Standard history of Pittsburg, Pennsylvania, Part 55

Author: Wilson, Erasmus, 1842-1922; Goodspeed, Weston Arthur, 1852-1926. cn
Publication date: 1898
Publisher: Chicago : H.R. Cornell & Co.
Number of Pages: 1192

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The first president of the association was John Harper, the first manager R. M. Cust, and the first clearing-house committee H. M. Murray, T. H. Nevin, John D. Scully, G. A. Endly and John R. McCune. The second manager was S. F. Von Bonnhorst, the third John Stewart and the fourth, elected in 1869, John M. Chaplin. The second president was John D. Scully, and the third (still serving, 1898) George A. Berry. The present members of the clearing-house committee are William Roseburg (chairman), Thomas H. Given, George J. Gor- man, Andrew Long and James J. Donnell. The initiation fee of the association is $5,000. A member may withdraw after due notice, and may be expelled by a vote of the majority. Two negative votes prevent the entrance of a new member. Promptly at 9:30 o'clock a. m. exchanges are begun; from II to II:30 o'clock a. m. all debtor banks must pay to the manager the balances against them in coin, legal tender notes or National currency; after II:30 o'clock a. m. creditor banks receive from the manager the amounts due them. Members act as agents through which outside banks clear. Such outside banks are required to return dishonored checks, drafts and notes before 2 o'clock p. m. of the day of clearing, except banks of Mckeesport and Braddock, which are allowed until II o'clock a. m. of the following day.

The two leading features of the decade of 1870-80 were the panic of 1873 and the redemption of specie payments in 1879. While these were the most important, several others may be mentioned, such as the extraordinary increase in the num- ber of banks in this vicinity; the changes which affected banks by the constitu- tion of 1874, and the great depression of financial affairs in 1878, succeeding the riots of 1877. "The pinch would have been less severely felt had it come in, like a summer's squall at the close of a long summer's day to freshen the atmosphere. Financially the whole year (1870) has been wet, heavy, disheartening, and the stormy day at its close, instead of being a 'panic' thunder-clap, is like many of its predecessors, only more so, wet, soggy and disagreeable. A few years ago we were walking upon air. Now we are wading through the deep mud" (a). The following represents the aggregate business of sixty-six banks, not including those of Allegheny City, as shown by their reports at the close of 1871:

(y) Post, January 8, 1867.

(a) Gazette, January 2, 187I.

(z) Post, 1869.

484

HISTORY OF PITTSBURG.

Capital and Surplus.

Deposits.

National banks.

$12,789,896 $12,868,555

All other banks

5,228,384

13,305,476

Total.

$18,018,280 $26,174,031

"It will be noted that the capital (and surplus) of the National banks is about equal to their deposit line, while the private bankers, State and savings, have a deposit line about two and a half times greater than their capital, which is certainly a state of things conducive to fair earnings and highly expressive of the regard in which they are held by the business community. The loans of the National banks are nearly eighteen millions of dollars" (b).

The stringency was so great during the spring of 1872 that in order to assist business men the banks greatly exceeded the lowest limits of the reserve. On the 19th of April, 1872, the capital of the National banks (nineteen) amounted to $9,600,000; surplus, $3,612,556; circulation, $7,145,176; deposits, $12,738,114; total, $33,095,846. At the same time the loans amounted to $17,636,970. While Pittsburg National banks were required to maintain a reserve of twenty-five per cent., those in Allegheny were required to carry but fifteen per cent. This was considered unjust, as, it was claimed, the banks of the two cities were under precisely the same influences.

Beginning in 1870 the following banks were organized: Enterprise Bank of Allegheny 1870, International Bank 1870, Commercial Banking Company 1870, Germania Savings Bank of Pittsburg 1870, Artisans' Bank 1870, Freehold Bank and Building Association 1870, Germania Savings and Deposit Bank of Birmingham 1871, United Bank 1871, National Bank for Savings 1871, West End Savings Bank 1871, Security Trust Company, Fifth National Bank 1871, Arsenal Bank 1871, Iron and Glass Dollar Savings Bank 1871, Farmers' and Mechanics' Bank of East Birmingham 1872, Odd Fellows' Savings Bank 1872, Real Estate Loan and Trust Company 1872, Allegheny Homestead Bank, Shoe and Leather Bank 1872, Monongahela Savings Bank 1872, Weekly Savings Bank, Liberty Improvement Bank 1872, Bank of Industry 1872, Market Bank 1873, Penn Bank 1873, Anchor Savings Bank 1873. The crash of 1873 cut off all new banking enterprises.

