Neal, James, Fordyce and Down
Encyclopedia
Neal, James, Fordyce and Down was a London banking house which collapsed in June 1772, precipitating a major banking crisis which included the collapse of almost every private bank in Scotland, and a liquidity crisis
in the two major banking centres of the world, London
and Amsterdam
. The bank had been speculating by shorting East India Company
stock on a massive scale, and apparently using customer deposits to cover losses.
The leading figure in the speculation was agreed to be the partner Alexander Fordyce
. He was Scottish, brother of James Fordyce
, the distinguished clergyman and author of Sermons to Young Women, and was married to a daughter of the Earl of Balcarres
. On June 9 1772, the day before he fled to France, he was reported to have come home in wild spirits, saying that he had "always told the wary ones, ‘and the wise ones, with heads of a chicken and claws of a corbie, that I would be a man or a mouse; and this night this very night the die is cast, and I am . . . am . . . A man! Bring Champaign; and Butler, Burgundy below! let tonight live for ever! . . . Alexander is a man.’"
The next day his bank had to close, and two days later, three other London banking firms with Scottish connections collapsed, and in the twelve days after Fordyce fled, 22 significant banks, notably the Scottish Douglas, Heron & Co known as the Ayr Bank
, and many smaller ones all stopped payments, never to resume. In London the Bank of England
was able to stabilize the situation, but attempts in London to save the situation in Scotland failed. There were one-day runs on Drummonds Bank
and Coutts
, which they were able to cover and survive. The Scottish banks, especially those in Edinburgh rather than Glasgow
, had mostly been borrowing from the Ayr Bank, partly to finance the building of the New Town, Edinburgh
. Others hit by the collapse included the Scottish architect John Adam
and his younger brothers Robert
and James Adam, who were in the middle of their ambitious Adelphi, London
scheme, and had to lay off two thousand workmen for a week.
The liquidity crisis spread to the next most important banking centre in Europe, Amsterdam
, where Clifford and Sons went bankrupt, and the Amsterdam market was only steadied by the formation of a "cooperative fund" among the other banking houses of the city. The liquidity situation continued to be a problem into 1773.
The crisis has also been seen as worsening relations between Britain and the Thirteen Colonies
in America. Among other stresses, the East India Company
, already in financial difficulties, was further weakened by the crisis, and in 1773 managed to persuade Parliament to pass the Tea Act
, exempting it from the duty all other importers in the colonies had to pay. The unpopularity of this led to the Boston Tea Party
at the end of the year.
According to a sermon of 1775, Alexander Fordyce:
Liquidity crisis
In financial economics, liquidity is a catch-all term that may refer to several different yet closely related concepts. Among other things, it may refer to Asset Market liquidity In financial economics, liquidity is a catch-all term that may refer to several different yet closely related...
in the two major banking centres of the world, London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
and Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...
. The bank had been speculating by shorting East India Company
East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
stock on a massive scale, and apparently using customer deposits to cover losses.
The leading figure in the speculation was agreed to be the partner Alexander Fordyce
Alexander Fordyce
Alexander Fordyce was a Scottish banker, centrally involved in the bank run on Neal, James, Fordyce and Down in 1772.-Early life:He was the youngest son of Provost George Fordyce of Aberdeen, and brother to David Fordyce, James Fordyce, and William Fordyce...
. He was Scottish, brother of James Fordyce
James Fordyce
James Fordyce, DD , was a Scottish Presbyterian minister and poet. He is best known for his collection of sermons published in 1766 as Sermons for Young Women, popularly known as Fordyce's Sermons.-Early life:...
, the distinguished clergyman and author of Sermons to Young Women, and was married to a daughter of the Earl of Balcarres
Earl of Balcarres
The title Earl of Balcarres was created in the Peerage of Scotland in 1651 for Alexander Lindsay, 2nd Lord Balcarres. The title has descended since in the Lindsay family....
. On June 9 1772, the day before he fled to France, he was reported to have come home in wild spirits, saying that he had "always told the wary ones, ‘and the wise ones, with heads of a chicken and claws of a corbie, that I would be a man or a mouse; and this night this very night the die is cast, and I am . . . am . . . A man! Bring Champaign; and Butler, Burgundy below! let tonight live for ever! . . . Alexander is a man.’"
The next day his bank had to close, and two days later, three other London banking firms with Scottish connections collapsed, and in the twelve days after Fordyce fled, 22 significant banks, notably the Scottish Douglas, Heron & Co known as the Ayr Bank
Ayr Bank
Douglas, Heron & Company was a Scottish bank with its head office at Ayr. It was known as the Ayr Bank. It opened in 1769 and folded in 1772 during the crisis of 1772.-References:* * *...
