The Jersey banking crisis

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The Jersey banking crisis


The Jersey Mercantile Bank was the first to collapse

This history of the Jersey banking crisis is taken from Notes on banking and political events in Jersey, published by S J Rossignol in 1915

Paper money law

In 1813, the States passed a law forbidding, for the future, any issue of paper money of less value than £1, which was confirmed in June of that year. In the preamble it is stated that “recently notes of various amounts from one pound to one shilling, payable to the bearer, have been put into circulation by a large number of individuals, and which are received by the public without any regard as to the solvency of the issuers; that this circulation of paper, particularly notes of small amounts, has occasioned great inconvenience, loss, and even frauds, to the injury of the poor and uneducated inhabitants, and the soldiers of the Garrison ; that it is of the highest importance to repress and prevent so manifest an abuse of public confidence, and to maintain that good faith which should regulate all commercial operations, without which there can be no prosperity.”

A long list of names was given in a local paper in 1859, of the various issuers of notes, among which were six banks: The Old Bank - Hugh Godfray Sons and Co ; Commercial Bank - Janvrin Durell and Co ; Banking Company - Nicolle, de Ste Croix, Bertram and Co.; Mercantile Union Bank - Matthews, De Carteret and Co; Jersey Joint Stock Bank - Arthur, de Carteret and Co; Channel Islands Bank - Horman, Anthoine, Ahier, Le Gros and Co. ; the last four being Joint Stock Banks, and the notes of the six banks were payable at their respective ofiices in St Helier. There was at this time absolute confidence in these banks and the value of their notes.

Another class of note was the ‘Parochial note’ which, being guaranteed by the parish which issued it, was likewise worthy of all confidence, some of the parish notes being still in circulation at the present day, but not really part of the actual currency.

The third class of notes, although bearing ‘Parochial’ titles, were issued under the guarantee of private individuals only.

Lastly there were the avowed private issues. Altogether there were in Jersey, including the six banks of Issue, 52 different descriptions of paper currency circulating in the Island.

Court permission required

Another Bill was passed in 1831. The Bill provided that every person wishing to issue paper money must seek the permission of the Court, which could be refused. The applicant was bound to produce two sureties responsible for the amount intended to be put in circulation.

If permission was granted, it was ordered that the Act of the Court be registered against the property of the applicant and his two sureties. The issuer was compelled to have an office in town and to be in attendance every day from 10 to 4 to change his notes. If absent, he was liable to prosecution.

The notes of the Town Vingtaine and the Parish Notes were exempted from the provisions of the Bill. This law, being only a Réglement, accordingly lapsed at the end of three years, and was never revived.” [1]

Before coming to the main features of the banking crisis of 1873, a few figures on the local Public Debt may prove interesting. The amount due by the States on 28 February 1883, was £297,034 8s 7d, and the interest thereon annually was £11,675 9s 1½ d ; £111,600 of this amount was at the rate of 4%. The debt in 1886 was £316,373, and an additional amount of £5,760, on which the interest had ceased ; £60,600 of this sum was borrowed at 4%.

At this time Henry Nicolle Godfray (now Jurat) was Treasurer of the States, and Sir George Clement Bertram, Bailiff.

The Harbours Committee had its own funds, which had been used to support the States finances. In 1874 it was issuing its own banknotes

Letter to editor

Bearing on the Island’s public debt, on 18 April 1874, Philip Gosset, Treasurer of the States of Jersey, addressed a letter to the Editor of the Globe in the following terms: “Sir : I was not surprised to see a paragraph in your paper of yesterday on the finances of the Island of Jersey, in consequence of Mr P J Simon, Treasurer of the Prison Board of this Island, having sued the Treasurer of the States for £361. Advocate Westaway, who pleaded for me, stated that it was done to throw discredit on the finances of the Island, and doubtless a paragraph would again appear in the London papers on the subject. Nevertheless I reiterate what I stated: that the interests of the Island Debt had always been punctually paid, and that the debt itself was being reduced annually by a Sinking Fund. The real fact is this:

