Hoare’s Bank in 18th Century London

Merchants were among the first bankers in Europe. They served their fellow merchants, financing their trade. But among the first bankers were also goldsmiths. In England particularly, they came to store money on behalf of clients in their vaults, vaults they needed for their goldsmithing business anyway. In time, some goldsmiths shed their original business to become full-time bankers. One of these was Richard Hoare who founded what is now one of the oldest banks in the world.

Richard Hoare’s Private Bank

In 1672, when he was made a freeman of the Worshipful Company of Goldsmiths, Richard Hoare became a goldsmith-banker established in Cheapside, London. These were complementary businesses in 17th century London. Goldsmiths like Richard Hoare were pioneers in banking as they were in the business of taking deposits as much as acting as metalworkers or jewelers; after all, they already possessed secure vaults. Otherwise, one of Hoare’s first financial activities was providing credit to his goldsmithing customers to allow them to finance their purchases from him over time.

He entered the business as many of his peers were ruined. It was the year King Charles II defaulted on England’s debts during the 1672 ‘Stop of the Exchequer’. The earlier disorders of the 17th century, like the English Civil War, had already made the vaults of goldsmiths very useful to depositors, giving these businessmen greater economic importance. Still, the disorders were nonetheless ruinous to many in the business of loaning money as the goldsmiths were. Nonetheless, Hoare not only became a goldsmith in 1672 but his goldsmithing business gradually declined relative to his banking activity, especially after 1690. This would be common of goldsmith-bankers in the early-18th century.

Partners

Hoare relocated his bank to Fleet Street in 1690. It would be run from the same building until its headquarters were rebuilt in 1829 and continues to operate from the same address today. A decade later, the bank’s recordkeeping became more sophisticated. This may reflect new learnings from the best practices in accounting, already established in banking but perhaps in excess of what a goldsmith alone would have needed. In any case, the change in location and accounting at the turn-of-the-century mark this as the period in which Hoare became a banker first and goldsmith second.

Thus, Richard Hoare’s heirs would be bankers and not jewelers. His son Henry became a partner in the bank in 1698; besides each earning a 6% dividend on their invested capital, the two split the excess profits beyond that according a two-third/one-third split. After Richard Hoare died in 1719, a younger son of Richard, Benjamin Hoare, joined in 1720 and then a grandson, Henry Hoare II, in 1725. Another grandson, another Richard Hoare, became a partner in 1731.

Henry Hoare I (1677-1725), portrait by Michael Dahl

Services

Hoare’s bank offered the services typical of private banks, that is to say those banks that were often smaller, operated without limited liability, and were restricted from issuing banknotes as the Bank of England could. The bank took deposits for customers, deposits which generally earned no interest.

Hoare’s possessed £114,000 in deposits in 1702. The early years saw only slow growth. Eventually, business grew near the middle of the century and soared after the 1770s during the tenure of Richard Hoare’s great-grandson Henry Hoare of Mitcham Grove, who lifted deposits from £781,000 to £2.2 million. The bank printed cheques to facilitate draws on accounts and besides accepting deposits of cash, it also bought securities for client accounts.

With these cash deposits, Hoare extended loans which were typically made at the maximum legal interest rate, 6% up to 1714 and then 5% after that. A minority of loans, nearly a quarter in the early years of the 18th century, were completely interest-free. It is not clear why other than that these were usually shorter-term loans that likely helped the bank retain customers; in any case, this became rarer as the 18th century went on.

Initially, loans were often made against precious metals, reflecting the bank’s origin as a goldsmith and that the maximum legal rate incentivized the bank to make safe loans. Loans were increasingly made against other types of collateral though, very often securities or mortgages. As it happens, stock in the Bank of England, East India Company, and South Sea Company comprised collateral more often in these early years than government bonds. Before too long, precious metal collateral became rarer.

