There is little doubt that this week’s episode in United Copper shares on the New York curb will go into Stock Exchange history as one of the most absurd pieces of speculative jugglery ever attempted.

—Wall Street Journal, October 19, 1907

Capital market conditions in the fall of 1907 presaged a financial storm. Volatile and falling asset prices, battered financial markets, interest rate gyrations, illiquidity, investigations, litigation, and the regulations and pronouncements of an activist U.S. president were certainly enough to strain investor confidence and vex the fortitude of owners and managers. Yet even though there had been a “silent crash” of the stock market in March, the onset of a recession in May, a credit crunch that prompted distressed financings of New York City, the bankruptcy of the New York street railways, and financial panics in Egypt, Japan, and Italy, the U.S. markets and institutions had so far in 1907 proved stable in the face of bad news.

But at the confluence of a system of thousands of small banks, weak and decentralized bank regulations, financial manipulations by bank managers and directors, and pyramid‐like interdependence among banks, there appeared an individual whose actions would inadvertently expose the weaknesses of the financial system. A Brooklyn‐born copper mining magnate with the audacity to challenge the most powerful financial interests in the world would provide the spark for a panic. This man’s “speculative jugglery” in the fall of 1907 provided the impetus for events to come, and that story begins amid the slopes of central Montana.

Frederick Augustus Heinze

He was adventurous and sociable, stood 5 feet 10 inches tall and weighed some 200 pounds. Described as having “the torso of a Yale halfback, muscles of steel, and a face of ivory whiteness, lighted up with a pair of large blue eyes,” Frederick Augustus Heinze was “a fine musician, a brilliant linguist, and, when necessary, could box like a professional.”¹ Widely considered a buccaneer, who sought fortune and fame in the copper mines of Montana, Heinze earned grudging respect for his tenacity and cleverness. “Heinze was shrewd and unscrupulous,” a contemporary said. “He was considered to be tough in the days when a man to be considered tough had to earn the reputation.”²

Educated in Germany and at the Columbia School of Mines in New York City, the 20‐year‐old Heinze moved to Butte, Montana, in 1889 to make his fortune on the “richest hill on earth.”³ With the widespread applications for electric illumination, the copper mineral held the promise of vast riches. In Butte, Heinze lived alone in a small log cabin, and for two years worked for five dollars a day as a mining engineer for the Boston & Montana Consolidated Copper and Silver Mining Company. In 1891, Heinze conceived the idea for a custom smelting operation to treat the ores of small, independent mining concerns. Around that time, Heinze raised about $300,000 in capital in New York and established the Montana Ore Purchasing Company (MOPC).⁴

Drawing upon his formal training, Heinze successfully pioneered advanced methods of mining and smelting. Ultimately, however, he found a more clever way to make money in Butte.⁵ After establishing MOPC, Heinze bought mines adjacent to rich copper properties owned by other companies. Once he discovered that their veins of ore surfaced on his property, he threatened litigation under the state’s controversial “apex” law. Under this law, a mine’s owner was entitled to follow any vein that surfaced (“apexed”) on his property, even if it reached beneath neighboring properties. The mine owner could then seek an injunction to prevent his neighbors from continuing to mine any veins that apexed on his land, and he could sue for damages if they failed to comply. Thus, Heinze, employing as many as 37 lawyers, tied up other mining companies with injunctions and lawsuits; at one point, there were 133 suits pending between Heinze and his opponents.⁶

Heinze v. Rockefeller

Heinze’s chief opponent during these years was John D. Rockefeller’s Standard Oil Company, one of the largest business enterprises in the world. Henry H. Rogers and other principals of Standard Oil saw the promise of consolidating copper mining interests in the West and had formed the Amalgamated Copper Company in 1898 with a capitalization of $75 million.⁷ As it happened, many of the properties Amalgamated purchased were those against which Heinze had already been litigating heavily under the apex theory. Not only did Heinze refuse to join the Amalgamated combination, but he also continued to fight against Standard Oil group in the courts.⁸ Refusing to be bowed by an upstart, Amalgamated brought counterclaims against Heinze amounting to $32.5 million.⁹ H. H. Rogers himself vowed to destroy Heinze, saying, “The flag has never been lowered at 26 Broadway [Standard Oil’s headquarters], and I’ll drive Heinze out of Montana if it takes ten millions [sic] to do it.”¹⁰ It did take millions. In February 1906, after years of litigation and nuisance, Amalgamated Copper bought Heinze out, purchasing most of his active copper interests for $12 million.¹¹

Heinze Enters Banking—with the “Ice King”

Flush with cash from Amalgamated and bravado for having bested Standard Oil, the 37‐year‐old Heinze turned his attentions to Wall Street. Upon moving back to his native New York, Heinze’s decision to enter banking was heavily influenced by his association with one of New York’s most colorful and notorious Wall Street figures, Charles W. Morse, “a small, compact, portly man, of dark gray suit and neat appearance,”¹² who controlled the National Bank of North America and the New Amsterdam National Bank, and was a large stockholder in the Mercantile National as well.¹³ Variously known as the “Ice King” and the “Steamship King,” Morse had long been a conspicuous figure in the financial world, first through the promotion of his American Ice Company and then with his purchase and consolidation of coastal steamship lines.¹⁴ Morse’s steamship monopoly along the New England coast competed directly for freight and passenger traffic with the New York, New Haven, and Hartford Railroad, a close client of J.P. Morgan’s. Because of this competition, there was no love lost between Morgan and Morse, a detail upon which later conspiracy theories about the Panic of 1907 would hang.

