The 1920s saw the emergence of numerous shady characters in the history of finance, the product of a buoyant stock market amidst imbalances beneath the surface. These anti-heroes tended to have something in common, they were really good at raising lots of money. A Frenchman of the period, Albert Oustric, was able to put his capital raising skills to use selling shares in businesses at multiples of their real valuations.

           Unfortunately, much of this ‘skill’ involved manipulating stock prices with phony trades or by purchases of shares in his companies financed with borrowings from associated banks, risking their deposits with these dubious schemes. When the stock market crashed in 1929, Oustric’s lauded financial skills couldn’t save him, or his firms, or the careers of associated politicians and others, from ruin.

Albert Oustric

            In 1887, Albert Oustric was born the son of a café proprietor in Carcassonne in Occitania. He became a waiter himself in a Toulouse café and later a manager of a wine and liquor store and then a legal clerk. Oustric worked during the First World War as an accountant in a factory making artillery shells. Around this time, he inherited the rights to a waterfall in the Pyrenees and managed to form a hydroelectric company to develop it for electrical production while there was significant national interest in such projects due to shortages of coal. It was Albert Oustric’s first foray into capital raising and he proved to be successful at it. With that skill, he rose from total obscurity to become a very wealthy, and infamous, financier.

Albert Oustric

Holfra and Banque Oustric

            After the war, in 1919, Albert Oustric founded his own bank, Banque Oustric & Cie. It started with one million francs in capital, increased to five million francs in 1920 and fifteen million in 1921. Hereafter, Oustric made millions of francs in speculations and also continued to find great success in placing securities through brokerage firms. The firms whose securities he dealt in were usually small and obscure, and sometimes foreign; one of his placements was that of Huanchaca, a Bolivian silver mining company.

            The path to tremendous wealth looked something like this: Oustric created a holding company called Holfra, short for ‘Holding Français’. Thereafter, he bought control of several firms, often from founders, particularly in the textile and shoe industries. He consolidated their debts, making them healthier. Then he would have these businesses issue new stock, often for multiples of three, four, or five times what he paid for the businesses and he was successful in selling these shares. Increasing his resources, Oustric also issued stock at Holfra, the holding company level. This gave him the resources to buy control, or significant minority positions, in still more companies.

            It was not just shares he issued. Oustric also had these firms borrow money, at least in part by having them issue bills on which funds would be advanced by the Banque de France through its discounting of bills. By these means, tens of millions and even hundreds of millions of francs could be raised. This was money that he used for lending and for more speculative activities.

            Besides Huanchaca, another portfolio company was an Italian synthetic fibers company, Snia Viscosa, which Albert Oustric was instrumental in getting listed on the Paris Bourse in 1926. The founder of this company, a businessman who was the Italian parallel to Oustric, Riccardo Gualino, became a partner to Oustric, extending him more capital. Still, bringing foreign issuers to market after the First World War was challenging as the markets were fractured as a result of capital controls. Thus, raising capital for a foreign firm on the Paris Bourse required the approval of the Ministry of Foreign Affairs and the Ministry of Finance, as France had regulations in place to deter capital from flowing abroad. Nonetheless, Oustric received approval, a fact relevant to the later political dimension to the story.

            Oustric developed an incredible reputation. He was regarded as a respectable savior of smaller firms and a skilled financier and salesman of securities. Among his illustrious posts was that of board member in Automobiles Peugeot.

Stock Market, Boom and Crash

            While the stock market made raising capital easy, Oustric’s family of businesses grew quickly. Banque Oustric meaningfully expanded its capital still further, to twenty-one million francs by 1926, fifty million francs by 1928, and one hundred million by 1929. He then bought an interest in Banque Adam in 1929, a bank with a history going back to the 18th century which had been recently expanding in its north of France home market. Thus, Oustric could now add a mountain of deposits to his sources of capital.

            By the late 1920s, Oustric controlled or held large minority interests in a myriad of firms. He ran what was essentially a bank with a large and eclectic investment portfolio strapped beside it. However, Oustric’s practice required the stock market to be strong and credit available. Unfortunately, a strong market also meant he was buying control of companies at high valuations. As long as the market for shares was strong enough though, he could always recoup his investment by issuing new shares but this occasionally meant supporting the share prices in the companies he controlled. So, Oustric bought these shares when the market was weak in order to be able to keep issuing shares in the future to investors pleased by their past performance.

