When The Headlines Said: Charlie Schwab Breaks The Bank

On the thirteenth of January, 1902, William E. Dodge, a large stockholder in the United States Steel Corporation, was reading his copy of the New York Sun in his comfortable Madison Avenue residence. No event of unusual importance dominated the staid Sun’s front page, but Mr. Dodge found a small item in the right-hand column that stirred him deeply. Beneath the headline, SCHWAB BREAKS THE BANK, the story ran as follows:

Monte Carlo, Jan. 12.—Charles M. Schwab, President of the United State’s Steel Corporation, who has been playing roulette very high here during the past few days, broke the bank this afternoon. He had backed 26 plain and in various ways in maximums had won 50,000 francs. He left the table amid great excitement and a large crowd followed him.

He resumed playing later on another table and lost 15,000 francs on five successive coups. He then resumed his practice of backing a certain number and the contiguous numbers on the cloth to the extent of 1,000, 2,000 or 3,000 francs. He lost every time and his winnings nearly vanished.

Although Mr. Schwab had occasional runs of luck late in the afternoon in addition to his recent winning of 75,000 francs on two successive coups, he has already dropped several thousand dollars.

To Dodge, this brief narrative threatened disaster. The giant United States Steel Corporation, capitalized at 1,400,000,000, was less than one year old. Its creation by the mighty banker J. Pierpont Morgan, who brought together the tremendous holdings in ore, blast furnaces, mills, and transportation of Andrew Carnegie, John W. “Bet a Million” Gates, John D. Rockefeller and other tycoons, had been accompanied by serious misgivings and much criticism. Its promise of expansion, order, and efficiency in the vitally important steel industry had yet to be made good. Meanwhile, the monopolistic nature of the company was apparent to every observer; its policies and its very existence were being challenged in the courts. The new corporation was plainly on its good behavior before the public. Should the public form the impression that the president of the corporation was a reckless gambler, the future of what Dodge called “the largest Experiment of Co-operation and Consolidation ever attempted” might be imperiled. That very day Dodge wrote an indignant letter to the chairman of the corporation’s finance committee, George W. Perkins, who represented the interests of the House of Morgan. “I have no right to criticize [Schwab’s] habits or pleasures,” Dodge wrote, “but as the President of the U.S. Steel Corporation the fact that he plays ‘roulette very high’ and sees no harm in it absolutely changes the view the public has had of his caution, care & business methods. A loss of twenty millions of dollars would have been nothing to this.”

At this time President Schwab was blissfully unaware of the excitement he was causing in his native land. He was not to remain so for very long. The next day the Sun carried another account of his exploits.

Monte Carlo, Jan. 13.—C. M. Schwab, President of the United States Steel Corporation, who has been playing roulette here for high stakes for several days and who broke the bank yesterday afternoon, repeated this performance ten minutes before the rooms closed last night. He won 54,000 francs on No. 20, which he backed in various ways on maximums.

The Casino was thronged at the time and Mr. Schwab’s feat was greeted with cheers.

Previous to this Mr. Schwab had lost many thousands of francs on the same number. Mr. Schwab won three maximums today in fifteen minutes.

Other papers also carried the story. The World had him winning heavily on No. 36 while onlookers stood on chairs and cheered, but reported that in the end he lost $20,000 on his evening’s play. The more restrained New York Times reprinted the Sun’s earlier dispatch, and ran in addition an ominous editorial. “A man who is at the head of a corporation with more than a billion dollars of capital stock, which controls a great part of one of the chief industries of a great Nation, and of which the securities are offered to the public as a sale and profitable investment, is under obligation to take some thought of his responsibilities,” the editorial ran. ”We should suppose that the friends of Mr. Schwab would call these strange stories to his attention in order that lie may deny them if he is in a position to say that they are untrue.”