, and many smaller ones all stopped payments, never to resume. In London 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...
was able to stabilize the situation, but attempts in London to save the situation in Scotland failed. There were one-day runs on Drummonds Bank
Drummonds Bank
Messrs. Drummond is an English private banking house founded in 1717 by goldsmith Andrew Drummond . Drummonds Bank was owned by the Drummond family until 1924, when it was taken over by the Royal Bank of Scotland in its first acquisition south of the border.The bank offers a variety of services to...
and Coutts
Coutts
Coutts & Co. is one of the UK's private banking houses, now wholly owned by the Royal Bank of Scotland . RBS acquired Coutts and all of its overseas subsidiaries when it bought NatWest. On 1 January 2008, Coutts' international businesses were renamed RBS Coutts, aligning them more closely with...
, which they were able to cover and survive. The Scottish banks, especially those in Edinburgh rather than Glasgow
Glasgow
Glasgow is the largest city in Scotland and third most populous in the United Kingdom. The city is situated on the River Clyde in the country's west central lowlands...
, had mostly been borrowing from the Ayr Bank, partly to finance the building of the New Town, Edinburgh
New Town, Edinburgh
The New Town is a central area of Edinburgh, the capital of Scotland. It is often considered to be a masterpiece of city planning, and is a UNESCO World Heritage Site...
. Others hit by the collapse included the Scottish architect John Adam
John Adam (architect)
John Adam was a Scottish architect. Born in Linktown of Abbotshall, now part of Kirkcaldy, Fife, he was the eldest son of architect and entrepreneur William Adam. His younger brothers Robert and James Adam also became architects.The Adam family moved to Edinburgh in 1728, as William Adam's career...
and his younger brothers Robert
Robert Adam
Robert Adam was a Scottish neoclassical architect, interior designer and furniture designer. He was the son of William Adam , Scotland's foremost architect of the time, and trained under him...
and James Adam, who were in the middle of their ambitious Adelphi, London
Adelphi, London
Adelphi is a district of London, England in the City of Westminster. The small district includes the streets of Adelphi Terrace, Robert Street and John Adam Street.-Adelphi Buildings:...
scheme, and had to lay off two thousand workmen for a week.
The liquidity crisis spread to the next most important banking centre in Europe, Amsterdam
Amsterdam
Amsterdam is the largest city and the capital of the Netherlands. The current position of Amsterdam as capital city of the Kingdom of the Netherlands is governed by the constitution of August 24, 1815 and its successors. Amsterdam has a population of 783,364 within city limits, an urban population...
, where Clifford and Sons went bankrupt, and the Amsterdam market was only steadied by the formation of a "cooperative fund" among the other banking houses of the city. The liquidity situation continued to be a problem into 1773.
The crisis has also been seen as worsening relations between Britain and the Thirteen Colonies
Thirteen Colonies
The Thirteen Colonies were English and later British colonies established on the Atlantic coast of North America between 1607 and 1733. They declared their independence in the American Revolution and formed the United States of America...
in America. Among other stresses, the East India Company
East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...
, already in financial difficulties, was further weakened by the crisis, and in 1773 managed to persuade Parliament to pass the Tea Act
Tea Act
The Tea Act was an Act of the Parliament of Great Britain. Its principal overt objective was to reduce the massive surplus of tea held by the financially troubled British East India Company in its London warehouses. A related objective was to undercut the price of tea smuggled into Britain's...
, exempting it from the duty all other importers in the colonies had to pay. The unpopularity of this led to the Boston Tea Party
Boston Tea Party
The Boston Tea Party was a direct action by colonists in Boston, a town in the British colony of Massachusetts, against the British government and the monopolistic East India Company that controlled all the tea imported into the colonies...
at the end of the year.
According to a sermon of 1775, Alexander Fordyce:
had a mind not ill-formed for commerce, and from his early success in it was enabled, though of an obscure original, to live respectably. If his views had extended no farther, it would have been well, but his ambition was unbounded. the revenue of a kingdom would hardly have sufficed to have executed his schemes. He seemed bent on engrossing the trade of the whole world. Large sums were borrowed of one and of another. His friends advanced liberally, and so high was his reputation, that they had no doubt of their effects being secure. But the event proved that they were wretchedly deceived. His affairs were embarrassed, his difficulties increased, and at length grew inextricable; a total stoppage ensued; the issue of a commission of bankruptcy, by some chicanery, was prevented; and but a small part of his enormous debts hath been paid to this very hour. I shall not pretend to enumerate the many families which by his means sunk into distress. His fall was like the fall of a towering structure which overwhelms numbers with its ruins. It deserves, however, particular mention, that the news of his failure despatched one brother to the regions of the dead, and, which is yet more lamentable, drove another into a state of insanity.