A FAILURE.

Auckland Star, Volume LXVII, Issue 306, 26 December 1936, Page 17

A FAILURE.

FEDERAL LOAN.

SEARCH FOR THE REASON

EXPERTS AT VARIANCE.

(From Our Own Correspondent.)

SYDNEY, December 16.

In pursuance of the financial programme agreed upon at the last Premiers' Conference, jx. Commonwealth loan for £7,500,000 for public works throughout Australia was opened for subscription 011 November '20. The loan was issued at 07.J with interest at 3| per cent for 15 years —giving ; an actual yield to the investor of almost exactly 4 per cent. The flotation was introduced to the general pnblic by the Federal Treasurer, who in a public announcement pointed out that the loan is in every sense a gilt-edged security, as it is backed by the six State Governments and the Commonwealth Government as well. At the outset four of our strongest insurance companies—A.M.P., Mutual Life, National Mutual, and Colonial Mutual had agreed to take up at least £7.30,000 between them, and for the benefit of small subscribers amounts as low as £10 might be taken up. Mr. Casey in his remarks on the loan offered a general justification for the public works policy, pointing out that such facilities for progress and expansion as railways, telegraphs and supply of water and electricity cannot in such a country as this be provided out of revenue only, and that to supplement their financial resources for these purposes our Governments are compelled to borrow. At the same time, he expressed the view that "the continued steady improvement of economic conditions in the Commonwealth should ensure the success of the loan." Backing For Loan. The Federal Treasurer received quite an adequate amount of backing from the Sydney Press. The "Sun" pointed out tiiat the return, though nominally low, is in reality higher than the rate of interest earned by the best industrial stocks at their present prices. It argued further that, by borrowing in our own money market in preference to London, wo would keep money in the country, and we would not increase the heavy burden of interest payable overseas. A few days later the "Sydney Morning Herald," though deprecating any undue expansion of our public debt, argued that "the loan is necessary because the development of Australia must not stand still." It enlarged upon the need of those material facilities for transport, trade and the growth of social life without which settlement, production and progress are all equally impossible, and it agreed with Mr. Casey that "the provision of such a rate with money raised in Australia is a far sounder proposition than with ,money raised abroad." Under such benevolent auspices, the loan had as good a "send-off" as even the Federal Treasurer could desire, and it must have been something of a shock to Mr. Casey—as it certainly was to the general public—to learn that the flotation has been a distinct and decided failure. The loan was to be closed down not later than December 11, but even before this date it was officially recognised that the sum required would no't be raised. When the fiifftl returns were compiled it was announced that the total applications amounted to only about £.■>.">00,000, leaving a balance of £2,000,000 —nearly a third of the whole— to be taken up by the underwriters, who are in this case the Commonwealth Bank, the private banks and the insurance companies. The total number of subscriptions was 0700—not a very encouraging return from the whole Commonwealth —and 111 e failure of the investing public to take this flotation seriously enough makes it necessary for the Loan Council to devise other ways and means, for carrying out the Public Works programmes in the various States for the next twelve months. "Not Entirely Unexpected." Naturally the failure of this welladvertised" flotation has produced a great deal of public comment and discussion. The "Sydney Morning Herald," after the first shock had expended itself, told its readers that "in view of all the factors operating, the comparative failure of the Commonwealth loan must not be regarded as entirely unexpected." But surely the "Herald" is wise after the event. Tt is true that the June loan of £9,000.000 was under-subscribed by £1,800,000, but it can hardly have been expected that this present loan would fiire worse. Endeavouring to find reasons for the failure, the "Herald" rather deprecates the idea that the constitutional crisis through which the Empire has just passed would have'had any serious effect on our local finances. This seems to have been at least in part the excuse advanced at Canberra for the failure of the flotation, but Mr. Casey was 011 safer ground when lie ascribed this 1111 -! expected rebuff to "the large amount of money flowing into private enterprise." As'the "Financial News" pointed out last week, there is a general tendency toward the hardening of interest rates just now, and the "Sydney Morning Herald" is probably correct in attributing the failure of the loan chiefly to the reluctance of our moneyed men to leave large sums invested at so low a rate as 4 per ctffit for so long a period as 15 years. But the "Sydney Morning Herald" supplies a further reason for the failure of a more ominous character. Tt admits that the last Premiers' Conference developed into something very like a pitched battle between the Loan Cauncil and the Commonwealth Bank, and it regards the lack of sympathy and co-operation thus disclosed as one of the chief sources of this failure. Disputes in Public. But there is another phase of this lack of harmony and unity in our high financial circles that seems deserving more than passing attention. The "Financial News" glances at this aspect of the position when, in commenting 011 the failure of the loan, it advises Australia to "tighten up her internal monetary and banking discipline." Both the "Financial News", and the "Sydney Morning Herald" have commented 011 "the lack of close co-operation in the Australian banking system." But while this charge always holds good in a general way, it happens that within the past few months it has received rather startling exemplification. There has been a public dispute between Sir Claude Meading, the chairman of the Commonwealth Bank Board, and Mr. A. C. Davidson, the general manager of the Bank of New South Wales, in which these two eminent financiers charged each other with misrepresenting the I policy of their respective banks and their intentions with regard to" rates of interest and the expansion of credit.

The discussion was conducted with some bitterness, but in a more or less dignified way; but this description hardly applies to an even more acrimonious quarrel "between our Premier, Mr. Stevens, and the Federal Minister, Mr. Casey. At the Loan Council meeting Mr. Stevens vehemently opposed the efforts of the Commonwealth Bank, supported by the Federal Treasury, to cut dowi} the State grants, and after the amount of the proposed loan was fixed, he attacked publicly the "deflationary" policy favoured by Mn Casey. Mr. Casey replied with vigour and asperity, and there ensued a public controversy, ill which Sir. Stevens declared his conviction that Mr. Casey "does not understand the fundamental principles of finance," and Mr. Casey delivered himself of the following estimate of our Premier as a financial authority: "If Mr. Stevens' knowledge of public finance is reflected in his recent Press articles 011 monetary policy, and in his unwarranted attack on the Commonwealth Board, it is impossible to credit him with more than a superficial outlook on the principles of sound public finance. But whatever his knowledge of finance may be, it is abundantly clear that he is ready to sacrifice all the universally accepted principles of sound finance, provided, that someone else assumes the grave responsibility of endangering the position of Australia." It is not necessary here afid now to consider whether these "alarums and excursions" really portend a "duel to the death" between Mr. Casey and Mr. Stevens for the post of Federal Treasurer —for so Mr. Stevens' enemies maintain. But it is quite certain that the sense of insecurity engendered by these squabbles between our leading financial experts have contributed something toward the failure of the Federal loan.