"With Faith and Courage"
The Bank of Adelaide 1865 - 1965
(Written by the Late Ron A. Potter)
Chapter 5 : The Unprecedentedly Severe Crisis
The year 1886 was to provide both opportunity and warning to the Board of the Adelaide. On the 24th February the citizens of Adelaide were astounded to read the following notice on the front door of the Commercial Bank of South Australia at 74 King William Street:- "This Bank will be closed until further notice. A special general meeting of shareholders will be held tomorrow at twelve o'clock in the morning. By order of the Board. Alex Crooks, Manager".
It was a shocked and hostile gathering at the Town hall next day. A few people in Adelaide had an inkling that something was amiss with the Commercial as the shares paid to £4- had fallen from slightly over £5- at the beginning of February to £3-10-0d., but nobody was prepared for the revelations of the directors that the Manager had made advances to the extent of £170,000- which he had deliberately concealed from the Board and that the cash when counted had shown a shortage of £7,650-. Alex Wilson, the Accountant, had hidden the shortage from the auditors by lodging with other banks packets which he certified represented a certain value of orders, including Government orders. The auditors were careful to check the signatures of the officers of the other banks acknowledging receipt of the packets which, as Mr. R. Barr-Smith stated "might have contained shavings for all the banks knew".
Richard Tarlton, Chairman of the Board, described by the Register as "that most poetical of colonial financiers" and one of the promoters of The Bank of Adelaide, had taken advantage of his initial success in bank investment to sell his Adelaide shares at a profit in the hope of repeating his good fortune. Sir Henry Ayers, also a promoter of the Commercial Bank of South Australia, was another to take this step and carried with him many of his influential friends. It was an exhausted and chastened Tarlton who handed over the special meeting to Sir Henry after describing how on the evening of February 4th a man on horseback had handed to him an urgent telegram summoning him back to Adelaide. Tarlton was holidaying in the South Island of New Zealand eighteen miles from Elbow Station. By riding through the night he caught a train for the Bluff and by the steamships "Wairapara" and the "South Australian" reached the Glenelg Pier within the week. Here he was met by Andrew Tennant who told him of the alarming state of affairs which had been brought to light by one of the tellers secretly reporting to Mr. M. Salom, a director of the Bank, that there were half a dozen or so accounts carrying immense overdrafts in connection with mining syndicates which had never been brought to the notice of the directors.
The next few days were taken up with anxious meetings of the directors in consultation with Richard Barr-Smith a former London director, who advised laying the whole case before Sir Henry Ayers. Almost conspiratorial secrecy marked the meetings as directors came and left one by one to prevent outsiders getting wind of the true state of affairs. Amalgamation was sought with the Commercial Bank of Australia which had earlier made overtures which had been spurned because of the seemingly good prospects of the local bank as a separate institution. Henry Turner, General Manager of the Melbourne bank came to Adelaide to discuss the proposal and seemed to favour it until London liabilities, approximately a quarter of deposits, were mentioned, when he at once said "The affair is too serious, you had better call the Associated Banks together". The approach to the Associated Banks met no better fate. After a committee, including C. Rischbieth a Commercial director, had sat up all night examining the position they advised that they "did not consider it desirable to render you assistance under the present unfortunate circumstances". Before delivering this news the Associated Banks had demanded and been refused £49,000- due to settle the exchanges, on the grounds that it would show a preference to creditors.
The Manager, Alexander Crooks, freely admitted to the meeting that he had made disastrous advances in the hope of securing good profits but claimed that it had been an unwise decision to close the doors of the bank which was quite solvent and thus to make it certain that immense and unnecessary losses would be incurred affecting not only the shareholders but the community as a whole. The directors however were of a different opinion. They had trusted their manager implicitly and he had enjoyed an impeccable reputation but, as a banker, "if you were to open the window and shovel the money out you could not have got rid of more readily". A large part of the cash deficiency had been money misappropriated by Crooks as treasurer of the South Australia Cricketing Club.
