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The World of Private Banking Youssef Cassis and Philip Cottrell with Monika Pohle Fraser and Iain L. Fraser THE WORLD OF PRIVAtE BANKING This page has been left blank intentionally The World of Private Banking Edited by YOUSSEF CASSIS and PHILIp COttRELL Co-Edited by MONIKA POHLE FRASER and IAIN L. FRASER © The editors and contributors 2009 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher. Youssef Cassis and Philip Cottrell and have asserted their right under the Copyright, Designs and Patents Act, 1988, to be identified as the editors of this work. Published by Ashgate Publishing Limited Ashgate Publishing Company Wey Court East Suite 420 Union Road 101 Cherry Street Farnham Burlington Surrey, GU9 7PT VT 05401-4405 England USA British Library Cataloguing in Publication Data The world of private banking. – (Studies in banking and financial history) 1. Private banks—History—19th century. 2. Private banks—History—20th century. I. Series II. Cassis, Y., 1952– 332.1’23’09–dc22 Library of Congress Cataloging-in-Publication Data The world of private banking / Youssef Cassis ... [et al.]. p. cm. — (Studies in banking and financial history) Includes bibliographical references and index. ISBN 978-1-85928-432-2 (hbk. : alk. paper) 1. Private banks—History. I. Cassis, Y., 1952– HG1978.W67 2009 332.1’23—dc22 2009010011 ISBN 9781859284322 (hbk) ISBN 9780754695844 (ebk.V) Contents List of Figures   List of Tables   Notes on Contributors   vii ix xi Introduction   Youssef Cassis and Monika Pohle Fraser xv 1 The Rise of the Rothschilds: the Family Firm as Multinational   Niall Ferguson 2 The Rothschild Archive   Victor Gray with Melanie Aspey 31 3 Private Banks and the Onset of the Corporate Economy   Youssef Cassis 43 4 London’s First ‘Big Bang’? Institutional Change in the City, 1855–83   Philip L. Cottrell 5 Banking and Family Archives   Fiona Maccoll 6 The Anglo-American Houses in the Nineteenth Century   Edwin J. Perkins 7 The Parisian ‘Haute Banque’ and the International Economy in the Nineteenth and Early Twentieth Centuries   Alain Plessis 8 9 1 61 99 111 127 Private Banks and International Finance in the Light of the Archives of Baring Brothers   141 John Orbell German Private Banks and German Industry, 1830–1938   Dieter Ziegler 159 THE WORLD OF PRIVAtE BANKING vi 10 Private Bankers and Italian Industrialisation   Luciano Segreto 11 Private Banks and Industry in the Light of the Archives of Bank Sal. Oppenheim jr. & Cie., Cologne   205 Gabriele Teichmann 177 12 Jewish Private Banks   Ginette Kurgan-van Hentenryk 213 13 Protestant Banking   Martin Körner † 231 14 Private Bankers and Philanthropy: the City of London, 1880s–1920s   247 Pat Thane 15 Hereditary Calling, Inherited Refinement: the Private Bankers of the City of London, 1914–86   David Kynaston Bibliography   Index   263 273 295 List of Figures 4.1 Volume of bills, inland and foreign, £m   63 4.2 Estimates of Capital Exports 1865–83, £m   64 4.3 Interest rate on 3 month bank bills   65 4.4 Bankers’ balances at the head office of the Bank of England, quarterly averages, 1858–83, £’000s   67 4.5 Bankers’ balances with Bank of England head office, percentage swing around estimated reserve floors   68 4.6 ‘Effective’ corporate financial registrations in London, 1856–83   71 4.7 Numbers of English and Welsh banks, by type, 1855–83   77 4.8 87 ‘Effective’ corporate banking registrations in London, 1856–83   This page has been left blank intentionally List of Tables 1.1 Combined Rothschild capital, 1818–1852 (thousands of £)   2 1.2 Profits and capital at N.M. Rothschild & Sons, 1829–1844 (£)   3 1.3 Average annual profits, five Rothschild houses, 1818–1844 (£thousands)   4 1.4 The nominal value of loans issued by the London and Frankfurt houses, 1820–1859 (by decade) (£)   6 1.5 Loans issued by the London house, 1818–1846 (by recipient)   7 7.1 Inventory of Mallet and Co. on 31.12.1860 (in millions of francs)  132 7.2 Inventory of Mallet and Co. on 31.12.1913 (in millions of francs)  137 10.1 Property companies set up in Italy and professions declared by the founders (1883–1913)   196 10.2 Private banking houses in the major Italian financial centres (1886–1913)   197 10.3 Private bankers involved in financial operations in favour of industrial enterprises (1884–1913)   200 10.4 Private banking houses in the major Italian financial centres (1913–1936)   203 This page has been left blank intentionally Notes on Contributors Melanie Aspey joined the Rothschild Archive as archivist in 1994, succeeding Victor Gray as director in 2004. Aspey edited The Rothschild archive: Guide to the Collection (London, 2000) and has written about aspects of the Archive’s collection and Rothschild history for a number of journals and publications. Prior to joining Rothschild, she was archivist and records manager at News