Piazza Cordusio 20123 Milan

Telephone: (02) 88621

Public Company
Incorporated: 1870 as Banca di Genova
Employees: 16,636
Assets: L71.75 trillion (US$54.92 billion)
Stock Index: Milan

Company History:

Credito Italiano is one of Italy's three "banks of national interest." Its principal shareholder is the state holding company, Istituto per la Ricostruzione Industriale (IRI). The bank has over 500 branches within Italy and seven overseas.

Its predecessor, Banca di Genova, was founded in 1870. just after the unification of Italy. By 1872, it had become the first Italian bank to do business in Buenos Aires, Argentina.

At the time Banca di Genova was founded, however, the Italian banking system was inefficient and poorly organized. An agricultural depression in the south, which banks tried to relieve, and an exaggerated amount of building in Rome, which banks helped finance, further aggravated the situation. All of this, plus a worldwide business depression, culminated in the banking crisis of 1893-1894, which caused the failure of several large Italian banks. In the subsequent massive reorganization of banks in 1895, Banca di Genova became Credito Italiano, largely capitalized by German banks.

For its first twenty years, Credito Italiano grew more quickly than other Italian banks. Between 1895 and 1914, its deposits doubled. In 1898, Caisse Commerciale de Bruxelles, Crédit Liégiois, and Comptoir National d'Escompte de Paris acquired equity in Credito Italiano. The bank maintained its relationship with prominent European businessmen through the turn of the century, with representatives of Robert Warschauer and Company, Banque Commerciale-Basle, and National Bank für Deutschland on its board of directors.

In 1907, Credito Italiano increased its capital with the financial support of Banque Fran&ccedilse pour le Commerce et l'Industrie and Banque de l'Union Parisienne. Three years later, Credito Italiano helped Société Generale de Belgique to found Banca Brasiliana Italo-Belga.

In 1911, the Italian-Turkish War had a substantial effect on the nation's economy. Government expenditures, financed by an inordinately large issue of five-year treasury bonds, increased inflation. Credito Italiano, however, continued to prosper, and became the first Italian bank to organize an office in London that year. Credito Italiano was also named Correspondent of the Royal Treasury in 1911.

The bank continued to expand, so that by 1914 it had nine main branches, three regular branches, and 52 offices. The close interdependence of European banks at this time heightened some of the conflict leading into World War I. At the war's outbreak, a panic rippled among depositors, and a moratorium was issued in Italy until the banks that issued notes could help other banks meet depositors' demands.

Through its existing international relationship, Credito Italiano helped the war effort by facilitating imports of grain, raw materials, and other necessities in a tense international situation when cash was usually the only payment accepted.

During the war, banks were pushed even more to participate in industry, especially wartime industry. Before the war, the four largest banks, including Credito Italiano, wer&eagave; sharply competitive, but during the war, the increased pressure for credit from both business and government decreased competition among the banks. Finally, in June 1918, the large banks formed a cartel to establish common policies and coordinate the rationing of credit. This group came under much criticism for its close ties to industry leaders.

The ill-planned and rampant growth of wartime industry could not sustain itself in peacetime. After the war, a depression began, and by 1921 businesses had begun to fail in large numbers. Credito Italiano's expansion was less rapid during the war years and the decade following. Its main developments were in merchant banking: setting up new companies, issuing bonds, and increasing capital for businesses. It conducted merchant banking in Egypt, Albania, and Switzerland.

The bank's foreign activity continued. In 1917, a representative office opened in New York, where 700,000 Italian immigrants were potential customers. The bank also increased its interest in Banco Italo-Belga, in Antwerp. In 1919, the bank founded Banca Unione di Credito in Lugano and bought an interest in Banque Génerale des Pays Roumains and in several Austrian and Czechoslovakian banks. A year later, working with the Minister of Financial Affairs and several Chinese backers, Credito Italiano founded Banca Italo-Cinese. It also established Banca Italo-Viennese and Tiroler Hauptbank that year. In 1921, Credito Italiano opened offices in Paris and Berlin.

In 1926, the government announced that all jointstock banks like Credito Italiano would have to gain the Minister of Finance's consent before amalgamating branches or opening any new ones. But there was still a tight connection between big banks and big business which made some officials nervous.

