Increased underwriting, sales, and brokerage were not the decade's only new developments. The character of the securities markets itself changed significantly, with stocks becoming increasingly popular, particularly toward the end of the decade when more and more corporations adopted the practice of paying regular dividends. Another important development was the change in size and makeup of the investment banking community as more and more metropolitan commercial banks organized wholly-owned security affiliates to provide users and suppliers of capital, both individuals and corporations, with all the financial services commonly performed by long-established firms like Kidder, Peabody. In addition to the security affiliates whose resources and facilities exceeded by far those of the largest old-line private banks, prewar investment firms also had to face the additional competition of new houses, some of which got their start financing regional and other enterprises overlooked or avoided by the industry's leaders. These changes, together with others designed to attract new investors with little capital, forced most firms to adopt policies suited to the changing demands of a new era.
Adjustment to the new conditions varied widely. Some firms adapted to the changing times more easily than others. Kidder, Peabody was not one of them. In some respects it remained highly conservative; in others, it followed the expansive and optimistic trends of the boom years.
Kidder, Peabody's ambivalent adjustment to the new era was reflected in many of its policies and practices. To a large extent this was due to Robert Winsor, officially the senior partner since 1919. He was sixty-one years old then, and one of the last major pre-World War I financiers still actively engaged in business. Most of the other great names of Winsor's era were either dead or in retirement. Leadership had passed to a new generation. To many of Wall Street's new chieftains, unfamiliar with his record or reputation in New England (some State Street bankers referred to him as "the J. P. Morgan of Boston"), Winsor represented an older era with a different ethic. His decision to keep Kidder, Peabody's headquarters in Boston instead of centering the firm's activities in New York City reflected Winsor's adherence to tradition and strong commitment to New England enterprises. New York was the world's financial center in the 1920s, but Winsor spent only one day a week-Mondays-at the firm's Wall Street office on the third floor of the New York Stock Exchange building at the comer of Broad and Wall, directly across the street from J. P. Morgan & Co., probably the greatest bastion of conservative banking in the 1920s. Winsor, a friend of J. P. (Jack) Morgan, who had succeeded his father as head of the house in March 1913, shared similar views on what was proper banking practice.
Winsor's conservatism also showed itself in the types of securities Kidder, Peabody sponsored. At a time when equities were growing in public favor, the firm continued to underwrite chiefly bonds and notes, principally for railroads and public utilities. Among the latter, those of the American Telephone & Telegraph Company represented a substantial share of the firm's total corporate debt offerings. Kidder, Peabody also sold foreign bonds. Included among these were issues of several South American and Far Eastern governments. But the firm did not emphasize these securities, and Winsor himself was skeptical of the merits of many of the foreign loans sold. "I think we have invested too much capital abroad and must pay the penalty," he told Clarence Barron in August 1928.
The same caution was apparent in Kidder, Peabody's attitude toward most common stock. At no time during the 1920s did these issues account for more than 25 percent of the firm's total yearly corporate offerings, with that volume not being reached until 1929. Prior to then Kidder, Peabody's yearly common stock offerings amounted to considerably less. The figure for 1927 was 9 percent, rising to 13 percent in 1928, the year of the great bull market. Nor were the firm's common stock offerings obviously risky or speculative. Most of them were the issues of financial institutions, mainly banks and insurance companies, with Kidder, Peabody's own investment trust shares becoming more important toward the end of the decade. The firm's offerings of industrial common lagged behind its sponsorship of shares in financial institutions until 1927; that year the two became equal and in 1928 the volume of industrials exceeded the other, only to drop again to second place in 1929.
Caution and conservatism also was displayed in Kidder, Peabody's advice to its clients. This was especially true of its recommendations concerning equities. Winsor's lukewarm endorsement of common stocks, however, did not extend to the shares of the American Telephone & Telegraph Company (AT&T), which Kidder, Peabody advertised in May 1921 as "one of the soundest stocks in the world."
Until then Kidder, Peabody's association with AT&T had been chiefly as a co-managing underwriter of the company's debt offerings. During the 1920s the firm also became a major retailer of its capital stock. Early in 1921, as part of its long-term financial planning and also to dispel some recent unfavorable newspaper comments about the quality of its common stock, the company called on Kidder, Peabody to help it raise new equity capital by widening the market for its stock, which AT&T's directors made more attractive by voting a yearly $9-a- share dividend. Winsor and Sargent, the two Kidder, Peabody partners in charge of the firm's campaign to publicize AT&T common, started by adding forty young women to the staff of the Boston office with no responsibilities other than writing to every telephone subscriber in the greater Boston area advising them to buy the company's shares and use the dividends to pay their telephone bills. Kidder, Peabody also circularized its correspondents and other brokerage houses throughout New England, New York, northern New Jersey, and Illinois-the territory agreed upon by Winsor and the company-urging them to recommend AT&T common as an investment security.
The 1921 campaign proved highly effective. "I think Winsor has performed a service of the greatest possible value to the Company, with extraordinary skill," Charles Francis Adams, the Boston lawyer who later became Herbert Hoover's Secretary of the Navy, informed Harry B. Thayer, AT&T's chief. Thayer agreed, and in a letter to Winsor asking him to continue the publicity and sales campaign another year, praised the banker's work saying his "efforts to produce wider distribution of the shares have accomplished noteworthy results." After September 1921, when AT&T organized the Bell Telephone Securities Company to promote the sale of the entire system's securities, Kidder, Peabody coordinated its efforts with those of the newly organized corporation. In November 1922, a month before Kidder, Peabody's campaign came to a close; Thayer wrote Winsor a personal letter thanking him for putting his reputation behind AT&T at a time when some "investment houses and investment advisers" had suggested that it might have to cut its dividend. You told "the world that the Company was all right," Thayer wrote, "and the world believes."
