The Italian bourse II The Motor Crash

Tratto da:

The Economist

Data di pubblicazione: 22/08/1908

The Italian bourse II

The Motor Crash

«The Economist», 22 Agosto 1908, pp. 346-348.

 

 

It must be noted, that though the average loss in the current quotations of shares on the Stock Exchange is equal to the difference between 172.51 (the maximum of March, 1906) and 130.30 (at the end of June, 1908), this loss is rather unequally divided among the different groups of industries. Below we publish a table in which we set side by side the nominal and the actual prices of the shares quoted on the Italian Stock Exchange at different times: At the end of January, 1905 (the beginning of the Stock Exchange boom), at the end of September, 1905 (the first maximum), at the end of March, 1906 (the second maximum), at the end of November, 1906 (the first Stock Exchange crisis), at the end of October, 1907 (the second and more serious crisis on the Stock Exchange), and at the end of June, 1908 (the close of the first six months of 1908, which were six months of liquidation).

 

 

Since then, at the July liquidation, there has been a further fall of values to 129.03, which is the lowest point touched since the year 1902. But I have already pointed out in my former article that the present fall is due to the stagnation which is today acute in the Italian exchanges, after they were abandoned by the powerful interests which had given an artificial stimulus to the quotations at the close of 1907. So that we are justified in limiting our observations to the first six months of the year, and neglecting the further fall in the month of July.

 

 

Before coming to details we must state that the shares under consideration in the following table are only the principal shares quoted on the Ita­lian Stock Exchanges. We have not reckoned in the shares which are only quoted spasmodically, or have no importance; and, above all, we have not included the shares issued by companies which did not ask for admission to the quotations on the Stock Exchange. These last shares are taken up privately or by the banks, and there are a great many of them, because numerous prosperous companies, chiefly for fiscal reasons, do not care to have their shares quoted on the Stock Exchange.

 

 

The companies under consideration are divided into various groups; these numbered 10 in 1905, and grew to 12 in 1906, by the accession of the group of companies producing motor cars, and also because the group of “companies dealing with immovable property”, was taken out of the group of “various industries” on account of its special importance. (See tables at pp. 9, 10, 11).

 

 

The story told by these tables varies from group to group. Alone and isolated stands the group of the 15 (afterwards 16) motor car works, which, at the end of March, 1906, had reached the actual price of 162,100,00 lire, or 678.95 per cent, of the nominal price of issue, which was altogether hardly 23,875,000 lire. The period from March, 1906, was that in which the motor car shares enjoyed the greatest favour, specially on the Turin Stock Exchange, and gave rise to unrestrained speculation. The impetus to the follies committed in this industry was given by the celebrated “Fabbrica Italiana Automobili Torino”, known all over the world under the name of “Fiat”. Founded in 1899 with a capital of 800,000 lire, in shares of 200 lire, it led for some years a hard life, so much so, indeed, that its shares could be bought for a little over 100 lire. In 1900 the company lost 18,070 lire, in 1901 another 9,849 lire, in 1902 it began to gain 64,034 lire, in 1903 it gained 91,525 lire. Hitherto, it had not paid any dividend, but in 1904, it paid a dividend of 6 per cent., and in 1905 the net profit rose to 2,136,130 lire, and the dividend paid to 20 per cent. This great prosperity

 

 

1905

Name of groups

 

Number of joint-stock companies  under consideration in 1906

 

Nominal price of the shares on January 1, 1905

 

 

Actual price of the shares at the end of January, 1905

Index number, or relation between the actual price at the end of Jan. ‘05 Actual price of the shares at the end of September, 1905

 

Index number, or relation between the actual price at the end of Sep. ‘05
 

 

Banks

17

Lire

493,374,000

Lire

687,776,162

139.40

Lire

766,568,390

155.37

Railways, tramways,

navigation

23

641,430,000

833,818,000

130

894,114,000

139.39

Mines, foundries, iron

and steel engineering

works, &c

25

185,897,900

339,575,000

182.07

437,871,400

235.54

Electric   and other

lighting (gas, &c.)

