USA > Louisiana > Orleans Parish > New Orleans > Standard history of New Orleans, Louisiana, giving a description of the natural advantages, natural history settlement, Indians, Creoles, municipal and military history, mercantile and commercial interests, banking, transportation, etc. > Part 61
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The charter of the bank continued until 1870, and contained a number of very stringent provisions. It provided, for instance, that the bank should at no time suspend specie payment on any of its notes, bills or obligations, or on any moneys received by it on deposit, under penalty of paying 12 per cent on these obligations until they were paid in full.
The seven first directors chosen by the stockholders were Samuel Livermore, Andrew Lockhart, Samuel F. Oakey, William Brook, James Hopkins, Samuel B. Bennett and J. M. Fortier, with Benjamin Story as president and Joseph Saul as cashier.
The Consolidated Association of the Planters of Louisiana, an institution which it took so many years to liquidate because of the large amount of real estate it held and whose liquidation was completed comparatively a few years ago, was organized in March, 1827, with a capital of $2,000,000, which was to be obtained by means of a loan, by the directors of the institution, based on the real estate put into it by subscribers. It was, therefore, a land bank with plantation property as one of its principal assets. Subscription books were opened by five commissioners for $2,500,000, each share to be $500. The books were to remain open for six months and planters only were permitted to subscribe to the stock. In order to procure the loan of $2,000,000, upon which the bank depended for capital, bonds were issued bearing 5 per cent interest, payable in equal proportions in five, ten and fifteen years, the bonds being secured by mortgage on real estate, for an amount equal to the shares to which each stockholder subscribed. It will be seen that the association or bank-for it was a bank, although not so called-was an ingenious plan whereby the planters of Louisiana who were in need of money to improve their property and to purchase slaves for its cultivation could obtain the necessary capital. They subscribed to the stock of the association, putting into its capital so much real estate as equaled in value their subscriptions. Upon this security, which was supposed at the time to be the best possible, as real estate was high and improving in value because of the success of the cotton and sugar industries, bonds were issued
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with a mortgage on the real estate as security. The bonds were sold and produced the neeessary eapital, from which the planters could draw such money, in loans, as they required for their improvements. The eirele of eredit was therefore eom- pleted and the only danger to the bank lay in the possibility of the erops failing, agriculture decaying and the land deelining in value,-something which the plan- ters of that day did not believe possible, so great was their confidence in King Cotton, just then eoming to his full power and strength. As in the ease of the Bank of Louisiana, the State was appealed to and asked to take an interest in the new bank, on the ground that the prosperity of the planters was the prosperity of Louisiana. It did so in 1828, when the capital of the association was inereased to $2,500,000, the State being recognized as a stockholder to the amount of $1,000,000, and pledging itself for the reimbursement of the eapital. Thus $1,000,000 of stock was received by the State as a bonus, upon which it was allowed a eredit of $250,000; that is, it eould borrow that amount from the bank, paying interest thereon, upon any part of this eredit it might use.
The success of this plan of raising money for the development of the planting interests of Louisiana led to the formation soon after of a number of improvement banks with specifie improvements in view. Several of these survive to-day, but very mueh modified in form. The Gas Company, for instance, is a relie of one of these old improvement companies, the banking part of the institution having dis- appeared, while the gas-works survive. The reverse is the ease with the Canal Bank, established to construet the new canal. Here the banking feature survives, in one of the largest and soundest financial institutions in New Orleans, whereas the improvement to earry out which the bank was founded has severed company with it, is now wholly independent, the property of the State of Louisiana, and managed by a board of control appointed by the governor.
The New Orleans Gas Light Company, the first of these improvement banks, was incorporated in February, 1829, with a eapital of $100,000, which could be in- ereased to $300,000 if deemed advisable, for "the purpose of introdueing into the eity of New Orleans and its fauxbourgs (suburbs) the use of gas-light. Its charter was for twenty-five years. The company failed to comply with its charter and the franchise was transferred to James H. Caldwell (who may be regarded as the father of gas in New Orleans) and his associates, who were given a monopoly of supplying gas to the city and its fauxbourgs St. Mary (now the first distriet of the eity) and Marigny (now the third distriet) for a period of twenty-five years, provided they put their system in operation within two years.
