Susanne Wurm – Page 9 – Central European Economic and Social History

THE VIENNA STOCK EXCHANGE

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSFirst World War, Habsburg Empire, Iron Curtain, New York Stock Exchange, NEWEX, Ringstrasse, Theophil Hansen

The Vienna Stock Exchange. Architect: Theophil Hansen, 1874-1877

The Vienna Stock Exchange was founded in 1771 by Empress Maria Theresia as one of the first stock exchanges in the world. Gradually the Vienna Stock Exchange developed into the central capital market of the Habsburg Empire. Originally only government bonds and currencies were traded and the building was open to the public. On some days up to 2,000 people were present. In 1818 The Austrian central bank was the first public limited company that was quoted on the Vienna Stock Exchange. Due to the industrialisation and economic boom in the Habsburg Empire in the course of the 19^th century the stock exchange gradually gained international reputation. Consequently a host of companies issued shares there. Due to the empire’s liberal economic policies in the second half of the 19^th century unfortunately several unstable businesses were financed via a share issue there, which led to a wave of speculation that culminated in the stock exchange crash of 9^th May 1873. In the course of this stock exchange break down nearly half of the public limited companies quoted there disappeared. The recovery took a long time and in the meantime trade was mainly in government bonds. That was the return of the big banks as the main financiers of enterprises. These banks also dominated the capital market and stock exchange trading. Trade on the Vienna Stock Exchange started to pick up once more so that new regulation was needed to. In 1875 the third Stock Exchange Law was passed that guaranteed the complete independence of the Vienna Stock Exchange. Finally in 1877 the new building for the Vienna Stock Exchange was opened, designed by one of the famous architects of the “Ringstrasse”, Theophil Hansen. During this time of consolidation rich financiers dominated the trade in shares there and the bond market was the “playground” of the “privatiers”, the well-to-do upper middle class. During the First World War the Vienna Stock Exchange was closed. At the end of 1919 the trading floors were opened to the public again and immediately experienced a boom which ended in a crash in March 1924. In the following years the shocks of the Great Depression of 1929 greatly hampered trading there. The bankruptcy of banks and the plunge of share prices affected the trade on the Vienna Stock Exchange and the number of visitors declined drastically. Interestingly enough, the New York Stock Exchange crash in October 1929, in fact, had no direct consequences for Vienna.…

A COMPARISON OF THE TRANSFORMATION OF BANKING AND INDUSTRIAL DEVELOPMENT IN CEE IN THE 1890s & THE 1990s

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAustro-Hungarian Empire, bank consolidation, Central Bank, Czech, European Monetary System, European Monetary Union, privatisation

Trieste, maritime trading centre of the Habsburg Empire

Close ties of banks with the industry of the Austro-Hungarian Empire can be identified, yet a leading role of banks in the industrialisation process cannot be seen. On the contrary, Austrian banks were for years averse to industrial promotion in the 19^th century. The caution which pervaded the banking circles in Austria and the Czech Lands was evident in the general lack of risk capital, and in the preference for participating in or granting extended credit to only the booming enterprises. The caution and the lack of entrepreneurial spirit of the banks can be seen from the fact that in the periods of economic expansion the banks lagged behind with their investments. So industrial development was not triggered by investments of banks, but was preceded by private investment or an expansion of government programmes such as railroads. This was not only true for Austrian and Czech, but also for Hungarian banks. Yet despite the fact that economic development was not bank-led in the Austro-Hungarian Monarchy, the banks did fulfil the important role of providing financial intermediation services. The widespread development of banking services, such as credit on current account, open book advances, and discount of bills, were the main contribution of banks to industrial development. They were very efficient in mobilising capital.…

THE EXPANSION OF AUSTRIAN BANKS INTO CEE AFTER 1989

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAsian tigers, BA-CA, Bulgaria, Erste Bank, Estonia, HVB, Latvia, Raiffeisen, Romania