14

89,075,000

133,207,000

149.54

162,075,000

181.95

Sugar industry

16

80,950,000

172,444,000

213.05

202,215,000

249.80

Water supply

5

40,900,000

72,940,000

178.24

82,656,000

202.09

Chemical products

11

53,350,000

85,979,500

161.16

109,479,500

205.21

Weaving   and spinning (cotton, wool,

waste, silk, &c.)

30

150,650,000

210,601,000

139.79

223,603,000

148.42

Grinding of cereals,

manufacture of ma-

caroni, &c

4

28,500,000

65,896,000

231.21

65,672,000

230.43

Various industries

33

171,775,000

290,649,000

169.20

332,627,000

193.64

Total…

178

1,935,901,900

2,892,915,662

149.44

3,276,881,290

169.27

 

 

induced the directors to commit some errors; first of all, to divide the old shares of 200 lire into eight new shares of 25 lire. These new shares, thanks to the splendid dividends that had been paid, and to the still higher divi­dends that were hoped for in the future, began to rise uninterruptedly, so that at the end of December, 1905, they were worth 1,200 lire, at the end of January, 1906, 1,650 lire, at the end of February 1,700 lire, at the end of March, 1906, at least 2,000 lire. There were even days on which the price rose to 2,300 lire a share (92 times the nominal price of issue!), and many persons at Turin bought these shares in the hope that they would rise to 3,000 lire and over. At this point the directors, thinking that a share of 2,300 lire was too large for the medium and the small capitalist, proceeded to divide it a second time into two and a-half shares, each of 10 lire; to

 

 

1906

Name of groups

 

Number of joint-stock companies  under consideration in 1906

 

Nominal price of the shares on January 1, 1906

 

 

Actual price of the shares at the end of March, 1906

Index number, or relation between the actual price at the end of Mar. ‘06 Actual price of the shares at the end of November, 1906

 

Index number, or relation between the actual price at the end of Sep. ‘05
   

Lire

Lire

Lire

Banks

17

559,300,000

915,418,000

163.68

861,296,000

154

Railways, &c

28

689,650,000

896,859,000

130.04

877,522,000

127.24

Mines, &c

37

246,526,500

533,936,900

216.58

460,783,320

186.91

Electric light, &c.

21

116,950,000

262.351,000

224.33

236,759,000

211

Sugar industry

18

108,200,000

253,770,000

234.54

206,429,000

190.7

Water supply

6

57,900,000

103,708,000

179.11

98,892,000

170.8

Chemicals

9

60,550,000

121,336,000

200.39

120,179,000

198

Weaving, &c

36

178,150,000

270,251,000

151.75

274,657,000

153.7

Cereals, &c

9

36,500,000

70,916,000

191.37

59,950,000

164.3

Manufacture of motor

cars

15

23,875,000

162,100,000

678.95

105,184,000

440.6

Land companies

8

103,876,500

137,612,818

132.48

123,371,000

119

Different industries

37

156,325,000

304,552,000

194.82

291,935,000

186.3

Total…

241

2,337,803,000

4,032,840,718

172.51

3,716,957,320

159

 

 

1907

Name of Groups Number of joint-stock companies under consideration in 1907 and 1908

Nominal price of shares January 1, 1907

Actual price of shares end of October, 1907 Index number, or relation between actual price at end of Oct., 1907, and the nominal price on Jan. 1, ’07
   

Lire

Lire

 
Banks

17

589,300,000

728,961,000

123.70

Railways, &c

28

695,650,000

806,000,000

115.86

Mines, &c

39

281,206,500

402,021,820

142.96

Electric light, &c

21

128,400,000

206,690,000

160.97

Sugar industry

21

107,450,000

160,500,000

149.37

Water supply

6

61,900,000

92,056,000

148.71

Chemical products

11

70,450,000

107,540,000

152.65

Weaving and spinning

36

190,150,000

273,460,000

143.81

Cereals, macaroni, &c.