Morse, who once said, “Banks mean credit, and credit means power,”¹⁵ proposed to accrue power by gaining control of a network of banks. Given the widespread prohibitions against the establishment of branches at the time, Morse pursued a strategy that was followed by many others in the industry, called “chain‐banking.” Morse proposed a partnership with Augustus Heinze, under which the Heinze‐Morse group^a would buy a controlling interest in one bank and then use shares in that bank’s equity as collateral to borrow money for purchasing shares in other financial institutions. Such a technique would be repeated until Morse and his associates had created a chain of controlling positions in banks¹⁶—as is true of all such schemes, failure of one link in the chain tends to threaten the viability of the entire chain.

F. Augustus Heinze had had only a few, small banking interests in Montana previously, but Morse’s scheme held the promise of great wealth and the opportunity for becoming a major player in New York’s financial circles. Morse was familiar to Augustus’s brother Arthur, with whom Morse had formed a pool in 1904 to manipulate the share price in United Copper Company stock—toward that end, Arthur had exchanged 30,000 shares in United Copper to Morse in return for shares in Morse’s Knickerbocker Ice Company. The stock pool in United Copper and those 30,000 shares would later play a fateful role in the Panic of 1907.

Through Morse’s influence, Heinze used a portion of his buyout money from Amalgamated to purchase a controlling interest in the Mercantile National Bank in New York, becoming its president in February 1907,¹⁷ and financed the rest with a note to the seller for $630,000. Heinze would be a front for Charles Morse, who did not want his interest in the Mercantile to be public knowledge, but who pledged to pay Heinze $500,000 for his share of the stock purchase before the end of 1907.

Thereafter, Heinze joined Morse as an interested party in other financial institutions. Heinze, who still had several properties in Nevada, California, Mexico, and elsewhere, consolidated his remaining mining interests within a holding company he had previously incorporated in 1902 for tax reasons, called United Copper Company.¹⁸ Heinze and his two brothers, Otto and Arthur, were each major stockholders and directors of this firm.

Heinze also established a direct presence on Wall Street by purchasing a $96,000 seat on the New York Stock Exchange for his brothers, creating the brokerage house of Otto C. Heinze & Company.¹⁹ In fact, that firm occupied offices directly across the hall from the United Copper Company at 42 Broadway—both firms used the same entrance and even split the cost of the rent.²⁰ During the summer and early fall of 1907, as money rates tightened and as equity prices fell broadly, the brothers became concerned about their holdings in United Copper, whose stock had been used to secure their investments in some banking concerns. To support the price of their United Copper Company shares, Augustus’s brother Arthur began purchasing large quantities of the company’s stock and financing them on margin with as many as 20 brokerage houses on Wall Street. A dangerous game was afoot.

The Twilight of a Resource‐Based Boom

Heinze’s financial ascent may be ascribed to his intelligence and cunning—but he was also lucky. Historian Mary A. O’Sullivan described the buoyant years at the start of the twentieth century as a “resource based boom … [due to] copper stocks … mining and smelting of other ores, such as lead and silver, benefiting from the worldwide commodity boom.”²¹

Figure 5.1 shows that much of the increase in value in three industrial indexes occurred in the two years before 1907, consistent with discussion in earlier chapters. What is notable is the dramatic rise in share values from the trough year of 1903 to the end of 1906. The industrials index gained 74 percent over that period. In comparison, an index of copper and brass producers gained 208 percent, and the mining and smelting index gained 218 percent. Commodities are cyclical businesses, and metals are especially so.

Heinze arrived in New York from the Montana copper fields in the spring of 1906, shortly after his sale to Amalgamated in February. Figure 5.1 suggests that he left the copper industry during a market boom, near a high point in the cycle. Beginning in December 1906, stock prices began to fall.

After selling out to Amalgamated and moving to New York, Heinze may have felt that he was leaving troubles behind and starting anew. But the “Standard Oil crowd” resented Heinze’s successful legal wrangling and did not forget slights. A former executive at Amalgamated, Thomas William Lawson, published an expose of the Amalgamated group in 1906 that characterized them in damning terms—“jugglers,” “flagrant,” “ruthlessly plundered,” and so on—that summoned up the “crime of Amalgamated.”²² A century later the book strikes the reader as overwrought revenge literature; but even if only partly true, it still suggests dangerous enemies to have. Moreover, H. H. Rogers, Rockefeller, and others had reputations as tough—and victorious—businessmen who wanted to discourage interlopers from challenging them. Historian Robert Sobel concluded, “H. H. Rodgers and the Standard Oil crowd had not forgotten their vow to destroy Heinze.”²³