THE LOAN AND MERCANTILE COMPANY.

Press, Volume L, Issue 8676, 28 December 1893, Page 5

THE LOAN AND MERCANTILE COMPANY.

(FROM OUR COK&KSrOKDBHT.] LONDON, November 17. When, I wonder, ahull I have tho pleasure of writing that tho reconstruction of the Now Zealand Loan and Mercantile Agency is a*, last an accomplished fact ? I fear that pleasure is not yet for mc. "Hope doferred" slill " makes sick tho hearts" of the unhappy shareholders in that Company, who, with a liability of £22 10a per share hanging over their heads, not unnaturally feel that they would welcome almost the worst in preference to this long-protracted suspense.

But I do think that things seem to be shaping themselves a littlo more definitely just at present. To understand the situa tion, it ia necessary to group the parties concerned into three distinct bodies—apart from the shareholders. There are—lst, The secured debenture stockholders, with Baron Sohroederat thoir head ; 2nd, one specially secured creditor, the Bank of Now Zealand l 3rd, the unsecured creditors.

Now Barou Schroeder and hie party believe themselves to have amplo security for their £1,300,000 debenture money in the shape of the uncalled capital of the Com' pany. The Bank of New Zealand knows its security to bo an abundant cover, even if realised on forcod sale. Therefore, in existing circumstances, were liquidation to be compulsory, the Bank of New Zealand certainty, and Baron Schrooder and Co. probably, would come out all right. Bat the prospects of the unsecured creditors would be much less cheerful.

In these uiroumstanoee it might bo thought that Baron Schroeder's policy would be to press for a settlement, regard lose of any interests save those of the debenture stook holders. But there is another side to this. Great indignation prevails among tho holders of unsecured debentures at the course which is found to have been pursued iv hypothecating over their heads tho wholo of the uncalled capital as socurity to the favoured holders of tho consolidated debenture stock. They vow vengeauco if they are left out in the cold. If Baron Sohroodor were to enforco his claim it would bo stoutly resisted on the part of tho unsecured creditors. From what I can gather, Baron Schroeder's eocurity is legally valid. Bnb it is held by some that if it wore contested on equitable grounds and as giving an undue preference to partioular creditors, even if it were not upset, the matter might bo fought from court to court up to the Home of Lords, and would not b» settled for at least three years, all of which timo law costs to an alarming amount would be naming up. The law is proverbially uncertain, and if tho result should bo tho upsetting of the security, the last state of thoso debenture stock holders would be infinitely worse than the firet.

Then again much unpleasantness would ensue. Nasty things have boon said already about Che creation of this security at all. Much nastier things might be said and thought if this select knot of securod creditors came in and "scooped tho whole pool," leaving nothing whatever for the unsooured ones, who had fondly imagined themselves to stand on precisely tho tamo footing. Altogether it is believed that the debenture stock holders will deem it their interest to deal liberally with the Company and that no further difficulty on their patt is probable. Next, as to tho Bank of Now Zealand's position in the matter. Its security is even better. It does not consist oC uncalled capital which can be realised only at the cost of causing widespread distress and incurring consequent odium. No; it in good, solid, tangible property, which could be realised by gradual vale, and which is morally certain to yield fully 20a in the £ on the Bank's claim, and most likely niuol , more.

The Loan and Mercantile people I under 4 stand want the Bank of New Zealand to forego this advantage, or, at any rate, » part of it, and to relinquish or slacken theie grasp of thU security, so that it may once more be practioaPy in the possession* of the Company. But I cannot, quite mak* out what they have to offer in return for this proposed waiver. It aeoma to mo that under a>l the proposals that have been made—l am not permitted to dieclose their precise nature —the Bank would be left in a muoh worse position, and would no longer be able to rely on fulfilling its assurance to its own shareholders that the tseoucity would realise f ally 20a in the £. There has, I hoar, been some talk to the effect that if the Bank will not forego U« lion it will be tho means of coinpoJling liquidation and thus incur sorioue unpopularity, owing to the widespread loss which a compulsory liquidation of the Loan and Mercantile would involve.

