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The political experience
of Great Britain from 1857 to 1866 was one mainly of peace; but in other
quarters of the globe several severe wars occurred which sometimes
endangered its neutrality. Indeed, throughout this period it may be said
that Britain's condition was rather one of armed neutrality than of
perfect concord with the other powers. In 1859 France and Sardinia
conducted a successful campaign against Austria, which was the
commencement of the formation of the kingdom of Italy. In the middle of
the same year Britain went to war with China, one incident of which was
the repulse of our fleet off the Peiho. This war was continued almost
throughout the succeeding year, during which Garibaldi commenced his
career as the great liberator of Italy, at Marsala, in Sicily. The most
important event in the world's history for the year 1860 was, however,
the secession, on 19th December, of the State of South Carolina from the
great American Union—an action which was speedily followed by the
secession of the other Southern States of the Union. Early in 1861 the
seceding States numbered eleven, united as an independent political
organisation, under the designation of the Confederated States of
America. The civil war which ensued assumed enormous proportions: it was
protracted and bloody, involving vast expenditure; and its direct and
indirect effects on the trade and financial conditions of the world were
very great. At one time, moreover, Britain was on the eve of a rupture
with the Federal States, owing to the violation (8th November 1861) of
the neutrality of one of her mail steamers by the American warship San
Jacinto,—an incident popularly known as the Trent affair—two
commissioners from the Confederated States being forcibly taken from the
British vessel while on their voyage from Havanah to Southampton. Before
the close of the year, however, reparation having been made by the
Federal Government, all danger of war had passed away. A small war with
the natives of New Zealand broke out at the close of 1863, and another
with Japan in the succeeding year, in which the French, Dutch, and
United States fleets were allied with the British. In January 1864
Britain was nearly involved in war with Prussia and Austria, in defence
of Denmark; but, at some sacrifice to her prestige, she refrained from
an interference which must have been attended with very serious results.
The close of the American civil war was signalised by the assassination
(April 14) of President Lincoln. Prussia and Italy were at war with
Austria in 1866, but in that conflict Britain had no direct interest.
Meanwhile the arts of
peace had been progressing satisfactorily. No great inventions or
discoveries revolutionised the conditions of trade or society, but
existing facilities were developed and availed of to a great extent. An
important step in ocean navigation was taken in the building of the
Great Eastern steamship, which was launched on the Thames on 31st
January 1858. Unfortunately this great project was beyond the knowledge
of its designers and the requirements of the time; and it proved an
almost total financial failure. The Great Eastern was practically
useless until the comparatively small value to which it fell permitted
it, in after years, to be successfully employed in the laying of ocean
telegraph cables. This department of business was developed very widely
during the period of which we are treating. On 5th August 1858 the first
Atlantic cable was successfully laid, and congratulatory messages were
interchanged between Britain and the United States. This was speedily
followed, however, by the grievous disappointment of a total cessation
of communication, through some flaw which the electricians of that time
were unable to deal with. In other quarters of the world telegraph
cables were laid with more success.
From an economic point of
view, the period extending from 1857 to 1866 displays the usual features
of depression, activity, speculation, and collapse; but, probably owing
to the greater complications consequent on advancing civilisation, and
to the disturbing influence of the striking political events to which we
have referred, these characteristic transitions are not so clearly
marked as in some previous periods. One noticeable point is that the
period of depression following the crisis of 1857 was of unusually short
duration. Within two years a marked advance of prosperity had occurred;
and the Times was able to record that, with the exception of the
shipping interest, "every branch of industry is flourishing as
abundantly as at any former period, and the England of 1860 is richer,
stronger, and better contented than the wealthy and prosperous England
which in 1850 commanded the respect and envy of the world." Increasing
commercial activity reached the phase of speculation in 1862 and 1863,
when bubble companies—principally banking and trading —became numerous,
and foreign loans formed the subject of a monetary mania.
