Goodbye, Smith Barney
- Joshua M Brown
- September 25th, 2012
As part of my research for my book, Backstage Wall Street, I delved deep into the history and folklore of Wall Street. I learned all sorts of amazing things about the financial institutions that have shaped the way America has lived and carried on business these past few hundred years. Of all the firms I read about and researched, almost none were quite as storied and embedded in the firmament as was Smith Barney, a brand that has just been buried today with the below press release from Morgan Stanley, its pallbearer:
Morgan Stanley (NYSE: MS) today announced that its U.S. wealth management business, Morgan Stanley Smith Barney, has been renamed Morgan Stanley Wealth Management (MSWM).
Morgan Stanley Wealth Management is an industry leader, managing $1.7 trillion in client assets through a network of 17,000 representatives in 740 locations. Morgan Stanley on September 11 announced an agreement with Citigroup to increase its majority ownership of MSWM such that Morgan Stanley will assume full control by June of 2015, subject to regulatory approval. The business was formed in 2009 as a joint venture between Morgan Stanley and Citi’s Smith Barney.
“Today, as we move under one name, we are culminating a three-year effort to integrate two outstanding franchises,” said James Gorman, Chairman and Chief Executive Officer of Morgan Stanley. “The Smith Barney name stood for investment excellence for three-quarters of a century, and Morgan Stanley Wealth Management will provide the first-class service that has distinguished Morgan Stanley as a firm for more than 75 years. Going forward, we remain focused on being the world’s premier wealth management group.”
Before we shovel the dirt on, however, let's take a moment to reflect on the name that will now be lost to history...
The first person you should be aware of is the legendary financier Jay Cooke, a treasury bond salesman whose efforts helped fund the Union army during the civil war. Cooke eventually went broke through excess speculation (sound familiar?) and this actually caused the major Panic of 1873. But Cooke had a nephew named Charles Barney who would set up his own eponymous brokerage at the end of that year, in Philadelphia of all places - decades before Morimoto or Budokan would open their restaurant doors in that heathen outpost of a town. Anyway, 20 years later another Philadelphian financier, Edward Smith, would found an investment bank across town.
One of Barney's daughters marries a man named J. Horace Harding who eventually takes the chairmanship from his father-in-law and the company's begins an ambitious growth phase. At the same time, Edward Smith consolidates power around his firm's corporate relationships - he serves on the board of more than 40 large companies and is ostensibly in business with all of them.
Over the next 30 years the two firms grew quickly and expanded, first into New York via seat purchases on the NYSE and later into the midwest as several high profile competitor firms went bust and divested themselves to Barney & Co and to Smith's firm. Then the Depression hits and Edward Smith & Co falls on tough times. The company has a cash crunch in 1937 and it merges with Barney's brokerage firm. The combined firm, Smith, Barney & Co will have over 700 employees and it will turn its back on dealings with the general public in favor of a more institutional and high net worth focus.
Charles Barney's grandson, Charles Barney Harding comes in and takes control in the 1940's. The company will spend much of the 50's and 60's doing private placements, large-scale corporate M&A and underwriting business. In the 1970's Smith Barney discovers it has a talent for both asset management and funds along with retail brokerage. By 1979 the TV commercials begin ("They make money the old fashioned way - they earn it") and Smith Barney develops into a true bulge bracket firm with all the boxes checked off.
The 1980's and 1990's will bring plenty of tumult in terms of ownership, as Arabian princes, Primerica, Shearson and others will bat the company around like kittens in a box with a ball of string. Ultimately, Smith Barney becomes a wholly-owned subsidiary of Sandy Weill's Citigroup-Travelers Frankenstein and then sold off in pieces beginning with a Financial Crisis-driven joint venture with Morgan Stanley in 2008. Citi needed cash and Morgan needed to be seen doing something opportunistic and aggressive, from that standpoint it worked out.
But the painful process of integration has been a nightmare. Brokers are streaming out the door or talking anonymously with reporters about technology glitches, personnel disruptions and management shakeups in a way they'd never been so willing to before.
And so the jury is definitely still out on the whole thing. But the death of the Smith Barney name certainly deserved some attention and a salute. So I obliged.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.