October 6, 1866. N. 331.

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The Money Market Review, 6. Oktober 1866. S. 379/380.
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The English Joint Stock Bank Lim.  Zusatz von Marx.
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Disclosures.

Into this concern 5 old unlimited banks, with all their branches, were merged, premiums paid for the acquisition of all. After 18 months’ existence, proved that the old banks valueless, or worse than valueless. Concern now hopelessly bankrupt. During its 18 months published 3 Reports, with statements of account, showing great prosperity, with good dividends, endorsed by a directorate composed of most respectable gentlemen.

The Co. formed in 1864 as the South Eastern Banking Co (lim.) in order to take over the business of Messrs Mangles, carried on at Guilford and other places, and established in 1836. Capital first fixed at £500,000, in 20,000 shares of £25 each, and £5 p. share was paid up. Directors were:

James Abbiss (Alderman, City), Sir Charles W. Blunt, Baronet, Sussex, (Director of the Imperial Gas Co.), J. Canham (Ramsgate, late Burgess, Canham and Co. bankers), W. Conningham Coningham (Director of London, Brighton and South Coast Railway), A. Lawrie (Director of the City Bk.), Captain Mangles (Chairman of London and South Western Railway, and the Royal Mail Steampacket Cos.) Th. Bradshaw, Esq. (Hampton Court), Charles D. Manning (Mssrs Manning et Anderson, Lothbury), E. G. Swann (Director of the Oriental Commercial Co.) G. Young (Mssrs Begbie, Young and Begbie.)

Shortly after formation of that Co. the business of the Ramsgate Bank, carried on by Burgess and Canham, taken over. First general meeting held on 6 Feb. 1865, there announced that 15 new branches and 3 agencies had been opened, making in all 26 places of business; that the capital paid up was £95,365, Gross profits £14,118, net profits £3,364, dividend 6% p.a., leaving rest of £977. June 1865 the name of English J. St. Bank taken. July 1865 business of the Bideford Bank taken over. August 1865 second general meeting, profit declared of half year, including premiums on new shares, at £24,965, second dividend at 6% p.a declared. Sept. 1865 business of the Nottinghamshire Bank taken over, belonging to Hart, Fellows et Co, and Fellows joined the board of directors. Feb. 1866, 3d general meeting, directors declared that, in order to transact their own London business, they had acquired the old established business of Olding, Osborne et Co, and that this together with the other acquisitions „proved highly advantageous“. Gross Profit of the half year stated £46,437, dividend of 6% p.a. declared. Capital paidup at 31 Dec. 1865, was £168,525, Reserve £6,000, Deposits £901,469, Cash in hand £197,901, Securities 747,395, and other property £140,897.

On 11 May (’66, „Black Friday[“]) Bank stopped payment. In June a committee of shareholders made report to the effect that Co. was solvent at time of stoppage, and arrangements would be made to continue business. Last month the liquidators under the Court of Chancery announced first dividend of 8sh. in £; 1 October meeting for »resuscitation«, but then came the disclosures.|

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Mr. Chatters, one of the liquidators declared, that the West Surey Surrey branches ought never to have been purchased for £16,000 goodwill, and that on the day the bank stopped, or on the following day £12,000 worth of bills were abstracted from the Bank. Guilty parties not yet discovered. Half Year preceding the stoppage there was a loss on the Aldershot branch of £630, besides £6000 more in consequence of the fraudulent conduct of their manager; at Eastbourne branch 100l., and 6000 locked up as a loan to a building society etc etc[.] Total loss of the half year: £63,348. Ferner: the bank holds as security property found to have been previously mortgaged. The managers had given acceptances for £2000, of which no notice was taken. One director owed the Bank 8000£ which he could not pay. The liquidators now hold bills dishonoured for more than £100,000. Ueber 200,000£ loss, leaving out of the question the „goodwills“, for the Ramsgate, Bideford, Nottinghamshire, and London banks. Impossible to understand, how so late as last February, the capital of the Co. was in official document represented as intact, gross profit declared £46,437, dividend of 6% p.a., £3,688 written off from the cost, £5000 added to Reserve Fund, and £4,180 carried over!

Aus:
The Money Market Review, 6. Oktober 1866. S. 381/382.
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Spirit of Cotton Circulars.  Zusatz von Marx.
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(False American Rumours.)

