RECOMMENDED.

Auckland Star, Volume LXX, Issue 23, 28 January 1939, Page 4

RECOMMENDED.

BANK OF NEW ZEALAND SHARES. GILT-EDGED SECURITY. The ordinary sTiares of the Bank of NewZealand, based on present market valuation of 38/6. can be recommended as a sound investment for the following reasons:— The annual dividend is 10 per cent, so that the return to the prewent purchaser is approximately 5 l-o per cent per annum, which must be considered an unusually generous yield from a banking investment. Xo security in the Dominion, not excepting Government stocks, can be considered as superior to that of the Bank of New Zealand. Despite the advent of the Re-

serve Bank, which has taken over various functions formerly left with the tradinc banks, the "8.X.Z.," with over 230 branches operating throughout the Dominion, is still the sheet anchor of the country's finance. With a paid capital of over £6,000,000 —second only amongst banks trading in Australia and Xew Zealand to the Bank of New South Wales—it has disclosed reserves of nearly £4.000,000, to 6ay notliing of those that are hidden. At last balancing its percentage of assets to public liabilities was nearly 112, and of this percentage over half, actually 64 per cent, was liquid and could be promptly realised if ever such a course were deemed necessary. It is no exaggeration to say that the financial position of the bank is such that it is virtually impregnable.

- Position of State. Occasionally timid investors ha\e voiced the fear that the Labour Government would interfere with the bank, and the rumours to this effect are largely to blame for the shares being priced as low as they are at the present time. In September, 1936, the shares dropped to the present level of 38/6 from this cause. However, these fears proved groundless and the shares moved up again. To date there has been no interference with the conduct of the bank, and, so far as can be judged from the published utterances of Ministers, there is not likely to be. It should be remembered that any action detrimental to the country's chief financial institution would be reflected against the State, not only indirectly through the community as a whole, but also directly, as the Government holds one-third of the bank'* shares and appoints four of the six directors. For the Government to use its powers to damage the '"B.X.Z.'" would be equivalent to cutting off one's nose to spite one's face. State Buys Shares. There is another possibility, namely, that the Government might take over tlic privately-owned shares to make the bank solely a State institution, but it is difficult to see what inducement the Minister of Finance could have to face such a venture. To pay out ordinary shareholders at present market rates would require over £7,000,000, and it is scarcely conceivable that Mr. Xash, who has his hands well filled at the moment, would care to add such an undertaking to his present responsibilities. It must be remembered that the Prime Minister has repeatedly given definite assurances that any resumption of shares would be made at current market rates, as was the case with the Reserve Bank and the Mortgage Corporation. So much for the security of the investors' capital. Consistent Earnings. Now for its earning power and dividend payments. Profits both gross and net have been remarkably steady over the past five years, and the dividend rate at 10 per cent per annum has been unchanged. For several years there was a feeling among investors that the rate might be lowered, especially during the slump period, but, although net profits were on two occasions short of the amount necessary to pay this rate, the directors made no change in their annual recommendation. Presumably they knew from their inside knowledge of the bank's affairs that the payment was fully justified. There was a renewal of disquieting rumours after the present Government had made fresh appointments to the board, but events have again falsified the pessimist#;. It is true a fall in profits, which conceivably may come this year, might cause the board to consider a reduction in dividend, but, judging from the past, it is reasonable to assume that such a

course would not be adapted unless the decline in earnings was very substantial. Even at 8 per cent to-day's purchaser would still receivp over 4% per cent per annum on his outlay, which on a pitedged security is reasonably satisfactory. It is more than likely that operations for the current financial year, namelj, from March 31 to December 31, have been profitable, as advances from all the trading banks have been maintained at the highest level in recent years. Moreover, the action of the directors in declaring an interim dividend at the unchanged rate of 10 per cent per annum bears out this surmise, for it is a generally accepted practice in banking and other important financial institutions to fix the interim rate at a level which there is a reasonable prospect of maintaining for the full year. It is likely that there will be a contraction in revenue during the remainder of the financial year in consequence of the Government's restrictions on imports, but the results for the full year should be reasonably satisfactory.