Italia Shipping Company – State and Private Concerns -Preferred Shares

«The Economist», 17 dicembre 1932, pp. 1139-1140

Turin, November 28

Much comment has recently been caused by the change in the governing body of the Italia Shipping Company, a combine of the biggest Italian shipping companies (Navigazione Generale Italiana, Lloyd Sabaudo and Cosulich). As usual in combines where representatives of the former companies retain their places on the board of directors, there was, instead of a thorough reorganisation based on strict economies, much overlapping and subterranean rivalry. Suddenly the Genoese shipping world was startled by the news that the Duke of Abruzzi, president of the combine, together with all other directors, including such well-known names as Senator Rolandi Ricci, Biancardi and Signor De La Penne, had resigned, and in their stead a new board had been nominated, the most representative men in it being Marquess Federico Negrotto-Cambiaso, chairman of the Port of Genoa Authority, Rocco Piaggio and Giuseppe Lojacono, respectively as president, vice-present and managing director. As the shareholders were in the dark a minute before the nomination of the new board took place, everyone saw in the change at the helm of the biggest Italian shipping company a true stroke of Mussolini policy, making for economy and strong unity of purpose.

Signor Rocco Piaggio, the present representative of a Genoese dynasty of shipowners, and one of the guiding minds of the new board, is said to be the author of a letter to Professor Cabiati (published in the August issue of La Riforma Sociale) in which a strong policy of reduction of the number of existing shipbuilding yards was advocated. This is, indeed, one of the crucial points of the situation. The number of active concerns is too great. Shipbuilding yards, although reduced from the maximum of 30 reached during the war to 15, are still far too many, and they must perforce work at an excessive cost. The nomination to the Italia board of first-rate men, free from political entanglements, may be the beginning of a policy of deflation in our industrial equipment. What will be the effect of this State intervention remains to be seen. For good or evil, the State is today interested in many private concerns, being in some instances their sole shareholder or owner, as, for example, in the Cogne Company (iron mines and metallurgy), the Idria Quicksilver Company, the Agip Oil Company, and the Miliani Paper Company. In other cases the State has an indirect responsibility, through the Istituto di Liquidazioni and other controlling agencies (such as the Sofindit). Signori Olivetti and Vassallo, the general rapporteurs to the Lower House of the State Budget, are much concerned as to the consequences of this State responsibility. They advocate the passing to the Istituto di Liquidazioni of all bad ventures and their winding-up within the shortest possible lapse of time. The granting of a new lease of life to unsound concerns would mean a regrettable use of public money.

Many good but financially embarrassed enterprises, heavily indebted to the banks, are now under the control of financial trusts, created to relieve the banks of their huge frozen assets. The Istituto Mobiliare Italiano (IMI) was to have issued debentures, with the proceeds of which the Sofindit and other similar trusts would have been enabled to pay to the banks the price of the assets bought from them. The success depended on the capacity of the market to absorb big debenture issues. That capacity is certainly not very high. As Signori Olivetti and Vassallo observe, the State Budget deficit alone has absorbed in the fiscal year 1931-32 the sum of 4,274 million lire from the market, and the requirements of the current year will be no less. Owing to the difficulty of converting at once the frozen credits of the banks transferred to the Sofindit and other financial trusts into debentures purchased by the investing public, another way was sought and a recent Cabinet Council approved of a decree authorising the issue by joint stock companies of preferred shares. The agitation thereby created in the stock exchanges may seem strange in other countries where preferred stocks are so popular. In Italy, however, shares having a prior claim to interest (simple or cumulative) or to capital are almost unknown. Moreover, in the present case, the issue of preferred shares, when approved by the Government, will take place without the equity shareholders being given the right to obtain the reimbursement of their capital, a right granted to them by the Commercial Code.

The scope for the issue of preferred shares is clearly the conversion of bank credits bearing high rates of interest into preference shares. The banks would renounce the frozen credits and acquire a privileged interest in the equity of the indebted concern, these acquiring in their turn an increased elasticity in the handling of their resources. The banks and their financial trusts hope to be able at some future time when the crisis is over to sell the preferred shares to the public. In the meantime the Stock Exchanges were unfavourably affected. Equity or ordinary shares, being the only ones dealt in on the market, were heavily marked down in all cases in which the issue of preferred shares was deemed possible, the market taking the view that the payment of preferred dividends would mean indefinite postponement of dividends on equity shares. It cannot be denied that transformation of fixed-interest debt into preferred shares is the beginning of reorganisation. For the moment, as far as the market is concerned, the change is on paper only. It may be hoped that the present decrease in top-heavy charges of industrial concerns will be followed in better times by increased liquidity for banks and financial trusts