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History of Banking in Scotland
Chapter XXIV - The Raid on England

THE period with which we have now to deal, namely, that extending from the great crisis of 1866 to the (in some respects) even more disastrous convulsion of 1878, is full of stirring incidents in the political, commercial, and financial world. Early in 1867, Fenianism developed itself to such an extent as considerably to retard trade (especially that of British manufacturers with Ireland), and seriously to alarm the public mind. Towards the close of that year the first of those dastardly conspiracies, which subsequently became so common in pursuance of the so-called "policy of dynamite," was manifested in a fatal explosion at the Clerkenwell House of Detention in London. Wars, in which Britain was either directly engaged, or seriously interested, succeeded each other with but little intermission. The French troubles in Mexico in 1867, although the sequel to British action in connection with France, did not compromise this country; but, in the succeeding year, Britain was forced to undertake a military expedition to Abyssinia, which, under the direction of General Napier, fortunately proved a great success. The cost was, however, very serious.

Next year the Eastern question again became troublesome; and in 1870-71 the great struggle between France and Germany, with its attendant disorganisation of commerce and finance, took place. This was immediately followed by the outbreak of hitherto suppressed villainy in Paris, which manifested itself in the temporary establishment of the Commune. In 1873-74 Britain was engaged in war against the Ashantees in Africa. Soon afterwards the Eastern question assumed a very grave aspect; and, to aid Egypt and to protect her Indian interests, Britain effected the purchase, in 1876, of the Khedive's Suez Canal shares at a cost of about £4,000,000. Next year hostilities broke out between Russia and Turkey, and ended, in 1878, by the submission of the latter State. In the readjustment of matters Britain took a leading part; but the warlike policy of this country, though necessary, was very costly. In the closing months of the latter year, India was engaged in an expedition to Afghanistan, which was successfully conducted under General Roberts.

Meanwhile the arts of peace had not been neglected. There was a great Exhibition of the products of all the world in Paris in 1867, at which this country was well represented. Several great industrial works were accomplished, such as the Union Pacific Railway in the United States, and the navigable canal from the Mediterranean to the Red Sea, both of which, but especially the latter, were destined to greatly influence the commerce of Britain. They were both opened in 1869. In Scotland, a great engineering feat was accomplished by the opening of a railway viaduct across the river Tay at Dundee. But, unlike all other great engineering projects carried out in Britain, the sequel was destined to make this bridge more a type of inferior workmanship than a monument of national enterprise.

The crisis of 1866 was mainly financial in character. Trade, both home and foreign, was good at the time when it occurred. A change, however, speedily followed on the distrust engendered by the financial disasters which took place. This was increased by a railway crisis which occurred in the middle of 1867, and by the pressure of calls in connection with joint-stock companies formed in great numbers previous to the crisis. It is noticeable, however, that the trade of Scotland did not so readily lose its vitality. The crisis had not affected it to a serious extent; but eventually it suffered in sympathy with the trade of England. Depression lasted until the middle of 1870, four years after the crisis, and then a decided revival occurred. The Franco-German war had a bad influence; and in the next year there was much disturbance on account of the payment of the indemnity and the loans negotiated in connection therewith. But no sooner had matters been fairly settled, than trade at home and abroad expanded, almost suddenly, to unparalleled proportions. For fully a year this high-pressure trade was continued. But the harvest of 1872 was deficient, and there was a turn in the tide of prosperity. It soon became evident that there had been great inflation. The last five years of the period marked increasing depression. By the month of June 1875, the bad state of Indian trade manifested itself conspicuously in the collapse of the great house of Alexander Collie & Co. Following, as it did, a series of heavy failures in the iron trade, this disaster produced a semi-crisis, in the course of which a considerable number of other firms came down. Heavy losses were entailed on bankers, one or two Scotch banks suffering severely.

For some time after the crisis of 1866 the state of banking was, as might naturally be expected, very unsatisfactory. There was a prevalence of low rates, and much difficulty in profitably employing capital. But this state of matters gradually wore off, and banking in Scotland entered on a new phase of extension. So early in the period as 1869 about a hundred additional branches had been opened, many of them being sub-offices in Edinburgh and Glasgow. During the height of commercial prosperity, the number of bank offices rose to nearly nine hundred, or an increase of nearly three hundred in seven years. But the process was not checked by the cessation of prosperity, for year by year the number rose until, in 1878, there were fully nine hundred and fifty bank offices.

In view of the rampant speculation in bank shares which had been manifested prior to 1866, an Act (popularly known as Leeman's Act) was passed in 1867, prohibiting the purchase and sale of bank stock, unless the specific stock to be transferred was definitely indicated, and misrepresentation was made a misdemeanour. Although the intention of the Legislature in this matter was highly laudable, the Act has not proved a success. It does not appear that it is unworkable, or even unsuitable to the requirements of investors, but it is so uncongenial to speculators that they systematically evade it. This they can do very easily, as there is no one whose special interest or duty it is to question their actions. There is reason, however, to believe that, in a passive way, the Act has had a beneficial tendency; for, although speculation in bank shares is still carried on, there is a prevailing feeling against it. The comparative neglect of bank shares by speculators may be due in great part to the greater attractions of other securities; but undoubtedly the spirit of the directions of the Legislature is often followed in the business world when the letter seems to be directly violated.

