THE DIRECTORS' SCHEME.

Press, Volume LII, Issue 9199, 2 September 1895, Page 2

THE DIRECTORS' SCHEME.

Sir,—As requested by yoa last night, we hava now tho bosonr to submit herewith

proposals for putting the Dank of New Zealand into a sound position. We would re-pe-tiuliy direct your attention to the following necessary comideratiuns to enable a Bauk carrying on such a largo business as the Bank of New Zealand, to maintain its position:—The tirstclass credit of the institution is pat amount, both to insure the confidence of depositor and to enable it to conduct the vast business connected with the trade and industry of the colony. The removal of the incubus represented by the attachment of the Estates Company to the Bank, which, under e_istin_; conditions, must appear in the Bank's ba'.acce sheet, aim is properly a suojsc. for attack, and for injurious comments from opposing bank ing institutions, both in and out ot the colouy. The importance of tiie Government Bank having the confidence of the financial discount mouses in Loudon. Toe confidence of the shareholders of the iuadtution, which, owing to the uncertainty of .*,-> financial position, must to some extent ba weakened, acid the goodwii. aud active cooperation of a large body ot shareholders in such a colonial institution is desirable. Under tho existing conditions we regret to say that many of the foregoing desirable couditiousdo uot exist. The balance sheets of the diffetent iustitutions attached to the Back, which are in your possession, will, we apprehend, clearly demonstrate that ou the 30th of August next the placing before trie shareholders of the true position of the institution would be certain to have a disastrous effect. In order to enable the Lank to be rehabilitated, we

would, after anxious and careful delibeiation, submit the following proposals :—The capital of the Bank is £2,000,0.0 (A) stock, called capital, but in reality and effect a fixed loan on deposit of £900,000 in 100,0C0 shares of -35 5s each -v.l 5000 shares of £7 10- each. B sides the above, there is a cull of one-third, of which the last is due on the 25th of November next. This is estimated to produce £450,000. (b) Wo propose that the £900,000 capital aud the proceeds of the cab, estimated at £450.000— total £1,350,000 —- should be applied as follows : — £376,900 to " writing ofi the existing bad debts of tbe Ba.uk, £200,000 to be put to a contingency fund for writing off existing debts which may hereaftei prove to be irrecoverable, the balance—about £773,100—t0 writing down the £>'atos Company shares in Uic Bank's books, and to be applied in tht books of the Estates Company in the wiping off of the deficiency against which no assets exist, aud in writing down to the latest valuation all tho c a setother than the freehold properties in New Zealand and stock nnd implements, (c) Iv lieu of the £900 000 capital written • tf and the reserve liability written oil aud otherwise applied, it will be necessary f r the Bank's credit to create £1,000,000 of fresh capital, and this wa woulu propose should be done by the Government subscribing for thai amount in pieference shares to cany a 3j per cent, per annum cumulative dividend on the amount paid up, payment to be made by the Government for these shares in Government securities bearing 3. per cent, pur au-uin, payable in London. It will not be nec.ssaiy that the money tor these shares should be paid into the Bank at once, or that tue whole of it should be p*id at all; bat that the shares should be subscribed lor we conider absolutely ueces;-ary. We, therefore, suggest that pay.neut for the shares should be made from tune to time as ague l up m belweeu the Bank aud the Government, and that the Bank may from time to time re-purchase these shares at a pi ice tqu&l to par value with accrued inieiest. (v) We would propose to crea c deferred snares amo mtiug to £1,400.000, ranking at pari vastu with each otuer ; tne-ie «haies to be issued as fully paid up, free from other liability, aud to be divided as fonows:—£9oo,ooo iv 150 000 shares of £6 each to be issued, share

