Adelaide Observer (SA : 1843 – 1904) Saturday 19 January 1867
COLONIAL DEBENTURES IN LONDON.
The McCulloch Ministry appear to belong to that select class of people who are born to good luck. Eighteen months ago, when the constitutional supplies were shut
off, they had only to turn into Collins-street and arrange for a friendly advance with Mr. Bramwell. No sooner were they out of that
scrape than they sent home their Finance Minister, Mr. Ycrdon, to do a wholesale stroke in debentures; cynics said it was further intended he should employ his leisure
afternoons in rating Mr. Cardwell for the recall of Sir Charles Darling. The young and sanguine financier arrived in London in time to witness Overend’s Friday and its attendant disasters. His first experience of the city was made up 1 of a 12 per cent. Bank rate and half a dozen
or more large insolvencies per diem. On delivering his letters of introduction to the Barings and Rothschilds he found one-half of them without money to lend, and the other half not inclined to lend at any price.
There was a situation for a colonial statesman taking his first survey of Lombard-street. His colleagues had given him about a million sterling worth of debentures, and he was expected to ” place” them at a premium, while the debentures already in the market were declining with beautiful regularity every month. The case seemed so desperate at one time that Mr. Verdon’s mission was spoken of in the Melbourne papers as a failure, and his return empty-handed was freely anticipated. His colleagues, to give him a last chance, postponed the opening of Parliament, in which the Opposition organs detected another breach of the Constitution, The lucky star of the People’s Ministry did not desert them in London. The money market having once shaken off the panic, subsided rapidly to its former level. In three weeks the Bank rate fell-from 10 to 5 per cent. (16th
August—September 6). From that date gold began to accumulate at the Bank. In October, business -which had seemed to revive after the panic became depressed.
Money, driven out of its natural channels, grew plentiful on the Stock Exchange.
Now was Mr. Verdon’s opportunity, and, with the assistance of the Australian Bank Managers in London, he successfully availed
himself of it.
Even with the Bank rate at 4 per cent, there was still risk, for after a panic capitalists are morbidly fastidious about security. Of course Victoria was known to be a flourishing colony—a gem of the
empire; but less than a year before this the Government which Mr. Verdon represented had been publicly branded in London as
revolutionary, and the fact might not yet be wholly forgotten. New Zealand—a colony not unlike Victoria as regards popularity,
but much worse off financially—supplied a straw to test which way the wind blew.
There were still several hundred thousands of the Three Million loan to realize, and tenders were invited for £100,000 to begin with. The official price was fixed at £92 5s., the stock already issued being
quoted at the time at about 94. Tenders were received for over a million sterling.
This gratifying result was made known on the 31st October. The tenders for the Victorian loan were to be receivable on the 5th
November—£550,000 in 6 per cent, debentures. The minimum was fixed just before the applications were opened at £102 10s.—fully £10, it will be observed, above the New Zealand Sixes. The total amount applied for was found to be £3,075,000, one half of which was at or above the minimum
price. One tenderer alone would have taken £300,000 at £103 5s. It will be remembered how unexpectedly fortunate the New South Wales Government thought itself a few months ago when half this Victorian amount
of its debentures was taken up in London at a much lower price.
Messrs. McCulloch and Higinbotham undoubtedly hoped by their sublime tenacity of office to convince their fellow-colonists
they were indispensable men, but the City was the last place they might have looked to for an ovation. By biding their time they
have carried everything before them in Downing-street and in Lombard-street, and have crowned their success in the aristocratic
atmosphere of Willis’s Rooms. What withthe dearth of investments, the fragrance of
the speeches at the banquet, and the notoriety derived from a leader or two in the Times, the new debentures were selling before Mr.
Verdon left England at a slight premium.
The colonial borrower bad become so decided a favourite that Queensland, which for months back has been in semi-bankrupt
dependence on Treasury bills, put forward £400,000 worth of its pawned debentures, and even they were eagerly grabbed by the
discriminating London capitalist.
