I have long been interested in the history of Lord Kylsant’s control of Royal Mail Steam Packet Co in the early years of the last century. About a year ago I decided to write a Directory Article on this subject. It soon became clear that this was a major topic and considerable research was necessary. There is no comprehensive coverage of the story anywhere on the internet and what is available is contradictory at times.
During the time I was researching and writing this piece I found that were an amazing number of similarities between the affairs of the Kylsant empire and many of the troubled businesses and banks today. There was the same reckless, debt fuelled growth that worked during a boom but led to inevitable implosion when the boom ended. After WW1 the British Government tried to combat the growing recession by providing guarantees to banks to support lending to an amount equal to £1 billion today. Royal Mail group obtained government guarantees equivalent to £400 million today.
In 1903 Kylsant (or Owen Cosby Philipps as he then was) began by rescuing RMSP from collapse. When his empire imploded in 1928 the shipping groups had grown to include: -
• Elder Dempster
• Pacific Steam Navigation
• Glen Line
• Lamport Holt
• Nelson Line
• Moss Hutchinson
• Nicholas Mihanovich’s Argentine Navigation Co
• Coast Line
• White Star
• Shaw, Savill & Albion
• Aberdeen & Commonwealth
After WW1 the array of shipping companies had their problems, but Kylsant’s task of overcoming them became impossible when his friend Lord Pirrie persuaded him into the folly of taking over financial ownership of Pirrie’s vastly over-extended shipbuilding empire that in 1928 included: -
• Harland & Wolff
• The David Colville steelmaking group
• The Burmeister & Wain UK marine diesel business
• Caird & Co Ltd
• D & W Henderson & Co Ltd
• A & J Inglis Ltd
To make matters worse Kylsant allowed Pirrie to continue to exercise complete control of the Harland & Wolff group, providing him with ever more investment funds. It was only when Pirrie died in 1924 that Kylsant examined Harland & Wolff’s finances and found to his horror that his considerable investment had been entirely lost and that Harland & Wolff was virtually bankrupt.
The only prudent response to this disaster would have been to immediately close down the entire Harland & Wolff group. Perhaps the Government may have come to its rescue. Kylsant feared however, that his shipping companies may not survive the disclosure that their large investment in Harland & Wolff was worthless. So he tried to borrow his way out of trouble, whilst attempting to improving the efficiency of Harland & Wolff and hoping to survive the economic downturn until the usual recovery arrived. Except for the ship repair establishments, which were placed under the control of a Union-Castle engineer, Harland and Wolff’s financial performance continued to deteriorate however. Furthermore the economy did not recover but instead it plunged into the Great Depression.
When the Royal Mail group was unable to meet its loan repayments, the government appointed the leading accountant of the day to investigate the situation. After a lightening investigation Sir William McLintock estimated that the group’s deficit was £30 million – the present day equivalent of £1.2 billion. To make matters worse the Royal Mail group was so interwoven that it took years to unravel the tangled financial chaos.
The government failed to detect that the Royal Mail group had been insolvent for years and was so furious that it charged Kylsant with fraud in a highly contentious case that established new legal precedents. The court found that while he had issued no statements that were untrue, he had failed to tell the entire truth when raising money and he was sentenced to imprisonment in Wormwood Scrubs. Kylsant was the first Peer to be imprisoned for fraud and since then only one other Peer has been convicted of fraud. The second is the newspaper proprietor Lord Black, currently serving a prison sentence in the USA.
I hope that some Members will gain as much enjoyment from reading this history as I have had in researching and writing the story.
I have to say I founfd your piece on the Kylsant empire absolutely fascinating. I have been researching Lord Pirrie since I live close to Witley Park which he bought. I had no idea that he had died a virtual bankrupt and although I knew Harlands was in trouble I did not realise the extent of it. Your parallels with the events of the past couple of years are also spot on.