In 1720, Britain was gripped by the South Sea Bubble. At its center, the South Sea Company, established to consolidate government debt and trade with South America, saw its stock price multiply several times over before crashing to end the year close to where it started. However, several firms saw speculative mania drive their stock prices to extraordinary highs during the year, not just the South Sea Company. One of these other companies was the York Buildings Company, a firm established to operate a water utility in London but which went on to speculate in real estate and sell insurance. It was a company almost as curious as the South Sea Company itself and was emblematic of the functioning, or misfunctioning, of politics, law, and finance in early 18th century Britain.
This history starts in 1675, when England’s King Charles II granted letters-patent permitting two men, Ralph Bucknall and Ralph Wayne, to establish a waterworks on the grounds of a riverside London mansion called York House. This was the origin of one of the most curious companies in history, a financial firm originally formed simply to deliver water to London households. In this critical task it was successful but not enrichingly so. The company’s assets consisted of cisterns on high ground into which water was pumped from the Thames using horse powered pumps. From there, this water was delivered to households by wooden pipes under the streets of London.
In order to further its success as a utility, the York Buildings Company was incorporated in 1690 under the full name of ‘The Governor and Company of Undertakers for Raising the Thames Water at York Buildings’. At the time, commercial and industrial enterprises of more than one person were common but hardly any were formally incorporated. In the 17th and 18th centuries, incorporation required Parliament’s approval and this was not always forthcoming; limited liability and the formation of a unique legal person in a corporation was a privilege not granted liberally. Once achieved, incorporation allowed the company to raise more capital, so 48 shares of stock were issued for £100 each, raising £4,800 in total. Of particular importance, the York Buildings Company received the power to purchase land in 1691, a right that similarly required Parliament’s approval.
Over the subsequent three decades, competing water utilities were expanding their infrastructure and offering customers favorable pricing. This competition induced the owners to put the York Buildings Company up for sale in March 1719. By this point, the company was earning revenues of £1,600 annually. One might presume this income and the value of the infrastructure it operated would determine the value of the firm. However, that would be to miss what was perhaps its most valuable asset, the corporate identity granted by Parliament and the right to purchase land in its own name. This latter right was not specifically restricted to London, where York Buildings operated, but had national reach.
Understanding this, the company caught the eye of a legal solicitor, Case Billingsley, who had by that time become a prominent financial entrepreneur in early 18th century England, the era of what became known as the Financial Revolution. Billingsley was in search of a vehicle with which to speculate in land. York Buildings provided just that so, alongside some partners, he acquired the company in October 1719 for £7,125, of which £1,845 went to the repayment of the company’s debts and the remainder to purchase the existing owners’ shares. Billingsley immediately set about steering the company away from managing a water supply and towards real estate speculation and insurance. He made the Duke of Chandos, a former commissioner of the South Sea Company and now a politician and the governor of the prominent trading firm, Levant Company, the governor of York Buildings.
There was a reason Billingsley was interested in real estate specifically; it had to do with investment opportunities that became available following an attempted overthrow of the newly crowned king a few years earlier. In 1714, George I succeeded Queen Anne to the British throne. That year, there was also a change in government as the Tories were removed from office and administration of the country was put in Whig hands, their political rivals. These events helped trigger the Jacobite Rising of 1715 when partisans of the House of Stuart, the old ruling dynasty, rebelled in Scotland. The revolt, supported by many leading Scottish landowners, was put down in 1716 prompting many to flee abroad.
In retribution for revolting, the British Parliament passed legislation confiscating landowning rebels’ estates. The Crown Lands (Forfeited Estates) Act of 1715 was passed in an attempt to discourage future uprisings against the King and Parliament. Under the law’s authority, over £3.2 million in Scottish property was seized. A Forfeited Estates Commission was established to sell the estates, using the proceeds to repay creditors with claims on the lands, and applying the remainder to the public Treasury.
The liquidation of the estates was slow going at the start. Friends and family of the old proprietors, many living in exile, would present phony claims against the estates in order to retain some wealth for themselves. What’s more, the Scottish courts often sided with these supposed creditors. There was also the trouble of finding buyers for such large holdings of land and property. Whereas land in England was generally in demand, in Scotland there were few prospective buyers. After all, Scotland was the center of the unrest and lacked many local buyers with substantial capital. There was a risk that the families of the old owners would place low bids for the properties and would still wind up being the winning bidders. This would reduce the political and psychological effectiveness of the confiscation.
In the end, the buyer of a large portion of the Scottish estates came from England. This may not be surprising; what is surprising is that it ended up being the York Buildings Company. The company, after all, hardly had much capital itself when Billingsley acquired it, but that changed quickly. It was 1719 and England was amidst the early days of the speculative excess of the South Sea Bubble; capital was easy to come by. With the country’s nascent capital markets exhibiting a voracious appetite for investment opportunities, the York Buildings Company raised an additional £1.2 million in stock, this for a company that was just acquired for under £10,000. Subscriptions for the new offering were taken starting on October 28, 1719, almost immediately after the company was acquired by Billingsley, and it was successful in selling such massive volumes of shares. It helped that investors only had to pay 10% of their subscription amount immediately with the remainder due when called by the company.
