198been expected. Finally, Latin American affairs were under-reported by The Economist (though, interestingly, the region was over-reported in the more investment-focused ‘Notes’ section of the IMM) and slightly underrepresented in the ‘Incidents’ section.
Financial networks
The media were not the only source of information on investment opportunities. Nor was the individual investor the only actor making decisions and, hence, in need of information. The reality, then as now, was that many of the most important investment decisions, such as those relating to the raising of government and company loans, were taken within the financial sector prior to the individual saver ever becoming involved. How financial institutions arrived at decisions could thus impact significantly on subsequent investment flows. In dealing with money matters, financiers, of course, had many advantages not available to the lay investor. These included experience of reading markets, a detailed understanding of financial mechanisms and the ability to make sense of an array of pertinent, if potentially confusing, information. Personal relationships with and connections to other financiers, officials and businessmen also gave them a competitive edge. As Grieser explains, ‘through the channels of business friendships, less puzzling information than that contained in balance sheets and statistical reports is whispered and telephoned throughout the City’.75 In an uncertain world, the information from such human interaction was often invaluable. Coming from individuals who were known and trusted, it acted to reduce the risk and cost of investing.76 Typically, the most successful networkers were those who concentrated on the quality, rather than quantity, of their contacts. Of itself, a large network could simply lead to a plethora of competing signals and information; it could even prove inimical to the establishment of the intimacy upon which trust was founded. Hence getting to the important ‘players’ was the key to success. Effective networking was ultimately a matter of building tight and reliable relationships with the right people.
The challenge for the would-be networker was that the right people were usually few in number. For those attempting to influence the investment policies of a nineteenth-century bank, for instance, the key players were its
75 Grieser, ‘British Investor’, p. 73. See also Davenport-Hines and Van Helten, ‘Edgar
Vincent’, p. 35.
76 M. C. Casson, ‘An Economic Approach to Regional Business Networks’, in J. F. Wilson
and A. Popp (eds.), Industrial Clusters and Regional Business Networks in England, 1750–
1970 (Aldershot: Ashgate, 2003), pp. 19–44 (pp. 21–2, 28, 31).
199Information and investment directors. This small group of individuals held the ultimate power in determining how their institutions would utilise the capital at their disposal.77 For governments wishing to raise loans on the London capital market, there were in fact very few banks and brokerage firms with which they could deal. Indeed, well-defined, almost exclusive relationships emerged between colonies and specific banks and stockbrokers. Thus, the London and Westminster Bank, and R. Nivison and Co. catered for much of the capital needs of the dominions, particularly Australia, whereas Barings Brothers and Messrs Scrimgeour and Co. were the preferred financiers of Canada, and, until the mid 1880s, the Cape Colony.78
For the dominions, personal connections could mean the difference between financial embarrassment and security. In 1883, the Cape Colony, facing a budgetary crisis, sought reprieve by seeking a temporary loan from the City. When the colony’s bank, Barings, declined to support such a loan, its government broke its long-standing relationship with Barings and its preferred broker, Scrimgeours, and searched for an alternative backer. This proved problematic. The financial sector was predictably reluctant to upset the modus vivendi, while Barings and Scrimgeours threatened to ‘bear’ any loan raised through a rival bank and brokerage firm (by dumping large volumes of the Cape securities they still retained on the market just before the issuance of the new loan). Not until December 1883 did the Cape secure the backing of the London and Westminster Bank, which agreed to accept responsibility for both the short-term loan and the floating of a new permanent £5 million loan. In return, the London and Westminster was guaranteed a monopoly of all of the Cape’s future financial business. The successful denouement of the crisis owed much to personal connections. Particularly influential was Sir Penrose Julyan, Crown Agent for the Cape until 1878 but now, crucially, a director of the London and Westminster Bank. It was he who not only managed to persuade his fellow directors to support the Cape’s loan, but also used the considerable sway and reputation in the City that he had acquired over his years as Crown Agent to encourage others to take up the new issue. In the words of one scholar, ‘his experience – he had floated 92 loans by late 1883 – and his influence with the London and Westminster, were working to help the Cape avoid “disaster and discredit” ’.79
77 G. Jones, British Multinational Banking, 1830–1990 (Oxford: Oxford University Press,
1993), p. 43; D. T. Merrett, ANZ Bank: A History of the Australia and New Zealand
Banking Group Limited and Its Constituents (Sydney: Allen and Unwin, 1985), p. 25.
