THE GREAT RAILWAY CRASH OF 1866

 

See Also: ANIMAL WELFARE The Metropolitan Drinking Fountains & Cattle Trough Association; THE BANK OF ENGLAND; FINANCIAL SCANDALS; RAILWAYS; RAILWAY STATIONS Victoria Railway Station

Thomas Richardson was born in Darlington into a Quaker family. He was a kinsman of Edward Pease, who was a prominent figure in the town. As a young man, the former moved to London aided by a letter of introduction that had been written by his relative to the Quaker-run, Lombard Street financing business of Messrs. Smith, Wright & Gray. He proved to be highly adept at his work. In time, he developed a deeper understanding of the financial markets than his employers possessed. He started to propose ways in which innovations could be applied to the firm s practices. He did not receive a positive response to his suggestions.

The Gurney family Norwich-based bank played a central role in the economy of East Anglia. Richardson informed the Gurneys of what he would like to do. They were receptive to his ideas and Messrs. Smith, Wright & Gray bent to the demands of such an important client. In 1805 Richardson and John Overend set up Richardson, Overend & Company, a bill broking business. This was based in Finch Lane, Cornhill. Two years later Samuel Gurney joined the partnership. The business mushroomed.

In 1818 Richardson invested in a project that Edward Pease had been assembling - the Stockton & Darlington Railway. Five years later the former provided finance for the complementary establishment of Robert Stephenson & Company, a Newcastle Upon Tyne-located locomotive manufacturing business. The Stockton & Darlington opened in 1825 but failed initially to generate sufficient traffic revenues. Richardson provided the venture with liquidity that eased it through this awkward initial phase.

The same year there was a financial panic in the City of London, Richardson, Overend & Company acquired considerable respect for the way in which it weathered the crisis. The firm developed a reputation for being the banks banker . Some businesses that had previously lodged their surplus cash with the Bank of England switched to vesting it with the Lombard Street partnership instead.

In 1830 Richardson retired from Richardson, Overend & Company. Subsequently, the business was renamed Overend, Gurney & Company. The generation of partners who came to lead the firm were not of the same calibre as Richardson and Gurney had been. A means of enabling a railway company to lower its construction costs and for a railway contractor to have a better chance of securing future work was for the latter to take part of his payment in shares in the former. This led some contractors, such as Sir Morton Peto, to enmesh their finances with those of their clients. An additional factor to tempt them to do so was the prospect of building harbours and other infrastructure projects that were developed in order to encourage railway traffic.

During the early 1850s the influence of some contractors over the finances of some railway companies became evident. By the mid-1860s the former were distorting the character of the latter. Overend, Gurney & Company drifted gently away from the moral values of its founders. The firm started overexposing itself to these illiquid, capital intensive schemes. In 1865 it became a public limited liability company. Both it and the contractor Peto & Betts became intimately involved in the London, Chatham & Dover Railway. The last had opted to take the very expensive course of building its own line into central London rather than reaching an agreement to use one of the existing tracks.

Overend, Gurney & Company and Peto & Betts both failed in May 1866. The former s collapse was triggered when Watson, Overend & Company, an associated enterprise, folded. This scared the market and depositors started to withdraw their cash. Overend, Gurney s share price fell and it proved to have insufficient liquidity to ride out the crisis. Hundreds of other businesses went under in its wake.

The Overend, Gurney affair prompted the government to turn the Bank of England, which was itself a privately-owned business, into the lender of last resort. The Railway Act of 1868 required railway companies to make a distinction between their revenue and their capital. This meant that the true financial condition of a company became more apparent. This was because the former could no longer be used to subsidise dividend payments and thereby support the business s stock price.

Location: Lombard Street, EC3V 9EA (orange, red)

Victoria Railway Station, Victoria Street, SW1V 1JT (orange, blue)

¹. The L.C.& D. s contemporary nickname was the Lose em, Smash em & Turnover.

David Backhouse 2024