The Ontario Bank's 1906 collapse
The collapse of the Ontario Bank in 1906 has some parallels to the curent woes of France's Société Générale bank.
|Report an Error|
Share via Email
A passerby casting a glance at the downtown branch of the Ontario Bank on Friday, Oct. 12, 1906, would have been impressed by the imposing size and ornate facade of the stone fortress that anchored the corner of Wellington and Scott Sts.
The branch had been there for almost 50 years, an opulent three-storey building in the Italian palazzo style, truly a small palace, adorned with sculpted keystones over arched windows, elaborate wrought-iron grills and a decorative cornice surrounding the roof.
As local scholar and architect Eric Arthur later wrote, everything about the bank suggested wealth, power, safety and security.
The appearance was deceiving, however. That morning, the Ontario Bank, headquartered in Bowmanville, with 30 branches in Ontario and Quebec, collapsed.
In a deal orchestrated by two levels of government and the country's banking community, the Ontario Bank was acquired by the Bank of Montreal.
General manager Charles McGill and president George Cockburn would face fraud charges within a week, and the city wondered how McGill had managed to lose $1.25 million, the equivalent of $181 million today. The same question is being asked today in France, where Jérôme Kerviel, a 31-year-old junior trader at the Société Générale bank, lost more than $7 billion in currency trades.
How that could be is hard to imagine. Kerviel is under investigation for breach of trust, using false documents and breaching computer laws. But everyone is asking, where was the supervision?
The same question was asked in 1995, when Barings Bank collapsed. In that case, unsupervised trade Nick Leeson broke the bank with a $1.4 billion loss. Separated by a century or so and a few zeroes on the losses, the circumstances are largely the same: misplaced trust, fudged paperwork, profits at first that encouraged superiors to overlook procedural irregularities. Then, the small losses mount up, and are covered up, and finally it all falls apart.
(McGill and Leeson were each caught by a back-office clerk just trying to balance the books.) McGill had been a bank employee for 37 years and general manager for 11 years when he was caught. He figured he was astute enough that he could profit from trading in speculative American stocks.
He believed that a long bull market had run out of steam and stocks were about to fall. He played his hunch by selling shares short. He was borrowing stock at current prices and selling it, intending to replace the shares with cheaper ones when prices fell.
Unfortunately for McGill, the bull kept roaring.
As share prices rose, he had to pay more and more to cover the shortfall. He managed to cover it up for a while, until a clerk blew the whistle.
On Friday, Oct. 12, rumours that the bank was in trouble were so strong that the Star printed a front-page story.
The official announcement came that afternoon, and Saturday's front page was devoted to the collapse. By then, all 30 branches had handbills in the window announcing the takeover by the Bank of Montreal.
McGill had a home in Peterborough, but he lived in room 307 at the King Edward Hotel during the week.
He enjoyed the hotel's amenities and the short walk to work. In the evening he could often be found enjoying a drink and cigar in the lounge.
When a Star reporter knocked on his door early Saturday, McGill look pale and dishevelled.
"(He) was plainly on the edge of nervous collapse," the reporter wrote.
"He stood just outside the door, a smallish man who gestures freely and with a voice inclined to trail upwards. When the first question was asked, he declared he had nothing at all to say and proceeded back into his room."
The paper staked him out and, little by little, McGill told his story. The bank had been in trouble when he became general manager, and he had tried to turn things around. His boss knew what he was doing and turned a blind eye, McGill claimed.
"I hoped that by quietly nursing our accounts, they would return to par," he said.
"Some did, and I thought I might win out after all. But times did not improve."
Alas, for McGill, times got much worse. Four months later, he was convicted of making false tax returns to the government and sentenced to five years in prison.
Leeson spent 3 1/2 years in jail for his Barings' fraud and, according to reports, the most Kerviel will get is five years.
So, the prison term seems to be same old, same old, as well.
- Armenian Genocide: 100th anniversary of a ‘great catastrophe’
- 700 migrants feared dead in Mediterranean sinking
- Durham Region secondary schools will be closed Monday
- Germanwings crash exposes history of denial over pilot suicide
- Judge orders girl be vaccinated for measles against mom’s wishes
- Edmonton Oilers win NHL draft lottery
- Toronto runners hit the road in Yonge St. 10K
- Shrinking airline seats and the voyage of the crammed