78 T. Suzuki, Japanese Government Loan Issues on the London Capital Market, 1870–1913
(London: Athlone, 1994), pp. 33–7; Purkis, ‘Politics’, p. 292.
79 Julyan’s cause was also undoubtedly advanced by the presence on the board of the
London and Westminster of Sir Henry Barkly, a former Governor of the Cape. See
200The professional relationship between broker and client – whether Agent-General, Crown Agent, company or, simply, investor – was a close and personal one. A common practice of nineteenth-century brokers was to keep clients informed by sending out monthly or weekly circulars listing securities deemed worthy of investment. Stamped application forms for these securities were enclosed in the envelope. Typically, such lists were kept very short and were sparse on detail. This brevity reflected not the slackness of brokers, but the esteem that they commanded from their customers. For an established broker, if a security merited a place on his list, his clients could – and often did – take that as a strong endorsement.80 Successful brokers therefore had considerable influence on their clientele and, if their customer base was large enough, this degree of influence could in turn grant power over those attempting to raise loans in London; all the more so if the broker was regarded by his colleagues as a market leader. The classic example of a broker whose support of a colonial loan was integral to its success in London is Robert Nivison (later Lord Glendyne). Beginning his career at the London and Westminster, Nivison, having acquired an extensive understanding of the capital market, left the bank in 1886 to establish his own brokerage firm, R. Nivison and Co. It was an immediate success. Exploiting his contacts in the London and Westminster, Nivison became the bank’s main broker, taking responsibility for the floating of various colonial government and municipal loans with which his firm had been entrusted. He took an innovative approach to the job and pioneered a new financial instrument, the underwriting syndicate.81 Above all, he became the City’s expert on Australian issues; by the 1890s the fate of antipodean finances was heavily dependent upon his skills, judgement and goodwill. No wonder the Banker’s Magazine felt it apposite to anoint him the Australian colonies’ ‘special confidant’.82
Purkis, ‘Politics’, pp. 307–17. The quotation comes from Purkis, ‘Politics’, p. 315. For
an account of how the personal links of the Scottish emigrant residing in Ballarat could
lubricate the flow of investment from Scotland to Australia by securing a deposit agency
in Edinburgh for the Commercial Bank of Australia, see Bailey, ‘Australian Company
Borrowing’, pp. 127–9.
80 Grieser, ‘British Investor’, pp. 70–3; Suzuki, Japanese Government, p. 46.
81 The underwriting syndicate was a group, usually of banks or brokerages, that came
together to underwrite (guarantee to take the unsubscribed portion of) a large loan issue
in return for a commission. Such syndicates helped spread the inherent risk of large
financial undertakings and thereby made them more likely to eventuate. See Suzuki,
Japanese Government, p. 28.
