Becoming Berkshire: 1963 - The American Express Salad Oil Swindle

Issue 5 | 1963

Welcome to Issue Number 5 of Becoming Berkshire, as we look at the fascinating story of the American Express salad oil scandal almost bringing down the New York Stock Exchange (“NYSE”). We also get to witness the beginning of the evolution of Buffett’s investment ideology as he is starting to be influenced by Charlie Munger.

American Express

American Express AXP 0.00%↑ (“AMEX”) is a globally integrated payments company that provides customers with access to products, insights, and experiences in over 100 countries and provides over a trillion dollars in total network volume. The $130 billion dollar company did over $52 billion in revenue and $7 billion in net income in 2022. However, American Express was not always the blue-chip powerhouse you know today. In 1963, the Company found itself in the middle of a soybean oil scandal with liabilities large enough to force liquidation on the entire company.

American Express, which started as a parcel delivery company in the middle of the 19th century, was, by the start of the 20th century, a financial institution of considerable size. American Express, which started as a parcel delivery company in the middle of the 19th century, was, by the start of the 20th century, a financial institution of considerable size.¹ The original company was founded on March 18, 1850, by consolidating three companies active in the express transport of goods, valuables, and spices between New York City and Buffalo, New York, and points in the Midwest. In 1903, it had capital and surplus of about $28 million, exceeded only among banks by the National City Bank of New York, and $4.5 million higher than that of the second largest bank.²

After World War II, AMEX established a small, separately incorporated subsidiary engaged in field warehousing. Clients would store inventories in warehouses controlled by American Express Warehousing (“AEW”), which would then issue warehouse receipts guaranteeing that the inventory was in the warehouse. The client would post these as collateral for borrowing. The business never made or lost much money, and by the early 1960s, AMEX had decided to sell it. However, fate intervened. During the early 1960s, AEW established a very profitable relationship with one particular client, Anthony “Tiny” DeAngelis, who controlled several companies, the most important of which was Allied Crude Vegetable Oil.³