International plc (publisher of The Times and other British daily and weekly newspapers) and worked for the Business Archives Council, subsequently serving as a trustee and chairman of that organization for a number of years. Youssef Cassis is professor of economic and social history at the University of Geneva and visiting fellow at the London School of Economics. He has published extensively on banking and financial history. His latest book, Capitals of Capital: A History of International Financial Centres, 1780–2005, was published in 2006 by Cambridge University Press. Philip L. Cottrell is professor of economic and social history at Leicester University. He has published widely in the areas of international financial, business, economic and social history. Niall Ferguson is Laurence A. Tisch Professor of history at Harvard University and William Ziegler Professor of business administration at Harvard Business School. He is also a senior research fellow of Jesus College, Oxford University, and a senior fellow of the Hoover Institution, Stanford University. His book The World’s Banker: the History of the House of Rothschild (1998) won the Wadsworth Prize for Business History. He is also the author of The Cash Nexus: Money and Power in the Modern World, 1700–2000 (2001) and numerous other books and articles. Monika Pohle Fraser is an economic historian (D.Phil., European University Institute) and currently a post-doctorate fellow at the Forum for Contemporary History, University of Oslo. She also teaches political and social science courses at State University New York/FIT, Florence. She is currently working on Cold War development aid and European donor countries. Her field of interest and publications are mainly in international financial history of the nineteenth and twentieth centuries. Victor Gray has taken a leading role in the development of archives in the UK, acting as Chairman of the National Council on Archives and a founder Board xii THE WORLD OF PRIVAtE BANKING Member of the Museums Libraries and Archives Council. He is currently President of the Society of Archivists. An archivist throughout his working life, he joined and developed the Rothschild Archive from 1993, becoming the first Director of the Rothschild Archive Trust in 2000. He retired from Rothschild in 2004. Martin Körner † was professor of early modern history at the University of Bern, where he directed the research project ‘Bernese state finance in the early modern period’. His many publications include Solidarités financiers suisses au XVIème siècle (Lausanne, Payot, 1980) and ‘The Swiss Confederation’, in R. Bonney (ed.), The Rise of the Fiscal State in Europe c.1200–1815 (Oxford, 1999). Ginette Kurgan-van Hentenryck is professor emeritus of Université Libre de Bruxelles and member of the Royal Academy of Belgium. Former dean of the Faculty of Arts and president of the Institute of European Studies, she promoted the Groupe d’Histoire du Patronat de l’U.L.B. She is the editor of Dictionnaire des patrons en Belgique: Les hommes, les entreprises, les réseaux (1996), author of Léopold II et les groupes financiers belges en Chine (Brussels, 1972), Rail, finance et politique: les entreprises Philippart (1865–1890) (Brussels, 1982), Gouverner la Générale de Belgique: Essai de biographie collective (Bruxelles, 1996), and co-author of The Generale Bank (Brussels, 1997) and A History of European Banking (Antwerp, 2000). Her publications concern Belgian economic and social history as well as international relations of Belgium during the nineteenth and twentieth centuries. David Kynaston was born in 1951 and read Modern History at New College, Oxford. He has been a professional historian since 1973. His principal work is a four-volume history of the City of London, 1815–2000, published between 1994 and 2001. He has also written histories of the Financial Times, Cazenove and LIFFE, as well as co-writing a history of Phillips & Drew. With Richard Roberts he has co-edited a history of the Bank of England and co-written a book on the modern City. His latest publication is Austerity Britain, 1945–1951 (2007). He is a visiting professor at Kingston University. Dr John Orbell was formerly Head of Corporate Information Services at ING Bank, London Branch, where, inter alia, he was responsible for The Baring Archive and ING’s London art collection. He retired in late 2004. He has published in the areas of business archives and business history and is a fellow of the Royal Historical Society and of the Royal Society of Arts. He is currently updating his earlier publication, Tracing the History of a Business, and, with Francis Goodall and Richard Storey, is compiling an updated bibliography of British business histories. Edwin J. Perkins is emeritus professor of history, University of Southern California. He earned his doctoral degree under Alfred