Crédit (La Société Générale de Crédit Mobilier), is a bank founded in Paris, under the sanction of a decree of the imperial government, bearing date the 18th of November 1852, and is of such a peculiar design and nature as to deserve a lengthened notice. The name is derived from an intentional contrast with companies known on the Continent as Sociétés de Crédit Foncier. These companies, which are in the nature of land banks, advance money on the security of real, or, in the language of continental jurists, immovable property, and raise the money so to be used by the issue of debentures for sums of moderate amount, in some cases for so little as four pounds. The Crédit Mobilier, according to its original design, was to obtain money in a somewhat similar way, by the issue of debentures, and to employ the funds so obtained in giving the same aid to the owners, or some of the owners, of moveable property, that the companies of Crédit Foncier afforded to persons possessed of land. Such aid was not, however, to be given by the new company in what are clearly the simplest ways, by the discount of bills or advances. There were already in France institutions, such as the Bank of France and the Comptoir d'Escompte, which aided commercial men by loans in these forms. The Crédit Mobilier was to effect a similar object in a mode less direct and more peculiar.
"It is to play," said M. Pereire, one of the original founders of the company, "with respect to the fixed capital employed in industry, a part analogous to that which banks of discount fill with respect to its circulating capital. The first duty of our society," he continues, "is to aid the development of national industry, to facilitate the completion of great enterprises, which, without such assistance, are perfected with so much difficulty." And in language which we give in the original, because the peculiar tone of the language is most characteristic of the temper in which the company has been planned, and can scarcely be preserved in a translation, he remarks,
"La pensée du Crédit mobilier est née de l'insuffisance des moyens de crédit offerts à l'organisation des grandes affaires du pays, de l'isolement où étaient réduites les forces financières, de l'absence d'un centre assez puissant pour les relier entre elles.
"Elle est née du besoin d'amener sur le marché le concours régulier de capitaux nouveaux destinés à aider au développement du crédit public et du crédit industriel;
"Elle est née de l'exagération des conditions auxquelles se faisaient les prêts sur fonds publics et des difficultés qui en naissaient pour le classement définitif des meilleures valeurs." "Elle est née encore du besoin de centraliser le mouvement financier et administratif des grandes Compagnies et notamment des Compagnies de chemins de fer, d'utiliser ainsi, au plus grand avantage de toutes, les capitaux dont chacune dispose successivement, de manière à ménager les ressources communes, aussi bien au profit des Compagnies qu'à celui de leurs nombreux actionnaires.
"Elle est née enfin de la nécessité d'introduire dans la circulation un nouvel agent, une nouvelle monnaie fiduciaire, portant avec elle son intérêt de chaque jour, et faisant fructifier les épargnes les plus humbles, aussi bien que les capitaux les plus considérables.
"Créer une telle institution, c'était donner à l'industrie et au crédit public le plus puissant encouragement, c'était mettre à leur disposition l'instrument le plus propre à leur fournir à bon marché les capitaux nécessaires à leur développement."
The simple statement of this rather enthusiastic language is, that the Crédit Mobilier is to employ its funds in taking shares in companies whose public objects are important; and that it is to obtain such funds by the issue of drafts and debentures, some of which may pass as currency. As will be evident from the remarks which we have cited from the address of Péreire, the promoters of the undertaking claim to have a public object, and distinctly undertake to confer a great benefit on the French nation, as well as to obtain a profit for themselves.
The opponents of the company, however, contest the truth of these professions. They say that its promoters do not really care about the completion of great national undertakings; that they are wholly uninterested about the actual construction of railways or canals; that it is only intended that the company should buy and sell shares for a profit; that the object of those who organized it is a selfish one; in a word, that the sole intention is to speculate in the share market.
