the world of private banking
the world of private banking
the world of private banking
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48<br />
THE WORLD OF PRIVAtE BANKING<br />
discount or as security for a loan, unless endorsed by two English signatures. 22 As<br />
for <strong>the</strong> issue <strong>of</strong> loans and equities on <strong>the</strong> London capital market, it was restricted<br />
by custom and practice to British firms. Foreign banks were involved in those<br />
issues simultaneously floated across several centres, but <strong>the</strong>y did not compete with<br />
British firms on <strong>the</strong>ir home turf. The leading clearing banks only timidly entered<br />
<strong>the</strong> issuing business in <strong>the</strong> early twentieth century, a domain where <strong>the</strong> influence <strong>of</strong><br />
<strong>the</strong> overseas banks remained limited, despite <strong>the</strong>ir special links with <strong>the</strong> countries<br />
that regularly called on <strong>the</strong> London capital market. Merchant banks were far better<br />
placed, on account <strong>of</strong> <strong>the</strong>ir expertise and contacts, to see foreign issues through to<br />
a successful conclusion. 23<br />
Private international bankers were in a different position in continental Europe.<br />
For one thing, <strong>the</strong> scope for international financial operations was far more restricted<br />
than in Britain, and for ano<strong>the</strong>r joint-stock banks were able to secure a larger share<br />
<strong>of</strong> this business. However, conditions were far from being identical across Europe.<br />
The haute banque remained stronger in France than in Germany and was also able<br />
to prosper in smaller countries with old <strong>banking</strong> traditions, such as Switzerland.<br />
The dominance <strong>of</strong> <strong>the</strong> Parisian haute banque over French international<br />
finance reached its peak in 1871–2, with <strong>the</strong> issue <strong>of</strong> <strong>the</strong> two war indemnity<br />
loans, amounting to 5.2 billion francs – <strong>the</strong> levy required by Bismarck to pay for<br />
France’s defeat by Prussia in <strong>the</strong> 1870 war. The French haute banque, led by <strong>the</strong><br />
Rothschilds, was able to keep control over <strong>the</strong>se issues, with <strong>the</strong> new joint-stock<br />
banks very much in <strong>the</strong> position <strong>of</strong> junior partners, though <strong>the</strong>ir influence was<br />
to increase in <strong>the</strong> process. Rothschild and <strong>the</strong> haute banque kept <strong>the</strong>ir hold over<br />
<strong>the</strong> first loan, securing <strong>the</strong> bulk <strong>of</strong> <strong>the</strong> lucrative commissions. In order to play a<br />
more active role and get a larger share <strong>of</strong> <strong>the</strong> second loan, <strong>the</strong> newly formed jointstock<br />
banks decided to join forces and form a coalition, <strong>the</strong> so-called ‘syndicat des<br />
établissements de crédit’. The move proved successful, though for <strong>the</strong> time being<br />
<strong>the</strong> Rothschild group remained in control. However, with its 35.7 per cent share,<br />
<strong>the</strong> syndicate, led by <strong>the</strong> Banque de Paris et des Pays-Bas, founded in 1872, had<br />
gained a foothold. From <strong>the</strong>n on, an ever-increasing share <strong>of</strong> <strong>the</strong> foreign loans<br />
issued in Paris was handled by <strong>the</strong> ‘établissements de crédit’. 24<br />
22<br />
In 1913, three <strong>of</strong> <strong>the</strong> ten largest accepting houses were foreign banks – Dresdner<br />
Bank, Disconto-Gesellschaft, and Crédit Lyonnais. Their acceptances were mostly used to<br />
finance <strong>the</strong> trade <strong>of</strong> <strong>the</strong>ir home country through employing sterling-denominated bills and<br />
<strong>the</strong> London discount market.<br />
23<br />
The exception here was <strong>the</strong> Hong Kong and Shanghai Banking Corporation, which<br />
played a pioneering role in Chinese government loans between 1895 and 1914. The bank<br />
had a unique competitive advantage thanks to its knowledge <strong>of</strong> Far Eastern business, <strong>the</strong><br />
support <strong>of</strong> <strong>the</strong> Foreign Office, owing to <strong>the</strong> political nature <strong>of</strong> a number <strong>of</strong> <strong>the</strong>se loans, and<br />
finally its relationships in <strong>the</strong> City, especially, and significantly, with <strong>the</strong> Rothschilds. See<br />
G. Jones, British Multinational Banking 1830–1990 (Oxford, 1993), pp. 119–30.<br />
24<br />
See J. Bouvier, Les Rothschild (Paris, 1967); E. Bussière, Paribas 1872–1992:<br />
L’Europe et le monde (Antwerp, 1992).