On 1st Oct. cotton crop always underestimated. Mssrs. Ellison and Haywood remark in their circular: „Americans never admit, and of course never publish, the probability of a good harvest, until the arrivals at the ports have placed the matter beyond doubt of contradiction; and even when the receipts are heavy, they cry out that we shall soon witness a heavy falling off. During the season they ‚seriously damage‘ and sometimes ‚almost destroy‘ the crops 3 or 4 × over. The plant is punished in a variety of ways; the rain drowns it, the weeds choke it, the drought parches it, the worms devour it; or, if it escape all these and sundry other disasters, the frost kills it.“

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The Money Market Review, 6. Oktober 1866. S. 382/383.
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Commercial Credit and Commercial Debt Insurance.

In London alone it is estimated that 6–8000 merchants and wholesale dealers carry business on, more or less, upon credit, and in the provinces and country towns, at least 30,000 more. The losses sustained by these 36–38,000 merchants and traders immense; they are computed to amount in London to at least 30 Mill. £. a year, and in the country to at least 30 Mill. a year more, making a total loss from bad debts of 60 Mill. l. Mr. Moffatt in his recent publication on the Bankrupt Act of England says: „The cost to trading community in losses by insolvency, were estimated in 1849 at 50 Mill. St.; but, considering etc and the frauds facilitated by the existing laws, as shown by the Parliamentary Returns, probable annual net loss of 100 Mill. £. St., more than 3 × the cost of the National Debt.“

From pamphlet of John Bath public accountant („On the Insurance of Merchants and Wholesale Traders’ Commercial Debts[“], London 1866), we learn that different attempts made to establish Insurance Offices for such losses. They failed all. „One Co., and then another and another was formed for this purpose; but, after very few years’ experience, found that established upon false principles, and thus serious loss was accruing.“|

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These Cos., for premium of say 10s. Per Ct. upon the total of the annual sales of the mercantile House, undertook to pay all the losses from bad debts. The creditors, therefore, were left free to trust anybody to any amount, and the imprudent firms entailed terrific losses upon the Cos, paid out of the premiums contributed by the more careful and competing neighbours. The natural result followed. The prudent firms declined to pay premiums to be expended in paying the losses of their reckless competitors, and the Cos. themselves soon obliged to wind up.

Aus:
The Money Market Review, 6. Oktober 1866. S. 385/386.
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Indian Banks and Banking.

Joint Stock Banking in India more than quadrupled its original value since the sudden impetus it received from the cotton famine. Originally its growth slow. Previous to 1833, the old East India Co. kept backs back. The Banks of Bengal, Madras, and Bombay brought out under the auspices of the East India Co. The Banks holding Charters from the crown are merely tolerated by the Indian Gvt, and not permitted to designate their offices in India as branches, but agencies. Their business is also restricted to exchange, deposit, and remittance. It is questionable, in a legal point of view, whether the Charters are strictly applicable to India, as limiting the liability of the shareholders to double the amount of their shares.

1809: First Joint Stock Bank established in India, viz … the Bank o. Bengal. East India Co. patronised it, took shares to a certain extent, and had the nomination of 3 members of the board of directors, such members being civil servants of the Co. 1809 dann established Bank of Madras und Bank of Bombay, in 1840; both constituted on the same principles as Bank o. Bengal, holding charters from the East India Co., limiting the liability of the shareholders to amount of their respective shares. Durch den transfer des East India Co’s property to the Crown, the latter got also the partnership in the 3 Gvt. Banks, which continues to this day; jedoch Gvt. only responsible to the amount of its shares in the Banks.

Agra and United Service Bank in 1833, and the Union Bank of Calcutta about the same time. The latter bank, having advanced a great portion of its capital upon Indigo and Sugarfactories, was obliged in a few years to succumb. The Delhi Bank (now Delhi and London) formed in 1836. In 1842 the Bank of Western India (now the Oriental Bank Corporation) was established at Bombay; in 1846, the Commercial Bank of India, in 1852, the Chartered Bank of India, Australia, and China, in London; in 1853, the Mercantile Bank of India, (Bombay, now the Chartered Mercantile Bank of India, London, and China); 1860, the Central Bank of Western India; 1862 the Bank of Hindustan, China, and Japan, in London; 1864, the Asiatic Banking Corporation (originally the Bombay Joint Stock Bank), and the National Bank of India, with which the Scinde, Punjaub, and Delhi Bank is now being amalgamated. |223 During the „golden age“ of cotton, and exciting times of high prices, a great variety of large and small banking and finance Cos. sprang up, the majority of which gone or in course of being wound up.