Particular circumstances attaching to the politics of the moment have given to the controversy between the partizans of this company an unusual interest. The government of Louis Napoleon has been compelled to ally itself rather closely with wealth, and especially with newly-made commercial wealth. The single defence of the coup d'état was the necessity of preserving industry and credit from the attacks of multitudes, who, either from bad theories or bad motives, were anxious for a new distribution of property. The trading class, who live by their industry and their credit, were influenced by this argument, and leaned towards the new government. The classes connected with the former governments of France were naturally disinclined to it. The legitimist noblesse could not approve the revival of the Bonapartist dynasty; the literary and oratorical statesmen of the Orleanist monarchy could find no place for their characteristic abilities in a government which enforced a silence on parliamentary eloquence and on newspaper eloquence, which did not wish to be supported by abstract speculation, which only valued administrative ability. These are the natural results of human nature. It is, perhaps, equally so that the class of mercantile men who would most rally round a court, would not be the highest class. A close proximity to a gorgeous gaiety does not suit a sober and stable industry. The eager speculator who is in haste to be rich, in order that he may spend his riches, will seek the scenes of expenditure the moment he is thought to have riches. From causes such as these, the imperial government of France has been obliged to surround itself with a certain class of speculators rarely found in palaces, without a greater check from men of higher cultivation and more stable opulence. It has been contended that the Crédit Mobilier, which has been avowedly patronized by the imperial government, is in reality a speculation of these courtiers. "I do not know," said M. Berryer, in an action brought by a M. Goupoo against the company, "if, since 1828, M. Goupoo has frequented the Bourse; but suppose he has, who is it that reproaches him with it? La Société de Crédit Mobilier; that is to say, the greatest gambling-house which the world has ever seen. We must not be misled by words. These are magnificent ones, I know: the protection of industry, the enfranchisement of the national credit, the development of private credit, the consolidation of all commercial stocks—a dream. All that is the surface; they have given gambling a new name; they call it in their reports the industry of credit. The industry of credit! what is that? These twenty-eight millions of profit, how have they been produced? They are not due to the prosperity of the enterprises in which the Crédit Mobilier has taken a share, and to whose aid it has brought its great influence. No; they are the realizations which represent the difference between the price at which they sell, and the price at which they buy. It is gambling which has produced them. You are, then," he tells the company, "an institution of public utility; you have limited liability, and you play; you are irresponsible, and you gamble; you are a bank of play which sees the cards," &c., &c. In order to test the accuracy of these two conflicting views, we must refer to the statutes of the Crédit Mobilier which embody its design, and the accounts which record its history.
The preamble to its statutes states that its object is to "aid the progress of public works, and to consolidate into a common stock the shares and bonds of trading companies" (de favoriser le développement de l'industrie des travaux publics et d'opérer par voie de consolidation en un fonds commun, la conversion des titres particuliers d'entreprises diverses). The statutes specify that the company is to be one of limited liability, with shares of L20 each (made out to bearer, and not the holders by name), and that its capital is to be L2,400,000. The detail of its operations is to be as follows:
1. To subscribe or to acquire public funds or stocks; and also shares or bonds in various industrial enterprises, constituted on the principle of limited liability; particularly in railways, canals, mines, and other public works founded or to be founded.
2. To issue, to the extent of a sum equal to the sum employed for purposes of the subscriptions and purchases aforesaid, the separate obligations of the society itself.
3. To sell, or give as security for advances, all effects, shares, and obligations acquired or held by the society; and to exchange such effects, shares, and obligations against other values.
4. To underwrite all loans, to undertake and realize them; also to undertake and realize all enterprises for public works.
5. To lend on public securities, and on the deposit of shares and bonds, and to open credits, on account current, on the deposit of different kinds of value.
6. To receive money on account current.
7. To undertake all kinds of collections for companies, as aforesaid; to pay their interest and dividend warrants; and generally to undertake all business relating to such companies.
8. To open a bank of deposit for all the securities issued by the companies aforesaid.—All other operations are interdicted.
9. It is expressly understood that the society shall never undertake sales à découvert [that is, sales of stock, &c., merely for the account day or settlement], nor purchases à primes [that is, purchases which may be annulled by the payment of a mere fine or option].
10. After the complete issue of the joint-stock capital of the society, the obligations created by the society may attain a sum equal to ten times the said joint-stock capital [that is, to (10 x 2,400,000) L24,000,000]. The accumulated amount of the sums received on account current, and the obligations of the society created, payable at less than one year's date or sight, shall not exceed twice the amount of the paid-up capital [that is, shall not exceed (2 x 2,400,000) L.4,800,000].
(This translation of the statutes, which seems to us quite accurate, is taken from Tooke's History of Prices, vol. vi., p. 105.)
