Import of Foreign Capital – Stock Market Revival – Abundant Money – Italian Super-Power Corporation

«The Economist», 28 gennaio 1928, p. 164

Turin, January 22

No further details can be given as yet about the operation of the gold exchange system which was adopted a month ago. Negotiations are still going on between the Bank of Italy and the Treasury regarding the exchange of paper lire into bills payable in gold in foreign countries. For the time being importers must continue to justify their demand by invoices and shipping documents before obtaining from the banks the desired foreign bills. It seems, however, that the Bank of Italy will as soon as possible sell openly and without requiring documents, dollars or sterling bills at the stated official rates of 19 and 92.46 lire respectively, with only the current deviations within the gold points. A decree of January 5th regulates imports and exports of capital. All discounts of trade bills, opening of current accounts at banks, and deferring of payment of goods purchased are declared wholly free, and will not require any official authorisation. Loans falling due more than a year after their issue are subject to Treasury sanction, whether sought by private firms or companies or public bodies. Only such loans will be authorised whose proceeds are to be invested for production purposes, and especially for promoting exports or avoiding imports. A subsequent control on the effective investment of imported capital will be organised. Imports of capital can be superseded if deemed for a time dangerous to the stability of foreign exchanges.

No up-to-date figures on the influence of stabilisation on new savings are available. Reports from ordinary savings banks point to a revival of deposits; timid people who had been hoarding paper notes are bringing their hard-saved money to savings banks. Owing to a decreased demand from industry and trade money is abundant also in the tills of ordinary banks, and, without being a drug in the market, is offered at rates below the 7 per cent, official Bank rate and much below those prevailing a few months ago. Securities can be carried over in the Bourses at 6 to 6V2 per cent., against 7 to 8 and even 9 per cent, a year ago. It cannot, however, be said that the cheapness of money has had much to do with the remarkable revival of Stock Exchange quotations. The most prominent security has been the Bank of Italy share, which on December 21, 1927, when nobody suspected the forthcoming stabilisation decree of the same day, stood at 2,103 lire. At the end of the year the price was 2,565, and it closed today at 2,620 after having reached 2,673 lire. The rise was wholly due to speculation, as shareholders cannot expect for some years an increase of dividend above the present 60 lire; and the stabilisation decree very clearly states that the increase of assets resulting from the revaluation of the Bank of Italy gold reserves must be credited to the Treasury, without in the least benefiting the shareholders. Real estate securities also profited from the stabilisation, Beni Stabili of Rome going from 537 at December 21^st to 642 at January 21^st, and Fondi Rustici from 190 to 218. Another section whose securities were put up was the electrical; the Vizzola, for instance, going from 885 to 1033, the Edison from 617 to 688, the Sip from 133 to 150. These two groups, real estate and electrical, improved mainly through the impression that their gross revenues, not being subject to fluctuating cost of production, had acquired a more stable value after the return of the gold standard. Opinions are very divergent about industrial groups: textiles, iron and steel, engineering, shipping, chemicals, motor-car, artificial silk. Here the employers will have to struggle, perhaps for a long time, with the cost of production problem. International and wholesale internal selling prices are in equilibrium with the stable monetary level; but wages and fixed-interest charges lag as yet behind. The general public is sensitive of the delicacy of the industrial situation, and are holding aloof from the share market. Stabilisation, however, seems to have already borne good fruit in the market for fixed-interest securities. For a long time debentures were neglected, and some of them had sunk to so low a level as to yield 10 or even 12 per cent. Investors did not care for them, fearing the vagaries of the lira. Being at present assured on that score, they began to look with complacency on the prospects of good fixed yields. The movement will no doubt slowly spread to the share market, but it will be a long time before investors are persuaded that the revaluation crisis is over. Reductions of dividends for the year 1927 appear unavoidable, and will be declared by the best and most prudent boards of directors; but, however useful and wise, reductions of dividends are not the best advertisement to the share market. In financial circles the constitution of the “Italian Superpower Corporation”, incorporated in Dover, Delaware, U.S.A., was therefore looked at with favour as a means of giving fresh capital to the electrical industry. The issues will be limited, for the present, to 100,000 preferential shares of 100 dollars and to 20,250 6 per cent, debentures of 1,000 dollars each. The corporation will act as a holding trust for a number of the best Italian electrical securities, and it may be that the share and debenture issue by the corporation will find a market in Italy if Italian investors persuade themselves of the advantages of the Investment Trust System which at present is almost unknown in our country.