Complete Histories – Northern Pacific – The Most Famous Stock Corner in History

Posted by Bryan Taylor in Stock Histories, Stock Scams with no response yet

The Northern Pacific Railway was a transcontinental railroad that operated across the northern tier of the western United States from Minnesota to the Pacific Coast. The goal was to connect the Great Lakes with the Puget Sound. Along with the Southern Pacific and the Union Pacific (originally the Central Pacific, but renamed during the Civil War), it was to be the northernmost of three transcontinental railroads.

The Northern Pacific Railway was approved by Congress in 1864 and given nearly 40 million acres (160,000 km2) of land grants, which it used to raise money in Europe for construction. Construction began in 1870 and the main line opened all the way from the Great Lakes to the Pacific when former president Ulysses S. Grant drove in the final “golden spike” in western Montana on Sept. 8, 1883. The railroad had about 6800 miles of track.

The cost of building the Northern Pacific was much greater than Jay Cooke and other investors anticipated, pushing the Northern Pacific into bankruptcy in 1873 during the Panic of 1873, which the railroad succeeded in escaping through austerity measures, though the company had to reorganize in 1879.  The company fell into bankruptcy again during the Panic of 1893 because the Northern Pacific had incurred huge costs, but was earning insufficient revenues to cover its costs.  The railroad reorganized in 1896.

One of the primary problems was that the railroad lacked a direct link to Chicago, the economic center of the midwest.  Not only did Villard, of the Northern Pacific, lack a direct link to Chicago, but James J. Hill, who controlled the Great Northern, and Edward Harriman, who controlled the Union Pacific, also needed a direct link to Chicago.  One railroad that did offer a direct link was the Chicago, Burlington and Quincy.  Charles Perkins demanded $200 per share for his railroad, and although Harriman balked at the price, Hill was willing to pay it. The Chicago, Burlington and Quincy Railway was purchased with 48.5% going to both the Great Northern and the Northern Pacific.

Not content with this, Harriman decided to buy out the Northern Pacific.  Harriman initiated a raid on Northern Pacific stock and was able to obtain all but 40,000 shares, a portion of which were owned by J.P. Morgan.  The problem was that many traders had gone short Northern Pacific stock because the raid had made the shares overvalued, and as Daniel Drew once put it:

“He who sells what isn’t his’n, must buy it back or go to prison.”

Harriman had essentially, though unintentionally cornered Northern Pacific stock and there were almost no shares left to buy back to cover the shorts.  The stock price then exploded.  The stock had been at 95 in April 1901, and hit $150 on May 6, 1901.  The highest recorded price on the New York Stock Exchange was $1000. The shorts faced economic ruin, and neither Villard nor Harriman could “win” this raid, so the two decided to call a truce.

When this occurred, the New York Times reported on May 10, 1901 that “A ‘corner’ more complete and more disastrous in its results than any that Wall Street has ever before known came to its culmination yesterday. The enormous purchases of the Harriman syndicate and the Hill-Morgan syndicate had completely cleared the market of all floating stock, so that the ‘shorts’ were placed in the position of having to deliver stock that they did not own, and which they could neither buy nor borrow. The first sale of Northern Pacific common was at 170, and advance of 10 points over the previous day’s final transaction.  Then by tremendous strides, jumping as much as 200 or 300 points between sales, the stock rose to 1000, many sales being made cash for yesterday’s delivery.  At this point a little help came to the panic-stricken ‘shorts’ in the form of an announcement by J.P. Morgan & co. and Kuhn, Loeb & Co. to the effect that they would not at once demand delivery of the stock due to them yesterday. The effect of these announcements was immediate and marked.  The next sale after the one made at 1000 was made at 600, a decline of 400 points. Three hundred shares sold at this price; then there was a sale of 700 shares at 500, and this was followed by a sale of 100 shares at 450. Then came another jump in the stock which carried it to 700, but the price soon fell off again 200 points, and from that time on the quotation worked its way to a lower level. Upon the return of Mr. Schiff to his office it was announced there that Kuhn, Loeb & Co. would notify all those who owed Northern Pacific stock that they would settle with them at 150.”

Hill and Morgan formed the Northern Securities Company with the aim of tying together their three major rail lines, the Burlington Route, Northern Pacific, and Great Northern. The Supreme Court ordered the Northern Securities Company dissolved in 1904, and regular trading of Northern Pacific stock resumed on the stock exchange in 1905.

Anyone who is interested in the Northern Pacific Corner is encouraged to read Reminiscences of a Stock Operator by Edwin LeFèvre who documented the intricate dealings of the Northern Pacific Corner.

Northern Pacific stock began a slow, but steady decline in price until the 1941 when the stock hit a low of $3.75.  Ironically, the Northern Pacific merged into Burlington Northern Inc. on March 2, 1970, and by doing so, the Burlington Route, Northern Pacific, and Great Northern, which had been the three railroads in the Northern Securities Company were finally joined into a single railroad. The Burlington Northern merged with the Santa Fe to form the Burlington Northern Santa Fe Corp. in 1995, which was acquired by Berkshire Hathaway on February 12, 2010 at $100 a share.

Global Financial Data provides complete histories of the stocks in its database with data from the inception of the stock until their delisting.  No other data provider can provide the survivorship-free and exchange-free bias that Global Financial Data offers.

No Responses on Complete Histories – Northern Pacific – The Most Famous Stock Corner in History

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>