Abstract: The Collapse of the Anglo-South American Bank

Rory M. Miller

Abstract

The Anglo South American Bank (ASAB) had its origins in the Bank of Tarapaca and London, founded in 1890 by Colonel John Thomas North (the ‘Nitrate King’), initially to support his business interests in northern Chile.  Over the next decade it freed itself from North’s influence and began a process of expansion using greenfield investments and acquisitions across Central and South America, a development that accelerated under the leadership of Robert Hose, its managing director, at the end of the First World War.  However, in 1931 conditions in the nitrate industry, and in particular ASAB’s financial commitment to a failed joint venture between the Guggenheims and the Chilean state, forced it to seek support from the Bank of England.  The Bank of England subsequently led a complex refinancing arrangement, involving all the major British clearing banks except Lloyds, imposing a new and trusted chairman, Sir Bertram Hornsby, and in effect creating a ‘bad bank’ to take over ASAB’s illiquid nitrate stocks and securities.  However, this failed to save ASAB and in 1936 its rival, the Bank of London and South America (a Lloyds subsidiary), was persuaded by the Bank of England to absorb it.  Although this was one of the largest banking failures in twentieth-century Britain very few historians have studied it in any depth.  The case highlights the lack of regulation of British overseas banks, despite the threat their insolvency might pose to the wider London money market, and the role of over-ambitious management investing in rapidly changing business sectors that they did not understand (although they thought they did).  At a micro-level it also provides evidence of significant insider dealing, the way that banks managed the press in a crisis, and even a rare case of negative share prices (where sellers paid buyers to take shares off their hands).