Speculation About Speculation

Sherlock Holmes canon prompts a lot of consideration and study, which is why there are so many articles and essays about Holmes’ world. The following essay was posted to the Hounds of the Internet in April 2001 by Andrew Clark and discusses Holmes’ visit to Norway after the conclusion of “Black Peter.” Read on to learn more about international banking and Scandinavian-English relations.

An essay by Andrew Clark (aclark@starcott.freeserve.co.uk), from a posting to the Hounds of the Internet, April 2001

As Watson might put it, there are interesting issues raised by the matter of the Latin American securities and the flight by the eminent banker to Norway, which necessitated a visit to Oslo by that celebrated detective, Mr Sherlock Holmes.

The Politics of Money

As one might expect, these are deep waters and murky. From 1875, British banks had been investing hundreds of billions of pounds (at contemporary value) in the United States, Latin America, India, Australia, Canada and South Africa. These investments often took the form of joint-stock companies, with the British banks holding the majority of the often millions of shares and local investors holding a minority. The sheer size of the investments meant that these new companies often became leading trading and industrial concerns in the home countries (eg. CPR in Canada), and this gave great indirect influence to Britain and its financiers and politicians (who were often the same people).

As so often occurs, money and politics and diplomacy were very close bedfellows. Holmes had dealt with a number of people who had made their fortunes in this process—Sir Charles Baskerville for example—and it is interesting that the matter is so intimately connected with this apparently obvious case of murder for greed. One might almost smell a giant Sumatran rat.

The Banking Scandal of 1883

A major regional bank like Dawson & Neligan would obviously hold a great many shares in these joint-stock companies. They would form both part of the bank's income through stock market movements and form the main part of the security against which the bank could borrow in order to make loans (the remaining security would be in gold or land assets). Holmes says that the bank failed for a million pounds and ruined half the Cornish county families. That implies that the bank over-reached itself either in the stock market or in its borrowing or both.

We can therefore speculate fairly safely that Neligan senior had made some very unwise speculations in the stock markets and had incurred a debt that the combined resources of the bank could not pay. That (in the more sedate share market of the time) implies in turn either a truly gigantic purchase of shares that subsequently lost all their value or that the bank took out a massive loan to buy such shares which turned out to be worthless. The former is more likely, as otherwise the loaning bank (like Neligan) would have been under great moral pressure to protect the interests of personal investors and savers like the leading Cornish gentry and aristocracy.

So Neligan seems to have made a very large speculative investment in a foreign venture that failed entirely. That venture might have been anything, but the strongest possibility is a minerals venture—gold, oil, silver, bauxite or copper. Starting a new mine is a vastly expensive process often based on the thinnest of evidence of any return, while a new shipping, railway, agriculture or commercial venture tends to be based on stronger (or at least easier to verify) evidence of a return.

One might idly wonder about the identity of the promoter of the scheme—was he a crook or did he lose his shirt as well? Did other banks lose money too? Was this a sting directed at perhaps a naive country banker, or just a negligent mistake?

Neligan's Flight

The reason for Neligan senior's flight to Norway becomes more explicable. As a country gentleman, the burden of seeing his fellow gentry ruined was preying on his mind. He resolved not to allow the bank's assets to be swallowed up in a general liquidation, under which the public investors would receive preference and the private investors would receive nothing. Instead, he fled the country to sell the bank's securities as a private individual, with the intention—so his son believed anyway—of using the money to repay the losses of the private investors. This is a fairly common behavior pattern for businessmen in failure.

The Oslo Bourse was established in 1840 and grew in stature with Norway's moves towards independence. By 1895, it was a thriving stock market outside British control but with close links to British markets. It was an obvious choice for a fugitive banker with hundreds of thousands of pounds of negotiable securities to sell. Going to a larger French or German or American stock exchange risked detection and capture—the hunt must have been up for this fugitive and these places are both well guarded and cannot be reached without using public transport like trains. Oslo could be reached by private yacht and was less likely to be on the watch for the fugitive banker (note that Neligan was certainly heading to southern Norway—Neligan mentions the southerly gales that blew the yacht northward). Neligan may also have had a contact there. The rest we know.

Holmes' Trip to Oslo

Why did Holmes go immediately to Norway? The answer, I'd speculate, lies in an understanding of 19th century banking law. Once Dawson and Neligan had collapsed, it would have been wound up by the Bank of England, which even then acted as a regulator of the British banking industry. Its scant remaining assets (gold, land, buildings etc) would be liquidated—sold—and the proceeds distributed to the creditors. As mentioned above, the government itself always takes first priority in these matters, and any tax debt and suchlike would be paid first. Next in line would be secured lenders like banks and institutions, and last would come the unsecured lenders like private investors. What this means is that the British Government in the shape of the Treasury would almost certainly end up owning all the unrealizable assets of Neligan & Dawson.

Now, if my speculation above is correct, the Neligan & Dawson had of course one large but apparently worthless asset—the shares which Neligan senior had bought in a gold mine (or whatever). If this was a foreign company, as seems likely, it might not be wound-up in its country of origin but remain as a shell company, worth nothing, doing nothing, but still having a legal identity and possibly retaining mineral exploitation rights. The bank's shares would thus remain valid but useless.

But what if gold or oil, or whatever, was suddenly found in the area where the company that Neligan had so imprudently funded had mineral exploitation rights? The previously worthless share certificates would become immensely valuable—and possibly of enormous political value. A private oil well, for example, was just what the British Government needed in 1895—it is not often realized that Britain later essentially bought the whole of the Persian Gulf to secure oil supplies for the Royal Navy.

Finding the worthless shares taken by Neligan to Oslo in 1883 may suddenly have become a matter of vital national importance—and who better to pursue the matter than the ubiquitous Mycroft and his active partner Holmes? Hence Holmes' precipitate dash to Scandinavia.