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Mr. Caldwell was successful in his enterprise, but after he had succeeded in lighting New Orleans with gas-to the great delight of its population, for it was one of the first cities so illuminated in America, while most of the others were struggling on in the gloom of oil lamps-he was not satisfied with the charter under which he operated and asked for a new and grander one. It was an era of inflation just then, an era of grand and extravagant ideas, and New Orleans was at the height of its "flush times." A gas company with only $300,000 capital, and its business confined to the narrow limits of supplying New Orleans and its suburbs with gas, was too insignificant for the conditions then prevailing. Mr. Caldwell, therefore, asked in 1835 that the charter of his company be amended, or rather that it be entirely repealed and a new charter granted; and with the success he had met with he had only to ask anything to have it granted. The New Orleans Gas Light Company disappeared, to make way for the New Orleans Gas Light and Banking Company; the capital was increased from $300,000 to $6,000,- 000, and the company was required to establish five branch banks and gas companies -for a division or apportionment of all privileges and franchises to the several sections of the State, was provided for in all the legislative acts of the time-in Port Hudson, Springfield, Napoleonville and Harrisonville, each with a capital of $300,000, and in Alexandria with a capital of $800,000. The selection of the places for the branches is somewhat extraordinary and shows a lack of foresight. With the exception of Alexandria, all the towns mentioned were insignificant then, and none of them, even at this day, 65 years afterward, have reached a population of 1,000. The charter of the Gas Bank, as it was called, was loaded with various other conditions in the interest of certain sections of the State, which seem onerous viewed from the standpoint of to-day; and the bank, in order to secure the privileges it asked for, was required to assist other struggling improvements then under way or contemplated. It was required, for instance, to subscribe to 500 shares of the stock of the Barataria and Lafourche Canal Company, and also to loan money, up to $150,000, to any railroad company which might be incorporated by the Legislature of Louisiana after March 20, 1835, for the purpose of building a railroad from Alexandria to Chencyville on Bayou Boeuf,-the loan to run 25 years and bear 5 per cent interest. These conditions will illustrate the financial conditions and opinions of the time, and the boom just then under way for public improve- ments. A company is started for the purpose of constructing gas-works in New Orleans. It is not satisfied with this, but wants to run a banking business along with its gas-works, and is allowed to do so, on the condition that it will establish
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five branch banks in various parts of the State, four of them in insignificant villages; that it will furnish the capital necessary for the construction of a canal in another part of the State, and a railroad many miles distant and of purely local interest-the possibility of railroad building at that time being an unknown quantity. The charter of the Gas Bank also contained the provision usually inserted in the banking corporations in Louisiana at the time and intended to give stability to these institutions, forbidding it to suspend specie payment on any of its obligations. In the event that it did so, it was required to pay 10 per cent interest on its obligations for a period of 90 days. Suspension for over 90 days rendered the charter of the company ipso facto null and void.
On the other hand, the bank was given a monopoly of lighting with gas the cities of New Orleans and Lafayette (now the fourth municipal district), but was subject to a fine of $500 per day for its failure to light the city, and $25,000 for any failure to provide the Charity Hospital with free gas.
Various other amendments were made from time to time in this charter, and the Legislature seemed determined. to load the Gas Bank down with obliga- tions. It was required to establish another branch in St. Bernard, with a capital of $100,000, and still another in Franklin, with a capital of $300,000; and the Alexandria branch was authorized to retain $250,000 of its capital to be loaned to citizens of Natchitoches and Claiborne parishes. In fine, the New Orleans Gas Light and Banking Company seems to have combined a half dozen institutions,- gas company, bank, loan institution and improvement company. Ultimately these side issues were separated from the Gas Company, which has continued to this day, but confining itself exclusively to its legitimate business of providing New Orleans with gas.