Without the great banking element, money, no banks; yet what blindness and infatuation is it to suppose that banking profits can be made without trade and commerce Zusatz von Marx.
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!
There may be an accumulation of money to superabundance, and banks may be established ad libitum under such circumstances; but the possession of such resources without employment for them will not pay a dividend; and when safe and legitimate employment cannot be obtained, all kinds of expedients involving risk and ruin are resorted to. Bombay, by squandering the immense money wealth poured into it, has derived little substantial benefit from it. A few years ago a modest but flourishing port of Western India, it bade fair to become, in an incredibly short space of time, as by the stroke of the magician’s wand, a City of Palaces, ambitious enough to arrest the progress of the mighty ocean itself. Back Bay under a costly scheme of reclamation, is soon doomed to be brought under the subjection of a moneyed Co. of speculators. Speculative mania in that city. All classes more or less imbued with it. New houses and public buildings crowds crowd up in rapid succession. Gay and glittering equipages within the reach of the once most humble and servile. Increase in price in all articles of daily consumption, and necessaries of life. Those dependent upon fixed incomes encumbered by high house rents and other additions to their expenditure. Still additional wealth teeming in, and, in imitation of England, gigantic credit and finance Cos spring into existence, shares of which soon attain a high premium, and enable men holding Gvt., Bank, and other appointments, on a few 100 rupees a month, who have the good fortune to realise, to a mass large fortunes, and either retire altogether, or go into business on their own account. The money amassed both by European and native speculators in, and shippers of cotton during the period of high of high prices, amounted to fabulous dimensions, taxing ingenuity to discover ways and means of employing it.

At last the commercial hurricane came, swept away many of the recent Indian banks, including now the Asiatic Banking Corporation , leaving with a few exceptions the old Banks only. This state of things traceable to the unexampled acquisition of wealth in Bombay, in particular, consequent upon the civil war in America, the high prices to which Indian cotton attained, and the misappropriation of the wealth derived therefrom. Article – cotton – 4 years ago only 4 to 5d. p. lb – rose gradually to 4 or 5 × this value. India was the largest participator in such advance, Bombay export place of the bulk of this cotton. Thus inundated with money. Such an influx of capital, within so short a period of time, never fell to the lot of any |224 place or country. One of the first applications of this superabundant capital was to manufacture banking and finance Cos of every possible character and name, and to work with the resources so lavishly bestowed in the way most likely to dissipate and render them unproductive. The native disposition for speculation and restless trading has lasted too long, and is too well known to be wondered at. Aber leading European merchants enroll themselves as directors of speculative land and finance Cos., managers and other officers of banks give up their appointments to take part in such concerns, and banks spring up in connection with them for the purposes of making advances on their shares. A Gvt bank even is tempted to depart from the rigid conditions of its charter to foster such unsound and hazardous schemes.

The banks which have held their ground have had severe trials to pass through, and having losses to contend against, consequent upon the failure of many East India houses long established, of high character and credit. Indian banking has its seasons of profitable opportunity, as well as drawbacks and disadvantages. A bank, with its head office and board of directors in London, cannot be alive at the moment to what is going on at a distance of 10,000 or 15,000 miles; much to be left to the executive on the spot, which, in many of the bank branches, consists of an inexperienced, halddespotic halfdespotic manager. Much must [be] left to their judgment and discretion. Then, nearly all our enterprising men who have founded and successfully managed Indian banks, want to return as soon as possible home. No sooner a bank set up in Bombay or Calcutta bidding fair to become a prosperous concern when than it must have its head office established in London, and run away, as it were, from the most important part of its business and most legitimate sphere of operation. A tempting salary is held out as the London manager’s income. An influential board of directors has to be got together at London, and attractive place of business rented or purchased.



