Relationship Banker: Eugene W. Stetson, Wall Street, and American Business, 1916-1959 (review)

This is a career biography of Eugene W. Stetson, who started life as the son of a small town banker in 1881 and ended it in 1959 as a leading American financier. James Hunt sets out to demonstrate that Stetson was a premier "relationship banker" and that he and his counterparts at other financial institutions played a seminal role in American economic growth in the first part of the twentieth century.

Hunt accomplishes this goal with interwoven histories of Stetson's career and of the banking institution where Stetson spent thirty of his forty-five years in banking, the Guaranty Trust Company. Because of the paucity of material generated directly by Stetson, Hunt relies largely on institutional historical records, which are wholly adequate for his purposes. His method is narrative, not quantitative, and his book is synthetic and integrative in its contribution. New historical material is presented within a larger context drawn from a broad swath of secondary literature in economics, economic history, and business history.

Stetson started his banking career in 1901, thirty-seven years after Guaranty Trust was chartered by the State of New York as a "guaranty and indemnity company." For the first fifteen years of his career, Stetson progressed rapidly in a series of positions at small nationally chartered institutions in rural Georgia, becoming President of Citizens National bank in Macon in 1910. During this time, Guaranty Trust was carrying on a successful trust business, largely linked to the financial restructuring of railroad companies, and becoming closely associated with the private banking house J.P. Morgan. With Morgan's guidance, Guaranty Trust acquired other New York trust companies and was the largest trust company in the work on the eve of World War I.

The histories of Stetson and Guaranty Trust intersected in 1916, when Stetson was recruited as a Vice President, having become known in New York circles by virtue of the relationships he maintained with New York correspondent banks as the president of a small town bank. While Stetson practiced relationship banking prior to arriving in New York, after 1916 he was practicing it on a much larger stage and with much more at stake. Stetson quickly established himself as a major-league "rainmaker" in 1919, when he masterminded the corporate birth of Coca-Cola, through a leveraged buyout of the company from family ownership. Hunt provides a detailed account of this complicated and difficult deal, which required strong business vision and the ability to build strong business relationships with other corporate leaders. This deal exemplified one of the ways in which Stetson was, for Hunt, a "relationship banker."

Another kind of "relationship banking" came into its own in the 1920s. During this period, Guaranty Trust and its wholly owned investment banking subsidiary, Guaranty Company, became a "one-stop financial shop" for America's largest corporate entities, providing depository services, business loans, and securities underwriting and distribution in the context of long-term, continuing banker-customer relationships. In so doing, Guaranty Trust shaped "what interests received capital and therefore helping to determine the direction of the economy" (p. 219). Although Hunt does not use this term, Guaranty Trust was practicing "universal banking" of the German variety as it took both equity and debt positions in its client corporations and as its senior officials took leadership positions on the boards of its client corporations. By the early 1930s, Stetson served (or had served) on the boards of thirty-seven major corporations: another venue where he plied his "relationship banking" trade.

Hunt shows that the universal bank variety of relationship banking came to an end, at least during Stetson's career, with passage of the Glass-Steagall Act in 1934. Forced to choose between investment and commercial banking, Guaranty Trust chose commercial banking (as did J.P. Morgan, whose influence within Guaranty Trust had continued to grow). Like all financial institutions, Guaranty Trust...