R. Barr-Smith claimed that "the case of your bank is almost unparalleled in the history of business crime" and suggested that the Manager having begun a course of deceit in certain accounts was unable to stop at any point in a downward course as this would disclose what he had been doing to the directors. Between them the board held 80,000 to 100,000 shares and their friends many more. They had not sold their shares when they realised the plight of the bank nor drawn out their deposits and claimed "it is a time for patient endurance; it is a time for humility when such things can possibly happen amongst us". This eating of humble pie turned the wrath of the meeting from the board to the Manager and Accountant and their arrest was called for. Some shareholders were for lynching them. Six weeks later Alexander Crooks received eight years hard labour. In the meantime the committee of investigation appointed by the special meeting had reported "culpable negligence" by the directors who, after the experience with O'Halloran in 1880, had shown "no evidence of greater care or any alteration of their previous mode of conducting the business. On the contrary, we find, if anything, a greater laxity in the performance of their duties and a more child-like trust in their new manager". They concluded that the probable loss was £324,000-.
It is small wonder that the Board of The Bank of Adelaide declined to enter into an amalgamation on the grounds that "it would be too speculative a risk to ask their shareholders to undertake". The misfortunes of the Commercial did not end with the closing of its doors. On the 6th March its Yankalilla Manager, J.W. Lyall was found half stunned, gagged and bound, with his wife similarly trussed up in their bedroom. Bank notes to the value of £1250- were missing and suspicion fell upon Lyall who was committed to trial. A few days earlier Wilkinson had been offering him the position of Manager at Yankalilla for The Bank of Adelaide. The liquidation of the Commercial Bank of South Australia was if anything marked with greater mismanagement than its business operations. Plans were afoot to prosecute the directors for negligence but were reluctantly abandoned. Further irregularities came to light. One of the accountant's debits was found to be "raised" by £1,000- and action taken against Caufield Barson, the teller, but dropped for want of evidence. A further £20,000- was lost at Naracoorte where the Padthaway Estate Trust successfully sued the bank for a glaring breach of trust to which the Manager Oakes, was clearly privy. The Bank was still dying a lingering death in 1890 when the Commercial Bank of South Australia Assets Distribution Company was formed to purchase the remaining assets which were to be distributed to the eager shareholders by lottery or art union. Such action was however found to be contrary to the Gaming Act and the scheme abandoned. Finally the assets were sold to a syndicate, one of two tenderers, for £10,100-.
The failure of this bank was held to have occasioned three deaths and caused great distress amongst shareholders most of whom were of modest means and quite unable to support such a loss. Not only did they lose the money they had already invested but were required to pay an extra two pounds to meet the reserve liability on their shares. Dumbfounded by the stoppage of the bank they rushed to divest themselves of their holdings at any price, some even unsuccessfully offering to pay a pound a share to anyone who would take them off their hands. Some of the bank's notes were sold for 10/- in the pound but other banks quickly announced they would take them at face value.
The stoppage caused dislocation to business, particularly in country areas where deposits were locked up pending distribution and this added to the distress caused by the virtually complete failure of the wheat harvest. At Hawker where The Bank of Adelaide opened when the Commercial closed its doors the Acting Manager, Spencer Kelly, reported on 29th March, "the failure of the Commercial Bank proved very disastrous to the district locking up all capital and bringing trade to a standstill". Some indication of the discomforts a country manager could expect to endure can be guessed at from his subsequent words "the absence of rain and the scarcity of water is becoming a serious question, the railway dam has still two seeks supply of water, totally unfit for consumption unless filtered two or three times, which does not take away the nauseous smell, and then this water will have to be brought by train from Nerna Nerna. The premises are centrally located but very badly built allowing the dust to come through all day rendering it very inconvenient for working".
R.L.Herbert who had earlier managed the Commercial Bank of South Australia at Port Adelaide was chosen to open a branch of The Bank of Adelaide at Yankalilla in place of Mr. Lyall who was involved in the unfortunate mock hold up.
Pictured at left the early Yankalilla Branch of The Bank of Adelaide
Herbert, perhaps trying to ingratiate himself with his new employees conveyed his congratulations "on the popularity which The Bank of Adelaide enjoys in this district, and trust that it will ere long be firmly established and doing as good a business as the Commercial Bank has done". At Woodside the Adelaide opened on the day succeeding the closing of the Commercial Bank with R.T.Mahnke as Manager. The following day the National Bank of Australasia, which had a strong interest in the district and had been petitioned by some of the customers of the Commercial Bank to open a branch with the late Manager of that bank in charge, set up in opposition and gained a large proportion of the business. The Woodside Branch of The Bank of Adelaide was soon closed, Mahnke opening at the neighbouring township of Blumberg (Birdwood) instead.
