Italy. New Institute for industrial reconstruction. Liquidation of frozen assets. Bourse hopes

«The Economist», 4 febbraio 1933, pp. 239-240

Turin, January 29, 1933

The market was again taken by surprise when on Sunday the 22^nd it was announced that the Cabinet had approved the creation of a new Institute for industrial reconstruction, to be known as I.R.I. (Istituto di Ricostruzione Industriale). The new Institute, following the Italian Mobiliar Institute (I.M.I.) is a step towards the speedier liquidation of the frozen assets of the war and post-war period (1915-1925). The successive stages of the winding-up process may be summarised as follows: – (1) When, in the immediate post-war years, the salvage of two big banks (Banca Italiana di Sconto and Banco di Roma) became urgent, a special section of an already existing Consortium for advances on industrial securities, financed by the (then) three Banks of issue, was given this difficult task. From its inception until November, 1926, this section took charge of 4,381 million lire of bad or doubtful assets, sold 1,017 millions of them, and received from the State or the Bank of Italy a grant of 1,466 million lire, the liabilities to the Bank of Italy being eventually reduced to 1,928 million lire. (2) A decree of November 20, 1926, created an autonomous Liquidations Institute (Istituto di Liquidazioni), which took over the assets and liabilities of the special section. The Institute continued the winding-up process successfully, reducing net liabilities to the Bank of Italy by the end of 1930 to 626 million lire. But during 1931 and 1932 the necessity for further alleviation of the banking situation became apparent. Notwithstanding a free gift from the State Treasury of 1,800 million lire, the liabilities of the Institute of Liquidations toward the Bank of Italy increased to 1,931 million lire on December 20, 1932. (3) The creation, on November 9, 1931, of the I.M.I. did not change the situation. Under the prudent chairmanship of Senator Mayer, the Institute only took over assets of the very first order. Issues of debentures were therefore limited to 200 million lire, to enable the Institute to grant amply guaranteed loans to prosperous or re-organised concerns. If adhered to, the present programme of the I.M.I. will in due course create a current market for its debentures, which will become an attractive investment for careful investors, and will provide a continuous source of credit for solid industrialists. Clearly, however, such a programme is incompatible with a rapid process of liquidation of frozen banking and industrial assets. (4) This latter can be better carried out by the I.R.I. The new Institute will be divided into two sections. The second section called section for industrial reorganisation (sezione smobilizzi industriali) will take over all assets and liabilities of the Liquidations Institute, now to be suppressed, thus freeing the Bank of Italy of all responsibility on that account. The section will continue to receive until November 31, 1940, all revenues heretofore received by the Liquidations Institute: viz., the annual subsidy of 200 million lire from the State Treasury, three-fourths of the tax on Bank of Italy notes and the Bank of Italy’s profits exceeding 60 lire per share. An additional annual subsidy of 85 million lire for 20 years and large tax exemptions are granted by the State. Losses and profits will be paid or received by the State exchequer. The section is authorised to sell its rights to the State subsidies and the Consortium for Public Work Credit is authorised to buy them. Thus the State is enabled to take over from banks or industrial concerns all frozen assets which are a cause of embarassment in their operations.

Less important, is comparison, is the first section called section for industrial financing (sezione finanziamenti industriali). The section has a capital of 100 million lire, subscribed by the Deposits and Loans State Fund, The Social Insurance Fund and the National Insurance Institute. Whereas I.M.I. can make advances and loans to industry only within the 10 years limit, the first section of I.R.I. will grant loans for longer terms and is therefore authorised to issue debentures falling due not earlier than 15 nor later than 20 years. In cases of exceptional public interest, the State guarantee may be granted to these debentures. Signor Alberto Beneduce has been appointed first chairman of I.R.I. The news of the creation of the new Institute and of the appointment of Signor Beneduce to the chairmanship was greeted with enthusiasm by the Bourses. Financial circles hope that he will speed up the transfer process of frozen assets to the I.R.I., thus giving elasticity to the market.

The variable dividend securities Index (Milan) was already on the upgrade, as the general index had risen from the low level of 39.84 on July 1, 1932 (December, 1925 = 100) to 47.41 on December 3, 1932, and further to 50.50 on January 21, 1933. A further rise was recorded after the I.R.I. announcement. The Bank of Italy’s shares rose, between January 21 and 28, from 1,603 to 1,665, Banca Commerciale from 1,036 to 1,055, Navigazione Generale Italiana from 119 to 149, Snia Viscosa from 159 to 175, Fiat from 197 to 219, Edison (Electricity) from 504 to 520, Pirelli from 679 to 696. The investing public, however, remains shy, and is confining purchases mainly to Treasury bonds, Consols, and Municipal and Mortgage-Funds Debentures. Nine Years 5 per cent. Premium State Bonds (1941) are selling at 102.70, which is no small achievement.