The “friends of Mr. Schwab” were quick to take the Times’ suggestion. An Associated Press reporter named Martin Egan recognized the gravity of the situation when the first reports came over the wires. After failing to reach Schwab’s brother, he telephoned his New York office, and urged the steel man’s secretary to cable a warning at once. This was done. Independently, James Gayley, first vice president of United States Steel, also cabled an account of what was going on. On the fourteenth alone, Schwab received forty cablegrams dealing with his alleged gambling. But the most drastic action was taken by Schwab’s former boss, Andrew Carnegie.

Carnegie was not directly engaged in the management of United States Steel. When the great trust had been created, Carnegie had pocketed over $225,000,000 and prepared to devote the rest of his life to philanthropic pursuits. But he was naturally interested in the welfare of his former property. Moreover, he was deeply attached to Schwab. He had picked up Schwab, a “round-laced country boy” of nineteen fresh from Spiegelmire’s general store in Braddock, Pennsylvania, in 1881, and raised him within five years to be superintendent of the vast Carnegie Homestead Works. Schwab had become his trusted lieutenant and his close personal friend. When Carnegie had decided to sell out, it was Schwab who had conducted the delicate negotiations with Morgan. The news that Schwab was gambling at Monte Carlo was a bitter blow to the strait-laced Scot, who was fond of pointing out to the youth of America that the gravest dangers besetting the road to business success were liquor, gambling, and lending money to one’s friends. After reading the Times editorial, Carnegie cabled to the culprit once, signing with his code name, “Wakeful”:

PUBLIC SENTIMENT SHOCKED. TIMES DEMANDS STATEMENT GAMBLING CHARGES FALSE. PROBABLY HAVE [TO] RESIGN, SERVES YOU RIGHT. WAKEFUL

This done, he clipped the Times editorial and sent it to J. P. Morgan, with the following letter:

Confidential

5 West Fifty-First Street, New York. Jany 14th, 1902

My Dear Mr Morgan

I feel in regard to the enclosed as if a son had disgraced the family.

What the Times says is true. He is unfit to be the head of the United States Steel Co.—brilliant as his talents are. Of course he would never have so fallen when with us. His resignation would have been called for instanter had he done so.

I recommended him unreservedly to you. Never did he show any tendency to gambling when under me, or I should not have recommended him you may be sure. He shows a sad lack of solid qualities, of good sense, & his influence upon the many thousands of young men who naturally look to him will prove pernicious in the extreme.

I have had nothing wound me so deeply for many a long day, if ever.

Sincerely Yours

Andrew Carnegie

Schwab, the unsuspecting cause of this righteous indignation, received the cables of Carnegie and his other “friends” at Nice. He had arrived in France for what was later described as a combined business and pleasure trip with his wife and a small party of friends, including his personal physician, Dr. C. O. Goulding, and Charles T. Schoen, recently retired president of the Pressed Steel Car Company. He had been working hard for months, first at arranging the sale of the Carnegie holdings to Morgan and then at the complicated task of helping to create the world’s first billion-dollar corporation. A charming, witty, happy-go-lucky sort, he knew how to enjoy himself when opportunity offered. In Paris he had purchased “a big fast automobile,” which he proceeded to drive to Nice in the then sensational time of eighteen hours. In Nice he had joined other friends, including Baron Henri Rothschild and Dr. Griez Wittgenstein, head of the largest steel works in Austria, who was known to the press as “the $100,000,000 steel man from Vienna.” They made, as Schwab later confessed, “a jolly party … racing all over the Riviera” in the new automobile. On four separate occasions they dropped in at the casino in Monaco to play roulette.

Their play, Schwab insisted, was completely casual “and simply for amusement.” True, they were betting what were called “maximums” (nine louis d’or), which were worth about $36, and occasionally when a member of the party won he left his chips on the cloth for a second play. But at no time did any of them win or lose any considerable sum. Indeed—and for some reason this seemed vital in Schwab’s eyes—they had never actually sat down at the table. They had created no disturbances, attracted no special attention, and had certainly not broken the bank. When indignant cables began to descend upon him, Schwab was dumfounded. “To say that I was astonished and chagrined,” he wrote a friend, “is putting it mildly.”