This, however, is mere sentiment, which ie necessarily over-ridden—at leant so it seems to me—by the assurance which tho Bonk Directors gave to their shareholder* as to the value of the security. What could they say in explanation if after all, through their own voluntary concession, a eeriouu loaa should be made ?

I hear, on what appears to be good authority, that the Directors, while unable to entertain the proposal of the Loan and Mercantile Committee here, made a connter* proposition, the essence of which is the concession of suoh ample time for settlement of their claim as to plaoe the Loan and Mercantile in a very favourable position iv tbe matter. Further negotiation!) wilt doubtless ensue before a final arrangement is come to, but as the New Zealand Bank Directors arc understood to be anxious to do all in their power to meet the Views of the Lnatt »io4 Mercantile Committee, subject to tho condition that the assurance of 20s in tho J? shall be preserved to their own fthaw holders, I am not without hope.that thf outcome will be favourable.

One consideration should "make for : ' thin result. Ifc ie the. opinion of capabhi judges, after a close itivcutigation ot tbv* assets, that a call of the whole £22 10t per sharo which woald bo necessitated by liquidation would not realise any znorp than the £5 10s per share spread over two or three years proposed under the sebem* of reconstruction),

Shareholders might struggle, and successfully, to pay £5 10b, with two or thro* years to do it in, and most likely would manage it eomehow, so an to preserve th« capital they had already Bunk in the concern. But a demand for tho whole £22 10* per share would be ho absolutely impossible of fulfilment that many of tho shareholder* would abandon all liopo at once and would Seek tho aid of the friendly whitewash brush—iudeed, would have no alternative. It ia even believed that tho £22 10s culled up in liquidation would realise leu than the £5 10a called for purposes of reconstruction * "

Such at any rate is what I understand to be the position at the time lam writing, and on the whole I think it contains mor* hopeful features. Failure to reconstruct would mean & fresh public diaAeUer to Hew Zealand. There is no mistake at all about that.

ft is extraordinary how many people both in New Zealand and h<*ru scorn to have purchased additional aharee on the very eve of the suspension. I heard only yesterday of one retired gentleman ot moderate mean* who had bought 400 slmien as a good investment of part of bin little competence) two or three days before the (suspension w*# announced. Liquidation would mean to him the total loan of his inve«U;<l capital and the liability to pay up £9000 beside*. Most of the London papers* have let the Loan and Mercantile severely alono einee the suspension was announced and commented upon. The Standard %n<\ the Financial Timet have a shot at it now and then, and that is about a)i, and it does not matter very much. But what docs mailer very much indeed, direotiy ot , indirectly to everybody who is in any way interested in New Zealand is that liquidation should bo averted and reconstruction accomplished,; Latkk,

T. '<" morning I was informed that every* tiling t.a< ficltled at last about tho Loan aud Mercantile. The Heotch debenture holdora had agreed to ttie terms offered. That, I believe, is correct. Also the Bank of New Zealand (so I was told by one of the leading financial authorities in the city) had been settled with. I gathered that tho settle* raant consisted in acceptance by the Loaa and Mercantile o! the Baak'a couate* proposal. However, on enquiry at the Bonk of K*^

2taJsad this afternoon I was informed that tit* Bank »* any rate had no knowledge of aBT each wttleteeo* hating been arrived at. N« reply had yet been received to the RjaL'« counter proposal. Nothing less •%»n 23s in the £ wtrold or could b* »coef ted cjj the B*nk, and that the L. and V exd wit w»nt to pvi However, there ic»V' rt ** o* o^^*, * ol * deU y tetvn a final is reached. . Mr Jaees Ferfcsson wu closeted witn xk* Ff«»iietit*ad ilan»gerof the Bank for a !<X£ ttxe this afteroooo. Up to the clcsssg of my letter nothing definite hid resulted.