the world of private banking

94
THE WORLD OF PRIVAtE BANKING
private affairs, such as the Syndicate Union, established by the Anglo-Austrian
Bank, the General Discount, the Imperial Ottoman Bank and the International
Financial Society in 1870. Another comparable private affair, and more successful
for some years, was the London Banking Association of 1872, an institutionalized
London-Paris merchant banking alliance, of which the Austro-Egyptische Bank,
the Credit-Anstalt and the St. Petersburg International Commercial Bank were
also members. This acted as a medium for both the provision of short-term finance
to the Spanish government in 1872, 1874 and 1875 and the foundation of the
Mercantile Bank of the River Plate in 1872, while issuing American railroad
stocks in 1874. 80
London merchant bankers, with their continental European partners and
correspondents, might have occasionally during the mid-nineteenth century availed
themselves of the advantages of the corporate form of business organization. Yet
they clung to the private partnership for undertaking most of their affairs. In the
minds of middle-class investors, they became synonymous with issuing houses,
primarily of overseas securities. But only a few regularly undertook this activity,
and when they eventually organized themselves professionally, they took the name
‘Accepting Houses’, reflecting their prime interest in the finance of international
trade, which one of their members called ‘bread and butter’ business, flotations
being the ‘jam’. Before the self-applied label of ‘acceptance house’, many, like
their continental European peers, had simply styled themselves merchants.
A merchanting background provided the necessary knowledge of the
creditworthiness of drawers of bills. The application of that expertise during the
mid-century could have startling consequences. Kleinworts began extending
acceptance credits immediately after the 1857 crisis and, within three years, had
an involvement of £0.8m., a growth in business which had augmented the firm’s
capital by £80,000. Almost a decade later, the partnership’s equity had grown by
a further £370,000, nurtured by 600 world-wide accounts, of which American and
German were the most important. Within two decades, the house became a first-class
London name so that its paper was eligible for rediscount at the Bank of England.
Such a rating was based upon acceptances totalling £2.35m. in 1870, backed by
a capital of £0.91m., four-and-a-half times the sum invested in 1858. Schroders
had taken a further six years, from 1852 to 1870, to enjoy the same expansion
of partners’ equity. 81 Specialization was a factor that assisted such growth, with
Robert Benson & Co., one of the founders of the International Financial Society,
concentrating upon trans-Atlantic and Oriental trades. North American commercial
associations and past family investment interests also led Bensons to act as the
London agent for the Illinois Central Railroad. This went along with involvements
80
Capie and Webber have mistakenly categorized the London Banking Association
as a London joint-stock bank. See Capie and Webber, Monetary History of the United
Kingdom, p. 541.
81
R. Roberts, Schroders: Merchants and Bankers (Houndmills/London, 1992), p. 43.