"With Faith and Courage"
The Bank of Adelaide 1865-1965
(Written by the late Ron A Potter)
Chapter 3 : "Building the Business"
Henry Ayers must have been well satisfied that his efforts in forming the bank had come to fruition at the most appropriate time. The province had never known such expansion and prosperity. Mr Boothby, Assistant Secretary and Government Statist, in his 1865 report to the Chief Secretary was able to paint a picture of booming progress.
The population of the State numbered 156,605 and during the year had increased by 6¼ per cent., a larger addition than in any year for a decade. Almost half the growth had come from natural increase, migration provided the balance, and although workers recruited in the Mother Country by the Commissioners were roundly condemned by all district councils as broken down clerks and the like, there was a great demand for agricultural labourers and domestic servants at wages ranging from 15s. to 20s. a week with rations. The amount of crime, reported Boothby with some unction, was far beneath that prevailing in the neighbouring colonies.
Oversea trade amounting to £6m. a year, over half being with the United Kingdom and much of the rest with other Australian Colonies, had increased by a third in 1864 and by a further 6 per cent in the following year. Breadstuffs, wool, and minerals made up 96½ per cent of all goods sold overseas; coal for copper smelting was the principal import. Pastoral industry and agriculture had prospered, the area under cultivation of over 660 thousand acres being nearly treble that of seven years previously. The wool clip from 7s 8d. to 9s. bushel. Land was in great demand and prices high,
The colony was not without its anxieties in a troubled world. A company of troops had been sent to New Zealand for the Maori wars and South Australia was defenceless against a probable involvement in the American Civil War and Russian threats. An extra £20,000- was added to the estimates to provide a half battery of artillery to protect the port from attack by a raider whose yard arms might any day stand up above the horizon at Glenelg, but the Imperial Government refused the colony's urgent request. With such exciting, disturbing events taking place in the distant world beyond the Gulfs, the announcement that "petroline" had been discovered on Kangaroo Island aroused little interest. The Adelaide Chamber of Commerce described 1864 and some of 1865 as "a period of great prosperity for the producing interests of the colony" but drought was already casting a black shadow on future prospects. Goyder had made his report on conditions in the outlying stations, the practical basis of his "line of demarcation between that portion of the country where the rainfall has extended and that where the drought prevails" which followed the southern limits of the common saltbushes and coincides generally with the 10 inch annual isohyet. Lambing had been a failure and wool exported from Port Augusta fell from 4.3 million pounds in 1864 to a bare 1 million pounds in 1866. The a865 wheat crop had fallen by ten per cent and the yield of 8 bushels 44 lbs. per acre was the lowest recorded, the average for the previous seven years being 12 bushels.
The wave of prosperity had passed its peak before the Bank opened its doors in December 1865 and the money which had so freely come forward to provide capital was now scarce. The directors and the manager had to struggle for business in competition with the established banks in the backwash of depression. Each day, save Saturday, the directors attended the bank to decide upon bills offered for discount. Periodically they counted all cash on hand weighing each gold sovereign individually on a tiny coin scale. When not so engaged they used their personal influence and connection to secure new customers for the local bank. John Souttar as Manager was quickly gaining in standing with the citizens of Adelaide and was tireless in seeking out profitable opportunities to employ his Bank's resources.
Pictured at left John Souttar, General Manager
from 1865-1879.
In their first annual statement of the affairs of the Bank the directors reported
"a general depression in commercial affairs" which had made the building
up of a sound and profitable business no easy matter; particularly as the
capital employed had only become available in installments as calls fell due.
Nevertheless all preliminary expenses had been paid and a respectable sum set aside to form the nucleus of a reserve fund.
Had the Bank not been established in 1865 it might have been many years before times would have again been ripe for its promotion. As Henry Ayers said to his fellow shareholders at the first annual general meeting "it happened somewhat fortunately that this bank was established when there was some amount of spare capital in the place which had thus been conserved by being engaged in the colony, whereas it might otherwise have been taken elsewhere. It was a peculiar advantage to South Australia that the bank had started at the particular juncture it did, for if it had not done so he doubted if it could have afterwards." After the golden years of the early sixties South Australia entered a period of relative stagnation. In the four years that Henry Ayers was Chairman, before a visit to England led to his resignation from the Board, he reported annually to the shareholders that trade was dull and prospects cloudy. Nevertheless his audience had little cause to complain. Their share showed a healthy premium, dividends of 6/- a share were paid in 1868 and 1869 and 7/- in 1870 and a reserve of over £10,000- had been set aside out of profits.
