H.M. Payson & Co.

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H.M. Payson & Co.

One Portland Square
Portland, Maine 04101
U.S.A.
Telephone: (207) 772-2761
Web site: http://www.hmpayson.com

Private Company
Incorporated: 1854
NAIC: 523100 Securities and Commodity Contracts Intermediation and Brokerage

H.M. Payson & Co., based in Portland, Maine, is one of the oldest independent investment firms in the United States. Primarily providing investment advice and trust management services, Payson has a well-earned reputation for honesty and prudence. Although small, the firm maintains its own research staff and as a result has avoided the herd mentality of Wall Street and avoided such pitfalls as the technology bubble of the late 1990s. Payson has more than $1.6 billion in assets under management and serves more than 1,100 individuals, trusts, endowments, and foundations.

Corporate Beginnings: Mid-1800s

The man behind the founding of H.M. Payson was Henry Martyn Payson, born in Portland, Maine, in 1821, the son of a minister who moved his family to the area after graduating from Harvard. The life of the younger Payson was beset with tragedy. When he was just six years old his father died, followed 20 years later by even worse misfortune. He married and had a son, but the child was sickly and died when he was only six months old. Payson's grief was then deepened by the subsequent death of his wife, who had never recovered from the loss of her child. At the time, the hardware store he co-owned failed, forcing him into bankruptcy. The year was 1849 and across the country in California gold had been discovered, prompting a wide swath of society to make their way to the goldfields of northern California in hopes of realizing their fortune. With no family or business to keep him in New Hampshire, Payson became part of the gold rush that made its way to the nation's untamed West Coast. He traveled by ship, arriving in San Francisco in January 1850. He soon learned that prospecting for gold was backbreaking work that made few people wealthy. He shoveled dirt into a sluice and screened for minute particles of gold during every daylight hour, yet he only made enough money to sustain himself. After four years of witnessing folly and suffering misery, he returned to Portland, but during his wilderness years he learned something of the way in which financial agents worked. He also brought back a hard-earned knowledge about the foolishness of get-rich-quick schemes, and an appreciation for a cautious approach to doing business. Perhaps of more importance, he returned to a growing city, whose population in the past 20 years had doubled to 25,000. Portland had eight banks, a thriving timber trade, and was also involved in sugar refining and rail stock manufacturing. Moreover, Maine's economy in general was improving at a steady clip, spurred by railroad construction that linked the once isolated state to Canada and the larger U.S. cities to the south, as did the Magnetic Telegraph Company, whose lines provided communication direct to Boston and beyond.

In 1854, to take advantage of the increased need for financial middlemen to continue Maine's development, Payson set himself as a stock and bond broker and a dealer in paper money, this at a time when state banks printed their own currency to supplement the limited amount of gold and silver coins that the federal government was able to mint. Nevertheless, a great deal of Payson's business for the first 20 years involved transactions in gold, as he cashed drafts and acceptances from California and London institutions.

Because banking and investment firms were so unreliable during this time, and government regulations all but nonexistent, a businessman's reputation for honesty was of great value. Payson built up a reservoir of trust in the community, which was bolstered by his decision to pay off his old creditors even though he was not legally required to. He was also known to be a careful investor of clients' money, preferring blue chip investments over speculative ventures. His prudent, circumspect nature became part of the firm's culture, passed down through succeeding generations. During the boom times of the early 1870s, when stock speculation ran rampant, Payson stayed the course, refusing to buy stock on margin and concentrating his investments on reliable utility bonds, particularly municipal water companies. He also helped to build Maine's economy by becoming involved in the funding of railroads serving the state, including the Leeds and Farmington Railroad and the Eastern Railroad.

Involvement in Water Bonds Dating to 1860s

Payson first became involved in water bonds when the Portland Water Company was formed in 1866, the same year that a great fire destroyed more than 200 acres in the heart of Portland, including Payson's own offices. It was a major blow to the local economy, given that an estimated $10 million in property was destroyed and only a third was insured. Payson helped to buoy the city's confidence by immediately making a public declaration that he would rebuild his office on the old site and vowed to be back in business there within six months. In many respects, a reliable water supply available to combat fires was of even greater importance during this period than healthy drinking water. New York City, for example, was in great need of unpolluted water, but it was only due to the threat of large-scale fires that the leading American city saw fit to build a modern water works.

In Portland the idea to tap into nearby Sebago Lake was first suggested in 1854, due to a drought that led to a short supply of water, but it was not until February 1866 that the Portland Water Company was incorporated. The fire that devastated the city on July 4 helped to spur the actual launch of the company. Water from Sebago finally began serving Portland in November 1869. Unfortunately, the company was poorly funded and managed. The main had not been properly laid, significantly hampering the flow of water. After the company twice succumbed to bankruptcy, Payson in the early 1870s was induced to join the board and help place the company on a solid financial footing. He was instrumental in securing the funds necessary to improve the infrastructure and turn Portland Water into a profitable business. It also marked Payson's entry into the water business, which became a main interest of the company for several decades.

