THE BANK'S OFFER.
The offer of the Bank of New Zealand to raise £1,125,000 in new capital and lend this sum to the State Advances Department, which offer Mr. Massey has accepted, is convenient to all parties. The bank gets a gilt-edged security for £1,250,000 of invested money, at 5J per cent, and through'the increase of capital is enabled to distribute more profits. The Government is saved the trouble and expense of going on the London market for advances money. Mr. Massey recently announced that he was going to raise f400,000 a month there for this purpose, but the bank's offer will take the place of thia. By raising the money required in this way in New Zealand, instead of in England, the Government saves the cost of getting the money out, two per cent, and flotation costs. But the Government gains more than that. It will not only be able to tax the bank on the income from the loan, but as it will take up £375,000 of the corresponding issue of new capital, it will benefit as a shareholder in the bank. The Government's position will be that it will pay the bank 5i per cent on £1,125,000 and receive about 8 per cent, which was last year's rate on the "B" preference shares, on £375,000 of new capital. The hank, however, will gain more than is represented by the actual amount of the new capital. The fact that it has raised this capital, the equivalent of which will be invested in the beet possible security, will enable it to increase- its ordinary advances, so that really the effect of the proposal is to increase the bank's trading capacity by more than the amount stated. The last balance-sheet shows that with a capital of roughly £5,000,000 and reserves under two millions its liabilities were nearly £47,000,000, which illustrates the great difference between the actual capital of a bank and its business. With the new increase of capital the business will increase still greater. Whether, however, this provision will meet all moratorium needs is another question. It really makes no difference to the amount of money available for that purpose, for had the bank not made this offer, Mr. Massey would have borrowed the money in London. Moreover it is impossible to say how far this new supply of credit will go to meet needs that have never been even approximately defined. Lastly, the Advances Department is not going to help the men who have poor security. No loans from banks or postponement of the end of the moratorium will get them out of their difficulties; sooner or later they must face facts.
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Bibliographic details
Auckland Star, Volume LV, Issue 222, 18 September 1924, Page 4
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444THE BANK'S OFFER. Auckland Star, Volume LV, Issue 222, 18 September 1924, Page 4
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