Speculative manias tend to attract their own victims and these victims can come from far away and from walks of life far removed from the source of the excitement. A bank formed in the Ottoman Empire in the 1850s and empowered to act as a central bank of sorts by the government in the 1860s was nearly brought down by speculative investments in faraway South African mining companies in the 1890s. The bank’s managing director, an Englishman named Sir Edgar Vincent, had transformed this bank, the Imperial Ottoman Bank, beyond all recognition within a few years at the helm.
Imperial Ottoman Bank
The Imperial Ottoman Bank was founded in 1856 but it was reorganized as an Anglo-French joint-venture in 1863 and it is here where the history really begins. At its relaunch, a British consortium owned about 59% of the bank, a French one owned 37%, and the Ottoman government 4%, though the French would eventually become majority owners. The bank was capitalized with £2.7 million, which increased to £4.05 million in 1865 and £10 million after its merger with Austro-Ottoman Bank in 1874. Imperial Ottoman Bank was given an exclusive monopoly to print banknotes for thirty years, free from both private or state competition in this activity. In exchange, it was required to keep cash on hand equal to at least one-third of its note issuance to make sure the later could be redeemed in full.
The firm served as the official banking partner to the government. It received government revenues, represented the government in loan negotiations, and made occasional advances to the state. It conducted little private-sector business. Things changed when Deutsche Bank entered the Turkish banking market in 1889, providing competition. Up to then, European banks were generally absent from the Ottoman Empire.
Sir Edgar Vincent
One of the most important figures in the history of the bank was Sir Edgar Vincent. He was a vicar’s son born in Sussex in England in 1857. His father later became the eleventh baronet in a line that dated back to 1620 but which would be extinguished with Sir Edgar Vincent’s own death in 1941.
Vincent studied languages in school and mastered modern, rather than ancient, Greek, a relatively rare achievement in Britain then. He even published a Handbook to Modern Greek in 1879, while he was an army officer and this became a textbook used at the University of Athens. Along with his publisher, Vincent formed the Society for the Promotion of Hellenic Studies.
His travels east began when he visited Constantinople in 1879 where he met the British Ambassador in that city. The next year, Vincent was given a diplomatic post there. He had connections which helped him obtain this post, namely friends within the family of Prime Minister William Gladstone. Edgar Vincent was involved in the division of territory in what is now Bulgaria after the Russo-Ottoman War of 1877–1878, handling such work as the division of the region’s state revenues between the different governments involved. In the post, he worked with a special ambassador on the project, George Goschen, who was the son of a banker and himself very familiar with finance.
In 1882, Vincent became the British, Belgian and Dutch representative on the Ottoman Public Debt Administration, established by creditors of the Ottoman Empire to administer elements of its public finances. The administration collected taxes on products like tobacco and salt which would be used to repay creditors. Vincent presided over the Ottoman Public Debt Administration altogether from March 1883. This was his first truly financial post and a very senior one.
He was later assigned to handle the public finances of Egypt as Financial Adviser to the Egyptian Government not long after the British occupation there began in 1882. Vincent had received the recommendation of Goschen, opening up this post to him. Edgar Vincent left Egypt in 1889, having left a balanced budget and a growing economy. He had finished serving in two high profile posts across two countries by the time he was thirty-two years old. Despite his successes, he was known for being impulsive, frequently taking action without appropriate consideration being given to the action or the reaction of others. His knack for improvisation though was remarkable, giving him at least a mixed reputation. So, he was offered the job of managing director of the Imperial Ottoman Bank, taking over from the retiring chief executive there.
Reorientation
Vincent set about re-orienting the bank towards commercial business, rather than state business alone. Imperial Ottoman Bank began offering checking and commercial accounts as well as family savings accounts. It raised money for railways, such as the Salonica-Constantinople and Izmir-Kasaba railways, and coal mines. Of great relevance to its near-term future, the bank helped customers invest in the stock market by offering brokerage accounts and advancing money against stocks and bonds. The amount of such lending tripled between 1892 and 1894 and despite warnings from directors, this business grew still further.
