THE " COMMERCIAL BANE OF INDIA AND THE EAST "
TT is not 'wonderful that the establishment ad banks with A. foreign or colonial branches should be among the most tempting of speculations. The theory seems so very simple, and-the returns are often so very great. Money in England is very cheap ; there is always a quantity ready for any decent investment ; while abroad it is often dear, in America always idaarerthan in England, :and in Asia -very dear indeed. There is -so -much to be done in America, so many acres still to be -ploughed, so many mines still to be opened, so many railroads still to be made, that money is always -wanted, and borrowers van always afford to pay high. In Asia, again, nobody does anything new except a 'few adventurous Europeans, and they in the face of comparatively small competition do very big things returning very large interest. The indigo cultivation, dor -example, was for years carried- on with money -borrowed at sixteen per cent., and could as a whole afford that rate, one successful year making the borrower's fortune. English farm- ing can scarcely afford even five per oent.,-,-one of the many half noticed troubles -which follow any sudden dearness of working capital, or a -"tightness" of money, :as it is called, in -that wonderful City -slang which seems borrowed equally from lorse-chanters and thieves. If therefore money-borrowed here can be used there, obtainedstdiveper cent. and lent at ten, profit would appear-to be almost certain. The bank's capitalis merely sn invested reserve. .Quiet people -deposit spare cash and-ener- getic people use those-deposits' „and the shareholder, as he thinks, mast reap a great profit. -So be does if he -succeeds -witness the really marvellous career of the Oriental Bank Corporation, cone of the most shrewdly managed concerns in the world— and so he -would nearly-always, if he would only.attend to the main conditions of the question. 'These are to consider de- posits the first object, to choose places for branches -where there is business to -be done of a tolerably safe kind, -a place, that 'is, with -trade, internal or external, of some magnitude, and, lastly, to choose agents with excessive care. If the ,deposits lase ;5;000;000/. to a capital of 1)000,000/., and are paid for at an average of five per cent., then-a prof& -of -only seven per cent. on -the -usance gives an excellent ■dividend. The -very safest and slowest 'business is, minder such circum- stances, profitable, and if the deposits only -increase there as no more necessity for risky speculation—lending money, for instance, np to the full value of -shares which may fall twenty per -cent. in a week--than there is justifica- tion. It is wonderfully hard, nevertheless, to drive that primary -idea into the heads of any but the best managers. They
are so fond of making strokes, and deposits require no brain, but only patience, regularity, and that quality for which our language has no name, but which makes more fortunes in London than any other — the power of ex- ing confidence. One of the great Indian banks used at -one time to lose deposits to an enormous -amount, simply becanite it .never would -organize a speedy system .of paying cheques. People were fretted to death by waiting an hour with their drafts, 'but nothing could induce the managers to dispense with s routine -which they thought safe, but which theffirst Scotchmanwho got among them -knocked on the head with no ;ill consequences whatever. 6o, too, it is useless to set sip branches in places -with no use for them, to start branches with anillionsin Madras, with -its twopenny-halfpenny trade, or send to .3amairs a sum greater than its revenue, or try to ;obtain- at .the it:laps-what may be obtained in India or China. Same people seem to think that as there are people every- where,:and everybody wants more money than he has got, a hank -would pay at Timbuctoo, quite forgetting that what is wanted is not borrowers only--they are plenty enough-4ut
borrowers who can turn the money to purpose, and so pay well for its rental. Of all modes of losing money fast, perhaps the- very -best is to lend it to dying trades, businesses which, so far from yielding interest and profit, will not yield profit alone.. Banks with stupid managers are always -doing that, and then, when the money does not come back, they give more, pour water in fact into the pump to make it suck, without caring whether -there is or is -not a -spring. If there is net, no number of pourings -will bring the water out, and there are places in the world where there are no springs. The last condition ds, however, the most important of _all. Granted capital, and deposits, and trade, they are all of -no use if the foreign
manager is a fool, and financial fools are at least as common as-
any other elBAR There have been managers of big banks who literally could-not understand what an exchange operation meant, people who never •could see why, if they bought bad bills-at ten per cent. discount and sold -good bills at two per cent. premium, they were still not making money. There is the manager with -"ideas," and the manager who trusts -to - his knowledge of men, and the manager who wants -to- -" make .a connection," :and the -manager who thinks it -well for his -hank to " conciliate loealopinifm," and the manager -who believes that -"numarketable secntities are often the beat,'
and-so buys them just when a run is coming, and above all the manager who cannot see when the .reaction is at hand. And he must draw in. Better put oaah in an old stocking
than trust any one of them. We say nothing of dishonesty. Honesty can be bought, like -anything else, though it is a fact painfully well _known to the Asiatic trade that the proportion of- half honest agents in Asia, China, India, and Japan is wonder- -fully great, owing, we believe, to -the absence -of that social pressure—those strong social stays, -so -to speak, which in -Europe keep weak natures decently firm. It is very difficult indeed to select the-right man, the man who, besides being honest, is .able, who-can govern unknown subordinates speak- ing strange tongues and all leagued against him, who,
above all, in a foreign land and among strange people, can retain the mercantile sensitiveness which feels pecuniary danger somehow through its skin. There are men in London whose very nails -would twitch to tell them that a London hill was bad, who would know it before they read the namea, yet half -of them if transferred to Calcutta-or Shanghai would waste thousands, would reject the dirty tissue paper brought in by s half-naked and more than half-drunk debauchee,
which is nevertheless as good as a bank note, while cashing the draft of respectable Tomkins, =who has not a shilling,. -upon respectable Jones, who owes -respectable 'Tomkins twice, as much as he can pay.
