the world of private banking

LONDON’S FIRSt ‘BIG BANG’? 93
Paulin Talabot. Amongst the lesser finance companies, beginning from 1863, there
were some specifically designed to support civil engineering projects and their
undertakers, led by the Public Works Credit Company of London & Paris. Others,
like the Contact Corporation, worked in tandem with the main finance companies,
in its case, Mercantile Credit, with which it shared bankers, the navy agents Hallet,
Ommanney & Co.
After the ‘mania’ of the mid-1840s, the new-issue market had lost its appetite
for railway shares, especially those of new domestic companies, and consequently
their construction was only maintained, to be taken up to boom levels during the
1860s, by contractors becoming financiers. They were paid in stock and shares,
securities then mobilized by drawing bills secured upon them. Such contractors’
bills were discounted in the money market, a business with which Overend,
Gurney had become involved since the mid-1850s. From summer 1864, the
finance companies joined Overend, Gurney and some of the corporate discount
houses and banks in accepting this paper. Bill finance kept contractors in business
but could only be ultimately liquidated once lines were open and profitable to
permit the underlying long-term securities, railway company stocks and shares, to
be offered to the public. This is why Thompson Hankey was right to call this paper
not bills but mortgages.
During the 1860s boom, the necessary liquidation of ‘mortgage bills’ was
ultimately prevented by monetary contraction from autumn 1865 drying up
sources of short-term finance for contractors. As a result, railway contractors went
bankrupt before the completion of lines, let alone their opening for traffic. Watson,
Overend & Co. went in January 1866, followed by Thomas Savin, and these failures
quickly brought down the Financial Corporation and the Contract Corporation
while causing Joint Stock Discount ‘extreme difficulties’. The climax was reached
when Peto & Betts, one of the two major railway contracting firms, failed, along
with Overend, Gurney and Imperial Mercantile Credit, on ‘Black Friday’. The
May 1866 crisis not only rendered the finance companies illiquid and unviable
but wreaked havoc throughout domestic railway finance, causing a number of
operating companies, new and established, to be forced ‘into Chancery’. 79
Five major finance companies survived the 1866 crisis but only one, General
Credit, reconstituted as General Discount, continued to be a significant financial
institution. The deaths of the others were long drawn out, often involving
unsuccessful reconstitutions. The Crédit Foncier continued to 1879, the Imperial
Mercantile Credit to 1883 and the London Financial until 1888. From 1892 the
International, now under very different management, was effectively an investment
trust and, as such, at the turn of the century became a component of the ‘69 Old
Broad Street group’.
The ‘finance company era’ of the City was brief, merely three years. Similar
companies were established later although none ever even cut a meteoric trail
across the City’s sky like their predecessors of the mid-1860s. Some were by intent
79
See Cottrell, ‘Railway Finance’.