Great financial disasters in history: the collapse of Overend Gurney

When 18th-century bank Overend, Gurney & Company's business loans started losing around £500,000 a year, it went bust, landing shareholders with a bill of £2.5m.

In 1775 the Gurney family of Norwich founded Gurney & Co, which grew to become one of the most successful banks in East Anglia. In 1807 the family bought London bill broker Richardson, Overend & Company – a business that bought and sold bills of discount (effectively short-term business debts). The merged firm became Overend, Gurney & Company. From around 1859 the bank, then the largest bill broker in England, expanded by making more general business loans to a variety of enterprises.

What went wrong?

Overend Gurney’s bill-brokerage business was profitable, but its forays into more general business loans proved disastrous, and it lost around £500,000 a year from 1860 onwards. By 1865 it was hopelessly insolvent. To protect the bank the partners decided to sell the business to a new limited company that was then listed on the stock exchange. As well as promising a “highly remunerative return”, the prospectus promised that any losses would be fully guaranteed by the sellers.

What happened next?

By the spring of 1866, people were speculating about the scale of potential loan losses and Overend Gurney’s directors realised that the company could not survive. After the Bank of England refused to give it an emergency loan, Overend Gurney ceased operation, causing a general financial panic that was only quelled when the Bank of England injected £4m (£385m in today’s money) into the system. In the ensuing bankruptcy it quickly became apparent that the losses on the loans far exceeded any guarantees, leaving shareholders liable for the rest. A private prosecution was launched against the directors. But although they had clearly made bad business decisions, the directors were acquitted of fraud in 1869. 

Lessons for investors

Overend’s creditors would be fully compensated; its 2,000 shareholders were less lucky. The shares, which were worth £25 at their peak in October 1865, were worthless by the end; shareholders also had to stump up an additional £25 a share based on the agreement at the initial public offering, landing them with a total bill of £2.5m, causing some of them to go bankrupt. The fact that the prospectus for the offering in 1865 was less than 300 words long, and didn’t contain a balance sheet or any accounts, should have raised some questions.

Recommended

Key dates for 2023: here are the dates you need to know when it comes to your money in 2023
Personal finance

Key dates for 2023: here are the dates you need to know when it comes to your money in 2023

There is no shortage of important dates to be aware of next year – which are likely to affect your financial health. We run through the key dates in 2…
6 Dec 2022
What is a recession and how will it affect you?
UK Economy

What is a recession and how will it affect you?

The UK economy is heading towards a recession, according to economists. But what is a recession, and what does it mean for your money?
6 Dec 2022
Investment scams are infiltrating Facebook and Instagram
Investment strategy

Investment scams are infiltrating Facebook and Instagram

Research from Which? found hundreds of investment ads on Facebook and Instagram that could be misleading investors into potential investment scams.
6 Dec 2022
Is it a good time to buy an annuity as rates hit a 14-year high?
Pensions

Is it a good time to buy an annuity as rates hit a 14-year high?

Average annual annuity income has risen by nearly £1,000 since the start of the year. We look at whether now is a good time to buy an annuity.
6 Dec 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments
State pensions

State pension errors – why tens of thousands of mothers could be missing out on millions in state pension payments

LCP launches Mothers Missing Millions campaign amid DWP state pension errors.
3 Dec 2022