Supporting business customers in the First World War

Business customers in a wide range of trades and industries needed special support from their banks in the First World War.

The war massively increased demand for many manufacturers’ products. Munitions were only one aspect. The nation also needed uniforms, boots, blankets, tents, food, medical equipment…the list seemed almost endless, and Britain’s allies needed all the same things too. Governments granted huge contracts to manufacturers, giving them the opportunity to expand their business at the same time as helping the war effort. There were, however, challenges. To meet them, business customers relied on their banks.

Increasing production overnight might mean that a factory needed new equipment, just when others were competing to buy it too; or extra staff, when many workers were joining the army. Bigger premises had to be fitted out, and raw materials bought in greater quantities. To pay these expenses before the contract money came in, manufacturers turned to banks for loans, bigger overdrafts or extended repayment deadlines. 

The banks endeavoured to accommodate such requests, but by 1915 many were also counselling caution. Contracts could be lost to competitors, and government demand fluctuated when priorities changed. In Northamptonshire, the shoemaking industry produced as many as 66 million army boots in the course of the war, but weekly output ranged from 150,000 to 375,000 pairs. A company that was committed to maximum production would not break even at lower rates. 

There were other variables, too. It could be difficult for manufacturers to know who they were dealing with. One Manchester customer told his bank manager that he had recently had more than 40 separate approaches from people claiming to be cloth-buying agents of the French government. At least 35 of them had been completely fake. If a manufacturer trusted a false ‘agent’ and bought supplies to fulfil a bogus contract, he – and the bank that lent him money – could end up seriously out of pocket.

Many manufacturers had adapted their production to war work, such as our customer who altered his pram-making machinery for use in munitions work. Such adaptations were often made in a hurry, and might not prove reversible. There was concern over the capacity of some factories to revert to normal work after the war.

Finally, there was excess profits duty. This tax was brought in as a way of securing extra tax revenue from those who could most afford it. All profits above a permitted level (based on pre-war business) were taxed at 50% (by 1918, 80%). Delays in calculating the amount payable combined with the complexities of company balance sheets sometimes meant that firms needed their bank's help to ensure they had the cash ready at the right moment.

Other business customers

Even customers in sectors not directly connected with war work were significantly affected. They often turned to their banks for advice and support.

Hall, Higham & Co of Manchester sold ladies’ hats and millinery supplies. Before the war, it had sourced almost all its fancy feathers from Germany. With this supply closed off, its stocks began to run low as early as September 1914. Mr Hall decided to go to Paris to buy more – French feathers were, he said, just as good as German ones, albeit more expensive. His bank, Williams Deacon’s, bought £500 worth of French francs for him in London, and also gave him a draft for another £500, to be drawn in Paris. Armed with this money, he set out in early October. He was able to negotiate substantial discounts for paying immediately in cash, and came home with £1,400 worth of feathers. By the end of the month, he had sold over 85% of the stock, at a significant profit.

Some companies combined government contracts with other opportunities arising from the war. One medical supplies company, a customer of District Bank in Liverpool, supplied drugs and surgical equipment to the British and allied governments, but also expanded significantly by picking up business in foreign countries that had previously dealt with German pharmaceutical companies. Unlike the government contracts, which were clearly temporary, these new markets were expected to be retained after Britain won the war. On this basis, the bank was prepared to see the company’s growth as a permanent transformation rather than a short-term boost, making it more willing to maintain its sizeable overdraft facility.

Customers also turned to banks for general business advice. One businessman came to Williams Deacon’s Bank in 1915 with a management problem. He was in his mid-70s, and was in partnership with another man, even older, and his son, aged 37. The son was wondering whether to volunteer for the army. Aside from any question of his own wishes, there was a reputational issue at stake; men of military age who were not in uniform faced severe public criticism. But the firm was busy, with a monthly turnover £30,000 above pre-war levels, and responsibility for the livelihoods of 1,400 workers. The two older partners were doubtful that they could manage without their younger colleague, and wanted the bank’s view on what to do. The bank’s manager advised that the son should ‘stick where he was’, although he recognised that he would face criticism.

Enemy connections

Immediately upon the outbreak of war, new Trading with the Enemy legislation placed heavy controls on the bank accounts of citizens of enemy states. Banks were responsible for operating within new regulations. They were also warned to be on the look-out for bombs being planted on their premises in safe custody parcels. One Manchester bank advised branch managers to pay particular attention to deposits 'from other than English customers or English servants'.

Such a tense atmosphere could make things difficult for people with German-sounding names. Naturalised British subjects were not covered by the Trading with the Enemy regulations, even if they had been born in Germany. Nevertheless, banks were responsible for determining each customer's legal status, and sometimes got it wrong. There were stories of over-zealous bank clerks refusing transactions that should have been accepted.

British customers who dealt with enemy companies or individuals were also affected. One was John Malloch, a Manchester cotton merchant and customer of Williams Deacon’s Bank. He bought his supplies of Egyptian cotton through a German agent, H Bindernagel, but this arrangement was not allowed to continue after war was declared. Sometimes licences to trade with enemy firms were granted, particularly in industries like Malloch's, whose outputs supported the war effort. In this case, however, any prospect of a special licence disappeared when it emerged that Herr Bindernagel himself was fighting in the German army.

Malloch’s business needed cotton from Alexandria. There were other trading houses he could approach, but they already had plenty of customers. With materials in shorter supply than buyers, they had no reason to give Malloch an attractive deal. In October 1914, he decided to go to Alexandria himself to buy the cotton without a middleman. He approached Williams Deacon’s to ask for letters of introduction to banks there. The bank was happy to provide these, but thought he would also need more help. It gave him a letter of credit for £50,000. With this large sum at his disposal, he would have much greater bargaining power. 

Malloch makes no further appearances in the bank’s wartime memorandum book, so we do not know how his trip to Alexandria turned out. We do know, however, that he continued trading well into the 1920s, so it seems his business survived the difficulties that arose from the Bindernagel connection.