In the former year,
however, a serious counteracting influence came into play. This was the
so-called "cotton famine," consequent on the blockading of the ports of
the Confederate States of America. By this event the cotton industry of
Lancashire was paralysed, and large numbers of operatives were thrown
out of employment. The nation came nobly forward to avert the danger of
starvation which threatened the working classes of the district; and,
although great loss occurred by the cessation of this industry, the
nation was able to bear the strain with surprising ease. The money
market, however, became much affected towards the close of 1863, and
during almost the whole course of the next year the value of money was
very high. Indeed, it may be said that, at this time, there occurred one
of those semi-crises sometimes observable during the course of a
decennial period. This speedily passed away, and the nation resumed its
career of prosperity unchecked, until inflated credit and over
speculation brought about their invariable sequel. It is probable that
joint-stock enterprise received a great stimulus by the passing of the
Companies Act of 1864, under which the formation and incorporation of
all kinds of companies was much simplified.
The record of banking in
Scotland during this period is marked in the main by increasing
prosperity, development, and consolidation. Only one instance of adverse
experience occurred ; and it belongs properly to the immediately
preceding period. The Edinburgh and Glasgow Bank—whose career we have
already sketched—got into a condition of embarrassment in the middle of
1858. Half of the capital (£500,000) had been written off on 4th
February, but the bank found the attempt to recover from the discredit
into which it had fallen during the recent crisis hopeless; and it was
fain to seek repose by amalgamation with the Clydesdale Banking Company.
This operation conferred no benefit on the shareholders of the Edinburgh
and Glasgow Bank, for they received no consideration for the goodwill of
their business. They were indeed freed from danger of calls; but they
lost their whole right of property in the bank. Had they shown
sufficient courage in facing their difficulties, they might have come
out of the struggle in a much more satisfactory manner. [It is said of
one of the directors that, after the board meetings, he used to call on
a stockbroker of his acquaintance to discuss the situation. The clerks,
with youthful intelligence, were quite alive to their opportunity ; and,
when the director was closeted with their principal, used to make a
pretext for entering the room, so as to be able to leave the door open.
They thus heard the conversation, and were kept au courant of the state
of affairs at the bank. They were not likely to be more reticent than
the director himself. The story was told in later years by one of the
clerks.] As it was, the new connections secured by the Clydesdale Bank
through this amalgamation, obtained practically without any outlay, had
a material effect in improving their business. The number of their
branches was increased by more than twenty offices of the Edinburgh and
Glasgow Bank, many of which were believed to be very profitable
concerns.
Another amalgamation
secured by the Clydesdale Bank was that of the Eastern Bank, in January
1863. In this case a very handsome price was paid for the business,
principally in stock of the former bank. By these two purchases the
authorised circulation of the Clydesdale Bank was extended by £170,293.
[Previously the authorised circulation of the Clydesdale was £104,028;
that of the Edinburgh and Glasgow, £136,657; and that of the Eastern,
£33,636, making £274,321 in all,] Next year (20th February 1864) the
Dundee Banking Company was amalgamated with the Royal Bank of
Scotland—the transaction being accomplished by a transference of stock
of the latter bank to the Dundee Bank shareholders. The Royal Bank thus
acquired six new branches, and an increase of authorised circulation to
the extent of £33,451, raising it to £216,451. The Dundee Bank had a
paid-up capital of £100,000, held by 74 partners, selling at 60 per cent
premium, with a dividend of 10 per cent. About the middle of 1864, the
City of Glasgow Bank increased its capital from £670,869 to £850,000 by
the issue of new stock to the shareholders at a premium of 30 per cent.