Chandler at Johns Hopkins University in 1972. Previously, he had earned an MBA from the University of NOTES ON CONTRIBUTORS xiii Virginia and worked for the Chase Manhattan Bank in New York City. Among his publications are Financing Anglo-American Trade: the House of Brown, 1800– 1880 (Harvard University Press, 1975), American Public Finance and Financial Services, 1700–1815 (Ohio State University Press, 1994), and Charles Merrill and Middle Class Investors (Cambridge University Press, 1999). Alain Plessis, agrégé d’histoire, docteur d’État and alumnus of the École Normale Supérieure, is professor emeritus at the University of Paris X Nanterre. His many publications in the field of financial history include La Banque de France pendant le Second Empire, 3 vols (1982–85), Histoire de la Banque de France (1998) and, together with Michel Lescure, Banques locales et banques régionales en France au XIXe siècle (1999). Luciano Segreto is professor of economic history at the University of Florence. His main research interests are in post-WW2 international business and financial history. Chairman of the Cultural Memory Council of the ICCA, he is a member of the Scientific Committee of the Maison des Sciences de l’Homme d’Aquitaine and of many international journals. Among his most recent publications are Giacinto Motta: Un ingegnere alla testa del capitalismo industriale italiano (Rome Bari, Laterza, 2004), Produrre per il mondo: L’industria reggiana dalla crisi petrolifera alla globalizzazione, edited by G.L. Basini, G. Lugli and L. Segreto (Rome Bari, Laterza, 2005), East–West Trade in Cold War Europe: National Interests and Hypocrisy, in Towards a New Europe. Identity, Economics, Institutions: Different Experiences, edited by A. Tonini (Florence, 2006). Gabriele Teichmann studied history, English literature and philosophy at Bonn and Edinburgh universities. After taking her exams, she worked at the department for economic and social history of Bonn University as well as for the German Association for Business History. In 1985, she started her career with Sal. Oppenheim jr. & Cie. whose head of archives she became in 1989. She has authored or co-authored several books and articles on the history of the Oppenheim bank and family, among them Wägen und Wagen: Sal. Oppenheim jr. & Cie.: Geschichte einer Bank und einer Familie, 3rd edn (Munich, 1994 = English edition: Striking the Balance: Sal. Oppenheim jr. & Cie. a Family and a Bank, London 1994) and Faszination Orient: Max von Oppenheim. Forscher, Sammler, Diplomat (Cologne, 2nd edn 2002). Within the EABH, she has served on a number of committees like the Academic Advisory Council and the Bureau. Pat Thane has been professor of contemporary British history, Institute of Historical Research, University of London since October 2002. She was professor of contemporary history at the University of Sussex 1994–2002. Her publications include: The Foundations of the Welfare State (Longman, 1982 2nd edn, 1996), Women and Gender Policies: Women and the Rise of the European Welfare States, 1880s–1950s, co-ed. with Gisela Bock (Routledge, 1990), Old Age from Antiquity xiv THE WORLD OF PRIVAtE BANKING to Post-Modernity, co-ed. with Paul Johnson (Routledge, 1998), Old Age in England: Past Experiences, Present Issues (Oxford University Press, May 2000), Women and Ageing in Britain since 1500, co-ed. with Lynne Botelho (Longman, 2001), The Long History of Old Age, ed. (Thames and Hudson, 2005). Dieter Ziegler is professor of economic and business history at Ruhr-University Bochum. He has written extensively on British and German business and social history, especially about banks and bankers. The most recent monographs are Die Industrielle Revolution (Darmstadt, 2005) and Die Dresdner Bank und die deutschen Juden (= Die Dresdner Bank im Dritten Reich, vol. 2 (Munich, 2006). Introduction Youssef Cassis and Monika Pohle Fraser Continuity and Change The recent rise of private equity is a timely reminder of the persistence of private – as opposed to corporate – interests within the world of finance. The demise of private banking – understood, as it will be in this book, in the broad sense of the word to include merchant and investment banks, as well as finance houses – has been predicted or retrospectively analysed many times over the past 150 years, and yet it has never really occurred. Of course, private banking has declined – if only because there was a time when all banks, with the exception of central banks and a few other public institutions, were private banks. For a while, during the second third of the nineteenth century, they held their own against the emerging joint stock banks. They then became increasingly marginalized without, however, losing all significance, depending on the country and the financial activity in which they specialized – investment banking and wealth management, for