City of Glasgow Bank (bankers: 1839-1878: Glasgow, Scotland)

The City of Glasgow Bank , Scotland, was established in 1839 to cater particularly for small investors with branches opening in the evenings to receive deposits. Initially, there were 779 subscribers and a capital of £656,250. The head office was in Virginia Street, Glasgow, from 1842 before moving to Glassford Street, Glasgow, in 1851 when those premises were sold to the National Security Savings Bank. The first manager was Henry Paul, brother of the manager of the Commercial Bank, Edinburgh, Scotland.

In 1845 , the note issue was £73,000. The bank is infamous as the scene of Glasgow's greatest financial disaster of the Victorian era. During 1857 financial difficulties meant that the directors had to stop payment for a few days, during which panic spread through Glasgow and military assistance had to be sought from Edinburgh. The bank closed on 11 November 1857, with a deficiency of £77,577. Business resumed on 31 December 1857, but only after the Edinburgh banks had insisted that the New York agency be closed.

In June 1878 the directors reported that there were now 133 branches and that business was booming with deposits at £8,000,000 and that a dividend of 12 per cent would be paid. All looked well and therefore the City was devastated when on the 2 October of the same year the newspapers reported that the directors had decided to close the bank. The City of Glasgow Bank asked other banks for assistance but when they sent in an accountant it was discovered that the bank's affairs were beyond assistance. On audit, the estimated balance of loss, including the bank's capital, was £6,200,000. They had lent far more than they had collected in deposits and discounted a good deal of business connected with America and India. The Bank had been a major lender to the Racine & Mississippi Railroad (later the Western Union) and when the failure occurred, the Railroad owed the bank over one million pounds. The bank over-concentrated on advances to a small number of companies.

The board's leadership had deteriorated significantly in the 1870s when the most able members left. Robert Stronach, who succeeded his brother Alexander as manager in 1875, had been left to his own devices, and the balance sheets had been falsified over a number of years. The effect of the bank's failure on Glasgow business was immense. Hundreds of firms folded as a result. The 1200 shareholders and their families suffered greatly. Their liability was unlimited and the failure ruined most of them. The directors, including Robert Stronach and C S Leresche were arrested, but Leresche later became a witness for the prosecution. The remaining defendants were tried at the High Court in Edinburgh in January 1879 and all were found guilty. Robert Stronach and Lewis Potter, a director since 1858, were found guilty of fraud and each sentenced to 18 months imprisonment and the others to 8 months each.

Source: Tyson, R E,'Scottish Investment in American Railways: The Case of the City of Glasgow Bank, 1856-1881',Payne, P L (ed.),Studies in Scottish Business History(London, 1967)