[Courant, 2nd June 1864.] The Commercial Bank of Scotland added £400,000
to its capital by two allocations of stock, by way of bonus, to its
proprietors, each to the amount of £200,000 —the first being made in
1859, and the second in 1864. This was accomplished by a transference
from the reserved profits of previous years, and occasioned much adverse
criticism on the part of previous shareholders who had sold out in
ignorance of the existence of so large an accumulation of profits. The
paid-up capital thus became £1,000,000. This proceeding was quite in
accordance with traditional usage, the old banks having repeatedly acted
in this way. But the more open system of accounting to shareholders,
adopted by the Scottish banks shortly after this time, and since
established as a yearly practice in the publication of balance sheets,
makes one now regard such a transaction as a relic of a bygone age; as,
indeed, it has become otherwise, through the practical impossibility now
of making such large profits as were then obtainable.
On 6th February 1863, the
Scottish banks conjointly took an important step, which had probably
been forced upon them by the largely-increased extent of their branch
systems. This was a general instruction to their branches to follow at
once changes made by the Bank of England in the minimum rate of
discount. The effect of this was to bring the banking system of Scotland
into more immediate sympathy with the monetary system of the world than
had formerly been the case. It was also an evidence of the increasing
importance of Scottish banking as part of that system.
One phase of the Western
Bank liquidation which came prominently forward at this time has more
than special interest; that is the endeavour made to secure some value
for the right of note-issuing, the exercise of which had been lost to
the shareholders by the failure of the bank. This was no small question,
for not only did the authorised issue amount to £337,938, but, under
existing conditions, the right to issue practically conveyed the power
to carry on the business of banking. So early as April 1858 application
was made to Mr. Disraeli as Chancellor of the Exchequer to give whatever
legislative sanction might be required to enable the bank to dispose of
the privilege of issue to one or more of the other banks of issue in
Scotland. But the application was refused. The hope of making something
out of this lapsed right was, however, maintained for some years; and on
11th February 1864 a bill was introduced into Parliament to divide the
authorised circulation among the other Scottish banks in proportion to
their existing authorised issues. In his report presented in February
1864, the liquidator, Robert Lumsden, referred to the question and
stated that a deputation had waited on the Chancellor of the Exchequer
(Gladstone). He had, however, refused to recognise the right as a matter
of law, but expressed his willingness to consider the application on
other grounds. [Courant, 26th February 1864. Bankers' Magazine, 1864,
pp. 310, 366, and 475.]
Later in the year, a
provisional committee which had been formed for the resuscitation of the
bank, applied for a free grant of the lapsed right of issue; but this
the Treasury declined to accede to. As is well known, all the efforts
made in this direction came to nothing. Indeed, in face of the 12th
section of the Act of 1844, it is difficult to understand how the
negotiations went as far as they did. Doubtless the warm feeling of
sympathy for the injured shareholders which existed, must have prompted
the desire to afford them every chance of obtaining this mitigation of
their losses.
An effort at legislation
in connection with Scottish banking (in its currency aspects) was made
in 1864, by the introduction of a bill by Sir John Hay, with the object
of making Bank of England notes a legal tender in Scotland. The
Chancellor of the Exchequer discouraged the attempt, and when Mr. Adam
Black, one of the members for Edinburgh, seconded by Mr. Dalgleish,
moved its rejection, it was withdrawn. [Memoirs of Adam Black, Nicolson,
Edinburgh, 1885.]
The activity manifested
in the formation of banking companies, to which we have referred,
affected Scotland to a slight extent. No new native bank was proposed;
but two or three companies were formed in England whose object was, more
or less, to do business in Scotland. Probably the first of these was the
Scottish and Universal Finance Bank, Limited. It does not, however,
concern us much, for notwithstanding its designation, it appears to have
been more anxious for a name than for a local habitation that was
Scottish. It was really a finance company, not a bank. In 1865 it is
referred to as bankrupt. Another was the Mercantile and Exchange Bank,
Limited, established in Liverpool early in 1863. It opened a branch in
Glasgow which it withdrew eighteen months later. In the same year the
London Bank of Scotland, Limited, was formed, which had branches in
Edinburgh and Glasgow. Proceedings for the amalgamation of these two by
merging the London Bank in the Mercantile were proceeding, and the
former was actually put into liquidation with that object, when the
suicide of the manager of the Mercantile Bank caused delay for
investigation. [Courant, December 1864.]