Under Vincent’s leadership, the Imperial Ottoman Bank increased the number of its branches. In Turkey, branches were opened at Adana and Konya in 1889 and Ankara in 1893. Elsewhere, branches were opened in Sofia in 1890 and Baghdad in 1892; these were just some examples of the large expansion. Around the same time, a new headquarters was built in Constantinople. Deposits reached £8 million by the end of 1893. The bank’s profitability increased, allowing it to boost its reserves by £1 million between 1890 and 1892. With some good record under his belt, Vincent pitched investments in the bank to his friends and other connections.
South African Mines
The bank participated in a speculative boom in South African mining shares in 1894-95. It was not unusual for a bank in Constantinople to be involved in this speculative mania; much of the world was gripped by it. South Africa was in the midst of its massive Witwatersrand gold rush, the largest such gold rush in history. Vincent himself visited South Africa in 1894 and 1895. He invested the bank’s money in speculative South African mining firms. Imperial Ottoman Bank participated in a public offering for Barnato’s Bank, Mining and Estates Co., whose shares rose to £3 and 10 shillings before the firm collapsed twelve months later. It also invested over £1 million in Buffelsdoorn Estate and Buffelsdoorn Consolidated gold mining companies when the shares were at an all-time high.
In all, about 8% of the bank’s portfolio was invested in gold-mining shares. The bank was also invested in non-mining South African firms, including a distillery and a bank. This was a sizeable part of its business though probably not enough to sink the bank if things reversed. Unfortunately, many of the bank’s employees and clients also invested heavily in these speculative mining shares. They were likely encouraged at least in part by the bank’s own holdings.
Vincent himself had formed the Eastern Investment Company, a fund investing in South Africa. He formed this investment in order to consolidate his own personal investments and raise money from others for his activities in the South African market. It made a considerable profit for the banker.
Bank Run
Late in 1895, the market for mining shares turned. Imperial Ottoman Bank lost large sums when Buffelsdoorn stock crashed and this was just one of many investments the firm made in South African mines; nearly all of these produced losses. Many investors were made nervous about the bank’s financial position and Sir Edgar Vincent’s competence. By October, a bank run had started. By November 1895, the bank’s shares had fallen more than 40% from their peak. Eastern Investment Company’s shares would fall from £8 at their 1895 peak to about 7.5 shillings.
In late 1895, the Imperial Ottoman Bank nearly had to suspend withdrawals for one month. It received government consent to do so but the bank’s backers provided emergency funding of £1.3 million. Still, losses continued through 1897, but enough confidence in the bank was restored quickly enough and its charter was extended to 1925. From here, a decisive recovery began. Deposits grew to £11.74 million by the end of 1907. Cash holdings, banknote issuance, and total assets also recovered and broke new records.
Notwithstanding the turnaround, a bailout had essentially been resorted to and Vincent was heavily criticized for speculating with bank funds. The fact he personally turned out alright from the crash made the optics worse. He was not removed from the bank immediately but his powers were curtailed. Edgar Vincent left the bank in 1897, at the end of his contract. He returned to England, bought an estate in Surrey, and became a Member of Parliament. Vincent continued to speculate in shares for a while. He was eventually made a baron and British Ambassador to Berlin in 1920. Sir Edgar Vincent died in 1941.
Lesson
How did a South African mining bubble nearly bring down the sole banknote-issuing bank in the Ottoman Empire? Of course, Sir Edgar Vincent deserved a large share of the blame, some may say even all of it, but he was not the fundamental connection between the African mines and Imperial Ottoman Bank. The commonality was British and French capital. In the late 19th century, London and Paris and the investors of Britain and France were the rest of the world’s creditors and their bankers also organized firms in other countries. This was how an Englishman became the chief executive of an Ottoman bank, how banking became a big business in that country, and how mining firms in South Africa raised capital, and ultimately disappointed investors, from distant countries.
More from the Tontine Coffee-House
Read about the Ottoman Public Debt Administration and the default and restructuring of indebtedness in 19th century Egypt. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.
Further Reading
1. Auchterlonie, Paul. “A Turk of the West: Sir Edgar Vincent’s Career in Egypt and the Ottoman Empire.” British Journal of Middle Eastern Studies, vol. 27, no. 1, May 2000, pp. 49–67.
2. Conant, Charles Arthur. A History of Modern Banks of Issue. 4th ed., The Knickerbocker Press, 1915.
3. Davenport-Hines, R. P. T. Speculators and Patriots. Frank Cass and Co, 1986.
4. Eldem, Edhem. “Ottoman Bank Museum.” Google Arts & Culture.
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