Overend, Gurney and Company

Overend, Gurney and Company
Public
Industry Finance
Fate Bankruptcy
Founded 1800 (1800)
Founder Thomas Richardson
John Overend
Defunct 10 May 1866 (1866-05-10)
Headquarters 65 Lombard Street, London, UK
Area served
 United Kingdom
Services Financial services

Overend, Gurney & Company was a London wholesale discount bank, known as "the bankers' bank", which collapsed in 1866 owing about 11 million pounds, equivalent to £1 billion at 2013 prices.[1]

History

Early years

The business was founded in 1800 as Richardson, Overend and Company by Thomas Richardson, clerk to a London bill-discounter, and John Overend, chief clerk in the bank of Smith, Payne and Company at Nottingham (absorbed into the National Provincial Bank in 1902), with Gurney's Bank (absorbed into Barclays Bank in 1896) supplying the capital. At that time, bill-discounting was carried on in a spasmodic fashion by the ordinary merchant in addition to his regular business, but Richardson considered that there was room for a London house which should devote itself entirely to the trade in bills. This idea, novel at the time, proved an instant success.[2] Samuel Gurney joined the firm in 1807 and took control of Overend, Gurney and Co. in 1809. The Gurneys were a well known Quaker family that had founded Gurney's Bank in Norwich.[3]

The bank's core business was the buying and selling of bills of exchange at a discount. It was well respected, and expanded rapidly, reaching a turnover double its competitors combined. For forty years it was the greatest discounting-house in the world. During the financial crisis of 1825, the firm was able to make short loans to many other bankers. The house indeed became known as "the bankers' banker", and secured many of the previous clients of the Bank of England. Samuel Gurney died in 1856.[2]

Liquidation

See also: Panic of 1866

After Samuel Gurney's retirement, the bank expanded its investment portfolio, and took on substantial investments in railways and other long-term investments rather than holding short-term cash reserves as was necessary for their role. It found itself with liabilities of around £4 million, and liquid assets of only £1 million. In an effort to recover its liquidity, the business was incorporated as a limited company in July 1865 and sold its £15 shares at a £9 premium, taking advantage of the buoyant market during the years of 1864-66. However, this period was followed by a rapid collapse in stock and bond prices, accompanied by a tightening of commercial credit. Railway stocks were particularly badly affected.[4]

Overend Gurney's monetary difficulties increased, and it requested assistance from the Bank of England, but this was refused. The bank suspended payments on 10 May 1866. A run on the bank ensued as panic spread across London, Liverpool, Manchester, Norwich, Derby, and Bristol the following day, with large crowds around Overend Gurney's head offices at 65 Lombard Street.[5] The failure of Overend Gurney was the most significant casualty of the credit crisis.[6] The bank went into liquidation in June 1866.[7] The financial crisis following the collapse saw the bank rate rise to 10 per cent for three months. More than 200 companies, including other banks, failed as a result.[8]

The directors of the company were tried at the Old Bailey for fraud based on false statements in the prospectus for the 1865 offering of shares. However, the Lord Chief Justice Sir Alexander Cockburn said that they were guilty only of "grave error" rather than criminal behaviour, and the jury acquitted them. The advisor was found to be guilty. Although some of the Gurneys lost their fortunes in the bank's collapse, the Norwich cousins succeeded in insulating themselves from the bank's problems, and the Gurney bank escaped significant damage to its business and reputation.[7]

See also

Notes

  1. ↑ O‘Donoghue, J.; et al. (2004). "Consumer Price Inflation since 1750". Economic Trends 604: 38–46, March.
  2. 1 2 "Gurney" Encyclopædia Britannica article on the Gurneys, accessed 25 Oct 2007
  3. ↑ Gurney family wealth: In Gilbert and Sullivan's 1875 comic opera Trial by Jury, a character describes his accumulation of wealth until at length I became as rich as the Gurneys. Elliott, p.235
  4. ↑ The Times, 21 December 1866, p. 8; Issue 25687; col E, 'Two embarrassed Railway Companies' (noting that railway joint stock companies had led the earlier boom, but in the subsequent revaluation both the London, Chatham and Dover Railway and the North British Railway fell insolvent during 1866)
  5. ↑ The Times, 12 May 1866, p. 12; Issue 25496; col C "The Panic". A further article on 14 May 1866, p. 7; Issue 25497; col C, also entitled "The Panic", reported that events were calming down a bit.
  6. ↑ Fenn's Compendium of the English and foreign funds Introduction to the 10th edition, 1869
  7. 1 2 Ackrill, Margaret and Leslie Hannah. Barclays: The Business of Banking, 1690-1996 (2001) Cambridge University Press, Chapter 1 ISBN 0-521-79035-2
  8. ↑ Weedon, A. Victorian Publishing: The Economics of Book Production for a Mass Market 1836-1916 (2003), Ashgate, pp. 47-48 ISBN 0-7546-3527-9

References

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