The chief resources of the district according to Mahnke were goldmining, the "New Era" and the "Eureka" paying fairly, and the "Bird in Hand" contemplating reopening, grazing and wattle stripping. "Farmers were not doing very much now. The greater part of the land being in the hands of the S.A. Company who only grant short leases and hamper their clients with a number of restrictions which have the effect of keeping back the district as the farmers are unable to put up any expensive improvements on account of the short leases and the crops too are regulated by the Company. Fruit is grown pretty abundantly here but little is exported. Apples are left rotting on the ground, the market price not paying for the expense of sending them".
In February the Adelaide opened at Glenelg and the Manager was looking for a good increase in deposits "with the release of customers' money at present locked up in the Commercial Bank of South Australia". In the meantime he was enabling some of his customers to carry on by overdraft, secured by an assignment of their balances in the Commercial. Later in the year branches were opened at Lobethal under J. Lindner, formerly the Commercial Manager, Blumberg and Mount Pleasant. The liquidation of the Commercial Bank of SA left openings for Wilkinson to extend his business particularly in the Hills districts where competition with the National Bank was to be keen. With the difficult season, lack of confidence in business generally and considerable anxiety with some of his existing accounts there was probably nothing that he could do to assist the Commercial in its troubles, even had he desired to do so.
In the longer view the failure of that Bank was probably unnecessary because with a reserve fund of £85,000- it should have been possible to have ridden out the difficulties caused by Crook's massive and ill-considered unauthorised advances. Given effective management, rehabilitation could have been achieved, particularly under R S Young, Branch Inspector of the defunct bank who was later to become Superintendent of The Bank of Adelaide. All of Crook's advances were not characterised by recklessness and one in particular might even indicate that he was more far sighted than his fellow bankers, for amongst the assets in the hands of the bank liquidators was the whole of the Mildura leases, some four hundred square miles in area, which were sold to the Chaffey brothers who early in 1887 had arrived to set up an irrigation colony along the River Murray. The Bank of Adelaide was not to escape quite unscathed "the cyclone through which they had passed" in the words of Joseph Fisher to the Annual General Meeting in May 1886. The dividend was reduced to 3% but the Bank was sound as the "directors had set their faces against land syndicates which were at the bottom of ninetynine out of one hundred failures" and the colony had emerged from the "false paradise of inflation which existed three or four years ago".
In July however rumours were rife that the Bank was in difficulties and that large unrecoverable advances had been made to one of the directors. The shares tumbled from over £6- to their par value of £4- and even below. To quash the rumours which had no substance Wilkinson called in reporters from the Register, and the Advertiser and was subjected to a close interrogation of the affairs of the bank the publication of which allayed public misgivings. Some shareholders with the example of the Commercial still fresh in their minds, sought to amend the power of the directors to advance up to one third of the capital of the bank to themselves or to officers of the bank. Mr Varley, a prominent lawyer was the convincing spokesman of those who wished to reduce this power to one eighth of the capital and preparations were well in hand to call a special general meeting meeting to deal with this proposal when Varley died and the matter lapsed.
Wilkinson was not without his private worries. His two sons had formed the Wilkinson & Co. which was insolvent. He reported to the Board that "being largely interested he considered it his duty to tender his resignation as Manager of the Bank". As the Bank would not in any way be affected the Board expressed their strong sympathy with the Manager but unanimously decided not to accept his resignation. The firm resolved its difficulties and became leading wholesale grocers and merchants, until it was absorbed by the chain store, G J Coles and Company Limited in 1959. The recovery from the 1886 set-back was slow. The dividend was further reduced to 6 per cent but the future looked brighter. Although prices for wheat and wool were poor, the harvest was better and a shortage of labour had emerged, while a good trade had grown up with the Barrier Ranges. Only one branch had been opened at Maree (Hergott Springs) but the Board was considering the question of opening a London Office.
Staff problems engaged the attention of the Manager and the Board. There had been public comment on the presence of bank officer in the "giddy throng in King William or Pirie Streets" where the brokers had their offices and the Board issued instructions that "officers of the Bank were not to be seen on change and brokers were not to come to the institution to do business with officers". Steps however were being taken to form the nucleus of a retiring fund from £4,000- already set aside as a guarantee against defalcations. Some years earlier the Board had passed "a resolution not to employ married officers whose salaries do not reach £200- a year or who have not private means of their own to supplement the salary when lower than that amount". The bank officer of the day was in general subject to speed dismissal if he did not measure up to requirements or broke any of the rules, either by accident or intention. However there were exemptions where some were concerned. "I very much regret having to inform you that your boy Stanley is not giving us satisfaction" wrote Wilkinson to one parent in April 1886. "I have smoothed over many complaints but I am at last compelled to ask you to do something with him. You must place him where he has more muscular occupation and keep down his very active brain". Ten days later he wrote "Stanley has again given us trouble - I do not blame the boy - It is his constitution and I think he should have some slow outside work in order to strengthen his muscular system".
