Overend, Gurney and Company
Encyclopedia
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 £981 million at 2008 prices.
(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. 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
.
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.
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
, but this was refused. The bank suspended payments on 10 May 1866. 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. The bank went into liquidation in June 1866. 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.
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.
Wholesale banking
Wholesale banking is the provision of services by banks to the likes of large corporate clients, mid-sized companies, real estate developers and investors, international trade finance...
discount bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
, known as "the bankers' bank", which collapsed in 1866 owing about 11 million pounds, equivalent to £981 million at 2008 prices.
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 NottinghamNottingham
Nottingham is a city and unitary authority in the East Midlands of England. It is located in the ceremonial county of Nottinghamshire and represents one of eight members of the English Core Cities Group...
(absorbed into the National Provincial Bank
National Provincial Bank
National Provincial Bank was a British retail bank which operated in England and Wales from 1833 until its merger into the National Westminster Bank in 1970; it remains a registered company but is dormant...
in 1902), with Gurney's Bank
Gurney's bank
Gurney's bank was a well-respected family-run bank 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 , who passed the business to Henry's son, Bartlett Gurney, in 1777...
(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. Samuel Gurney
Samuel Gurney
Samuel Gurney was an English banker and philanthropist.He should not be confused with his second son, Samuel , also described as banker and philanthropist, and a Member of Parliament.-Early years and marriage:...
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
Norwich
Norwich is a city in England. It is the regional administrative centre and county town of Norfolk. During the 11th century, Norwich was the largest city in England after London, and one of the most important places in the kingdom...
.
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.
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, the business was incorporated as a limited companyLimited company
A limited company is a company in which the liability of the members or subscribers of the company is limited to what they have invested or guaranteed to the company. Limited companies may be limited by shares or by guarantee. And the former of these, a limited company limited by shares, may be...
in July 1865 and sold its £15 shares at a £9 premium, taking advantage of the buoyant market
Stock market bubble
A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation....
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
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, it is the second oldest central bank in the world...
, but this was refused. The bank suspended payments on 10 May 1866. 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
Lombard Street, London
Lombard Street is a street in the City of London.It runs from the corner of the Bank of England at its north-west end, where it meets a major junction including Poultry, King William Street, and Threadneedle Street, south-east to Gracechurch Street....
. The failure of Overend Gurney was the most significant casualty of the credit crisis. The bank went into liquidation in June 1866. The financial crisis
Financial crisis
The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these...
following the collapse saw the bank rate
Bank rate
Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries...
rise to 10 per cent for three months. More than 200 companies, including other banks, failed as a result.
The directors of the company were tried at the Old Bailey
Old Bailey
The Central Criminal Court in England and Wales, commonly known as the Old Bailey from the street in which it stands, is a court building in central London, one of a number of buildings housing the Crown Court...
for fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
based on false statements in the prospectus
Prospectus (finance)
In finance, a prospectus is a document that describes a financial security for potential buyers. A prospectus commonly provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements,...
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.
See also
- UK company law
- Gurney's bankGurney's bankGurney's bank was a well-respected family-run bank 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 , who passed the business to Henry's son, Bartlett Gurney, in 1777...
- Overend Gurney & Co Ltd v Oriental Financial Corp Ltd (1874–75) LR 7 HL 348
- Peek v Gurney (1873) LR 6 HL 377
- Overend & Gurney Co v Gibb (1871–72) LR 5 HL 480
- Lombard Street: A Description of the Money Market, 1873 treatise on finance by Walter BagehotWalter BagehotWalter Bagehot was an English businessman, essayist, and journalist who wrote extensively about literature, government, and economic affairs.-Early years:...