"There are different departments of the States, and the States proper being in arrears some years ago, used moneys belonging to the Harbour Department, which were not then required. What I refused to do was to apply moneys belonging to the Harbour revenue to pay for the expenses of the Prison. The revenue of the States proper, which is paid in May and December, is amply sufficient at present for its wants, as, beyond its ordinary expenditure, it is able to reimburse a sum of about £3,000 per annum. [2]

A certain party, very small in number, has tried every conceivable means to prevent the new Harbour of St Helier being built, and they have not hesitated in trying to injure the financial position of the Island, to prevent, if possible, money being found to carry on the works. Robert Pipon Marett, HM’s Attorney-General, who attacked me in his pleadings, is strongly opposed to the present new works, but the reason is evident. He gave a plan for the improvement of the Harbour of St Helier, which would have cost nearly £600,000, and this plan not being accepted, he is anxious that the people should believe that we cannot spend £250,000 in carrying out the plan of the eminent engineer, Sir John Coode.” [3]

Referring to the local debt, in 1898 it was a little over £300,000. In August, 1914, we may place the amount of the debt at nearly £400,000, the increase being partly due to general improvements, supplemented by the greatly increased cost of Education in the Island. The States have recently sanctioned a War Loan of £100,000, to cover the expenses of the present mobilisation of the Militia, thus bringing the debt considerably over £450,000.

[Section on UK borrowings not included]

Crisis of 1873

We will now give a few details about the Banking Crisis of 1873. The Jersey Mercantile Bank suspended payment on 1 February 1873. This was after the failure of the new Harbour scheme of 1872. The closing of the doors of the above bank, which was the real commencement of the commercial depression at this time, was an event which threw over the Island an untold gloom. In Rev Ragg’s [4] History of Jersey we read that “to add to the excitement caused by it, the startling news followed that one of the Judges of the Royal Court, Jurat Le Bailly, had been charged with embezzlement in connection with the Bank’s failure, a crime for which he was, on 13 May sentenced to five years’ penal servitude.

The Bank was indebted to the Jersey Joint Stock Bank to the extent of £36,000, and to the Credit Foncier of England Ltd for £55,000. The latter, acting jointly with W J Eckford, E Simpson, and others, Trustees, lodged an objection to the proposed agreement, in consequence of which the case was sent before the Privy Council, which decided in favour of the shareholders. The Liquidators were C W Robin, John Coutanche, and C Godfray, and it was agreed that the shareholders would pay into their hands the sum of £80,000 in full payment of the debts of the Bank, to be paid three months after the date of registration of the agreement. The amount was then to be paid to three Trustees Arbitrators— Vickery, J. N Westaway, and F C Gruchy, who would divide this amount proportionately among the creditors of the Mercantile Union Bank.

The creditors agreed to accept 6s in the £. The final dividend of 9d in the £ was paid in 1877. The opposition of the foregoing creditors caused a long delay, but on 31 July 1875 the appeal of the Credit Foncier of England and Mr Le Bailly was set aside by the Privy Council, and the agreement entered into, as a result of the successful negotiations carried through by Mr Reid, general manager of the Hampshire Banking Company.

On 5 November 1875 the liquidators issued a notice to holders of £1 notes to present same for payment. After allowing for £10,000 due to shareholders who were depositors for that sum collectively, and allowances for debts not claimed and issued notes not due, being covered by debts, there was a deficit of £176,000, which the Judge Commissioner considered would only allow the payment of the dividend of 6s 8d in the £, as above stated.

On 3 July 1873 the Jersey Joint Stock Bank suspended payment. The managers were arrested on 16 August, and acquitted on 16 January 1874. A meeting of the creditors and shareholders was held on 5 February, when W G Aubin, manager and chairman of the liquidators, presided. The Chairman stated that the bank had £28,198, in £1 notes, actually in circulation. There was a debt of £36,000 due by the Mercantile Union Bank, and assumed to be worth about 10s in the £, but not available for paying the proposed dividend.

