“Hope is Not Broken”, the Bankers Hope & Company

The Netherlands, and Amsterdam specifically, was the financial center of Europe in the 17th century. Yet, its most well-known banking family only emerged and reached their height in importance a century later. They were not Dutch, but Netherlands-born decedents of émigré Scots originally drawn to Rotterdam and not Amsterdam. In any case, their bank reflected the country’s true status in Europe, a small country at the center of a larger empire and one of Europe’s most important, if reduced, creditor countries. It was Hope & Company, a bank whose motto played on the family name. That motto, “at spes non fracta” (“hope is not broken”), seems cheery, if not entirely reassuring. In any case, the bank did manage to survive a financial crisis that took down its principal competitors in 18th century Holland.

Hope & Company

The historically significant Dutch banking firm Hope & Company was founded by a line of merchants in the Netherlands with Scottish roots. Several members of the Hope family were active in trade or finance. Archibald Hope Jr. was one; he started a new shipping and trading company when he moved from Rotterdam to Amsterdam around 1720. He was joined by his brother Thomas who was in turn joined by their brother Adrian when Archibald died.

The brothers traded in a wide variety of goods, including precious metals, grain, tobacco, wine, and textiles. Besides conducting his own trade, Thomas Hope was also a director of both the Dutch West India Company and the Dutch East India Company. The men always considered themselves commodities speculators and continued to trade in commodities into the Napoleonic Wars (1803–1815), well after their banking activities had become their most notable business.

Before that point though, the Hopes’ trading grew rapidly in the 1750s and 1760s. During the core of this period, the Netherlands was neutral during one of the largest 18th century wars, the Seven Years’ War, and that was a boon to Dutch trade. The activities of brothers Thomas and Adrian Hope were combined in 1762 to form Hope & Company. They became bigger bankers than traders, but the firm continued to be active in trading physical commodities into the 19th century. Rather than unusual, this was typical of Dutch banking companies of the era.

Keizersgracht 444-446 Amsterdam, Headquarters of Hope & Co., (retrieved via reportersonline.nl)

Dutch Finance in the 18th Century

That perhaps the most famous of past Dutch banking firms was most successful in the mid-to-late 18th century is worth considering. After all, the Netherlands is better known for contributions to finance in the 17th century. By the 18th century, Amsterdam was no longer the entrepôt it once was, the central mart for northern Europe. This would seem to diminish the financial role of the Netherlands, besides obviously its mercantile one.

Yet, the country was still very important in the 18th century. They were no longer the most active in global trade, but the Dutch were still large investors, active all over the world inhabited by Europeans. It was the outsized savings of Dutch households, to some extent accumulated over all of those years of dominance in trade, that underpinned this retained significance in world finance. Hope & Company estimated in 1791 that Dutch households only spent between five-eighths and three-quarters of their income, saving the rest of their incomes, which were very high by pre-industrial standards.

Dutch investors bought foreign securities in droves, especially after 1720. They were attracted by returns that were higher abroad than could be found at home. So great was the accumulated savings to be invested that domestic opportunities were insufficient to absorb local savings even if they were offered at a low interest rate. There were only so many places to put that money to work at any remotely suitable rate of return. In this period, the Dutch government sought to limit its own debts and local industry, agriculture, fisheries, and the merchant fleet were all depressed to some extent. So, over the course of the 18th century, Dutch investors’ holdings of local securities fell as a proportion of their wealth and their foreign assets grew.

The Dutch particularly favored British securities, especially prior to the Fourth Anglo-Dutch War in 1781 which was essentially a theater of the American War of Independence. In a particular British 4% loan issuance of 1760-1762, Dutch investors bought about 7-8% of the issue and comprised the lion’s share of foreign buyers, making up about six-in-seven of the loan’s non-British subscribers. Though not straightforward to substantiate, rumors of purported Dutch holdings of other British securities in the 18th century amounted to as much as one-third of the totals issued.

After the war between Britain and the Netherlands, Dutch investors came to favor French securities. But over this period, all sorts of securities were found in Dutch savers’ portfolios. Austria, as just one example, borrowed heavily in the Netherlands in the 18th century. Regardless of the particular shares and bonds, by 1790, Dutch investors owned 500 to 650 million guilders, or £30 to £37 million in foreign securities, a minority of it issued locally in Amsterdam for foreign issuers and the rest bought by Dutch investors from abroad.