The government of the company is vested in a board of fifteen directors, elected by the shareholders, of which three go out annually, but are re-eligible. The board is bound to elect a president and two vice-presidents every year, who are likewise re-eligible, and to nominate a committee of management of five of its members, who are to regulate the detail of its affairs. The general meetings of the society are to be annual, but the directors have power to summon special meetings. At each general meeting an exact account of the financial state of the company is to be presented to the shareholders, and every six months such an account is to be laid before the minister of the interior, the head of the police, and several other public departments; and the minister of finance is to be at liberty to demand a statement in full detail of its intermediate operations whenever he pleases. No particular form of periodical accounts is prescribed; but by the seventh section of the statutes, which regulates the appropriation of the profit, 5 per cent. on the capital is to be first distributed to the shareholders by way of interest on such capital; 5 per cent. is then to be added to the reserve fund, and the remainder is to be divided between the directors and shareholders, in the proportion of 7/8ths to the former and 1/8th to the latter,—the directors being of course entitled to receive their quota as shareholders in addition to the 1/8th set apart for them by way of remuneration.
Of the annual accounts of the company, four have been published. The two first it will not be necessary to give in detail, but we shall most easily obtain a clear view of the nature of the company by the following comparison of the two last. The following were the liabilities of the establishment on the 31st December 1855, and 31st December 1856:
| Item | Dec. 31, 1855 | Dec. 31, 1856 | |-----------------------------|--------------|--------------| | Capital | L.2,400,000 | L.2,400,000 | | Deposits, current accounts | 4,127,172 | 4,078,337 | | Bills payable, and sundries | 34,576 | 13,046 | | Reserve fund | 67,844 | 80,000 | | Total amount of profit in each year after carrying the proper sum to the reserve fund | 1,073,116 | 601,235 |
L.7,702,708 L.7,172,668
The assets of the company were,
| Item | Dec. 31, 1855 | Dec. 31, 1856 | |-----------------------------|--------------|--------------| | Rent | L.1,602,770 | L.364,029 | | Debentures | 1,313,784 | 2,123,231 | | Railway and other shares | 2,977,364 | 1,195,343 |
L.5,293,918
Deduct for calls not made to 21st Dec. 1855 | 1,246,668 |
L.4,047,250 L.3,682,654
Investments for fixed periods in Treasury bonds, continuations and advances on shares, debentures, &c. | 3,373,016 | 2,031,201 | Precious and furniture. | 43,288 | 53,456 | Balance on hand, and dividends to be received on the 31st December last | 239,254 | 285,417 |
L.7,702,808 L.6,052,668
And its profit and loss account,
| Item | Dec. 31, 1855 | Dec. 31, 1856 | |-----------------------------|--------------|--------------| | Profit on investments | L.1,042,675 | L.457,463 | | Income from do., and interest on loans | 232,155 | 231,193 | | Less expenses | L.1,274,830 | L.688,655 | | | 71,100 | 37,045 | | Less depreciation of securities, &c. | L.1,203,730 | L.551,611 | | | 89,450 | 41,612 |
L.1,123,280 L.609,909
Note.—The difference between the expenses in the two years is principally owing to a sum of L.41,000 for interest on deposits, which owing to a change in the mode of making up the account, does not appear in the second year. The depreciation of securities, &c., included in the first year some miscellaneous losses, to which there is nothing similar in the second year. The difference between the amount of profit here given, and that shown in the account of liabilities, has been carried to the reserve fund.
From these data we can at once determine the character of the bank. About half the funds at present at its disposal were, at the last date of which we have any information, invested in the purchase of shares, debentures, and similar securities of fluctuating value; and it is from augmentations in the value of such property that its profits are principally derived. Of the large profit of 1855, more than L.1,000,000 was so derived; and the remarkable diminution of entire income in the next year shows that the business of the company, like every other depending on purchase or sale, is very profitable in a rising market, and not by any means equally so in a falling market (like that of the latter months of 1856). The amount of profit so obtained would be deemed by English bankers very great. In 1855, 44 per cent. was realized on the capital; in 1856, 25 per cent., besides augmentations of the reserve fund in each year. Some of the large joint-stock banks in London have, it is true, on very rare occasions, made as much, or nearly as much, as 25 per cent. on their respective capitals; but then those capitals are, in proportion to their liabilities, comparatively small. The capital of the Crédit Mobilier is more than one-half its liabilities to the public; the capitals of the London and Westminster Bank, the London Joint-Stock Bank, and the Union Bank, vary from a fourteenth to an eighteenth of their respective liabilities. A comparison of the actual amounts of profit earned place the contrast in a more remarkable light. The London and Westminster Bank have made of 15 millions of money in the peculiarly profitable half-year ending midsummer 1856, L.104,000, which is at the rate of L.208,000 per annum; the London Joint-Stock Bank, of 11 millions and a half, L.77,000 in the same half-year, which is at the rate of L.154,000; the Union, of about the same amount of money, have made L.156,000. As will be seen by the above accounts, the income yielded by the Crédit Mobilier was in 1855 five times, and in 1856 three times as great as the highest of these, with only seven millions of money to employ profitably.