The Jersey Joint Stock Bank was the second to fold

The Hampshire Banking Company had agreed to lend the liquidators a considerable amount (£60,000), to be mortgaged on the property of the Jersey Joint Stock Bank, and reimbursable before the payment of a second dividend by the latter. The first instalment of 10s in the £ would be payable a fortnight after the creditors had signed the agreement, and the remaining 10s in 2s instalments per annum, but the latter annual payments not to be made before the Hampshire Banking Company had been reimbursed. A list of the shareholders was in the hands of the Bailiff, and no real property could be disposed of without it being known to the liquidator.

They would oppose any shareholder selling his or her property unless the liquidators were sure that the result of that sale would be handed into the hands of the liquidators. The proposal to pay the foregoing dividends as indicated was carried unanimously, and six creditors named to act with the liquidators to secure the best method for effecting the payment of the balance of 10s. The Attorney-General’s application was unanimously granted by the Court on 14 May 1874, the opposition of C P Le Cornu being over-ruled, and the registration of the agreement ordered accordingly.

On 1 June 1874, on the motion of the Attorney-General, the Court ordered the registration of the Incorporation Act of the Hampshire Banking Company, and also ordered the registration of a Power of Attorney, executed at Southampton, whereby the bank appointed Frederick John Hooper their Attorney in this Island.

[British Press report of court proceedings not included]

It was found impossible to fulfil the terms of the original agreement with the creditors of the Jersey Joint Stock Bank, owing to the subsequent discovery of additional debts for a very considerable amount, which compelled the manager, W G Aubin, to approach the Court for the registration of a second agreement, by which the liquidators would pay a final dividend of 5s. in the £, on the balance of 10s. due on the original debt, which therefore represented a sum of 2s 6d for the five instalments which had been decided upon, thus bringing the total sum of the dividends paid to the shareholders to 12s 6d in the £.

After several objections by certain creditors, represented by Advocate Baudains, had been set aside, this arrangement was sanctioned by the Court, and a second agreement registered accordingly.

On 13 November 1876, appeared a notice signed by F J Hooper, manager of the Hampshire Banking Company and chairman of the liquidation, to holders of £1 notes of the English and Jersey Union Bank, that as the bank was about to be dissolved, all notes were to be presented for payment. On 30 June 1877, the Jersey Commercial Bank, (Janvrin, Durell and Company, also dissolved partnership.

Newfoundland connection

It has been remarkable that Jersey has, for centuries, had a connection with Newfoundland and the surrounding districts of Canada, including Gaspé, where the fishing industry was at one time of considerable dimensions. Newfoundland itself was discovered by a Jerseyman, and Lake Rossignol was no doubt discovered and therefore named after a Jerseyman of that name. [5]

The trade then established with Jersey was very considerable, and a reference to old local almanacs will indicate its extent. This involved the local merchants, and in connection with the banking crisis in the Island, there was a serious difficulty in 1886, when Charles Robin and Company, of Jersey and Canada, applied to the Royal Court of Jersey for permission to meet its creditors for the purpose of making an arrangement to safeguard their interests as well as those of the Jersey Banking Company, as the interests of the two institutions were closely connected.

The company had borrowed extensively from the bank, and hence the embarassed condition of the firm, although the owners of extensive property. As a great proportion of the assets were in Canada, and beyond the jurisdiction of theViscount, the only way out to avoid a disaster was by coming to an agreement by consent of the bank before the Judge-Commissioner. By means of the realisation of the assets of the company, the bank could be paid, thus being enabled to settle with its creditors, also simultaneously thus favourably affecting the affairs of Messrs De Gruchy’s bank.

