The Australian Banking Company (Peter Symes)

Accompanying this article is an illustration of an unissued banknote, prepared for the Sydney Banking Company of Sydney. Of the banknotes prepared for issue by the Australian Banking Company, but never placed into circulation, this banknote is one of two types known to exist [i] . The Australian Banking Company failed in dramatic circumstances in the 1890s, but the all-too-familiar story of avarice and greed behind the company and its abortive banknote issue gives an intriguing insight into the era in which the banknote was produced.

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In 1886 Mr. John Hyam Nathan was operating the ‘Australian Financial Company’ from offices at No.32 Sydney Arcade in central Sydney. The company appears to have been particularly successful; having always recorded profits of at least 30 per cent per annum. The success of the company came to the attention of a number of businessmen, who made Mr. Nathan an offer that he daren’t refuse. So, on or about 29 June 1886 Mr. Nathan signed over his controlling interest in the company and in return he received 10,000 paid up shares in the new entity, the ‘Australian Loan, Discount, and Financial Company’.

 One of the shareholders of the new company, as listed in the Articles of Association, was Mr. Francis Abigail MLA, who was at that time Minister for Mines in the Parkes Government. He, and another MLA, Mr. John Kidd, were listed as ‘Provincial Directors’ of the company. Although it is not clear who the promoters of the Company were, there seems to have been a concerted effort to establish a board of directors with prominent Members of the Legislative Assembly (MLA). Of the promoters and directors, it appears that a number were Orangemen [ii] . Abigail [iii] and Kidd were each an Orangeman and an MLA, as was a later director, John Hurley.

Although formed in June 1886, the new company did not occupy their offices, on the corner of York and Market Streets in Sydney [iv] , until 17 October 1886 and did not commence business until 9 January 1887. In the following six months the company transacted £181,893 3s 2d of business, of which £2597 was net profit. Such was the success of the company that a proposal was made to extend the company’s stock. Although the nominal capital of the company was £100,000, it is suggested that the paid up capital was probably only £13,000. [v] The directors of the company proposed to increase the nominal capital to £500,000.

Not only was the stock to be increased, but it was felt that the name of the company should be changed to remove reference to ‘loans’ and instead refer to the company as a ‘bank’. The company had advertised themselves as ‘The Australian Loan & Banking Company Limited’ for some time, placing advertisements in the Town and Country Journal under that name from at least January 1887.

Subsequently, at the Annual General Meeting of the company in July 1887, the name of the company was changed to the ‘Australian Banking Company (Limited).’ At the same meeting the nominal capital was extended to £500,000 and Francis Abigail and John Martin were elected to the vacancies on the Board.

Although there were chartered banks in New South Wales, the law allowed any company to be called a ‘bank’. Thus, a proliferation of loan and investment companies, particularly companies investing in land, called themselves a ‘bank’. The fact that the government allowed this to occur drew the ire of sections of the press.

It soon became apparent that the Australian Banking Company was making money by charging high costs on loans. In an extensive exposé published in their edition of 22 October 1887 The Bulletin attacked the bank by illustrating a case where a client of the bank had been charged £3 interest on a £10 loan over six months, noting that the interest was charged at ‘60 per centum per annum’. (Henceforth The Bulletin referred to the bank as the ‘Sixty per cent bank’, the ‘Sixty per shent bank’, or ‘the 60 per cent pawnshop’.) In addition, the client was charged a further £2 7s 6d to clear his debt.

Francis Abigail, already a target for The Bulletin due to his position in the Parkes Government, was mercilessly lashed by newspaper for his involvement in the usurious institution.

And the fact that he is stated to be a Director encourages the thought that the Parkes Cabinet was well chosen. If it contains one man, Parkes, to wit, who knows how to borrow, it also contains one man, Francis Abigail, who, from his assured experience as a ‘bank’ director, should know well how to lend on a sixty-per-shent-and-sliding-scale-of-commish basis. The Parkes Ministry started existence under ‘I.O.U’ auspices; it threatens to fall within the shadow of the three golden balls [vi] . It may be that the Honorable Francis Abigail, Minister for Mines, is really not so mixed up with the affairs of the Australian Banking Company as advertisements would seem to indicate. It may be though his name heads the list of Directors in the newspapers he is utterly unaware of the well-published fact, and he knows nothing of the marvellous rapidity with which interest accumulates on loans made by the stout hearted philanthropic institution which claims him as one of its bosses. But if these things really are so, if he really is innocent of the nature of the business he is supposed to overlook, he ought to make that fact public by renouncing the fame awarded to him, taking libel actions against those who have fraudulently used his name, and liberally compensating all who have been lured into a usury trap by the glitter of the venerated cognomen of the illustrious Parkes’ colleague. Plenty of ignorant people, on reading the advertisement, would take their horses and carts to the A.B. Co. right away and expect to find Abigail in a stall ready to lend at least twopence more on each article than any other person, who was not a friend of the people, would be willing to advance.

