the world of private banking
the world of private banking
the world of private banking
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THE RISE OF tHE ROtHScHILDS<br />
<br />
seems to have been <strong>the</strong> case for all <strong>the</strong> houses. In 1828, credits to <strong>the</strong> o<strong>the</strong>r house<br />
amounted to 31 per cent <strong>of</strong> <strong>the</strong> assets <strong>of</strong> <strong>the</strong> Paris house. <br />
The most striking point <strong>of</strong> all is <strong>the</strong> sheer size <strong>of</strong> <strong>the</strong> Rothschilds’ bank. In<br />
1815, <strong>the</strong> combined capital <strong>of</strong> <strong>the</strong> Rothschild houses in Frankfurt and London was<br />
at most £500,000. In 1818, <strong>the</strong> figure was £1,772,000, in 1825 £4,082,000 and in<br />
1828 £4,330,333. The equivalent figures for <strong>the</strong> Rothschilds’ nearest rival, Baring<br />
Bro<strong>the</strong>rs, were £374,365, £429,318, £452,654 and £309,803. 10 To take a single year<br />
– 1825 – <strong>the</strong>ir combined resources were nine times greater than <strong>the</strong> capital <strong>of</strong> Baring<br />
Bro<strong>the</strong>rs and eleven times larger than <strong>the</strong> capital <strong>of</strong> James’s principal rival in Paris,<br />
Laffitte. They even exceeded <strong>the</strong> capital <strong>of</strong> <strong>the</strong> Banque de France (around £3 million<br />
at this time). 11 Nor did <strong>the</strong> Rothschilds lose momentum in <strong>the</strong> succeeding years. In<br />
1836 – <strong>the</strong> next time <strong>the</strong> partners met to settle accounts and renew <strong>the</strong>ir contractual<br />
agreement – <strong>the</strong> capital had increased again to £6,007,707. Barings’ capital in that<br />
year was £776,650. Eight years later, <strong>the</strong> Rothschilds had increased <strong>the</strong>ir capital<br />
to £7,778,200; Barings’ had shrunk to £501,944. The main explanation for this<br />
dramatic disparity is not just that <strong>the</strong> Rothschilds made bigger pr<strong>of</strong>its. In relation to<br />
its capital, <strong>the</strong> Barings’ bank was significantly more pr<strong>of</strong>itable on average than <strong>the</strong><br />
London house. 12 But <strong>the</strong> Rothschilds ploughed <strong>the</strong> bulk <strong>of</strong> <strong>the</strong>ir pr<strong>of</strong>its back into <strong>the</strong><br />
business, whereas <strong>the</strong> Barings tended to distribute pr<strong>of</strong>its to <strong>the</strong> partners (even in<br />
years when <strong>the</strong> bank made a loss) ra<strong>the</strong>r than allow capital to accumulate.<br />
How did <strong>the</strong> Rothschilds make <strong>the</strong>ir money? Primarily, <strong>the</strong> answer is from<br />
government finance. Between 1818 and 1832, it has been estimated that N.M.<br />
Rothschild accounted for seven out <strong>of</strong> 26 loans contracted by foreign governments in<br />
London, and roughly 38 per cent (£37.6 million) <strong>of</strong> <strong>the</strong>ir total value. This was more<br />
than twice <strong>the</strong> value <strong>of</strong> <strong>the</strong>ir nearest rival. 13 Moreover, <strong>the</strong> bank’s own figures suggest<br />
that this may be an underestimate: according to Ayer, <strong>the</strong> value <strong>of</strong> State loans issued<br />
by Nathan in this period was in fact £76 million, though £8.6 million was shared<br />
with non-Rothschild banks. 14 The equivalent total for loans issued by <strong>the</strong> Frankfurt<br />
house in this period is 28 million gulden (c. £2.5 million). 15 In Paris, James came to<br />
exercise a near monopoly over French government finance, issuing seven loans with a<br />
nominal capital <strong>of</strong> 1.5 billion francs (£60 million) between 1823 and 1847. 16 Table 1.4<br />
<br />
CPHDCM, 637/1/6/34–42, Bilan de MM de Rothschild Frères, 30 June 1828.<br />
10<br />
P. Ziegler, The Sixth Great Power: Barings, 1762–1929 (London, 1988), p. 374.<br />
11<br />
Gille, Maison Rothschild, vol. I, pp. 163–6, 450f.<br />
12<br />
Ziegler, Sixth Great Power, appendix.<br />
13<br />
S. Chapman, The Rise <strong>of</strong> Merchant Banking (London, 1984), p. 20.<br />
14<br />
J. Ayer, A Century <strong>of</strong> Finance, 1804 to 1904: The London House <strong>of</strong> Rothschild<br />
(London, 1904), pp. 14ff. Ayer included not only bond issues but various short-term loans<br />
against treasury bills; this may account for <strong>the</strong> discrepancy.<br />
15<br />
C. W. Berghoeffer, Meyer Amschel Rothschild: Der Gründer des Rothschildschen<br />
Bankhauses (Frankfurt am Main, 1924), appendix.<br />
16<br />
F. Braudel and E. Labrousse, Histoire économique et sociale de la France, vol. III:<br />
L’avènement de l’ére industrielle, 1789–1880 (Paris, 1976), pp. 364–71.