This amount of profit would generally appear to English bankers dangerously large, and their apprehensions would not be removed by the mode in which it is made. They would consider that it was dangerous to employ the money of other persons placed with them for brief periods in the purchase of the shares and bonds of miscellaneous companies, which are not readily salable in times of difficulty, and are peculiarly fluctuating in price. The published documents and accounts of the Crédit Mobilier afford no satisfactory reply to these suspicions. They tell us
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1 The amount of assets in 1856 differs from that of the liabilities by L.120,000, because that sum (being 5 per cent. on the paid-up capital) was paid to the shareholders before the dividend meeting. Mobilier, more than once that the money which they hold cannot be hastily (brusquement) withdrawn from them; and likewise that in its origin the company only professed to receive the deposits of companies having the privilege of limited liability, with which it could probably make special agreements as to the time at which these deposits should be repaid; but the same documents also inform us that this intention has been departed from—that other money has been received, and they omit to inform us on what terms. It is much to be regretted that these authoritative expositions—which, like most of the reports of French financiers, are exceedingly elaborate, and, according to English notions, wordy—should leave the possibility of a doubt on a point so essential, and expose the company to the discrediting suspicion of employing in investments that cannot be immediately realized, money which may at once be withdrawn.
We have obtained, however, from what we believe to be very reliable authority in Paris, the following particulars, which very much tend to diminish the importance which we should otherwise attach to this consideration:—We learn, first, that the Crédit Mobilier holds deposits, repayable either at call, or at five, ten, or thirty days' notice; and that the term of notice is determined by the amount of the deposit; the amount at call being limited in each case to sums not exceeding L.1000. Secondly, that though these are the terms of notice, yet in practice the company has not availed itself of its right to require such notice. Thirdly, that the deposits consist chiefly of monies belonging to railway companies, whose works are in progress, and that, as in every case at least one of the directors of these railway companies belongs to the council of the Crédit Mobilier, the latter has always in practice notice of the time when the money will be asked for. Fourthly, that the deposits, other than the monies of such railway companies, are only from L50,000 to L60,000. Fifthly, that a uniform rate of interest at $2\frac{1}{2}$ per cent. is given by the Crédit Mobilier for all such monies. If these details are, as we believe them to be, exact, the money held by the Crédit Mobilier is money over which they have a far greater control than other bankers have over the money which is left with them. The connection of the Crédit Mobilier with the companies who deposit such money is, in all likelihood, so close as practically to allay all apprehension of these deposits being demanded from feelings of apprehension; and the time at which they will be required for the works of the company to whom they belong must be known with great exactness. The Crédit Mobilier is in the position of a banker who receives large deposits from his personal friends; so long as they are his friends, he can be sure of their not being very hastily withdrawn from him.
It is evident, however, that the scale of the operations of the Crédit Mobilier must be correspondingly restricted. There cannot be any very great amount of money in a position so peculiar as these deposits. As a general remark, no banker can have any very large number of personal friends that leave money with him; similarly, the amount of money in the hands of public companies very closely connected with the Crédit Mobilier must be of an amount strictly limited. Accordingly, as will be seen from the above accounts, the deposits did not increase during the year 1856, when the company was in the height of prosperity, its shares very high in price, and its dividend more than 40 per cent.; and we can hardly expect that they will increase hereafter, when circumstances are less favourable.
