The Netherlands’ ING Group and Belgium’s Fortis have issued a joint bulletin celebrating the 200th anniversary of the bond issue that enabled the U.S. to complete the Louisiana Purchase from France.
The Purchase, which effectively increased U.S. territory by more than one-third, was announced in 1803, and the bond issue to finance it was completed in 1804. It was the first time the new country had issued a sovereign debt obligation in the European capital markets. The two companies said they were honoring their “shared legacy as underwriters of one of the most famous transactions in United States history. ”
“With international finance in its infancy, this was the first US issuance targeted to the international markets and was the most complex and largest transaction the markets had yet absorbed,” noted Tim Schantz, ING, Head of Corporate Financial Services, Americas. “While virtually unknown compared to the historical Louisiana Purchase, the capital markets transaction that financed it served to consolidate US credit-worthiness in the international markets. The government’s servicing of the Louisiana bonds was impeccable and the debt was repaid ahead of schedule. It presents a fascinating picture of international high finance in the early 1800s, and has equal historical importance in setting the stage for the global, liquid, regulated markets we enjoy today.”
The U.S. purchased the Louisiana Territory for $15 million, which, even at the time was considered a good deal. Nonetheless it represented a 19 percent increase in the nation’s public debt, which was then around $80 million. The bulletin indicated that “the Purchase was primarily financed by the issue of $11.25 million US government six percent bonds in the Amsterdam and London markets in early 1804. (The additional US$3.75 million of the purchase price was financed through the US government’s payment of French debts owed to US citizens.) The bond issue was underwritten by predecessor firms of Fortis and ING: Baring Brothers of London and Hope & Co. of Amsterdam, the most powerful financial institutions participating in the world’s capital markets in the early 1800s. Barings was acquired by ING Group in 1995, and Hope & Co. merged in 1966 with Mees & Zoonen, which became part of Fortis Bank’s private banking arm MeesPierson in 1997.”
Fortis and ING have published details on the financing in a brochure based on the archives of Barings and Hopes. “The archives indicate that the success of the transaction resulted in large part from the bankers’ ability to manage the considerable risks associated with the transaction and the large sum the banks were underwriting,” said the announcement.
It also noted that at the time the U.S. was the equivalent of an “emerging market,” making its debts a “high-risk” investment. “The US government had limited debt servicing capacity, primarily relying on Federal customs tariffs for revenues,” according to Thomas Fleming, historian and author of The Louisiana Purchase (2003, John Wiley & Sons). “In 1804, Federal customs revenues were US$10.48 million and total Federal revenue was US$11.83 million.” The US$11.25 million Louisiana Purchase financing represented 95 percent of the country’s annual revenue, much of which was already allocated to existing debt service.”
To celebrate their firms’ 200 years of collaboration, the US capital markets divisions of ING and Fortis will host an exhibit of historic documents related to the Louisiana Purchase financing at Federal Hall, New York City, the US customs house that collected Federal revenues used to pay the Louisiana debt. ING and Fortis, in cooperation with IIB, will launch the exhibit with a reception on June 7th at Federal Hall. The exhibit, which is open to the public from June 8th to June 11th, will include the only surviving bond certificate, prospectus for the issue, and correspondence of the lead bankers Alexander Baring and Pierre Labouchere of Hopes.
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