the world of private banking

164
THE WORLD OF PRIVAtE BANKING
1830s business in general slackened, local investors were no longer prepared to
fund such a risky venture. In 1839, Oppenheim held about three quarters of the
company’s stock. The bulk of this was funded by the bank’s own resources, while
only a small portion was deposited on behalf of the bank’s customers. 17
Although the bank’s resources consisted largely of the proprietors’ personal
capital, the liquidity position of the bank became dangerously strained, since at
the same time the not-yet-opened railway was facing the same difficulties. When
the cost estimate proved to be insufficient, the depression of the late 1830s (plus
seemingly hostile Prussian railway legislation) from the outset made every effort
to raise additional finance through the market a lost cause. Since the Prussian State
was also very reluctant to support the company, it relied heavily on its bankers. In
1838 a consortium consisting of Oppenheim, Stein and Herstatt agreed to pay for
the total of a new stock issue of 1.5 million thalers. Yet downward price movements
of stock soon rendered the shares held by the banks unsaleable, and the ‘lock-up’
of the bankers’ resources posed a serious threat to the latters’ solvency. By the end
of 1838 the bankers urged the board of directors to repurchase a substantial part
of the company’s stock in order to stabilize the price. At first the directors were
very restrained, hiding themselves behind the argument that the company statutes
did not allow such manipulation. Finally, however, when the bankers threatened
to unload their holdings of stock completely and without regard to the losses
involved, the directors agreed to take back the whole issue of 1.5 million thalers.
The price which the bankers had to pay for this concession was the stipulation
that they lost the whole amount of calls already paid (20 per cent) if the shares
were kept in the hands of the company until mid-1839. Later, the period was
prolonged until the end of that year, but the situation did not ease. In order to
make sure that the Rhenish Railway was connected to the Belgian State Railway,
the Belgian government finally agreed to pay for the stock before the bankers had
to write off their calls. 18
It is pointless to speculate about the outcome of the crisis if the negotiation
with the Belgian government had failed, but it is quite clear from this case that a
banker having realized the potential of this new venture had to invest an extremely
high portion of his own resources. He could not rely on an anonymous capital
market, but had to resort to private contact with the limited circle of his wealthy
clients. As a consequence, the fate of the banker was intertwined with that of his
industrial customers. Some banks, particularly those which had options other than
industrial credits, decided to avoid such risk and to retreat from this business. An
outstanding example is the Berlin bank Mendelssohn & Co. This bank, which had
been both a first-rank State financier and an active ‘railway bank’, got into trouble
from its involvement in the Cuxhafen-Stade Railway Company in 1875. As an
emergency measure the Mendelssohns sold their entire interest in industrial and
17
Teichmann, ‘Bankhaus’, p. 13.
18
Stürmer et al., Wägen, p. 88.