page_title: Leendert Pieter de Neufville
section_title: Perfect storm
hierarchical_section_title: Leendert Pieter de Neufville / Perfect storm
context_page_description: Leendert Pieter de Neufville was a Dutch merchant and banker trading in silk, linen, grain. His business grew quickly during the Seven Years' War. De Neufville secretly supplied the Prussian army with gunpowder. It is likely that the army's outsourcing of handling bills of exchange in commercial payment boosted his business in a sophisticated form of letters of credit, acceptance loans. His business model had similarities with the modern shadow banking system.
  Beginning in 1762 De Neufville became involved in melting down debased coins, no longer allowed in Prussia and Saxony, with the plan to sell back the melted silver. In Spring 1763 De Neufville was party to a major speculative grain deal with the Berlin merchant banker Johann Ernst Gotzkowsky. The financial crisis in July 1763 was triggered when De Neufville had to pay his obligations to Gotzkowsky. De Neufville suspended payment on 3 August 1763; his list of creditors included over 100 bill counterparties, the great majority of those residing in cities outside of the Dutch Republic.
context_section_description: When Leveaux and Von Stein dropped out of grain deal it must have come as a shock to De Neufville and Gotzkowsky. The restructuring of the Gotzkowsky deal put tremendous pressure on De Neufville, who then became responsible for 3/5 of the deal. Gotzkowsky had lent at least two million Prussian thaler to Saxony to pay its war contribution to Frederick. Gotzkowsky had not yet sold all the municipal bonds he had received in return. Gotzkowsky had also an impressive number of paintings in stock which he accumulated during the war and had not been sold to Frederick II. He managed a silkworks, a jewelry business in Leipzig with J.R. Streckfuss, a porcelain factory (now KPM) that was not running at his satisfactory, all at the same time. By the end of July 1763, both Gotzkowsky and De Neufville had difficulty finding the needed money to settle their obligations and feared they would go bankrupt. Early 1763 the London stock market dropped. De Neufville lost money there too.
  The Bank of Amsterdam shut twice a year (January and July) for two weeks to balance its books (In 1763 from Friday 15 July - till Friday 29 July). It is possible that nobody was willing to lend De Neufville such a large amount of money over the shutdown interval. De Neufville was forced to wait until the Bank reopened on 2 August.
  Gotzkowsky was clearly relying on De Neufville to pay his share of the purchase of the Russian magazine. De Neufville was, in turn, relying on people like Aron Joseph. When Joseph went bankrupt, the chain unravelled. This caused a general loss of confidence in bills from Hamburg, Berlin, etc. by Amsterdam merchants. Loss of funding from Amsterdam then forced many merchants in Germany into bankruptcy.
  The strain on liquidity was most keenly felt by speculators like De Neufville and Arend Joseph & Co; the latter failed on 28 July 1763, and fled, after three respite days, to Culemborg, a hiding place for bankrupts. It was likely that a combination of multiple shocks that sunk Neufville: 1) sudden demand for more liquidity from the Gotzkowsky deal, and 2) loss of access to liquidity after the failure of A. Joseph. De Neufville closed his business on Friday 29 July. 
  A proposal for a bailout was circulated, but rejected after some debate.
  On 2 August the banks in Amsterdam refused to lend De Neufville the money (700,000 guilders) to pay his obligations to Gotzkowsky. (The banking houses of Hope & Co, Clifford, Warin and Muilman tried to form a syndicate, but Andries Pels & Zoonen refused to participate.) When De Neufville failed to come to an agreement with these bankers his suspension of payment became de facto a bankruptcy. The news that De Neufville stopped payments reached Hamburg already 11.00 a.m. in the morning of the 4th. (It is a mystery how fast the news could spread so quickly.) In a panic a group of prominent Hamburg merchants sent a petition to the leading Amsterdam bankers, demanding a bankruptcy preference, and threatening a shutdown of their market for Amsterdam bills if this was not granted.  The Hamburg merchants’ threat only served to initiate a three-month-long shutdown of the Amsterdam market for Hamburg bills. (It seems like boycotting De Neufville?) Six leading Amsterdam bankers suggested on 4 August to deposit their silver and gold bars at the Wisselbank instead of coins.  The "Wisselbank" introduced a new lending window that accepted bullion between 4 and 15 August. The amount of bullion went up in the next few weeks.
  The shocking failure of De Neufville caused the market to contract its lending to banks, banks to stop accepting bills and creditors to stop lending on the security of bills. Their reaction caused financial contagion, a "run behaviour, whereby fears of widespread financial collapse lead to the withdrawal of funding from banks and other financial institutions."  The immediate victims were a group of independent, private “cashiers”. (The deposits in the Wisselbank were virtually unenforceable, but everyone was free to demand the money that he had entrusted to his cashier.) The deferrals resulted in an
caption: Turbulent sea by Ludolf Bakhuizen, owned by De Neufville sr, for sale on 19 June 1765.[64]
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