9

37,200,000

42,570,000

114.44

 

 

Manufacture of motor

cars

16

37,125,000

27,970,000

75.34

Land companies

10

161,250,000

137,137,500

85.05

Different industries

29

161,023,000

278,300,000

172.83

Total…

243

2,521,104,500

3,263,203,320

129.44

1908

 

Name of Groups

 

Nominal price of shares

on Jan. 1, 1908

 

Actual price of shares at end of June, 1908

Index No. or relation between actual price at the end of June, 1908, and the nominal price on Jan, 1, ’08
 

Lire

Lire

 
Banks

646,500,250

817,200,000

126.44

Railways, tramways, &c

739,650,000

840,000,000

113.57

Mines, &c

291,956,000

409,732,740

140.34

Electric and other lighting (gas, &c.)

134,150,000

236,200,000

176.07

Sugar industry

116,450,000

183,100,000

157.23

Water supply

61,900,000

87,243,000

140.94

Chemical products

75,750,000

121,710,000

160.67

Weaving and spinning

201,900,000

286,900,000

142.10

Grinding of cereals (making of macaroni)

37,200,000

38,214,000

102.72

Manufacture of motor cars

41,900,000

27,100,000

60.36

Land companies

152,250,000

157,195,000

103.25

Different industries

176,673,000

286,500,000

162.16

Total…

2,679,279,250

3,491,094,740

130.30

 

 

these, however, they set the nominal value of 100 lire, stating that this was in reality the value of the company’s property. Many persons predicted that the new shares would fly up rapidly; all the more so, because at the end of 1906 the balance-sheet of the “Fiat” showed a net profit of 5,287,083 lire, a colossal figure for a paid-up capital of 800,000 lire which had been inflated to 9,000,000 lire, and a dividend of 40 per cent, was paid on the new shares of 100 lire, which corresponded to 400 per cent, on the paid-up capital. But ruin was already waiting in the pathway of this flour­ishing company. Its prosperity had provoked the formation of numbers of rival companies; in our abstract we include only 15 which were constantly quoted on the Stock Exchange, but in reality there were as many as 66 companies for the construction of motor cars proper, and 56 works for making the carriage part and other motor car accessories, with a nominal capital of 141,413,000 lire.

 

 

Some of these companies were really formed in order to manufacture motors, and motor accessories, but many were launched with the sole ob­ject of making their shares go up on the Stock Exchange, and of selling them to the voracious and ignorant public.

 

 

But the day of reckoning cound not be put off. Half way through 1907 the manufactories were choked up with unsold motor cars; the Northern United States, great purchasers of motor cars of the “Fiat” and “Itala” make, hard hit by the crisis, abruptly stopped purchasing. The “Fiat” balance-sheet of 1907 showed a loss of 5,922,542 lire, in ad­dition to the loss of considerable reserves accumulated in the past; and not only was the company unable to pay any dividend, but it was forced to confess that the 100 lire shares were now only worth 34.19 lire, and to call on the share-holders to make them up to 100 lire again by paying up 65.85 lire per share.

 

 

The bubble was definitely pricked; the latest shares of 100 lire nom­inally which in November, 1906, stood at 750 lire, had fallen in January, 1907, to 505 lire, in May to 410 lire, in August to 200 lire, in October to 80 lire, in April, 1908, to 40 lire, in May to 34.50 lire, and in June (after the fresh payment of 65.85 lire per share) they stood at about 100 lire. The Turin Tribunal has begun penal proceedings against some of the directors of the “Fiat” for jobbing the shares (spreading fraudulent rumors which make the shares go up), and for falsifying the balance-sheet of 1906, which, as we said above, showed a net profit of 5,287,083 lire. The rival manufactories, which sprang up like mushrooms in the days of the Stock Exchange madness, are in no better plight. Anyone who goes outside the town of Turin sees scattered about in the suburbs great factories which are deserted, though quite new. They are manufactories of motor cars which have had to close for want of work.

 

 

We have given this Turin episode of the “Fiat” at some length, because of the world-wide fame of this make of motor car. But in all the big Italian towns there were similar cases; at Milan, at Genoa, at Florence, at Rome. It is the story of all crises which has always repeated itself, specially in coun­tries which are industrially young.

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