Credito Italiano continued to extend its reach overseas even after the 1929 stockmarket crash. In 1930, when the bank absorbed Banca Nazionale di Credito, it acquired three foreign affiliates: Banque Italo-Francaise de Cr&eacutedit, Banca Coloniale di Credito, and Banca Dalmata di Sconto.

Nonetheless, the crash did take its toll. Because of a severe decline in the value of some of its industrial securities, Credito Italiano faced a major cash-flow problem. In the 1930s, many of the companies with which Credito Italiano had done business were going bankrupt and weren't able to pay their debts. Credito Italiano, of course, was by no means the only bank affected.

In 1933, the government stepped in to rescue the banking system by creating IRI, a government holding company to buy the medium and long-term assets of the main commercial banks, including Banco di Roma, Banca Commerciale Italiana, and Credito Italiano. IRI became the banks' main shareholder. IRI was intended at first to be only a temporary organization.

In 1936, the Banking Law was passed. This law, which is still the main legislation governing banks, declared that the three banks under IRI control were "banks of national interest." They were no longer allowed to engage in investment banking, but only in short-term commercial banking.

As Benito Mussolini's lack of economic strategy and policies of expansion during World War II wreaked havoc on the Italian economy, Credito Italiano lost essentially all of its overseas business, and after the war was in need of major restoration.

Between 1945 and 1948, IRI was in such a state of chaos that it could not even be dismembered and privitized, which had been the original postwar plan. The Allied Control commission investigated IRI's businesses for war crimes, but they were cleared of all charges. Although the new government was opposed to many of the controls that had been imposed by the Fascists, it was not feasible to abolish the controls on bank competition.

Soon after the war, Credito Italiano resumed its connections with Banco Italo-Belga and Banco Italo-Egiziano. Its representative office in Zurich remained open, and its London branch was temporarily changed into a representative office. In addition, Credito Italiano's New York and Paris offices were reopened and new offices were opened in Frankfurt, Buenos Aires, and São Paulo. In 1946 Credito Italiano was one of the founders, with Banca Commerciale Italiana and Banco di Roma, of Mediobanca Banca di Credito Finanziario SpA, a medium-term credit bank that today is a powerful merchant bank.

For most of the postwar period, however, energies were spent on the domestic reorganization that came with the growth of exports in the 1950s and 1960s. For the first time in many years, Italy enjoyed sustained, long-term growth. The country's return to world markets helped nourish bank activity, strengthening the existing networks. But this attention to domestic business slowed international expansion.

In 1969, when the United States Federal Reserve Board began a policy of monetary restraint, a huge amount of funds flowed into the United States. This hurt the economies of many European countries, including Italy, as they were forced to adjust to high U.S. interest rates. When domestic growth began to slow in Italy, banks became more active again overseas, although they were somewhat curtailed by the Bank of Italy, Italy's central bank.

The three IRI banks applied to the government in 1969 for permission to increase their capital, which they got. For the first time, the state-owned banks were allowed to offer significant public shares. Until then, the IRI had never held less than 90% of the assets of any of the banks. Credito Italiano and the other two banks were listed on the Italian bourse.

By the 1970s, many domestic clients needed banking services abroad, and Credito Italiano continued to expand by opening a branch in London in 1972, a branch in New York the following year, and a branch in Los Angeles in 1977. It also opened representative offices in Chicago in 1973, Moscow in 1975, Hong Kong in 1978, and Houston, Texas in 1979.

Credito Italiano also acquired much foreign equity interest during the 1970s. In 1973, it acquired stock in Libra Bank Limited of London, and in 1974 it acquired a percentage of Banque Transatlantique in Paris and Orion Bank Limited in Canada.

In 1972, Credito Italiano bought a 50% holding in a British factoring operation in Italy, Credit Factoring International SpA. The low level of domestic investment continued in 1972, coupled with a three-month strike by bank employees and an overall rise in bank costs. Nonetheless, Credito Italiano's profits rose considerably.

