THE GREAT RAILWAY CRASH OF 1866

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.

There used to be two competing termini on the site that is now occupied by Victoria Railway Station. The north-western portion (1860) of the present-day facility was built for the London, Brighton & South Coast Railway, which served Sussex. The south-eastern section (1862) was constructed for the London Chatham & Dover Railway,¹ which drew its custom from Kent and that county's ports. If a customer of one operator wished to use the other's services, s/he had to walk out into Terminus Place and then walk into the other station.

In part, the Overend, Gurney scandal of 1866 may account for the deep wariness that the managements of the two railway companies had of one another. In 1899 the pair came under the same ownership. However, the wall between their respective stations remained standing.

The First World War exposed the logistical problems that were generated by the existence of over a hundred separate rail companies. The government used the Railways Act of 1921 to restructure the industry. The measure was a de facto nationalisation. It amalgamated the existing operators to create four regional companies. One of these was Southern Railway, which acquired both halves of Victoria Railway Station. In 1924, over three years after the new ownership regime had come into being - and a quarter of a century since the two undertakings had become sister enterprises - the wall finally came down.

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

Victoria Railway Station, Victoria Street, SW1V 1JT² (orange, blue)

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

². In taxi slang the side entrance into Victoria Station from Wilton Road is known as The Hole In The Wall .

David Backhouse 2024