No other common stock enjoyed Winsor's similar confidence. Nor was he impressed by booming stock prices. The more they rose, the more fearful he became. In June 1928 Kidder, Peabody circularized its clients warning them that while the firm was "not predicting a big crash," they should take note that the market was "in a relatively high area." "No one is competent to say that common stocks, good or bad, will not go higher," the circular stressed. All it was intended to do was "to give the facts of the situation," which it did by citing the Dow-Jones averages. The decision to hold or sell was up to the investor. Should the decision be to sell, Kidder, Peabody suggested alternative ways to employ funds. The investor might keep them on deposit with the firm, which then was paying 3.5 percent "on time deposits of reasonable size," or reinvest them. The only securities Kidder, Peabody recommended at that time were bonds and notes, mostly railroads, public utilities, and various AT&T debt issues.
Winsor's adherence to tradition also accounts for the fact that throughout the 1920s, when many investment firms concentrated almost exclusively on investment banking services, Kidder, Peabody, like the house of Morgan, remained a diversified private banking house much as it had been at the time of its organization. It continued to accept deposits, mainly those of its corporate and government clients. The Italian government's account continued to be one of its largest. During the war when Kidder, Peabody was appointed paying agent for some of Italy's war purchases in the United States, the account exceeded $100 million; in the 1920s it fell to less than $10 million, with the funds being used chiefly in foreign exchange operations, maintaining a market for the Italian lira, and paying Italy's war debt installments to the American government. Some of the firm's other foreign deposit accounts, all of them substantially smaller than the Italian government's, were those of the Anglo-Czechoslovak Bank for which Kidder, Peabody served as one of its paying agents, the Banco di Napoli, the National Bank of Egypt, and the Banque Beige, all of which were used mostly for foreign exchange and in the remittance business. Among the firm's domestic corporate accounts, AT&T's was one of the largest. Opened in July 1921, the $11 million deposit was used to finance Winsor's campaign to widen ownership of AT&T stock, and subsequently for the company's securities transactions. Kidder, Peabody paid interest on these deposits and invested the funds in the call money market.
The firm also continued trading in foreign exchange and issuing commercial letters of credit. Kidder, Peabody's letters of credit, issued jointly with Baring Brothers, were used by many American businesses importing raw products from abroad. Some of the firm's most important clients included Goodyear Tire, Remington Rand, Allied Kid, Roger Pyatt Shellac, and the Amoskeag Manufacturing Company. The firm's foreign business occupied almost all the time and attention of four partners, two in Boston and two in New York, and accounted for some $10 million of Kidder, Peabody's annual business, rivaling underwriting as the chief source of earnings. Before World War I the firm also had dealt in bankers' acceptances, but in the 1920s the business of providing commercial credits in dollars to finance imports and exports was assigned to the Kidder, Peabody Acceptance Corporation, the first of the banking house's several affiliates to be organized during that decade.
Next to its banking services, which contributed so significantly to sustaining Kidder, Peabody's profits and reputation in the 1920s, the firm's other principal activity was underwriting. This combination of banking and underwriting, the two pillars upon which the firm had been built and which had served so well in the pre-World War I era, fitted perfectly with Winsor's image of the firm as a "prudent and conservative" private banking partnership similar to J. P. Morgan & Co., Kuhn, Loeb & Co., and a few others like them. But whereas in the previous half century Kidder, Peabody had been among the half-dozen or so leading originators and underwriters of new issues, the firm ceased to belong to that select group of houses in the 1920s. Not only did it originate fewer prime issues, but it also participated less frequently in underwriting syndicates. Between 1925 and 1930, when the value of new corporate offerings more than doubled, Kidder, Peabody served as sole or chief manager of only seventeen offerings, most of which were for companies domiciled in New England, such as the region's three major railroads-the Boston & Maine, Maine Central, and the New York, New Haven & Hartford. Some of the other important financings originated and managed by Kidder, Peabody in those years were for Winchester Repeating Arms Co., United Drug, Inc., United Merchants & Manufacturers, Inc., and Commercial Credit, the last being a jointly managed account.
None of these financings, however, was as profitable or as prestigious as Kidder, Peabody's participation in the syndicates organized to distribute the debt offerings of AT&T and its associated companies. Between 1920 and 1930 the Bell System sold $797 million of bonds and notes, for which the bankers syndicating these issues received $26.9 million in gross commissions. Kidder, Peabody headed the New England group that sold these securities and, in addition, the firm itself had a 15 percent underwriting participation of its own, an amount second only to the managing banker, J. P. Morgan & Co., with 20 percent.
Kidder, Peabody did not occupy as prominent a position in any of the other choice offerings of the 1920s. Not only did its total underwriting participation fall off badly, but the firm's name appeared in only 14 percent of the 102 offerings managed by Morgan & Co. and less than 2 percent of those headed by Kuhn, Loeb & Co.
Kidder, Peabody's total underwriting performance in the 1920s was spotty. While the Boston office showed a yearly underwriting profit from 1925 through 1930 with the peak- nearly $736,500-reached in 1928, the New York City branch during these years registered its largest gain in 1926, some $210,000. Twice, in 1927 and 1929, the underwriting losses at the Wall Street office were so large that they wiped out whatever profits Boston had made in this area of the firm's business. Such was the case in 1927, when New York's losses (almost $543,500) forced Kidder, Peabody's underwriting account into the red by nearly $19,500. The firm's underwriting losses helped weaken its capital position and contributed to its search for other ways to generate new funds.
