The City of Glasgow Bank was established in 1839 with a head office in Virginia Street, Glasgow. At its height, there were 133 branches, a paid-up capital of £1,000,000 and 1,249 shareholders.
From its establishment both the City of Glasgow Bank and the Western Bank of Scotland tried to attract the small(working class or artisan) depositors, their extensive branch systems opened in the evenings and paid high deposit rates. It is likely that the dramatic failure of the Western Bank of Scotland in November 1857 and the subsequent heavy run on the City of Glasgow Bank which obliged it to temporarily suspend payment, sufficiently shook the confidence of these depositors to keep them wary of Joint Stock Banks for generations as well as linking in the minds of the other banks, problems with liquidity and small depositors.
Once the alarm which had followed the failure of the western Bank of Scotland had passed, the City of Glasgow Bank re-opened and was to all appearances very successful, the shares immediately before suspension being quoted at £240 for each £100 share, and a dividend of 12% being paid as late as July 1878. At the time of this dividend the directors submitted a statement of the bank's affairs, showing that it had an unimpaired reserve fund of £450,000 and that it had earned a profit of £140,095.
Notwithstanding this paper prosperity, the bank was finding it difficult to carry on its business. In London, its acceptances were being refused; its credit in many quarters was suspected; the directors began to make desperate efforts to obtain help and prevent the bubble from bursting. As a last resort they turned for assistance to the other Scottish banking companies; but these obtained a report from Mr Auldjo Jamieson, C.A. to the effect that an examination of the books showed a worse state of affairs than had been represented and they refused. The Directors of the City of Glasgow Bank, in these circumstances, had no alternative but to close their doors on 2 October 1878.
A Committee of Investigation was immediately appointed who recommended liquidation. This was agreed by a meeting if the share-holders, held in the City Hall m 22 October 1878. Subsequently the liquidation was ordered to proceed under the supervision of the court.
The Report of the Investigation Committee, which was published in the newspapers on 19 October (Leaks are not new!), brought out the startling fact that the deficiency, including the bank's capital and reserve, amounted to no less than £6,190,983. This had not been public for many hours, before, at the instance of the Lord Advocate and Procurator-Fiscal for Lanarkshire, a warrant was issued for the arrest of the Manager, Secretary and Directors. These officers of the Bank were duly arrested and sent to the Sheriff on a charge of fraud. Subsequently the prisoners were lodged in Duke Street prison, Glasgow, where, under a new Act applicable to untried prisoners, they were allowed to maintain themselves, at their own expense, in comforts unusual in Prison.
On 29 October 1878, they were further charged with the theft of bills left for collection to the amount of £20,000 and were then formally committed for trial. Subsequently, on 4 November 1878, Mr John Stewart, the only director without an overdraft with the bank at the time of closure was freed on £15,000 bail. After much discussion in the court, bail was refused in the case of the other prisoners; and, with the exception of Charles Leresche, who afterwards became a witness for the Crown, was released at the instance of the Crown, they remained in Duke Street prison until 16 January 1879 when they were moved to Calton Jail in Edinburgh to await trial, which began on 20 January, and ended, the charges of embezzlement and theft having been withdrawn on 31 January, with a unanimous verdict of guilty.
Sentence was pronounced on 1 February. The Manager, Robert Stronach and Lewis Potter, who had been a director of the bank since its establishment, being guilty of falsifying and fabricating the balance sheets of the bank, and were given eighteen months imprisonment each. The other five directors were found guilty of uttering and publishing the balance sheets, knowing them to be false, and were sentenced to eight months imprisonment.
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