As a result of his conservative approach, Paysons' clients were not wiped out like so many investors when the panic of 1873 hit the country, leading to a harsh five-year depression. During this time, in 1874, Payson took on his first partner, George F. Thurston, whom he had groomed since Thurston had graduated from high school and went to work for him as a clerk. A third partner joined the firm in 1879: Payson's nephew, Charles H. Payson, who like Thurston had no more than a high school education and worked his way up, also starting out as his uncle's clerk. Charles Payson's tenure would last more than 50 years and his influence on the firm's growth, both nationally and internationally, was so pronounced that he was considered H.M. Payson & Co.'s second founder.

Seven years after becoming a partner he became president when Payson chose to retire. Under Charles Payson's leadership the firm became even more committed to the water business. In 1888 he traveled to London to sell $1 million worth of bonds in the Portland Water Company to help shore up the utility's finances. Moreover, he represented another $1 million in water for nine other water companies, including ventures in Elmira, New York; East Greenwich, Connecticut; Kokomo, Indiana; Sheboygan, Wisconsin; Wichita, Kansas; Fort Smith, Arkansas; Huntington, West Virginia; Meridian, Mississippi; and Merrill, Wisconsin. On that trip he also sold securities for the Marion (Indiana) Gaslight Company. In addition to selling bonds, Charles Payson became involved in running several water companies that he helped to found or acquired. The firm also underwrote any number of utility bonds during the final decades of the 1800s. The firm's interests spread from coast to coast, touching more than 100 utilities and leading Payson to become known as "The Water Bond House."

Charles Payson and several outside partners in 1886 created the American Water Works and Guarantee Company, which built and developed water companies across the country. Soon joining him would be two Payson partners: George S. Payson, the founder's son, who became a partner in 1883 and Herbert Payson, who became a partner in 1889. The three men acted as American Water Work's financial agents. When the firm formed American Water Supply Co. in 1888, the Payson partners added operational responsibilities as well. Payson now acquired control of water companies as far away as Kansas and ran them out of the Portland office. Even after American Water Supply was liquidated, the investment firm remained involved in the water business. In 1926 two Payson partners—Herbert Payson and Harold C. Payson, who became partner in 1919—and five outside partners formed a utility holding company called Consumer's Water Company, which not only housed some of the partners' water assets but also acquired companies, so that by the early 1930s the venture controlled ten subsidiaries in seven states. Payson maintained a connection to the company until 1999 when Philadelphia Suburban Water Company acquired it. Also of note, was Payson's acquisition of Lewiston Gas Light Co. in 1899. The firm developed the utility, which became a highly successful New England company, now part of Northern Utilities Inc.

Company Perspectives:

Through the years, we have acquired a deep appreciation of the timeless fundamentals of investing. We know that while times change, the basic characteristics of a good investment do not.

Limiting the Effects of the Great Depression

Although the firm was willing to risk its own money on some speculative utility ventures, when it came to investing clients' money, Payson continued to follow a cautious approach, sticking to blue chip securities. When the country was once again gripped by an economic panic, this time in 1893 leading to a three-year depression, Payson proved to be as reliable a firm for individuals to entrust their money as could be found. Payson's prudence would be put to the test in the next century during the stock market delirium of the 1920s, as masses of small-time investors began playing the market by buying stock on margin, and the firm's continued recommendation to invest in water bonds was considered quaint and out of step with the times. Nevertheless, Payson refused to succumb to pressure and establish margin accounts, so that in 1928 the firm lost half of its brokerage business, which was cut in half again in 1929. The firm lost $100,000 in 1929, forcing the partners to make up the shortfall. But after the stock market crashed in October 1929 and countless investors were ruined because they were unable to pay their margin calls, Payson was well positioned for a rebound and its customers were able to weather one of the worst patches in the nation's economic history.

The firm also underwrote a large number of municipal bonds in Maine for sewage and school districts, while it continued to underwrite water bond issues until 1981, when it took on the Houlton Water Co., after which the firm referred its under-writing clients to the Maine Municipal Bond Bank, which was better suited to perform the business at less expense. It was during this time that Payson switched from managing trust portfolios on a commission basis, opting instead to do the work for a fee. In this way, Payson was better able to fulfill its fiduciary responsibility to clients without the taint of self-interest. The trust business grew at a strong clip, so that in 2000 the firm sought and received a charter from the Maine Bureau of Financial Institutions to serve as a non-depository trust company.

Payson changed its ownership structure in 1987, when the business was incorporated, but little changed in terms of culture. The firm continued to resist overexposure to bull markets and proved to be a safe haven when good times invariably turned to bad. While other investors became over-exuberant about technology stocks in the late 1990s, Payson continued to take a balanced approach, which once again paid off for clients when the tech bubble burst. There was every reason to expect that in the new century the longtime Yankee firm would continue to pursue its successful, prudent approach to investing.