Hills of Exchange, Local and Country Bills, Credit Accounts, and other Advances upon Security
Advances on Heritable Property, and Value of Hank Buildings and Furniture at Head Office and
Cash on hand, viz., Giold and Silver Coin and Notes of other Banks at Head office and Branches . . .
Government Stocks, Exchequer Hills, Railway and other Stocks and Debentures, and Balances in hands of Banking Correspondents
The above discrepancy can be largely accounted for by the £450,000 of Reserve Fund, which the indictment, charged the directors with having raised by means of interest charged on advances, but never actually received.
As issued by the Investigators.
Deposits at the Head Office and Branches, and Balances at the Credit of Banking Correspondents
Bank Notes in Circulation in Scotland and the Isle of Man . . .
Drafts Outstanding, due, or with a currency not exceeding twenty-one days, and Drafts accepted by the Bank and its London Agents on account of Home and Foreign Constituents.......
Bills of Exchange, Local and Country Bills, Credit Accounts, and other Advances upon Security
Advances on Heritable Property, and Value of Bank Buildings and Furniture at Head Office and
Cash on hand, viz., Gold and Silver Coin and Notes of other Banks at Head Office and Branches. .
£418.363 16 4
Government Stock s, Exchequer Bills, Railway and other Stocks and Debentures, and Balances in hands of Banking Correspondents . .
587,083 7 0
Balance, being Loss ....
To the above Balance of Loss.......
Falls to be added the capital........
Making the total loss....................
During the examination of Mr. Jamieson it was elicited that the bank had lent the enormous sum of nearly six millions to five different firms, all of whom were insolvent; and the inference was that to hide these bad debts was the motive of the directors in the fabrication of the balance-sheets.
The following are the names and amounts of these bad debts, viz.:-
James Morton as an individual, and his firm of James Morton and Co., Glasgow .
Smith, Fleming, and Co., London . . .
James Nicol Fleming, Glasgow . . . .
Lewis Potter as an individual, and his firm of Potter, "Wilson, and Co., Glasgow . .
J. Innes, Wright, and Co., Glasgow . . .
Of the above, Potter and "Wright only were directors. Nicol Fleming was a former director, and no doubt was responsible for much that was done, for, on the apprehension of his quondam colleagues, he left the country. Morton was not a director, at least not ostensibly; but this person seems to have been on intimate terms with the members of the board, and to have acted on occasions as a general adviser.
Granting the motive for falsifying the balance-sheets, in order to hide the enormous indebtedness of the five insolvent firms already named, on turning to the first and second of the balance-sheets already given, and comparing them together, it will be readily seen how well that issued by the bank was calculated to deceive, and to inspire the public with unmerited confidence.
There does not seem to have been very much method displayed in manipulating the accounts. The primary object seems to have been to arbitrarily alter any figures, which would, when effected, present the best appearance to the public eye, and most nearly correspond relatively to the figures of the other banks' balance-sheets.
It would have damaged their credit irretrievably, for instance, if they had issued a true balance-sheet, such as No. 2 above, which shows cash in hand and Government Stocks, etc, of £1,996,000 only, wherewith to meet liabilities to the public of £12,723,000, the cash in hand, etc, thus showing a proportion to liabilities of about 15 per cent. only. Up till a few years ago it was an old tradition in the banking world that the proper proportion of cash in hand, etc, to liabilities should be about one-third, or 33 per cent. Hence we find the City of Glasgow Bank in its manipulated statement (see No. 1) showing a proportion of slightly over 30 per cent.
The figures seem to have been altered chiefly to meet this requirement, but with the view at the same time of making as good an appearance in the various items as possible, so as to bolster up their credit in London and elsewhere, as long as they could. For instance, the under statement of their acceptances to the extent of £1,393,000 was evidently done to hoodwink the London bill market upon which the great bulk of their acceptances were placed, for they would be perfectly well aware that the London market would not tolerate for a moment such an amount as the true amount, especially as it was apparent that the acceptances were given to such questionable firms as Smith, Fleming, and Co., and Morton, and their connections.
Then the over-statement of the cash in hand and Government Stocks, etc, to the extent of £1,145,000 was no doubt made to assure the depositors chiefly and other creditors of the bank.
There seems to have been no pressing necessity to understate the deposits on the Dr. side, and the bills of exchange, etc. on the Cr. side, except that by the under-statement of the deposits (and the consequent under-statement of the bills of exchange, to balance) the directors were enabled to show a larger proportion of cash in hand.
It will be understood that the foregoing remarks, although made with reference to the 1878 balance-sheet only, are equally applicable to those of 1876 and 1877. Indeed, we fear they may be applicable to years anterior to these, for it seems as if the first false step were made in 1873, when three advances, amounting to £751,000 in the aggregate, were deliberately deducted from credit accounts under No 1 head of the assets, and added to Government Stocks; and when a sum of £973,000 was deliberately deducted from the acceptances current, so as to make it appear that the bank were under acceptance to that extent less than they actually were.
Another falsification which was made, and which was greatly calculated to deceive the public, was in the weekly return to the Commissioners of Stamps and Taxes of the gold and silver coin held against the circulation. This return from the week ending 5th January, 1878, till the stoppage of the bank, was regularly over-stated in varying amounts from .£20,000 to £293,000.
Proof was led in support of the various charges in the indictment, and pretty conclusive evidence as to the falsification was given.
When the case for the prosecution was closed, high-class witnesses as to character were called for the prisoners; but their general defence, brought out chiefly in cross-examination of crown witnesses, was that they did not understand the balance-sheets; that they were entitled to rely on the officials of the bank; and that they placed the most entire confidence in every statement and figure placed before them. And in one case the prisoner pled that the balance-sheets in question were made up when he was absent from Scotland.
The summing up of the Lord Justice Clerk placed the innumerable and intricate questions involved before the jury in a wonderfully lucid way. He pointed out that a director is not a professional banker, and that he is entitled to rely upon the officials so long as he has no reason to distrust them; but that where special circumstances arise to bring special interests under his notice there is imposed upon him an obligation for inquiry, and, if necessary, for action. He further pointed out that there is one thing a director is bound to have, and that is, in every case, honesty, and that neither the interests of the shareholders, nor the chance of recovering a bad debt, nor any of those other circumstances which, when he is in the midst of a difficulty, almost overwhelm him, justify, excuse, or palliate him in making a deliberate statement which he knows to be false.