River Plate Trust and Agency Company - Essay Example

?River Plate Trust, Loan and Agency Company (ltd) The formation of British investments in the period 1880 to 1914 was mainly centered on Argentina, which was a good destination because of the investments opportunities available. This region was referred to as the River Plate, and there were a number of companies established there under the umbrella of one parent company (EBHA, 2011). The investment networks created by the British business people in the region were strengthened by the availability of investment savvy managers and the access to capital available on the Argentinean land. One of the most important investment groups in the region was the Morrison group, which expanded rapidly due to the development of utility, mortgage, and financial firms. The operation of the companies in the region suffered a setback in the period when the financial crisis of 1930 was felt; however, some companies strived strove to become international firms. One of the companies formed by the Morrison Group in the River plate region was the River Plate Trust, Loan, and Agency (RPTLA), which was formed for in 1881 for three main reasons. The first reason for the formation of the firm was the acquisition of assets as a trust. This was accomplished by the acquisition of the assets of the Mercantile Bank of the River Plate, and the second reason was the provision of loan facilities to the people in the region. This was done through the lending of money in form of mortgages in Argentina and Uruguay, and among the last reasons was the performing of financial agency duties for individuals and firms in the River Plate Region. Another reason for the formation of the firm was the motivation to invest in the mortgage business in the River Plate Region, and the expected high economic growth of the region. The previous occupations of the major stakeholders in the firm were also a big factor in the formation of the RPTLA. The formation of the company was in many ways linked to the failure of the Mercantile Trust Bank in 1873, with the absorption of many of the Board members to the new company (Wilson and Thompson, 2006). Since RPTLA was formed by the acquisition of the assets of the failed bank, most of the original board members also became the board members of the RPTLA. RPTLA was founded by seven members, John Gorst, Sidney Herbert, Frederick Fearon, Cornelius Cox, Edward Ashworth, Edward Griggs and John Taylor, who went on to become the first board members of the new company. These seven individuals were mostly stakeholders in the Mercantile Bank, either as shareholders, board members, or liquidators, and the rest of the board members were related to the bank in some way. For example, one of the shareholders, Leon Isaac, was part of the family that owned most of the Mercantile Bank. Some other members were politicians, while others were directors of other financial institutions. One example of a director is Griggs, who was a major director in the now defunct Trust and Loan Company of Canada, while some other members were business people and merchants. The similarity of these individuals was drawn around financial institutions, since they were either members of the fallen Mercantile Bank, or former members of other financial institutions in the region. The social system in place at the time indicated that the first directors of the RPTLA were in social class 1 and 2, which was reserved for professionals, gentry, and major businesspeople. A year after the formation of the RPTLA, a former senior partner at Ashurst, Morris and Company, John Morris, was appointed as the new Chairman and Managing director of the RPTLA (Slinn, 1997). Under the administration of Morris, the organizational structure of the company was reformed, and the principles that he placed in place guided the company through its entire lifetime. As previously stated, the members of the board of RPTLA were in some way related to the Mercantile Bank, and Morris was no exception, since he was in charge of the law firm that liquidated the bank. This indicates that the major shareholders of the RPTLA had major stakes in the financial interests in Argentina and Uruguay at the time. Some of the financial institutions included financial firms, mortgage, insurance and public utilities in Canada and New Zealand, and other firms in the two countries of operation. As already stated, the introduction of Morris into the management of RPTLA resulted in a major reorganization of the policies of the firm. This included the inclusion of professionals and businesspeople with a broad range of experience in the running of the firm. In 1883, a number of professionals were brought in to the board of the company, including lawyers, previous directors of the Mercantile bank, directors of other companies, and other financial professionals. The organizational structure was divided into three broad levels, each of which specialized in the managerial tasks of the firm and specific tasks to each level. For example, the levels specialized in the legal and financial tasks of the firm and the acquisition of capital, the creation of a business brand, and the promotion of the business in Britain. The first level in the firm was the Board of directors administered by Morris, and the second level mainly consisted of the liquidators of the Mercantile bank. This second level of managers became major shareholders in the RPTLA, and placed debentures and ensured that the liquidators were well represented in the new firm. The third level mainly consisted of trustees in the firm, and their expertise in the Anglo-Argentinean business was meant to promote the reliability of the company as the main agent for British firms in the region. Morris served as the General Manager for the firm until 1889, when he was replaced by James Anderson, a former secretary of the Mercantile Bank (Rugman, 2009). New managers were appointed to the firm, and with the consolidation of the different levels, Morris and Anderson acquired new agency agreements that consolidated the firm’s power in the business (Miller, 1988; Reber, 1979). The acquisition of more capital necessitated the formation of another firm to develop the ownership advantages of the firm. The two new firms that were incorporated, the River Plate and General Investment Trust, and the Mortgage Company of the River Plate were constituted, were formed to help in the expanding of the business efforts of the original firm. The Mortgage Company was formed to capitalize on the expansion of the loans and mortgages in the region, which necessitated the expansion of business to take advantage of the business. The generation of valuable contracts in the loan and mortgage business exceeded the capital capacity of RPTLA; therefore, the Mortgage Company was expected to take precedence in the business. The RPTLA was expected