Jay Cooke & Company
Encyclopedia
Jay Cooke & Company was a U.S. bank
from 1861 to 1873. It was the first brokerage house to use telegraph messages to confirm with clients the purchase and sale of securities. Headquartered in Philadelphia, Pennsylvania, it had branches in New York City
and Washington, DC. The bank closed during the Panic of 1873
, overextended in railroad securities.
founded the bank in 1861 with William E.C. Moorhead, split two-thirds to one-third. Later partners included Cooke's brothers, Henry and Pitt, then H.C. Fahnestock and Edward Dodge, who would hold the bank's seat on the New York Stock Exchange
after 1870.
During the American Civil War
, Cooke & Company sold hundreds of millions of dollars in Union government bonds. Its reputation among investors around the world enabled the bank to sell these bonds when other brokerages could not. Secretary of the Treasury Salmon Chase asked Cooke to try to sell the government's new $500 million issue of 5-20 bonds. These paid six percent interest (in gold) and matured in 20 years, but were callable
in five years. Cooke used numerous agents from a variety of professions — small bankers, insurance agents, and real estate professionals — to sell these bonds to support the Union war effort. Cooke & Company's innovation use of telegraphs to confirm sales allowed selling throughout the country to be coordinated in Philadelphia.
scare, however, it became apparent that Cooke & Company would have to find other sources of capital. The firm turned to investing in railroads. In 1870, the Northern Pacific Railroad made Cooke & Company its exclusive bond agent. But Cooke had difficulty marketing the bonds to investors, wound up owning 75 percent of the company, and overextended his bank. As this liability became public, investors began withdrawing money from Cooke & Company.
Cooke & Company wrote liabilities against expected returns from the sale of its Northern Pacific Railroad bonds, but ultimately could not sell enough bonds to meet its obligations. A run on the Jay Cooke & Company bank ensued, and its operations were suspended. When the New York Stock Exchange heard the announcement, equities plummeted, causing a chain reaction of bank runs and failures throughout the United States that signaled the arrival of the Panic of 1873
to American shores.
Bankruptcy commenced soon after the collapse. Many of the junior partners at Cooke did not suffer when the bank collapsed because they anticipated the failure and had divested from assets that would crumble if Cooke became insolvent. The government seized most of Cooke's larger estates while Cooke moved to one of his smaller properties. Many of Cooke's allies in the banking business soon collapsed, including Livermore, Clews & Co and Fisk & Hatch.
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
from 1861 to 1873. It was the first brokerage house to use telegraph messages to confirm with clients the purchase and sale of securities. Headquartered in Philadelphia, Pennsylvania, it had branches in New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
and Washington, DC. The bank closed during the Panic of 1873
Panic of 1873
The Panic of 1873 triggered a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression...
, overextended in railroad securities.
Early years
Jay CookeJay Cooke
Jay Cooke was an American financier. Cooke and his firm Jay Cooke & Company were most notable for their role in financing the Union's war effort during the American Civil War...
founded the bank in 1861 with William E.C. Moorhead, split two-thirds to one-third. Later partners included Cooke's brothers, Henry and Pitt, then H.C. Fahnestock and Edward Dodge, who would hold the bank's seat on the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
after 1870.
During the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
, Cooke & Company sold hundreds of millions of dollars in Union government bonds. Its reputation among investors around the world enabled the bank to sell these bonds when other brokerages could not. Secretary of the Treasury Salmon Chase asked Cooke to try to sell the government's new $500 million issue of 5-20 bonds. These paid six percent interest (in gold) and matured in 20 years, but were callable
Callable bond
A callable bond is a type of bond that allows the issuer of the bond to retain the privilege of redeeming the bond at some point before the bond reaches the date of maturity. In other words, on the call date, the issuer has the right, but not the obligation, to buy back the bonds from the bond...
in five years. Cooke used numerous agents from a variety of professions — small bankers, insurance agents, and real estate professionals — to sell these bonds to support the Union war effort. Cooke & Company's innovation use of telegraphs to confirm sales allowed selling throughout the country to be coordinated in Philadelphia.
After the war
After the war, Cooke & Company continued to fund its investments through the sale of US treasuries. After the Black FridayBlack Friday (1869)
Black Friday, September 24, 1869 also known as the Fisk/Gould scandal, was a financial panic in the United States caused by two speculators’ efforts to corner the gold market on the New York Gold Exchange. It was one of several scandals that rocked the presidency of Ulysses S. Grant...
scare, however, it became apparent that Cooke & Company would have to find other sources of capital. The firm turned to investing in railroads. In 1870, the Northern Pacific Railroad made Cooke & Company its exclusive bond agent. But Cooke had difficulty marketing the bonds to investors, wound up owning 75 percent of the company, and overextended his bank. As this liability became public, investors began withdrawing money from Cooke & Company.
Cooke & Company wrote liabilities against expected returns from the sale of its Northern Pacific Railroad bonds, but ultimately could not sell enough bonds to meet its obligations. A run on the Jay Cooke & Company bank ensued, and its operations were suspended. When the New York Stock Exchange heard the announcement, equities plummeted, causing a chain reaction of bank runs and failures throughout the United States that signaled the arrival of the Panic of 1873
Panic of 1873
The Panic of 1873 triggered a severe international economic depression in both Europe and the United States that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression...
to American shores.
Bankruptcy commenced soon after the collapse. Many of the junior partners at Cooke did not suffer when the bank collapsed because they anticipated the failure and had divested from assets that would crumble if Cooke became insolvent. The government seized most of Cooke's larger estates while Cooke moved to one of his smaller properties. Many of Cooke's allies in the banking business soon collapsed, including Livermore, Clews & Co and Fisk & Hatch.