Inexperienced branch managers required instructions in their duties. When Mahnke was appointed to managed the new branch at Blumberg he was told "it is part of our business to buy gold and you can commence to do so. Good sound nugetty gold is worth £3.15.0d to £3.6.0d. an ounce - Dusty £3.13.6d is sufficient. You require to blow out any dirt and try the large pieces to avoid fraud. You can tell by feeling the weight. It does not matter if you should err a little at first. Practice will bring you up to the mark". It was commonly agreed that gold would be found in abundance sooner or later in the colony. At Teetulpa in the Far North prospectors claimed the discovery of a rich field and five thousand miners made for the diggings. Lack of water in the parched interior restricted operations and the miners quickly left although city "experts" were certain that gold was there and all that was needed was a few hundred good Bendigo miners who would make it pay even if the yield were only half as great. In spite of the city's confidence, the northern fields produced little ore and even the discovery of a 44½ ounce nugget at Forest Range in the Adelaide Hills did not presage profitable mines, excessive water, rather than its lack, closing promising workings. It was the silver lead of the great mine at Broken Hill, not gold, which brought a revival of prosperity to the State. The seemingly limitless resources of the Barrier Ranges could only be guessed at, but already in 1888 the Broken Hill Proprietary Company had purchased 3½ acres at Port Pirie for what was to be one of the largest melting and refining works in the world.
By the beginning of 1887 through traffic by rail to Melbourne had commenced and by the end of the year the line to Broken Hill had been opened. Plans were afoot to clear 6000 acres of the Ninety Mile Desert, to be renamed "Mimosa Land" and to be planted with vines. Ostrich farming gave promise of long term profits and the SA Ostrich Company had 715 mature birds and 205 chicks hatched in the colony. In the interior 1200 camels provided transport beyond the railway which stretched nearly seven hundred miles north of Adelaide, thrusting forward to make the still uncompleted link with the Northern Territory. Rabbits were a pest in good years and mongooses had been imported in an attempt to control them. Until the discovery of myxamatosis, however, drought alone effectively curbed their numbers. Red rust and locusts were equally the enemy of the farmer reducing promising crops to failures when they struck. Confidence was nevertheless returning to the colony. The remaining local rival of The Bank of Adelaide, the Town and Country Bank under the Chairmanship of Mr S.D. Glynde M.P. weathered its own crisis in January 1887 when it was revealed that it had made heavy overdrafts of an insufficiently secured basis and the Chairman was called upon to resign. The bank was however only briefly to survive, being brought by the Commercial Bank of Australia for £55,000- in 1891 after liquidation had failed to realise sufficient cash to meet the Commercial's share offer for the business.
Samuel Glynde, after quitting the position of Chairman became a strong advocate for setting up a state bank of issue and deposit, and obtained the appointment of a Commission which, after examining banking practices in the other colonies, reported in June 1889 that it did "not recommend the establishment of a Government Bank at present. There is no precedent for such a banking institution as would be suitable for the colony". Two more branches were to be opened in South Australia during Wilkinson's management. One at Two Wells replaced Mallala which reverted to an agency, and the second at Renmark where the Chaffey brothers were developing a second irrigation settlement. After two months the Renmark Manager was able to report "I am looking to a large increase of business during the next half year as settlers are now beginning to arrive from England, one party this week taking up 200 acres, also Messrs. Chaffey Bros. are going to extend operations shortly and a large number of men will be employed".
"On the settlement the following work - the figures of which are from the General Manager here - has been done. Canals 1½ miles, channels 8 miles, clearing about 1000 acres of land, altogether with pumping plant as on the land costing about £45,000.".
In his next report he mentioned the arrival in the district of French vignerons with good connections, a reference to the Angoves who were to become notable wine and brandy makers and with whom the bank was to enjoy a relationship which has outlived the later closing of Renmark Branch.
NEXT CHAPTER 6 : THE GENERAL SUPERINTENDENT
OR RETURN TO CHAPTER 1