USA > California > History of California, Volume V > Part 27
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branches, about two millions of deposits. On February 22d, a holiday not observed in San Francisco, the bank closed its doors. This was followed by the failure of Adams and Company, Palmer, Cook, and Company, and a number of the smaller concerns, some of which re- sumed later. It is said that Alonzo Delano, agent for Adams and Company at Grass Valley, received orders from the home office to pay out no money either on public or private deposit, which orders he did not obey, but calling his depositors together read to them his instruc- tions and said, "Come and get your deposits; you shall have what is yours so long as there is a dollar in the safe." Delano immediately opened a bank of his own and in a short time had a larger line of deposits than he had ever held as agent for Adams and Company. He had a successful and honorable career as a banker until his death in 1874. Another establishment grow- ing out of the failure of Adams and Company was that of Macy, Low, and Company of Marysville. Frederick F. Low, who had been in business there since 1850, formed a partnership in 1855 with Charles B. Macy, agent for Adams and Company, and opened a banking office. Macy died and Low took his brother Charles into the business under the firm name of Low Brothers, and in 1861 the firm sold out to Rideout and Smith. Low became governor of California, minister to China, superintendent of the mint, and finally associate manager of the Anglo-California Bank.
The bank failures of 1855 caused great hardship and cast a gloom over the community, particularly in San Francisco, coming as they did after a wasteful and cor- rupt administration of city affairs, due to the indiffer-
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ence of respectable citizens for their political duties, intent as they were on amassing wealth for enjoyment in an eastern home; the defalcations and frauds of Honest Harry Meiggs; the loss of all the city property through the Peter Smith execution sales; the threatend confiscation of the greater part of the privately owned real estate through the Limantour and Santillan claims, both admitted as genuine by the land commission; while a tax rate of 3.85 per cent and a rapidly growing public debt added their influence to the general dissat- isfaction. The murmuring of the people became audi- ble and increased in volume until the noise thereof was as the sound of many waters. Exasperated beyond endurance they rose and took back into their own hands the delegated powers of government. Under the consolidation act of 1856, the People's Party, born of the vigilance movement, threw the rascals out of office, cut down expense, and reduced appropriations to less than one-sixth of the amount expended during the previous year.
But the people of California could no longer regard their banking system with complacency and it was felt that a new and better method was desirable. In 1857 the first corporate bank was organized under the general laws: the Savings and Loan Society of San Francisco, with E. W. Burr, the reform mayor as president. After an honorable and profitable career of fifty-three years this bank was merged with the San Francisco Savings Union in 1910. The next banking corporation was the Hibernia Savings and Loan Society, a purely mutual bank, and the only one now existing in California. The bank was incorporated
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April 12, 1859, as a capital stock bank. In 1864 it was re-incorporated under the law of 1862 as a mutual bank. It is still in existence, and has deposits of over $50,000,000. The Hibernia was followed by the French Savings and Loan Society, also a muual bank, February 1, 1860; the California Building, Loan, and Savings Society, May 31, 1861, and the San Francisco Savings Union on June 18, 1862. The latter is doing business as the Savings Union Bank and Trust Com- pany, a large and flourishing concern. The French bank failed in 1878. The fate of the California Building Loan and Savings Society is unknown to me.
In 1863 Peter H. Burnett, Sam Brannan, and Joseph W. Winans organized under the general laws of the state the first chartered commercial bank in California. Burnett was the first governor of the state of Califor- nia; he was born in Tennessee in 1807, came to Oregon in 1843, and thence to California in 1848. Sam Brannan, the whilom Mormon elder and preacher, was unquestionably the ablest business man in California, as he was the richest. Far sighted, clear headed, and energetic, he was quick to see the necessity for a change in the banking system and to take advantage of the opportunity. Joseph W. Winans was a lawyer of first rank. Born of Revolutionary stock, in the city of New York in 1820, he was graduated at Columbia College in 1840; admitted to practice in supreme court of New York in 1843; came to California in the bark Strafford, which he and a few companions bought and fitted out, arriving at San Francisco, August 30, 1849. They sailed up the Sacramento river and he and his com- panions used the vessel as a floating hotel. Until 1862
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he practised law in Sacramento and then came to San Francisco. He was a trustee and treasurer of the San Francisco law library, one of the founders of the University of California and a member of the board of regents for many years; president of the Society of Prevention of Cruelty to Animals, of the Society of California Pioneers, and member of many other socie- ties; a graceful writer of prose and verse, and a man of lofty integrity, of scrupulous regard for the rights of others, and of most gracious and charming personality. Under the name of the Pacific Accumulation Loan So- ciety the bank opened for business in 1863 with Peter H. Burnett as president, and on April 18, 1866 the name was changed by special act of legislature to Pacific Bank. The bank established itself at once in the con- fidence of the community and did a very large business all over the Pacific coast. In 1880 Burnett retired and Dr. Richard H. McDonald became president and re- mained in that office until the bank, ruined by the mismanagement of the two sons of its president, closed its doors, June 23, 1893.