With the paid-up portion of the committed capital funded and further borrowing conducted, the purchase of estates by the York Buildings Company began. Over the next year, a little over £300,000 was invested to acquire confiscated estates earning cumulative rents of £15,000 annually, a 5% yield on the invested funds. The amounts may not seem like much today, but for comparison, the entire annual rent earned on real estate in the city of Glasgow was measured earlier in the decade to be just under £8,000. A single very fine apartment in the city could be had for just £5 a year.
There was more to York Buildings than waterworks and real estate; the company also attempted to enter the insurance business. Just as the stock market boom took off, the company began advertising life insurance and annuities. The idea was to use the acquired estates to secure life insurance policies and apply the rents to fund claims. The sale of insurance and annuities could then be used to raise more capital with which to grow. The insurance sale proceeds would have been applied to further develop the company’s Scottish properties, some of which had mineral wealth to tap into. Amidst all this, the company’s old waterworks business was increasingly neglected, maintained only so the company fulfilled the mission set out in its charter.
The York Buildings Company was an absurd firm. In mid-1719, it was simply a small privately held water utility. Exactly a year later, it was a real estate and insurance firm, with stock traded publicly and a share price soaring. The South Sea Bubble was well underway and the York Buildings stock price rose to breathtaking levels, rising from £89 a share on June 14, 1720 to a peak of £295 by August 10th. However, it was all about to crash back down to Earth.
The Bubble Act was passed by Parliament on June 11, 1720 in order to bring the bubble under control by limiting the creation of new joint-stock companies. By now, many companies were acting beyond the missions set out under their charters, often delving into financial speculation; York Buildings was not the only such firm. However, it wasn’t clear how the law would be enforced so the stock market in London shook off the news. That is until a writ of scire facias was issued on August 29th. The writ specifically targeted the York Buildings Company among other firms for conducting business outside the scope of their charters. Although the company was allowed to purchase land, this was presumed to be in the context of its officially sanctioned undertaking, delivering water to London. Estates in Scotland and the sale of life insurance had little to do with these operations.
After the writ was issued in late August, the company lost 30% of its market value in a week. Within a month, the shares were trading at between £40 and £50. In the face of this reversal, a fresh call for investor capital was made. Another 23% of the amount committed by investors was required to be paid up, with the option that investors could give up half of their shares in exchange for being relieved of putting in more capital. It is said that all investors choose the latter option; it made little sense to put up more money at a valuation of £100 when shares were now trading at half that value. No doubt, many investors could not afford to infuse any capital with share prices sinking. The York Buildings Company then tried to re-sell the stock forfeited by the investors, causing the price to fall as low £9 before recovering at year-end to start 1721 in the £20-£25 area, under a tenth of the levels where they traded at their peak.
The York Buildings Company emerged from the South Sea Bubble almost bankrupt. It had borrowed money to augment its paid-in capital for the purchase of estates and was now unable to raise more equity. The company resorted to organizing a lottery to raise money, a right they managed to obtain from Parliament; private lotteries were not unusual at the time. The company nonetheless struggled to actually pay the amounts committed to purchase certain properties whose sale had yet to close and so the York Buildings Company almost had the sale of some estates cancelled. The land speculation ultimately failed following expensive attempts at developing timber resources and lead and coal mines in the subsequent decade. The company’s estates were gradually sold over the next century. It must have been one of the longest liquidations in history.
“… we can assure you that it is the fixed resolution of the Company to pay for all the Estates bought in Scotland as soon as the payments on their Lottery comes in, which we believe will be in a few weeks. Wherefore We begg you will have patience for a little longer” – Letter from the York Buildings Company’s secretary Christian Cole to the Forfeited Estates Commission, Oct. 25, 1721
The York Buildings Company was a lesser known firm involved in the South Sea Bubble, which was about more than just one company. The peculiar history of the firm reveals one of the defining characteristics of finance during the Financial Revolution. In that era, limited liability and corporate personhood were rarely conferred, making a corporate identity a very valuable asset. With that in hand, an idea was all else that was needed to raise large sums of money during the bubble years. That is until regulatory intervention brought what was one of history’s first, and shortest, bubbles to an abrupt end.
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Read more about the South Sea Bubble, including the site in London where the trading took place and what the early 18th century’s most famous English writers had to say about it
1. Frehen, Rik G.p., et al. “New Evidence on the First Financial Bubble.” NBER Working Paper Series, Sept. 2009.
2. Millar, A. H. A Selection of Scottish Forfeited Estates Papers. University Press by T. and A. Constable for the Scottish History Society, 1909.
3. Murray, David. The York Buildings Company, A Chapter in Scotch History. James MacLehose and Sons, 1883.
4. Scott, William Robert. The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720. Cambridge University Press, 1910.