Weekend Economists Examine the Root of All Evil: February 28-March 2, 2014

[Demeter]

3. The Creditanstalt: the bank that started the Great Depression and WWII

The Creditanstalt (sometimes Credit-Anstalt, abbreviated CA) was an Austrian bank based in Vienna.

In 1820 Salomon Mayer von Rothschild (1774-1855) established a first bank in Vienna, then the capital of the Austrian Empire. In the course of the beginning industrialisation, the Rothschild bank financed large development projects, like the building of the Emperor Ferdinand Northern Railway to the Moravian mining regions. Rothschild also acted as generous lender of Austrian state chancellor Prince Klemens von Metternich and granted copious credits to the Bohemian and Hungarian aristocracy.



Former Creditanstalt headquarters, Vienna

The Creditanstalt itself was founded in 1855 by Salomon Mayer's son Anselm von Rothschild as K. k. priv. Österreichische Credit-Anstalt für Handel und Gewerbe (approximately translated as: Imperial royal privileged Austrian Credit-Institute for Commerce and Industry). Being very successful, it soon became the largest bank of Austria-Hungary.

Anselm's son Albert Salomon von Rothschild assumed the direction of the Credit-Anstalt in 1872, succeeded by Louis Nathaniel von Rothschild in 1911. In 1912 the new headquarters in Vienna's Innere Stadt central district opened in a lavishly decorated Neoclassical building, which is still preserved up to today.

First Republic

The business situation dramatically changed with the lost World War I and the dissolution of the Austro-Hungarian monarchy. In the late 1920s, a principal debtor, the Steyr-Werke AG faced financial difficulties, with bad loans leading to a drain on finances. In October 1929 the Austrian Schober government compelled the allegedly well-financed Credit-Anstalt to assume liabilities, which together with the simultaneous Wall Street Crash entailed the imbalance of the then largest Austrian credit institution.

Creditanstalt had to declare bankruptcy on May 11, 1931. This event resulted in a global financial crisis and ultimately the bank failures of the Great Depression. Too big to fail, Chancellor Otto Ender had the CA ultimately rescued, distributing the enormous share of costs between the Republic, the National Bank of Austria and the Rothschild family. Plans of a nationalisation schemed by the Social Democrats were rejected. However, the institute was de facto state-owned after Chancellor Engelbert Dollfuß in 1934 ordered the merger of the institute with the Wiener Bankverein, thus changing its name to Creditanstalt-Bankverein.

Following the Austrian Anschluss to Nazi Germany in 1938, Creditanstalt-Bankverein was targeted for both financial and racial reasons. Louis Nathaniel Rothschild was immediately arrested and imprisoned for the losses suffered by the Austrian state when the bank collapsed. Aggrieved and disseized, he emigrated to the US in 1939 after more than one year in custody.

Creditanstalt-Bankverein was later taken over by Deutsche Bank, patronised by Hermann Josef Abs. Though CEO Josef Joham made contact with the US Office of Strategic Services, Creditanstalt also settled the financial issues of several Nazi concentration camps as well as the "Aryanization" of Jewish-owned businesses, like the re-establishment of Sascha-Film as Wien-Film Limited.

Second Republic

After World War II, the bank was finally nationalised by Allied-occupied Austria in 1946 and became mainly a commercial bank and highly involved in Austria's economy, holding stakes in important Austrian companies such as Wienerberger, Steyr-Daimler-Puch, Lenzing AG and Semperit. From 1956 onwards, CA was again partly privatised by issuing 40% shares, though only 10% common stock.

In 1981 the former Social Democratic Minister of Finance Hannes Androsch assumed the office of a general manager, after he had left the Kreisky cabinet. Industrial interests were reduced, while the government share fell to 51%. In the 1980s, CA opened branches in London, New York and Hong Kong, the international orientation towards East-Central Europe was boosted by the fall of the Iron Curtain upon the Revolutions of 1989. Nevertheless, after several difficult lending operations, Creditanstalt became an acquisition candidate.

In 1997, the state-owned shares were sold to Bank Austria (BA), resulting in a crisis in the ruling coalition between the Social Democratic Party and the conservative Austrian People's Party, since Creditanstalt had to be considered part of the conservative sphere of influence, whereas BA with its roots as Red Vienna's Central Savings Bank (Zentralsparkasse) was considered standing politically left. The merger was not finished until 2002, with the creation of Bank Austria Creditanstalt (BA-CA), which became part of the German HypoVereinsbank (HVB) group. In 2005 HVB was taken over by the Italian UniCredit holding company. After 153 years, the bank name Creditanstalt was finally erased in 2008, but survived in the CA Immo subsidiary. https://en.wikipedia.org/wiki/Creditanstalt

It was this collapse of Austrian banking that impoverished the von Trapp family, sending them into the life of the Trapp Family Singers. The Anschluss was just the frosting on the cake that forced the family into exile in America.