Falling Interest Rates – Bank of Italy – Industrial Profits

«The Economist», 23 settembre 1933, p. 580

Turin, September 20

The expectation of improvement in the financial markets has been confirmed by two official reductions of the rate of interest. The rate taken as a basis of calculation for long-term annuities, in case of State subventions to public works or public utility companies, was first reduced from 6 1/2 to 6 per cent. Then, as from September 4th, the rate of discount of the Bank of Italy was reduced from 4 to 3 1/2 per cent, and the rate of interest on advances from 5 to 4 per cent. This is the last of several reductions from the high-water mark of 7 per cent, reached on September 27, 1931, the successive downward steps being to 6 per cent, on March 21, 1932 , 5 per cent, on May 3, 1932, and 4 per cent, on January 1, 1933.

The situation of the Bank of Italy is today more liquid than ever. Total reserves (gold and gold bills) after increasing from 7,080.1 million lire on July 20, 1932, to 7,230 million lire on November 20, 1933, had decreased again to 7,022.5 million lire on May 20, 1933. On August 31, 1933, they were again up to 7,350.5 million lire. The increase has taken place, although between July 20, 1932, and August 31, 1933, the gold bills (devisen) had decreased from 1,390.2 million lire to 318 million lire. In the meantime gold coins and gold bullion increased by 1,323.5 million lire from 5,689.9 million lire to 7,013.4 million lire. A good part of the increase, about 500 million lire, in the actual gold reserve is due to the sale of old gold coins and gold trinkets from the public to the Bank of Italy at current prices. Also between these dates, the sum of discounts and advances decreased by 567.1 million lire, from 5,669.7 million lire to 5,102.6 million lire. Money, if not superabundant in the market, is freely obtainable by good customers. Gilt-edged securities are in great demand, 3.5 per cent, rentes rising from 75.43 net price at the end of March to 80.90 today, and 5 per cent, consols from 83.43 at the end of February to 88.15 (ex current dividend) today.

If the public appears to be less interested in variable dividend securities, the reason is probably that investors are watching the progress of the reorganisation process that is going on in the joint-stock company world. That this reorganisation is proceeding rapidly is shown by the changes in the number and capital of joint-stock companies. The number increased from 16,170 at the end of 1929 to 19,079 on June 30, 1933, total capital decreasing in the meantime from 49,596 million lire to 48,669 million lire, or from an average individual capital of 3.07 million lire to 2.55 million lire. In the first half of 1933 increases of capital totalled 1,744.4 million lire and decreases 2,677.4 million lire. Decreases are mainly the outcome of losses consequent on past financial booms.

The new financial journal Borsa has published the results of an important inquiry into the profits and losses of a number of joint-stock companies, representing about 60 per cent, of the total capital invested in shares in Italy. As it is the first time that a reasonably up-to-date inquiry has been conducted on the lines of the Economist’s statistics of British industrial profits, a summary of the results obtained is perhaps interesting:

The liquidations of past losses and the elimination of watered assets is not ended. The public, however, is beginning to realise that some companies are already reorganised, and that many more were able to withstand the crisis and will profit by better times.