the world of private banking
the world of private banking
the world of private banking
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218<br />
THE WORLD OF PRIVAtE BANKING<br />
In France and Germany Jewish bankers played a significant role in promoting<br />
railway companies in <strong>the</strong> 1830s. When Emile Pereire, his former employee,<br />
launched <strong>the</strong> Paris-Saint Germain line, James Rothschild was one <strong>of</strong> <strong>the</strong> main<br />
shareholders in <strong>the</strong> company, with Louis d’Eichtal. Its success focused attention<br />
on <strong>the</strong> market for railway stock. In 1837 <strong>the</strong> launching <strong>of</strong> <strong>the</strong> Paris-Versailles<br />
route by <strong>the</strong> Rothschilds gave rise to numerous stock-exchange transactions,<br />
stimulated by a press campaign announcing <strong>the</strong> creation <strong>of</strong> a number <strong>of</strong> projected<br />
lines throughout Europe. The financial crises <strong>of</strong> 1838 brutally suspended railway<br />
building. And in spite <strong>of</strong> <strong>the</strong> 1842 law which laid down <strong>the</strong> basic principles <strong>of</strong><br />
French railway construction, many years passed before <strong>the</strong> bankers became<br />
decisively involved in railway business. While <strong>the</strong> Rothschilds got <strong>the</strong> concession<br />
for <strong>the</strong> Paris-Belgian frontier line, which was <strong>the</strong> starting point for <strong>the</strong> expanding<br />
network <strong>of</strong> <strong>the</strong> Compagnie des Chemins de Fer du Nord in <strong>the</strong> North <strong>of</strong> France<br />
and South-Western Belgium, <strong>the</strong> great Parisian bankers speculated on rail mainly<br />
by investing heavily in stocks <strong>of</strong> various important railway companies. Thus, <strong>the</strong><br />
Pereire bro<strong>the</strong>rs were promoting <strong>the</strong> PLM (Paris-Lyon-Méditerranée).<br />
In Germany, Jewish <strong>private</strong> banks invested early in railway construction. The<br />
initiative <strong>the</strong>re was taken by four <strong>private</strong> bankers <strong>of</strong> Cologne – J.H. Stein,<br />
A. Schaaffhausen, J.D. Herstatt and Salomon Oppenheim Jr – with <strong>the</strong> foundation<br />
in 1837 <strong>of</strong> <strong>the</strong> Rheinische Eisenbahngesellschaft with a capital <strong>of</strong> 325,000 thalers,<br />
<strong>of</strong> which <strong>the</strong> Rothschilds <strong>of</strong> Paris contributed 50,000 and <strong>the</strong> Oppenheims 35,000.<br />
Originally mandated to build a line from Antwerp to Cologne, <strong>the</strong> company<br />
managed to construct a network <strong>of</strong> railroads between <strong>the</strong> western frontier<br />
<strong>of</strong> Prussia, <strong>the</strong> Rhine and <strong>the</strong> Saar. The banks supported <strong>the</strong> railway company<br />
through its difficult early years by overdrafts and brokerage services. Their reward<br />
lay in share issue and speculation in railway stocks. Their policy <strong>of</strong> holding<br />
stocks assured <strong>the</strong>m <strong>of</strong> voting rights and influential positions on <strong>the</strong> board <strong>of</strong> <strong>the</strong><br />
railway company. Among o<strong>the</strong>r similar enterprises, let us recall <strong>the</strong> alliance <strong>of</strong> <strong>the</strong><br />
Rothschilds and <strong>the</strong> Bethmanns for developing Frankfurt as a railway centre for<br />
<strong>the</strong> whole <strong>of</strong> Germany.<br />
While financing railway construction, bankers also took an interest in <strong>the</strong><br />
industrialization <strong>of</strong> <strong>the</strong> regions served by <strong>the</strong> companies <strong>the</strong>y supported. Thus, <strong>the</strong><br />
Rothschilds <strong>of</strong> Paris acquired important interests in coalmining in Belgium and<br />
extended <strong>the</strong>ir railway network in such a manner that <strong>the</strong>y controlled Belgian coal<br />
imports to France. The Pereire were long-standing shareholders in <strong>the</strong> Compagnie<br />
d’Anzin. The Oppenheims were tied to <strong>the</strong> iron industry in <strong>the</strong> Rhineland.<br />
Jewish <strong>private</strong> bankers became aware that <strong>the</strong> demands <strong>of</strong> railway and<br />
industrialization finance could no longer be satisfied by <strong>the</strong>ir limited resources.<br />
It was necessary to mobilize public savings by creating joint-stock banks. In<br />
Belgium, <strong>the</strong> model <strong>of</strong> <strong>the</strong> universal bank had been adopted early with <strong>the</strong> founding<br />
<strong>of</strong> <strong>the</strong> Société Générale in 1822. In 1835 James Rothschild, Jonathan-Raphaël<br />
Bisch<strong>of</strong>fsheim and Adolphe Oppenheim had helped King Leopold I in founding<br />
<strong>the</strong> Banque de Belgique which invested in coalmining and ironworks to supply<br />
<strong>the</strong> construction <strong>of</strong> <strong>the</strong> railway network by <strong>the</strong> State. Conversely, governments