In 1854 William C. Ralston and Ralph S. Fretz came as agents for a line of steamers operating between Panama and San Francisco in opposition to the Pacific Mail .* Both were steamboat men of the Mississippi river and had been with Garrison and Morgan in Panama. In December, 1855, the two, in company with C. K. Garrison, who also represented the Nica- ragua Steamship Company, and Charles Morgan of New York, formed a banking house under the name
*They were the Winfield Scott, Yankee Blade, and Uncle Sam.
JOSEPH WEBB WINANS
Born at New York, July 18, 1820; died at San Francisco, March 31, 1887; came to California in the bark Strafford, reaching San Francisco August 30, 1849. Lawyer, Regent of University, member of Constitutional Convention of 1878.
LUSTORY OF CALIFORNIA
Francisco. He was I croire mod Treasurer of the San Francisco law library, one of the founders of
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BANKING IN CALIFORNIA
of Garrison, Morgan, Fretz, and Ralston, and opened for business January 2, 1856. Both Garrison and Morgan had been steamboat captains on the Mississippi and Garrison had been mayor of San Francisco. Captain Morgan remained in New York and later removed to New Orleans where he established the Morgan line of steamers running between New Orleans and New York. In July, 1857, Garrison and Morgan withdrew from the firm and the business was conducted under the name of Fretz and Ralston, on the southwest corner of Washington and Battery streets. In 1861 Joseph A. Donohoe, and Eugene Kelly came into the firm which now took the name of Donohoe, Ralston, and Company, the partners being Joseph A. Donohoe, William C. Ralston, Eugene Kelly, and Ralph S. Fretz. For some time the affairs of the house progressed smoothly and then, it is said, Donohoe became dis- satisfied with the character of some of the loans Ralston was making. However this may have been, early in 1864 Ralston began preparations for estab- lishing a new bank. As subscriptions to the stock came in, Ralston invested the funds in choice paper, discounts, bonds, etc., so that when the bank was ready to open it might start with a good business on its books. All of these proceedings were kept secret from Donohoe and Kelly, who knew nothing of what was going on until the middle of June, 1864, when, on the fifteenth of that month, the Bank of California was incorporated. On June 30th the firm of Donohoe, Ralston, and Company was dissolved and the business continued under the name of Fretz and Ralston until the opening of the Bank of California on July 5, 1864.
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Donohoe and Kelly formed the banking house of Don- ohoe, Kelly, and Company, and they, with Ralston, contended for the business of Donohoe, Ralston, and Company. It is reported that the Bank of California paid Ralston $50,000 for such of the business of Dono- hoe, Ralston, and Company as he could bring to it. The bank of California opened in the rooms of Fretz and Ralston on the southwest corner of Washington and Battery streets, with a capital of $2,500,000, with D. O. Mills president, and William C. Ralston cashier. In 1866 the capital of the bank was increased to $5,000,000, and on July 5, 1867, the bank moved into its beautiful new building on the northwest corner of California and Sansome streets, the site of the old Tehama House. In this year, Thomas Brown, who had been manager in St. Louis for Page, Bacon, and Company became assistant cashier and remained an officer of the bank until his death in August, 1902.