Colonial Investments

Dutch investors welcomed investments from outside of Europe too. One of the most popular were mortgages on plantations in Dutch colonies and those of other countries. These securities became increasingly popular with smaller and larger investors alike, mirroring a rise in demand for colonial goods. Dutch Atlantic trade quadrupled from less than five million guilders per year in the period 1700-1710 to more than twenty million by 1770-1780. Dutch investment in the colonies also took off at the beginning of the second half of the century.

Hope & Company had a large presence in the Caribbean. There they financed plantations which produced sugar and coffee destined for Europe. Funds were raised and extended to planters by means of negotiaties, loans secured by the land, improvements, and slaves of a plantation. These negotiaties were managed by funds and Hope & Company was one such fund manager, managing syndicated loans for at least fifty plantations.

As an example, a negotiaties fund was established by Hope & Company in 1773. It issued 330 bonds of 1,000 guilders each and this went towards making a single 5% loan to a planter on St. Croix. Hope received a 5% commission on the amount raised, or 16,500 guilders; the bank was also compensated for nearly 12,500 guilders in expenses incurred in establishing the fund. On top of this, Hope received fees for distributing interest and principal payments to the bonds’ investors. Besides those loans made for these funds, Hope & Company also made loans in the colonies that it held for itself.

The negotiaties were structured such that the banks that managed the loans also handled the sale of the plantations’ produce, ensuring money went towards the interest and principal repayments on the loans. Selling this product on commission was yet another revenue stream to Hope & Company. The structure may seem brilliant; at least it was certainly profitable to bankers that arranged them, but the negotiaties were not immune to problems. Colonial securities depreciated between 1772 and 1782 as many funds suffered from poorly performing loans, caused in part because coffee prices were falling. Hope & Company took over management of some other funds during this period, a role that involved foreclosing on the property of defaulted borrowers.

Foreign Bonds

Besides its plantation lending, Hope & Company made some other notable private loans. They provided a loan to Boulton and Watt, the British engineering firm co-founded by the inventor James Watt, as just one example. Nonetheless, Hope is better known for making large loans on behalf of governments. It placed a loan for Sweden with Dutch investors back in 1767. Loans for Spain and Russia were placed with Dutch investors by Hope & Company in the 1780s and Poland and Portugal also made use of the bank’s services by the early 19th century.

Hope even arranged a $5 million loan in the Netherlands for the United States to acquire Louisiana from the French; this loan was issued in tandem with an only slightly larger loan in England. The bank had an interest in seeing the French raise money that would enable them to settle their debts to Russia which in turn had missed payments on loans raised in the Netherlands. After the Napoleonic Wars, Hope & Company helped France sell bonds that the country used to make payment under an indemnity it was forced to accept after the fighting ended.

Despite some difficulties during the wars, the bank continued to count the Russian government as a client until the 1840s by which point the financial importance of the Netherlands had been greatly reduced, at least relative to other creditor countries like Britain and France.

Good Times and Bad

Hope & Company grew quickly before a financial panic afflicted London and Amsterdam in 1772. The panic of 1772 was the result of poor financial performance by the British East India Company, which brought a speculative frenzy to an end. During the preceding successful years, Hope overtook in size the Clifford family’s bank in the Netherlands which failed during the panic; another competitor Andries Pels & Sons also collapsed. Back in the 1760s, these were their only similarly-sized competitors and, coming out of the crisis, they were now gone. While the panic of 1772 did considerable damage to Hope’s own revenues, the firm survived and surpassed its 1770 size by the 1790s.

Under the American-born Henry Hope, nephew to Thomas and Adrian Hope, Hope & Company relocated to London after the French invaded the Netherlands in 1795. The firm would return to the Netherlands, under new management outside of the Hope family, once the war ended. Yet, Amsterdam’s financial relevance would be greatly reduced in the 19th century.

Henry Hope’s Family, in Britain (painting by Benjamin West)

Lesson

Banking firms are reflections of the economies they serve. A bank in a debtor country may have important relationships with investors or other banks abroad and act as conduits for that money to access local investment opportunities. A bank in a creditor country, like the Netherlands, will introduce local investors to foreign investment opportunities. Hope & Company was active deploying the savings of Dutch households in Dutch colonies and placing bonds for foreign countries with those same investors.

This was a good way to make money but it was not without risk. Though these activities, fitting as they did with the financial circumstances of the Netherlands in the 18th century, brought a bank like Hope & Company tremendous success, the financial environment alone can not explain why Hope survived where others failed as the Dutch economy was buffeted by the occasional storm. The differences between firms, including the quality of their management, determines a lot of about their future.

More from the Tontine Coffee-House

Read about the creation of Eendragt Maakt Magt, arguably the first mutual fund, in 18th century Holland, the financial panic of 1772, and more about negotiaties. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.