Tuesday, 17 April 2012

The Pattison crisis deepens

Gradually the details of Pattison's financial position began to seep out. And the more that was revealed, the more nervous investors became.

The significance of Pattison's can be gauged by the wide geographical spread of the newspapers which reported their problems. Only two of the clippings below come from a Scottish newspaper. The others are from English and Irish newspapers.

But what initiated the crisis? A bank. The British Linen Company Bank, to be precise, to whom Pattison's owed £100,000.


In connection with the affairs of Pattisons'. Limited, a telephonic communication received from their Leith office on Saturday afternoon stated the Company paid over £6000 of duty that day, and that business was going on as usual. It was announced in Edinburgh on Saturday that the British Linen Company Bank hold securities over Pattisons', Limited, to the extent of £100,000. Pattisons' granted a bond for a cash credit with a bank of £40,000 in December, 1897, and so late as the 3d of November last they executed another deed conveying additional security to the extent of £60.000 for a further cash credit. The total indebtedness of the Company to the bank on these bonds is thus £100,000. secured over the Duddingston Brewery properties."
Dundee Courier - Monday 12 December 1898, page 5.
That guff about paying £6,000 in duty was just to reassure jittery investors that Pattison's was still a going concern. Which it almost certainly wasn't. But who would want to let that slip? £100,000 secured against the Duddingston Brewery? It wasn't worth anything like that much. At least not if you tried to sell it.

The profits of Pattison's were disappointing. See if you can spot something odd about the numbers:

Pattison's Shares Go Down.
Much excitement prevailed on Monday in Leith, centre of the Scotch wholesale liquor trade, owing to the news that Pattisons Limited were in a serious, financial embarrassment. Pattisons is one of the most extensive concerns in the trade having branches in the colonies, warehouses in London, a large brewery in the suburbs of Edinburgh, and the finest set of offices in Leith. The business is a comparatively new one, and the position in which it is now placed is said to be due to extensive advertising and underwriting. Last year's profits were returned at £52,000 but for six years previous to that they had averaged only £600. When the company was registered in 1896 the preference stock was subscribed for ten times over. The preference shares, however, which are £10 each, and which were standing at a premium on Saturday, were on Monday at close of the Stock Exchange being dealt in at £2, at which figure heavy deals were executed, shareholders in a panic rapidly unloading.

A meeting of the chief creditors of Pattison's (Ltd.) was held on Wednesday, says an Edinburgh correspondent, when it was agreed to accede to the request of the directors to hold over bills now due for ten days. The meeting appointed an Edinburgh accountant to represent them in making up a statement of the firm's affairs. The panic has now almost subsided. A more hopeful view is now taken on the Exchange. From a well-informed source I learn that the £10 Preference Shares will this week see £5. The Company have agreed to the appointment of Mr. Chiene, chartered accountant, Edinburgh, to prepare an exhaustive report on tho position of the business, and the banks having meantime agreed to advance the necessary funds to keep things the business is being conducted as usual. It is stated that the assets, after meeting the  liabilities, would leave a margin of £150,000. A Glasgow correspondent learns upon inquiry that none of the Scotch banks am involved to the extent of a single penny without adequate security, and that a circular to be issued will substantiate the company's claim to be able to pay 20s. in the pound."
Blackburn Standard - Saturday 10 December 1898, page 11.

Remember the Pattison's prospectus? According to that that average profit in the years 1890, 1891, 1892, 1893, 1894 and 1895 had been £22,889. Yet this article says that the average profit in the years 1891 to 1896 was just £600. There's something not right there. We'll be learning more about the difference between the profits claimed in the prospectus and the actual profits when we get to the trial of the Pattison brothers. It seems the prospectus didn't really give a true image of Pattison's finances. Especially their assets.

The important stuff is in the second paragraph. That initiated a new phase of the crisis. First, the company was granted a moratorium of 10 days on the payment of bills that were due. Without that extra time, the company wouldn't have been able to meet its obligations. Secondly, an accountant was brought in to compile a report of the company's finances. That report, when eventually made public, was to have an enormous impact.

