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THE GREAT FINANCIAL PANIC IN LONDON., 26 July 1866
THE GREAT FINANCIAL PANIC IN LONDON.
The crash— long foreseen and inevitable — has come at length, ,but the final crisis was marked by a suddeness and intensity never befor6 witnessed in similar^ catastrophes. For months past I have>apprised my Australian readers of the utter unsouridness of our monetary position. The host of finance and credit companies wliich had sprung up during the- past two years had so stimulated the speculative propensities, of the<publiG, that fictitious or "hazaardous securities, to the extent of millions sterling, had been manufactured and forced upon the market. The collapse of most of v these ambitious ancl reckless organisations, it was evident to all thoughtful men, was only a question of time. . It was impossible for them all to prosfier and perform their extravagant promises to their dupes. IJabh month's mail, accordingly, for some time past, has informed you of the disastrous failure of some and the hopeless '.embarrassments of others. As was natural, deep distrust took the place of -the previous credulous confidence.; every concern, sound and unsound alike, fell under suspicion; shares and securities, of all 'kinds sunk in ' market value from day to day, and were parted with at serious sacrifices by alarmed ; deposits were drawn out, hosts of discount, and credit companies surmised to be shaky; and thus every preparation had been . gradually made for the panic which swept like a storni through the city and the provinces, a fortnight since. The sign and signal of the crisis was the stoppage' of Overend, Gurney, a.nd Co.. (Limited), wliich took place on Thursday, the 10th instant, The announcement ; of this calamity spread the wildest conster;nation in all directions. Owing to the historical reputation: of the firm, an almost boundless 'confidence was reposed in the solidity and wealth of "its resources, and h'enge the. closing of .their,, doors
seemed to be the herald of a. -universal financial chaos. Both London and country banks have been accustomed to lodge large deposits with Overend, Gurney and Co. ; and it appears to have been the sudden -withdrawal of these deposits which' immediately led to the suspension. Their shares had for some time, been falling lower and lower on the. stock market. When the pressure became alarming, they applied to the Bank of England for assistance ; but prospects being so serious, the v directors deemed it imprudent to afford anyjaid, since other establishments would be sure to prefer similar appeals. Under' these circumstances, there was no alternative but to suspend payment. . The news spread like wildfire through' town and country, and the morrow was looked foiv ward to with harrowing suspense and "dread. The gravity of this event may be imagined from the fact that the direct liabilities of this great establishment, irrespective of a largo' amount of bills underdiscount, represent no' less a sum than about ■L 12,.000,000. Of this vast amount six millions belong to depositors who hold bills as security, while three ir.il lions ami a half belong to uncovered depositors. The nominal capital of the Limited Company is L 5,000,000, of which only Ll,500;000'is paid up. At the time of the tranfer, L 500,000 was paid to the old -firm for the goodwill, .which of course is irretrievably lost. In the investigations •which will speedily take place into the company's' aft'airs some startling facts wiH probably: transpire in- reference to its recent antecedents. Well-informed persons have long been awar.e that the fame of Overend, Cxirney, and Co., of late years, has not been justified by facts. Previous to the manufacture of the company the old firm had, by reckless mismanagement,: reduced a once prosperous business to one of the most losing concerns in 'England. Their losses did not fall far short of two millions, .and it was at the time generally understood that ths formation of the conu. pany was mainly with a a- iew to rehabilitate the "faded forUmes of the partners, and enable them to retire, from the concern.. It was mentioned the other- day, as .a matter of gratulation, that' Mr Gurney will suffer no loss, as he seceded from 'the concern on the inauguration of the company. A few months ago, the company sustained some rather serious losses through the frauds of Pinto, Perez, and j Co. ; but in" spite of this drawback, the managers believe that a month ago they.. held sufficient profits to justify their paying a dividend. Messrs Gurney's Bank at Norwich will not be affected by this failure. "black fbiday." For generations to come will the 11th of May, 1366, stands out in gloomy prominence in the chronicles of English tiancial history. The day has acquired, what it will ever retain, the bad epithet of " Black Friday." It was the day of disaster, loss, or ruin to thousands. A wild, insane, unreasoning panic was anticipated, and the reality did not fall short of the dread expectation. A "run" on banks, discount housesj and finance companies was inevitable ; and most of the establishments wisely opened their doors before the usual hour, and kept them open longer than customary. One of the first announcements was that the Bank of England — which, on- the 3rd inst., raised its rato from 0 to 7 per cent.',- and on the Bth from 7 to 8 per cent. — had carried its minimum still higher to 9, and the charges for special advances- to 10 per cent. The pressure even : at these terms was enormous ; it was only on unexceptional bills that accommodation could be obtained, and even Government securities were in many instances refused. During that day of appalling excitement ' and terror, the Bank reduced ita reserve— tho only national foundation of credit and confidence — from seven to three millions. Another such day, and a universal suspension of cash payments throughout England was inevitable. Meanwhile, additional disasters - were hourly announced, wliich fomented and aggravated the public And not keeping to facts — which were bad arid plentiful enough — rumor Avas busy with the highest names- and staunchest reputations. EacK person imbibed and exaggerated the suspicions of his neighbors, and swelled the torrent of excitement. Happily, during the afternoon a report, which proved to be premature, gained currency, to the effect that the Government had authorised the Bank directors to issue notes to the extent of