example, have traditionally been better suited to private forms of ownership and control than commercial banking. The story of private banking could, however, be sketched in a different way. In many respects, private banks have always flourished in fairly narrow segments within the world of banking and finance, even during the golden age of private banks, before the emergence of joint stock banks, even when Rothschilds and Barings were the ‘masters of the universe’. For the golden age of private banks, from the late eighteenth to the mid-nineteenth century, was an age when banking was still very much in its infancy. Banks and bank offices were few in number; their level of assets and liabilities was, by any measure, very low; a bank account was the privilege of a tiny elite; and the business of banking was mainly subordinate to the needs of trade and commerce. The rise of banking, as an economic pursuit in its own right and as an engine – as well as a product – of modern economic growth, is concomitant with the rise of the joint stock banks. Private banks, to be sure, played a decisive role in this development, both as forerunners (deposit banking in Britain and universal banking in Germany, for example, having their roots in the two countries’ private banks’ traditions) and as initiators (many a joint stock bank was established by private bankers). But they were no longer the main players once the game took on a new dimension. From this perspective, the history of private banking displays far greater continuity than usually assumed and this continuity makes its history all the more relevant to the understanding of recent developments. Whether in their golden age, in times of decline or in eras of revival, private banks have performed the same type of functions. They have been involved in xvi THE WORLD OF PRIVAtE BANKING rather specialized activities, free from competition from joint stock banks. They have usually dealt with fairly exclusive customers, for example high net worth individuals, to use today’s terminology, or foreign governments. The volume of their business has tended to be comparatively low (if measured by the number of customers or branches), but their profit margins relatively high. And they have consistently been able to influence, and sometimes lead, the profession, through their socio-professional status, their networks of relationships, but also their innovative capacity. There have been some digressions from this pattern: private country banks in particular, which flourished in the nineteenth century in countries such as France and Germany, were clearly catering for ‘ordinary’ customers. And some of the ‘specialized’ areas dominated by private bankers could be very large indeed, for example the international issuing business in the City of London before the First World War. But they are the exceptions that confirm the rule: throughout their history, private banks have been specialist, rather than generalist, financial institutions. Private banking has also been essentially a matter of networks. First and foremost family networks, as private banks have tended to be family firms – they can be defined as banks whose owners are also managers, legally organized as partnerships or general partnerships, with partners having unlimited responsibility. As institutions, private banks can still be defined in this way today, and some of them are still alive and kicking, especially in Geneva, the ‘capital of private banking’. However, the notion of ‘private banking’ has changed since the last quarter of the twentieth century and now designates a specific activity – portfolio management on behalf of very wealthy individuals – rather than a form of business organization. This activity is nowadays mostly being carried out by large universal banks, and yet family networks are still part of private banking, for example in the management of family wealth, as witnessed by the development of the Family Office. Religious networks have been another major constituent, often superimposed to family ones, as exemplified by national or international banking dynasties – the Rothschilds being the most famous though by no means the only such example. The largest networks were formed by the Protestant and Jewish religious minorities, the former dominant in the eighteenth century, the latter in the nineteenth, with other denominations, not least the Quakers, also leaving their mark. Religious networks have certainly weakened, though they have not entirely disappeared and still play a role in terms of cultural identity. Moreover, elements of their modus operandi can be found in other types of network relationships – political, ethnic, ‘old boys’, and others. Finally, social networks have also been part of the fabric of private banking, here again often in conjunction with family and religious factors. The gradual