the world of private banking
the world of private banking
the world of private banking
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THE ANGLO-AmERIcAN HOUSES IN tHE NINEtEENtH CENtURy 117<br />
<strong>the</strong> foreign-exchange and letter-<strong>of</strong>-credit markets. Meanwhile, upstart firms like<br />
Winslow & Lanier that focused narrowly on investment <strong>banking</strong> had seized <strong>the</strong><br />
initiative in <strong>the</strong> rapidly emerging New York capital market. Once <strong>the</strong> acknowledged<br />
leaders within <strong>the</strong> Anglo-American merchant <strong>banking</strong> community, <strong>the</strong> Barings<br />
steadily lost market share in <strong>the</strong> last half <strong>of</strong> <strong>the</strong> nineteenth century. The partners’<br />
multi-functional strategy and <strong>the</strong>ir broad global involvement became, in time, a<br />
liability ra<strong>the</strong>r than an asset. By <strong>the</strong> 1870s, <strong>the</strong>y were no longer capable <strong>of</strong> seizing<br />
business from o<strong>the</strong>r houses based in New York that had become more functionally<br />
specialized and were more strongly committed to serving <strong>the</strong> American market.<br />
The Browns<br />
The Brown firm was established in 1800 by Alexander Brown, a modestly<br />
successful linen merchant who emigrated from Nor<strong>the</strong>rn Ireland to Baltimore,<br />
a port where close relatives had only recently preceded him. Ten years after his<br />
arrival in Baltimore, Alexander sent his eldest son William to Liverpool to open<br />
what eventually became a branch <strong>of</strong>fice <strong>of</strong> <strong>the</strong> parent firm. Later, two younger sons<br />
opened two additional wholly-owned branch <strong>of</strong>fices in Philadelphia and New York.<br />
Like <strong>the</strong> Rothschilds, <strong>the</strong> Browns had a unified ownership that functioned smoothly<br />
over long geographical distances for many decades. By <strong>the</strong> 1820s <strong>the</strong> Browns were<br />
involved in a wide range <strong>of</strong> trade-related financial markets – including <strong>the</strong> purchase<br />
and sale <strong>of</strong> sterling bills, <strong>the</strong> making <strong>of</strong> advances to attract cotton consignments to<br />
<strong>the</strong> Liverpool branch, and <strong>the</strong> issuance <strong>of</strong> letters <strong>of</strong> credit to American importers.<br />
In this period <strong>the</strong> Browns stood just behind <strong>the</strong> Barings with respect to <strong>the</strong>ir overall<br />
involvement in <strong>the</strong> foreign-trade sector <strong>of</strong> <strong>the</strong> American economy.<br />
The Browns differed from <strong>the</strong> Barings and most contemporary merchant bankers<br />
primarily because <strong>of</strong> <strong>the</strong>ir reluctance to participate extensively in complementary<br />
investment <strong>banking</strong> activities. The location <strong>of</strong> <strong>the</strong>ir overseas branch <strong>of</strong>fice in<br />
Liverpool, ra<strong>the</strong>r than in London, precluded <strong>the</strong>ir involvement in all but a few<br />
isolated securities transactions. The absence <strong>of</strong> a presence in what was <strong>the</strong>n <strong>the</strong><br />
<strong>world</strong>’s key money centre did not hurt <strong>the</strong> partnership’s pr<strong>of</strong>its, however. From<br />
1816 to 1836, <strong>the</strong> Browns’ capital rose from £150,000 to £1.3 million, increasing<br />
at an annual rate <strong>of</strong> 11.5 per cent.<br />
The Browns were hit hard by <strong>the</strong> Panic <strong>of</strong> 1837, and only loans from <strong>the</strong><br />
Bank <strong>of</strong> England saved <strong>the</strong>m from <strong>the</strong> embarrassment <strong>of</strong> repudiating, at least<br />
temporarily, <strong>the</strong>ir maturing debt obligations. As a result <strong>of</strong> this crisis, <strong>the</strong> partners<br />
decided to pursue a policy <strong>of</strong> greater specialization. They entirely gave up trading<br />
in merchandise on <strong>the</strong>ir own account, which means, strictly speaking, <strong>the</strong>y were<br />
no longer acting as merchants – only as bankers. Henceforth, <strong>the</strong> firm concentrated<br />
<br />
Baron Alphonse Rothschild acknowledged <strong>the</strong> Browns’ status in a letter from New<br />
York in 1849: ‘There is only one <strong>banking</strong> house here, and that sole concern is that <strong>of</strong> <strong>the</strong><br />
Browns’. Quoted in Chapman, Rise <strong>of</strong> Merchant Banking, p. 42.