Branch office of the Austrian S-Bausparkasse (Erste Bank) in Romania

Since the collapse of communism, foreign banks bought up roughly 80 per cent of all the banking business in the new Central European member countries of the European Union. The most successful banks were those that bought early. The markets were still relatively small, but growth rates were high, and so were profit margins. To many foreign financial experts it was a surprise who got in first. Germany was the region’s biggest trading partner, but German banks were busy at home with the shocks and costs of the unification of Germany. Somehow they left Eastern Europe to their small neighbour, Austria. Raiffeisen, a co-operative banking group, which had already expanded into Hungary before the coming down of the Iron Curtain in 1987, was in seven more countries by 1998. Even a little earlier, the banks making up Creditanstalt and Bank Austria, which merged in 1997 (BA-CA), first entered the market. BA-CA was bought by HVB of Germany in 2000, which was in turn bought by UniCredit of Italy in 2005. In both acquisitions the BA-CA’s business divisions in Central and Eastern Europe were the big prey the predators were after. The third Austrian bank to join in the rush was Erste Bank with its purchase of Ceska Sporitelna, a Czech bank, in 2000.…

AUSTRIAN BANKS AFTER 1945

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSCreditanstalt- Bankverein, Iron Curtain, Österreichische Kontrollbank, Österreichische Länderbank, Second Austrian Republic

Vienna, “Golden Quarter”

At the end of the Second World War and after the liberation by the Allied forces the main Austrian banks were nationalised. The assets of Austrian credit institutions including large claims on the Third Reich, loans to the German armed forces and to various official and semi-official institutions had become worthless. The losses incurred had eliminated the equity of many credit institutions. So in 1946 the Austrian government nationalised the three largest banks, the Creditanstalt-Bankverein, Österreichische Länderbank und Österreichisches Credit-Institut AG. The Reconstruction Act of 1955 enabled the banks to draw up balance sheets for the entire period up to the end of the 1954 business year. The banks had been able to offset the losses incurred on account of war and post-war events thanks to their own earning power. The Reconstruction Act was nevertheless most important for formal accounting purposes. It gave the banks the formal basis under trade and company law to make the provisions necessary for the fulfilment of their economic and socio-political tasks. The Act further stipulated that the banks should make annual reconstruction contributions to other areas of the Austrian credit system. In 1956/57 the two largest Austrian banks, Creditanstalt-Bankverein and Länderbank, were partly re-privatised by authorising the Minister of Finance to sell shares up to 40 per cent of their share capital.…

THE ROLE OF AUSTRIAN BANKS IN NAZI GERMANY’S EXPANSION TO CENTRAL, EASTERN & SOUTH-EASTERN EUROPE

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAnschluß, anti-Semitic, Aryanisation, Credit-Anstalt CA, Deutsche Bank, Galicia, Germans, Jewish, Länderbank, Nazi, Poland, Third Reich, Yugoslavia

Palais Ephrussi, Viennese Jewish banking Family (exiled): Edmund de Waal, “The Hare With Amber Eyes” describes the destiny of this banking family

The German state-owned VIAG (Vereinigte Industrieunternehmungen) and the Deutsche Bank gained control of the majority of shares of the Creditanstalt-Bankverein CA from the time of the “Anschluß” of Austria to the Nazi German “Third Reich” in 1938 onwards, originally by taking over the shares of the Austrian state. From the very beginning the German majority shareholders viewed the bank as an important tool for German penetration into South-Eastern Europe, not only because of the geographical position of Vienna, but also because the Viennese banks, many of which had merged with the Credit-Anstalt in the interwar years, had been very active in this area before 1918 and still had much experience in the region. Contrary to the image the CA wanted to create after 1945, the leadership of the CA, and especially its most important director, Josef Joham, viewed the German takeover of Austria as an opportunity to recover the position the CA had held in South-Eastern Europe before and to turn Vienna into the financial hub of the Nazis’ activities in Central Europe and the Balkans. In fact, the CA often took the initiative in expanding its banking activities in the German satellites and occupied territories. It constantly made reference to its historical role in the region and viewed its acquisitions as restitution and/or compensation for its losses and exclusion by the successor states after the collapse of the Austro-Hungarian Empire. The German control of Austria and the CA provided a welcome opportunity to restore the position Viennese banks had enjoyed during the Austro-Hungarian Empire. The close co-operation between the CA and the Deutsche Bank, namely between the two directors Josef Joham and Hermann Josef Abs, had already started before the “Anschluß”. As Joham had supported the old regime in Austria, but anticipated the “Anschluß” of March 1938, he sought protection for himself and the bank through the alliance with Abt and the Deutsche Bank. Yet first the German VIAG took over the majority of shares from the Austrian state and Deutsche Bank got hold of only 25 per cent of the shares of the CA, but in 1942 the Deutsche Bank finally acquired the majority of shares in the CA.…