The next few years saw a flood of new banks and corporations. It was what would be called to-day a "boom," and brought the natural consequences of a re- action, collapse and panic. The new banks were of immense capital, far greater than the commerce of New Orleans and the development of the tributary country required. It was a case of pushing a good thing along too far, and in the crisis which followed some of the old banks went down as well as the new ones. The banks established between 1831 and 1833 were as follows:
March 3, 1831, City Bank of New Orleans, capital $2,000,000. March 5, 1831, New Orleans Canal and Banking Company, capital $4,000,000. It, or rather its successor, survives to-day in the Canal Bank. April 2, 1832, Union Bank, capital $7,000,000. This bank survives to-day in the Union National Bank. April 1, 1833,
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Commercial Bank of New Orleans, capital $8,000,000. April 1, 1833, Mechanics' and Traders' Bank, capital $2,000,000. April, 1833, Citizens' Bank, capital $12,- 000,000.
Thus in barely two years six new banks had been authorized in New Orleans- three of which survive to-day after many vicissitudes and changes in their char- ter-with capital to the amount of $33,000,000. Could there be better evidence of overdoing the banking business? In 1835 the Legislature granted five more banking charters: The New Orleans Gas Light and Banking Company (of which mention has already been made and which was merely an amplification and modifica- tion of the Gas Company), capital $6,000,000; Exchange Bank, capital, $2,000,000; Carrollton Railroad Bank, capital $3,000,000. The latter survives in the New Orleans and Carrollton Railroad to-day. It was thought necessary, it will be seen, to extend the banking privileges to canal and railroad companies. The total capital of new banks established in New Orleans in 1835 was $16,000,000, aggregate capital of the banks and other similar institutions chartered by the Legislature at its twelfth session (that of 1835), $39,345,000. The success that had been met with · had started the State on a policy of wild inflation almost as great as that of Law, which had marked the foundation of the colony of Louisiana a century and a half before.
Of these several new banks only brief mention is needed.
The City Bank of New Orleans was incorporated March 3, 1831, with a capital of $2,000,000 and with Nathaniel Cox, John A. Merle, Martin Duralde, George Eustes, Stebbins Fisk, J. J. Bordier, A. H. Wallace, F. Gardere, James P. Freret, Joseph Lallande, A. Cruzat and D. S. Borderzat as directors. It was authorized to establish two branches of discount and deposit at Natchitoches and Baton Rouge, respectively, each with a capital of $200,000 and five directors. There was the usual provision inserted in bank charters at the time, relative to the suspension of specie payment, interest of 12 per cent on all such suspended papers and the forfciturc of charter in the event that the suspension lasted longer than ninety days. The City Bank was one of those that suspended payment in the great panic of 1837, but it was renewed afterward, and it was not until March, 1850, that it passed into liqui- dation under an act of the Legislature.
The New Orleans Canal and Banking Company was one of the improvement banks, chartered for the construction of a canal in the newer or American portion of the city, to which trade and business was at that time rapidly drifting from the old city, the vieux carre. It was chartered March 5, 1831, with a capital of $4,000,-
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000 under the superintendence of 17 commissioners; and it was authorized to es- tablish four offices of discount and deposit, one at St. Francesville, one at Alexand- ria, with a capital of $4,000,000, one at Franklin and one at Donaldsonville, each of the latter two with a capital of $250,000.
The Canal, in the construction of which Hon. Simon Cameron, afterward Sen- ator from Pennsylvania and U. S. Secretary of War under Lincoln, was employed, was completed in 1839, although at great cost and with more difficulties and obstruc- tions than the company had anticipated. The canal and banking privileges were subsequently separated, the former passing into the hands of the State, which still holds and controls it, while the banking franchise is now operated by the Canal Bank.
The Union Bank was incorporated April 2, 1832, with a capital of $7,000,000, to be raised by means of a loan negotiated by its directors. The faith of the State was pledged for the security of the capital and the guarantee of interest, and $7,000,000 of bonds were issued, bearing five per cent interest, one-quarter being payable each 12, 15, 18 -and 20 years. The bonds issued by the State were secured by the stockholders' subscriptions. These were to be in cultivated lands and slaves, lots or houses, or other edifices yielding a revenue, or on lands not cultivated but susceptible of cultivation, and in vacant lots, provided that no more than one-fifth of said stock should be secured by such lands. No mortgages or slaves alone were received ; they must be slaves as part and parcel of a plantation. It will be seen that the Union Bank was founded on much the same principle as the consolidated Planters' Association, except that the security was slightly broadened. The Plant- ers' Bank would take none but plantation property ; the Union Bank included city as well as country real estate, houses and lots, as well as plantations-in fine any kind of real property, not even excluding negro slaves, at that time one of the most valuable assets in Louisiana.
