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Creditanstalt crisis: a chronology

This chronology has been constructed from the Secretariat Department file 31/44 (000/1117).

September 1929 Rumours were circulating in London that "all was not well" with the Boden Credltanstalt. S M von Rothschild disputed this, reporting that "the situation of the bank is considered good now as before".

9 October 1929 Creditanstalt announced that they were going to take over the Boden Credlt-Anstalt and issue new shares, "the taking of which is assured by a consortium with the participation and under the leadership of the Vienna House of Rothschild".

11 October 1929 New Court sent a letter to Baron Louis asking to be kept "in closer touch with the true fact".

End October 1929 Or Ehrenfest, Managing Olractor of the Credltanstalt visited New Court and stated that the "position of the Credlt-Anstalt was very strong". He also managed to get the agreement of  Rothschilds to act as an intermediary in a foreign exchange arrangement between the Austrian National Bank and the Creditanstalt.

November 1929 Stephany visited Vienna, as a result New Court suggested on 25th November: 1. Amalgamation of some of the industrial concerns so as to reduce overheads and Increase efficiency; 2.  That von Neurath, of the Creditanstalt, should send to New Court every three months copies of reports and consolidated balance sheets; 3.That Information might be supplied regarding measures taken to strengthen the boards of industrial companies and give more expert supervision to the direction of the various industrial companies acquired through the merger with the Boden-Credit.

January 1930 Von Neurath wrote to Stephany giving him details re developments within the Creditanstalt.

12 May 1931 A telegram was received from the Credit-Anstalt stating that the balance sheet from 1930 showed a heavy loss "Which will be covered by reducing capital by 24% simultaneously Austrian Government Austrian National Bank and Rothschilds Vienna taking over about 90,000,000 Schillings nominal new shares which are paid up plus 80% premium the latter covering balance of losses completely". Dr Juch, Austrian Minister of Finance, telephoned New Court the same day to say "that all would be in  order, the position was quite sound and there was no question of the Bank's falling". Other central banks received a telegram from the Austrian National Bank reporting the heavy losses sustained by the Creditanstalt as a result of the merger with Boden Credit Anstalt and stating "By cooperation between Government, National Bank and Vienna Firm of Rothschllds cash amounting to 150 to 160 millions of Schillings will be pald these measures the matter is granted and other claims are in no way endangered and can be safety maintained"

13 May 1931 Rothschiilds contacted Warburgs regarding the position of the Creditanstalt and concluded that "these and other advices led one to believe that the capital reconstruction adequately covered all losses".

23 May 1931 Stephany wrote a memorandum of the days' events: The Governor of the Bank of England reported to Stephany that "unless the Credlt-Anstalt situation was taken in hand at once the whole affair would drift and a serious problem would arise". A moratorium was being suggested in Vienna which he felt would be "disastrous". He strongly suggested that an informal committee be set up in London with Lionel de Rothschild as Chairman to address the matter. Stephany telephoned Baron Louis who said that the Creditanstalt required £5 million new credits which would be guaranteed by the Austrian Government and asked if London could help.

Dr Brauneis, Vice-President of the Austrian National Bank, contacted Stephany and re-iterated what Baron Louis had said, although he said that the Creditanstalt needed £10 million new credits and that "unless this credit was available by Tuesday [26 May] morning, the Credit-Anstalt would have to close its doors". He asked for help and asked Stephany to inform the Bank of England.

Stephany then visited Sir Ernest Harvey (of the Bank of England, presumably) who agreed that the position was serious but could not see what could be done in such a short time frame. Whilst he was there, Sir Ernest was contacted by the B.I.S. (Bank for International Settlements in Basle) informing him of the position of the Credit-Anstalt "the Credit-Anstalt had informed the B.I.S.that their difficulties were due to the withdrawal of deposits by two London Banks due for payment on the 26th May...Rothschilds and Japhets". Stephany strongly disputed this.

Dr Brauneis telephoned New Court and asked whether Rothschilds or the Bank of England could arrange for £3 million to be placed at the disposal of the Creditanstalt by Tuesday [26 May] in order to save the Creditanstalt. A further £7 million would be made available as required later. Stephany responded that because of the holidays [Whitsun weekend] this would be impossible; he asked Dr Brauneis if he could reconsider the timing.

Later on that day, Dr Brauneis contacted Stephany again and told him that a statement had been prepared  stating that no delay was possible and that new arrangements  for credit had to be in place by Tuesday as they were expecting another run on the Creditanstalt then. The Austrian National Bank could not step in as this would lead to a rise in inflation, threatening the currency situation and "All the banks in Vienna would be involved and a great catastrophe was surely impending".

