Difficulties of Pattisons

When the crash came, it was very quick. And the fall had wider consequences than the fate of one particular firm, as we will learn later.

On the 3rd December, Pattison's were still merrily advertising their beer in the Edinburgh Evening News. Two days later, rumours began to circulate about the financial position of the company and the share price nosedived:

"THE AFFAIRS OF PATTISONS, LTD.
Rumour was busy in Leith this forenoon in connection with the affairs of Mesrs Pattison, Ltd., distillers, whisky blenders, and brewers, Leith and Duddingston. The Stock Exchange was affected, and the price of the cumulative preference stock, which stood in the morning at £9 18s 9d, fell to £4 4s, the fall being equal to over 55 per cent. Later in the day the price was £4 sellers.

On inquiry at the offices of Messrs Pattisons, Ltd., to-day, our reporter, in reply to the question as to the reason why there was so sudden a fall in the firm's stock on the Stock Exchange, was informed that that would probably be explained later. He was also told that the firm's financial affairs at the present moment were in the balance.

In Leith this afternoon there were rumours that other two firms were also in an unstable condition financially. The company was registered as Pattisons, Limited, in 1896, to acquire the business of Messrs Pattison, Elder, & Company, whisky blenders, &c., and Pattisons' Brewery. The authorised capital was £40,000, half being ordinary shares of £10 each, and half 5 per cent, cumulative preference shares, the latter having a priority as to capital."
Edinburgh Evening News - Monday 05 December 1898, page 3.

One note: the share capital amount is incorrect in that report. It was £400,000 not £40,000.

I wouldn't have been reassured by that vague promise that all would be explained at some point in the future. Investors weren't either. The shares fell further the next day as the rumours persisted:

"PATTISON'S WHISKEY.
GREAT FALL IN THE PRICE OF SHARES.
Our Edinburgh Correspondent, telegraphing last, night, sais that the rapid fall in the shares of Pattison's (Limited) on the Edinburgh Stock Exchange yesterday was indicative of distrust. The price of the £10 Preference shares, which on Saturday were sold at little under par, fell to £3 in the course of the day.

Another Correspondent says that many rumours were current yesterday in Leith and Edinburgh, regarding the position of Pattison's (Limited) distillers, whiskey blenders, and brewers, Leith, and elsewhere. The price of Pattison s Cumulative Preference Stock opened in the Stock exchange in the morning at 9 15-16 land fell to 4.25, and later to 4 sellers. On inquiry being made at Messrs. Pattison's offices, it was stated that the cause of the sudden fall in the price of the stock would probably be explained afterwards.

Pattison's (Limited) is one of the greatest businesses in the trade, and its vast business extends throughout the Colonies. They have immense warehouses in London, their bonds and offices are then finest in Leith, and they three years ago erected a large brewery at Duddingston. The profits for last year were returned at £52,000. When the company was converted the Preference stock was over subscribed for about ten times. These shares are £10 each, and they have been standing at a premium until yesterday.

The company was formed to acquire, as from the 1st January, 1896, the businesses of Pattison, Elder, and Co., wine and spirit merchants, of Leith and London, and of Pattison's Brewery, Edinburgh. The purchase money. £400,000, was payable £200,000 in ordinary shares, £50,000 in fully-paid preference shares, and the balance in cash. The remaining preference shares were offered at par in March. 1896. The preference shares were entitled to an accumulative dividend of 5 per cent. and to priority for capital without further participation. The articles provide that out of the profits for each year, after paying the preference dividend, not less than £5,000 shall be set aside to form a special reserve fund of £50,000, such fund to be applicable for payment of preference dividends should the profits in any year be insufficient to do so. The first accounts, made up to the 31st of March, 1897, were submitted in June. There was a general reserve fund of £10,000 and a special reserve fund of £5,000. The dividend for 1896-1897 was 10 per cent. per annum.
London Daily News - Tuesday 06 December 1898, page 7.

I'm only just beginning to realise how big Pattison's whisky business was. It turns out to have been one of the largest in Leith, the centre of the wholesale whisky trade.

The news didn't get any better and Pattison's share price continued to fall:

"EXCITEMENT IN THE LIQUOR TRADE.
DIFFICULTIES OF PATTISONS (LTD.)
Great excitement (says the "Edinburgh Evening Dispatch ") was occasioned in Edinburgh and Leith yesterday by rumours regarding financial difficulties of the firm of Pattisons (Limited). The liabilities are stated to be between one million and a million and a half sterling. The cause is said to be largely due to the manner in which the business had been pushed since the conversion of the concern into a limited liability company, and to "undercutting" and the consequent selling in many cases without a due margin of profit, The business is one of great magnitude, and it is understood that no cessation will take place, the banks, it is believed, having come to an arrangement by which affairs will be conducted as usual.

AT THE STOCK EXCHANGE.
The price of the £10 Preference share, which up till last week stood about par, and which so recently as Saturday last were sold at £9 18s 9d, fell on the Edinburgh Stock Exchange yesterday forenoon to £5 sellers and £4 buyers. The opening price on the Stock Exchange in the afternoon was £3, from which figure the price fell gradually to £2 15s, £2 10s, and at the close of the official market to £2, At each of these figures considerable business was done, and shareholders were very eager to sell.

THE BUSINESS.
Few liquor-dealing businesses in Edinburgh district, or, indeed, in Scotland, have developed with greater rapidity than Pattisons. Originally engaged chiefly in whisky-blending, in Leith, they have extended their business in various directions until their premises in Leith - some of them the finest in the kingdom, and quite new - cover a great area of ground, while they have immense warehouses in London and elsewhere.
Aberdeen Journal - Tuesday 06 December 1898, page 6.

That wild-arsed guess of their liabilities as being between one and one and a half million quid couldn't have eased the panic much. But for the first time there's an attempt at explaining the financial position of Pattison's: selling whisky too cheaply. Despite that - and the supposed enormous liabilities - the report is still optimistically upbeat about the long-term prospects of the firm. That optimism wouldn't last for long.

The fall in the share price was spectacular. From nearly £10 to £2 in just two days.

I now understand why the share capital of £400,000 seemed so out of proportion with the size of the brewery. The brewery was but a small part of the whole concern. A fairly minor and unimportant part.

From the number of newspaper reports, I'm also realising just how big a deal Pattison's failure was. Not just in Scottish nespapers, but one from all over Britain. Brilliant for me, as I'm swimming in material. Material to which we'll be returning until I've told the whole story.