to act as an agent for the new company, which helped in the development of business in the region. The other company, The River Plate and General Investment Trust signed a trust agreement with the RPTLA, and its main work was to raise capital in the American continent and elsewhere in the region. RPTLA was also involved in the management of other companies in the region, including Montevideo Waterworks Company, where the directors were also major stakeholders in the RPTLA (Greenhill and Miller, 1988). This signified the agency relationship between RPTLA and other firms in the region, which were formalized by trust agreements signed by Morris. This business activity expanded the reach of the company and served to bring in new customers, and increased the already high reputation enjoyed by the company. This greatly helped in the 1890 financial crisis, which required that many companies be restructured to avert possible collapse. The restructuring of other companies was the main forte of RPTLA, and this helped in its continued expansion and acquisition of securities. The company took over the management of many firms after their reorganization, and the legal matters were handled by a subsidiary of the company. Despite the monumental growth of the firm, the financial crisis of 1890 capped the activities of the form, and Morris moved to London to join the board (Wilkins, 1988). The remaining members of the company in Argentina expanded operations, which was aided by the drop in land values in Argentina. The firms managed by RPTLA reported the highest profits in the financial crisis, and did not experience any financial problems. In the period 1900-1929, the management of the company changed a number of times, with the attraction of new entrepreneurial skills, the economic recovery, and the agricultural expansion in the region. The company added new managerial resources and appointed new directors. Morris passed away in 1905, and William Wilson replaced him as the new director. However, the change in the managers did not change the management style of the company, with the management style of Anderson following the style adopted by Morris. From 1930 onwards, the company increased its operations with the introduction of the Parish family as the new managing directors. The decline of the company started in the period after 1930, with the decline of the Argentinean Currency impacted negatively on the operations of the firm. The financial reports presented by the company in 1934 showed that the earnings of the company had taken a negative turn, with the exchange rate being the biggest problem. The period also saw the transition of the managers from the ones in the Argentinean to the ones in London. The business cycle in River Plate ended with the demise of James Anderson, and the management of the company took a new term. The reduction in the demand for mortgage loans in the region also reduced the business perspectives of the Mortgage Company of River Plate. This led to the reduction of the management fees paid to RPTLA, with the introduction of a new business deal between the companies. The decline of the business sector in the River Plate region was not due to the impact of government or regulatory decisions; it was due to the collapse of the original investment ideas used by the company. The original investment idea was aimed at financing the private, agricultural, and urban industry, but due to the reproduction of these services by other firms, the sector lost productivity. This period saw the continued reduction of the businesses in the Argentinean and Uruguay region, with the increase in British interests. There was continued reduction in the revenues, occasioned by a renegotiation of the debenture interest fees earned by the firm. However, the presence of Parish in the management team absolutely helped the firm in the difficult financial times, since he helped in the negotiation of deals with the Argentinean and Uruguayan governments. This period also saw the transfer of most of the company’s assets from Uruguay and Argentina, and by the end of the 1940s, only 3% of the company’s investments were in Argentina and Uruguay. The Mortgage Company had to retire its options in the Argentinean market, with the reduction of options in the Argentinean mortgage market. However, despite the reduction of interests in the Argentinean territory, the directors of the company were not willing to completely abandon operations. This was because of the unremitted revenues held in the region and the 4xpectatiomns that the situation would improve with time. The business finally came to an end in the 1950s, with the death of Parish in 1952 and the subsequent reevaluation of the company’s options in Argentina (Cooper and Lyth, 2009). An analysis of the company’s options in the country indicated that the effects of inflation, lack of investment opportunities, and the difficulty of finding workers were a detriment to the operations of the company. There was a decline in the business network established by the company, and the associated companies began to decline. The associated increase in the management costs was also a reason for the decline of the business, with the accompanying loss of directors. In conclusion, it can be seen that the management strategies of the RPTLA group were efficient to the business region and area of operation. The uniqueness of its management style helped in the development of the business interest and the long drawn life of its operations (Jones, 2000). References EBHA 15th Annual Conference Athens, 2011. "The rise and “decline” of European companies in Argentina (1870-1945c): new evidences and discussion" EBHA 15th Annual Conference Athens, 2011. “Organization and Business Strategies of a British Group: The Morrison group in Argentina and Uruguay, 1881-1962". Cooper, R., and Lyth, P. 2009. Business in Britain in the Twentieth Century. Oxford University Press, London. Greenhill, R., and Miller, R. 1998. British Trading Companies in South America after 1914, Oxford University Press, London. Jones G., 2000. Merchants to Multinationals. British Trading Companies in the Nineteenth and Twentieth Centuries, Oxford, London. Miller, R., 1998. British Free-Standing Companies on the West Coast of South America, Oxford. Reber,.B., 1979. British Mercantile Houses in Buenos Aires, 1810–1880. Harvard University Press, Cambridge. Rugman, A., 2009. The Oxford Handbook of International Business, (2nd ed.). OUP, Oxford. Slinn, J. 1997. Ashurst, Morris Crisp: A radical firm, Granta Editions, Cambridge. Wilkins M., 1988. “The Free-Standing Company, 1870-1914: An Important Type of British Foreign Direct Investment”. Economic History Review 41 (2), 259-282. Wilson, F., and Thomson, W. 2006. The making of modern management: British management in historical perspective. Oxford University Press, London. Read More