These items of news are so completely contrary to what we used to receive less than
half a year ago that we expect to find some strong reason for their occurrence. In point of fact there is no such strong comprehensive reason; the change resulted not
from any one great cause, but from a great variety of small ones. In the first place public confidence was shaken in all the ordinary home investments. Experience had
shown that Joint-Stock Banks, even when managed with comparative honesty, were apt
to be driven by tbe keenness of competition into unsafe courses; therefore investors would have nothing to say even to first-class
shares of that kind. The ordinary alternative would have been a rush on railways. They at least were not new-fashioned, and one could see in them something tangible for his
money. But it transpired that Railway Directors had also got tainted with the “financing” fever. They had thought to extend their lines, build palaces for stations,
and run riot in litigation—all without money.
To keep things pleasant for the shareholders some of them had issued debentures far beyond the legal maximum; others had carried
part of the annual expenditure to a suspense account in order to show a fictitious balance, and declare a dividend on tbe strength of it.
“When the collapse of credit brought the “financing” Directors to a standstill, and led to startling revelations, a second standard means of investment failed.
Speculation in shares was almost entirely suspended, and a new rush was made on Government securities and commercial paper. Cheap money gave an irresis
table stimulus to trade, and a period of artificial activity began ; but the continental and American markets did not respond to
those of Liverpool and Birmingham. In the beginning of November, when Mr. Verdon was ” operating,” trade had subsided into a state of persistent dullness. There was no
prospect of a change till the turn of the year, and so here was a third reason for colonial bonds rising in favour, they being almost as safe as Consols and about twice as
The end of November witnessed a grander illustration of the plethoric state of the money market than the Victorian Loan had furnished. Russia wanted six millions for army reconstruction, navy reconstruction, and imperial waste of that sort. Eager capitalists do not care about the political economy of a loan as long as they are satisfied with the security. Two subscription lists were opened, one in London and the other in Amsterdam. The London list
closed on the 23rd November, and applications were received up to the last moment.
In this case the total amount of the subscriptions was over thirty millions, and the Amsterdam list had to be added. Such a phenomenon in finance gave an electric shock to all tbe Crowned Heads and the Royal Treasuries in Europe, both of them being in a rather bewildered state of vacuity
at the time. New loan schemes were announced to be placed in tbe market shortly.
Austria and Italy were inevitable borrowers, and it may be on a large scale. Before money was so plentiful the Emperor of the
French had hinted at an intention to contract an enormous loan for public works, part of which was to be applied to tbe completion
of a general railway system. The successful example of Russia will doubtless have had a stimulating effect on his original idea.
These rumours, whatever they may ultimately resolve themselves into, had already produced one practical result—they had strengthened the money market, and postponed the further reduction of the Bank
rate. But in such peculiar circumstances the action of the Bank Directors ceases to
be a criterion to the value of money in London, much less to its supply. The rate of discount may remain at 4 per cent., not because money is not obtainable for less, but because the demand for discounts may be small. In the early part of November the rate on ‘Change was as low as 31/2 per cent.
By referring to our article of November 12, on “Colonial Produce in London,” it will be seen that an accumulation of English capital
was then distinctly anticipated on the strength of our September advices. The proposed new issue of bonds was therefore
recommended to be urged on, as by the time it was ready “money would, in all likelihood, be available to us at a cheaper rate than we have ever had it before.” A London
commercial paper had published on the same
date this confirmatory paragraph:—” That Colonial Government Loan Stocks are held in the highest estimation by the public, and
are likely to become a greater favourite among those who have money to invest, may he inferred from the recent increase in
their marketable value. For example, New Zealand bonds, which were allotted a week
ago at 92}, are now 96, 98; Queensland, issued a little while ago at 85, stand at 951/2;
New South Wales, emitted on the 17th of September at 90, are 93; and the Victoria Loan is at 1031/2, 104, with 1/2 per cent, dividend due on the 1st of January.”