Did the Bankruptcy of Hu Kwang-Yung and the Shanghai Crisis of 1883 Cause the 1884 Failure of the Oriental Bank? The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation Sheehan, Paul. 2018. Did the Bankruptcy of Hu Kwang-Yung and the Shanghai Crisis of 1883 Cause the 1884 Failure of the Oriental Bank?. Master's thesis, Harvard Extension School. Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:42004018 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#LAA Paul Sheehan A Thesis in the Field of History for the Degree of Master of Liberal Arts in Extension Studies Harvard University May 2018 Copyright 2018 Paul Sheehan Abstract The 1884 failure of the Oriental Bank has been subject to various competing interpretations and theories. Frank H. H. King’s history of HSBC juxtaposes that bank’s strong management, fortuitous capital-raising, and less bullish position heading into the 1883 Shanghai crisis—caused by the failure of the merchant, banker, and official Hu Kwang-yung—with the contrasting behavior of the Oriental, implying that the crisis was the final blow to the bank. The results of a longitudinal analysis of the Oriental Bank’s financial statements and the records of its liquidation show not only that the Shanghai branch was probably not large enough to have had a substantial impact on the bank’s failure, and that Hu Kwang-yung and his local banks were not known to have had any outstanding loans from the bank, but also that losses on loans to coffee plantations in Ceylon and sugar plantations in Mauritius exceeded the institution’s entire capital and reserves. As these exposures were mainly dated prior to 1879, it is likely that the Oriental was insolvent by this date, and hence that these exposures, and not the Shanghai crisis, were the cause of its failure. Dedication In memory of Professor Joseph Bond, in deepest gratitude for his assistance and encouragement in developing this thesis; and of Dr. E. I. Marienhoff, who started it all. iv Acknowledgments I acknowledge with much appreciation the counsel and unflagging assistance of Professor William C. Kirby, and of Professor Donald Ostrowski in shepherding this thesis through to completion. Also noted with gratitude are the gracious contributions and research advice of Dr. Frederic Delano Grant, Jr. (Fairbank Center for East Asian Research, Harvard University), Professor John Carroll (Hong Kong University), Professor John D. Wong (Hong Kong University), and Professor David Faure (Chinese University of Hong Kong). My lifelong respect and affection for librarians has only been increased by the invaluable assistance I have received from them in the course of this research. I would like to thank the staff of Harvard’s Widener Library, the Baker Library at Harvard Business School (especially Julie Savsovitz), the HSBC Group Archives (especially Garfield Lam in Hong Kong and Susan Gentles in London), the Standard Chartered Bank archives at the London Metropolitan Archives (especially Elizabeth Scudder), the UK National Archives at Kew, the SOAS Library at the University of London, the British Library, and the University of Hong Kong Libraries (especially Melissa Man). Naturally, any and all errors and omissions remain the responsibility of the author alone. v Table of Contents Dedication .................................................................................................................... iv Acknowledgments................................................................................................................v List of Tables .................................................................................................................... ix List of Figures ......................................................................................................................x I. Introduction ......................................................................................................................1 II. Abbreviations and Definition of Terms ..........................................................................4 Definition of Terms......................................................................................4 Abbreviations...............................................................................................7 A Note on Place Names ...............................................................................8 III. The Imperial Banks........................................................................................................9 Organization of the Imperial Banks...........................................................12 Continuing Regulation...............................................................................20 The Bank of Western India........................................................................23 The Oriental Bank......................................................................................25 Merger and Transition to a Chartered Bank ..............................................29 The Bank of Ceylon...................................................................................30 The Oriental Bank Corporation .................................................................34 V. Hu Kwang Yung and the Shanghai Crisis ....................................................................37 Shanghai Banking and Finance..................................................................37 Foreign Banks and the Oriental Bank in Shanghai....................................37 vi Local Banks ...............................................................................................40 Hu Kwang-yung.........................................................................................42 Hu and Government Finance .....................................................................46 The Crisis of 1883......................................................................................52 VI. The Failure of the Oriental Bank: Gradually, and then Suddenly ...............................55 Closing the Doors ......................................................................................63 Liquidation and Aftermath.........................................................................70 VII Financial Analysis .......................................................................................................72 Disclosure and Form of Accounts..............................................................72 Analysis of Profitability.............................................................................76 Return on Assets and Equity......................................................................82 VIII Analysis of the OBC’s Chancery Case ......................................................................88 The Chancery Court...................................................................................89 Judge and Personnel...................................................................................90 Official Liquidator .....................................................................................91 Archive Research Process..........................................................................93 Creditor Recoveries and Shareholder Losses in Liquidation.....................94 Dividend Assignments.............................................................................103 Subjects of Chancery Proceedings...........................................................104 Destruction of Records ............................................................................110 IX. Conclusions................................................................................................................112 Hu and the Oriental Bank ........................................................................112 The Oriental Bank in Shanghai................................................................113 vii OBC and the Shanghai Crisis ..................................................................115 Other Causes of Failure ...........................................................................116 Appendix A. Chancery Records Reviewed .....................................................................122 Bibliography ..................................................................................................................157 viii List of Tables Table 1. Key Statistics of Indian Banks, 1846...................................................................27 Table 2. Indian Banks ranked by Assets and Capital, 1846...............................................28 Table 3. Reconciliation of Reported versus Period Profits for 1860. ................................78 Table 4. Reconciliation of Reported versus Period Profits for 1878. ................................81 Table 5. Return on Average Assets, 1852-1883. ...............................................................83 Table 6. Return on Average Equity, 1852-1883................................................................85 Table 7. OBC Chancery Records by Year and Term.........................................................94 Table 8. OBC Creditor Dividends. ....................................................................................95 Table 9. Losses on Failure. ................................................................................................97