On the 18th of September, 1873, the failure of Jay Cooke & Co., of New York, threw the entire country into a financial panic. The next day the New York banks resolved to stand together and disregard the reserve clause in the National banking law. Terrible runs were made upon the banks of that city and elsewhere throughout the country, and one after another began to go down. Banking and business were wholly suspended, except such action as would protect operations then under way. Financial affairs here were quiet, but it was paralysis, not sleep, while newspapers endeavored to aid banks in the game of bluff. Witness the following: "Here in Pittsburg business in a banking way, while not apparently suffering from the important events transpiring in the East, has been, as it were, brought to a halt. The banks have refused to extend their discounts until matters settle somcwhat, and the course of affairs in the future is indicated. None of our home institutions is affected to any serious extent, and we feel safe in predicting that the calamity, national as it has been, will not result in a panic in Pittsburg, nor occasion to us here any considerable loss. We assure our readers that our home concerns are, without excep- tion, as sound as before the crisis and worthy of unabated credit. This we say advisedly and after careful and searching inquiry" (c).

(b) Commercial, March 16, 1872.

487

HISTORY OF PITTSBURG.

The press had scarcely printed that ingenuous pronunciamento ere the crash of failing banks was heard in the city. The stroke did not come suddenly, but had been gathering force and venom ever since the war through an extra- ordinary era of prosperity. The same old question had again come to distract financial men, of continuing the course of inflation until all credit and all institu- tions should be destroyed, or of courageously meeting the trying ordeal at once, pocketing the losses, sustaining the cares and swinging the ship of State once more, through tempestuous seas, into the harbor of unimpaired credit, hard money and sound sense. Fearing a financial panic here and its consequent run upon the banks, several of the soundest institutions ordered large amounts of currency from New York, but were met by the universal answer, "No bank- notes will be allowed to leave New York City." Regardless of the action of the banks in New York and in other cities, the Pittsburg Clearing-house adopted the following: "Resolved, Unanimously by the banks comprising the Pittsburg Clearing-house Association (all being represented), that they do not consider it necessary to make any change in their customary mode of doing business." Although the drain from country banks which held large reserves in the Pittsburg and Allegheny institutions was immense, all demands were promptly met. Not only that, but the leading banks announced that they would pay a fair price for any good collateral which involved banks might wish to sell. They also assisted down to their reserves, yes, below them, many business establishments in weather- ing the financial gale.

The real crisis fell upon Pittsburg and Allegheny on the 22d of September, 1873, when two banking houses went down-James T. Brady & Co. and the Security Trust Company. The run on the former really began on September 17th and continued moderately until the 21st, and then with increased severity until the 22d. They were the agents of Jay Cooke & Co., and at the time claimed that the failure of the latter firm and the unfounded rumors put in circulation here were responsible for the suspension of J. T. Brady & Co. But it was shown'later that Mr. Brady had invested heavily in the stock of an Ohio Railroad, on which he was unable to realize in time to be of any aid to the bank- ing firm. Not only that, but he owed a large sum to the Security Trust Com- pany, which fact compelled the latter to suspend, the two institutions being closely connected. The total liabilities of J. T. Brady & Co. were fixed soon after the failure at $432,000. The creditors finally agreed to settle by receiving the Ohio Railway stock at seventy cents on the dollar and Tennessee timber land at $10 per acre, such two properties being the principal assets. The indebtedness of Brady & Co. to the Security Trust Company would have been alone sufficient to compel the suspension of the latter. It was afterward shown that while the paid-in capital of the Security Trust Company was $138,000, Mr. Brady had been permitted to borrow, with the knowledge of the board of directors, the sum of $159,000, a gross violation of the law.

The Lawrence Savings Bank, at Penn and Butler streets, suffered a severe run on September 23d, and all demands were met; but confidence was not restored, and, although the doors were opened as usual on the morning of the 24th, the demands continued, and soon after 10 o'clock the institution suspended. This bank was also a partnership, and the run was uncalled for, as the stock- holders were amply able to pay all obligations in time. The capital was $80,000; contingent fund, $40,000. The president was W. W. Young. On September 29th this bank began to pay checks as usual.