Advocate Baudains appeared on behalf of the creditors of the Jersey Banking Company to whom the applicants owed some £50,000. He asked for the Articles of Association so that it might be shown whether the applicants were the only members of the firm, and this having been done, the application was granted by the Court. In referring to this commercial crisis, the following is the record which appears in Alban Ragg's Popular History of Jersey:

The Jersey Banking Company, founded in 1828, survived 58 years until it collapsed in 1886

1886 commercial crisis

"A dismal year opened out for Jersey in 1886. It is true some dark rumours of forthcoming disaster had been afloat for a short time previously, given rise to in a mysterious manner; nevertheless, it was with the startling effect of a thunderclap that the news went forth on 11 January that the Jersey Banking Company, commonly known as The States Bank, had suspended payment.
"This was followed on the morrow, naturally, though to the consternation of the whole Island, by the failure of another bank, and the suspension of one of Jersey’s leading firms of traders and shipowners ; and, to add to the general dismay, it became known, on the 14th, that the States Treasurer and manager of the Jersey Banking Company had been arrested. On the following day a crowded and excited meeting was held in the Town Hall to discuss the position of the bank, and a climax was in some sort reached, when, on the 16 inst, Désastres were adjudicated against the Treasurer of the Impot, the Treasurer of the States, and two trading firms, up till then looked upon as being as safe as the Bank of England; the primary cause, or, at any rate, the active cause, of the whole not being so much the state of business in Jersey at the time, but the commercial depression which had spread itself in Italy and other foreign business centres.
"On the morrow, Sunday, the 17th, references were made to the crisis in nearly all the places of worship on the Island and the States took up the matter in a rigorous and searching debate the next day. In brief, the whole of Jersey was bowed with woe. But the far-reaching effects were even then not fully known. During that sad year alone claims were registered against eight insolvent firms, to the amount of over £589,816, of which the Jersey Banking Company’s share was £324,816. The immediate result, over and above the arrest of the manager, was a charge of issuing false balance sheets, etc, preferred against three of the managing directors of the bank, and also the committal to the Criminal Assizes of the Sub-Manager.
"Happily, the latter, together with the directors, were honourably acquitted, though the manager himself, after a six-day trial, (represented by Advocate Durell, now Attorney-General), was condemned to five years penal servitude for embezzlement and misapplication of public money and fraudulent misappropriation of bonds. The Manager of the Jersey Banking Company wrote to the Bailiff, as President of the States, that he was unable to pay the States coupons, and that F J Hooper, manager of the Hampshire Banking Company, had offered to advance the necessary amount to pay the States coupons then due to the creditors of the Public Administration, at the rate of 4%, which offer was accepted by the States Assembly.
"The evidence of confidence in the States is shown by the fact that both the Channel Islands Bank and the Commercial Bank offered to grant assistance to the States for the same purpose, and thus maintain the reputation of local administration.”

The balance sheet of the Jersey Banking Company, dated 4 February 1892, shows that the liquidators were able to pay five dividends, amounting to 12s 3½d in the £, the total sum paid being £185,211 18s 9d. The shareholders paid £70,000, and £92,229 16s 4d was received from firms and estates in liquidation. £9,946 18s was received from the realisation of life policies, and £5,193 19s 9d was received as interest and discount. The liquidators were Wm H Venables Vernon, Wm Chas Gray, and Clement Le Sueur, and the auditors were J F Gaudin and W T Pugsley.

On 1 April 1886 the States passed an Act in connection with the Law on Les Societés avec responsabilite limitée, repealing Article 44 of the Law of 1861, and thereby conferring the benefit of limited liability to bank shareholders.

Notes and references

  1. The foregoing facts are taken from the Jersey Independent Daily Telegraph of 15 October 1859
  2. By virtue of a new law, the whole of the States revenue is now consolidated in one fund, and under their direct control, the expenditure of the respective committees being subject to a vote in the States Assembly
  3. It may be added that an attempt was made to build a harbour at La Collette, which was a failure, as can be seen by the remnant on the site
  4. Alban E Ragg's Popular History of Jersey
  5. The first European to set foot on Newfoundland was the explorer John Cabot, who had no connection to the Jersey family, as was believed at the time this article was written. It is suggested that Lake Rossignol, which is not in Newfoundland, but in Nova Scotia, was named after a Captain Jean Rossignol, who traded with Canada and operated out of the French port of Le Havre. He cannot be identified as part of the Jersey Le Rossignol family.
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