There is nothing in this account to say what happened over this weekend, but one can presume from subsequent events that the Creditanstalt failed to get the credits it wanted from either Rothschilds or the Bank of England at this time and did indeed "close its doors".

27 May 1931 An announcement appeared in The Times stating that an informal committee had been established in London with Lionel de Rothschild as Chairman at the suggestion of the Creditanstalt and in agreement with the Governor of the Bank of England. The committee was not a creditors' committee, "it represents important interested parties and will keep in close touch with the Credit-Anstalt,and deal particularly with the policy to be adopted in the near future". It was clear that the difficulties of the Creditanstalt was a major crisis in Austria and fears were expressed that the trouble would spread. The first formal meeting of the London Committee took place at New Court, on this day and on 28th when representatives from all the Creditanstalt's foreign creditor banks attended. It was decided that the Informal committee should give way to an International Committee consisting of three British, three American and representatives of other countries.

1 June 1931 The first meeting of the International Committee took place, with Lionel de Rothschild as Chairman. Messrs Freshfields, Leese & Munns were appointed legal advisors to the committee. The first few weeks of the committee were very busy. Meetings took place daily. The domestic and foreign position of the Creditanstalt was "confused and indefinite". The Committee's chief objectives were to arrange a standstill on the part of the foreign creditors, to obtain the unconditional guarantee of the Austrian Government in respect of these liabilities, to ensure that all foreign creditors were treated in the same way, to stabilise the economic position of Austria, to arrange for the Creditanstalt to function again and to ensure that the foreign creditors had some form of control over the Creditanstalt ''without assuming any responsibility for the management".

Two major points arose out of these first few weeks' discussions. The first was the position of the Amstelbank whose credits had been guaranteed 50% by the Creditanstalt and 50% by S.M. von Rothschild. "It soon became apparent that with the collapse of Credit-Anstalt the position of Amstelbank was untenable". As a result the Creditanstalt's liability in the Amstelbank was to be included in the Creditanstalt arrrangement and covered by the proposed Austrian Government guarantee.

The second point was the question of the so-called "cross deposits". These were deposits placed by the Austrian National Bank for the use of the Creditanstalt, outstanding at the time of the crisis. Four banks were involved:  NMR, New York Trust Co. S.Japhet & Co. Ltd and Anglo International Bank. NMR's deposit was the largest at $3 million. At the end of 1931,the Austrian National Bank gave notice that they wished to withdraw part of their dollar deposits. The bankers refused to repay. The Austrian National Bank considered NMR the leader of the bankers' group and notified them in early 1932 that unless they were repaid they would "have no option but to have the question tested in the English Courts". NMR stood firm and in March 1932 a writ was served upon them by the Austrian National Bank. The matter was handed over to the lawyers. It took until 30th December 1932 to reach an Agreement of Compromise. Under this agreement the bankers agreed to look to Creditanstalt for repayment of their dollar deposits and to repay the dollars taken from the Austrian National Bank in instalments spread over 15 years. The bankers had the right to repay the dollar deposits to the Austrian National Bank in instalments over three years under discount What this actually meant was that instead of repaying $3 million on demand, they paid $2,250,000 without interest. These dollar deposits to Creditanstalt then became without question part of the claims against Creditanstalt under the 1st Credit-Anstalt Agreement of 16 June 1931.

Van Hengel of the Amsterdamsche Bank was chosen by the International Committee to represent their interests with the Austrian Government and the Austrian National Bank with regard to obtaining the Austrian Government guarantee to foreign creditors.

12 June 1931 Sir Robert Kindersley of Lazards, Mr Gannon of Chase National Bank and Mr Smith of Freshfields went to Vienna on behalf of the International Committee to negotiate the first Creditanstalt agreement. A draft had been drawn up in London.

15 June 1931 Kindersley and Gannon sent a telegram to London stating that the situation in Vienna was critical and that they had to sign the agreement on behalf of the creditors the next day or else they would not get the Government guarantee. This left no time to consult all the creditor banks.

16 June 1931 The First Creditanstalt Agreement was signed which stated that foreign creditors would maintain until 1 June 1933 all facilities outstanding with the Creditanstalt on 28th May 1931 and that the Austrian Government guaranteed repayment on 1 June 1933. In addition the Austrian Government and the Creditanstalt also agreed that arrangements regarding management etc. of the Creditanstalt would be made by the International Committee. The agreement was drawn up in such a way as to make a separate agreement between each creditor and the Austrian Government and the Creditanstalt). During the next few months, the International Committee dealt with various points of detail that arose, including the control and management of the Creditanstalt.

