New Bank Governor – Stock Exchange -Company Embarrassments – Bank Return

«The Economist»,  31 gennaio 1931, pp. 231-232

Turin, January 15

The Board of Directors of the Bank of Italy, which exercises functions rather of supervision on behalf of the shareholders than of direct management, has appointed Signor Vincenzo Azzolini as successor to Signor Stringher, the late Governor. The appointment was agreed to by the Government, as is required by law and the rules of the bank. Many other names were rumoured, including those of prominent politicians; but the Government and the representatives of shareholders’ interests evidently felt that the bank ought to be kept away from even the suspicion of meddling with politics. Signor Azzolini, like Signor Stringher, comes from the ranks of Treasury officials. Born in 1883, he took part in the Paris negotiations which led, in 1906, to the conversion of Consols from 4 to 3.50 per cent; in 1927 he was appointed Director General at the Treasury, and soon afterwards Director General of the Bank of Italy, when Signor Stringher was created Governor.

The best wishes of the economic and financial community greet the new Governor at his accession, especially as it comes at such a difficult time. Last year was a thoroughly bad year for all those concerned in finance. There is no direct connection between the big campaign for the reduction of prices initiated with the reduction of public employees’ salaries on November 20th and the state of the bourses. Nobody asked for a fall in the securities quotations. But the bourses were, as it appears, in an irritable and gloomy temper, and a new slump took place. The following are the indices of variable-dividend shares, as worked out by the Milan Council of Economy:

After a short-livel spurt in the spring, quotations went from bad to worse, until in some groups of stocks the unlucky shareholders have been left with a thin slice of their former assets. Banks, the electrical industry and food have sustained best the brunt of the depression. The slump in individual cases was much more marked than the indices suggest. For instance, Cotonificio Veneziano’s index was, on January 3rd, at 3.54; Snia Viscosa at 8.58; Officine Meccaniche at 5.09; Aedes (real estate) at 10.16; and Fondi Rustici at 13.25 per cent, of their 1925 basis. Bonifiche Ferraresi, after being, on August 29th, down to 2.63, were dropped altogether from the index, as past any hope of recovery; and the Roman Immobiliare Co. was substituted.

The feature of the slump was the fall of old-established concerns, which were considered as a safe port for thrifty and prudent investors. Only less astonishing than the fall in Bonifiche Ferraresi, of which I have written in previous letters is that of Fondi Rustici. This is a company formed in 1905 to buy a vast extent of agricultural land, which after the 1893 crisis had been left by mortgaged owners to the Bank of Italy. The purchase consideration was so low that, with careful management, the company ought to have had a very successful career. Successful it was, indeed, for a time; until, after the inflation, the demon of selling good old developed estates and embarking in new speculative ventures took hold of the board of directors. A merger with a company formed to redeem the ancient Pontine marshes and some dubious transactions between directors precipitated the situation. With great patience, under the leadership of men of experience, reconstruction should ultimately prove possible.

The same may be said of another big affair which is attracting the attention of thousands of capitalists and families of very modest means in Northern Italy. The Italiana Gas Co. was a small Turin concern started in 1856, with an original capital of 3,500,000 lire, which in 1907 had been as yet only increased to 4 million lire. In 1918 the capital was increased to 10 millions, in 1924 to 80, in 1925 to 130 and 146, and in 1928 to 260 million lire. The old gas-producing concern was transformed into a holding company. How many companies were affiliated with the Italiana Gas Co. is not easy to know; certainly not less than 32. The net of interlocking capitals and of huge debts became so entangled, that a winding-up was necessary. At a stormy meeting of the shareholders a new board of directors was appointed, charged with the disagreeable duty of reconstruction. The new chairman of the board is Senator Frassati, an ex-Ambassador to Berlin, an energetic man, who has kept aloof from politics since 1923. Shareholders trust that he is the man best capable of rescuing from the wreck as much as can be saved; but in the meantime shares, which rose during the speculative frenzy as high as 800, are changing hands at 45 lire.

The technical situation was made worse by the announcement on the morning of December 30l that Signor Giani, a widely-known broker in Milan, was not to be found at his usual desk in the Bourse and had sent a letter purporting to show that he was unable to meet his engagements. As these amounted to about forty million lire, the monthly settlement appeared difficult. It soon become apparent, however, that somebody would have to intervene; and Signor Mazzotti-Biancinelli, perhaps the best known speculative Italian financier, came forward with an offer, as principal of the defaulting broker, to pay Giani’s debts by instalments distributed over the next two years. The interesting fact was that Signor Mazzotti and Giani, universally considered as professional bears, should have come to grief over bull transactions. Obviously the difficulty of digesting so big a figure as 40 million lire makes bourses uneasy; and everybody is asking whether we are at the bottom of forced liquidation and low prices, or not.

As yet liquidation of bad businesses and distressed concerns has not affected that bulwark of financial sanity, the Bank of Italy. The public was somewhat disturbed that gold and gold securities fell below the 10,000 million mark for the first time after the stabilisation on November 20th. On December 20th total reserves were at 9,590.7 million lire, against 10,260.1 on September 30th; a serious loss of 669.4 million, probably caused by big imports of wheat in recent months. As, however, the notes issued decreased also, between the same dates, from 16,171.7 to 15,608.5, while discounts and advances, as shown below, are normal, the monetary situation seems sound.

What the proportion of frozen credits, if any, to the total may be, it is impossible to say, but certainly as long as there is no inflation in the discount and advances figures of the Bank of Italy, the core of the economic situation is sound, and, no matter how long the depression drags on, no essential organ is out of gear.