THE CONSEQUENCES OF THE CREDIT-ANSTALT CRISIS FOR CEE

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSCredit-Anstalt, Czechoslovakia, Great Depression, Nazi, Niederösterreichische Escompte-Gesellschaft, Wiener Bank-Verein

Österreichische Postsparkasse, architect: Otto Wagner, built 1904-1906

The Great Depression hit Hungary hard, stopping the slow recovery and leading to a dramatic decline. The crisis hit Hungary first through the collapse of the international agricultural market with a 60-70 per cent decline in agrarian prices. But the most severe blow was dealt by the break-down of the Credit-Anstalt and was followed by the international financial and banking crisis. Hungary was heavily indebted, but new credits stopped arriving and substantial portions of the short-term credits were withdrawn from Hungary. The Hungarian National Bank lost most of its gold and foreign exchange reserves and the banking system reached the edge of the abyss in 1931. Between 1931 and 1933 70 banks collapsed. By 1938 the number of banks had been reduced by more than 300 that had been operating in 1929. The effect of the shrinking banking sector was the decrease in its share of industry. Strict government measures were introduced after the financial collapse and the repayment crisis in 1931, the gold Standard was abolished and foreign exchange controls were introduced. After the trade agreement with Nazi Germany in February 1934 barter trade became dominant and a clearing system was introduced to replace hard currency payments in foreign trade. State interventions, economic nationalism, high protection and the policy of self-sufficiency became stronger. Hungary was isolated from the world market and became integrated into the German Nazi economic system.…

THE GREAT DEPRESSION: CREDIT-ANSTALT CRISIS 1931

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAustrian shilling, Austro-Hungarian Empire, Credit-Anstalt, Franc Speculation, French franc, Lausanne Protocols, New York Stock Exchange, Rothschild

Former Österreichische Creditanstalt building, architects Gotthilf and Neumann (built 1916-1921)

The Credit-Anstalt crisis played a crucial role in the dramatic economic developments of the 1930s in Europe as the collapse of the Credit-Anstalt affected the largest bank of Austria and at that time also the largest bank east of Germany. The collapse of the Credit-Anstalt in Vienna started the spread of the crisis in Europe and forced most countries off the Gold Standard within a few months. A feeling of financial distrust and insecurity spread from Vienna and led to runs on other banks in Hungary, Czechoslovakia, Romania, Poland and Germany. The collapse in May 1931 set off a chain reaction that led from the run on German banks to withdrawals in London and the devaluation of the pound to large-scale withdrawals from New York and another series of bank failures in the United States. So in brief the news of the crisis of the Credit-Anstalt, the most important bank in Central Europe, shook the whole economic structure of Europe and sent shock waves through the rest of the world.…

INTERNATIONAL CAPITAL FLOW, BANKS AND INDUSTRIAL ENTERPRISES IN CEE IN THE INTERWAR YEARS

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSAnschluß, Credit-Anstalt, First World War, Habsburg Empire, Länderbank, Nazi

Former Länderbank (Vienna), founded 1880, architect Otto Wagner (built 1882-1884)