The Bulletin, in its criticism of the Australian Banking Company, repeated an extract from a report published in the Australian Banking and Insurance Record on 16 August 1877. The report states: ‘The accounts ... are of so an extraordinary a character that we consider it our duty to call attention to them.’ The report identifies that the company suffered a loss of £2,000 but managed to distribute £2,600 in shareholder’s dividends and bonuses to depositors. Attention was also drawn to the directors stating, quite misleadingly, the ‘gross income’ to be the ‘net profit’. This report was made against the balance sheet presented to the meeting of shareholders that resulted in the increased capital and the change in name to the company. It would seem that the wool was drawn over the eyes of the shareholders and the true nature of the company’s finances was not stated.

In response to criticism by The Bulletin, Abigail stated that he had commissioned Messrs. Miles, Davenport and Company to investigate the claims made by The Bulletin. Several months after the investigation had been commissioned, the results had not been published as promised and once again The Bulletin lashed out. [vii]

The Bulletin continually lambasted the Australian Banking Company, drawing attention to their poor accounting and discrepancies in their advertisements and in their published accounts. Were their criticisms justified, it would appear that the company was of dubious character and poorly administered. Although these criticisms were launched against the company from 1877, the ‘Bank’ survived for a number of years.

The Australian Banking Company not only loaned money, at usurious rates according to The Bulletin, it also attracted deposits to finance the loans and its running expenses. The Company was offering the following interest rates on ‘Deposits Received’ in January 1887:

 At call - 5%

3 Months - 6½%

6 Months - 8%

12 Months - 8½%

In March 1888 the Australian Banking Company was taken to court, prosecuted over a claim that a ‘bill-of-sale which had been altered and manipulated after signature so as to cover goods which were not in the original contract’ [viii] . The claim was upheld and the Australian Banking Company was found to have been swindling their clients and conducting dubious practices. The manager of their business, Hastings Malcolm, having been found at fault, it was announced a few days later that he was no longer working for the Company.

Ultimately, the Australian Banking Company collapsed on the 2nd or 3rd of November 1891 [ix] . According to The Sydney Morning Herald [x] , the company suspended payment due to a scare manifesting itself over a number of weeks resulting from the failure of several land and building companies. The company had been on shaky ground for some time and two weeks earlier a meeting of shareholders had been given an outline of arrangements that were to see them through the troubled times. However, the bank that had given the Company accommodation to allow continued payments, refused to continue and a second bank that had agreed to take over this responsibility ultimately decided to withdraw its offer.

At the meeting held to recommend the suspension of payment, the directors of the company lamented the failure of the company, in particular that Parliament had been prorogued on the day that the bill to create the company as a bank of issue was to be read for the second time. Mr. Abigail stated that the bill to establish the company as a bank of issue had been under review of two parliamentary committees and the second had reported more favourably than the first. The second committee had recommended the reduction in capital from £1,000,000 to £500,000 and that it should have £250,000 [xi] of the capital subscribed and £150,000 paid up. Abigail opined that if the bill was passed tomorrow, arrangements were such that the company could commence operating as a bank of issue immediately.

At the meeting several positive aspects of the company were expressed. Firstly, the directors believed that the company could continue trading following its recent initiative in opening branches of the company in Brisbane and Grafton in the previous six months, supplementing the existing branch in Goulburn and their Eastern Branch at 187 Oxford Street. Several shareholders expressed the view that the company should continue to trade. It was noted that the outstanding liabilities were £100,000 to the public and £15,000 to depositors, whereas the paid up capital and reserves amounted to £110,000 and there was a further reserve at call for £50,000. It showed a great lack of confidence in the directors of the company and its management that the 450 shareholders at the meeting chose not to subscribe the amount necessary to continue business.

It is likely that many of the shareholders had suspicions of the deeper issues within the company, and it was only a matter of time before the poor administration of the company became a criminal investigation. In July 1892 an investigation into the company found that ‘all of the bank’s directors, nine of its employees, and its solicitor [xii] , were indebted to the bank for £62,000; the security for these loans being almost worthless. Abigail owed £4,000; Davidson £10,000; Nathan £11,000; Roderick McNamara [xiii] (the manager) £3,000; and so on. Hurley, M.L.A., a former chairman, owed nearly £8,000. As security, he handed over 750 shares in the bank for which he had paid nothing.’ [xiv]

Abigail, Nathan, Martin, Hurley, M‘Namara, Scott and Mathey were arrested and charged with conspiracy to defraud and deceive the shareholders and depositors of the Australian Banking Company by making and publishing false statements as balance sheets. Abigail was also charged with making a false entry in a monthly return book with the intent to defraud John Mahoney and shareholders of the bank. Roderick M‘Namara was also charged with appropriating a total of £1,750 of the Company’s money. [xv] Subsequent investigations led to a search for Alexander Hastings Malcolm on charges of conspiring to defraud the Australian Financial Loan and Discount Company. Further charges of conspiring to deceive and defraud shareholders were later brought against Abigail, M‘Namara, Horace Salmon and William Twist (the latter two being the company’s auditors). [xvi]