The fourth annual balance sheet as at the 3rd January, 1870 showed a paid up capital of £200,000-, deposits approaching £190,000-, of which a little over half were interest bearing, notes, in denominations of £1-, £5-, £10-, and £20-, were in circulation to a value of £26,800-. The funds of the Bank were principally employed in the discount of bills and making advances, which together accounted for over £371,000-. Liquid resources comprising specie and notes and bills of other banks amounted to over £73,000-, the high rate of 40% to deposits representing not only the conservative policy of the Board but also the difficulty experienced in finding suitable openings to employ funds with safety and profit.
Not that profits were hard to make. The Adelaide banks, by mutual agreement, fixed minimum rates of interest for overdrafts and discounts, which in 1872 were 10% per annum, while maximum deposit rates ranged from 2½% per annum for deposits at thirty days call to 3½% per annum for deposits fixed for 12 months. Little attempt was made to attract deposits as banking practice and public opinion looked for a bank's capital to exceed its liabilities to its customers. Moreover payments by cheque were comparatively rare, most commercial transactions taking place through the use of bills and notes which, suitably endorsed, were discounted by the banks. When Robert Barr Smith took over from Henry Ayers, the Bank had become well established. The Goolwa Branch had been closed but in its place the Bank had opened up at Kingston, port of the rich south east, on Lacepede Bay and two hundred miles from Adelaide. The new chairman was only to hold this office for two years, although he was to remain a director until 1876, and was succeeded by Alexander Hay who presided over the Board for the next nineteen years.
Alexander Hay born in Fifeshire, Scotland in 1820 came to Adelaide in 1839 and settled in Gumeracha which he represented in the first parliament. he was a Commissioner for Works in the Reynolds Ministry of 1860-61 and added to his agricultural interests, ownership of the Register and Observer Newspapers, and as well as being Chairman of the Bank was also on the boards of the South Australian Gas Company and the South Australian Insurance Company. Much of the credit of the success of the new Bank must be given to its first officers. Unfortunately little is known of them, notoriety in any form being anathema to the bankers of last century. John Souttar, Manager of the Bank from the 8th September, 1865 until his resignation on the 9th October, 1879 was born in Scotland in 1837. At the time of his appointment he was Manager of the Oriental Bank at the gold mining town of Sandhurst near Bendigo in Victoria and his name and capacity were presumably brought to the attention of Henry Ayers when he let it be known in banking circles that he was looking for a suitable Manager for the new Bank.
John Souttar a handsome bearded widower of twenty eight quickly took his place in Adelaide society, finding time in his first year of office to engage the affections of Miss Koanna Wynee Daly, elder daughter of the Governor, Sir Dominick Daly. In August 9th that year a private double wedding ceremony was conducted by the Dean of Adelaide, the Very Reverend James Farrell at Holy Trinity Church between John Souttar and Joanna Daly and between Henry Turton, Secretary and Manager if the Savings Bank of South Australia and Caroline Daly, Joanna's younger sister. Sir Dominic being a Roman Catholic the marriage guests were naturally confined to members of the family and close friends but North Terrace was thronged with people wishing happiness to the not so young couples on their way to the Government Cottage at Glenelg for the Souttars, and Government Farm for the Turtons. Joanna, at 33 years of age, was four years senior to her husband and probably only too happy to settle down to the life if a banker's wife after her wanderings from colony to colony with her father's household.
As Manager of the Bank, John Soutter conducted the business on a very personal plane. Little of his correspondence is preserved with the exception of letters to "My dear Garsed", Manager of the Kapunda Branch written in a flat, bold hand with an economy of words. Under pressure, as at Board Meetings, his writing could degenerate into a scrawl. Shortly before his marriage he wrote asking Garsed to "do anything you can towards helping the bearers of this to work as agricultural labourers. They come from my part of Scotland accredited to me and are I believe fully qualified men". A short time before he was telling Garsed how to act to forestall a run on the Bank. The Overend, Gurney & Co. Ltd. crash in May, 1866 created a storm in London whose backwash spread to Australia rocking the National Bank. This bank depleted its hoidings of gold and sovereigns to meet heavy London commitments and some of its customers were restless. The eddies reached Kapunda and Souttar sent Penny, Correspondent and Shareclerk, and formerly private secretary to G M Waterhouse, acting inspector and general manager of the South Australian Banking Company, with a letter telling Garsed how to act to forestaff any run on the Adelaide.