A generation has passed since the commercial world of the Pacific coast was startled by the failure of the Bank of California. To none but those of the older generation of Californians is it given to know and understand the commanding position held and influence possessed by this great bank. As Minerva sprang full armed from the head of Jove, so the Bank of California came into existence full grown and equipped and was a power from the moment of its birth. Not only did it at once assume leadership in financial affairs, but in matters social and political it was a power to be reckoned with and its mandates were announced in no uncertain terms. From the very first the business controlled by the bank was enormous;
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its influence was far reaching, and its power was unhesitatingly used to build up or to crush. The greater mercantile, manufacturing, and business houses at once enrolled themselves among its patrons and supporters and it was with pride that men spoke of their connection with the Bank of California. Its board of directors was composed of the heads of the largest houses in San Francisco; the oldest and strong- est banker on the coast was its president and its cashier was considered a marvel of ability, and the ablest financier in California. Throughout the entire estab- lishment the same excellence of appointment was fol- lowed. The best of tellers, accountants, exchange experts, and clerks were employed at high salaries. It was an honor to occupy a position in the Bank of California. So wide was the influence of this auto- cratic corporation that any undertaking that received its approval promised success, while all men hesitated to engage in any scheme that the bank frowned upon.
And yet, in less than nine years from the date of its birth, this bank, with its great financial, political, and social power was bankrupt, its enormous capital gone, and it was only by the most strenuous exertions of its directors, that failure was averted and the day of reckoning postponed. This they not only accomplished but they prevented the slightest suspicion of the true condition of the bank from becoming public.
Having arranged for the continuance of the bank, the president, D. O. Mills, resigned and sold his stock. The cashier, William C. Ralston, was made presi- dent and the assistant cashier, Thomas Brown, was appointed cashier. For two and a half years longer
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the bank continued its apparently prosperous course, when like a thunderbolt from the clear sky came the report that the Bank of California had closed its doors, and twenty-four hours later the dead body of its presi- dent was found floating upon the waters of the bay. The city was in a panic. Many of the savings banks of the city and several of the commercial banks were involved in the operations of Ralston, and ugly rumors were current of over-issued stock on which enormous sums had been borrowed for his use. To protect themselves from runs by their depositors these banks closed their doors and awaited developments with the greatest anxiety. From all parts of the Pacific coast came reports of bank failures and, for a time, the excitement was intense.
From the moment of the incorporation of the Bank of California, the soul of the organization-for it may be fairly credited with the possession of one-was William C. Ralston. From the modest position of clerk on a Mississippi river steamboat, he had, by sheer ability and force, become the leading financier of California. A man of warm feelings, kindly instincts, possessed of a thousand amiable traits, he was intensely patriotic for his state and city and sought in all ways to develop the resources of the one and advance the improvement and betterment of the other. His striv- ings, however selfish, were for the good of California and San Francisco. Nearly every one of his many projects was capable of development into particular utility. But the element of time was against him; the millions he handled were not his own; he was liable at almost any moment to be called to a strict account
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therefor, and he was reckless and extravagant to a degree. His partner, William Sharon, said of him, "Ralston was disposed to scatter. If he got into any- thing there was no end to it. He never beat a retreat until he struck the ocean. In building the Pine Street house [Ralston's city residence], it was to cost $25,000. The first thing I knew it was up to $225,000. In building the Palace Hotel he wanted to get some oak plank for it, and he bought a ranch for a very large sum of money, and never used a plank from it. When he wanted to make furniture for the hotel, he bought the Kimball Manufacturing Company. I said to him, 'If you are going to buy a foundry for a nail, a ranch for a plank, and a manufactory to build furniture, where is this thing going to end?' He said, 'It does look ridiculous to you.' 'Yes,' said I, 'worse than that; it looks pretty bad.' They say I talked extrava- gantly. Well, the imagination could hardly reach the extravagances. So far as I could read this bank, the directors were as much excited as I was, or any body else, for they held the paper of the bank largely and their salvation depended a good deal upon what was done in the Bank of California."