In September a severe run was made upon the Nation (formerly National) Trust Company, but all demands were at first met and the doors were kept open half an hour longer than usual on several days. As this bank was a partnership merely, and all stockholders were individually liable for the debts of the institu-

48S

HISTORY OF PITTSBURG.

tion, the run was thought to be without reason, because the stockholders were worth more than $5,000,000, comprising some of the wealthiest men in the city. On the morning of the 24th this bank opened its doors as usual, and confidence in its solvency was restored, but inside disorders obliged it to close again per- manently later in the day. "The Nation Trust Company, which closed its doors early in the panic, and have since been carrying on a precarious hand-to-mouth business, paying one day and not the next, but bravely battling against the stream of adverse circumstances, finally closed down altogether to-day" (d). "Rumor with her thousand tongues has been taking undue liberties with the names of several moneved institutions. One of the banks in question informs us that they have been largely adding to their deposits and increasing their loans and are feeling easier than at any time since the panic began" (e).

Other rumors said that the City Treasurer was short in his accounts, but he publicly courted an immediate and complete investigation, and his official affairs were found to be sound. Rumor continued to retail her warnings, until finally fact disclosed that John Ross, secretary of the Water Commission, who had deposited a large sum in money and bonds with the Nation Trust Com- pany, had probably lost. the whole amount, owing to the absconding of the cashier. It was reported that the bank in its crisis had hypothecated the city securities with the Nation Trust Company of Philadelphia to secure ready money to meet the demands of depositors. The only gleam of hope in this entangle- inent was the liability of the individual stockholders. The cashier, Robert J. Grier, had taken a large sum of money and fled. The courts finally settled the affairs of this bank. It was shown in the testimony, as stated by one of the wit- nesses, that "the cashier was the bank," and that the president and the directors knew little of the inside workings of the institution. Upon the disappearance of Grier with his pockets loaded with cash, the stockholders met and pledged enough property to pay all liabilities of the bank. Serious complications and prolonged litigation sprang from this deplorable failure and the flight of the cashier. "Looking over the events of the past few days we find that we are rapidly recovering from the effects of our fright-for it was only a fright- and that no one so far has met with any serious loss. All three of the suspended banks promise to be in operation by Monday and expect to be able to continue business without any further interruptions" (f). Many growls were made at the way the banks held their funds in hand, because of their experience of last autumn, but the storm found the banks strong in resources and the mer- cantile community with sails all trim. We owe our present safety to the con- servative policy of our banks in restraining their loans to a safe limit" (g).

On November 7, 1873, Ira B. McVay & Co., private bankers, succumbed to the pressure and closed their doors. The failure of this old house caused much excitement. On September 18th their deposits had amounted to nearly $1,000,- 000. They had been constantly drained since the panic began, as had nearly all the other private bankers and small or doubtful institutions. By November IIth the air was filled with rumors of other tottering financial houses. On that day the Duquesne Savings Bank and the Savings and Deposit Bank of East Liberty suspended, assigning as the cause the fearful runs upon them and the want of ready money, owing to their heavy investments in real-estate securities. At this time also the International Bank sustained temporarily a prolonged run. Thomas Mellon & Sons, private bankers, were forced to suspend, owing to the failure of the East Liberty Bank, with which they were intimately connected. Upon inves-

(d) Commercial, November, 1873.

(f) Commercial, September 29, 1873.

(e) Commercial, November 21, 1873.

(g) Commercial, October 6, 1873.

489

HISTORY OF PITTSBURG.

tigation the Duquesne Bank showed $236,782.90 assets and $153,013.86 liabilities. Their proposition to settle in five twenty per cent. installments three months apart was accepted by the creditors. Ira B. McVay & Co. showed $517,659.73 assets and $452,943.34 liabilities. Their proposition to settle in four equal semi- annual installments was not accepted, whereupon Mr. McVay filed a voluntary petition in bankruptcy. Their assignee had paid fifty-five per cent. of the liabilities by July 17, 1875, and estimated that from five to ten per cent. more would be realized. On the 12th of November, 1873, the Mechanics' Savings Bank found itself in serious trouble. It suspended and its principal officers were at first arrested. The arrest of men of such prominence, one of whom was Mayor James Blackmore, "created great surprise, notwithstanding the fact that startling revelations in monetary affairs have been frequent of late" (h). Later the cred- itors agreed to receive their dues in four semi-annual installments. The banking house of S. McLean & Co. also suspended during the panic, showing assets at $186,600.34 and liabilities at $117,235.46. They also went into liquidation, and an assignee closed the affairs of the institution.