five millions beyond the limit- imposed by the Bank Charter Act. Though the statement was unwarranted it served to check the headlong fury ofthe panic, which at one time threatened to sweep away every vestige of confidence, and gavfe reason an opportunity to resume its sway. About ten o'clock the English Joint Stock Bank closed its doors; Mr W. Shrimpton, a railway contactor, with liabilities' for L 200,000, announced his failure ; the drafts of the Consolidated Discount Company were returned unpaid' in the afternoon ; two faihires.ori the S,tock Exchange Av'ere reported. But the crowning disaster of the> day was the stoppage of Messrs Petp and Betts,- •• with liabilities amounting to about 14,000,000. .'This 'created a great sensation, both of 'surprise and reepet. . s The assets of the firm are estimated, even at greatly depreciated prices, to be nearly L 5,000,000; and as all the works, for whicli they are under contract .abroad are in a very forward state,- while those with. . which they are cohnacted in England have been undertaken jointly with other powerful contractors, who are in a position to insure their steady^ completion^ it is believed all chums will shortly be adjusted. Everybody will rejoice in' the reinstatement of Sir Morton Peto. The securities held by the firm are excellent, bjit temporarily unavailable, owing to the pressure j of the times. . ' j -The English Joint Stock Bank, referred j to above, was established in March, 1864, to take over the business of a number of small banks in the south of England. Their liabilities are about LBOO,OOO and it is thought that flieir .assets will yield enough to cover that" amount, , - There are - thirty-one branch establishments, most, if not all, of wliich have suspended payment, so that the effects of this crisis are felt- fax and wife. The Consolidated Di3cout Company was established in Jan., 1864, to take over the business of Messrs Sandeman and Co. The.nominal capital 'isXl,ooo,ooo. - ' EXCITEMENT IN THE CITY. All accounts concur in representing that the scene witnessed 3 in the city on the 11th as without parallel in the memory of ..business men. .The riioiietary crises of 1847 and 1857 came- on and passed away 'more gradually. The anxiety and alarm were morWdrflused. There was not the sharp paroxyisniT'-the sudden terror wliich
distinguished the present panic. Lombard street, Birchin-lane, and • other * thoroughfares ;in the monetary centres^, "were in a state of complete congestion;* Many among the excited crowds had, no s doubt, been drawn thither by curiosity ; but not a few were, frightened depositors struggling to secure their cash before the "bank -door should be slammed in their faces, and other 3 were persons who had .rushed up froni the country on the first tidings gi tho calamity. Several persons,, after-xli'awing'out their hoards from the banks, wandered about without knowing how to dispose of' them, and were ultimately relieved of all responsibility- by the deft fmgers_,.or pickpockets. Thc~ telegraph offices wore crowded all day to an unprecedented extent for the despatch of messages. So dense were the throngs "of persons at- the doors .of .the banks, that $ie police, though reinforced for tho soccasion, found it difficult to restrain tho impatient mass of -people Avho were crowding into those already establishments. The premises of Overend, Gurney and Co., at the corner, were an especial object of, curiosity, while the perspective of Lombard street was resolved into* a moving mass of black coats and hats. Instead of shouting and chaffing, as in an ordinary English mob, there was a -most -ominous and painful silence, the only sound distinctly recognisable being, the imperative order of the policeman, to prevent a complete blockade, "Now, gentlemen, move on, if you please." There were certain spots where the crowd had a tendency to gather into an impenetrable knot. A portion sought to enter a bank, a portion were desirous to get out, and the" greater proportion were lookers-on who strove to procure a good position to watch what was going forward. There was an intense gozing at the doorway, as if they expected every minute to see the huge dooi'S slammed in the face of the panting ntultitnde. Happily, they were not to be gratified by any such sensational .incident; but it really, was exciting, by reason of a sort .'of sympathy, to witness the wild aim feverish haste with which folks -were pushing into establishments whose credit had never been questioned, even in whispers. As a rule, the banks and discount companies met the run upon them -with the uftnost promptitude. Scarcely «an establishment escaped the general attack, but some suffered more than others.' Several of the private, as 'well as the joint-stock Jjanks, had-balances withdrawn, but the arrangements made . were so admirable that no difficulty was experienced in meeting all . demands. What the condition of the banks would have been at the close of the second day's "¥un," "it is fearful to contemplate. By what has., since transpired, some of the best of them were near the end of their available resoxirces! Tho "Times;'.', writing a few days later, remarks :— "Now that the panic is over, we approach the facts of the case ; and if they are no longer alarming, they are mos"t extraordinary — passing, we should think, the largest anticipation's of the -alarmist. We abstain from names and particulars, but the disclosures made to the" Bank of England and the Chancellor of the Exchequer on Friday, . simply show ■ that even oiir largest banks — those in the best repute and with the largest busincss-^---have been going. on, -no one- can say' how long, upon the supposition that there never could be a run upon them, that they might hold any amount of deposits with only a very small proportion of reserve to meet them in the time of need, .and that they simply relied on the aid to be obtained from the Bank, if necessary, by a suspension of the Act." It is estimated 'by tho " Times" that, talcing into account the depreciation that has" simultaneously occurred in the English funds, railway stocks, foreign securities, &c, the loss in .the market value of the property held by oiir various investors since Jamiary 1, is not less than 130 millions sterling — to say nothing of the sacrifices on cotton, cotton goods, iron, and other articles.
THE GREAT FINANCIAL PANIC IN LONDON., 26 July 1866
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