| Code | DS/UK/67 |
| Corporate Name | Wallace Brothers Bank Ltd |
| Dates | 1972 - |
| ParallelFormsOfName | E D Sassoon Banking Co Ltd ( - 1974); WBB |
| Activity | Wallace Brothers was established in 1863 with interests predominantly in trading in India. In the 1960s, its merchant banking activities expanded and - in 1970 - Wallace Brothers & Co was incorporated (as a subsidiary of Wallace Brothers & Co (Holdings) Ltd) (WBH) to take over all the banking activities of the group. In March 1972, the group purchased an authorised bank - the E D Sassoon Banking Co Ltd. In 1974, the Sassoon name was dropped and it became Wallace Brothers Bank Ltd (WBB). It was largely problems with WBB that caused the Wallace group to become the last casualty of the secondary banking crisis.
One of the major shareholders in WBH were the Crown Agents and - when the Agents' difficulties came to a head in December 1974 - the Bank of England granted WBB a £5 million unsecured standby to protect against temporary liquidity problems. This was renewed monthly and expired in June 1975. In September of that year, WBB asked for a reinstatement of that facility. Heavy provisions were needed against the fall of property values. Thus, the accounts for the financial year to July 1975 resulted in a pre-tax loss of £1.4 million. In December, the Bank agreed to another £5 million unsecured standby for six months. The proviso was that it would only be renewed after further scrutiny of WBB.
The following year, ever falling property values compelled WBB to make further provisions in their annual accounts, meaning another heavy loss. The Bank commissioned a report on WBB from Price Waterhouse & Co and - in the meantime - asked the Crown Agents (as major shareholders) to offer assistance to the ailing bank. However, the Crown Agents (themselves facing major difficulties) were uncooperative. In October 1976, the Bank - somewhat reluctantly - provided WBB with a £12.5 million facility (this time, secured). Nevertheless, this was only a short-term measure - a buyer needed to be found.
The Bank identified the Standard Chartered Bank Ltd as the most suitable buyer - Standard Chartered would face some exposure should Wallace Brothers go into liquidation. However, Standard Chartered came to the conclusion that Wallace Brothers was a candidate for liquidation rather than rescue. Even so, the Bank continued to encourage the acquisition by Standard Chartered - the secondary banking crisis was dying down and the liquidation of Wallace Brothers would threaten re-emerging confidence in the City. A complicated plan was hatched whereby Standard Chartered (through its subsidiary the Standard Bank) would acquire all the share capital of WBH, but not without considerable assistance from the Bank.
The Bank lent Standard the £1 million provisional purchase price. Standard guaranteed the loan portfolio and contingent liabilities of WBH. That guarantee was limited to a deficiency of £700,000 (the estimated deficiency was actually put at £6 million) and a matching £700,000 indemnity was provided to Standard by the Bank. In addition, the Bank provided a comfort letter which ensured that Standard would suffer no loss greater than its exposure and granted a secured facility of £30 million to WBB to meet cash flow requirements. The agreement in principle was announced on 7 December 1976, though various complications meant that the deal was not completed until the end of March 1977.
At the time of rescue, it was hoped that the rundown would be completed by December 1981. The original indemnity was designed primarily to give protection against the emergence of significant bad debt losses in WBH. With it proving hard to realise some of the company's assets, the indemnity arrangements to support the group were subsequently extended in 1983, 1985, and 1987. The realisation programme was finally completed in 1989/1990. |
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