Baring joined Magoun in New York as a general partner "on the same basis" as the others. Later that year five additional partners entered the firm, three in Boston and two in New York City.
The new arrangement-five partners in Boston and four in New York-continued until April 30, 1891, when the firm was dissolved and reformed the next day as two separate partner-ships: the one in Boston kept the Kidder, Peabody name; the New York firm styled itself Baring, Magoun & Co. Each continued to be the agent of the other.
At the time of the dissolution Kidder, Peabody's capital "was understood to be" about $5 million, of which approximately $3 million was allocated to the Boston firm and the balance assigned to the New York branch. Thomas Baring, who withdrew from the Boston firm to become a partner in New York, contributed an additional $2 million, giving Baring, Magoun an initial capital of $4 million. The New York firm also added a new partner, Cecil Baring.
The organization of Baring, Magoun left Kidder, Peabody with four partners: Webster and three Peabodys (the two surviving founders and Francis' son Frank). Five others were added in the next twenty years, three in Boston and two in New York. Robert Winsor, the son of a prominent Winchester, Massachusetts, physician and Harvard classmate of Theodore Roosevelt, was made a partner in January 1894. Winsor had started as a clerk with Kidder, Peabody in July 1880 immediately after graduating from Harvard. After Francis Peabody, the last of the founders, died in September 1905, the sixty-three-year-old Webster became official head of the house, but "most of the detail and management of the concern's many important transactions fell on Winsor's shoulders," reported The Bankers Magazine.
New partners were not expected to contribute to the firm's capital or to pay anything for the goodwill of the business, and none of Kidder, Peabody's did so. Webster, who had opened the firm's accounts in 1865 and "witnessed the first and only written articles of co-partnership… ever drawn," explained the accepted policy. It was understood, Webster said, "that we [new partners] should pay no consideration to the other partners for the purpose of entering the firm, nor should we receive any consideration when we retire, either voluntarily or by death, for any other items than our deposit of moneys with the firm, the interest to which we might be entitled as the result of such deposit from the date of the last payment of interest up to the date of our retirement or death, and a sum of money for our share of the earned profits of the concern from the date of the last division up to the date of our retirement or death."
All arrangements among the partners were and remained verbal, including each one's percentage of the profits. When a partner retired or died his interest in the firm was settled by payment in cash and securities. "I think it a wonderful record," Webster recalled after more than a half century with the firm, that "at no time has any question arisen in respect to the partnership in which we were not all in accord."
The small staff of clerks, which grew from four in 1865 to seventy-five at the turn of the century, assisted the partners in operating the business. Almost all of them had started with the firm as young men, with many recruited from among the partners' relatives, friends, and business associates. Starting salaries were low, even for 1900: $4 a week for errand boys, the usual starting position. When they reached the status of clerks with two or three years' experience, the weekly stipend was $12. Clerks were instructed not to speculate. The firm's regulations on this subject, originally set forth in December 1868, were specific. "Nothing is more injurious to young men than to indulge in ideas of speculative prosperity. It perverts the judgment and destroys habits of industry, and leads to almost certain ruin, and no clerk can be allowed to take part in speculative operations of any kind." The opportunity of being given an interest in the firm compensated, to some extent, for the low stipends and the "years of patient preparation, industry, and self-denial" the partners expected of the clerical staff. Of the seventy-five clerks in 1905, eight subsequently became partners while several others rose to prominent positions in affiliated firms. The rest of the office staff was composed of women stenographers, of whom there were ten in 1905.
