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Growth Despite the Anti-trust Trial

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Kidder, Peabody, like most other investment houses, shared in the economy's spectacular expansion that followed the surrender of Japan in August 1945. For almost a quarter of a century, from 1945 through the early months of 1969, the economy registered impressive gains. The sustained advance, interrupted only by a few brief, mild setbacks, stemmed from many sources: an increase in population (from 140.1 million in 1945 to 205.0 million in 1950 with the largest gains registered in the West); the accelerated pace of urbanization, particularly in the Southwest and Far West, with the greatest growth everywhere occurring in the suburbs rather than in the central cities; and an equally striking increase in income.

Seldom before had the country enjoyed so long a period of virtually uninterrupted prosperity. Gross national product expressed in 1958 dollars more than doubled between 1945 ($355.2 billion) and 1970 ($722.5 billion), and during the same period per capita disposable personal income (also measured in 1958 dollars) increased from $1,642 to $2,610, a rise of almost 59 percent. The advance in income owed much to the striking gains in productivity-output per person-hour in private industry more than doubled between 1947 and 1970 and this advance, in turn, rested heavily on the expanded use of new and improved technological processes, the most dramatic of which was the mechanized regulation achieved with computers. To meet the demands of a growing and increasingly affluent people, and at the same time to supply Europeans with the massive quantities of goods necessary to reconstruct their wartorn countries-mostly financed through the Marshall Plan and other similar aid programs-American business executives increased their expenditures for new plant and equipment by more than four times, from some $19.3 billion in 1947 to over $79.7 billion in 1970. Investment houses like Kidder, Peabody occupied a decisive position in helping corporations and governments raise the vast amounts of capital necessary to finance the economic expansion of the post-World War II era. Total corporate issues soared from $5.9 billion in 1945 to $38.9 billion in 1970, and state and municipal offerings grew by an even greater amount, from $795 million to $24.3 billion.

At the very time Kidder, Peabody was entering upon its most expansive years, the partners were forced to defend themselves against a prolonged and costly antitrust suit. The trial stemmed from some of the same old anti-Wall Street prejudices, fears, and suspicions that had sparked the Pujo money trust investigation of 1912 and that underlay many of the congressional probes of the 1930s. In October, 1947, the Justice Department accused Kidder, Peabody along with sixteen other top investment houses of having combined and conspired to monopolize, and in effect having monopolized, the securities business of the United States.

The trial, one of the longest and costliest in the history of antitrust prosecutions, resulted in a total defeat for the government. Kidder, Peabody's record as an underwriter during the years 1935 through 1949, the period covered by the Justice Department's complaint, contributed significantly to shattering the government's charge of lack of competition in the investment banking business. The defense repeatedly cited the firm's record as syndicate managers and underwriting participants to refute some of the government's most important allegations. Nor did the government uncover any evidence to show that Kidder, Peabody used its representation on corporate directorates to dominate or influence issuers as charged in its complaint; and the Justice Department's attorneys also failed to prove, despite the hundreds of documents offered in evidence, that the firm refused to compete for business simply because some other investment house had sponsored a company's earlier issues or was represented on the corporation's board. Kidder, Peabody, Gordon testified, made it a practice to compete for every issue "we think we have much chance of getting."

Proof of Kidder, Peabody's successful competitive practices was documented fully in detailed statistical tables. The data covering the years 1935 through 1949 disclosed the dollar amounts and number of participations of the seventy-five top investment houses, including the seventeen defendants, "in all underwritten new and registered secondary issues [in excess of $1 million] of domestic and foreign business corporations and foreign governments (excluding domestic railroad equipment trust certificates)." The tables included both negotiated and competitively sold offerings. Another set of exhibits, employing the same criteria of selection, provided quantitative evidence on the seventeen defendants' activities as "managers or agents" for securities sold at bids and by negotiation. Non-underwritten public offerings and direct placements of $100,000 or more also were listed in the tables setting forth the data on negotiated issues.

Analysis of the statistics laid bare Kidder, Peabody's remarkable recovery from the brink of bankruptcy and its impressive performance as manager or agent and underwriter. In the period 1938 through 1940 Kidder, Peabody ranked in twenty eighth place in terms of its dollar volume of new negotiated underwritten managements of $1 million or more; in the three year period between 1944 and 1946 it had shot up to ninth place, then declined to tenth place in the next three-year period. Even more impressive was the firm's progress in the dollar amount of its underwriting participations in offerings of the same type. The record showed that in this category of transactions Kidder, Peabody jumped from twelfth place in the years 1938 to 1940 to second place in the period 1947 to 1949. But the firm's greatest gains were registered in negotiated underwritten managements of smaller issues, those between $100,000 and $1 million. Its dollar position in this category soared from two-hundredth place "no rank whatever," in Judge Harold R. Medina's words-to first place in the years 1947 to 1949. The underwriting and management statistics, defense counsels stressed, not only disproved the government's charges against Kidder, Peabody but, together with other evidence and testimony, also undermined significantly the Justice Department's allegations against the other sixteen defendants. The inclusion of Kidder, Peabody in the trial, said the firm's attorneys, demonstrated the fundamental weaknesses of the government's entire case, a view with which Medina concurred when he dismissed "the complaint... on the merits and with prejudice."

Costly and burdensome as it was, the antitrust trial yielded Kidder, Peabody some important benefits. It disclosed the extent of the firm's recovery and confirmed beyond dispute its position as one of the leading investment banking houses in the United States. No amount of skillfully prepared advertising copy could have done as much as its own unadorned record to establish Kidder, Peabody's status and reputation among business executives and financiers.
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