Jay Cooke (1821–1905) financier

Born in Sandusky, Ohio, Cooke’s father was a lawyer who also sat in Congress. After finishing school, Jay took a job in St. Louis, but his employer was ruined in the Panic of 1837. He moved to Philadelphia. Two years later, he went to work for the banking firm of E. W. Clarke & Co. (later, CLARK DODGE & CO.) in Philadelphia while still in his teens.

After the Panic of 1857, he withdrew from the firm and then in 1861 founded his own firm, Jay Cooke & Co., as the Civil War was beginning. His first notable deal came when he raised an issue of war bonds for Pennsylvania, which needed the money to defend its southern border against possible attack from the Confederacy. Further success soon followed. Cooke was introduced to Secretary of the Treasury Salmon Chase by his brother, who was also a partner in the new firm. He undertook to sell several large issues of war bonds. The best known were dubbed the 5–20s, allowing the Treasury to issue GREENBACKS during the war.

Cooke employed novel methods of selling the war bonds. Rather than sell them to other banking firms who would then sell them overseas, Cooke employed a vast network of salesmen and sales offices around the country, which distributed the bonds to retail buyers. They were sold in small denominations so that the average citizen could buy them. Subsequently, he also sold additional issues and was responsible for ensuring the Union’s success through his successful fund raising. He sold more than $500 million of the 5–20s alone as fiscal agent for the U.S. Treasury. He sold bonds to more than 600,000 individual investors while working as the Treasury’s agent.

After the war, Cooke led the refunding of the 5–20s after they were eligible to be redeemed (after five years). In order to do so, he arranged the first modern underwriters’ syndicate, consisting of banks that all subscribed to a portion of the deal. By that time, however, his attentions had turned to other pursuits.

In the late 1860s, Cooke’s firm began to engage in railroad financing on a large scale. An issue of bonds sold on behalf of the Pennsylvania Railroad was the first to use a syndicate of other bankers to distribute the bonds to investors and became the first underwritten securities issue in the United States. Cooke also became interested in railroad operations, especially with the Northern Pacific Railroad. His firm became a major shareholder in the unfinished railroad, which was planned to run from the Great Lakes to the Pacific Northwest. But he had difficulty finding financing for the project because investors recognized that his costs were among the highest in the industry. When the Panic of 1873 developed, his railroad problems made investors uneasy, and his bank suffered a liquidity crisis, effectively putting an end to his career as a financier and railroad builder. His firm was liquidated in 1873, and Cooke retired to a quiet life.

Cooke’s firm was resurrected by his son-inlaw, Charles D. Barney, and resumed operations as Charles D. Barney & Co. The firm eventually became Smith Barney & Co. and today is a part of Citigroup. Cooke is best remembered as the major financier of the Union during the Civil War, while his bond distribution techniques became standard practice in financing long after he retired from INVESTMENT BANKING.

Further reading

Larson, Henrietta. Jay Cooke: Private Banker. Cambridge, Mass.: Harvard University Press, 1936.
Oberholtzer, Ellis Paxson. Jay Cooke: Financier of the Civil War. Philadelphia: George W. Jacobs, 1907.