Caldwell and Company

Rogers C. Caldwell founded Caldwell and Company in September 1917 to market southern municipal bonds. Few investment houses considered southern bonds a good risk because of their historic default rate. This placed Caldwell and Company in a unique position to benefit from the dramatic demand for capital to finance southern construction projects in the post-World War I era. The firm grew rapidly and by 1930 was the largest investment banking house in the region. The firm's abrupt collapse in November 1930 produced severe financial repercussions throughout the South.

A key factor in the expansion of Caldwell and Company was the Bank of Tennessee, founded by Rogers Caldwell in 1919. Under depository agreements with bond issuers, the company deposited proceeds from bond sales with banks it selected until the funds were actually needed to pay for construction costs. Caldwell and Company channeled the funds into the Bank of Tennessee and used this capital to finance expansion of the business into other areas.

With a ready supply of capital, Caldwell and Company grew dramatically. The firm opened numerous branch offices–there were fourteen by 1925–chiefly in the South. The firm entered other areas besides securities, buying insurance companies, banks, industrial concerns, retail businesses, oil companies, and other businesses. Caldwell and Company also expanded its bond operations into the private real estate market, underwriting construction of office buildings, apartments, and hotels.

By the late 1920s, however, Caldwell's company was experiencing serious financial difficulties. Unknown to the public, the company had never followed normal financial and business practices. Caldwell charged off his lavish lifestyle and personal expenses to the company, and the firm had incurred massive debts with its acquisition program and had inadequate cash reserves.

As the company's difficulties mounted, Caldwell became increasingly involved financially and politically with Luke Lea, owner of the Nashville Tennessean and a major force in state politics. Caldwell and Lea purchased controlling interests in Holston National Bank in Knoxville and the Memphis Commercial Appeal and the Knoxville Journal. As a result of Lea's influence with Governor Henry Horton, Kentucky Rock and Asphalt, a Caldwell-owned company, bypassed competitive bidding and supplied building materials for state highway projects.

In the 1928 governor's race between Horton and Hill McAlister, Lea's and Caldwell's relationship and business dealings with Horton's administration became major campaign issues. Horton won the election, and Caldwell and Company continued to receive preferential treatment from state government. The company sold large numbers of bonds to finance state highway constructions and deposited the funds with the Bank of Tennessee.

After the stock market crash of October 1929, Caldwell and Company's position became increasingly desperate. The firm remained afloat largely because it continued to receive state deposits. On November 7 state examiners audited the Bank of Tennessee and declared it insolvent. This action immediately brought down Caldwell and Company and unleashed runs on other Caldwell-controlled banks across Tennessee. On November 14, 1930, the company went into receivership.