The House of Rothschild (23 page)

Elsewhere the Pereire threat was more serious, and elicited a succession of decisive Rothschild responses. In Spain, they succeeded in establishing the Crédito Mobiliaro Español following the legalisation of joint-stock banking in December 1855. They were not the only French bankers to do so: Adolphe Prost (of the Compagnie Générale des Caisses d‘Escompte) set up a Compañia General de Crédito and the Rothschilds responded by setting up the Sociedad Española Mercantil e Industrial. The banks were broadly similar in their size and objectives. The Pereires dreamt of financing a railway connection from their own Midi line’s Bayonne terminus, across the Pyrenees and through Madrid to Cadiz in the south-west. The Rothschild response was swift: in partnership with the ubiquitous Morny, James secured the Madrid-Almansa concession from the marqués de Salamanca in 1855 and two years later created the Madrid, Zaragoza and Alicante Railway Company, the first stretch of which (Madrid-Alicante) was opened in May 1858. Morny simultaneously snapped up the concessions to link Madrid to Portugal via Ciudad Real and Badajoz, as well as the routes to Málaga and Granada via Córdoba. This left the Pereires with only the head and the tail of their original design: the Bayonne-Madrid link, which was constituted as the Norte de España in December 1858; and the Córdoba—Seville link, which they built in partnership with Charles Laffitte. Although this meant that the Rothschild group failed to secure the connection between Spain and France, the point here is the slowness with which the Pereires moved; plainly their difficulties in 1857 put a brake on their schemes outside France. It is also striking that James was now collaborating with Morny and even Mires (who secured the Pamplona-Zaragoza line), and perhaps equally striking that they were collaborating with him.
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The Rothschild victory in Piedmont was even more clearcut, though in some ways it was a Pyrrhic victory. There was a moment in December 1855 when it seemed that Cavour and the Pereires (whom he thought “astonishingly able”) were going to strike up an alliance, which would have been a serious blow for James. But the Pereires evidently wanted too much—“a monopoly,” as Cavour complained. James was more subtle, and it was he who gained the main foreign shareholding (33 per cent) in the new Cassa del Commercio e delle Industrie in Turin, established in February 1856 as the sole chartered joint-stock bank in Piedmont. In fact, James’s plans for “an Italian bank” in Turin proved to be premature; the coincidence of the 1857 financial crisis and the death of the bank’s director Luigi Bolmida plunged it into difficulties and by 1858 it was all but defunct. Nevertheless, we can infer what Bolmida and James had been trying to achieve from an Italian account of a visit by James to Turin in April 1857, shortly after Bolmida’s death. “He wanted,” according to this, “to resume Bolmida’s projects which consisted essentially of obtaining from M. de Cavour the granting to the Piedmontese Credit Mobilier [that is, the Cassa del Commercio] of all the state railways in order to create in turn a Grand Central [line] and to secure for himself the concession for the grand railway of the two Riv ieras.” As in Spain, in other words, a new bank was a means to the end of expanding the Rothschild railway empire: James was evidently hoping not only to gain control of the Victor Emmanuel Railway Company, formed by Charles Laffitte and Alexandre Bixio in 1853 to link Turin to France and Switzerland, but also to secure the concession to link Marseille to Nice and Genoa. Though he managed only the latter (in partnership with the French financier Gustave Delahante), the extent of James’s victory in Piedmont should not be understated. Moreover, we can see that, as in northern France and Belgium, James was building up a railway network which crossed borders in what were soon to become strategically vital areas: Savoy and Nice, which Napoleon III coveted, and the Piedmont-Lombardy border. Significantly, the natural railway routes from northern Italy across the Alps ran not from Turin but from Austrian-controlled Milan or Venice.

