Stephen Girard

While not as wealthy as their late-19th century equivalents, the wealthiest Americans of the early-19th century were famous across the country. Among the more well-known of these was New York’s John Jacob Astor, who made a fortune in trade and finance. His Philadelphia equivalent was also a foreign-born merchant-turned-financier, Stephen Girard. Girard founded a leading private bank in early-19th century America and was instrumental in funding the government during the War of 1812.

Origin

The merchant and banker Stephen Girard was born in Chartrons, near Bordeaux, in France in 1750. On a wide river at the Garonne estuary, Bordeaux was a port city. He came from a family of seafarers and despite being blind in one eye since childhood, Stephen Girard went to sea on a ship owned by his father at thirteen years old. He travelled abroad on commercial voyages between Bordeaux and the Caribbean Islands and then along the coast of North America. Girard later naturalized as an American citizen once living in Philadelphia.

The Merchant

As for how he wound up in that city, Girard worked for himself starting from 1773 and was soon active in trade between New York and Hispaniola, owning a half-share in the ship he captained. He found himself in Philadelphia in 1776 after being pursued by a British ship enforcing a blockade of American ports during the War of Independence. He did return to sea one last time but withdrew from overseas trade with unpaid debts in France so great that he did not return to his home there ever again. Girard instead settled in Philadelphia.

In Philadelphia, he ran a retail business which struggled through the rest of the 1770s and 1780s, but prospered after that, becoming well known in the city by 1800. Girard was now sending ships to sea once more, trading with the rest of the Americas, Europe, and Asia. That said, Girard was again withdrawing somewhat from overseas trade during the disorders of the middle years of the Napoleonic Wars. During the turmoil, Stephen Girard withdrew money first from investments in Continental Europe and then from Britain. Between 1810 and 1812, Girard was repatriating profits from trade that amounted to over $1 million.

This money was brought home in the form of securities and merchandise; the merchandise was acquired in Europe and loaded onto a Girard-owned ship to be sent to America in one more voyage. It was not straightforward to repatriate wealth this way as the U.S. had an embargo in force with Britain. Girard nonetheless smuggled the merchandise through Spanish Florida where his goods were confiscated until he paid a penalty of twice the usual duties; still, he sold the goods in America for far more than was paid for the products in Europe.

The Banker

It seems that Girard’s plan to bring his fortune to America was decided on before he chose what to do with the money. He eventually settled on founding a new bank after the official Bank of the United States had not secured a renewal of its charter from the federal government. Like other banks, the First Bank of the United States specialized in providing short-term credit for commercial activities, though state-chartered banks also provided some long-term financing too. Girard hoped to fill the gap left by the unwinding of the First Bank of the United States.

Girard’s new bank opened on May 12, 1812 in Philadelphia, which was then still the financial capital of the United States. The circumstances were not auspicious. It was less than a month before the start of the War of 1812 against Britain. Girard’s bank was also founded as a private bank without any official charter, such that the bank was an extension of his personal finances rather than an independent corporation with limited liability to its shareholder. Private banks were also restricted in some of their activities.

Still, being a private bank did not mean the firm was small; Girard’s bank was capitalized with over $1 million, proceeds from selling the merchandise which Girard had brought from Europe. Thus, it was also about as large as the properly state-chartered banks. Besides its equity capital, Girard’s bank was funded with deposits by individuals, other banks, and, for brief periods of time, the federal government of the United States. The bank also had banknotes in circulation of approximately $100,000 to $200,000 for most of the 1810s.

Girard’s project was opposed by the chartered state banks in Pennsylvania and the usual populists who opposed banks of all sorts. Some of the grievances were understandable. Despite being a larger bank, Girard’s firm did not need to follow regulations which applied to chartered banks. Perhaps intentionally seeking to undermine Girard, other banks refused to accept the banknotes of Girard’s bank, meaning its notes were often quickly redeemed for specie or the notes of other banks. This may have helped explain why Girard relied more on deposits to fund his bank lending than banknotes, which was not typical of Pennsylvania banks. The political opposition rallied around a bill being debated in the Pennsylvania legislature to bar a private bank, like Girard’s, from issuing banknotes altogether.

Still this private, and somewhat embattled, bank was the heir to the Bank of the United States in a few respects. Girard arranged for his bank to receive the funds raised by the liquidation of the Bank of the United States on deposit prior to their distribution to that bank’s shareholders. This would have certainly comprised some part of the bank’s early deposits which summed to nearly $2.3 million in the second half of 1812. The association with the old Bank of the United States was cemented further by Girard’s hiring of the old bank’s cashier and his purchase of the old Philadelphia offices of the Bank of the United States.