Central and South-Eastern Europe became one of the most important world markets for capital exports after the First World War. Foreign investors not only invested in the defeated countries, such as Germany, Austria, Hungary and Bulgaria, but also in Poland and Czechoslovakia. From 1919 till 1923 international capital from Britain, France, the USA, Belgium, the Netherlands, Italy and Switzerland acquired substantial shares in the main Viennese banks. The Länderbank and the Anglo-Austrian Bank were turned into totally foreign-owned banks, based in Paris and London. A similar development of Western European capital participation took place in all the joint-stock banks of the successor states of the Austro-Hungarian Empire with the exception of the Zivnobanka in Prague. This bank increased its investment in South-Eastern Europe, often together with Western European financial groups. As the governments of the successor states were in urgent need of foreign investment, they promoted the internationalisation of the banking systems there. So the governments paved the way for the access of international capital to industrial enterprises via the participation in the equity of the big commercial banks. This followed the traditional investment pattern of the region and through the internationalisation of the banks the whole area moved closer to international markets.…

AUSTRIAN FINANCIAL INSTITUTIONS IN CEE DURING THE INTERWAR YEARS

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSCamillo Castiglioni, First World War, Franc Speculation, Hugo Stinnes, Schoeller-Bleckmann, Siegmund Bosel, Silesia, Trieste, Vienna Stock exchange

Österreichische Postsparkasse, Vienna, founded 1883 “k.k. Österreichisches Postsparkassenamt”, architect: Otto Wagner (built 1904-1912)

As a result of the First World War the persistent shortage of domestic and foreign capital for investment in the economies of Central and Eastern Europe, as mentioned above, worsened. At the same time, due to the devastation of the war the demand for capital rose dramatically. After the collapse of the Austro-Hungarian Empire in 1918 new stock exchanges were established in the successor states of the former empire. The scene had been dominated by the Vienna Stock Exchange and to a much lesser degree the Prague Stock Exchange, founded in 1871. In the 1920s new stock exchanges opened up in Belgrade, Bratislava, Brno, Ljubljana, Warsaw and Zagreb, which competed with Vienna. Their main business was in dealing in securities, bills and foreign currencies and not shares. The same was true for the Vienna Stock Exchange during the interwar years. Only in the years 1926/27 did the currency situation stabilise after the hyper-inflation in the successor states of the Habsburg Empire after the First World War and central banks had been established in all new states. The finances of Austria, Hungary, Poland and Bulgaria were under international supervision and the new central banks had to be independent from the state, but they had to act as lenders of last resort together with the respective governments. Especially in Austria the “Franc Speculation” further destabilised the financial scene.…

INDUSTRIAL FINANCE

07/02/2017Susanne WurmFINANCE AND ECONOMY IN CEE, THE DANUBE REGION: ECONOMIC AND SOCIAL DEVELOPMENTSagriculture, Balkans, Deutsche Bank, First World War, Galicia, railways, Romanian petroleum, Siemens-Schuckert, Wiener Bankverein

Former Austrian Lloyd building (on the right in front), shipping company founded 1833 in Trieste by seven insurance companies, among them “Assicurazioni Generali”, Austrian Generali insurance, founded by Joseph Morpurgo 1831 in Trieste (on the left in the back). Piazza Unità d’Italia, Trieste (Italy)

The importance of the Austro-Hungarian banks in providing short-and long-term credit to industries has to be emphasised in contrast to the registrations of the stock exchange in the empire. In 1912 the share of foreign bonds in total registered securities was 48 per cent on the London Stock Exchange, 55 per cent in Paris, 5.6 per cent in Berlin and 0.7 per cent in Vienna. In Vienna the share of foreign bonds had not changed much since the 1890s. But after 1909 the Austro-Hungarian Empire was not only a capital importer, but owing to the leading banking groups it could also cover the deficit partly by re-exporting foreign bonds.

In the case of a country of such agricultural importance as the Austro-Hungarian Empire the turnover of mortgage bonds is of greatest importance. Neither bank loans nor the foreign placement of mortgage bonds took a dominant role in providing especially the Hungarian agriculture with credit. By the turn of the century the supply of agriculture with long-term credits seemed to have settled.…

Central European Economic and Social History

Glimpses of Life in Central Europe Past and Present

Author: Susanne Wurm