Brown Brothers Harriman & Co.

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Brown Brothers Harriman & Co.

59 Wall Street
New York, New York 10005
U.S.A.
Telephone: (212) 483-1818
Fax: (212) 493-7287
Web site: http://www.bbh.com

Private Company
Incorporated: 1931
Total Assets: $2.8 billion (2000)
NAIC: 522110 Commercial Banking

Brown Brothers Harriman & Co. is America’s oldest, largest, and most prestigious private bank. Because its 40 partners share unlimited liability, the bank’s deposits are not insured by the Federal Deposit Insurance Corporation (FDIC). The resulting need for consensus among the partners has played a large part in the bank’s conservative approach to doing business and led to a perception of Brown Brothers as a stuffy institution. Through the course of the 1990s, however, it has taken steps to dispel that notion. Brown is especially known for its personal banking services for wealthy customers, in particular “old money,” from which many of the bank’s partners also hail. In reality, this business represents just a third of the bank’s money management activities, and more recently Brown Brothers has made efforts to attract the newly affluent, generally targeting individuals with at least $5 million in investable assets. It provides similar investment management services for private companies. Brown Brothers also engages in merger advisory activities as well as general commercial lending, a third of which is made to importers of such commodities as coffee, cocoa, sugar, textiles, precious metals, petroleum, and seafood. A major source of the bank’s profits is derived from doing custodial work for foreign firms that need to maintain a large U.S. cash balance in order to buy and sell stocks on Wall Street. In addition to its longtime headquarters at 59 Wall Street and a site across the Hudson River in Jersey City, Brown Brothers maintains domestic offices in Boston, Charlotte, Chicago, Dallas, Los Angeles, Palm Beach, and Philadelphia, as well as overseas branches in London, Dublin, Naples, the Cayman Islands, Luxembourg, Zurich, Hong Kong, and Tokyo. Brown Brothers has nearly $1 trillion under management and boasts assets of $2.8 billion.

Brown Brothers Harriman & Co. Dating to 1800 Baltimore

The forefather of Brown Brothers was Alexander Brown, a linen merchant from Belfast, Ireland, born in 1764, who immigrated to the United States in 1800 and settled in Baltimore, where his younger brother was already engaged in business. With its location on the Chesapeake Bay, Baltimore was a thriving port as well as distribution center for goods destined for the interior of Maryland and Virginia and points west. Brown opened an “Irish Linen Warehouse” and was so successful that he soon enjoyed a veritable monopoly on Baltimore’s linen trade. He then began to export tobacco, wheat, and other produce, and deal in foreign exchange. In 1805 his eldest son William entered the business as a partner, and by the next year William set up a business in Philadelphia that failed, as did another attempt in 1809. A second son, George, became a partner in 1808, followed in 1810 by Alexander Brown’s third son, John, resulting in the business being renamed Alexander Brown & Sons. It was John who in 1818 finally established a Philadelphia branch (John A. Brown & Co.), which would become the direct ancestor of today’s Brown Brothers Harriman. William, in the meantime, established an English branch of the family business in Liverpool. Although the headquarters of the family firm remained in Baltimore, the bulk of business was now conducted between the Philadelphia and Liverpool houses. As the United States grew, however, New York began to replace Philadelphia as the nation’s commercial center, especially after the completion of the Erie Canal in 1825, which linked New York to commerce with the West. It was in October of that year that Alexander Brown’s youngest of four sons, James, established Brown Brothers & Co. near the wharves of Manhattan’s South Street, an area devoted to the dry goods trade. Rather than a branch of his father’s house, however, it was created to support the business of William & James Brown & Co. of Liverpool, in particular the reshipment of Southern cotton.

James focused on the banking aspects of the business, working in concert with a dry goods merchant named Samuel Nicholson. He also took in as a partner a Baltimore cousin named Stewart Brown. After Alexander Brown died in 1834, James Brown sold the dry goods business, apparently realizing that more money could be made from financing the trade than in actually importing the goods. Brown Brothers, already established as one of Manhattan’s major international merchant banks, moved its offices to Wall Street in 1835, across the street from the Merchant Exchange, where more than half of U.S. imports and a third of exports were handled. When Alexander Brown’s estate was settled in 1836, both Stewart Brown and Nicholson became general partners in all of the Brown businesses. Following an economic downturn in 1837, Liverpool-based Joseph Shipley became a partner of the English branch, resulting in a name change to Brown Shipley & Co. In 1838 Nicholson established a New Orleans agency that greatly expanded the company’s foreign exchange and credit operations and firmly positioned Brown Brothers in the banking arena.