integration of private bankers into the upper classes from the mid-nineteenth century and their ever closer links with the political elites have been both a cause and a consequence of their moving their business upmarket    Limited partnerships and even joint stock companies whose directors retained the major part of the capital should also be considered as ‘private banks’. INtRODUctION xvii – a position best described by the notion of haute banque, which has kept its resonance to this day. Networks and specialization thus best characterize the history of private banks over the last 250 years. However, identifying these long-term features should not obscure two facts. First, that changes have taken place in their domains of specialization – from commercial banking to wealth management for some, from trade finance to corporate finance for others, to put it in very broad terms. And second, that their significance, in economic, political and social terms, was at its highest during the ‘classical’ period going from the late eighteenth century to the First World War. This book explores the history of private banking, in its multifarious aspects, during these years. The Rothschilds: Archetypal and Exceptional Rothschild is the first name to spring to mind in connection with private banks – even though Walter Bagehot did not consider the Rothschilds as bankers in the narrow English sense of the word, i.e. deposit takers, but as ‘immense capitalists’. As Niall Ferguson clearly shows in chapter 1, the Rothschilds were the world’s largest private bank for most of the nineteenth century and recognised as such by their contemporaries. The Rothschilds might appear as the archetypal private bankers because of this immediate association between their name and their trade, yet in almost every other respect they were truly exceptional. In terms of size, they were not only the largest private bank; the group’s resources (with banks in Frankfurt, London, Paris, Vienna and Naples) remained larger than those of any joint stock bank well until the 1880s, even though the latter included clients’ deposits. In terms of wealth, they were collectively the world’s richest family. The links keeping the family together were tighter than for other international banking dynasties, such as the Bischoffsheim, the Speyers, the Seligmans and others, with an exceptionally high rate of intermarriage within the Rothschild family (14 out of 18 at the second generation, and still 13 out of 30 at the third generation). Most importantly, the Rothschilds were dominant in government finance, the most prestigious preserve of the haute banque – an activity bestowing both economic and political influence, at home and abroad. Between 1865 and 1914, they handled, solely or in partnership, nearly three quarters of the foreign public sector issues floated in London, the world’s leading international financial centre. The Rothschilds faced increasing competition from the 1870s, from both joint stock and private banks. They maintained their supremacy amongst the latter until the First World War, when they eventually returned to normal without, however, losing their legendary status.   W. Bagehot, Lombard Street: A Description of the Money Market (London, 1873),  p. 214. xviii THE WORLD OF PRIVAtE BANKING Like that of the banking house that has produced them, the wealth of the Rothschild archives is truly exceptional. As Victor Gray and Melanie Aspey show in chapter 2, despite unavoidable loss and destruction, they are of unrivalled interest not only to banking and financial historians, but also to those concerned with political, social, cultural, art and even natural history. The richest material consists of the letters (some 20,000 in total) that the five brothers wrote to each other between 1814 and 1868; written in Judendeutsch, and thus extremely difficult to understand, they have recently been translated and transcribed. But there also the letters from the Rothschilds’ correspondents and agents (hundreds of thousands) as well as a huge non-banking material, related to the very wide range of activities in which the family has been involved. In the last twenty years or so, the collections of the Rothschild Archives have been promoted to a wide audience, not least through the publication of a guide, available on the Archive’s website. They are now the responsibility of the Rothschild Archive Trust, a charitable trust created in 1999 to ensure the future of the collection and encourage international research. Patterns of Business Development The role of private banks in the new financial and corporate environment created, from the mid-nineteenth century, by the growth of the joint stock banks is of particular interest to their long-term historical development. The question is examined in chapter 3 by Youssef Cassis, who rejects a ‘decline and fall’ framework