the world of private banking

CHAPTER 8
Private Banks and International Finance in
the Light of the Archives of Baring Brothers
John Orbell
Introduction
The last significant bastion of private banking in Britain was merchant banking,
which today, in its modern form, is generally labelled investment banking. Most
London merchant banks traced their origins to merchant houses formed by migrants
to London from mainland Europe in the late eighteenth or early nineteenth century.
As such, they traded internationally in commodities and provided agency services
to other merchants in commercial centres around the world. They moved on from
this to play a vital role in the provision of short-term finance for international
trade and long-term finance for, inter alia, infrastructure development around the
world. Their role in mobilizing capital in London’s emerging international capital
market for use by overseas borrowers was hugely important in the development
of the nineteenth-century economy. It won them great prestige and extraordinary
influence; they punched well above their weight and in some areas worked as
equals alongside giants such as Deutsche Bank and Crédit Lyonnais.
Their names are well known, although in the last 20 years most have disappeared
as a result of acquisition by larger banking businesses anxious to establish a
presence in the international securities markets and in wholesale banking. Survivors
are N.M. Rothschild and Lazard Brothers, while recent departures include Baring
Brothers, Brown Shipley, Robert Fleming, Hambros, Morgan Grenfell, Kleinwort
Benson and Samuel Montagu. Earlier withdrawals include Brandts, Erlangers,
Gibbs, Higginsons, Huths, Japhets, Samuels, Seligmans and Sterns.
Internationally focused private banks existed in other European financial
centres. In the eighteenth and nineteenth centuries many prospered, especially in
Amsterdam, Frankfurt and Paris, and many London merchant banks did business
with them, maintaining an intimate correspondence, forming syndicates and
acting on joint account. But none developed the range of activities or the influence
of London’s privately owned merchant banks, which held their own against the
competition – whether real or potential – of Britain’s publicly owned joint-stock
banks. Although the latter, with their huge balance sheets and customer bases,
began to encroach upon the traditional territory of merchant banks before 1914,
significant inroads were not made until well after 1945. This was despite the
modest resources of merchant banks, which lacked significant customer deposits
and, as private banks, were restricted to the personal capital of their partners and