There were also many unsecured loans made by Hoare’s to its clients, making up approximately half of loans in the early 18th century. These became rarer after the maximum legal rate was reduced. While not a complete justification for these interest-free loans by itself, it seems that losses to defaults were rare, at least based on where these troubled loans were clearly identified in Hoare bank records.

Hoare’s Bank Before its 1829 Headquarters’ Construction, from a Drawing by ‘Shepherd’ in Old and New London, Illustrated, by Walter Thornbury

Balance Sheet

Not too long after it began to specialize as a private bank, shedding its old goldsmithing business, Hoare’s began keeping better records. Balance sheets, generally compiled once per year, show the bank possessed total assets of £150,000 in 1700. About 38% of its assets were still goldsmithing related then, namely money tied up in precious metals, gemstones, or loans to buyers. At this time, the bank had approximately £32,000 in equity capital; the balance of the assets was funded with customer deposits. Between reinvested profits and investments made by Richard Hoare’s son Henry in the firm, the bank reached £66,034 in equity capital in 1708.

The bank grew in the lead up to the famous South Sea Bubble of 1720. Besides making loans against it, the bank held South Sea Company stock outright during the bubble year. These shares comprised 14% of its assets in 1720. After contracting meaningfully in the immediate aftermath of the South Sea Bubble, the bank was no bigger in 1721 than it was twenty years earlier. In addition to the bursting bubble, the death of founder Richard Hoare in 1719 and the withdrawal of much of his capital also clearly contributed to the contraction. Nonetheless, the bank survived when many of its peers had not. Hoare managed to sell much of its South Sea stock while it still fetched a high price. Still, after the retrenchment, much of the bank’s assets were kept in cash rather than loans.

Hoare’s bank grew quickly in the early-to-mid 1730s; total assets reached £500,000 by the early-1740s. By now, its assets were largely financial in nature; the legacy goldsmithing business was largely a thing of the past. The bank was more highly leveraged now too, meaning it was funding a larger portion of its lending with deposits as compared to the partners’ equity. Interest-free loans were also less common than they once had been. Thus, profitability increased, particularly when expressed in terms of the bank’s return-on-equity.

Clients

Like most private banks, Hoare’s met the needs of a limited market, in this case serving private clients in the West End of London. Big merchants and country banks elsewhere in Britain, typical clients of merchant-bankers in the City, were less common clients of West End private bankers like Hoare. Between 1695 and 1724, just 721 people borrowed from Hoare’s bank. Over short periods of time, a few clients accounted for most of the money lent. Between 1705 and 1709 for example, just twenty clients were responsible for 69% of the money lent by the bank.

Clerks at the bank recorded the titles and positions of its clients, many but not all of whom were nobles. Loans to these clients were likely used to facilitate consumption in between income streams, often seasonal or tied to life events like the inheritance of property. Other loans to illustrious clients included a loan to Samuel Barnadiston, governor of the East India Company, and Brooke Bridges, Chancellor of the Exchequer.

Not all of the loans were to nobles or officials. One of the largest loans made in the bank’s earliest history was to diamond dealer Marcus Moses. Other loans were secured by inventories of merchandise like Westphalian hams and Tuscan wines. These suggest Hoare’s bank was also making at least some loans of a commercial sort. Despite these holdings, whether merchant or noble, repeat borrowers could often receive shorter-term loans from Hoare without putting up any collateral.

Lesson

Histories of banking usually dwell on merchant-bankers who pioneered trade finance. They originated as merchants who were already accustomed to offering services other than merely buying and selling. They acted as agents and eventually bankers for fellow merchants. Merchant bankers contributed to many advances in finance, particularly as financial intermediaries in commercial life. However, other early bankers were pioneering intermediaries for the wealthy. They courted rich depositors and made loans to the same sorts of clients. Numerous banks today are more akin to this sort of bank than those of merchant-bankers.

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Read about the earlier goldsmith-banker Edward Backwell, the Anglo-Dutch bank Hope & Company, and how bank secrecy helped Swiss banks grow in the 1920s and 1930s. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.