The charter of the bank gave it an existence of 25 years. It was to be operated by 12 Directors, of whom six were to be appointed by the Governor in view of the direct interest the State had in the bank, in consequence of supplying the bonds upon which its capital was based, and six elected by the stockholders. There was the usual provision in regard to branch banks or depositories, but the Union Bank was authorized to establish eight of these, more than any of its predecessors. These branches, with their respective capitals, were as follows: Thibodaux, $250,000; Covington, $225,000; Marksville, $220,000; Vermillionville (now Lafayette), $200,000; St. Martinville, $200,000; Plaquemine, $250,000; Natchitoches, $200,- 000; and Clinton, $250,000. Each of these branches were in charge of local boards of directors, consisting of five or seven members.
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The Union Bank, whose president was Matthew Morgan, was for the first four or five years of its existence one of the most prosperous of the financial institutions in New Orleans, and during a considerable part of that time handled the large busi- ness of the New Orleans branch of the United States Bank, which was just then going out of business. It figured very conspicuously later on in the troubles inci- dent upon the capture of New Orleans by the Union forces in 1862.
The Commercial Bank of New Orleans, like the New Orleans Gas Light and Banking Company, was an improvement bank, organized for the purpose of pro- viding New Orleans with water, and practically survives to-day in the New Orleans Water Works Company. It was incorporated April 1, 1833, with a capital of $3,000,000, and with five commissioners or directors, three of whom were to be ap- pointed by the Governor and two by the City of New Orleans. The bank was re- quired to furnish the city with free water for the extinguishment of fires, as well as for the public squares. On this score frequent complaints were made and the Legis- lature of Louisiana found it necessary in 1848 to pass a special act compelling the bank to carry out its obligations to the city in the matter of supplying it with such water as was needed.
The Mechanics and Traders' Bank was incorporated April 1, 1833, with $2,000,- 000 of capital. It had but one branch, at Opelousas, with a capital of $300,000. The State subscribed for $150,000 of the stock and the privilege of The other banks, it will be noticed, were organized mainly for the benefit of the planting interests of Louisiana, or for public improvements. The manufacturing and mechanical interests of New Orleans were but little thought of, and, indeed, viewed with more or less contempt. The Mechanics and Traders' Bank was found- ed largely for the purpose of developing these interests. The men who were mainly instrumental in organizing the bank were Jedediah Leeds, James McKenna, John Wilcox, Maurice Cannon, Nicholas Sinnott, James B. Hullen, Jesse Cowand, John D. Bair, Maunsel White, Evarste Blane, James Hopkins, John G. Greeves, George W. White, Maurice Pizetti, Claude Gurley and C. Corryjolles, Jr. The liquidation of the bank was authorized in 1850.
The Citizens' Bank of Louisiana was chartered in April, 1833. It was the largest and most important bank yet provided for, and started out with the immense capital of $12,000,000, based upon a plan of loans or bonds to be issued by the bank. The amount to be subscribed for by the stockholders was $14,400,000 in 144,000 shares of $100 each, to be guaranteed, secured and pledged by mortgages on real estate. Upon these subscriptions the bank was authorized to issue bonds, payable
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in 14, 23, 32, 41 and 50 years. The subscriptions were to be divided between New Orleans and the country districts as follows: New Orleans, $8,400,000, and the country $6,000,000.
The bank was a "boomer" from the start, and gave great impetus to the im- provement of plantations, the building of houses, etc. As one of the historians of the times writes : "Every owner and proprictor of a vacant lot, whether dry or under water, every proprictor of old and tenantless buildings imagined that the millen- nium was really approaching" and hastencd to subscribe to the "stock." The bank was authorized to advance money for the building of houses, prescribing of what material they were to be built, to take stock in the Lake Borgne Navigation and Canal Company, to build a railroad from the river to Gentility Ridge and to do a hundred other things-"enough to bankrupt the best bank in the world"-an able financier of the times remarked.