82 For more on Nivison, see Hall, London Capital Market, pp. 103–5; R. S. Gilbert,
‘London Financial Intermediaries and Australian Overseas Borrowing, 1900–1929’,
Australian Economic History Review 11 (1971), pp. 39–47; R. P. T. Davenport-Hines,
‘Lord Glendyne’, in R. T. Appleyard and C. B. Schedvin (eds.), Australian Financiers:
Biographical Essays (Melbourne: Macmillan Co. of Australia, 1988), pp. 190–205;
201Information and investment Nivison’s strengths were twofold: his detailed knowledge of the smallscale investors and trustees’ demand for Australian securities, and his unmatched access to the brokers and jobbers who had the task of managing the accumulated funds of such savers. His method emphasised the personal. Davenport-Hines’ succinct description of his modus operandi is worth recounting: Glendyne devised his own rules for issuing colonial loans in London. He discussed terms with prospective borrowers without consulting institutions, judged what the market would take, and on the day of issue walked around the City institutions offering them an opportunity to participate . . . If any institution said that it disliked the terms and was not interested in sub-underwriting at the price offered, it was permanently removed from Nivison’s list, and was never again offered an opportunity to participate in an issue made by the
firm.83
Nivison’s methods were thus uncompromising, perhaps even arrogant. But his style spoke of his authority and the respect he commanded in the marketplace. Moreover, it worked. As A. A. Grainger, the South Australian Agent-General in London, observed in 1908, whenever a new Australian issue appeared potential sub-underwriters (the jobbers and brokers of the London Stock Exchange) always inquired if Nivision were involved and ‘if he is not they will not touch it’.84
Colonial governments complained that these dense networks of connections that lay at the heart of the City impeded their freedom of action. Yet the reality, grudgingly conceded, was that these relationships granted privileged access to British investment funds. Indeed, foreign governments and businesses, as City outsiders, were not so blessed and frequently struggled to make the right contacts.85
In addition to the presence of colonial representatives in London, many of whom were directly involved in raising capital, several other factors worked to cement the colonies’ advantages there. Colonial financial institutions drew their staff from the same pool of people that worked in the
Suzuki, Japanese Government, pp. 46–7; Kynaston, City of London, Vol. II., p. 49; and
Jones, British Multinational Banking, pp. 123–4.
83 Davenport-Hines, ‘Lord Glendyne’, p. 199.
84 Quoted in Gilbert, ‘London Financial Intermediaries’, p. 42.
85 See, for example, Suzuki, Japanese Government, p. 44. The exception to the case was the
United States. Close links between the so-called ‘London Yankee’ investment houses
and British merchant bankers and individuals like Robert Fleming proved an effective
conduit through which British capital could flow into American railway companies. Yet
again, in many ways aspects of the USA’s experience with British investors was closer to
that of the dominions than other foreign countries. See D. R. Adler, British Investment
in American Railways, 1834–1898 (Charlottesville: University Press of Virginia, 1970),
pp. 145–8, 171–6; and Davis and Gallman, Evolving Financial Markets, pp. 300–5 for
more detailed discussion of this ‘transatlantic partnership’.
202joint stock banks of England and Scotland as well as the imperial banks. The movement of these professionals around the British World, which developed apace in the second half of the nineteenth century, fostered personal connections. The role of Scottish bankers in this movement was particularly marked, such that by 1900 it has been estimated that as many as two-thirds of all Canadian bankers came from Scotland.86
Typical of this trend was Falconer Larkworthy. Born in Weymouth in 1833, but raised in Scotland, he began his banking career as a clerk with the Oriental Bank Corporation in London in 1852. He quickly demonstrated his talents. After a spell in Mauritius, the Oriental sent him to Melbourne in 1855. Soon afterwards he became manager of the bank’s branch in Beechworth situated on the goldfields of Victoria. In 1861 he moved once again, this time to Auckland, and while there played an instrumental role in establishing the Bank of New Zealand (BNZ). In August 1862, he returned to London as the inaugural managing director of the BNZ’s London branch, retaining this role until 1888. While in London, he helped establish and became the first director in 1865 of the New Zealand Loan and Mercantile Company Ltd, a position he held until 1890. At that time he joined the Court of Directors of the Ionian Bank, and assumed its chairmanship in 1900. As a Fellow of the Institute of Bankers, Larkworthy’s position in the City and vast first-hand knowledge of many of the colonies, in particular New Zealand, made him a valuable source of information and contacts for colonial governments and companies seeking credit in London.87
A further advantage the colonies enjoyed in London emanated from the system of interlocking directorships favoured by imperial and colonial banks from the mid nineteenth century. This was a practice that made it commonplace for leading bankers and financiers to be seated on the boards of a variety of banks and financial institutions. Oliver Farrer, for example, concurrently held directorships in the Provincial Bank of Ireland, the Bank of Australasia, the Ionian Bank, the Mediterranean Bank and the Bank of British North America. This system of interlocking directorships facilitated the flow of information, and allowed colonial interests to forge fruitful relationships stretching right across the British financial world.88 Imperial and colonial banks were aware of this
86 S. Jones, ‘The Imperial Banks in South Africa, 1861–1914’, South African Journal of
Economic History 11(1996), 5–57 (p. 28); and Bailey, ‘Australian Company Borrowing’,
p. 108.