(>er share, to such of the present shareholders as pa* up the call on one-third of the r«*s-rve_ liability ; £500,000 in shares of £:0 each to be heid by tho Assets Boar a as hei't-inafter pioviJed against a po-sihle deficiei.cy on the realisation of the freeholds iv Ne>v Zeal-nd, auo stock and implements. The dtvideuds, when earned, to be payaole on these deterred shares, but not witmiut the consent of the ('ootiiil Treasurer so long as the £2 000 000 *' A " sock is outst~. The ui.inuy shareholders of the Bi.uk are to renia v liable for the whole oi tho reserve iiauiii ies, and may uot transfer the dtfened sates without ue sauction of the Buik. All ordinary shares aro to ce-ise to carry dividends, and aUcr tho next half-yearly m--e;iug any voting rights ot the remaiuiug two-thirds of the i-e-erve liabi ity to be .lypothecated to the Assets Board as security fur the deficiency, huJ to be called up us tiie Colonial Tiettsurer from time to time requires. Tue estates with their stock and implements and the other freehold properties in New Z*--aluud, to be taken over by the Government at the present book values at which they t>tmd in the books of the Eiate Company, and vested in a Board of A Iminihtiat.ou, to bo called '* the Assets Board." and to consist of a Chan man aud two Directors, to ba appointed by the Government, aud to re-eive from Goverum tit 5_ per cent, eecmiriea, payable in Loudou. The Assets Hoard are to administer and realise the asselß taken over, and are to keep au account,pu ting on the one si tela) the total coat ; (b) interest payable on tbe securities for the c >st; (c) charges, outgoings, and expenditure of the Board ; and on the other side -(a) all proceeds from realisations; (b) a I income from the properties held or other revenue; (c) proceeds of further calls on reset ye liability; (d) dividends on the £500,000 deferred shares ; (c) any baKnce of the £200,000 contingency fund not required to make good deficiencies on auy piese.it debts duo to the Bank. Any deficiency after realisation of properties is.to be marie good (a) by proceeds from any remaining reserve liability of the Bauk shareholders, and (b) if after that a deficiency should still remain by sale of so much of the £500,000 deferred-hares as may be requisite. Any of the fifty thousand deferred shares not required are to be cancelled, and any part of the res. rye liability fuud not required is to bs likewise cancelled. Auy cre.iic balance to the realisation account; to go to the redemption of "A" stock. 1 he Government to have the appointment of one Director of the Buik iv addition to the President, so long as they hold preferred share.. In order to restore the Hank's earning power the disabi ity so far as the purchase by the Bauk of the business of auother Bauk is concerned, caused by the Act of 1894, should be removed. This is in our opinion absolutely imperative. The Bank should, therefore, bo empowered to purchase the sound business and assets of any other Bank carrying ou busiueas in the colony. With the increased burdens thrown upon the Bank, the £2,000,000 of additional stock and the readjustment of capital which is proposed herein a large addition to the Bank's earniug power is essentia!. The only way in which thi3 can be got, sufficient to enable the Bank to make profits, to pay its way and sustain its credit, is by the securing of the business of another institution. At present the Banks of tho colony are beyond the colony's resources to properly maintain. If the Bank of New Zealand, after rehabilitation, desired to obtain the necessary increase of business to enable it to carry ou, it could only be done by cutting tho rates in order ti take accounts from existing institutions. Retaliation on their part would be certain to follow, and the outcome of such course would be that the earning power of the Bank could not be increased within a reasonable time to a sufficient extent to enable it to provide for its requirements. In any proposal for the purchase of another Banking institntion it would obviously be a condition that the responsibility for bad and doubtful debts would require to be borne by the selling institution. As a loss at the present time accrues to the Bank through the investing of t_e large sum of £1,000,000 in Government or liquid securities, in terms of clause 10 of the Bank of New Zealand Guarantee Act, 1894, we would propose that this clause should be repealed, a. under the reconstruction scheme nunecessary. We have {or several weeks given the various points of this schema our most earnest attention and consideration, and have satisfied ourselves that no less help from the Government than the scheme requires will suffice to place the Bank on a firm and secure footing, but we are equally satisfied that if the scheme be carried out the Bank will at once be placed in a secure position and on a profil-earning basis, that no loss will ultimately accrue to the colony from the guarantee for the £2,000,000 stock, and

(a) by proceeds frotr any remaining reserve liability of the Bank shareholders, and (b) if after that a deficiency should still remain by sale of so much of the £500,000 deferredshares as may be requisite. Any of the fifty thousand deferred shares not required are to be cancelled, and any part of the res. rye liability fuud not required is to bs likswise cancelled. Auy cte.iic balance to the realisation account to go to the redemption of "A" stock, lhe Government to have the appointment of one Director of the Buik iv addition to the President, so long as they hold preferred share 3. In order to restore the Hank's earning power the disabi ity so far as the purchase by the Bank of the business of auother Bank is concerned, caused by the Act of 1894, should be removed. This is in our opinion absolutely imperative. The Bank should, therefore, bo empowered to purchase the sound business and assets of any other Batik carrying oa busiueas in the colony. With the increased burdens thrown upon the Bank, the £2,000,000 of additional stock and the readjustment of capital which ia proposed herein a large addition to the Bank's earning power is essentia!. The only way in which thi3 can be got, sufficient to enable the Bank to make profits, to pay its way and sustain its credit, is by the securing of the business of another institution. At present the Banks of tha colony are beyond the colony's resources to properly maintain. If the Bank of New Zealand, after rehabilitation, desired to obtain the necessary increase of business to enable it to carry ou, it could only be done by cutting tho rates in order ti take accounts from existing institutions. Retaliation on their part would be certain to follow, and the outcome of such course would be that

the earning power of the Bank could not be increased within a reasonable time to a sufficient extent to enable it to provide for its requirements. In any proposal for the purchase of another Banking institution it would obviously be a condition that the responsibility for bad and doubtful debts would require to be borne by the selling institution. As a loss at the present time accrues to the Bank through the investing of tbe large sum of £1,000,000 in Government or liquid securities, in terms or clause 10 of the Bank of New Zealand Guarantee Act, 1894, we would propose that this clause should be repealed, a3 under the reconstruction scheme unnecessary. We have {or several weeks given the various points of this scheme our most earnest attention and consideration, and have satisfied ourselves that no less help from the Government than tiie scheme requires will suffice to place the Bank on a firm and secure footing, but we are equally satisfied that if the scheme be carried out the Bank will at once be placed in a secure position and on a profit-earning basis, that no loss will ultimately accrue to the colony from the guarantee for the £2,000,000 stock, and

that the deferred shares herein mentioned will earn 5 par cent, per anuuin dividend for the benefit of the shareholders and of the colony. —We have, _._., XV. Wat-on, Presidon* ; Walter W. Johnson, Wm. Booth, Taos. G. McCarthy, 11. Kennedy, Directors.