This explains a good deal of the Rothschild strategy in Austrian territory. The Pereires had stolen a march on the Rothschilds in January 1855, when they persuaded the financially pressed Austrian government to sell them a section of the state railway network (the Prague-Brünn line in Bohemia and the line running east from Marchfeld into Hungary), another early privatisation.
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Though the Rothschilds still controlled Salomon’s Nordbahn, they had shown little interest in Austrian railways since 1848, which had increasingly been built and controlled by the state; but the Pereires’ coup galvanised Anselm. The Pereires had managed to create a formidable consortium: the board of their new Imperial and Royal Chartered Austrian State Railway Company (Staatsbahn for short) included Morny, Fould, Ludwig Pereira and the Vienna bankers Sina and Eskeles (who already controlled the Vienna-Raab line).
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Moreover, they appeared to have secured a bargain: the lines which they acquired for just 77 million gulden had cost 94 million gulden to build. They had also done Napoleon III’s foreign policy a favour: the purchase was widely seen as cementing the Austro-French alliance of December 1854, and was actively encouraged by Hübner in Paris. It was, complained Anselm, a “disgraceful business”—so disgraceful, indeed, that he immediately set about trying to imitate it. When the Pereires proposed to the government the creation of a Credit Mobilier in Vienna—with the obvious intention of buying up the remaining state lines—he and James agreed to organise a rival bid. Given that the lines in question were those which would link Vienna to Trieste (the Südbahn) and Milan to Venice (the Lombard), it is easy to see their concern.

The Rothschilds had four decisive advantages. Firstly, the entente between Austria and France proved to be short-lived. Secondly, as the financial position in France deteriorated, the government ruled that foreign securities could not be issued on the bourse; for the Pereires this was a lethal blow—James, by contrast, could still count on New Court and the London market. Thirdly, the Rothschilds were able to assemble a group of grand names (notably Count Chotek and the princes Schwarzenberg, Fürstenberg and Auersperg) to act as their partners, as well as the banker Leopold Lämel, an influential figure in Prague. Finally, they very probably had sight of the Pereires’ bid thanks to the Minister of Commerce Baron Bruck, which enabled them to draw up a similar but more attractive alternative, with nearly double the capital (100 million gulden to the Pereires’ 56.6 million) and a more overtly Austrian orientation. By the end of October 1855, the issue was settled. On November 6 the Imperial and Royal Austrian Credit Institute for Commerce and Industry (Creditanstalt) was formally chartered; a month later the first shares were issued, of which the Rothschilds and their partners retained at least 40 per cent.

With its branches in Prague, Budapest, Brünn, Kronstadt and later Trieste and Lemberg, the Creditanstalt swiftly established itself as the dominant financial institution of the Habsburg Empire, a position of unrivalled pre-eminence it retained until the eve of the First World War. Nothing did more to re-establish the Rothschilds’ economic influence in Central Europe. Yet the extent to which the Creditanstalt represented a moral victory for the Pereires’ methods can hardly be overstated. In order to beat them, James—after all his earlier criticisms of the investment bank as a concept—had been obliged to join them, as he admitted to Count Orlov, the new President of the Russian Council of State:

In almost all respects, the Creditanstalt was modelled on the Credit Mobilier; if anything, its charter gave it even more latitude to invest in or lend money against every conceivable kind of asset—industrial shares, state bonds, land and even commodities—and to raise money in every conceivable way—issuing shares and bonds, accepting deposits. The key to the Rothschild revival in Vienna was thus the unabashed adoption of the methods of their arch-rivals.

In the short run, the Creditanstalt secured the Rothschilds the dominant position they had sought in the developing Central European railway network. In 1856 the Pereires were once again defeated in the contest for the crucial Lombard and Central Italian lines, the defection to the Rothschild side of their former ally Galliera proving fatal to their efforts. It was now that the Rothschilds’ access to the London capital market also began to tell: when the new Imperial Lombardo Venetian and Central Italian Railway Company was launched, £1.2 million of its total £6 million shares were taken by an English group led by the London house, which also issued bonds for the company worth £3.1 million. The Paris house provided just under half the total funds required, the Creditanstalt the rest. This gave the Rothschilds and their associates control of more than 600 miles of Italian railways, of which 260 miles were already in operation.

Of equal interest were the lines running westwards from Austria into Bavaria. The Frankfurt house had been involved in one of the earliest South German railways, the so-called Taunusbahn connecting Frankfurt to Wiesbaden, which in 1853 had been extended to Nassau. In 1855 it added to its railway interests by joining a consortium with Hirsch, d‘Eichthal, Bischoffsheim and others to finance the Bavarian Ostbahn, linking Nuremberg to Regensburg, Munich and Passau on the Austrian border. There were also moves to extend this line northwards through Schweinfurth to Bebra. It was therefore logical for the Rothschild group to secure the concession to link Vienna, Linz and Salzburg (the Kaiserin Elizabeth-West bahn): this time the Paris and Vienna houses provided 30 million of the 60 million gulden capital. The lines to the Habsburg east were more problematic. Here too the Pereires established an early lead, securing the eastward extension of the Vienna-Budapest line to Szeged and Timisoara (the Franz Joseph Orientbahn), which connected with the state-owned Südbahn. But once again lack of funds proved their undoing. In addition to acquiring the Hungarian Danube Steamship Company (Danagözhajózái Társaság), the Rothschild group struck south into present-day Slovenia and Croatia, acquiring (through Talabot) the line to Agram (Zagreb) and Sisak. There also appears to have been some co-operation with the Oppenheims, who acquired the concession to link Villach and Klagenfurt in Austria to Maribor in Slovenia.

