Why did it take so long to complete the deal?
The Louisiana transaction is remarkable for the length of time it took to complete. The bankers agreed to take over the bonds from the French government on May 3rd 1803 but did not complete the operation until almost 12 months later.
Long journey times between Europe and America and the need for Congress to ratify the Paris agreement contributed to this. Emissaries coming to London or Amsterdam to negotiate sovereign bond issues usually carried authorities to conclude agreements. But not so here, probably because an operation of this size had not been anticipated.
Journeys between Paris and Washington could take eight weeks and were not without risk – letters were often sent in triplicate in case the ships that carried them sank. Bonds issued to fund the transaction were dispatched from New York on February 13th but reached Paris only on April 25th. Delay heightens risk and adds to bankers’ anxieties.
How risk was managed in this extended period is not known, but a form of underwriting was in place. A snippet of surviving correspondence in The Baring Archive reveals that as early as November 1803 US$5 million bonds had been disposed of in the Netherlands and US$1.5 million in the UK, leaving US$4.75 million ‘unappropriated’ and presumably in the hands of the bankers.
Risk had been spread but the liability of the bankers remained uncomfortably significant. US$4.75 million had a sterling equivalent of GB£1.07 million at a time when Barings’ balance sheet totalled GB£1.9 million and its partnership capital GB£0.4 million.