Penny, aged 23, had been installed on the top floor of the Imperial Chambers in King William Street by Henry Ayers to handle the share work in the weeks before the Bank opened its doors for business. On this occasion he brought with him not only advice but also £2,000- in gold and £500- in silver to strengthen the Bank's Kapunda defences. John Souttar's advice ran "do not hesitate to exchange our own notes for National Bank or to receive them in any way. Of course a direct exchange of gold for notes would be unheard of and unreasonable. Do all you can to stop these rumours; I believe them to be without any reason.
I would suggest that the best way of meeting them would be to keep a good deal within the office so as not in any way to fan the excitement, to watch the movements from there and to take any opportunity of laughing down the fears of those who may express such." At Adelaide Office the staff were from time to time over worked and in June 1869 Souttar wrote "I wish you to lend us Procter for one week - my fellows here are nearly done and Dixon is going to be ill. Send him tomorrow morning - first train. I will promise faithfully to let you have him again."
Every detail of the Bank's business went through John Souttar's hands. When Kapunda Branch needed painting he wrote, "You can spend £150-. No more, so you must make it go as far as you can. Take care that the essentials are attended to."
In dealing with a claim for destroyed notes Souttar wrote "we have never up to this time paid the value of any note even under guarantee unless some portion of the note was presented to us. I mean some portion sufficient to prove its identity. The habit of the Bank of England is to pay the full amount for a half but I do not think it goes farther. You see if we went for paying the value of a note upon the creditibility of the witness, we might fairly enough be found fault with (and very roughly too) by the witness we refused to believe." There could never be any doubt in the minds of the recipient of John Souttar's letters as to his meaning. "I want you Branch people to help me in getting in some money", he wrote in June 1879, "in fact to do what I am doing i.e. to spend nothing and to lop off everything not specially valuable". His branch managers can hardly have been so explicit. "You are all so good of asking vague questions I sometimes scarcely know how to answer them" he complained in an earlier letter.
The firteen years that John Souttar was Manager were marked by steady, if unspectacular growth. Reasonable profits were earned and the dividend rate increased from 6/- a share in 1868, to 7/- a share in 1871, and to 8/- a share or 10% in 1874. Capital had been doubled by an issue of a further 50.000 five pound shares at a 20/- premium in 1872, and by the end of 1875 capital was £400,000- in 100,000 five pound shares paid up to four pounds, each share having a reserve liability of five pounds, callable only in the event of liquidation. Shares were quoted at a premium of up to two pounds ten shillings on the Adelaide Stock Exchange. Yearly the directors had transferred part of the profits to reserves which by 1876 totalled £100,000-. By the time Souttar resigned a further forty thousand pounds had been added to the Reserve Fund. Capital was the basis of banking business in the last century and a bank whose deposit liabilities exceed capital resources would have been held guilty of dangerous overtrading. By 1880 The Bank of Adelaide had emerged as the second bank in the State with assets of almost £1¼ million, slightly more than half those of the old established Bank of South Australia.
The fresh capital called up was to be needed to meet the challenge of a local rival, the Commercial Bank of South Australia, sponsored by Robert Tarlton, an original promoter of The Bank of Adelaide. As early as mid-1865 proposals had been put forward to form a second South Australian bank to be called "The City Bank" but sufficient support was not forthcoming. It was not until 1878 that a rival institution came on the scene under the Management of Mr O'Halloran. The Commercial Bank of South Australia from the outset followed an aggressive policy of opening branches in country districts and by 1880 had ten branches stretching from Gladstone in the north to Mount Gambier in the south-east. Although its capital was only half that of The Bank of Adelaide it clearly posed a more immediate threat than the Bank of New South Wales which had recently opened its first branch in Adelaide.
The directors of The Bank of Adelaide were convinced that the proper and profitable form of banking was the discounting of trade bills and the assistance of commerce rather than agriculture. The branches at Port Pirie, "the Liverpool of South Australia" where 150 wagons of wheat unloaded daily from as far away as Jamestown, and Port Augusta both opened in 1875 were designed principally to serve the trade in wheat, wool, and copper, while the branch at Morgan, where Mr Scott was agent, owed its existence to the fact that it was the head of the railway and a flourishing river port on the North West Bend. The boundaries of agricultural development were restricted largely to the Adelaide plains and north to Clare. Holdings were limited to eighty acres save where dummying had allowed absentee holders to purchase larger acreages. Acting on the Wakefield principle, sections were only available for cash payment, which locked up the land against rapid development by resident farmers prepared to purchase their properties from the fruits of their labour over a period of years. A complete reversal of land policy had to be made before the Bank could make full contribution to its growth.