By August 1858 the thought of “une affaire gigantesque” linking these various strands to Vienna and Trieste by swallowing up both the Franz Joseph Orientbahn and the Südbahn was making James “tremble.” He did it nonetheless: a month later, for 100 million gulden, he and Talabot bought the Südbahn from the Austrian government, then merged it with the Lombard and the Franz Joseph lines to form a single railway giant: the South Austrian Lombardo Venetian and Central Italian railway company. There was also talk of building a rail link from Habsburg Transylva nia to Bucharest in the now autonomous principalities of Wallachia and Moldavia.
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It seemed only a matter of time before the network of lines in which the Rothschilds had an interest would stretch to Constantinople and the Black Sea coast.

At this point a note of qualification needs to be sounded: from the moment the Creditanstalt was created and the process of railway mergers began, there was an inevitable dilution of Rothschild control. It cannot be assumed that all the steps described above were initiated or even wholly endorsed by James or Anselm. James patently had reservations about the project for a line to Bucharest, the purpose of which (to judge by the proposed route along the Habsburg frontier) was manifestly more military than commercial. In the summer of 1858, Anselm actually threatened to resign from the board of the Creditanstalt “because he [did] not approve [of] the way in which business is being conducted”—a threat he carried out the following year. This did not signify a lasting break between the bank and its founder, for his son Nathaniel took his place in 1861; but it suggests that we should beware of equating Rothschild and Creditanstalt, just as we need to be cautious in using phrases like “the Rothschild group” to describe the loose coalition of investors who took over the Austrian rail system—or, for that matter, the Rothschilds and their business associates in France.

There was only one major European region which the Rothschilds relinquished to their rivals: Russia. In the wake of the Crimean War, tentative advances were made to the new Tsar’s government regarding the possibility of developing the embryonic rail network. However, James seems to have been content to let the Pereires take the initiative here, having received pessimistic reports of the likely profitability of new lines. This pessimism was vindicated when Barings sought to raise some £2.8 million in London for a new Grande Société des Chemins de Fers Russes to link Warsaw and St Petersburg. The issue was a flop and earned the firm yet more opprobrium from the Russophobe press. Curiously, James seems briefly to have revived the idea of establishing a Rothschild house in St Petersburg in 1858; but when he casually suggested that Alphonse or Gustave might spend “a few years” setting up “an establishment in Petersburg,” it was only because he felt that “it might contribute to the emancipation of the Jews”—not because he was attracted by business possibilities there.

By the end of 1858, then, the challenge posed to the Rothschilds’ position not only within France, but right across the European continent, had been quashed. This had largely been possible because, while the Pereires’ resources remained fundamentally Parisian, the Rothschilds were an authentic multinational, with a business empire which expanded during the 1850s as far afield as the new goldfields of California and Australia. The Rothschilds’ superior resources made it possible for them to reimpose their dominance over European public finance in the period of the Crimean War. At the same time, their alliance with the Banque de France ensured that when the downturn came in 1856-7, the convertibility of the currency was maintained and reforms which might have eased the Pereires’ overstretched position were rejected. The contest for control of the Central and Southern European railway networks which followed was therefore an unequal one. Yet in order to secure the crucial railway lines linking Austria to Germany, Italy, Hungary and the Balkans, the Rothschilds had to imitate the Pereires by establishing their own versions of the Credit Mobilier in Turin and, more important, in Vienna. The increasing complexity of the Rothschild business empire makes it harder to consider it as a single, integrated entity after this period, though there is no question that James himself considered it still to be one. Before 1859 the Rothschilds had been fortunate in one signal respect: they had lent to the winning side in the Crimean War, not to the loser. The real test would come in the period 1859-70, when they would find themselves repeatedly on both sides of decisive conflicts which were to recast the map of Europe.