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British Banking History Society

Farrow's Bank

The war had been over for two years and there was hope of a peaceful and prosperous future but Christmas 1920 was a far cry from this hope for the shareholders and depositors of Farrow's Bank. On the morning of 20th December at 1 Cheapside and on the doors of the bank's seventy-three branches there was posted a notice headed "Payments Suspended". Thousands of ordinary people found that they had lost every penny they had, amongst them were also large numbers of clergymen. Public outcry was loud, and the Chancellor of the Exchequer, Mr Chamberlain, was asked in the House of Commons if the Government was aware of the disaster? "Yes", was his reply; they had been aware of its imminence for some little time.


Conspiracy
Responsible for this disaster were: Thomas Farrow and William Walter Crotch who were to stand trial for 'conspiracy to defraud'. Thomas Farrow was born at Catton, Norwich of good parentage in 1862. He left school at thirteen and studied law, when he was twenty he went to London and became confidential secretary to Mr W H Smith, Leader of the House of Commons. In 1891 on the death of Mr Smith, Farrow became Political Secretary to Mr Robert Yerburgh, MP for Chester. At this time Farrow was Honourary Secretary of the Agricultural Banks Association. Later he became an active campaigner against publication of various pamphlets - 'In the Moneylenders Clutches' and 'The Moneylender Unmasked', he also gave evidence before a Government appointed Select Committee, investigating extortionate interest charges which did much to ensure the passing of the 1900 Moneylenders Act. He then formed the 'Mutual Credit and Deposit Bank" in Croydon, he registered "Farrow's Credit Bank" under the Friendly Societies Act 1904. From this beginning there emerged in 1907 Farrow's Bank Limited, with Thomas Farrow as Chairman and Managing Director.

He was joined on the board by William Walter Crotch also from Norwich where he trained as a journalist with the local newspaper. He was said to be something of an expert on the immortality of the soul and had been Political Private Secretary to Sir Henry Dalziel.


Popular
From its beginning the bank treated its depositors generously, on current accounts which maintained a minimum balance of 10, 2% interest was allowed, and deposit accounts withdrawable at six months notice - 5%. Interest on deposit accounts at this time was something never known before. This was naturally popular and branches soon spread over the country, with a special branch in Knightsbridge 'managed by women for women'. There were also a larger number of supporters from clerical circles, which might to some extent have ben due to the bank spending 9,000 a year on advertisements in religious journals.

By 1913 the nominal capital had been increased to 1,000,000, of which 361,000 was paid up, and a similar amount subscribed but not "called". Dividends were regular varying between 6 and 7 per cent and deposits with the bank increased steadily. The two bankers lived modestly (Farrow had an inconspicuous house near Hastings). They published small booklets during the 1914-18 war promoting national savings and the use of "Motor Banks" to tour the country collecting subscriptions for War Bonds. At the shareholders meeting in 1916 Farrow proclaimed that the bank was becoming a rival in importance to the Big Five. He also complained that the other banks were hostile to Farrow's and charged 6d to 1/0 to anyone who dared tender a cheque on Farrow's. He added that the "Gazette", a monthly house magazine edited by Crotch, had brought about a 'spirit of camaraderie' among shareholders and depositors, turning them into a 'fellowship of Farrovians'.

Farrows Advert
Four years later this poetic touch was repeated at the 1920 Annual General Meeting. Farrow told the shareholders, "You have a bank with a soul." They were, no doubt, more interested in the Balance Sheet which on the face of it looked good with a CR. of 22,000 when in fact the true profit and loss balance should have been DR 2,170,806, which by the time of the crash six months later was to rise to DR 2,800,000.

At this time there was not even a hint of trouble that was brewing. It seems that Farrow and Crotch were hoping that they had a found way out of their problems. In May 1920, Mr Read of Norton Read and Co, New York, opened negotiations to acquire a controlling interest in Farrow's Bank. After some discussion Farrow and Crotch suggested to Read that his investment should be 500,00 - of which 100,000 should be by way of compensation for the displaced directors and 400,000 be added to the invested Reserve Fund, which at the time was stated as 138,500. On 7th July, Read received a letter from Farrow in which an agreement on these lines was detailed. The letter, to Read's surprised was dated 29th June, the day before the annual balance was struck, the Post Office, it seems had been slow in delivering it. (Judged by the standards of delivery at the time, but of course, it would not have been noticed today). The agreement was however, initialled and Read became Managing Director and as part of the promised investment he lodged a parcel of Clatex Oil shares as security. Read then instructed Mr Riche, a junior member of his firm, to examine the books. It seems odd he should wait so long before doing this and there was never a satisfactory explanation. Riche soon found fault with the assets and an independent accountant, a Mr Morgan, was called in, who confirmed the findings of Riche. One of the startling things found by Riche and Morgan was one the balance sheet of 30 June 1920 an item of 500,000 owing by Norton Read & Co figured among the assets - at this time no agreement had been made.


