Dear money and stock quotations in Italy

«The Economist»,15 febbraio 1913, pp. 331-332

Accommodation for traders and entrepreneurs is scarce; the official Bank rate is 6 per cent., and the market rate rules from 5 per cent, for the very best firms up to 7, 8, and 10 per cent, for second-rate firms, or even first-class companies which happen to be deeply indebted to banks. But the capitalists who buy Rentes and Exchequer Bills have no taste for trading investments, so that one may feel sure that the 400 millions issue, referred to in one of your “Business Notes” last week,[1] will be a success. It cannot be said, however, that this and the previous issues will be without influence on securities bearing a fixed interest, for it is impossible to ask the market for vast sums for the accommodation of the Government, cities, railway companies, &c, without exerting a sensible pressure on the fund from which all savings come. As one may see in the last Budget speech of Signor Tedesco, the deposits (ordinary and saving deposits) in the banks of issue, ordinary banks, people’s banks, savings banks, post office banks, and rural banks increased from 6,200 million lire on December 31, 1909, to 6,490 millions on June 30, 1910, to 6,702 millions on December 31, and to 6,934 millions on June 30, 1911. Truly a remarkable record. But the increase after June 30, 1911, is diminishing; on December 31, 1911, the deposits had increased only to 6,997 millions, and six months later, June 30, 1912, the total amounted to 7,051 millions. What the total was on December 31, 1912, one cannot say. In some directions the deposits appear to be diminished, for the Savings Bank of Lombardy, which is the leading Italian savings bank, and one of the very first in the world, has published the following provisional statement of the operations in the year 1912:

The decrease of 3,328,893 lire upon a total deposit of 812 million lire is a small thing, but points to the pressure which a succession of public issues exercises on the savings of the nation.

Up to date one cannot say that the new issues of 4 per cent. Government notes have had an influence on the old 3 1/2 per cent. rentes, but their effect on other bonds will be seen in the following table, in which, for the sake of comparison, all values are reduced to the same basis (par = 100 lire):

The Italian Rentes have maintained their high quotation in a wonderful manner, but other bonds of the same high standing had to give way before the competition of the new 4 per cent. Exchequer Bills; railway State bonds 3 per cent, net have sunk from 89 to 82.80, a price which should be much more attractive to the capitalist than the 99 of 3 1/2 per cent. Rentes, especially when one takes account of the fact that the railway State bonds are redeemed at par by yearly drawing. Notwithstanding that, the railway State bonds are almost unsaleable at the current prices, while the 3 1/2 per cent. Rentes are very easy to realise. Some say that the difference between these two identical State securities is a proof of the factitious character of the high price of Rentes. Others observe, with justification, that the 3 per cent, railway State bonds are apt to be outclassed by the competition of new higher interest-bearing securities. The public does not like them, and the same public prefers the 3 1/2 per cent. Rentes, which are so easy to buy and sell, and which can be registered or passed to bearer as desired.

The share market during 1912 has fluctuated irregularly, and it is difficult to say whether the high rate of interest and the competition of the new 4 per cent. State securities have had a depressing influence on the dividend stocks. I have selected a few among the securities mostly quoted in Italian bourses, and give below the price at different dates, the last dividend, and present yield:

The banking shares are somewhat lower in comparison with December 31, 1911, but the yields are not excessive. The Bank of Italy shares are regarded as gilt-edged security with some chance of increase in dividend, and so the very low yield of 3-35 per cent, can be justified. The 1912 dividend, which will be paid in April, will be increased to 46 lire. The Meridional of Italy shares ares lower, owing, in part, to lengthy litigations with the State. The decrease in the price of the shares of the Roman Houses’ Institute (Istituto Romano di Beni Stabili) is only apparent, being due to a new issue of shares, with a substantial profit to shareholders. The company is splendidly managed, and the next dividend will be increased to 14-50 lire. The Electricity of Lombardy Company (Società Lombarda Energia Elettrica) is depressed by the crisis in the Italian cotton industry, to which the company sell their electric power. This crisis, to which the fall in the shares of the Italian Printed Weaving Company (Società Italiana Tessuti Stampati) is due, is a typically financial affair. In the boom times of 1900-7 many cotton companies were formed with sufficient capital, and today are loaded with debts. The cotton companies, which pursued a sound financial policy, had quite a good year in 1912, and are declaring better dividends. The sugar companies, of which Eridania is a conspicuous example, give a high yield, owing to uncertainty as to fiscal policy. The sugar protection will have to be withdrawn some day, and artificial profits are bound to diminish. Bad finance, uncertainty as to the future fiscal regime, and the prospective exhaustion of Elba iron ore mines, explain the absence of dividends and fall in the iron companies, Elba and Savona. The abundant State orders for the naval programme explain the increase of quotations and low yield of Terni Steel Company. The Fiat Company are the world-famous motor producers, and the recent fall in shares is of a special character. The company, after the boom of 1906 and subsequent crisis, was entirely reorganised. The last shares quoted in the above list are of a first-class paper-making company, whose quotations have never been touched, even in the worst days of the 1907 crisis, in the first months of the Tripoli War, and in the black days of the outbreak of the Balkan War. Prudent management and good financial methods explain the progressive advance of this share as well as others which could be mentioned. One may add that good shares do not come frequently on the market. The Bourses are languid, as the public do not take the rubbish which is floated and manipulated by professional operators, while the Government is absorbing the best part of the nation’s savings, and the industrial and banking shares are left to shift for themselves.