The Commerce and Trade of Dundee

The Dundee Texas Connection

by the Late George Stout

Mr George Stout told of a most dramatic period in the history of Dundee between 1873 and 1883-85, when there was a most explosive growth ofinvestment outside the UK and almost totally in North America. In the space of ten years the citizens of Dundee put the equivalent today of about £250 million into the USA, and about two thirds of that into one state, Texas. This represented 20 years of Dundee's savings at that time. It has been argued that Dundee's own industry was squeezed of funds of that amount to its detriment in the long term. These funds were invested in three areas, quoted securities in railway bonds and cities in the States, into Mortgages on small and large farms, and into all kinds of land speculation.

Texas captured the imagination and pockets of the Dundee citizens. There were only 13 banks in the whole of Texas and the total deposit was, in today’s terns, only £20 Billion. The Scots alone were to put in £400 million.

Following the rapid industrialisation all over the UK, Dundee's population had grown from 25.00O at the start of the century by 1850 it was 30.000 and 20 years later 120.000. It was a town which benefitted from wars and there were several major wars over that period, Napoleonic, Crimean and American Civil War. The major industry of textiles, with its coarse linens, sailcloth, tenting, covers for wagons, and slaves clothing was followed by the rise of the jute industry which replaced many cotton markets particularly for bags.

The other major activity of engineering, which equipped the industrailisation, also had a reputation in marine and railway engines from Gourlay’s and Carmichael’s. There were also five shipyards. Export potential of Dundee was huge, half the exports went to USA and that was equivalent to £400 million worth per annum. Dundee businessmen as a result, were well aware of what was happening in North America. They had their contacts over there, and friends and relations went out to act as agents for the people at home.

With the completion of the rapid industrialisation and the railway boom having come to an end, the interest rates in the UK were down to and industrialists became aware of the developments in the States. There the railways boon was taking off, where 7-8%was available, with 10-12% on mortgages to small farmers and even higher rates If you were prepared to take risks and go into ranching. So leading businessmen gathered to see what advantage they could take of this. Many had already invested on their own.

The Dundee 'Mafia' were headed by the Baxter family, and the Coxes. Thomas Cox was the man who controlled the financial operations. The Baxter brothers took no management control over any of the companies involved, while Thomas Cox was everywhere. In the second echelon were George and Alex Gilroy, John Sharp and George Halley, Alex and Henry Gourlay and William Robertson. The 'Intellectuals' behind it all included John Lens of the Advertiser and William Lowson, a jute merchant. Two others were to lead the companies, John Guild, who led the first of the companies and became the first chairman of the Alliance Trust, and the Earl of Airlie, who had more experience of North America than any of the others. He had visited the States ' many times and had met the President, but died before his time in 1851.

The managers included Robert Fleming. From humble origins, he won a scholarship, joined Baxter Brothers and by the time he was 21, was personal secretary to Edward Baxter and became aware of what was happening In tine Baxter empire. Another was William McKenzie, a stockbroker, son of the manse, who was to become the lynchpin in the mortgage company when it developed.

The three strands of the investments boon were Investment Trusts, Mortgage Companies and Ranches. It is difficult to be sure now who got the ball rolling, but Robert Fleming assumed the credit of starting the Investment Trusts in 1873 in Dundee. This was not the first, one had been started in London in 1868, but he was able to persuade people Iike Guild, Tom Cox and the Baxter’s that what they ought to do was tostart Investment Trusts. In 1873, they founded the First Scottish American Trust with the objective of raising £150,000 at that time to place that money in railway bonds and local authority bonds in the States to earn an average yield of about 7%. It was quickly oversubscribed and the prospectus was soon redrafted to £300,000. It went so well that by November they were able to raise another £400,000 and two years later another £400,000 for what was called the Second Scottish North American Trust, followed by a Third Scottish American Trust. That was £1.1 Billion which in today's tents was about £55 Billion.

These were not companies, they were trusts with ostensibly a fixed life of ten years, eventually changed into companies by Guild. Cox, John Sharp and Thomas Smith. Each company pursued the samekind of policy with 30-40 investments, these principally on the east coast to begin with because they were a bit cautious about the hinterland. Investments were in the New York Central Railway. Detroit Bonds and Baltimore Bonds, but by 1877, they were out to Union Pacific Bonds. Atchison Santa Fe and the Southern Pacific. Fleming, by that time, was making extensive visits out to the west and was becoming something of an international authority on railroads and their financing, even by the late 70s being invited by New York financiers to stay in the States and arrange financing of these various companies. Much of this might never have happened, because one trip to the States was rescheduled from a vessel which was later sunk by an iceberg.

