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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Zurich’s financial institutions in the 18th century and the crises of 1798: Analysis on Leu & Company’s foreign investments strategy |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 131 |
| Date | 2017 |
| Abstract Text | The subject of this study is the presentation of Zurich’s state run financial institutions and their foreign investment strategy in the 18th century, which ended up in the economic and political crises of 1798 and the restructuring of Leu & Co. The impact and aftermath of the 1798 crises will be discussed on the basis of a detailed evaluation of original documents of Zurich Treasury Office, respectively from the archives of Leu & Co., publicly accessible since 2012. The introductory chapter is focusing on the emergence of the City Republic of Zurich as one of today’s leading banking centers by tracing back the origin of banking to the 13th century. Furthermore, the impact of the Reformation 1525 on the state interest and loan policy towards the expanding textile industry, growing public wealth and its political ally France, is discussed. Another issue is the question concerning the influence of French and Italian Huguenots who migrated into Swiss Protestant towns after the revocation of the Edict of Nantes in 1685, becoming the founders of today’s well renowned domestic and foreign banks and playing an important role, e.g., in capital export transactions by state run financial institutions, in particular to France. We note, that in the beginning of the 18th century, Zurich State Treasury had stopped the investments of any further money to the French Crown because of its preference for the Catholic Cantons and its severe financial crises caused by royal debts and the collapse of John Law’s Compagnie des Indes and Royal Bank of France in 1719/20. However, due to a great abundance of money there was a strong need for the state and private individuals to invest their money profitably abroad, since their own Countryside was saturated with cheap loans below 3%. Thanks to the analysis of the State Public Ledgers until the end of the 18th century (annexed to this paper), we are in a position to gain a detailed overview on the investments performed by Zurich’s Treasury Masters, who were forced to broaden their operational range of partnership to European monarchies, principalities, monasteries and limited companies. In order to understand the establishment of the state run Interest Commission Leu & Co. in 1755, we are obliged to take a look back at the constitutional reform of 1713 and the following Interest Decrees initiated by the City Authorities. On the one hand, the latter were eager to create a supervisory body, the so-called “Interest Commission”, to stop the steadily undermining of the officially imposed minimum interest rate of 5%. On the other hand, we notice that in practice the Treasury Office was investing funds abroad being gained on the local financial market at a lower interest rate than legally permitted. In the light of such contradictory policies the Great Council followed Treasury Master J.C. Heidegger’s expert opinion to create a public bank endowed with an initial capital of 50’000 Gl, which was going to finance its foreign assets by issuing 3% bonds to the public and 3.5% bonds to institutions. It was agreed that the firm had to trade under the name of its largest bondholder, former Treasury Master J.J. Leu. By means of a detailed compilation of information derived from general ledgers and minutes of Leu & Co. for the time period between 1755 and 1798 (annexed to this paper), an attempt is made to present the most accurate picture of the company’s foreign investment strategy including interest gain and losses. From an economic point of view, these investments abroad had proven reliable and profitable as long as the political and legal environment remained stable. We try to explain, why Zurich Treasury and Leu & Co. reintroduced the massive granting of loans to France and created a new business line in the 1770s, despite of the outbreak of a severe financial crisis, which deteriorated with the French Revolutionary Wars in 1792 and the protectionist law on the “Repayment of the Public Debt” in 1797. When in 1798 the Swiss Confederation was invaded by its traditional ally France and the Ancien Régime came to an end, there was reason to fear that the official character of Leu & Co. might have invited confiscation of its assets by the French steered Helvetic Republic – as it was happening with the Treasury funds. Therefore, under the title “Restructuring of Leu & Co”, the timely conversion of the company’s legal status as well as the implementation of the restructuring measures are discussed. With the end of the Helvetic Government in 1803, Leu & Co. had overcome the worst of the economic and political crises. In chapter 7, we draw a conclusion on the aftermath of the 1798 crises by specifying the results of Leu’s step by step liquidation of its foreign assets, and draw a comparison with the foreign assets held by the former Treasury Office. An outlook on the transformation of Leu & Co. into a mere mortgage bank until 1855, and its ranking among other banks in the course of the 19th century, conclude our considerations on this topic. |
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