He was also badly frightened, especially by the thought of what might be going on in the New York office of J. Pierpont Morgan. No cable had reached him from that source, but President Schwab knew who really ran the United States Steel Corporation. He therefore cabled George Perkins, who was known to readers of the newspapers as “Morgan’s right hand man”:

AM ADVISED THAT THERE HAVE BEEN SENSATIONAL PUBLICATIONS REGARDING GAMBLING. … DID PLAY BUT SENSATIONAL STATEMENTS OF GREAT WINNINGS AND LOSSES ABSOLUTELY FALSE. FRIENDS ADVISE BY CABLE THAT SHOULD RESIGN. OF COURSE WILL DO SO IF MORGAN THINKS I SHOULD. SORRY. CABLE ME AT BRISTOL HOTEL VIENNA ANY ADVICE OR INSTRUCTIONS.

This cable reached the Morgan offices at the corner of Broad and Wall streets at about the same time as Carnegie’s letter to Morgan. The great financier and his “right hand man” compared notes. As a result, Perkins cabled Schwab:

VERY SENSATIONAL REPORTS IN NEWSPAPERS....THINK IT ADVISABLE AND IMPORTANT YOU CABLE SUCH A MESSAGE AS GAYLEY CAN GIVE NEWSPAPERS AND STOP BAD EFFECT.

When this order reached Nice, Schwab prepared a brief statement, which was published in the New York papers on the fifteenth. “I have been on an automobile trip through the south of France with a party of friends,” he announced. “I did visit the Casino at Monte Carlo, but the statements of sensational gambling are false.” But he realized that this was a pretty lame explanation, although it did have the virtue of being true. Mr. Morgan deserved a fuller account. However, one does not approach an emperor directly; Schwab addressed his letter to Perkins.

“I am sorry that my visit to the Riviera and especially to Monte Carlo should have provoked so much publicity,” he wrote. He described what had actually taken place, stressing his erect position while following the little spinning ball and the respectable company he had been with (“Lord Rothschild was with me”). He also admitted the error of his ways. “I can see now that it was a mistake. Of course. If the mistake was of such a character as to injure our company … by all means you should permit me to quietly resign…. Frankly cable me what Mr. Morgan and yourself think.” But he could not resist adding that late had treated him very badly. “ I have been coming here for 15 years,” he complained. “I always visit the Casino on acct of its orchestra.” And he signed himself “Sorrowfully Yours.” He also dispatched another long cable to Perkins, summarizing the situation:

MY ONLY REGRET IS THAT MR MORGAN SHOULD BE ANNOYED AND I WILL DO ANYTHING HE DESIRES. … HAVE GAYLEY DO ANYlHlNG IN THE MATTER YOU SEE FIT.

Back in New York the excitement and indignation were not stilled by Schwab’s weak public statement. The yellow press pushed the story for all it was worth. Wall Street was full of rumors that Morgan had given Schwab a terrible dressing-down via cable, and even before Schwab’s announcement was released the Journal had carried the headline: MORGAN TO SCHWAB: STOP GAMBLING . The Times, which had questioned the authenticity of the original reports, now condemned his actions. How, asked the Times, could a man of Schwab’s responsibilities “join the intellectual and social dregs of Europe around the gaming tables of Monte Carlo, and there make a more or less prolonged effort to ‘beat’ a game which to a mathematical certainty cannot be beaten?”

Fortunately for Schwab, the House of Morgan was unmoved by the clamor. Perhaps Morgan, whose own pleasure seeking was a constant source of interest to the newspapers, shared Schwab’s fondness for the casino orchestra. In any case, Perkins had begun to “straighten out” the press as early as the evening of the fourteenth, and after receiving Schwab’s elaborate cable of the fifteenth, he hastened to reassure the beleaguered gambler that he would not have to resign. “Any friends that cable you as you say are pretty poor sort of friends and under no circumstances should you take any such step,” he ordered. After another day of “straightening” the situation was well in hand, and Perkins cabled again to Schwab, who was by then in Vienna:

EVERYTHING ALL RIGHT. ANDREW CARNEGIE AND SEVERAL OTHERS WERE VERY MUCH EXCITED BUT THEY DID NOT MAKE THE SLIGHTEST IMPRESSION ON MR MORGAN. DO NOT GIVE THE MATTER ANY FURTHER THOUGHT OR CONSIDERATION. GO AHEAD AND HAVE BULLY GOOD TIME.