of analysis and shows, on the contrary, that the fate of private banks varied considerably depending on the country, region, or banking activity. Private bankers engaged in international finance were far more successful in the City of London, where merchant banks were able to maintain their hold on the huge accepting and issuing businesses, than in Paris and Berlin, where the competition from the joint stock banks was much stiffer. Conversely, private deposit banking declined sharply in Britain, but survived in France and Germany, where hundreds of private country banks provided agricultural credit and industrial finance to small and medium-sized enterprises in the provinces, from which the joint stock banks were mostly absent. In both cases, private banks were able to find a niche where they enjoyed a competitive advantage against the big banks. Private bankers, above all members of the haute banque in continental Europe, also played a decisive role in the creation of the new joint stock banks, usually to seize the opportunity to raise vast amounts of capital in order to finance large-scale investment. They were often able to keep a strategic control over these new institutions, at any rate until the First World War – a success primarily attributable to their socio-professional status and their network of relationships. Not surprisingly, international bankers proved more successful than country bankers over the longer term, whether as private bankers or as directors of joint stock banks. While the latter were all but wiped out by the depression of the 1930s, the latter survived well into the 1960s. INtRODUctION xix In chapter 4, Philip Cottrell provides a thorough analysis of the institutional changes taking place in the centre of world finance, the City of London, during the middle decades of the nineteenth century. Cottrell describes the years 1855– 1883 as London’s ‘First Big Bang’, a critical period comparable, in terms of institutional restructuring, to the ‘Financial Revolution’ of the late seventeenth and early eighteenth centuries and ‘Big Bang’ in the late twentieth century. The changes were brought about by a combination of economic and political developments – the decline of the inland bill of exchange and Britain’s increasing exports of capital and the liberalization of company legislation, with the introduction of limited liability and its later extension to banking. The result was the creation of numerous corporate financial institutions which came to dominate most of the City’s activities. However, as Cottrell clearly shows, the institutional restructuring taking place over the mid-nineteenth century was a long-drawn process, if only because of the period’s financial instability, and personal enterprise remained a leading or a significant force in a few areas. In the money market, a couple of corporate discount houses ended up handling most of the business, without eliminating a dozen or so partnerships from the scene; while in domestic commercial banking, the London private banks held their own until 1890. The period witnessed a wave of creation of overseas corporate banks as well as finance companies. The latter, mostly short-lived second-rate affairs, were active in company promotion and railway finance but made no inroads in foreign loans and international acceptances, which remained the preserve of the merchant banks – the only type of bank ultimately managing to remain ‘private banks’. This pattern of business development, leading to the ultimate demise of private banks, is reflected in the banks’ archives. Large commercial banks, especially in Britain, have been formed through an amalgamation process involving scores of private banks – well over 100 in the case of the NatWest Group (now incorporated into Royal Bank of Scotland), discussed by Fiona Maccoll in chapter 5. Their records are uneven, the archives of small, short-lived banks having often disappeared. In the case of private banks, the distinction between family and business papers is not always apparent, especially in the early days of private bankers, and the former can often fruitfully complement the latter. However, some family papers, including private account books and correspondence, did find their way into the parent bank’s archives, thus shedding further light on the activities of several houses, including the Smith banking partnerships, Jones Loyd, Becketts, Prescotts, or Stuckeys – all well-known names in Victorian Britain. The International Economy International finance has traditionally been private bankers’ privileged domain of activity. This is vividly illustrated by the activities and organization of the leading Anglo-American houses in the nineteenth century, studied by Edwin Perkins in chapter 6. Perkins takes a long-term view and shows how the Anglo-American
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