In 1868, the beginning of the end of the liquidation of the Western Bank of Scotland came into view. In that year there were two payments, the one of £7 : 10s. and the other of 13 per share, made to the solvent shareholders by way of return of surplus funds. This completed eight returns, amounting in all to 16 8 per share, on which £175 in all had been called, including the original sum of 150. In other words, £250 per cent had been called for the purposes of the liquidation; and of this £136 per cent had been returned. In 1870, the outstanding liabilities were assumed by the National Bank of Scotland in consideration of a payment of £8448 : 1 : 4. The final completion of the liquidation was, however, delayed for other three years by the dependence of litigation with wealthy ex-directors.

The extension of Scottish Banking, to which we have already referred, was not wholly confined to Scotland. The National Bank of Scotland had opened an office in London in 1864. This step having seemingly been attended with much success, the Bank of Scotland imitated the example set a few years later. The Royal Bank of Scotland, in 1874, also opened an office in London, having obtained a special Act of Parliament, authorising them to do so, in the previous year. These successive movements were by no means relished by the London bankers, and they were also jealously objected to by English provincial bankers, who felt themselves aggrieved by the permission given to Scotch issuing-banks to establish themselves in London, while retaining their powers of note-issuing elsewhere—a privilege which was denied to English bankers. The heat of opposition was, however, gradually expending itself, when the Clydesdale Banking Company made a sudden raid on the English preserves by planting three branches in Cumberland, nominally for the convenience of their customers in the South of Scotland. This was the signal for the renewal of the contest on a grand scale. The battle became general all along the line. London bankers, London and provincial bankers, and English provincial bankers, joined in protecting their common interest. The conflict was carried into Parliament, where Mr. Goschen introduced (1875) a bill, the object of which was to drive the Scottish banks back to their own country. His efforts, however, although strongly supported, ended in the temporary compromise of a select committee "to consider ad report upon the restrictions imposed and privileges conferred by law on bankers authorised to make and issue notes in England, Scotland, and Ireland respectively." After arduous labours, and the accumulation of a large mass of more or less valuable information, the committee reported to the House without making any recommendation other than their reappointment next session. This suggestion was not, however, acted on; and very soon all the other large Scottish banks, except the Commercial Bank of Scotland, opened offices in London without more opposition than that conveyed in indignant growls and threats of future vengeance. The Commercial Bank saw fit to join the concert in July 1883.

Much interest was excited, towards the close of 1866, by the discovery of a forgery of the £1 notes of the Union Bank. The perpetrators were John Henry Greatrex, a photographer in Glasgow, Sewell Grimshaw, an engraver, and Thomas Grimshaw, who financed the adventure. The manufacture was carried on in Greatrex's premises; and several months were spent in the process. Photography was first tried, but discarded in favour of engraving on a copperplate and transferring to a stone for printing. Lithography seems thus to have been the finally approved system, with the numbers type printed, and the signatures written. It is stated that nearly 1400 notes were prepared; but the evidence of witnesses indicates a much larger number. It does not appear, however, that many were actually passed before the forgery was discovered. Greatrex, who had gone to Aberdeen in happy confidence of having achieved success, was greatly surprised at the early detection; and, leaving his wife and child, fled to New York. He was accompanied by one of the women in his employment, Jane Weir, whom he had taken into his unholy confidence. The police followed him to New York, but lost his trail. A bogus advertisement for a first class photographer, however, lured him from his den. He walked into the trap, and was brought back to Scotland, where his confederates had already been arrested in the act of uttering the spurious notes. The trio were tried in the High Court, Edinburgh, on 9th to 11th May 1867, and were sentenced,—Greatrex to 20 years' and the others to 15 years' penal servitude.

A few minor banking incidents fall to be recorded. The Bank of Scotland opened an office in London on 15th April 1867; and they purchased, in 1868, the business of the Central Bank of Scotland, whose head office was in Perth. This bank had ten years previously a paid-up capital of £78,125, on which a dividend of 8 per cent was paid; and about the time of the amalgamation the capital was £100,000 in £40 shares which sold at £111. The dividend in 1867 was 12½ per cent. The bank had nine branches. In 1873, the same bank obtained a seventh Act of Parliament, increasing its authorised capital from £1,500,000 to £4,500,000. The extra powers thus given have as yet only been availed of to the extent of £375,000, of which £250,000 was called up. This issue of stock was made in April 1876, and, as it was made at a premium of £375,000, the bank was enabled to raise its reserve fund to £750,000, and also to write off the balance of the price paid for the Central Bank business.

During the currency of this period, the volume of Scottish banking business had largely increased. In 1865, the total liabilities were about 77 millions. Seven years later they were 96½ millions. In 1877, they reached their highest point, namely, 108¾ millions. Next year they dropped to 106 millions, even including the balance sheets of the City of Glasgow and Caledonian Banks. This reduction, however, was more probably owing to withdrawals from certain banks who balanced after the crisis of 1878 than to any general decrease in the liabilities of the banks during the year.

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