While these were controlled from Royal Exchange Place, round the corner there was another development. The formation of the first Mortgage Company, the Oregon and Washington Trust, and involved in that was Lord Airlie as Chairman. Wm Lawson, John Leng, Tom Cox, John Neish, Thomas Bell and Thomas Coupar. They were interested in areas farther west, in the area labelled as The Great American Desert, about which very little was known, except that there were a lot of Indiana. But in the west there were conditions British agriculture was very familiar with, good land, nice weather. By 1870s, many people were following the Oregon trail, a good place to start business and loans were good. You could earn 10-12% on agricultural loans. The company prospered and it was decided to expand the business, but the memorandum was somewhat restrictive. So another company was formed, twice the size, called the Dundee Mortgage and Trust, set up with £300,000 having investment powers nil round the world. They opened agencies principally in America and all over it, in Chicago, Iowa, Indianapolis, Indiana, North Dakota, Kansas City, the Indian Territory, down the Mississippi and eventually into Dallas, Fort Worth, Houston and San Antonio. The idea was to use the experience gained on the west coast, but never owning more than 30% on the appraised value of the land. They spread their lending between cotton lands and mixed farming. By early 80s the Mortgage Companies were about the same size as Fleming's Investment Companies, about £5O million in today's terms.

The Ranching was to take place in west Texas and after the Civil War ended in 1865 there was a demand for food and meat. Settlers got together to drive the wild herds of cattle up towards the railheads on the Atchison Topeka line to Dodge City.

This was a dangerous business as it was following a trail through hostile Indian territory. In 1874 the Commanches were finally defeated and from then on the whole area developed. Hunters appeared and killed off the buffalo and the area became available for cattle ranching. Much of the financing was done by the Dundee Mortgage and Trust. Reports came back to Dundee about the profits that were available for picking up cattle for $4-5 and selling them up in the central area for $40. There was actually a parliamentary commission sent out from the UK to find out if this was true. Eleven ranching companies were formed of which eight were from Scotland. Three of these were Dundee companies, including Texas Land & Cattle and Matador Land & Cattle Co.

In 1882, Fleming arranged the buy out of Matador for Dundee Investments, some 90% of stock was owned in Dundee and this was an enormous ranch, with trading rights over 1½million acres, with 90,000 head of cattle. There was also summer grazing as far north as Montana.

At the end of the day this was the only successful ranching venture the Scots had in the States. Many of the companies failed, with the exception of Matador, an exceedingly fine ranch under the management of Wm. Sommerville. He was replaced by another Scot, McKenzie. The board was a Dundee board, so a ranch in Texas was controlled from Commercial Street with the managing secretaries, Mackay Irons.

Jimmie Wright, their senior partner was reputed to have made 156 visits across the Atlantic.

How did it all work out? Mostly it was a success. The ranching was the least successful, by 1850 something like 80% of the capital put into the ranches was lost. Two very bad winters crippled the industry. Many had been bad investments with over-optimistic cattle counts. The Matador worked out exceedingly well. In 1951 they sold out to Standard Oil who wanted the ranches to explore for oil and who paid out £7½million, and the original shareholders made 35 times their original investment, 90% of that cane back to the citizens of Dundee. The chairman was Win McDougall who was also chairman of the Alliance Trust. The Fleming Trusts widened their powers and converted themselves into the Investment Trusts we know today, with wide powers. Fleming himself had left Dundee, going to London to start his own investment banking company. The links with his own companies were gradually loosened and in the last 30 years the trusts were no longer managed by him. Today the trusts, now compressed into two trusts, are now run out of Dundee altogether, but quite successfully, Dunedin Inc., and Dunedin Worldwide amount to £600 Billion.

Robert Fleming never really forgot his roots, and put quite a lot back into the town, a gift to the University, the Fleming Gardens Housing Scheme while Hindmarsh Avenue was named after his wife. The Fleming Merchant Bank also gave generously to our 800 anniversary celebrations.

Lastly, there were the Mortgage companies. The Oregon & Washington, Dundee Mortgage and Dundee Land were all amalgamated in 1888 into what was known as the Alliance Trust. Western Hawaiian went its way until 1917 when it ran out of management and was incorporated into the Alliance Trust. Despite the fears of McKenzie who was still there in 1919 having joined it in 1874, and recommended that the company be wound up, the companies have continued as the Alliance Trust. They began to move out of the mortgage business, as money was being lost, and moved back into bonds, stocks and shares.

There were one or two interesting pieces of real estate involved. The Pulo Duro Canyon belonged to the Alliance Trust, and when the State Parks wanted back this piece of the American Heritage, but had no funds, a rent was based on the number of visitors who drove in. In 1945 however, it was sold for $120,000. In Fort Worth, now a city of 1.5 million people, 1200 acres was owned in the centre and sold before the Great War for £20,000. The Trust however, tried to hold onto the mineral interests of land it once held.

Those who stayed with Alliance now have assets of £1.2 billion. Those who are related to someone who was in at the beginning would find that a 3100 investment then is now worth £190,000.