City of Glasgow Bank

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The City of Glasgow Bank is now largely known for its spectacular collapse in October 1878, ruining all but 254 of its 1,200 shareholders, whose liability was not limited.

[edit] General

The Bank was founded in 1839, with an initial capital of £656,250, and aimed to cater particularly for small investors, with its branches opening in the evenings to receive deposits. The principal office was established in Virginia Street, Glasgow in 1842, and moved to Glassford Street in 1851. For a long time before closure dividends were paid at 9%-12%.

[edit] The Collapse

On discovery of a £7,000 deficit the Bank's operations were suspended in November and December 1877, until by agreement with the other Scottish banks the New York agency was closed. All seemed well, and in June 1878 the bank announced that there were now 133 branches and deposits of £8m, and declared a 12% dividend.

On 2 October, however, the directors announced the bank's closure. An examination after the closure showed net liabilities of over £6m, together with extensive loans on poor security, and speculative investments in Australasian farming, mining stocks and American railway shares. In addition, false reports were made to the authorities on gold holdings, balance sheets and profit and loss statements falsified, and the share price held up by secret purchases of the Bank's own stock. So successful was the deception that on the Bank's last business day its £100 shares were selling at £236.

Scores of Glasgow businesses failed as a result of the bankruptcy. The directors were arrested. They were tried at the High Court in Edinburgh in January 1879. All were found guilty and sentenced to terms of imprisonment.