The oil crisis that began in 1973 was a severe blow to the Italian economy. It gave rise to high inflation, a growing public deficit, and a skewed balance of payments which jeopardized currency reserves. As a result, in 1976, the lira plummeted against the dollar. To add to Italy's instability, many people feared that the strengthening Communist party might topple the long-standing Christian Democrats in the general election that year. Credito Italiano stayed steady amidst these crises; its profits rose from L7 million in 1974 to L14 billion in 1978.

In the late 1970s, the banks of national interest were put in an awkward position when they were called upon to rescue some of Italy's failing industrial groups, especially those under state control. The banks were concerned that they would have to absorb the companies' losses, and Credito Italiano, in its annual report, made its philosophy on this point clear: "Banking has always meant and always will mean, one simple thing: granting appropriate credit to creditworthy companies."

In 1982, the state-owned companies' losses were even worse and IRI decided to raise money partially by issuing convertible bonds through its three banks and partially by strengthening its relationship with the private sector. Banks were then allowed to raise up to 41% of their capital, so long as IRI retained the majority.

The Italian economy was much stronger by the early 1980s, and the Bank of Italy was gradually able to relax some constraints on the banking industry, allowing more domestic competition and loosening exchange controls. The ceilings on bank lending were removed in 1983 and the Bank of Italy began to liberalize the opening of new bank branches. For example, Credito Italiano was finally granted permission to open a branch in Carpi, a small industrial town near Bologna it had been waiting 20 years to enter.

During the 1980s, Credito Italiano expanded even more in foreign territories, opening branches in the Cayman Islands in 1981, Tokyo in 1982, and Madrid in 1988 and representative offices in Amsterdam and Cairo in 1980 and Beijing in 1987. In 1984, Credito Italiano organized a wholly-owned subsidiary in London, Credito Italiano International Limited, a merchant bank. Also that year, the bank planned to increase its capital from L320 billion to L500 billion through scrip and rights issues.

Between 1984 and 1987, the decline of the U.S. dollar and the collapse of oil prices helped boost the Italian economy. In 1987, the Bank of Italy re-imposed credit ceilings between October and March in an effort to control the money supply, which had grown too fast as the economy surged. That year the securities department at Credito Italiano doubled, from 300 to 600 people as the stock exchange rose to record heights on the dramatic profits companies were making. This expansion sparked a heated debate about how to reform the stock exchange and what role banks should play in the market as Italy faces the challenges of the coming single European market. Nevertheless, the October, 1987 stock market crash was reflected at Credito Italiano in a 33% drop in profits that year.

In 1989, Credito Italiano bought a 4% share in Banca Nazionale dell'Agricoltura (BNA), Italy's largest private bank, and a 20% share in Bonifiche Siele, a holding company that was BNA's largest shareholder. The L227 billion deal was an important move toward rationalizing Italian banking. Credito Italiano and BNA had complementary branches; combined they would form the most important bank in Italy.

In June, 1989, Credito Italiano, in an unusual move for a large Italian firm, closed a distribution deal with a foreign composite insurer, Commercial Union of Britain. This move reflected the trend in Europe for banks and insurers to join together in an effort to broaden the range of bank services. At the end of 1989, Credito Italiano acquired a 35% stake in the Bank CIC-Union Europ&eacute-ne A.G., headquartered in Frankfurt, and in early 1990 the bank acquired a 5% stake in the Banque Commerciale du Maroc.

Credito Italiano prides itself on its high asset quality and its strong capitalization. With its recent acquisitions, which have strengthened it both domestically and internationally, Credito Italiano has begun to take the necessary steps to preserve its place in the coming global financial market.

Principal Subsidiaries: Credit Holding Italia S.p.A.; Credit Factoring International S.p.A. Societé per il Factoring Internazionale; Credit Leasing Societé per il Leasing Finanziario S.p.A.; Fincor Merchant Credit S.p.A.; Credito Italiano Delaware Incorporated (United States); Credito Italiano Finance Corporation Limited (Nassau); Credito Italiano International Limited (London); Banca Creditwest e dei Comuni Vesuviani S.p.A. (68%); Gesticredit S.p.A. (70%); Credito Italiano Nominees Limited (London); Cordusio Società Fiduciaria Per Azioni (47%); Mediofin S.p.A. (90%).

Source: International Directory of Company Histories, Vol. 2. St. James Press, 1990.