So far, therefore, as the employment of the funds left in deposit with the Crédit Mobilier is concerned, we have no reason to believe that it can accomplish the magnificent designs with which it was founded. The funds derived from that source are, and must continue, too small to revolutionize industry, or to consolidate in one common stock the shares of different companies. The original design, as appears from the above citation from the statutes, was, that the Crédit Mobilier should derive additional funds by the issue of bonds, the smaller of which should pass as currency, and the larger be held by capitalists who were desirous of investing their money at a fixed rate of interest. Neither of these operations has as yet been found practicable. The imperial government has not permitted the issue of any such bonds, and the resources of the company have been therefore less than they were expected to be. We may, however, much question whether, even without the prohibition of the government, the scheme would have realized the expectations of its framers. The smaller drafts which were to be issued as currency would have been inferior in a material point to the notes of the Bank of France, which now constitute the French circulation of paper. The tendency of commercial improvement is to confine the function of credit-currency more and more to documents payable on demand. There used to be a very extensive circulation of bills in Lancashire, but it has yielded gradually to the superior convenience of the Bank of England note. Ceteris paribus, it is obvious that a note payable on demand is better adapted for circulation among many persons than one payable at a distant date. Each holder of the former feels that he can test its value whenever he pleases; holders of the latter cannot do so until the day on which it becomes due arrive. There are, we believe, legal difficulties in France, as well as in England, attaching to overdue negotiable instruments which render all notes and bills payable at a fixed time inapplicable as currency after that time. We cannot, therefore, anticipate that the drafts of the Crédit Mobilier will be able to compete as currency with the notes of the Bank of France, which have the additional advantage of being now in use. If, however, the Crédit Mobilier could succeed in maintaining its drafts in circulation, we should see no objection to its so doing. They would have the ordinary advantage of paper money; if they displaced other forms of circulating credit, we may assume that the public, in giving that preference, was not acting without some reason. If a portion of metallic money were displaced, the French nation would to that extent benefit by an economy of capital. While, therefore, we cannot expect, we do not dread that the Crédit Mobilier will circulate its drafts as a currency. A different objection applies to the bonds which were to be purchased as fixed investments by capitalists, like railway debentures, and the bonds of the Crédit Foncier. The first requisite of such bonds is a specific security. That of railway debentures is the revenue of a line of railway of which accounts are constantly published; and that of the Crédit Foncier is the landed property on which the funds of the society are advanced. The property on which the bondholder is to rely, is in both cases very evident to him. This is not so with the property of the Crédit Mobilier. We do not in the least know the contents of its porte-feuille,—which shares it holds and which it has disposed of, and which it has never purchased. By the distinctive design of the Crédit Mobilier, the property belonging to it cannot be so stable in value, or so generally intelligible in character, as the property of the Crédit Foncier. No shares in bonds or moveable property of a country can ever be so fixed in price, or so well understood by the mass of men, as the acreage of the country in which they live. It is possible that a long course of good management and success may enable the Crédit Mobilier to raise some money on the security of shares and bonds whose names are not known to the public; but the progress of such an operation must be slow, and its range very limited.
We cannot therefore anticipate for the Crédit Mobilier the enormous and beneficial influence which its promoters announced and perhaps anticipated that it would have. This also appears to be the opinion of the public. The shares, which, when L10 only was paid on them, were worth L70; are now, with L20 paid, worth less than L30; and their price has been for some months past (we write on the 20th of December 1857) steadily dropping. At the same time, however, we cannot expect from it the great evils which its extreme opponents have predicted. The limitation of its means tells on one side of the argument as well as on the other. It may seem, indeed, that the L4,000,000 of deposits held by the company are a considerable sum for Bourse operations, and would be adequate to the requirements of a first-rate speculator. But the same circumstance which gives the company a peculiar control over these deposits, likewise controls the company, we have no doubt, in their employment. The railway companies who leave their money with the Crédit Mobilier expect the latter to take shares. The funds of the bank are doubtless largely invested in the undertakings carried on by its depositors; and it is only the amount not so invested which can remain applicable to common speculation. The denunciations of M. Berryer are therefore subject to important deductions, as well as the eulogium of M. Pereire. If we regard the company as a great railway bank, holding railway monies on peculiar terms, and investing much of its funds in the purchase of railway property, we obtain a view of its operations too distinct to warrant extreme apprehension or great hope. It is mainly from political considerations that a bank of such limited resources has obtained a European reputation.
(For further information as to the Crédit Mobilier, we may refer to two very able articles by M. Facade in the Revue des Deux Mondes for 15th May and 1st June 1856; and Tooke's History of Prices, vol. vi., pp. 104–130. For the ultimate data for these accounts of the company, as well as of our own, the reader may consult its published reports and accounts.)