the world of private banking
the world of private banking
the world of private banking
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74<br />
THE WORLD OF PRIVAtE BANKING<br />
The ‘lea<strong>the</strong>r crisis’s’ impact appears to have halted fur<strong>the</strong>r corporate discount<br />
house promotions until early 1863, when <strong>the</strong> announcement <strong>of</strong> <strong>the</strong> National’s<br />
pr<strong>of</strong>its for <strong>the</strong> second half <strong>of</strong> 1862 may have sparked ano<strong>the</strong>r founding spree. Only<br />
two amongst <strong>the</strong> seven new companies that were immediately projected had some<br />
substance – City Discount and Joint Stock Discount – <strong>the</strong> latter having acquired <strong>the</strong><br />
business <strong>of</strong> James Freeling Wilkinson. Likewise, in 1864 <strong>the</strong> Discount Corporation<br />
bought out two <strong>private</strong> houses – J. Bruce & H.S. Coulson and Weston & Laurie<br />
– and <strong>the</strong> formation <strong>of</strong> Consolidated Discount was based upon <strong>the</strong> conversion <strong>of</strong><br />
Fraser Sandeman & Co. One o<strong>the</strong>r comparable conversion was London Mercantile<br />
Discount, which acquired Womersley & Burt. However, <strong>the</strong> Financial Discount<br />
was an untutored foray into <strong>the</strong> business <strong>of</strong> <strong>the</strong> London money market, involving<br />
no acquisition <strong>of</strong> <strong>the</strong> personal expertise which The Economist maintained was vital<br />
for success in bill dealing. 19 These new companies failed to dent <strong>the</strong> established<br />
supremacy <strong>of</strong> <strong>the</strong> National, <strong>the</strong> management <strong>of</strong> which augmented its reserves<br />
during 1864 by increasing its subscribed capital. The National’s turnover rose by<br />
50 per cent between 1864 and mid-1865, enabling <strong>the</strong> payment <strong>of</strong> a 20 per cent<br />
dividend from 1864 to 1866.<br />
The rise <strong>of</strong> <strong>the</strong> corporate houses, big, small and speculative, led one <strong>of</strong> <strong>the</strong> two<br />
remaining major <strong>private</strong> discount houses – Alexander’s – to merge with Cunliffes<br />
& Co. on 1 January 1864. The o<strong>the</strong>r – Overend, Gurney & Co. – was converted<br />
into a limited company in mid-1865, something that some hailed as inaugurating<br />
‘a new era <strong>of</strong> limited liability’. Those less sanguine, including The Economist,<br />
smelt a rat, suspecting that <strong>the</strong> ‘house at <strong>the</strong> corner’ had ‘lock-ups’, arising from<br />
previously having undertaken business beyond normal bill dealing that required<br />
financing only obtainable by an appeal to shareholders. 20 This outline review does<br />
not permit a detailed analysis <strong>of</strong> ei<strong>the</strong>r Overend, Gurney’s affairs 21 or <strong>the</strong> 1866<br />
crisis in which <strong>the</strong> collapse <strong>of</strong> Overend, Gurney figured so prominently. 22 Overreaching<br />
management with a speculative trait had led this <strong>private</strong> discount house to<br />
undertake ‘exceptional’ business during <strong>the</strong> mid-1850s boom. The lure <strong>of</strong> greater<br />
pr<strong>of</strong>its apparently obtainable from medium- and long-term affairs had <strong>the</strong> same<br />
effects over <strong>the</strong> mid-1860s but was now coupled with some <strong>of</strong> <strong>the</strong> new corporate<br />
houses’ managerial inexperience and overtly speculative nature.<br />
Problems set in from autumn 1864, and became publicly evident with London<br />
Mercantile’s collapse in 1865. The involvement <strong>of</strong> <strong>the</strong> London money market with<br />
19<br />
The Economist (1860), pp. 1392–3.<br />
20<br />
The Economist (1865), pp. 845–6.<br />
21<br />
Unfortunately, <strong>the</strong> late Pr<strong>of</strong>essor F.W. Fetter’s researches into Overend, Gurney<br />
have never been published.<br />
22<br />
See P.L. Cottrell, ‘Railway Finance and <strong>the</strong> Crisis <strong>of</strong> 1866: Contractors’ Bills <strong>of</strong><br />
Exchange and <strong>the</strong> Finance Companies’, in Journal <strong>of</strong> Transport History, n.s., vol. 3, 1975;<br />
and R.A. Batchelor, ‘The Avoidance <strong>of</strong> Catastrophe: Two Nineteenth-Century Banking<br />
Crises’, in F. Capie and G.E. Wood (eds), Financial Crises and <strong>the</strong> World Banking System<br />
(London, 1986).