the world of private banking

THE ANGLO-AmERIcAN HOUSES IN tHE NINEtEENtH CENtURy 117
the foreign-exchange and letter-of-credit markets. Meanwhile, upstart firms like
Winslow & Lanier that focused narrowly on investment banking had seized the
initiative in the rapidly emerging New York capital market. Once the acknowledged
leaders within the Anglo-American merchant banking community, the Barings
steadily lost market share in the last half of the nineteenth century. The partners’
multi-functional strategy and their broad global involvement became, in time, a
liability rather than an asset. By the 1870s, they were no longer capable of seizing
business from other houses based in New York that had become more functionally
specialized and were more strongly committed to serving the American market.
The Browns
The Brown firm was established in 1800 by Alexander Brown, a modestly
successful linen merchant who emigrated from Northern Ireland to Baltimore,
a port where close relatives had only recently preceded him. Ten years after his
arrival in Baltimore, Alexander sent his eldest son William to Liverpool to open
what eventually became a branch office of the parent firm. Later, two younger sons
opened two additional wholly-owned branch offices in Philadelphia and New York.
Like the Rothschilds, the Browns had a unified ownership that functioned smoothly
over long geographical distances for many decades. By the 1820s the Browns were
involved in a wide range of trade-related financial markets – including the purchase
and sale of sterling bills, the making of advances to attract cotton consignments to
the Liverpool branch, and the issuance of letters of credit to American importers.
In this period the Browns stood just behind the Barings with respect to their overall
involvement in the foreign-trade sector of the American economy.
The Browns differed from the Barings and most contemporary merchant bankers
primarily because of their reluctance to participate extensively in complementary
investment banking activities. The location of their overseas branch office in
Liverpool, rather than in London, precluded their involvement in all but a few
isolated securities transactions. The absence of a presence in what was then the
world’s key money centre did not hurt the partnership’s profits, however. From
1816 to 1836, the Browns’ capital rose from £150,000 to £1.3 million, increasing
at an annual rate of 11.5 per cent.
The Browns were hit hard by the Panic of 1837, and only loans from the
Bank of England saved them from the embarrassment of repudiating, at least
temporarily, their maturing debt obligations. As a result of this crisis, the partners
decided to pursue a policy of greater specialization. They entirely gave up trading
in merchandise on their own account, which means, strictly speaking, they were
no longer acting as merchants – only as bankers. Henceforth, the firm concentrated
Baron Alphonse Rothschild acknowledged the Browns’ status in a letter from New
York in 1849: ‘There is only one banking house here, and that sole concern is that of the
Browns’. Quoted in Chapman, Rise of Merchant Banking, p. 42.