Overend, Gurney And Company
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Overend, Gurney and Company was a London
wholesale Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In ...
discount
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
, known as "the bankers' bank", which collapsed in 1866 owing about £11 million, equivalent to £ million in . The collapse of the institution triggered a banking panic.


History


Early years

The business was founded in 1800 as Richardson, Overend and Company by Thomas Richardson, clerk to a London
bill discounter Bill(s) may refer to: Common meanings * Banknote, paper cash (especially in the United States) * Bill (law), a proposed law put before a legislature * Invoice, commercial document issued by a seller to a buyer * Bill, a bird or animal's beak Plac ...
, and John Overend, chief clerk in the bank of Smith, Payne and Company at
Nottingham Nottingham ( , East Midlands English, locally ) is a City status in the United Kingdom, city and Unitary authorities of England, unitary authority area in Nottinghamshire, East Midlands, England. It is located south-east of Sheffield and nor ...
(absorbed into the
National Provincial Bank National Provincial Bank was a retail bank which operated in England and Wales. It was created in 1833 as National Provincial Bank of England, and expanded largely by taking over a number of other banks. Following the transformative acquisitio ...
in 1902), with
Gurney's Bank Gurney's bank was a family-run bank founded by members of the Gurney family in 1770 and headquartered in Norwich, England. It merged into Barclays Bank in 1896. History The bank was founded in 1770 by John and Henry Gurney, sons of John Gurney ...
(absorbed into
Barclays Bank Barclays PLC (, occasionally ) is a British multinational universal bank, headquartered in London, England. Barclays operates as two divisions, Barclays UK and Barclays International, supported by a service company, Barclays Execution Services ...
in 1896) supplying the capital. At that time, bill-discounting was carried on sporadically by ordinary merchants in addition to their 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. Samuel Gurney joined the firm in 1807 and took control of Overend, Gurney and Co. in 1809. The Gurneys were a well known
Quaker Quakers are people who belong to the Religious Society of Friends, a historically Protestant Christian set of denominations. Members refer to each other as Friends after in the Bible, and originally, others referred to them as Quakers ...
family that had founded Gurney's Bank in
Norwich Norwich () is a cathedral city and district of the county of Norfolk, England, of which it is the county town. It lies by the River Wensum, about north-east of London, north of Ipswich and east of Peterborough. The population of the Norwich ...
. The bank's core business was the buying and selling of
bills of exchange A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document contemplated by or consisting of a ...
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.


Liquidation

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 Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quic ...
, the business was incorporated as a
limited company In a limited company, the Legal liability, liability of members or subscribers of the company is limited to what they have invested or guaranteed to the company. Limited companies may be limited by Share (finance), shares or by guarantee. In a c ...
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. Overend Gurney's monetary difficulties increased, and it requested assistance from the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker and debt manager, and still one ...
, but this was refused. The bank suspended payments on 10 May 1866. A
run on the bank A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking system (where banks normally only ...
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. The failure of Overend Gurney was the most significant casualty of the credit crisis, although dozens of banks also failed due to the banking panic.''Fenn's Compendium of the English and foreign funds''
Introduction to the 10th edition, 1869
The firm went into liquidation in June 1866.Ackrill, Margaret and
Leslie Hannah Leslie Hannah, (born 15 June 1947) is a British economic historian and academic, specialising in business history. During his academic career, he was most closely associated with the London School of Economics. His work focuses on the developmen ...
. ''Barclays: The Business of Banking, 1690-1996'' (2001) Cambridge University Press, Chapter 1
The
financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with Bank run#Systemic banki ...
following the collapse saw the
bank rate Bank rate, also known as discount rate in American English, and (familiarly) the base rate in British English, is the rate of interest which a central bank charges on its loans and advances to a commercial bank. The bank rate is known by a numb ...
rise to 10 per cent for three months. More than 200 companies, including other banks, failed as a result.Weedon, A. ''Victorian Publishing: The Economics of Book Production for a Mass Market 1836-1916'' (2003), Ashgate, pp. 47–48 The directors of the company were tried at the
Old Bailey The Central Criminal Court of England and Wales, commonly referred to as the Old Bailey after the street on which it stands, is a criminal court building in central London, one of several that house the Crown Court of England and Wales. The s ...
for
fraud In law, fraud is intent (law), intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violate Civil law (common law), civil law (e.g., a fraud victim may sue the fraud perpetrato ...
based on false statements in the prospectus for the 1865 offering of shares. However, the
Lord Chief Justice The Lord or Lady Chief Justice of England and Wales is the head of the judiciary of England and Wales and the president of the courts of England and Wales. Until 2005 the lord chief justice was the second-most senior judge of the English a ...
Sir Alexander Cockburn Sir Alexander James Edmund Cockburn, 12th Baronet (24 December 1802 – 20 November 1880) was a British jurist and politician who served as the Lord Chief Justice for 21 years. He heard some of the leading ''causes célèbres'' of the nine ...
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.


See also

*
UK company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directive (European Union), Directives and court cases, the company is th ...
*
Gurney's bank Gurney's bank was a family-run bank founded by members of the Gurney family in 1770 and headquartered in Norwich, England. It merged into Barclays Bank in 1896. History The bank was founded in 1770 by John and Henry Gurney, sons of John Gurney ...
*'' Lombard Street: A Description of the Money Market'', 1873 treatise on finance by
Walter Bagehot Walter Bagehot ( ; 3 February 1826 – 24 March 1877) was an English journalist, businessman, and essayist, who wrote extensively about government, economics, literature and race. He is known for co-founding the ''National Review'' in 1855 ...


Notes


References

* * * * * * * *Xu, C. (2019
"Reshaping global trade: the immediate and long-term effects of bank failures."
{{Authority control Defunct banks of the United Kingdom Banks established in 1800 Banks disestablished in 1866 Economic crises in Europe 19th century in economic history 1866 disestablishments in the United Kingdom 1800 establishments in England Gurney family British companies established in 1800