The Citizens' Bank did not enjoy the same advantage as the Union Bank, which had the credit of the State behind it, whereas the Citizens' Bank had as its security only lands and property in Louisiana. When, therefore, its agents went to Europe to arrange for the negotiation of its banks, as had been so successfully done by the Union and other banks, they encountered several rebuffs, and were un- able to place the bonds. The State was several times appealed to and asked for its guarantee, but refused at first. In 1836, however, the Legislature assured the Citi- zens' Bank the assistance it asked for. It was just on the eve, however, of the great panic. The Citizens' Bank did only a few years' business, for it went into liquida- tion in 1843, to be reorganized afterward on a new basis. Under its charter it was authorized to establish seven branches in various parts of the State.
The New Orleans Improvement and Banking Company was incorporated Fcb- ruary 26, 1834, for the purpose of purchasing and selling real estate. The capital, originally $1,000,000, was increased to $2,000,000 in 1836. This Company built the first St. Louis Hotel, the finest hotel of its time ; but one of the conditions of its charter-there were remarkable addenda to charters then-required it to build three steamboats to run on the Red River, Upper Coast and Lake Pontchartrain trades respectively. The Legislature selected the Directors of the company, who were J. F. Canonge, Alonzo Murphy, Felix de Armas, Henry F. Denis, F. Gardère, E. J. Forstall and Noel Barthelemy Le Breton. This company went under in the panic and was compelled to liquidate its affairs in 1846.
The Atchafalaya Railroad and Banking Company was incorporated March 10, 1835, with a capital of $2,000,000, to build a railroad from Pointe Coupce, in the
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Mississippi River, to Opelousas. The company had its headquarters at Bayou Sara, with branches at New Orleans and Monroe, the former with a capital of $500,000, and the latter with $400,000.
The Exchange and Banking Company of New Orleans was incorporated April 1, 1835, with a capital of $2,000,000, to build a hotel in the new or American sec- tion of the city. The hotel was to cost not less than $300,000, exclusive of the sites, under a penalty of a forfeiture of the Company's charter.
The Merchants' Bank of New Orleans was incorporated February 25, 1836, with a capital of $1,000,000.
The slightest consideration of the conditions prevailing in Louisiana at that time will show that the banking business had been overdone. This was due to the ease with which bonds could be floated, and the assistance the State of Louisiana gave the banks by lending them its credit and guaranteeing their bonds and interest thereon, apparently safeguarding itself by the securities furnished by the sub- scribers, who put their property-plantations, houses and slaves-into the new com- panies. It was pretty much the same condition of affairs that preceded the Argen- tina panic of a few years ago, which resulted in the suspension of the great English banking house of Baring Brothers.
It would be a mistake, however, to imagine that Louisiana and New Orleans were alone in going beyond their credit, and in placing more securities on the mar- ket than they could handle. The same condition of affairs existed throughout the South and West, more particularly in the latter section. The ease with which bonds and securities of all kinds could be floated in Europe was a temptation. Every town and county issued bonds, and companies were organized for every conceivable improvement. The total amount of securities sold in Europe ran far up in the hundreds of millions and swallowed up all the available capital of that continent.
New Orleans had been somewhat moderate at first, but from 1830 to 1837 it was attacked by the prevailing epidemic, and was turning out new banks by the dozen. In 1837 it boasted of no less than fifteen banks, capitalized at $62,000,000, enough to do more than five times the business the city then handled.
The panic was threatening long before its danger was recognized in New Or- leans, or, indeed, anywhere else. The failure of the United States Bank to secure the renewal of its charter in 1832 was the first warning note. This stimulated the several States Legislatures to grant charters for State banks, which increased in number with marvelous rapidity, cach of these banks being authorized to issue cur- rency, and the Legislature in many of the States having taken no sufficient steps
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to protect this currency, the country was flooded with notes. There was more money than was needed, not only in New Orleans, but everywhere else, and there was naturally a great deal of speculation and a rise in values, particularly real estate. Towns were laid off and gigantic improvements planned. In fine, the United States was enjoying one of the wildest booms which it ever knew, and as it had had very little experience in "booms" all this improvement and advance in price was greeted cn- thusiastically as evidence of great prosperity.
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