The Pattison Crash
last updated June 19th 2014
THE PROBLEM STARTS Some knew about the problems long before the crash
By courage not craft
"What Happend When?
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Between 1890 and 1900 40 new distilleries were being built in Scotland. The capacity of existing distilleries was also increased. The production was by far higher than the consumption. End of 1898 a reporter writes in the Evening Telegraph.
"There are, however, some (distillers) who delude themselves, and try to delude others, by saying the present stock does not exceed three years' consumption. This AN EGREGIOUS BLUNDER. In the 12 months ended 31st March last, the quantity of Scotch whisky consumed was in round figures 12 ½ millions of gallons, which was a record, but on the day named there were 89 millions bond in Scotland, or over seven years' supply at that abnormal rate consumption, even if every factory in Scotland was closed until 1905."
He compares with "foreign spirit, which also requires to be aged". The stock of brandy and rum matched about 2 years consumption.
Another coment from End of 1898 in London Standard "Production must be curtailed until excessive stocks have been drunk up"
At the same time the banks were offering very generous conditions. However clouds were seen in the sky - the period of success, more consumption, new markets etc. was ove.. The bubble had to burst - like many bubbles before and after, built on unrealistic expectations. However the whisky bubble would burst with or without Pattison, but when it burst the effect was so dramatic as Pattison was a big player on the market.
it is said that already 1894 in the board room of Distillers Company Limited (DCL - today Diageo) the financial situation of Pattison, Elder & Co was discussed. However DCL continued to make business with this firm and later with the limited company. DCL was also the trigger for the crash.
What perhaps is not so well known is that The Clydesdale Bank already in December 1896, i.e eight months after the floatation and 2 years before the crash called for a meeting with the brothers. This meeting was held on January 7th 1897 and caused by the fact that the discount limit of £120.000 had been exceeded by £9.000. It was also an overdraft of £20.000 (against which the bank had undiscounted bills for £18.000).
To solve this the brothers gave securities (Preference shares for £15.000 and personal life insurances policies for £15.000). The brothers got the money (in total £40.000) and the bank thought it would go to cover the debts of the Pattison Limited but the brothers kept the money private. (one of the four charges at the trial in 1901)
The other bank - The British Linen Bank Company got a letter from Robert and Walter Pattison dated 11th August, 1897, i.e one year and four months before the crash "guaranteeing payment to the Bank of an amount not exceeding £230.000, against any loss which might arise."
The preference shareholder probably did not knew anything about the problems. Two shareholders meeting were held before the crash:
Shareholders meeting 5th of June 1897
The profit was reported to be £56,989 5s 2d and dividend was paid to both preference and ordinary shareholders. £15,000 was put to the reserve fund. Pattison had bought half of the Glenfarclas-Glenlivet distillery (£14,329 10s 9d) and also ground in Leith to extend the ware houses.
Shareholders meeting 25th of June 1898
The profit was now £67,170 and the profit was handled as the previous year, but the ordinary shareholder (= Pattisons) also got a bonus of 10s per share
At the trial in 1901 it is a lot of discussions about the fact that the true figures of Pattison Elder & Co were not known to the public and that the share holders were mislead. The shareholders and the not secured creditors (and of course the brothers!) were the big loosers at the crash. The banks were secured. Had the public known about these problems already eight months after floatation the bubble had probably bursted earlier. It was also one of the banks which in June 1899 finally stopped any further attemps for reconstruction. (These reconstruction attempts are reported on a separate page)
It was also other signs that the whisky industry had problems. In June 1898 another whisky firm in Leith, J & G Stewart's (established 1779) stopped the payments. Also here a floatation of the firm to a limited liability company was anticipated. However the difficulties were solved much quicker and a solution with the creditors with good support of Bank of Scotland was found within a month. In 1917 this company was bought by DCL.
In July 1898 it was reported about a houseboat built by Taylors in Staines for the Pattisons. The boat “Glenfarclas” is described as a “Floating Palace” at the Henley regatta.
It was furnished and decorated in Moorish style, and in the spacious saloons, the walls were hung with gold and white silks.
The demand did not decrease but the merchants in London and elsewhere reduced their stocks as the prices were falling.
To summerize – the exterior looked brilliant but indoors the rats had already begun eating on the decor.
Sources:
Evening Telegraph - Tuesday 07 June 1898
Belfast News-Letter - Saturday 09 July 1898
Edinburgh Evening News - Tuesday 19 July 1898
London Standard - Wednesday 07 December 1898
Evening Telegraph - Monday 19 December 1898
Edinburgh Evening News - Thursday 03 January 1901
Yorkshire Evening Post - Thursday 11 July 1901
National Records of Scotland