Arrest
According to his evidence at the trial, Read sent for Crotch - Farrow apparently was indisposed at his home. Confronted with the report of Riche and Morgan, Crotch said, "Well, the game is up. We have been sitting on this thing for years, hoping against hope until you turned up. Then we thought our troubles were ended; but it seems they are just beginning." Crotch admitted (Read testified) that Farrow and he had "paced up and down, night after night, before publishing the balance sheets". Read then consulted Sir John Simon, and on his advice, saw the President of the Board of Trade. Farrow' Bank suspension was the sequel, followed by the arrest of Farrow and Crotch.

And so to the Central Criminal Court on 6 June 1921, with Mr Justice Grier on the bench, and the formidable Mr Richard Muir leading for the prosecution. In the dock stood Farrow (50 years old, a widower with three sons and three daughters from 9 to 27 years of age). Crotch, now 46 years old, and beside him, Frederick Hart (44) their accountant and auditor who was responsible for drawing up the published accounts. Sir Gilbert Garnsey, who had been appointed Manager in Liquidation then unfolded a fantastic story of folly and fraud. The true statement of the bank's working losses from 1909 was as follows:-

"The accumulated working loss amounted to over 1,100,000, in addition to which 1,700,000 had to be struck off the book value of investments, making a total deficiency of 2,800,000.

Year
1909
1910
1911
1912
1913
1914
Loss:
11,000
24,000
61,000
76,000
84,000
94,000
  Year:
1915
1916
1917
1918
1919
1920
Loss:
112,000
128,000
127,000
52,000
133,000
203,000


Dreadnought
These enormous losses had been concealed with Hart's help by the simple technique of writing up the book value of assets as needed. In the Spring of 1911 a building estate had been purchased for 23,000. In the 30 June 1911 balance sheet this asset appeared as 81,000 although only 4,000 had been paid of the purchase money. Even more outstanding was the book valuation of the Bank's Investment in the Dreadnought Cement Company, formed to operate on land in Cambridgeshire which the bank had bought. In 1915 this asset was put in the balance sheet as 435,000 but the amount actually spent on development was only 11,000. By 1920, Dreadnought was written up to 780,000. In 1912 an actual investment of 230 in the Gazeland China Clay Company was shown in the balance sheet valued at 150,000 and in 1919 a holding in the Laminated Coal Company costing 35,000 was written up to 160,500. Farrow always protested that the bank's investments were never improperly valued, he told the judge, "I am not an accountant, but an idealist, an organiser and an optimist.".

Farrows Advert
Sir Gilbert Garnsey produced pencilled notes which he had found in Hart's desk which showed that there were normally several "editions" of the balance sheet, one such item for 1915 being headed "estimated profit required for the year 435,000", a figure amounting to that by which the Dreadnought asset was written up.

The judge commented that, "the problem of matching dividends with profits appeared to have been approached upside down."

It was also disclosed that Farrow had drawn three years salary in advance, it was 1,500 a year. (This was not considered to be over high for a man of his position.)


Sympathy
There was a lot of public sympathy for both Farrow and Crotch as they appeared to have derived little or no personal benefit from their frauds and their records and "do gooders" was such that their actions struck their contemporaries as almost inexplicable. The judge leaned towards mercy as far as he could, taking into consideration Farrow's plea that he and Crotch had never made any personal profit (beyond their salaries); that he had never thought it wrong to set the appreciation of promising assets against losses; and that he had never had a holiday for seventeen years.

Farrow, a small man, puffy-eyed, lame in one leg with a neat moustache was given four years penal servitude as was Crotch, the more impressive of the two, balding and with a Van Dyck moustache and beard. Hart received twelve months imprisonment.

Creditors received 5s. 3d in the . They were model prisoners. Farrow, on his release went to live quietly in a cottage near Chichester, and died in August 1934. Farrow had one other claim to fame in that he was one of Britain's first motorists; he invented a gadget that would ring a bell automatically in warning if the speed limit was exceeded.

Robin Woodruff

Click here for pictures of Farrow's Bank cheques.

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