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On the Sheep's Back
1860s
Today's Standard Bank of South Africa had its origins in the eastern Cape of the mid-19th century - the epicentre of the Cape Colony's thriving wool trade. In response to a worldwide demand for woollens sparked off by Britain's industrial revolution, wool-bearing sheep had been introduced into the arid platteland (countryside) around Port Elizabeth in the 1830s, enabling the growing settlement to overtake Cape Town temporarily as the busiest town in the British-ruled Colony. If England's economy in the 19th century depended largely upon woollen products, the same was true of the economy of the Cape. Between 1862 and 1869, wool accounted for 73 per cent of the value of exports to Britain and the United States (US) through the Colony's two seaports. As the Standard Bank's historian JA Henry observes, before the discovery of diamonds and gold, the entire economy of the Cape was carried on the sheep's back.1
Elsewhere in the future South Africa, local economies were mostly agrarian and poor, with ostrich feathers and ivory 'providing the only exotic supplements to the conventional agricultural products of the land'. The frequent wars on the eastern Cape frontier - besides being a constant drain on the British taxpayer - kept the Colony in a state of permanent unrest.2
Not that the wool from the eastern Cape was of high quality - far from it. Perennially short of cash and plagued by livestock losses during the Frontier Wars against the Xhosa, sheep farmers were obliged to shear twice a year instead of once, producing wool that was not strong or fine enough to meet the standards required by British and American mills.3 And the marketing of wool, like much business activity in the Colony, was rudimentary and slow. Nonetheless, Port Elizabeth's warehouses were filled to bursting with wool bales, its streets regularly clogged by heavily laden ox-wagons on their way to the harbour. Wool replaced wine as the Colony's chief export.
Financing was urgently needed to send the Cape's wool crop to overseas markets, hence the need for better banking services. Although small banks were scattered around the Colony, most lacked capital and reserves and struggled to withstand the regular droughts and trading downturns that were the bane of a largely single-product economy. Yet every dorp (small town) worthy of its name boasted its own bank, 'generally owned by one or two leading businessmen and farmers in the community, who extended credit in none-too-vigorous fashion to themselves as well as local tradesmen'.4
It took the initiative and thrust of an enterprising young Scottish immigrant, John Paterson, to raise the quality of banking services in the Colony. The son of an artisan, young Paterson was educated in Aberdeen, graduating in 1840 with an MA to his name. A year later, he took advantage of a sponsored scheme that took schoolteachers out to the Cape Colony. Passing out top of the recruitment process, Paterson was sent to Port Elizabeth to open a senior government school there, which in time became Grey High School. After running the school for six and a half years - during which he made many shrewd investments in land and helped found the Eastern Province Herald - the enterprising Scotsman abandoned teaching as a career in favour of becoming joint-proprietor, publisher and editor of the newspaper still in print today. Paterson's restless temperament and growing interest in civic affairs led ineluctably to his involvement in politics, in which the Herald campaigned actively for the introduction of municipal government to Port Elizabeth and for greater autonomy for the eastern Cape. In 1849, he married Frances Mary Kemp, daughter of a prominent local businessman, who bore him five children.
During the late 1840s and early 1850s, Paterson helped to buy up Crown land for the town and to set up a hospital, library and wharves for the harbour. His business interests expanded to include retailing, real estate development, importing, ship victualling and insurance, and in 1853 he became chairman of the board of Town Commissioners. A year later, when representative government came to the Cape and Port Elizabeth was granted two representatives in the first colonial parliament, Paterson was a shoo-in as one of them. Before long, he became a member of the Cape's Legislative Council, where he was noted for his forcefulness (and long-windedness) as a speaker.
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By 1857, Port Elizabeth had two banks of its own, with John Paterson a prominent shareholder in each. This did not deter him, however, from attempting - along with other prominent businessmen - to establish a third, the 'Standard Bank of Port Elizabeth', to offer commercial services to the rapidly growing trading centre that the other banks were unable to provide. But when his attempts to raise sufficient capital locally were unsuccessful, and his wife died suddenly, leaving him with five young children, Paterson resigned as a town commissioner and colonial parliamentarian and, in 1858, decamped for London. It was time to take advantage of the mid-Victorian economic boom in Britain, ignited by positive developments in banking legislation and regulation.
John Paterson
Returning 'home' as a wealthy and enviably successful businessman from the Empire's outer reaches, Paterson soon established a presence in the City of London. Besides promoting his own business interests, he produced, within a few short months, the first prospectus for the 'Standard Bank of British South Africa', with nominal capital of £1 500 000, not all to be called upon immediately. The new bank would not be confined to the eastern Cape but would aim to attract capital and custom from all quarters of the Colony.5 An inducement to potential British investors was the Companies Act of 1862, which significantly reduced the risk of doing business in distant imperial destinations. As chairman, Paterson also took the crucial decision to set up a reserve fund, so that the Bank did not have to distribute all its profits to shareholders.6
In booming Victorian London, Paterson's salesmanship had City investors falling over themselves to buy shares in the Standard Bank, among the first to be registered under the new banking legislation. As Campbell-Smith records,7 by 1862 the new Standard's paid-up capital of £2 million was twice as great as that of the 29 other banks operating in the Cape Colony, excluding the UK-based London & South Africa Bank. The enthusiasm of shareholders was a reflection of Paterson's energy and persuasiveness. After his election as executive chairman by a board based in the City, Paterson opened his fledgling Standard Bank of British South Africa for business on 20 February 1863.
Port Elizabeth branch, c.1882.
While Paterson was still in London, negotiations for a merger with the Commercial Bank of Port Elizabeth were already under way. The Standard agreed to take over the Commercial's impressive building in the town, in addition to its chief cashier, James Tudhope, who became the merged bank's first branch manager. In the meantime, Paterson busied himself transferring capital to the Colony by means of bills of exchange drawn on City banks into which shareholders' subscriptions had been deposited.
Having persuaded the London board to agree that the business of the Standard Bank would be conducted from Port Elizabeth, now the principal port of the Colony,8 and armed with the authority to establish a network of branches in pro-British parts of South Africa, Paterson sailed for the eastern Cape in February 1863, after shipping off £10 000 in gold coins before departing. Accompanying him was a new wife, an 18-year-old Scottish lass, Marizza Bowie, who would bear him no fewer than eight more children.9
Port Elizabeth branch interior, c.1883.
Within weeks of opening, the new Standard had taken over the Colesberg and British Kaffrarian banks in the eastern Cape, the Fauresmith bank in the Orange Free State and the Beaufort West bank, while negotiations had opened with others in the western Cape. Besides these mergers, several new bank branches were started from scratch. By the end of 1864, the Standard had 19 branches (or agencies) - eight in the eastern Cape (including Port Elizabeth), five in the western Cape, three in the Free State, two in Natal and one in British Kaffraria (outside East London) - and its nominal capital had been increased from £2 million to £3 million. While the overall direction of the Bank came from the main board in London, local boards were established in Port Elizabeth, in Cape Town and in several smaller branches. Capital was sorely needed at this time for infrastructure, bridge-building and particularly railway construction.10
Amalgamating with other banks did not...