Engraving by Thomas Birch of the First Bank of the United States building, which later became the headquarters of Girard’s Bank

Despite the funds with which the bank was launched, its profits were small at first. It took a while to deploy the substantial sums of money Girard invested in his bank into profitable lending activities. The money was gradually put to use, largely in loans and advances against short-term commercial bills. Further, one of the first non-mercantile loans of the bank was a $10,000 loan to the Ridge Turnpike Company. The bank also held many bonds, including those issued by the City of Philadelphia.

Girard’s bank made profits of just $22,544 on invested capital of just over $1.3 million in the approximately 7.5 months between May 19 and December 31, 1813, an annualized return on equity of under 3%. Bringing the bank to respectable levels of profitability took some time; in 1813, loans only made up 31.3% of the bank’s total assets as compared to the approximately 75% level which was typical of most banks. So much of Girard’s repatriated fortune was still sitting underutilized. Accordingly, he was not exclusively committed to his bank. So, when a new Bank of the United States was chartered in 1816, Girard invested in the new federally-chartered firm. For much of the 1820s, dividends on Bank of the United States stock made up about 15% of the Girard bank’s revenues.

Federal Loan

One of the most well-known operations of Girard the banker was his participation in a loan to the U.S. government, a loan designed to raise funds during the War of 1812. His goal here was not so much to increase his profits as to obtain official respect for his bank which was under attack by rival banks and politicians in Pennsylvania. It may have helped Girard that the federal government was almost unbelievably desperate. A $10 million loan was authorized in 1812 and a further $16 million in early-1813 but demand from the investing public was very underwhelming.

The government was failing to raise the necessary money for the war, in part because the war itself was extremely unpopular in New England. Even in New York, the Federalist Party members of the state legislature there were more-or-less openly calling for a boycott of the loan, even if it meant defeat. Financiers further north, in New England, needed no convincing as they continued to stay away from the war loans attempted by the federal government.

Yet, in 1813, Girard and John Jacob Astor managed to raise over $7 million cumulatively for a new 6% bond issuance. Girard managed to secure 126 subscribers for a total of over $5.3 million of this sum. However, he conditioned his efforts to sell the loan on being no less favored by the government than other banks which raised the same amount or less for the government as he had. One of the benefits for Girard was that a portion of the loan’s proceeds were kept with Girard’s bank on deposit until they were utilized by the government.

After 1815, government revenues began to be deposited with the Girard bank too. This was part of a deal whereby the bank assisted the government in making payments of interest on its bonds in northern cities where funds were limited. Still, in the meantime, his bank continued to be plagued by the non-acceptance by other banks of his banknotes and unfavorable legislation both in the U.S. Congress and Pennsylvania. However, while the laws passed, they were in both cases implemented in a manner that shielded Girard from the worst possible effects.

Girard’s Fortune

Largely on account of his financial activities, Girard became the richest American in the early 19th century. By the time of this death in 1831, his wealth was estimated at $7.7 million, consisting of investments, his interest in his bank, and real estate holdings. Girard’s bond investments turned out well. He paid an average of $88 per $100 par value for the 6% bonds of 1813 and was able to sell over $600,000 of these bonds at $103.75 apiece in 1818.

Further, within twelve years of being founded, the capital of his bank increased from around $1.2 million to $3 million. This was not so much the product of new outside investment as it was the result of reinvesting the net profits of the bank back into the firm during all these years of its existence. Its portfolio of loans and discounted bills, investments that earned it meaningful revenues, had reached nearly $2 million in 1824 as compared to under $1 million as recently as 1821. By the late-1820s, after years of steady progress, the bank was fully deploying its assets in productive investments to the extent normal for Pennsylvania banks.

Philanthropy

As a private bank dependent on his credit, the bank closed when Stephen Girard himself died on December 26, 1831. Ninety-eight percent of his estate went towards numerous philanthropic gifts, largely to the benefit of the city he lived in. Girard’s will included a bequest to a school for orphans, Girard College, founded in Philadelphia. He also gave money to the Pennsylvania Hospital, the Pennsylvania Institution for the Deaf and Dumb, the Society for the Relief of Poor and Distressed Masters of Ships, Their Widows and Children, among other city organizations. Girard also gave to the city government in Philadelphia and the Pennsylvania state government from the proceeds of his unwound bank.

Lesson

The history of banks tends to be a history of the large chartered banks; these were the banks that received official sanction. They may have been subjected to certain regulations but benefited from rights as varied as limited liability for shareholders or the right to issue legal tender. However, in the history of banking across countries in the last few centuries, the vast majority of banks were not the large chartered banks but private banks. Many of these amounted to little more than the operations or creditworthiness of a single banker. Girard’s bank was peculiar because of how large it became, despite being a mere private bank. Yet, the capital markets in America were nascent enough in the 1810s that just $1 million and the effort of one person was enough to constitute one of the country’s largest banks.

More from the Tontine Coffee-House

Read about an even wealthier early American financier, John Jacob Astor, and the fate of the Second Bank of the United States. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.