A selection from
THE AUTOBIOGRAPHY OF ANDREW CARNEGIE
Narrated by Dick Hill
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Complete success attended a negotiation which I conducted for Colonel William Phillips, president of the Allegheny Valley Railway at Pittsburgh. One day the Colonel entered my New York office and told me that he needed money badly, but that he could get no house in America to entertain the idea of purchasing five millions of bonds of his company although they were to be guaranteed by the Pennsylvania Railroad Company. The old gentleman felt sure that he was being driven from pillar to post by the bankers because they had agreed among themselves to purchase the bonds only upon their own terms. He asked ninety cents on the dollar for them, but this the bankers considered preposterously high. Those were the days when Western railway bonds were often sold to the bankers at eighty cents on the dollar.
Colonel Phillips said he had come to see whether I could not suggest some way out of his difficulty. He had pressing need for two hundred and fifty thousand dollars, and this Mr. Thomson, of the Pennsylvania Railroad, could not give him. The Allegheny bonds were seven per cents, but they were payable, not in gold, but in currency, in America. They were therefore wholly unsuited for the foreign market. But I knew that the Pennsylvania Railroad Company had a large amount of Philadelphia and Erie Railroad six per cent gold bonds in its treasury. It would be a most desirable exchange on its part, I thought, to give these bonds
for the seven per cent Allegheny bonds which bore its guarantee.
I telegraphed Mr. Thomson, asking if the Pennsylvania Railroad Company would take two hundred and fifty thousand dollars at interest and lend it to the Allegheny Railway Company. Mr. Thomson replied, "Certainly." Colonel Phillips was happy. He agreed, in consideration of my services, to give me a sixty-days option to take his five millions of bonds at the desired ninety cents on the dollar. I laid the matter before Mr. Thomson and suggested an exchange, which that company was only too glad to make, as it saved one per cent interest on the bonds. I sailed at once for London with the control of five millions of first mortgage Philadelphia and Erie Bonds, guaranteed by the Pennsylvania Railroad Company—a magnificent security for which I wanted a high price. And here comes in one of the greatest of the hits and misses of my financial life.
I wrote the Barings from Queenstown that I had for sale a security which even their house might unhesitatingly consider. On my arrival in London I found at the hotel a note from them requesting me to call. I did so the next morning, and before I had left their banking house I had closed an agreement by which they were to bring out this loan, and that until they sold the bonds at par, less their two and a half per cent commission, they would advance the Pennsylvania Railroad Company four millions of dollars at five per cent interest. The sale left me a clear profit of more than half a million dollars.
The papers were ordered to be drawn up, but as I was leaving Mr. Russell Sturgis said they had just heard that Mr. Baring himself was coming up to town in the morning. They had arranged to hold a "court,"and as it would be fitting to lay the transaction before him as a matter of courtesy they would postpone the signing of the papers until the morrow. If I would call at two o'clock the transaction would be closed.
Never shall I forget the oppressed feeling which overcame me as I stepped out and proceeded to the telegraph office to wire President Thomson. Something told me that I ought not to do so. I would wait till to-morrow when I had the contract in my pocket. I walked from the banking house to the Langham Hotel—four long miles. When I reached there I found a messenger waiting breathless to hand me a sealed note from the Barings. Bismarck had locked up a hundred millions in Magdeburg. The financial world was panic-stricken, and the Barings begged to say that under the circumstances they could not propose to Mr. Baring to go on with the matter. There was as much chance that I should be struck by lightning on my way home as that an arrangement agreed to by the Barings should be broken. And yet it was. It was too great a blow to produce anything like irritation or indignation. I was meek enough to be quite resigned, and merely congratulated myself that I had not telegraphed Mr. Thomson.
I decided not to return to the Barings, and although J.S. Morgan & Co. had been bringing out a great many American securities I subsequently sold the bonds to them at a reduced price as compared with that agreed to by the Barings. I thought it best not to go to Morgan & Co. at first, because I had understood from Colonel Phillips that the bonds had been unsuccessfully offered by him to their house in America and I supposed that the Morgans in London might consider themselves connected with the negotiations through their house in New York. But in all subsequent negotiations I made it a rule to give the first offer to Junius S. Morgan, who seldom permitted me to leave his banking house without taking what I had to offer. If he could not buy for his own house, he placed me in communication with a friendly house that did, he taking an interest in the issue. It is a great satisfaction to reflect that I never negotiated a security which did not to the end command a premium. Of course in this case I made a mistake in not returning to the Barings, giving them time and letting the panic subside, which it soon did. When one party to a bargain becomes excited, the other should keep cool and patient.
As an incident of my financial operations I remember saying to Mr. Morgan one day:
"Mr. Morgan, I will give you an idea and help you to carry it forward if you will give me one quarter of all the money you make by acting upon it."
He laughingly said: "That seems fair, and as I have the option to act upon it, or not, certainly we ought to be willing to pay you a quarter of the profit."
I called attention to the fact that the Allegheny Valley Railway bonds which I had exchanged for the Philadelphia and Erie bonds bore the guarantee of the Pennsylvania Railroad Company, and that that great company was always in need of money for essential extensions. A price might be offered for these bonds which might tempt the company to sell them, and that at the moment there appeared to be such a demand for American securities that no doubt they could be floated. I would write a prospectus which I thought would float the bonds. After examining the matter with his usual care he decided that he would act upon my suggestion.
Mr. Thomson was then in Paris and I ran over there to see him. Knowing that the Pennsylvania Railroad had need for money I told him that I had recommended these securities to Mr. Morgan and if he would give me a price for them I would see if I could not sell them. He named a price which was then very high, but less than the price which these bonds have since reached. Mr. Morgan purchased part of them with the right to buy others, and in this way the whole nine or ten millions of Allegheny bonds were marketed and the Pennsylvania Railroad Company placed in funds.
The sale of the bonds had not gone very far when the panic of 1873 was upon us. One of the sources of revenue which I then had was Mr. Pierpont Morgan. He said to me one day:
"My father has cabled to ask whether you wish to sell out your interest in that idea you gave him."
I said: "Yes, I do. In these days I will sell anything for money."
"Well," he said, "what would you take?"
I said I believed that a statement recently rendered to me showed that there were already fifty thousand dollars to my credit, and I would take sixty thousand. Next morning when I called Mr. Morgan handed me checks for seventy thousand dollars.
"Mr. Carnegie," he said, "you were mistaken. You sold out for ten thousand dollars less than the statement showed to your credit. It now shows not fifty but sixty thousand to your credit, and the additional ten makes seventy."
The payments were in two checks, one for sixty thousand dollars and the other for the additional ten thousand. I handed him back the ten-thousand-dollar check, saying:
"Well, that is something worthy of you. Will you please accept these ten thousand with my best wishes?"
"No, thank you," he said, "I cannot do that."
Such acts, showing a nice sense of honorable understanding as against mere legal rights, are not so uncommon in business as the uninitiated might believe. And, after that, it is not to be wondered at if I determined that so far as lay in my power neither Morgan, father or son, nor their house, should suffer through me. They had in me henceforth a firm friend.
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