Stanley's Four-Bagger

In the white marble vastness of the U. S. Senate office building caucus room, one day last week, sat lean, grey Harold Stanley. Head of Morgan Stanley & Co. Inc., No. 1 U. S. investment house, he had gone to Washington to be questioned by the Temporary National Economic Committee in its inquiry into investment banking. Earlier the committee had heard hard-boiled Charles E. Mitchell, onetime head of Manhattan's National City Bank, later tried and acquitted of charges of income tax evasion (but forced to settle a Government lien for $1,384,222, taxes and penalties), who is now board chairman of Blyth & Co., Inc. It had also heard Morgan Partner George Whitney, Detroiter Emmett Francis ("Spike") Connely, president of Investment Bankers Association. Young (31), brash SEC Counsel Pete Nehemkis pitched them questions to which they gave defensive answers.

But aloof, publicity-unwise Harold Stanley cracked out the home run of the week for his side, the old-line investment bankers. The pitch that onetime Catcher Stanley (Yale '08) leaned on went sizzling over the head of onetime Third Baseman Leon Henderson (Swarthmore '20), SECommissioner and most articulate anti-banker member of TNEC.

Well did Harold Stanley know when he sat down in the witness chair that soon he would be back in the same chair when the committee shifted its topic from "Investment banking" to allied "competitive bidding." Well did Pete Nehemkis know that Mr. Stanley was the leader of the conservative Wall Street group (including such firms as Kuhn, Loeb, Lee Higginson, First Boston) which has frigidly rejected competition. When such competition-minded houses as Chicago's Halsey, Stuart, such individuals as Cleveland's Cyrus ("The Great") Eaton, walk in the front door with bids for securities issues, Morgan Stanley & friends stalk out the side exit.

Last week, as Pete Nehemkis tried (unsuccessfully) to get Mr. Stanley to admit that his firm, managing underwriter for A. T. & T., had parceled out its financing ($580,000,000 since 1935) to a select and fixed group, SEC's quizzer carefully avoided reference to competitive bidding. A question by TNEC Chairman O'Mahoney gave Harold Stanley the opening he was waiting for. With the air of a man starting a lecture, Mr. Stanley sounded off: ". . . The question of competitive bidding is a subject which I would like to go into and talk about at length. . . . But--

Up went the big, capable hand of Leon Henderson. Competitive bidding, said he, would be discussed later. Harold Stanley persisted, for well he knew that when TNEC gets into competitive bidding, such insurgents as Cyrus Eaton and Alleghany Corp.'s unruly Bob Young may get the first say, put Morgan Stanley & Co. on the defensive with tail-end statements in news stories.

For the time being, Witness Stanley was permitted only a brief statement, but as the hearing neared its close the most persistent man in Wall Street plowed back to his favorite subject. Said he: "... I put my own ideas in the form of a memorandum which I would like very much to submit. . . ." Up rose Leon Henderson: "I object. ... I regard it as decidedly a disregardance of the orderly presentation of information. ... If it needs any stronger language I will be glad to offer it."

Waved away by Leon Henderson was Chairman O'Mahoney's peace-making observation that Harold Stanley's statement was not to go into the record, that in any event he could mail it to any committee member. "It makes no difference," sulked Mr. Henderson. Joe O'Mahoney's lips curled in a sarcastic grin.

"I feel myself," he purred, "by some inadvertent question which I addressed to the committee without first submitting it to the SEC, that I provoked this matter. ... I am perfectly willing and happy to receive the letter." While Leon Henderson glowered, Witness Stanley handed out his attack on compulsory competitive bidding, which he and other investment brokers can see as a likely outgrowth of SEC's investigation. Next day it led the TNEC story in metropolitan newspapers. The Morgan Stanley thesis:

Competitive bidding minimizes the banker's sense of responsibility and destroys his professional relationship with his client; it tends to cause overpricing of securities and high-pressure salesmanship of "shoddy goods" to unwary buyers; competing brokers, unsure who will get the order, tend to make superficial studies of securities' quality; competitive bidding, in the long run, would eliminate the small dealer, now supported by sharing on flotations.

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