The extraordinaryreport laidby the directors of the Commer- cial Bank Corporation of India and the East before their consti- tuents shows a body-of shareholders who have fallen into these- two last blunders, 'and have consequently -sacrificed for the time just half their property. They have chosen their scene of operations carelessly, and they -have selected, or rather put up with, bad agents. The Bank's title is, in the first place, deli- ciously vague. 'What on earth does "the East " mean as s.
commercial term ? The Levant I or Japan ? or the rising Bunt It includes from this report Can Francisco, =which geographers. in theirignorance-consider west of Greenwich, and which filled, as it is, with sharp Yankees, rich bankers, gold-gamblers, and. -speculators, is, we shouldimagine, as rislrful a place as a country clergyman could well -select for investing his money. Be that as it may, the directors, instead of setting up banks of their-own, to save time and trouble took over the branches of the late-Commercial Bank of India, that is." they took over, after a period of -unusual prosperity, a staff and a system not -organized by themselves, and which might fairly be assumed -to have 'some imperfection, inasmuch as the difficulty of - -obtaining at Bombay a body of directors with sufficient time- st -command was a main reason for establishing the head- -quarters-of the bank in London." So, laving a capital of a trilllion paid up, they lost, -as the Directors very frankly confess, -89,000/. at Bombay by "imprudent advances to speculators," -either -118;233/. or 196;782/. 10s. 6d. at Francisco "by advances on -mining shares, -none -of which could -at present be - realized except at a ruinous depreoiation," -38,267/. at Shan- ghai or elsewhere, their agent at that port being called " Manager in the East," -a pretty extensive jurisdiction, besides 53,000/. more, whioh •may in whole or part be recovered. At Calcutta the -bad debts are 1,500/., =and at Hong Kong :5,000/., the total being calculated at252;000/., besides 123,000/. of -" estimated loss on past due sterling hills." The auditors -seem to think even that amount too favourable, for they only certify the correctness of the accounts " subject to the suffi- ciency of the estimate of 375,000/. written off to cover losses " And this great loss has been made in the teeth of deposits nearly double the capital, and a profit for 1865 equal to 7 per cent. —in the teeth, that is, of a reasonably promising busi- ness, which may yet recover itself easily from temporary losses. If the agents had been -wise men the bank would probably have made about 5 per cent., the normal Indian rate, all round, which would have been just 15 per cent. upon capital, and wonderfully pleasant to shareholders. But because the main conditions were not complied with they lost one-third of their money, and their shares are depreciated one-half. This is the great risk which attends these tempting speculations. The profit from such a number of branches must be great, but then the loss may be multiplied as well as the gain, and -shareholders are absolutely dependent on men whom they do not know, whom the London Board, which they do .know, .cannot effectually control, and who can at any moment create a great loss either by folly or want of honour. That is no reason for abstaining altogether from such specu- lations. On the contrary, these Banks are almost the only things which can be trusted, if they go right, to give very heavy dividends ; but then it is a very good reason for investing only-surplus money in them, which the investor can bear either to lose or wait for without ruin, for watching accounts strictly, and above all for insisting upon the closest inspection of all agencies. " The East " is very vague, but when it means India and China, an inspector can travel from station to station just as easily as in Europe, and to at least as much purpose, for though he might not know local facts, he could tell easily enough if the agent were doing a " risky " busi- ness, and he would be indifferent to the terrible social pres- sure -which in the limited society of an Asiatic city closes in upon every man with money to lend.