Bonifiche Ferraresi – Warnings by Signor Mussolini -Bourse – Increasing Investment by Banks -Bank of Italy

«The Economist», 1 novembre 1930, pp. 810-811

Turin, October 13

The Società delle Bonifiche Ferraresi affair discussed in my last letter has had a sequel. Several creditors, including a few important banks, opposed the sentence of the tribunal of Ferrara initiating the procedure of composition with creditors (concordato preventivo), alleging that the tribunal having jurisdiction over the case was that of Turin, where the company had its legal seat. The issue has been brought today before the Court of Cassation, Italy’s highest court. In the meanwhile, other serious disclosures have been made. The chairman of the biggest Italian agricultural company, the Istituto dei Fondi Rustici, denounced to the magistrate two of its directors, Signor Anselmi, the managing director, and Signor Clerici, as guilty of having deflected to their private benefit a sum of seven million lire. The dividend was therefore passed and Signor Anselmi arrested. Signor Clerici, who was also a managing director of several other joint-stock companies, mostly in the hotel line, managed to escape. The fall of the Bonifiche Ferraresi threatened to entail the collapse of a co-operative bank (Banca del Piccolo Credito Novarese), which is said to have lent a sum of 50 million lire to the Bonifiche. To avoid panic spreading among 81,000 small depositors (the bank had at the end of 1929 166.5 million lire deposits and 235 millions due to correspondents), a merger was hurriedly arranged with the Banca Popolare di Novara, a big local bank with 70.6 million lire capital, 67.1 millions reserves, 536.9 millions deposits, and 788.8 millions due to correspondents. Thus the panic was stopped in time.

In the meantime, in his speech inaugurating the new Corporations Council, Signor Mussolini spoke strongly on the subject of bad finance. The Government have aided the reorganisation of the Cosulich Navigation Company, and allied concerns, of the Southern Cotton Company (Cotonerie Meridionali), a big firm with over 10,000 hands, the merger of some Catholic banks and of other banks; but were not prepared to lend their aid indiscriminately. Bad financiers should and would be severely punished. Every reader was able to fit the names to his very transparent allusions. A few days after the speech several directors of a Piedmontese bank, the Credit Valdotain, were sent to prison. A short communique of the official Stefani Agency announced that Signor Gualino, the former president of the world-wide rayon concern Snia Viscosa, had settled his debts with the Banca Agricola Italiana of Turin. This bank had, as of December 31, 1929, deposits of 646.7 million lire. It was rumoured that from 250 to 300 millions out of these deposits had been loaned to Signor Gualino and his many affiliated companies. Signor Gualino, until yesterday a big man with artistic leanings (he collected a wonderful gallery of paintings and subsidised the Turin Comedy Theatre), was obliged to hand over to the Bank of Italy his investments in industrial companies, for instance, in the Turin chocolate combine “Unica”, his racing stable, landed property, picture gallery, etc. Through this settlement the Banca Agricola Italiana will be able to meet the demands of its depositors and to turn its banking activity to the agricultural field, from which its name and most of its deposits are derived.

A pointed commentary on Signor Mussolini’s warnings can also be found in the conclusion of a libel action which Signor Belloni, a former Mayor of Milan, brought before the Cremona tribunal against Signor Fari-nacci, a former secretary-general of the Fascist Party. Signor Farinacci charged Signor Belloni with having accepted, during his tenure of the mayoralty, bribes in connection with the American loan by Dillon, Read and Company to the Milan municipality, of having received a regular yearly fee of 250,000 lire (£ 2,700) from the Credito Italiano, etc. The Court, considering that the charges had been substantiated, acquitted Signor Farinacci. As a consequence, Signor Belloni was expelled from the Fascist Party.

It is no wonder that these ominous events, following in quick succession, together with the general unsettled state of the foreign stock exchanges and the wholesale crumbling of commodity prices, had a very bad influence on the bourses. Not a single security escaped the bears’ attack. The general index of share prices published by the Milan Economic Council (basis 100 = December, 1925), which at the end of 1927, 1928 and 1929 was respectively 80.3, 88.8 and 81.2, and rose to 84.4 on March 1, 1930, fell to 77.2 on August 1st, to 73.8 on September 27th and to 27.8 on October 4th. The next index will be still lower. The only buyers left are the banks, their subsidiary holding companies and the interested groups.

How far this process of buying-in of joint-stock shares and debentures by other companies has gone may be gauged by some interesting figures contained in the twelfth issue of the “Notizie Statistiche” published formerly by the Credito Italiano and now by the Joint-Stock Companies Association. At the end of 1929 the 4,181 companies included in the statistics had a share capital of 42,555.9 million lire and debentures issued to the amount of 5,621.7 million lire. On the assets side, investments in securities total 15,454.9 million lire. This means much interchanging of securities between companies. The principal items in the balance sheets of 269 reporting banks and financial holding companies may be summarised as follows at the end of 1929:

It must be observed that Italian banks, like German banks, have always been in a much closer relation with industry than British banks. Current deposits appear to be very well protected by cash and discounts. During the present year the policy of the banks was one of reducing advances and improving the liquidity of their situation. Nevertheless, the heavy items of investments and other debtors require very careful handling.

Intervention by the Bank of Italy in aid of distressed industrial concerns and banks has so far left no trace on its balance sheet. On September 20, 1930, discounts of the Bank of Italy totalled 2,752.3 million lire, against 3,699.5 million lire at the corresponding date of 1929 and 2,997.8 million lire in 1928. The figures for advances were 1,301.5, 1,490.6 and 1,090.8 million lire on September 20, 1928, 1929 and 1930. On the same dates, the credit of the bank against the Istituto di Liquidazioni, a subsidiary body created for the winding-up of affairs of the rescued concerns, was respectively 1,237.1, 897.5 million lire. The position of the bank appears, therefore, to be steadily improvining.

From the decline in the figures quoted above, it can only be inferred that assistance to concerns in difficulties is largely offset by decreases in current operations. This is to be expected during a period of falling prices and restricted turnover. As long as Governor Stringher is at the helm of the Bank of Italy the public is confident that aid is given only against very strong collateral. Twice during his long tenure of office has Signor Stringher borne the brunt of bad times, and twice has the Bank of Italy emerged stronger from the struggle. Let us hope that his banking career will be crowned with a third success.