the world of private banking
the world of private banking
the world of private banking
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
46<br />
THE WORLD OF PRIVAtE BANKING<br />
that London was <strong>the</strong> leading centre for <strong>the</strong> issue <strong>of</strong> foreign loans and equity. The<br />
development <strong>of</strong> <strong>the</strong> acceptance and issuing activities, which were <strong>the</strong> two pillars<br />
<strong>of</strong> merchant <strong>banking</strong>, <strong>of</strong>fered tremendous opportunities, both to existing firms and<br />
to newcomers.<br />
Consider first acceptances, <strong>the</strong> ‘bread and butter’ <strong>of</strong> merchant bankers’ income.<br />
Estimates <strong>of</strong> <strong>the</strong>ir total volume show an increase from between £50 to £60 million<br />
in 1875–6 to about £140 million in 1913 – though <strong>the</strong>y recorded a sharp fall in <strong>the</strong><br />
early 1890s (from £90 to £50 million) following <strong>the</strong> Baring Crisis. The merchant<br />
bankers were probably responsible for some 70 per cent <strong>of</strong> this total – that is,<br />
around £100 million. Foreign issues also increased dramatically in <strong>the</strong> second half<br />
<strong>of</strong> <strong>the</strong> nineteenth century. British portfolio foreign investment has been estimated<br />
at about £195 to £230 million in 1854. 10 By 1913, it had jumped to some £3.5<br />
to 4 billion, with major booms <strong>of</strong> capital export taking place in <strong>the</strong> early 1870s,<br />
<strong>the</strong> 1880s and <strong>the</strong> decade preceding <strong>the</strong> First World War. Private <strong>banking</strong> houses,<br />
above all merchant banks, were able to maintain <strong>the</strong>ir hold on <strong>the</strong> huge London<br />
issuing business, being responsible for 37.2 per cent <strong>of</strong> all new issues between<br />
1870 and 1914. Admittedly, <strong>the</strong>y lost market share – from 53 per cent between<br />
1870 and 1874 to 35 per cent in <strong>the</strong> years 1910–1914 – mostly to <strong>the</strong> joint-stock<br />
banks, whe<strong>the</strong>r British or overseas. 11 Never<strong>the</strong>less, <strong>the</strong>y remained by a significant<br />
margin <strong>the</strong> largest single intermediary in <strong>the</strong> London market.<br />
As a result, <strong>the</strong> number <strong>of</strong> merchant banks and o<strong>the</strong>r <strong>private</strong> banks involved<br />
in international financial operations increased substantially during this period.<br />
Estimates vary, as such banks were engaged in a great variety <strong>of</strong> activities,<br />
including trade, brokerage, foreign exchange, arbitrage, company promotion and<br />
o<strong>the</strong>rs. Their total number increased from 45 in 1885 to 105 in 1914 according to<br />
some estimates, 12 from 39 in 1990 to 63 in 1910 according to more conservative<br />
ones. 13 As for <strong>the</strong> select group <strong>of</strong> top-ranking accepting houses – those invited to<br />
<strong>the</strong> first meeting <strong>of</strong> <strong>the</strong> Accepting House Committee in August 1914 – it comprised<br />
a mere 21 names. 14<br />
<br />
See R. Michie, The City <strong>of</strong> London: Continuity and Change, 1850–1990 (Basingstoke<br />
and London, 1992); D. Kynaston, The City <strong>of</strong> London, vol. 2: Golden Age, 1890–1914<br />
(London, 1995); Y. Cassis, Capitals <strong>of</strong> Capital: A History <strong>of</strong> International Financial<br />
Centres, 1780–2005 (Cambridge, 2006).<br />
<br />
S. Chapman, The Rise <strong>of</strong> Merchant Banking (London, 1984), pp. 105–7, 209.<br />
10<br />
P.L. Cottrell, British Overseas Investment in <strong>the</strong> Nineteenth Century, 1870–1914<br />
(London, 1975), p. 13.<br />
11<br />
A.R. Hall, The London Capital Market and Australia, 1870–1914 (Canberra, 1963),<br />
p. 72.<br />
12<br />
Chapman, Merchant Banking, p.58.<br />
13<br />
R. Roberts, ‘What’s in a Name? Merchants, Merchant bankers, Accepting Houses,<br />
Issuing Houses, Industrial Bankers and Investment Bankers’, in Business History, vol. 35,<br />
3, 1993.<br />
14<br />
See Cassis, City Bankers, pp. 30–31.