13 April 1867. N. 358.

Aus:
The Money Market Review, 13. April 1867. S. 448/449.
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Commercial Morality. (Overends) (Continued)Progress of Railway Dilemma.  Zusatz von Marx.
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(Directors)

9 March meeting of shareholders of Brighton Railway Co at London Tavern; decided to appoint a defence committee of large shareholders. Sir Charles Jackson pointed out that in July 1865, the Directors in their Report said that the Surrey and Sussexline was promoted by an independent Co, that it was a useful scheme, and that they had accordingly entered into a working arrangement with the promoters. Then, at the next meeting, it appeared that the whole capital for this railway was to be provided by the Brighton Co alone upon the plea that it was to make a third main line from London to Brighton. The same story appears to apply to the other lines in question, and Sir Ch. Jackson stated that the directors intended not only taking over these 3 undertakings, but all their liabilities at par. As to their ever paying a fair rate of interest for the money expended, out of question. „He feared that the directors were interested in those lines, that they were directors’ lines, and that they wanted the Co. to invest their money in them.“

London and Northwestern Railway Co is prosecuting a new line to Sheffield. Dazu meeting for to-day (13 April) berufen. Notices of the meeting (aber without its purpose) reached the shareholders on 2nd instant, and prior to that there had been a canvass for the proxies of the larger shareholders – in some cases by directors themselves. Most expensive undertaking which, as it has to compete with the line already in operation, without possibility of paying working expenses. Who is to gain by this new line at the cost of dividends? At all events, not the shareholders. Ebenso Midland Railway Co. Large extensions proposed. Chairman (at meeting of 15 Febr. Derby) did his best to commit the Co. to this expenditure of millions, and amalgamations; and positively declined to put the amendments. Based this decision of what he regarded as a „show of hands“; when poll demanded, he took no notice of it. Mr. Shepherd states in Daily News that within the last 2 years the Midland Co. have spent capital to nearly 41/2 mill.; at the end of 1862, the capital applied to all purposes, 181/2 mill., and since that time (i.e. in course of 4 Parliament sessions) the directors have raised, or obtained power to raise, 10 mill. more. The Acts obtained in last session alone involve outlay of £3,600,000; and upon the works thus authorised there is at this moment not one shilling expended. – In all cases excessive expenditure of capital beyond the growth of revenue. Railway directors, from one cause or other, are eager beyond all reason for an unlimited expenditure of capital, in utter disregard of the interests of shareholders. Manifest antagonism between the administrative body and the proprietary.

Aus:
The Money Market Review, 13. April 1867. S. 450/451.
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North British Railway.

The new board have issued circular to shareholders, proposing the creation of nearly 2 millions pre-preference stock, to override every existing priority.

Humber Iron Works Co. (Limit.)  Zusatz von Marx.
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(E. Watkin, M.P.)

Aus:
The Money Market Review, 30. März 1867. S. 408–410.
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Meeting of shareholders 22 March, Guildhall Tavern: Chairman, C. H. Knight said that the Defence Association thought, good case against the directors. Mr. Jacomb reported für die Defence Association. Some 14 months ago circular of the directors, calling meeting of shareholders for resolution to wind up Co., and dispose of the work, for the purchase of which, it was stated, a proposition was made to the directors. Dieß meeting held 20 Jan. 1866. Mr. Jacomb showed at this meeting (of 20 Jan.) that it was illegal, because of non-compliance with the articles of association. Solicitor der Co. pooh-poohed him. E. Watkin (M.P., late chairman of the Co, who was not chairman of the |262 meeting, meeting) produced a statement of accounts showing that, subject to a deduction of £60,615, the whole capital of the Co. was intact. Some shareholders forced out of the directors the admission that the reason for winding up was not the sale stated in the circular, but the financial difficulties of the Co. It was known, in fact, that the negotiations for the sale of the undertaking had fallen through before meeting was held. Directors knew that the concern on the verge of bankruptcy. Watkin was the principal spokesman of the directors, and produced this account. Watkin (M.P.) had transferred the last of his shares the day before the meeting, so that it now turned out he was not even a shareholder, and had no right to be present. The resolution for the winding up of the Co. passed. But 1 or 2 days afterwards the solicitor of the Co. found Jacomb’s view correct, so

New meeting called for 3d February. Chairman said that they were only £10,000 worse than in preceding May, and the before mentioned acount account showing deficiency of only £60,615 again produced. Jacomb said that if the account correct, no reason for winding up Co; if such reason, the account false. Wanted correct balance sheet to be prepared; moved resolution to that effect, but the proxies in the hands of directors were sufficient to neutralise any attempt at investigation. Jacomb objected also to Child being appointed as liquidator, because that man was the auditor of the accounts which would be impeached, and also the negotiator for Msrs Pile in reference for the sale of concern.

