Friday, 13 April 2012

Pattison Prefered's Fluctuations

More from the financial pages about the crisis at Pattison's. If you're keepng good track of the dates, you'll see how quickly it moved from being rumours to a real crisis.

Already the cause of Pattison's troubles was being speculated upon:


Glasgow. Tuesday Evening. The chief topic of conversation in the Glasgow Stock Exchange to-day was the crisis in the whisky trade, the opinion that not a few held being that the Board of the Messrs Pattison, Limited, had adopted too great a policy of extension ; however, so far as the Preference shares of the Company were concerned, they recovered from 60s to 72s 6d, but at the afternoon sederunt relapsed to 67s 6d. The concern has a capital of £400,000, of which one-half consists of Five Per Cent. Preference shares, and a half in Ordinary shares of £10 each. The vendors retain all the Ordinary shares and a fourth of the Preference. Those in a position to know state that the assets of the Company will show more than 20s in the £1, i.e., provided the scheme which the largest creditors were to consider to-day was adopted. The idea not a few in the trade hold is that too much has been made of the Pattison, Limited's, difficulties, and that the shares at the low prices quoted to-day were worth buying.
Dundee Courier - Wednesday 07 December 1898, page 2.

Three days after the crisis began, Pattison's shares remained around the £3 mark, or less than a third of their value of a week earlier. At this point there was still confidence that Pattison's had plenty of assets to cover their debts and that everyone would get their money back. That turned out to be partly true. Some creditors were paid in full. Just not the shareholders. They were at the end of the queue.

Knowing how things developed further, I'd have passed on Pattison's shares, even at £1. There was still lots of speculative trading in Pattison's right up until they were removed from the Stock Exchange. Reports like the one above doubtless encouraged some to gamble. And, at least initially, there were panicky sellers aplenty.

This is where the accusations of recklessness on the part of the Pattisons begin to fly:

After reviewing the first year's trading result of Pattisons (Limited) and discussing the growth of assets, Messrs. J. D. Walker and Watson, the well-known Edinburgh stockbrokers, remark in their circular that "it is rumoured that through buying and carrying stocks ot whisky to an imprudent extent - as well as to the lavish advertising costs and granting of indiscriminate credits - the embarrassment to the company has largely arisen. But such indiscretions would, indeed, need to have been on a gigantic scale to have swallowed up real assets, in addition to current profits, to the extent we have above indicated, and it is no wonder that so much interest and anxiety are evinced to learn what the actual position in respect of liabilities and assets can be that thus would seem to threaten to sweep away so substantial a substratum to the extent of depriving the Preference issue of any surplus at all. It is, in fact, scarcely credible that the issue should prove thus disastrous - that an apparently flourishing business, presumptively but yesterday possessed of 'tangible' assets to the value of not far short of £300,000, should at one fell swoop be simply wiped out. . . . To the prospective outcome in this particular case of course attention at present is almost entirely directed; but it can hardly fail to evolve possibilities and aspects of much wider interest. It seems evident enough that to whatever cause the disaster may be attributable, it is not due to the anticipated 'whisky crisis.' Of  this, however, although not the effect, it might well prove the cause - or rather, to be exact, the 'precipitating' agency. Should the more powerful interests 'come to the rescue' as suggested above, it is true the storm may blow past and the evil day when 'glut' merges into 'crisis' be again indefinitely put off; but, on the other hand, should the position prove irretrievable, we cannot see how the threatened deluge can be averted - that is to say, on the assumption that current reports are true as to the enormous holdings of whisky now being carried by the company, the 'financing' of which has apparently led to the present trouble."

A Glasgow correspondent writing on this subject states that recently the business has been greatly developed In addition to the local Pattison and Duddingstone houses, the new bonded warehouse in Leith is believed to be about the biggest of its kind in Great Britain; the floorage area amounts to seven acres. It is understood that the firm is interested in several Highland distilleries, apart from the Ballindalloch one. The company also owns warehouses in most of the provincial centres, as well as here ; and outlays on these and smaller schemes have evidently been underestimated."
Pall Mall Gazette - Wednesday 07 December 1898, page 5.

There you have it. Buying too much whisky, spending too much on advertising and making too many dodgy loans were the causes of the crisis at Pattison's. You can add to that lavish spending on buildings. The offices on Constitution Street couldn't have been cheap. Add to that several enormous warehouses and it's easy to see how a lot of capital could have been eaten up. But it's the whisky stocks that were key. And the valuation put on them. We'll learn more about that when the Pattison brothers are in the dock.

Pattison's offices on Constitution Street, Leith.

It seems that there was a great deal of speculation in whisky in the 1890's. Whisky consumption was increasing and this had encouraged distillers to make more and dealers to buy in greater stocks.  Maturing whisky in bond looked like an easy way to make money. Every year you kept it in stock, its value increased. At least it had until 1899.

The crisis at Pattison's had repercussions for the whole whisky trade:

"Particulars about the position of Pattisons (Limited), whisky distillers and blenders and brewers, in Leith and Edinburgh, are difficult to obtain in London in a trustworthy form, but there can be little doubt that the alleged difficulties of the Company are partly attributable to a cause affecting the whole whisky trade. The Report of the Commissioners of Inland Revenue for the year closed March 31 last disclosed a stock of whisky in the hands of distillers and factors amounting to about 137,677,000 gallons, and since March the total must have sensibly increased, thanks to the excessive competition of producers without regard to consumption. In six years, the rapid increase in consumption notwithstanding, the stocks in bond have expanded fully 32,000,000 gallons. Production must be curtailed until excessive stocks have been drunk up."
London Standard - Wednesday 07 December 1898, page 9.
That's a lot of whisky. The increase in stocks - 32 million gallons - is 888,889 beer barrels. To put that into context, in 1898 2,055,000 (source: “A History of the Brewing Industry in Scotland”  by Ian Donnachie, 1998, pages 147-148) barrels of beer were brewed in Scotland.

Next we'll learn about the first of many schemes to rescue Pattison's. All of them, as we know, in vain.

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