"Other than these mentioned every banking house in the city is at present conducting its business as usual, and no apprehensions of failure are admitted in any quarter, the managers of each asserting their full ability to meet every demand" (i). "We may safely say of the local money market that there is no movement perceptible to the most attentive observer, for things have now surely touched bottom and are so firmly grounded that movement is impos- sible. People have ceased to be shocked at the announcements of failures and defalcations and only wonder who will be the next. The past two months have given everybody such a general shaking up that the weak ones must by this time be pretty well shaken out. . It is no exaggeration to say that things are looking up, for the whole body financial, being on the flat of its back, can't well look any other way" (j).

On the heels of this extraordinary period of financial distrust and collapse came the unexpected intelligence that Robert Finney, secretary and treasurer of the Eureka and the Boatmen's Insurance companies, an old and trusted employe, was a defaulter to a large amount. By the middle of January, 1874, however, the excitement of the panic had almost wholly spent itself, leaving in its stead the agony of slow and torturing recovery and many salutary lessons for the profit of financiers. Numerous improvements had been suggested by the mutual relations of banking institutions, which promised that the panic would leave some lasting benefits in accordance with the maxim that "'tis an ill wind that blows nobody good."

During the year 1874 intense distress was almost continuously felt in finan- cial circles. George B. Hill & Co. were forced to suspend and the Workingmen's Mutual Savings Bank, unable to make any profit, dissolved in July. However, the year 1874 as a whole was profitable for the leading banks. During the panic several of the strongest and wealthiest banks, through the medium of their directors or brokers, purchased paper at the highest rates of discount-in other words, took advantage of the necessities of individuals and concerns to charge them excessive rates for accommodation (k). "The year 1874 was undoubtedly one of the severest that has ever bcen experienced since the organization of the National banking system. The panic came in the latter part of September, 1873, and continued to disturb monetary affairs during the remaining three months of the year. During the whole of 1874 the results of the panic were developing themselves, and the banks had to bear their full share of the losses

(h) Commercial, December 1, 1873.

(i) Commercial, November 12, 1873.

(j) Commercial, November 26, 1873 (k) Commercial, June 13, 1874.

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490

HISTORY OF PITTSBURG.

by shrinkage and failures, and yet, during that time, but one institution closed its doors (1). Considering the condition of our manufactures and the small amount of general trade throughout the country the success of our banks has been remarkable and reflects the highest credit on the management of those institutions" (m).

Immediately after the panic special attention was called to the fact that, notwithstanding many National banks had failed in the Union, their notes were still as good as any; and a strong contrast was drawn between conditions under the National system and the old State system of 1857. Much trouble was experienced by local bankers in securing remittances of balances due them from cities where suspensions had been general, or where the Clearing-house had issued certificates to settle balances, particularly from Cincinnati, the reply coming back indorsed on checks and drafts, "Payable through the Cincinnati Clearing-house;" or if currency or exchange on New York was ordered, the answer was returned that such paper was at a premium and could not be sent without much red tape and loss of time. Considerable discussion arose over the fact that one of the National banks was reported to be sending greenbacks East, where it realized thereon a premium of one and one-half per cent. Why was not the money loaned here to business men, who sadly needed it? was the question. "In no single instance of the failure of a banking enterprise has the cause been within the sphere of legitimate banking operations. Since the year 1860, from actual personal knowledge, we can trace the reason of each and every bank failure to causes completely outside and foreign to the field of legitimate financial enterprise. Even during the panic of 1873 the suspensions which occurred have proved this position. Instance the Savings and Deposit Bank of East Liberty, which, upon winding up its affairs, shows not only unimpaired capital, but actually a surplus of earnings of nearly or quite thirty per cent., after the payment of all depositors" (n).

As a result, either direct or indirect, of the panic of 1873-4, the following additional particulars covering the ten succeeding years may be appended: The Allegheny Trust Company, with $220,000 capital and stock selling at 102 and 105, was wound up. The Allegheny Savings Bank, capital $56,250, with shares at 200, likewise went out of business. The Artisans' Deposit Bank,' capital $300,000, and shares selling at twenty per cent. premium and paying dividends of eight per cent., also closed. The Bank of Industry closed up with its capital of $100,000. The Commercial Banking Company was reorganized as the Marine National. The Diamond Savings of Pittsburg became the Diamond National. The Dollar Savings of Allegheny was merged into the Third National of that city. The Duquesne Bank reorganized as the Duquesne National. The Duquesne Savings Bank failed, as before stated. The Fort Pitt Banking Com- pany became the Fort Pitt National Bank. The Franklin Savings Bank of Alle- gheny, with a capital of $200,000 and dividends of twelve per cent., failed. The Franklin Savings Fund and Safe Deposit Company, capital $250,000, also broke. The German Savings of Allegheny became the German National. The Home- stead Bank, capital $640,000, paying fifteen per cent. dividends, failed. The Improvement Trust Company, capital $100,000, dividends fifteen per cent., also failed. The International Bank, with $200,000, perished before paying any dividends. The Keystone Bank, capital $123,000 and paying eight per cent., was closed. The Manchester Savings Bank broke, and what was left of the capital was divided among the stockholders. The Masonic Deposit Savings Bank became the Masonic Bank. The Monongahela Savings Bank closed up.