Before this happened John Souttar was to leave both the Bank and Adelaide. It is not difficult to surmise that relations between the Manager and the Board were not always harmonious. As the son-in-law of the Governor, Souttar must have occupied a position in Adelaide society which was regarded with some degree of suspicion and jealousy by the directors, who were leading citizens in an intensely class conscious and narrow society. It is probable that he was not well liked by some of his customers. In July 1870 a letter from forty shareholders on the general management of the Bank was laid before the Board. Furthermore judging from the lack of business recorded as taking place at the weekly meetings of Directors, John Souttar appears to have made his own decisions and merely to have reported his actions. Such freedom was not allowed to branch managers as Mr Connor at Port Adelaide discovered in 1868, being informed "that the allowance of any overdraft without permission received from Head Office will be considered by the Directors as a resignation of his office."
The directors were actively occupied in the running of the Bank. They inspected all branches with or without the manager, supervised the burning of old notes withdrawn from circulation, reported on securities, counted the cash, and one director was present daily at discount. In addition from May 1875 the Board met twice a week on Mondays and Thursday. As manager John Souttar clearly gained their confidence, his salary was increased to £1,100- a year in January, 1867 and in September, 1872 a further four hundred pounds a year was added. By 1879, however, it seems clear that the affairs of the Bank were not running smoothly. Resignations of officers became frequent, and Messrs. Fisher, Rymill and Smith were appointed a special committee to examine the securities held by Head Office. After a number of meetings they reported that they considered the result of the investigation satisfactory. Nevertheless the Manager and the Board were clearly drifting apart and the Chairman was no doubt little surprised to receive a letter dated 26th September, 1879 addressed to The Hon. Alex Hay, MLC and reading:
"Dear Sir, The relations between the Board and myself have been somewhat strained of late and I am induced to feel that it may be for the good of the Bank and for my own comfort that I should place this my resignation of the position of Manager in your hands. I trust at the same time, taking into account the period (fourteen years) during which I have occupied that position and that the best years of my life have been spent in bringing about in a great measure, the success which has attended the Bank, you will see the fairness of dealing liberally with me; sharing with your first Manager some of the profits which have accrued and which will continue accruing every year. Wishing for the Bank a prosperous future, I remain Dear Sir, Yours faithfully, John Souttar."
A rough draft of this letter in Souttar's own hand is preserved, showing signs of the distress which this decision caused him. The letter was laid before the Board on the 9th October and the Board "resolved to accept the resignation of Mr Souttar as Manager of the Bank and in doing so regret that circumstances should have arisen to necessitate this step. In parting with Mr Souttar the Board intends to make him such a substantial allowance as will show they fully appreciate his past services as Manager, and they also express the hope that his future career, whether in this Colony or elsewhere, may be one of prosperity and happiness." Mr. Henry Stodart, Accountant of the Bank since its formation was appointed Acting Manager until a new man could be selected to take over the reins. Two months later the Board resolved upon their "substantial allowance". John Souttar was to be paid six months salary at the rate of £1,555- per annum from the last December, 1879. This was to be paid monthly. He was also to be paid a further principal sum of £2,000- in half yearly instalments of £500- each, the first payment to be made on the 1st December, 1880.
Although in his report to shareholders in 1880, Alexander Hay declared that Mr Souttar had expressed satisfaction with the payment made to him, it does not appear to have been very generous, while his references to the resignation have a waspish ring about them revealing just how far the relationship between the Manager and the Board had deteriorated . "Mr Souttar's retirement" he declared "was a matter considered beneficial to himself and the shareholders. (Hear hear.) He did not wish to go into that matter". John Souttar did not linger in Adelaide for long but his way back to Scotland temporarily, returning in 1880 to open the Sydney Branch of the Queensland National Bank Limited, where the initial fixed deposit of £125,000- by Australia's wealthiest bachelor, James Tyson of Toowoomba, exceeded the total deposits of The Bank of Adelaide at the end of its first year of business. He remained with the Queensland National for six years, being promoted to Inspector of Branches and temporaily acting as general manager, until a break down in health enforced his retirement and return to England, He died in 1914 at the age of eighty six years.