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G - 192 : First Global Financial Center

There are many turnarounds in history but few are as impressive as Genoa's transformation from a Mediterranean trading hub to a global financial center. This transformation was life saving for Genoa but also hugely profitable. The Palazzi dei Rolli, the large Renaissance Palaces built in the 16th and 17th century are a vivid testimony to the enormous wealth the Genovese Bankers enjoyed.

The Palazzo Nicolosio Lomullino on Via Garibaldi in Genoa

The outlook in the second half of the 15th century was bleak for Genoa though. With the fall of Constantinople in 1453, the Ligurian Republic lost all the trade privileges granted by the Byzantine Empire over centuries. Even worse was the loss of the Black Sea colonies to the Ottomans in 1475. The lucrative trade with Circassian Slaves which the Genovese sold to the Mamluks in Egypt came to a halt. The fall of these colonies triggered the steep decline of the Genovese Republic which ceased to be a major European power. The French Kings invaded Italy and forced Genoa into an uneasy alliance with France.

By 1475, the Republic of Genoa's eastern empire was all but lost

The year 1492 changed it all, however. Columbus - probably not a native son of Genoa but an illegitimate Spanish nobleman - discovered the Americas and the Spanish Kings expelled the Jewish Community. Within a few decades Spain became a global super power but without the commercial elite necessary to run its business.

The Spanish Empire in the mid 17th Century (Spain & Portugal were combined for 60 years)

After the conquest of the Aztec (Mexico) by Cortes in 1519 and the Inka by Pizarro in 1532, large amounts of silver and gold started to arrive in Seville, Spain's port for colonial affairs. In the Casa de Contratacion the arriving precious metals were counted and recorded (if I could read old Spanish i would spend a summer in the Archive General de Indias in Seville). But then what? How could the wealth be used? Every year, more than 10 million "Pieces of Eight" (Thalers or Dollars), the equivalent of 250 tons in silver arrived. Spain's ruling class were conquistadores and latifundistas, not merchants or sailors. Luckily, the Genovese were both.

Seville in its heydays in the 17th century - the tidal port reminds me of London

For centuries, there was a small colony of Genovese merchants in Seville - their golden time had come. They were merchant bankers and knew how do deal with money. Charles V., the Spanish King, had a unique problem they could solve for him. Whilst the arrival of silver and gold from Latin America was irregular, his expenses were regular and followed budget cycles. The Genovese bridged with their own capital. In 1528, the small colony in Seville started to lend to the Spanish King at profit margins that make you blush. They charged 20 - 40% per annum.

Don't have a painting of Genovese Bankers but the painting from Quentin Matsys from 1514 "The Moneylender and his wife" is probably a good proxy (Flanders)

Not only did the Genovese bankers smoothen the cashflow of the Spanish Kingdom, they also conducted the necessary exchange operations which Charles V. needed to pay for his multiple wars. Many of the Spanish payments had to be made in gold, a metal rare in Europe. But the Genovese bankers knew how to solve this problem. Gold reached the Mediterranean from the upper Nile and the Niger in the Sahel. Whilst Spanish citizen were not allowed to trade with Muslims, the Genovese never had such constraints. They sold the Spanish silver to the Ottoman Empire for gold which was then used to build navies and armies to be deployed against the Ottomans. Quite a business at these margins!

Last but not least,the Genovese took care of the long-distance payments the Spanish King had to make to his armies in the Netherlands. The way by sea was too dangerous as more than one Spanish fleet was intercepted by the Dutch and the British.

The "Spanish Road" for Supplying the Armies in the

Netherlands by land to avoid the dangerous sea lanes

Rather than transporting the voluminous and heavy metal by land, the Genovese resorted to exchange bills which both Venice and Genoa had pioneered in the 12th century. Since the gold shipped to Brussels was to be used for sold, luxury goods and arm supplies, the money would find its way back to the manufacturing centres of Italy and the Mediterranean.

Bill of Exchange from 1398 for a trade between Bruges and Barcelona

Four times a year, the Genovese bankers held large fairs in the Italian town of Piacenza, which functioned as clearing houses. All merchants presented their Bills of Exchange (I owe you) which were then systematically netted between the participants until only a tiny amount had to be settled in cash, meaning gold or silver. If a merchant was short in species, the Genovese were happy to help with a loan. The Piacenza fairs made the Genovese bankers the masters of the universe of finance. There were only about 30 banker families from Genoa participating, but they had the capital and means to make things happen.

Charles V., the Spanish King, was so happy with the Genovese that by 1558, when the Spanish crown defaulted on the Fugger, its German bankers, he invited them to take their place. It was a risky move and exposed the bankers from Genoa to one single large borrower - something we call concentration risk today. But at 40% margin p.a. it was a risk they were willing to take.

Palazzo Reale on Via Balbi in Genoa - construction started in 1618 - it is open to the public

It is estimated that from 1545 to 1790, over 4 billion "Pieces or Eight" (Thalers or Dollars) or 100'000 tons of silver were handled by the Genovese bankers. We will sail this summer along the route the Spanish silver took to Europe. It was the first time that banking came into its own right and was more than just financing trade. No wonder that the future partners of the Geneva Private Bank Lombard Odier were sent to Genoa for their apprenticeship.

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