The first trial was aborted due to a hung jury, but in the second trial Abigail and M‘Namara were found guilty, while Salmon and Twist were acquitted. In November 1892 Francis Abigail was sentenced to five years imprisonment and the manager, Roderick M‘Namara, was sentenced to seven years. In reporting on the demise of Francis Abigail [xvii] The Bulletin was a little less scathing than usual, even hinting that Abigail drifted into his crimes, rather than setting out to create them; suggesting that Abigail was none too bright. Part of the report read:

The Australian Banking Co. was a poor, mean swindle from first to last—a concern in which the accounts were clumsily botched by cobblers and tenth-rate speculators who had neither sufficient principle to be honest nor sufficient brains to be brilliant rogues; and Abigail was, in many respects, the type and fitting emblem of the institution.

Continuing its inevitable attacks against Henry Parkes, who was a character witness for Abigail at his trial, The Bulletin finishes its report by saying:

 It was Parkes’ neglect of his most obvious duties which allowed the existence of such establishments as the Australian Banking Co. It was Parkes who made Abigail a “statesman” and thus made his name of special value to “cronk” financial institutions. And it was also Parkes who drove the last nail in his disused colleague’s coffin by deposing to his intelligence at a moment when a charge of intelligence was about as fatal to him as a charge of dynamite. The very fact of calling the ex-Premier as a witness should have acquitted the fallen financier of any suspicion of having enough sagacity to come in out of the rain.

The progress of charges against the other directors is not known, except for John Hurley, who was acquitted of the charges of conspiracy, and J. H. Nathan, who was convicted of conspiracy to defraud the shareholders and sentenced to nine months [xviii] . Some of the conspirators, such as Hastings Malcolm and John Vann were not immediately arrested, as their crimes only became apparent as investigations proceeded. Initially their whereabouts was unknown and it is not known whether Malcolm was located and charged, nor whether Vann, a former Director of the Company, was found or prosecuted following a search for him by the police [xix] .

At the end of this sorry tale, the unissued banknotes of the Australian Banking Company are the only reminders of the turbulent and crooked career of some of New South Wales’ Members of Parliament and Sydney’s merchants and businessmen. Prepared in preparation for the transformation of the Australian Banking Company from the status of a loan company to a bank of issue, the notes were never used because parliament was prorogued on the day the second reading of the bill was scheduled to be read. The subsequent failure of the Company meant that the notes would never be more than remainders.

Sources

Cannon, Michael 1995 The Land Boomers Melbourne University Press, Melbourne.

New South Wales Police Gazette various issues

Sydney Morning Herald 3 November 1891

The Bulletin Various issues

The Times 15 December 1892 (London)

Town and Country Journal Various issues

Vort-Ronald, Michael P. 1982 Banks of Issue in Australia Published privately, Whyalla Norrie.

[i] In Banks of Issue in Australia by Michael P. Vort-Ronald, pages 42 and 43, two types of banknotes are illustrated of which one appears to be a proof and may not have been printed. The note illustrated here is the ‘b’ type.

[ii] Founded in 1795 the Orange Institution (known also as the ‘Orange Order’ and the ‘Orange Lodge’ was an Irish political organization which aimed to uphold Protestantism in Ireland.

[iii] Abigail visited Great Britain at one stage, representing the Orangemen of New South Wales.

[iv] An advertisement in the Town and Country Journal in January 1887 stated that their head office was at the corner of York and Market Streets and their ‘Eastern Branch’ was at 187 Oxford Street.

[v] The Bulletin 22 October 1887, page 5.

[vi] Three golden balls are the traditional symbol of a pawn broker.

[vii] The Bulletin 18 January, 1888, page 5.

[viii] The Bulletin 24 March, 1888.

 [ix] The Sydney Morning Herald 3 November 1891, states that ‘The Sydney Banking Company of Sydney suspended payment to-day.’ It is uncertain whether the ‘to-day’ refers to the same day on which the paper was published or to the previous day.

[x] Sydney Morning Herald 3 November 1891.

[xi] This amount of £250,000 is unclearly printed in the text of The Sydney Morning Herald and it may be a different amount.

[xii] J.M. Curtis, Esq., Phillip Street, Sydney.

[xiii] Roderick M‘Namara was formerly a manager of the Bank of Victoria (presumably a branch of the bank) and had been Secretary of the Australian banking Company while Hastings Malcolm was the General Manager. He evidently took on the role of Manager once Malcom had departed.

[xiv] The Land Boomers Michael Cannon, page123.

[xv] NSW Police Gazette 31 August 1892.

[xvi] NSW Police Gazette 21 September 1892.

[xvii] The Bulletin 12 November 1892.

[xviii] The Times 15 December 1892, page5.

[xix] NSW Police Gazette 10 August 1892