            However, this strategy required that stock prices kept appreciating, with softness coming infrequently and sticking around only briefly. If the market turned for good, then the strategy could continue no further. This is exactly what happened.

           After the stock market crash of 1929, Oustric ran out of resources to keep supporting the share prices of his firms. He had even resorted to using resources from the Banque Adam to support the prices of the shares and was accused of having done the same with money from other banks associated with him. By 1930, the stock market had weakened for too long for Oustric’s strategy to pull through the crisis.

Failure and Scandal

            In November 1930, the two banks most closely associated with Albert Oustric collapsed. Banque Oustric & Cie. had 777 million francs in assets but over 1.1 billion francs in liabilities and this does not consider the hole at his other firms. Losses were estimated at 1.4 billion francs or $56 million. Banque Oustric was the first to fall, failing on November 7 but it soon dragged down the other banks connected to Oustric. Banque Adam had exposure to Banque Oustric, causing it too to fail. This was not a small bank; in the north of France, it had 167 branches. The government came to the rescue of Banque Adam.

            Albert Oustric was accused of fraudulent trading on the Paris Bourse, essentially creating dubious trades to affect quoted prices, and misappropriating funds. The Ministry of Finance was looking into his illegal attempts to keep stock prices artificially high. There were three lawsuits against him and Automobiles Peugeot lost sixty million francs due to its involvement with Oustric. Albert Oustric had sought support from politicians, some of whom he counted among his friends. A couple of well-known under-secretaries in government were among his bank’s clients but there were far more concerning connections than this. Opposition politicians brought the political connection to the nation’s attention.

            It turned out that Raoul Péret, Minister of Justice, had been Banque Oustric’s attorney and resigned as result of his association with the failed financier. In a previous posting as Minister of Finance, Péret had approved the listing of Snia Viscosa in his final days in that office and did so against the recommendation of his advisors. Within a few months, he was hired by Oustric. Combined with his approval of the Snia Viscosa public offering, his role as counsel for Oustric was not acceptable and caused the Prime Minister great embarrassment.

           The government of Prime Minister André Tardieu and the Chamber of Deputies competed to lead investigations into the matter. The Chamber of Deputies won and organized its own commission to investigate the matter. In the end, the scandal led to the ousting of Tardieu as Prime Minister the month after the banks failed. This was not unprecedented; political scandals originating in the financial sector were common in France and had brought down governments before.

           The end for Albert Oustric and the resulting political scandal came amidst a slow-moving wave of French bank failures, particularly among small and regional banks and especially privately-held banks, often backed by one person or family. Between October 1929 and September 1937, six hundred and seventy banks failed in France. For his part, Oustric was imprisoned for 38 months.

Lesson

            The story of Albert Oustric is reminiscent of Ivar Kreuger, a contemporary whose operations on a far larger scale also involved a buoyant market allowing questionable characters to raise capital on a considerable scale. However, these schemes were not usually truly profitable and invariably required consistently raising still more capital. The 1920s were an era of change amidst excess; markets were enthusiastic but the true financial health of firms, banks, and governments was far from perfect. So, hardly for the first or final time, those characters who could connect needy borrowers to the markets, and sell shady securities to investors, became significant figures in financial history. However, in times of recession the most unscrupulous sorts of salesmen are found out.

More from the Tontine Coffee-House

           Read about Ivar Kreuger, who also raised capital for unsustainable schemes in the 1920s, and financial scandals involving salad oil and stamps. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts. 

Further Reading

1.      Bonin, Hubert. “Oustric, un financier prédateur ? (1914-1930).” Revue Historique, vol. 295, no. 2, spring 1996, pp. 429–448.

2.      Cassis, Youssef. Private Banking in Europe Rise, Retreat, and Resurgence. Oxford University Press, 2015.

3.      “France and Belgium.” Current History, Jan. 1931, pp. 609–612.

4.      Philip, P.  J. “Tardieu Faces Test in Financial Inquiry.” New York Times, 21 Nov. 1930, p. 12.

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