For some time before the failure the bank, owing to heavy losses and the extraordinary drain of Ralston's operations, was short of cash, and Ralston resorted to sixty-day bills drawn on the Oriental Banking Corpo- ration of London which he discounted in San Francisco, paying therefor by other bills, in other words, "kiting." On Monday, August 23d, Ralston placed in the hands of Thomas Bell, agent for the Oriental Bank, a large amount of the bank's bills receivable and had Bell cable
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the London bank that he had the securities and ask credit for the bank for them. Ralston told Bell that Flood and O'Brien, who were preparing to open the Nevada Bank, were locking up all the coin and making money very scarce. The Oriental Bank did not answer Bell's cable message. On Wednesday night, August 25th, the directors met at William Sharon's house and were informed by Brown, the cashier, that instead of there being $2,000,000 of cash in the vault, as called for by the books, there was but $500,000 in money and $1,500,000 of cash tags of Ralston's. He also stated that the president had disposed of a large amount of bullion in the refinery and appropriated the proceeds, and affairs were in such condition it would be impos- sible to keep the doors open very long. It was deter- mined that the two directors should go to Messrs. Flood and O'Brien and ask them to liquidate the bank, the directors giving a guaranty of $2,000,000. This Flood and O'Brien refused to do. The bank opened as usual the next morning and after ineffectual attempts by Ralston to get money from the other banks, closed its doors at two o'clock in the afternoon, having paid out all its cash but $30,000 or $40,000. The directors met at the bank the day after the failure and appointed a committee to look into the bank's affairs. Ralston did not come into the board room but remained in his office. His resignation was coldly presented for his signature. He signed it and putting on his hat left the bank by a side door and took his way to his usual bathing place at North Beach. At three o'clock word was brought to the bank that he was dead.
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The committee reported that Ralston's liabilities amounted to $9,565,907.50 of which $4, 146,290.57 were secured, leaving unsecured liabilities of $5,419,616.93 of which $4,655,973.36 was due the Bank of California. The situation was appalling. The capital of the corpo- ration was engulfed. The calls upon the stockholders were likely to be ruinous and in the meanwhile there would be a dead halt in all the operations of Pacific coast finance, while at least one-half of the circulating capital of the state would be rendered immobile and paralyzed for an indefinite period. There were, besides, ominous mutterings heard from the sufferers by the disaster, and threats were openly made to hold the directors to a strict account not only to the manage- ment of their trust but to the extent of the bulk of their fortunes, as partners of the dead president.
There appeared to be but one way out of the jungle into which the bank and all connected with it were plunged. That was to resurrect the bank. A syndi- cate was formed of which William Sharon was made president. He had been in partnership with Ralston in many of his enterprises and was the one most involved. In 1865 Ralston had appointed him agent of the bank at Virginia City, Nevada, and had loaned him five hundred dollars with which to establish him- self. A small, nervous, wiry man, full of vitality, always shrewd, with a wonderful grasp of situations and details, Sharon is described as a financier with the education of a lawyer, a lawyer with the education of a man of business. Realizing his opportunities in Virginia City, Sharon engaged in mining stock specu- lations, and when two years later he formed a partner-
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ship with Ralston under the firm name of William Sharon and Company he was able to put about a half a million into the joint account. He formed the Union Mill and Mining Company and, at a time when pros- pects were bad on the Comstock lode, he bought up most of the mills on the Carson river and obtained control of the Belcher, Yellow Jacket, Ophir, Kentuck, Chollar-Potosi, and other mines. The Union Mill and Mining Company, of which Sharon and Ralston each owned two-fifths and D. O. Mills one-fifth, paid in dividends over $14,000,000. Another large enterprise of William Sharon and Company-also in conjunction with D. O. Mills-was the building of the Virginia and Truckee Railroad, a wonderfully profitable venture. Such was the man chosen to lead in this most wonderful venture of all-the rehabilitation of the Bank of California.
