the world of private banking

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THE WORLD OF PRIVAtE BANKING
to finance general expenditure, stabilize their currency, construct infrastructure
and wage war. By mid-century they were joined by corporate borrowers, mostly
formed to build railways – the cornerstone of the modern industrial State,with an
unprecedented need for capital – and infrastructure such as water supply, drainage,
roads, tramways and municipal buildings to facilitate urban development, another
key feature of modernization.
Merchant banks provided these borrowers with access to the London market
in order to issue their securities; in capturing such business the banks had many
advantages. As international merchants and financiers of international trade their
knowledge of countries and governments far exceeded that of other groups of
British-based financial intermediaries. Moreover, their standing was as well known
to potential foreign borrowers as it was to potential domestic investors, meaning
that they were uniquely suited to bringing the two together. As important was their
web of international connections – merchants, bankers and other intermediaries
– which facilitated their formation of syndicates to underwrite and distribute the
securities they issued.
Barings’ securities business developed in the 1780s, when British government
securities were purchased and marketed to investors in order to fund military and
naval expenditure during the War of American Independence. During the European
Wars, 1793 to 1815, Barings emerged as a leading marketer of these securities,
once again issued to fund war expenditure. This, in turn, led to similar business for
other governments; it began in 1801 when Barings and Hope & Co. of Amsterdam
marketed Portuguese government bonds to enable the government to fund subsidies
payable to France. Far more important was the 1803–4 issue, again with Hopes,
of US$11.25 million United States government bonds to fund the purchase of the
Territory of Louisiana from France, a transaction which doubled the size of the
country through the addition of one million square miles. Few transactions carried
out by London merchant banks had greater historical significance.
As the nineteenth century progressed the securities business grew in importance.
Between 1816 and 1818 the firm led a massive and politically important, yet
unresearched, transaction to fund indemnities payable by France after its defeat
in 1815. In the following decades private placements for US State governments
and businesses predominated, many of the proceeds being ploughed into railway
development and public works but also into banks in order to improve the mobility
of local capital needed by the emergent cotton industry.
From mid-century, public issues via the circulation of prospectuses rather than
via private placements predominated. Now Barings’ geographical specialization
in issuing securities for national and provincial governments, municipalities and
businesses in the United States, Canada, Russia and Argentina was pronounced.
But issues were made for many other governments, including those of France,
Belgium, Italy, China, Chile, Japan, Uruguay, Venezuela, Mexico, Austria,
Portugal, the Cape of Good Hope and Spain. Many of the proceeds balanced
annual budgets but a huge amount was ploughed into railway construction in
countries as diverse as India and Italy, China and Chile. These projects sometimes