John A. Brown and George Brown left the business in 1840, selling their shares to William and James, leaving James the head of American operations, which also expanded to Boston during this period. More economic troubles in 1857 caused the firm to increasingly focus on banking operations and to ease out of importing and exporting completely. The two brothers shared power until William’s death in 1864, and control passed entirely to James. In 1868 new articles of partnership were drawn up. By this time, William’s sons had died, his grandsons were too young, and only two of James’s sons had enough experience to run the business, making it necessary to bring in outside partners and thus jeopardizing the Brown family’s control of the firm. Reorganized, however, Brown Brothers was now better suited to a changing world. Its credit business became so lucrative that the partners contributed outside money to maintain sufficient working capital. When William’s grandson, Alexander Hargreaves Brown, became a partner in 1875, not only was family control restored, but a major portion of William’s estate returned to the firm, helping Brown Brothers to prosper in the final decades of the 19th century.

By the 1890s Brown Brothers faced new competition from life insurance companies and the trust companies in which they invested in order to engage in industrial financing and speculation. For many years Brown Brothers had invested in securities on behalf of valued customers, but instead of an accommodation, by the end of the century the purchase of securities on commission was a major part of the firm’s business. In 1892 the bank introduced travelers credits for use in the United States, Canada, and Latin America. Four years later the American Express Company simplified the concept with its travelers checks, and Brown Brothers in 1900 introduced foreign travelers checks. During this period the financing of reorganizing railroads, as well as railroad construction, became a major part of the firm’s business. Brown Brothers also became involved in the consolidation of electric trolley car lines.

At the start of the 20th century the firm was a transatlantic partnership still very much dominated by the Brown family. In early 1907, for instance, both the London and New York heads were Browns, as were seven of the 14 partners. Once again, however, Brown Brothers faced the problem of passing control to a younger generation, which had become increasingly critical of older management, charging that the firm was falling behind the competition. Articles to renew the partnership, drawn up in 1907, granted greater authority to junior partners. Moreover, there were now tensions between the New York and London sides of the partnership, prompting serious consideration of the possibility of splitting into two firms. It was World War I, and the taxes levied to finance the conflict in both the United States and England finally made the old relationship untenable. On January 1, 1918, the two Brown partnerships became independent of one another. In 1946 the London partnership would incorporate, becoming Brown, Shipley & Co., Limited.

Brown Brothers Merging with Harriman in 1931

Like the rest of the United States, which prospered during the postwar economic boom of the 1920s, Brown Brothers was caught short by the stock market crash of 1929. The firm had underwritten a large number of corporate stocks and government bonds, and with the collapse in the market was unable to sell these securities without incurring ruinous losses. Moreover, the firm had lost a number of older and wealthier partners, through retirement or death, and had to honor the prearranged withdrawal of their funds. As a result, Brown Brothers was severely overextended and by 1930 had no recourse but to seek new capital. Refinancing came from the merging of Brown Brothers with the banking firms established by the sons of the late railroad magnate Edward Herman Harriman: William Averell Harriman and E. Roland Harriman. According to company lore the idea of joining the businesses was first broached during a card game on a train that was bound for a reunion at Yale University. There is no doubt, however, that Yale ties between the principals were instrumental in the merger. Numerous men from both firms graduated from Yale, including Harriman’s vice-president and director Prescott Bush, grandfather of President George W. Bush.

Company Perspectives:

We are proud of our history, but prouder still of the energy and determination we provide to our clients every single day. Through good times and bad, in the United States and abroad, our dedication to prudent, personal services has been our hallmark. To be bigger is important to some, but for us, nothing is more important then being the best.

The Harriman brothers inherited wealth from both sides of their family. By contrast, their father, better known as E.H. Harriman, worked his way up, starting out on Wall Street as an office boy. Although his grandfather had been a successful businessmen, as were his uncles, Harriman’s father was a clergyman. At the age of 21 in 1869, Harriman borrowed $3,000 from an uncle to buy a seat on the stock exchange. He first became involved in transportation when he bought a boat that traveled the Hudson River between New York and Newburgh. He became interested in railroads after marrying Mary Williamson Averell, the daughter of an upstate New York banker and railroad president. Harriman rebuilt a small line that he resold for a healthy profit to the Pennsylvania Railroad. He then became vice-president of the Illinois Central Railroad, which served as a stepping stone to his assuming control of the Union Pacific Railroad, famed as one of the two railroads that completed the first transcontinental line but was now long neglected and in poor financial condition. He assumed the chairmanship in 1898, and bought stock in the company, which would form the basis of his great fortune as he revitalized the business. In addition, Harriman became involved in a steamship line to the Orient, as well as interests in banks and insurance companies.