Before entering into the details of this achievement, one of the greatest in the financial history of America, let us go back a moment to the statement made earlier in this article that the bank was virtually bankrupt two years and a half before. The claim was made that until the cashier, Thomas Brown, laid before the direc- tors assembled at William Sharon's house that night of Wednesday, August 25, 1875, the statement of the bank's condition, they were totally unaware of what had been going on and were surprised and horrified at what they were told. What were the facts in the case? On February 19, 1873, there was due to the bank from George P. Kimball and Company $578,580.46, from the New Montgomery Street Real Estate Company $1,971,696.56, and from the Pacific Woolen Mills
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Company $967,900.00, a total of $3,518,177.02. These loans, it is claimed, were made to the firm of William Sharon and Company, of which Sharon and Ralston were partners, the owners of the properties. The companies did not pay the interest on their loans, and the bank could not collect. To keep the bank from failing and to protect it during the prevailing money stringency, an agreement was entered into on that 19th of February, 1873, between John D. Fry and the Bank of California, whereby Fry was to pay into the bank the sum of $3,400,000 in gold coin in consideration of which the bank was to assign to Fry the indebtedness above described together with all collaterals and other securities held by it to secure the payment thereof. The payments by Fry were to consist of $750,000 gold coin on signing the agreement, and he was to deposit at the same time two notes of William C. Ralston of $250,000 each, one payable in six months and one in one year after the said date. From the first proceeds of the sale of securities and properties delivered to Fry, he was to pay the bank the sum of $950,000 cash, and further, if realized from the sale of the properties, the sum of $1,200,000 after paying $500,000 to W. C. Ralston for the two notes signed by him, and to Fry $750,000 for the cash advanced by him. This agree- ment was signed on said date by J. D. Fry and D. O. Mills, president, and ratified by the directors of the bank. I think it effectually disposes of the statement made that the directors were surprised to learn of Ralston's operations.
Sharon's first move was to enter his own subscription to the syndicate fund, $1,000,000. He then called on
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D. O. Mills for a like subscription. Mills refused point blank to make any subscription whatever, saying he was out of the bank and had owned no stock in it for for more than two years. Sharon informed Mills that his stock had never been transferred on the books of the bank; that many of the irregularities occurred prior to Mills' retirement; that he was liable as a stockholder, as a director, and as a partner. Referring to the over issue of stock he said, "Mr. Mills, some of these cer- tificates you signed, and they will not believe you have done that innocently. They will charge you. You will certainly be liable under these conditions." Mills came in and subscribed $1,000,000. He had, it appeared, been in the habit of signing stock certificates in blank. Sharon had a hard time with his subscrip- tions, and a man of less force, ability, and tenacity would have failed; but his mind was like a battery, constantly radiating energy. He had unbounded con- fidence in himself and the faculty of quickly impressing others with a sense of his masterful power. Certain rose colored reports began to circulate to the effect that the stock of the bank had good value. That was intended to inspire the stockholders with hope and ultimately they came into the syndicate to the amount of $2,000,000. This was very valuable in holding the men and business of the bank. But Sharon did not have an easy time with his syndicate men. Some he persuaded, some he cajoled, some he threatened, and some he guaranteed. James R. Keene subscribed $1,000,000. Then he became alarmed and told Sharon he would erase his name. Sharon consulted with Mills and let Keene down to $500,000. Then Keene would
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not have it and demanded that he be released entirely. Sharon reduced his subscription to $250,000 and gave him a personal guaranty in writing against loss. Another subscriber for a large amount came and took the pen to strike his name off. Sharon grabbed the pen from him. He gave a verbal guaranty to Peter Donahue, who was a subscriber for a large amount. He told Michael Reese, who had a large claim, that he would not be paid unless he subscribed. He succeeded in raising a guaranty fund of $7,000,000 of which only twenty per cent was called in.
One of the first difficulties to be overcome was to obtain possession of the over issued stock, some 13, 180 shares of which were in the hands of various lenders as collateral for loans. This required careful manage- ment and skill. Sharon settled with some of these holders at fifty cents on the dollar; with others, who threatened suit, and whom Sharon considered as ugly, aggressive, and insulting, he paid close to par. He was deadly afraid of a suit which would bring out the full details of the irregularities of the bank and of the negligence of its directors. The matter was further complicated by the operations of Charles Webb Howard and Company, composed of Howard, Ralston, and Ryder, in Spring Valley Water stock. The lia- bilities of this firm were about $4,250,000 all secured by water stock and Ralston had a three-fifths interest in the firm. Sharon called in twenty per cent of the syndicate funds and with Howard visited each one of the closed banks which were carrying these loans, together with loans on the bank stock, and ascertained from them how much money each needed. To each
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