Capital: the Gotthardbahn-Gesellschaft, Alfred Escher and the banks

Raising CHF 102 million in 1871

The subsidies covered less than half of the estimated cost. The remaining CHF 102 million had to come from investors, who had to be found in 1871, in a Europe that had just emerged from the Franco-Prussian war. Switzerland alone could not supply such a sum. The Swiss capital market of the time was small and fragmented, its largest institutions were cantonal banks and private bankers. Many of the railway shares issued in the 1850s and 1860s had disappointed many investors. Escher therefore turned to Berlin. In October 1871 he concluded an agreement with a German finance group, which undertook to raise the CHF 102 million.¹ At the end of 1871 the Disconto- Gesellschaft of Berlin formed under its leadership an international banking consortium that raised the capital for the construction of the line.²

The structure of the issue followed the pattern of large railway financings of the period. The company's initial share capital consisted of 68,000 shares of CHF 500, a nominal amount of CHF 34 million, equal to one third of the CHF 102 million that the syndicate undertook to raise. These shares carried interest of 6 per cent during construction until 30 June 1882. Later issues of 12,000 and 20,000 shares raised the share capital to CHF 50 million, divided into 100,000 shares, and by 1909 the company also had some CHF 107 million of 3½ per cent priority bonds in circulation.³ The bonds carried a fixed rate of interest and ranked ahead of the shares. The combination allowed the banks to distribute the risk among different classes of investors: institutions and private savers who wanted fixed income bought the bonds, while speculative investors and the members of the syndicate took the shares. The subsidies, paid in proportion to progress, served in effect as the equity cushion that made the bonds acceptable to the market.

The syndicate and the Schweizerische Kreditanstalt

The syndicate was international. Formed at the end of 1871 under the leadership of the Disconto-Gesellschaft of Berlin, it consisted of a German, an Italian and a Swiss group, each of which undertook to raise CHF 34 million. The Disconto-Gesellschaft and the Berlin house of S. Bleichröder later appeared among the company's paying agents in Germany, beside paying offices in Basel, Zurich and Lucerne.⁴ The Swiss participation was smaller than the German, but it was organized by the bank that Escher himself had founded. In 1856 a group of textile industrialists and politicians under Escher's leadership had founded the Schweizerische Kreditanstalt (SKA, later Credit Suisse) in Zurich, on the model of the French Crédit mobilier of 1852 and of the new German joint-stock banks.⁵ Escher chaired its board from 1856 to 1877 and again from 1880 to 1882. Devoted mainly to commercial credit and to underwriting, the bank took a leading role in the financing of Swiss railways. It participated in the foundation of the Schweizerische Eisenbahnbank in 1879, the Bank für orientalische Eisenbahnen in 1890 and the Bank für elektrische Unternehmungen (Elektrobank) in 1895.⁶

The Gotthard financing shows the Kreditanstalt in the role that defined the Zurich financial centre for the following century: an issuing house that placed Swiss and foreign securities with domestic and international investors and that combined underwriting, lending and advice for large industrial projects. The bank was the financial instrument of the "system Escher", in which the same man presided over the largest railway company (the NOB), the largest commercial bank (the SKA), the most important insurer of the time (the Rentenanstalt, on whose supervisory board he sat from 1857 to 1874), the board of the Federal Polytechnic School and the Gotthard enterprise.⁷ Contemporaries admired this concentration of power and feared it. Critics in the democratic movement of the 1860s attacked the "railway barons" and the influence of the Zurich banks on federal politics. The democrats made the "system Escher" their declared enemy, and in 1868 their movement broke the dominance of Escher's economic liberalism in the canton of Zurich.⁸

Notes

1. H. Etter, "Vom Bau der Gotthardbahn" (as above), on the agreement of October 1871 by which Escher obtained the remaining CHF 102 million from a German finance group. ↩
2. Martin L. Müller, contribution in Bank und Geschichte. Historische Rundschau no. 43 (December 2020), https://www.bankgeschichte.de/files/documents/publications/historical-review/ Folge_2020_2_neu.pdf: "Ende 1871 bildete die Disconto-Gesellschaft unter ihrer Führung ein internationales Bankenkonsortium, das 102 Millionen Schweizer Franken für den Tunnelbau aufbrachte." ↩
3. Handbuch der deutschen Aktiengesellschaften (as above), p. 553, https://digi.bib.uni-mannheim.de/~jkamlah/Handbuch_dt_AG_old/Auflage_1-14/1735531847_191100141/pdf/1735531847_0553.pdf: "Kapital: frs. 50 000 000 in 68 000 Aktien I. Emiss., 12 000 Aktien II. Emiss. und 20 000 Aktien III. Emiss., zus. 100 000 Aktien", with "6 % Bauzinsen" on the first issue until 30 June 1882 and 3½ per cent priority bonds of "frs. 107 090 000" in circulation on 30 April 1909. The nominal value of CHF 500 per share follows from these figures. ↩
4. Martin L. Müller, "Die Deutsche Bank und die Schweiz", Bank und Geschichte. Historische Rundschau no. 43 (December 2020), https://www.bankgeschichte.de/files/documents/publications/historical-review/Folge_2020_2_neu.pdf: "Ende 1871 bildete die Disconto-Gesellschaft unter ihrer Führung ein internationales Bankenkonsortium, das 102 Millionen Schweizer Franken für den Tunnelbau aufbrachte"; Wikipedia (de), "Gotthardbahn", https://de.wikipedia.org/wiki/Gotthardbahn (used as a last resort): "Es bestand aus einer deutschen, einer italienischen und einer schweizerischen Gruppe, die je 34 Mio. Franken aufzubringen hatten"; Handbuch der deutschen Aktiengesellschaften (as above), p. 553, for the paying agents. ↩
5. HLS, art. "Crédit suisse" (Jan-Henning Baumann, version of 27.11.2012), https://hls-dhs-dss.ch/fr/articles/041821/2012-11-27/: "sous l'impulsion d'Alfred Escher, fondèrent à Zurich en 1856 la Schweizerische Kreditanstalt", on the model of the Crédit mobilier (1852) and the German banks. ↩
6. HLS, art. "Escher, Alfred" (as above), for the chairmanship of 1856–1877 and 1880–1882; HLS, art. "Crédit suisse" (as above), for the bank's leading role in railway finance and its participation in the Eisenbahnbank (1879), the Bank für orientalische Eisenbahnen (1890) and the Elektrobank (1895). ↩
7. HLS, art. "Escher, Alfred" (as above), for his offices at the NOB, the SKA, the Rentenanstalt (1857– 1874) and the board of the Polytechnic School (vice-president 1854–1882). The term "system Escher" is current in the literature. ↩
8. HLS, art. "Escher, Alfred" (as above): the democratic movement "1868 die Vorherrschaft des Escher'schen Wirtschaftsliberalismus im Kanton stürzte"; Wikipedia (de), "Alfred Escher" (as above): "Der eingeschworene Politikerkreis um Alfred Escher – das «System Escher» – wurde erklärtes Feindbild der Demokraten." ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of August 2025.