The final sentence is also very important. The canny banks had security for all the money owed them. They would be first in the queue for payment if the company collapsed. Many might have lost money in Pattison's, but the banks didn't. See that they're still claiming that they would be able to pay all their creditors in full? Was that a deliberate lie or just misplaced optimism?

A week and a half later, with nervous creditors still waiting for the accountant's report, that optimism was beginning to melt away:. And other whisky firms were being dragged into the crisis.

"Some anxiety has to-day been expressed in whiskey export circles regarding Pattisons, Limited, and the likelihood of their undergoing a successful reconstruction. The position is not so good as it was originally said to be, and it is thought that on the conclusion of the accountants' examination a realisation would not result in sufficient cash to pay 20s in the pound. It is also. considered as a foregone conclusion that one or two firms which have been closely connected with Pattisons must also fail, and the news comes from Glasgow that a very old established whiskey house in that city has been so severely affected as to make the suspension of business appear compulsory. "
Freeman's Journal - Tuesday 20 December 1898, page 3.

The accountant's report was originally meant to be published on 20th December. Four days after that date, it still wasn't ready:


The accountants charged with the inquiry into the affairs of Messrs Pattison, limited, do not expect that they will he able to finish their report until tonight. The meeting of bank managers, which was to have been held in Edinburgh to-day to consider the report, has therefore been postponed until to-morrow or Monday. The accountants, who it is understood, will present a report favourable to the Company, will recommend a scheme of reconstruction. Nothing regarding the report will be given to the press until after the meeting of the bank managers. "
Dundee Courier - Saturday 24 December 1898, page 3.

The date of publication of the report kept being moved back. Not a good sign. Especially for the shareholders:


The ten days' delay originally asked by Pattisons has now run into twenty, and yesterday, on enquiring at the offices of the company, it was stated that the report of the affairs would not be ready until Saturday. The delay, especially after the report had been promised almost definitely upon several occasions, has given rise to the greatest anxiety amongst the trade and shareholders alike, and there were many alarming statements made in Leith commercial circles, not only about Pattisons, but about firms whose existence is known to be hanging on the thread. Whether or not the statement of affairs has been completed and in its present form exhibited to the chief creditors it is impossible to say, but yesterday a Press representative had a conversation with two well-informed individuals, both largely concerned, who are most likely to know of inner transactions, and they were each of the opinion that whatever there is for the creditors there will be little for the shareholders. If the worst does happen, it may be said that the brewery business is certain to go on under new capitalists, as this business, apart altogether from the whisky concern, is sound."
Daily Gazette for Middlesbrough - Thursday 29 December 1898, page 2.

That last sentence is significant. The brewery part of the business was seen as viable, unlike whisky side. The brewery had just been dragged into crisis by the poor performance of Pattison's whisky trading.

The accountant's report was finally presented on 30th December, though only to a closed meeting of certain creditors:

The latest news - if indeed, it may be called news - in  respect to Pattisons is not very favourable. The following official statement was issued yesterday afternoon after a meeting between the bank managers interested, the auditors, and some of the creditors. "A private meeting of the leading creditors was held in the chambers of Messrs. Chiene and Tait chartered accountants this afternoon; the statement of affairs prepared by the accountants, Mr. Tait and Mr. Murray; was submitted and approved of, and it was remitted to a committee to consider as to a scheme of reconstruction to be submitted to a meeting of creditors to be held on Friday, January 6."  Although no details have yet transpired there is no abatement in the feeling of uneasiness in the North. Reconstruction. is, of course, a necessity, but it is doubtful how much beyond goodwill there is for the shareholders to reconstruct upon. The main thing, however, is to prevent the whisky crisis from spreading and until more details are known it is impossible to say how far other firms may be affected."
Pall Mall Gazette - Saturday 31 December 1898, page 5.

This was the start of the next phase of the crisis: attempts at restructuring the firm so that it could continue to trade indefinitely. They would continue through the early months of 1899.

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