the world of private banking

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