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From Coffee House to Stock Exchange

30 August 2016

Jonathan Marriott - Chief Investment Officer

Visitors often comment on the setting of LGT Vestra’s office in the City of London. Directly facing the front of the Bank of England and next to the impressive Royal Exchange building, we are at the heart of London’s financial district. Little known is the historic significance of the position for investors. Change Alley which runs down the east side of the office was home to Jonathan’s Coffee House. A blue ceramic plaque commemorates this as the principal meeting place of Stockbrokers between 1680 and 1778. It was Jonathan’s that eventually became the London Stock Exchange. Indeed, when I started working in the Stock Exchange thirty-five years ago the members bar was still called Jonathan’s.

Change Alley today is a narrow pedestrian walkway running from Cornhill to Lombard Street with loading bays for offices on either side. In the 18th century it was lined with coffee houses where businessmen met and traded. Dealers in stocks and shares were expelled from the Royal Exchange for riotous behaviour and met in the coffee houses nearby. Jonathan’s was the chief beneficiary of this move. The coffee houses employed runners who gathered information from the docks on the latest cargos and shipments. They posted the news and gossip up on the walls for all to see. One businessman, John Castaing, started listing share prices twice a week - the forerunner of the official list.

So successful were they at gathering information they petitioned, unsuccessfully, for the right to publish newspapers based on the gossip and news of the day. Further down Change Alley in Mr Lloyd’s coffee shop insurers gathered to ply their trade. This became the Lloyds Insurance market of today.

It was Jonathan’s that witnessed one of the great financial disasters of the 18th century, the “South Sea Bubble”. In 1711 the South Sea Company was formed and was granted a monopoly of trade with South America. This was marketed as having huge potential and the shares started to rise in value. As the share price moved up investors borrowed against their holdings to buy more. The share price soared in frantic dealing. Fortunes were made on paper; even servants sent to sell shares were known to make profits by waiting until the price had exceeded what their masters expected and pocketing the difference. However the company never made the expected returns. Many investors went bankrupt as the share price fell, causing a severe contraction in the British economy.

Jonathan’s burnt down in 1778 and the brokers clubbed together to build “New Jonathan’s” nearby. It was this building that was transformed into the London Stock Exchange, which eventually became the largest market for shares in Europe.