Meeting on 20 Febr. Jacomb took the same course, but the power of the directors was too great, and Child’s appointment as liquidator was confirmed.

Some time after petition presented to Court of Chancery for winding up the Co. On his application to the Court Child was removed.

In July 1866 call made by the new liquidator; a certain number of shareholders formed Defence Association, the first under Limited Liability Act of 1862. Jacomb instructed to attend before chief clerk on the making of the call by the liquidator. Produced Watkin’s account in meeting of 20 Jan. showing deficiency only of £60,615, und stated that if accurate, there could be no necessity for call; da angeblich Cos’. Co’s. property intact. The official Liquidator, on examining the account, declared it fallacious, and wrote that word and his initials on the account.  The Money Market Review: Under those circumstances he (Mr. Jacomb) could no longer offer any opposition to the call that occurred in July last year.
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Jacomb paid then call.

31 Oct. 1866 official liquidator summoned meeting of shareholders, produced true statement. Statt 60,615, Deficit of £259,000; deducting £130,000, reduction in the value of assets, as estimated in both accounts, blieb balance of £69,000 unaccounted for by the directors. Ferner liquidator showed that since the resolution to windup the Co. the trading had been carried on at a profit. Hence the further loss of £69,000 must have taken place before 20 Jan. The Committee of Defence Association found out that 25,000£ had been paid to the vendors for the property in excess of the amount agreed to. The first communication made by the Directors report for extraordinary meeting on July 13, 1864. In that report they stated that shareholders would have early opportunity of examining the works of the Co. That was followed by invitation to the shareholders to go to Hull to witness the launch of the ship „Annie“. A great flourish of trumpets made about that vessel, but what had since transpired? Why the Annie mortgaged for £10,000 by the vendors at the time when sold to the Co. Directors knew it. Not a word of it came out before meeting of 30 May 1865. The Annie cost £12,000, and a lot of litigation, and was sold for £8,500. At the time the Co. was started the shareholders were led to believe that they purchased a property, but it turned out that they only bought an equity of redemption, and that there were mortgages to the extent of £88,000, including the 10,000 on the Annie. So the Co. had never a good title to the property, and when they got into difficulties they were unable to take it into the market and raise money on it to relieve them from their embarrassments. Many other instances of mismanagement and misrepresentation. The Co. was born in concealment and fraud. That system was carried on throughout the whole history of the undertaking. They proposed proceedings against the directors, in accordance with the opinion received from counsel. Dagegen spricht Morris (shareholder und solicitor.) Jacomb zeigt daß dieser Kerl had been connected with the Co. in 6 different capacities. Viele Statements in Prospectus flagrantly untrue, f.i. that 10,000 shares had been allotted, that a railroad ran into the yard, that contracts for 300 000£ had been entered into at remunerative prices, upon which dividend of 20% was confidently anticipated. No such contracts existed, except on paper. Uebrigens not 3 of the directors worth 500£. Some of them completely ruined by their connection mit this and other Cos.|

263

 Zusatz von Marx.
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Ein Correspondent bemerkt in der Money Market Review über dieß meeting:

Aus:
The Money Market Review, 13. April 1867. S. 455.
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No better evidence before the Committee of the H.o.C. of the manner in which the Limited Liability Act of ’62 used to decoy the public into those fictitious schemes which have resulted in such wide-spread ruin and misery, no better evidence than E. Watkin, M.P. This man who spoke so pathetically in his oration at Sheffield of the „fatherless and the widows“ – played prominent part in the formation and management of the Humber Iron Works (of which he was chairman) up to the time of its disastrous collapse.



Inhalt:

  • London. 1868.
  • 1866 „The Economist“ (Jahrgang 1866) vol. XXIV.
  • The Social Economist, 1. Oktober 1868
  • „The Economist“ (Jahrgang 1866) (Fortsetzung)
  • Jahrgang 1867.
  • Register der obigen Auszüge aus dem Economist für 1866 und 1867.
  • The „Money Market Review“. Jahrgang 1866.
  • The Money Market Review. Jahrgang 1867.
  • Register Money Market Review Jahrgänge 1866 und 1867