Suez Canal Purchase loan

Lionel Nathan de Rothschild (1808-1879) was the eldest son and main business heir of Nathan Mayer Rothschild. Lionel is remembered in business for his assistance to the British Government in 1875, helping his friend, Disraeli, secure the necessary sum to procure the Khedive of Egypt's share in the Suez Canal. 

Construction of the Suez Canal

In 1854 and 1856 the French diplomat Ferdinand de Lesseps had obtained a concession from Said Pasha, the viceroy of Egypt, to create a company to construct a canal open to ships of all nations, according to plans created by Austrian engineer Alois Negrelli. The company was to operate the canal by leasing the relevant land, for 99 years from its opening. The Suez Canal Company (Compagnie Universelle du Canal Maritime de Suez) came into being on 15 December 1858. Over the next 11 years the canal was built, and although the British recognised the canal as an important trade route, they objected to the use of forced Egyptian labour to build it, and perceived the French project as a threat to their geopolitical and financial interests.

Suez Canal shares

Initially international opinion was sceptical and Suez Canal Company shares did not sell well overseas. Britain, the United States, Austria and Russia did not buy any shares, although all French shares were quickly sold in France. The canal opened to shipping on 17 November 1869, and had an immediate and dramatic effect on world trade, playing an important role in increasing European penetration and colonization of Africa.

External debts forced Said Pasha's successor, Isma'il Pasha, to put up his country's shares for sale. In November 1875 the British Prime Minister, Benjamin Disraeli was able to make the surprise purchase of nearly half the total shares in the Suez Canal Company - not a majority interest, though a controlling interest for practical purposes. France still remained the majority shareholder in the canal.

Since Parliament was not in session at the time, Disraeli asked his close personal friend Lionel de Rothschild to advance the loan to the British Government thereby opening himself to much criticism from Parliamentary opponents, although winning approbation from the Queen and the public. Thus it was that in 1875, Lionel, through his business N M Rothschild & Sons, advanced to his friend Disraeli (acting for the British Government) £4,000,000 to purchase Suez Canal shares. According to legend, this was transacted on a gentleman’s agreement, with no documentation, a technically unsecured loan for a sum of several £billion today.

Disraeli was accused by William Gladstone of undermining Britain's constitutional system, due to his lack of reference or consent from Parliament when purchasing the shares with funding from the Rothschilds, although the funds were repaid within five months.

The Suez Canal after 1875

The Convention of Constantinople in 1888 declared the canal a neutral zone under the protection of the British; British troops had moved in to protect it during a civil war in Egypt in 1882. Under the Anglo-Egyptian Treaty of 1936, the UK insisted on retaining control over the canal. In 1951 Egypt repudiated the treaty, and in 1954 the UK agreed to remove its troops, and withdrawal was completed in July 1956. The company operated the canal until its nationalization by Egyptian President Gamal Abdel Nasser in 1956, which led to the Suez Crisis. In 1962, Egypt made its final payments for the canal to the Universal Suez Ship Canal Company and took full control of the Suez Canal. The company remains extant, after a series of mergers, as GDF Suez. Today the canal is operated by the Suez Canal Authority.

Note on sources in the Rothschild Archive

The Archive contains comparatively few papers relating to this business; according to legend, this was transacted on a gentleman’s agreement, with no documentation. The Archive contains correspondence with the Paris house concerning the Suez Canal; much of the incoming correspondence was extracted from the XI/109 series and will be found in 000/43; other sundry papers, originally from the Affaires series, file XI/4/33, Suez Canal - purchase of shares by British Government. 1875-1876 have been merged into 000/43. 

File 000/401D/1 in the loan contracts series, contains further papers relating to the Suez Canal Share purchase by the British Government, including correspondence, telegrams, supporting papers, November-December 1875. See also 000/573/10: Suez Canal Purchase Loan, correspondence with the Treasury and Bank of England, 1876, which includes further papers concerning the Suez Canal loan concerning repayment of the money loaned to the British Government by N M Rothschild & Sons. This collection originates from a tin trunk labelled ‘Box 64’ in the New Court vaults containing various items selected on grounds of historical interest by an unknown hand.

The T-file, T51 contains transcripts of selected correspondence concerning Egyptian business, 1816-1875, (sources unidentified but most likely XI/109 Private letters, sundry).

The General Ledger VI/10/66, page 101, contains entries for the Suez Canal shares account for January-December 1876. This includes  the figure of £4,075,996.13.7, being the amount  paid by Rothschilds to the Egyptian Government for the 176,602 Suez Canal shares, on behalf of the British Government. On 31 March 1876, Rothschilds sent their receipt for the total and notified W.H. Smith, Treasury Secretary, Treasury Chambers, Whitehall. However, there was a snag: Rothschilds had calculated the interest due to them for the loan advances for the quarter, the Treasury for the number of days. In the latter case, as 1876 was a leap year, there was a discrepancy between the two figures. The total came to £59,042.11.0 by Rothschilds' calculations, but £52,485.3.7 by the Treasury's. Rothschilds acknowledged their mistake and the money was paid by the Bank of England on 2 June 1876. The correct figure appears in the General Ledger entry.

Specimens of bonds and scrip for later Suez Canal Company share issues will be found in the XIII/230 series. Later twentieth century papers relating to Suez Canal Company shares held by British Government will also be found in the Special Subject Correspondence series, XI/111.

A colour print of a contemporary Punch cartoon, ‘The Lion’s Share’, commenting on the Suez purchase, 1875 will be found in 000/752. The original Partners’ desk, from the Partners’ Room, old New Court, upon which Lionel de Rothschild is said to have signed the authorisation for the loan from the Rothschilds to the British Government to purchase the Khedive of Egypt’s shares in the Suez Canal is on display at New Court.

Secondary sources

The late Lord Rothschild extensively researched the Suez Canal purchase loan. The business is analysed in detail in You Have It, Madam': the purchase, in 1875, of Suez Canal shares by Disraeli and Baron Lionel de Rothschild, by Victor, 3rd Lord Rothschild (London: privately printed, 1980). A copy of this volume is available in the Reading Room. The title of the volume is taken from letters written by Disraeli to Queen Victoria and Edward, Prince of Wales announcing the purchase of the Suez Canal shares, dated 24 November and 11 December 1875; the letter of 24 November announcing "It is just settled: You have it, Madam" in reference to the Suez Canal. The originals of these letters are in the collection of The Royal Archives; copies are in 000/294. 

Sources elsewhere

Papers of H M Treasury concerning the Suez Canal purchase will be found in The National Archives at Kew. See also the Bank of England Archive for records concerning repayment of the loan.

The matter (and the role of the House of Rothschild and the terms of the loan) caused much debate in Parliament. On 21 February 1876, in a Resolution Adjourned Debate in reply to the question "That a sum, not exceeding £4,080,000, be granted to Her Majesty, to enable Her Majesty to pay the Purchase Money of the Shares which belonged to the Khedive of Egypt in the Suez Canal, and the Expenses attendant thereon, which will come in course of payment during-the year ending on the 31st day of March 1876?" Disraeli addressed Parliament on the acquisition of the Suez Canal Shares. The last portion of his speech makes clear the real importance of the purchase for the nation. The full text of the debate will be found in the online proceedings of Hansard here, (Hansard CCXXVII (Vol 227)).

See also Essays in Jewish History, by Lucien Wolf (Jewish Historical Society of England, 1934), 'VIII Rothschildiana' which includes a chapter concerning the Suez purchase. A copy of this volume can be found in the Reading Room.