Harriman died in 1909, shortly before his eldest son, Averell, began his college studies at Yale. Roland was just 14 at the time of his father’s death. As soon as he graduated from Yale, Averell went to work for the Union Pacific, becoming vice-president for purchasing within two years. During World War I, rather than serve in the military, he turned to shipbuilding. In addition, his banking firm, W.A. Harriman and Company, became involved in a wide range of American and European businesses, including mining, steel mills, motion pictures, and aviation. Roland, who also graduated from Yale, joined W.A. Harriman and Company in 1922, becoming vice-president the following year. In 1927 the brothers formed Harriman Brothers and Company, which along with W.A. Harriman and Company would finally merge with Brown Brothers in 1931, with Roland serving as a vice-president.

Aside from abundant Yale loyalties, the two firms were a good fit: Brown Brothers needed an infusion of cash and the Harriman brothers gained access to long-cultivated business relationships. It was a mixing of the old with the new, and it was generally conceded that Brown Brothers was in need of change. Not only did the atmosphere ease, with the partners becoming more accessible to both staff and clients, the firm placed a new emphasis on its domestic banking business. Following the change of banking laws with the Glass-Steagall Act in 1933, which forced banks to choose between the commercial banking business and the investment banking business, Brown Brothers opted to stay in domestic banking, where already two-thirds of its business was conducted. Its investment banking business was spun off, one day becoming part of Drexel Burnham Lambert. Brown Brothers was allowed, however, to retain a seat on the New York Stock Exchange without registering as a broker, an advantage that would prove lucrative over the years.

Although Roland Harriman would be far more involved with Brown Brothers than his brother, Averell’s career in public service would add greatly to the luster of the firm. Averell—unlike Roland, who was a staunch Republican—became a leading Democrat, initially serving with President Roosevelt’s National Recovery Administration before starting a career as a diplomat during the early days of World War II. He took part in all of the major Allied summits, becoming a close personal friend of Britain’s Prime Minister Winston Churchill. From 1943 to 1946 he served as the U.S. ambassador to the Soviet Union, then became ambassador to England for a short time before becoming President Truman’s secretary of commerce. After failing in a bid to become the Democratic candidate for the presidency in 1952, he successfully ran for governor of New York. When John F. Kennedy won the presidency in 1960, Averell became an ambassador at large, then returned to private life after Richard Nixon assumed the presidency in 1969.

Changes and Improvements in the Late 20th Century

Brown Brothers thrived for decades, opening offices around the world, and developing relationships with foreign institutions that helped it build a lucrative cross-border custody business. The youth and vitality that the Harriman brothers brought to Brown Brothers in 1931, however, eventually waned, and by the mid-1970s the firm was once again seen as old and out of touch, an enclave of elitist Ivy Leaguers. A number of staff members, unwilling to wait at least 15 years before becoming partners, left to start their own firms. Prescott Bush died in 1972. Roland Harriman retired in 1978 at the age of 83 and died later that year. Averell Harriman would die in 1986. The firm made some inroads in reversing its country club image in 1983 when it named Terrence M. Farley as its managing partner. Farley was a graduate of City College of New York’s Baruch School of Business, who started out as one of the bank’s tellers, attended night school, and worked his way up in the firm. Soon after he took charge, some of the elder partners were eased out. Despite these changes, Brown Brothers continued to receive criticism about its lackluster financial performance, especially compared with the spectacular returns realized by the likes of junk bond king Michael Milken.

Key Dates:

1800:: Alexander Brown immigrates to the United States, establishing a linen import business in Baltimore.
1810:: Branch opens in Liverpool (U.K. business eventually shifts headquarters to London).
1818:: Branch opens in Philadelphia.
1825:: Branch opens in New York.
1834:: Alexander Brown dies.
1843:: The New York office moves to Wall Street.
1918:: The New York and London partnerships begin to operate separately.
1931:: Harriman family firms merge with the firm to create Brown Brothers Harriman.
1978:: Roland Harriman dies.
1998:: The firm names its first two female partners.

In light of the indictment of Milken and the savings and loan scandal of the 1980s, the conservative approach of Brown Brothers regained some credibility in the early 1990s. Nevertheless, the firm took steps to improve its business. It was particularly aggressive in upgrading its information technology, which would provide an important competitive edge in its custodial services. In 1991 it created a pilot project, the 1818 Fund, which raised $325 million from institutional partners to fund medium-sized companies. It was so successful that additional 1818 Funds would be offered over the ensuing decade, as well as other investment funds, including one geared toward Europe. In 1998 Brown Brothers admitted its first two women partners, Kristen F. Giarrusso and Susan C. Livingston. In 2000 the firm opted to quit the brokerage business to focus on money management for its patrons. It also continued to invest in information technology to support its global custodian business, with a special interest in the increasingly important funded retirement savings plans in Japan and Europe, similar to 401(k) plans. As it had for close to 200 years, Brown Brothers continued to blend tradition with forward thinking, albeit at times with seeming reluctance.