87 F. Larkworthy, Ninety-One Years: Being the Reminiscences of Falconer Larkworthy
(London: Mills and Boon, 1924); N. M. Chappell, New Zealand’s Banker’s Hundred: A
History of the Bank of New Zealand, 1861–1961 (Wellington: Bank of New Zealand,
1961), pp. 14, 29, 74, 112, 114; Bailey, ‘Australian Company Borrowing’, pp. 109–10;
and Kynaston, City of London, Vol. II, p. 315.
88 A. S. J. Baster, The Imperial Banks (London: P. S. King, 1929), p. 120.
203Information and investment advantage and consciously sought to place well-connected members of English establishment families on their boards. Having such people on the board, it was thought, would lend one’s bank credibility and provide it with an entrée to elite financial circles in London. Certainly, this was the rationale that lay behind the Bank of Australasia’s decision to invite Alban George Gibbs, the second Lord Aldenham, onto its Court of Directors in 1887. He accepted and retained his seat until his death in 1936.89 Of course, the colonies’ access to London financial networks was a gift not entirely free of conditions. One of these conditions was that colonial governments and financial institutions had to have a permanent physical presence in the City, if they were to tap the potential there on offer. Without it, they could not hope either to acquire an informational advantage or exert an influence over events, something of which imperial and colonial banks were clearly cognisant. Although imperial banks typically did not take direct responsibility for colonial loan issues, given their presence in London and the position of many of their directors in the City’s important financial circles, they were nonetheless often well placed to influence the outcome of particular floats. Being in London really did matter.90 A further condition was that colonials tapping into British financial networks, like their British counterparts, had to play by the ‘rules of the game’.91 A high standard of morality and propriety, as in all ‘good’ society, went without saying.92 The restrictions, however, extended beyond the merely personal. Certain types of behaviour either in the public domain or the business arena were also deemed unacceptable. First, colonists should not intentionally promote ‘unpatriotic’ investments, an unwritten rule that led London’s main financial houses to ostracise those who had imprudently chosen to underwrite the so-called German ‘war loan’ issue of July 1908.93 Second, the integrity of the system or its main institutions should never be publicly questioned. As Queensland discovered in 1891, such behaviour could have disastrous consequences. Running a debt, the government of the Colony of Queensland instructed the Queensland National Bank to cover the shortfall by raising a new loan by the usual
89 Merrett, ANZ Bank, pp. 25–33; Jones, British Multinational Banking, pp. 92–3; Baster,
Imperial Banks, pp. 244–5.
90 Jones, British Multinational Banking, p. 46; Baster, Imperial Banks, p. 243–4; R. J. Wood,
The Commercial Bank of Australia Limited: History of an Australian Institution, 1866–1981
(North Melbourne: Hargreen Publishing Company, 1990), pp. 93–9; and Merrett, ANZ
Bank, pp. 26–33.
91 P. J. Cain and A. G. Hopkins, British Imperialism, 1688–2000 (Harlow: Longman, 2001),
pp. 215ff.
92 Grieser, ‘British Investor’, p. 30.
93 Davenport-Hines, ‘Lord Glendyne’, p. 194.
204means in London. The Bank of England was engaged to assist in the floating of the proposed loan. But with investors still shell-shocked by the Baring crisis, these were anything but usual times. The issue failed and only £300,000 worth of the £1 million issue was subscribed. The expectation, at least on the part of the Queensland government, was that the Bank of England would now step in and take up a further £500,000 of the loan. Queensland believed that such an undertaking had indeed been agreed with the Bank prior to the float. The Bank of England, however, refused, pointing out that even if it did oblige it would still leave the issue significantly undersubscribed. Instead the Bank arranged a new private subscription where £100 debentures were effectively sold for less than £90. On hearing what had happened in London, the Treasurer of Queensland, Sir Thomas McIlwraith, exploded and publicly lambasted the Bank of England for its blatant dishonesty and breach of promise. William Lidderdale, the Governor of the Bank of England, unim-