The proceedings, were
resumed, however, when an arrangement was made that some of the branches
of the London Bank (including the Edinburgh Office at No. 17 Princes
Street) should be taken up by a specially formed company, the London and
Scottish Bank, Limited. Within about six months, being pressed for
payment of £2000, this new venture applied for, and obtained, a
winding-up order. The Mercantile and Exchange Bank was in difficulties
in 1864, which, however, it overcame. The character of its business may
be gauged by the fact that in 1866 its directors congratulated the
shareholders that their losses did not exceed £131,337 : 10 : 2. The
London Bank acknowledged losses to the extent of £65,554. The extent of
these banks' business in Scotland is not revealed; but it was not
supposed to be much. On the other hand, the aggregate business as shown
by a balance-sheet of 1866 was considerable for a two years' career; and
there is reason to think that the want of success, in England at least,
was due to ignorant management. This English invasion of Scotland was
followed by a return visit on the part of the Scots which will form the
subject of a subsequent chapter.
The year 1866 is
described in contemporary history as "gloomy, eventful, and ominous." In
its financial aspect it was one of great disturbance in the money
market, of bankruptcies of merchants and of bankers. The year opened
with the bank minimum rate of discount at 7 per cent, from which it was
soon raised to 8 per cent. It thereafter gradually fell to 6 per cent
until May. It then rose with great rapidity. On 3rd May the rate was
placed at 7 per cent, on the 8th at 8 per cent, on the 11th at 9 per
cent, and on the 12th at 10 per cent. At that point it stood until 16th
August, when it fell to 8 per cent, and thereafter gradually diminished
to 3½ per cent at the close of the year. Symptoms of the approach of a
state of crisis seem to have become apparent towards the close of 1865;
but it was not before the commencement of the new year that anything of
a marked character occurred. Then one or two English country banks
failed. Subsequently uneasiness began to exist in London. The
Joint-Stock Discount Company, Limited, suspended payment on 7th March,
with liabilities amounting to £3,657,229, and other bankruptcies took
place.
But the phase of crisis
was not reached until 10th May, when Overend, Gurney & Co., Limited,
failed, with liabilities to the extent of £18,727,915. This was a
crushing blow, for not only was the amount involved enormous, but this
discount house was relied on as a strong establishment. The shock to
credit was almost unprecedented, and general panic ensued. The Agra and
Masterman's Bank, Limited, and the Consolidated Bank, Limited, were
forced to suspend for the time being; and the Bank of London and other
establishments went into liquidation, while even the strongest were
doubted. The credit system was thrown into a state of paralysis. But
this was not long continued. The Government, taught by experience, at
once authorised the Bank of England to exceed the limits of their
circulation fixed by the Act of 1844, on condition of the minimum rate
of discount being raised to 10 per cent. This was done on 12th May, and
the panic was at an end when men knew that accommodation could be
procured. Thus, for the third time, the great banking Act of 1844 was
infringed, under the responsibility of the Government, for the salvation
of the business of the nation.
The crisis did not affect
banking in Scotland to any serious extent. No panic occurred, nor did
any distrust in the banks manifest itself. Indeed, the banks rather
gained than lost by it; for while they benefited by the high rate of
interest, their credit was improved by the steady way in which they came
through this time of trial. Shortly before this the National Bank of
Scotland had been tempted to essay an inroad on the London field, which
was successfully carried out; and it is understood that, as a result of
this crisis, their business there was established on an extensive basis.
It was the commencement of an invasion which was continued by others of
the Scottish banks in later years, and which led to complications,
involving a good deal of heated controversy on the part of English
bankers which has now happily cooled down. |
