The Origins of Financial London

I revised a short paper Paul Herbert and I wrote originally for Linklaters and Paines as a briefing document for new staff as an introduction to the City. It is a simplified history of the City of London as a financial institutions.

This is an extract (the full version can be accessed here::

From Coffee House to Financial Institution


The other financial institutions soon came into being informally and most surprisingly located in the numerous Coffee shops that were springing up around London. Their role seems strange today but they were ideal meeting houses, because the alternative would have been the tavern and the drunkenness associated with them would have made business meetings difficult! There were as many as 2000 clubs and societies meeting in London Coffee Houses.


Within a few short years the number of joint stock companies had increase to 140 by 1695. The issue of shares in these companies inevitably led to the dealing in shares and the Stock Brokers and Jobbers naturally resorted to the Royal Exchange but were soon banned because of their rowdiness. Legislation was also introduced 'to restrain the number and ill practices of brokers and stock jobbers'.


It was written that: 'The manner of managing the trade is this: the monied man goes along to the brokers which are chiefly upon the Exchange and at Jonathan's Coffee House, sometimes at Garraways and at some other coffee houses, and asks how stocks go, upon information bids the broker or sell so many shares of such and such stocks.'


Joint Stock Companies were still a new device and their popularity was soon damaged by the first great crash. This became known as the South Sea Bubble. The Chancellor of the Exchequer proposed to convert the National Debt into shares in the South Seas Company which was given a monopoly in trading in South America and the Pacific. By 1717 nearly half the wealth of England was invested in the company. In 1720 the remaining National Debt was converted and an orgy of buying took place, the buyers included the Prince of Wales, and the King himself and there were traffic jams in the City as people struggled to get a piece of the action. People borrowed money or pawned valuable to invest. Other 'Bubble Companies' were set up and by August it was calculated that if the current share prices were correct that their value was £500 million five times the value of all the cash in Europe. This was obviously absurd and the markets crashed, leaving the few who sold at the top rich and the rest broken. Sir Robert Walpole and the Prince of Wales made fortunes and three ministers were implicated on charges of corruption and involved 2 of the mistresses of George III!


These problems undermined the reputation of the markets, and in 1773 a group who used to meet in Jonathan's Coffee House, renamed their new premises in Threadneedle Street to 'The Stock Exchange'. In 1801 the foundation stone was laid at the group's new premises on the site of the present Stock Exchange. In 1853 yet another new Stock Exchange building was built with its newly installed telegraph line. By 1873 a ticker tape machine and telephone had been installed. After the Big Bang a new and more liberal series of regulations for the financial markets, the Stock Exchange introduced a new computer system, which enable trading of shares to take place without the traditional deals being stuck on the trading floor of the Stock Exchange.


Another of London's great institutions to begin in the Coffee Houses was Lloyds Insurance. Edward Lloyd opened Lloyds in Great Tower St. in the 1680's. It soon moved to Abchurch St. where it was used as a meeting place for merchants, ship captains, and ship owners. Here ships and their cargoes could be insured. In 1769 the serious marine insurers left to form a new market at New Lloyds Coffee House in Pope's Head Alley. In 1771 rules were set up, and 'a very roomy and convenient place’ established in the Royal Exchange. In 1825 they moved to their present site, which was mostly demolished to make way for the present Richard Rogers masterpiece.





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