The worst of Mr. Schwab’s ordeal was over. “Many thanks,” he cabled Perkins. “Appreciate Mr Morgan’s attitude more than possible to express. Am his to command always.”

For the remaining three weeks of his tour the president ol the United States Steel Corporation attended strictly to business. “If I have injured our great company in America,” he wrote from Berlin on January 26, “I have done it very much good in Europe.” In Vienna he was received by Emperor Francis Joseph: in Berlin he made a speech on the expansion of American trade. But he was still worried about his adventures at Monte Carlo, and inquisitive reporters plagued him continually for further statements about his future in the great trust. Finally he wrote Perkins again for reassurance, and he asked how he should handle the American reporters when he arrived in New York. “Steel Co. first—me second,” he said. “Do what you think best…. I’ll do anything Mr. Morgan wants. He’s my idea of a great man. Carnegie has condemned me without a hearing. Mr. Morgan, a new friend, is broader gauged by far. I’m his to command.”

But Schwab had no reason to fear for his job. By the last week of January his letter explaining the affair had reached Perkins, and Perkins, of course, had read it to Morgan. “That’s a good letter,” Morgan had commented. “He’s all right.” Since J. Pierpont Morgan did not make such statements lightly, the incident could be considered closed.

The only remaining problem was the reporters. Schwab’s arrival would have been newsworthy in any case, for the corporation’s first annual report had just been published, and a stockholders’ meeting was scheduled for the day after his ship docked. Because of the Monte Carlo incident, it was sure to be a major event. Perkins, however, went to the editors of the “decent” papers (“it is impossible,” he said, “to do anything with the World or the Journal in such matters”), and “arranged” for them to avoid the subject of gambling. Then he wrote a final letter of instruction which was delivered to Schwab by special messenger just before he came ashore. If Monte Carlo was mentioned, Schwab should treat the affair as “one of those wild rumors.” Then he should “shoot right off into what really took you to Europe”—the study of commercial conditions. He should stress the great interest of European businessmen in the United States Steel Corporation, and his own deepened sense of responsibility as the head of that great exemplar of America’s methods and aims. “This will have the effect of reassuring the weak brethren over here who thought you had ceased to be a serious-minded business man and had turned into a gay butterfly,” Perkins told him. And he added: “I want to see you as soon as you arrive.”

On February 16 Schwab reached New York on the St. Paul. A terrible blizzard was raging, but he talked at length with the reporters. Naturally, they tried to get him to discuss his visit to Monaco, but he would not do so. A World reporter overheard Dr. Goulding whisper to him as the reporters approached: “Don’t say a word; not a word.” The best the man from the World could obtain was a statement by Charles T. Schoen, who said that Schwab was “an all-round good fellow and a dead game sport every time.” (In Vienna he had lent Schoen 600 kronen and when Schoen had tried to pay him back he had pulled out a coin, asked him to call it, and, when Schoen had done so correctly, refused to accept the money.)

“Mr. Schwab declined to discuss the personal details of his trip,” the Times man reported respectfully. “He said he preferred to speak as the President of the United States Steel Corporation.”

“While I had a delightful trip,” Schwab told the newsmen, “I also did a great deal of work. I found a feeling of the utmost friendship for our country existing everywhere in Europe. I found also intense interest in the question of industrial combinations…. I come back with my ideas broadened and my enthusiasm unbounded.” The European political situation seemed calm, and the future of American trade limitless, he added. And he left the reporters with this thought: “My visit abroad this year was notable in the change I found when I, who had been there so often before as an individual, presented myself as the President of the United States Steel Corporation.” This “greatest of American consolidations,” Schwab said, “was the centre of curiosity among enquiring men of all nations.”

That evening, according to the Times, Mr. Schwab was the guest of George W. Perkins for dinner at Sherry’s.