(1) George B. Hill & Co.

(m) Commercial, February 3, 1875.

(n) Commercial, July 30, 1875.

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491

HISTORY OF PITTSBURG.

The Penn Avenue Trust Company failed. The People's Savings Bank of Alle- gheny, with capital of $100,000, wound up. The Pittsburg Savings Bank broke; its capital was $300,000. The Real Estate Savings Bank failed. The Security Trust Company, which failed, as stated above, had paid as high as eighteen per cent. dividend annually. The Smithfield Savings Bank was wound up. The South Side Savings Bank passed into the hands of a receiver. The Tenth Ward Bank was wound up. The United States Bank was wound up, but gave a profit to stockholders. The Shoe and Leather Bank became the Commercial National Bank. All this did not happen in 1873-4, but was strung along for ten years, and resulted to unsound or new and untried institutions during the efforts of the Government to place the national finances on a specie, as well as a sound, basis (o).

At the close of 1874 there were one hundred banking institutions in this vicinity, as follows (p):

National banks, Pittsburg 18

National banks, Allegheny

Savings and other banks, Pittsburg 42

Banks represented by assets

Private bankers, Pittsburg

Private banker, Elizabeth

Private banker, Mansfield.

Savings and other banks, Allegheny

Savings and other banks, South Side.

Savings and other banks, Sharpsburg.

Savings and other banks, Mckeesport.

Savings bank, Braddock.

Total IO0

The following banking institutions were in business here late in 1874, the first eighteen being members of the Clearing-house, the numbers corresponding to their position in that association: 1, Bank of Pittsburg; 2, Exchange; 3, Merchants' and 'Manufacturers'; 4, Citizens'; 5, Iron City; 6, Mechanics'; 7, Allegheny; 8, First; 9, Second; 10. Third; II, Farmers' Deposit; 12, Union; 13, People's; 14, German; 15, First of Allegheny; 16, National Bank of Com- merce; 17, N. Holmes & Sons; 18, Tradesmen's; and the following, not being members of the Clearing-house, the numbers indicating through which member of the association they cleared: Anchor Savings, 8; American, II; Artisans', 18; Allegheny Savings, 7; Allegheny Real Estate, 15; Allegheny Trust, 17; Arsenal, 16; Allegheny Homestead, 11 ; Bank of Industry, 7; Braddock's Trust, 8; Central, 7: Commercial Banking Company (Mckeesport), 2; City National, 8; City Deposit and Trust Company, 16; Diamond Savings, 3; Duquesne, 2; Diamond Savings, of Allegheny, 15; Dollar Savings, of Allegheny, 4; Enterprise Savings, of Allegheny, 14; Fort Pitt Banking Company, 4; Freehold, 7; Fifth Avenue, 18; Franklin Savings, of Allegheny, 12; Farmers' and Mechanics', of Sharpsburg, 7; Farmers' and Mechanics, of Birmingham, 10; First National, of Birmingham, II; German American, 5; German Savings, of Allegheny, 10; German Savings and Deposit, of Birmingham, 14; Girard Savings, of Allegheny, 15; Hoboken Savings, 7; Hart, Caughey & Co., 7; International, 14; Iron and Glass Dollar Savings, of Birmingham, 6; Keystone, 8; Lawrence Savings, 12; Liberty Improvement, 4; Masonic Deposit Savings, 7; Metropolitan, 18; M. L. I. and Improvement T. Company, 5; Monongahela Savings, 13; Manchester Savings, of

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Standard history of Pittsburg, Pennsylvania, Part 55

Author: Wilson, Erasmus, 1842-1922; Goodspeed, Weston Arthur, 1852-1926. cn Publication date: 1898 Publisher: Chicago : H.R. Cornell & Co. Number of Pages: 1192

Author: Wilson, Erasmus, 1842-1922; Goodspeed, Weston Arthur, 1852-1926. cn
Publication date: 1898
Publisher: Chicago : H.R. Cornell & Co.
Number of Pages: 1192