February 1932 Van Hengel was appointed General Manager of the Creditanstalt. The Committee required  that each foreign creditor contributed towards his salary. The point which became more urgent as time went on was the position that would arise when the Austrian Government guarantee fell due on 1 June 1933.The Austrian Government made it clear that they would be unable to repay any of the foreign creditors' claims and so some plan of repayment would have to be worked out.

October 1932 Dr Rinteten, representing the Austrian Government, visited London. He outlined a plan which involved the handing over by the Creditanstalt of its foreign assets to a new foreign assets company to be formed and that the creditors' claims against the Creditanstalt were to be satisfied to 50% by a maintained claim against Creditanstalt Securities by Austrian Government Bonds by about 33% by bonds and shares of the foreign assets company and by 17% by preferred ordinary shares of the Creditanstalt under a new capitalisation. These suggestions proved to be unacceptable to the foreign creditors. At this time the figures of the foreign creditors' claims were agreed. NMR's claim was £996,769.1.11, by far the largest of the British creditors' (the next largest claim was by S.Japhet & Co. Ltd which was for £650,154.19.1.)

November 1932 Dr Rintelen returned to London to resume negotiations, which led to the signing of the second Credit Anstalt Agreement.                  ·

30 December 1932 The question of cross-deposits had been discussed at great length at the end of 1932 and threatened to turn sour. However, on this day an Agreement of Compromise was signed between the Austrian National Bank and the four cross deposit bankers, of which Rothschilds was one. The bankers agreed to look to the Creditanstalt for the repayment of their dollar deposits and repay the dollars taken from the Austrian National Bank in instalments spread over15 years.

11 January 1933 The Second Credit-Anstalt Agreement was signed by the creditors, along the lines that had been discussed with Dr Rintelen in October and November 1932. The Austrian Government refused to ratify, and applied for certain amendments to be made to the arrangements regarding the issue of bonds.

27 April 1933 A supplemental agreement was signed incorporating the amendments that the Austrian Government had agreed to re the issue of bonds.

29 May 1933 The Austrian Government ratified both of the agreements.

September 1933 The foreign assets company was formed, with Mr Terestchenko (a former Russian Minister of Finance) as General Manager. The new company was called the Societe Continentale de Gestion and was based in Monaco. Its' Board and Executive Committee was composed of nominees of the lntemational Committee and the Creditanstalt.

May 1934 The Creditanstalt absorbed the Wiener Bankverein and the Wiener Oesterreichische Escompte Gesellschaft under a scheme which involved an increase in the capital of the Creditanstalt to 167,000,000 Schillings.

July 1934 Dr Dollfuss, the Austrian Chancellor was assassinated. "Having regard to the disturbed state of Austria arising out of the death of Dollfuss, the Committee offered and the Austrian Government agreed that there should be an extension by one year during which the Government bonds were to remain in temporary form with no provision for sinking fund and with interest payable in "B" bonds and not in cash". The interim bonds had been due for exchange into permanent bonds on 1 March 1935.

February 1935 Van Hengel's contract expired but after further discussions with the Austrian Government, it was extended for two years.

December 1935 Dr Rizzi, a representative of the newly appointed Austrian Finance Minister, Dr Draxler,went to London, accompanied by Van Hengel and Rost van Tonningen to make an offer to the Committee. This offer was the immediate cancellation of the Government bonds provided in the 1933 agreement in return for an immediate cash payment in foreign currency coupled with Austrian Government Annuities also in foreign currency. This offer was to cancel the live claims against the Creditanstalt. The Creditanstalt would pay 60,000,000 Schillings to the Austrian National Bank who would make the equivalent foreign exchange available to the foreign creditors and an annuity in foreign currencies equivalent to 2,000,000 Schillings for twenty years.

29 January 1936 An agreement was signed along the lines discussed above, and also included limited control over the management of the Creditanstalt by the Committee.

11 February 1936 The agreement came into operation.

13 February 1936 Cash payments were released for payment to the creditors.

10 March 1936 The Government bonds representing the annuities were made available to the creditors and the participating preferred ordinary shares of Credit-Anstalt which had been held by trustees were also made available to creditors on demand. By the end of 1936, less than five years after the crisis, the claims of the foreign creditors had been satisfied, partly by a small payment in cash, representing about 15% of the total claim, and partly by a variety of securities, Gesco bonds and shares, Creditanstalt Preferred Ordinary Shares and Austrian Government Annuities.

30 June 1937 A proposal was carried at a General Meeting of the Credltanstalt,with the approval of the International Committee,to amend the share capital of the Creditanstalt.