"A Catastrophe has Occurred"

Saturday, 19 April 2008

Diane Clements Investigates the Failure of Grand Lodge’s Bankers

At Grand Lodge, in March 1878, Lord Carnarvon, the Pro Grand Master, rose to make an announcement. Describing the event as "a catastrophe", he reported that the banking house of Willis Percival & Co, which held the funds of Grand Lodge, Grand Chapter and the Masonic Charities, had failed. The Grand Lodge balance of £3,543 was at risk.

The City of London, in the 1870s, was taking on the face of the modern City. Its residential population had declined as it had become easier to live outside the metropolis and travel in by train and road. Old town houses were demolished and their sites combined into large commercial buildings. The advent of new technologies such as the electric telegraph in the 1840s had encouraged large increases in the amount of business transacted, although most was still conducted face to face. 

Lombard Street

For the Victorians, Lombard Street, where Willis Percival & Co. were based, was synonymous with banking. Although the street has retained such connections even up to today, the business of banking in the 1870s was very different; it was dominated by private partnerships, including the major firms of Barings and Rothschilds. The main business of such banks was the taking of deposits and the finance of trade by acquiring (as an investment) the bills of merchants. However, "Joint stock banks" – the forerunners of today’s high street banks - were growing in importance. They had the advantage of having a solid base of shareholders to provide capital. In contrast, partnership banks could only call on the capital of their active partners or accumulated profits.

Against this background it was not unusual for banks to fail. The Bankers Magazine (which had a regular paragraph entitled "Mercantile Embarrassments" in which failures were listed) reported, in 1878, statistics of bank failures in the previous five years – fifteen in all including five in each of 1873 and 1874. But unless there was suspicion of wrongdoing such failures did not excite particular attention. 

The Collapse

Willis Percival & Co., founded in 1700, was one of London’s oldest private banking partnerships. At the time of its failure it had three partners – Henry Willis, Samuel Tomkins and Samuel Leith Tomkins. Samuel Tomkins had been a member of the Lodge of Antiquity, No.2, since 1852, although he had been initiated in a Scottish lodge (St. Andrews Lodge, No. 333, S.C.). He was Master of Antiquity in 1854 and its Treasurer from 1861. Samuel Leith Tomkins was a member of the same lodge and had been a Grand Steward in 1862. Grand Lodge records do not provide evidence for Henry Willis’ membership of Freemasonry.

The financial position of the bank had been deteriorating for several years although, as the bank did not publish any financial information (in common with other partnership banks), this only became clear after its collapse in February 1878. The Bankers Magazine made reference to "the crisis of 1857" when the bank "is believed to have suffered severely through its Greek connections". Willis Percival had also encountered another problem endemic to partnerships: in 1877 the senior partner had died causing a reduction in the capital available.

The particular cause of the Bank’s collapse, however, was not international affairs nor even shortage of capital. The partners had over-extended credit to one borrower - Gerussi Brothers & Co. of Finsbury Circus, a firm of merchants - to the extent of £250,000, many times the bank’s capital base and comprising nearly half of its assets. When the depressed trading conditions caused the merchants to fail, the bank collapsed.

Within a few months what could be salvaged had been bought by the Hampshire and North Wiltshire Banking Company, which purchased the assets and goodwill for £288,460 and resumed business at 76 Lombard Street under the joint management of Henry Willis and Samuel Leith Tomkins, two of the former partners. Creditors received nine shillings (45p) in the pound.

Grand Lodge Finances

At the time of the collapse Samuel Tomkins was Grand Treasurer, a position he had held since 1853 and to which he had been elected in succession to Richard Percival, a previous partner of the Bank (and also a member of the Lodge of Antiquity, No.2).

The office of Treasurer had been introduced in 1725 when the Committee of Charity was established. In 1727 the position became Grand Treasurer with the incoming Grand Master nominating the post holder each year and Grand Lodge electing him.

As Grand Lodge had no income in those early years, the Grand Treasurer was solely responsible for the Charity Fund, holding money on behalf of the Committee of Charity (which authorised disbursements), providing a personal surety for it, and reporting receipts and disbursements to each Quarterly Communication of Grand Lodge.

In 1768 the premier Grand Lodge began to plan for the financing and building of the first Freemasons’ Hall, to register members, and to charge fees which were paid into a general fund for administrative expenses. After the Union in 1813 this income was supplemented from room rentals, from the lease of the Freemasons’ Tavern and income earned from investments.

The amounts involved were initially relatively small. In 1818, according to the quarterly report on receipts and payments, the Board of Benevolence received income of £1,435 during the year and the Fund for General Purposes had income of £2,756 (both including income from investments). By 1878 the Board of Benevolence receipts had increased to £8,714 (equivalent to £357,000 today) and those for the Fund of General Purposes to £11,598 (£475,000). 

The Impact

Grand Lodge had a balance of £3,543 with Willis Percival & Co (equivalent to £145,000 today). As an interim measure an account was opened at the London and Westminster Bank (one of the better capitalised joint stock banks) for future receipts with cheques to be signed by the President of the Board of General Purposes and the Grand Secretary. A committee was established to investigate the loss and to make recommendations about the future of Grand Lodge’s financial affairs. Following this report a new account was set up at the Bank of England. The Grand Treasurer was "to keep a general supervision of the accounts" and to sign cheques for funds voted by Grand Lodge which had to be countersigned by the Grand Secretary; furthermore, the accounts were to be audited. A new Grand Treasurer was appointed in 1879 (Tomkins had resigned in March 1878 and the post was in abeyance) and from that date a new Grand Treasurer was elected every year.

Tomkins felt obliged to resign from the Lodge of Antiquity (although Samuel Leith Tomkins remained a member until his death in 1899). The Lodge accepted the resignation but "expressed regret at the circumstances in which it had taken place, and its warm sympathy and continued respect".

Five months after the collapse Tomkins died, aged 68, in July 1878. The Freemason published an obituary; it noted that he had never returned to Grand Lodge. He had died a broken man.

The author would like to thank John Hamill, Director of Communications, for permission to use his earlier research into the role of the Grand Treasurer.

Diane Clements is the Director of the Library and Museum of Freemasonry, Freemasons’ Hall, London. She previously worked in banking in the City of London.

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