BANK OF N.Z.

Press, Volume LVI, Issue 17015, 11 December 1920, Page 9

BANK OF N.Z.

> HALF-YEARLY MEETING. MR H. BEAUCHAMP'S ADDRESS. (SPECIAL TO "THE PRESS.'") "WELLINGTON, December 10. The ha'.f-voarly general meeting of shareholders of the Bank of New Zealand was held in Wellington to-day. Tn the absence of Mr Harold Beauchamp, chairman of directors, owing to illness, Mr J. H. Upton presided. An interim dividend of SJ per cent, was declared, payable in "Wellington tomorrow, and at the branches on receipt of advice. The secretary to tho board read the address prepared by Mr Beauchamp,„ for delivery at the meeting. After referring in considerable detailto the re-arrangement of the Bank's capital and reserve* fund, which had been affected by the Act of last session, Mr Beauchamp went on to say: — EXCHANGE. It is, I think desirable that I should make some reference to a matter connected with banking which has, during the last few months, been attracting an amount of attention from tho commercial community, and from tho public generally, which is not usually bestowed upon it. I refer to the Exchange position between this country and Britain. For many years, exchange between Australasia and Great Britain has perhaps been more stable —subject to fewer and smaller fluctuations —than tho exchange between any other countries separated by anything like such a long distance. Indeed, it has usually fluctuated less, and within narrower limits, than the exchanges between most countries which are comparatively snort distances from each other. If people here j had Bills on London to sell, or if they desired to buy Bills on they could always rely upon tho willingness and ability of their banlters to carry tho transaction through at a rate very close to the face value of the Bills.' This was ensured by the fact that it has been the : pratice of Australasian Banks to hold large cash resources both in London and in the Dominions, so that they were always in a position either to buy or t<f seli Bills. The needs of the community, for tho financing of its import and export trade, were thus always mot without difficulty. Many of you have become aware—the fact has been mentioned by writers in Australian and Now Zealand papers, and has even been the subject of a question in the House of Commons —that, duung ; the last few months, many importers in these Dominions, and other ftprsons who wished to remit money to London, have had an unusual experience, as they have met with difficulty in obtaining the drafts which they needed to mako th6ir payments, although they possessed abundant money for the purpose. The causes of this are not far to seek. They are written with the utmost plainness in tho trade figures, which I shall quote later. Wo had to pa# out in London many millions more than wo have been providing there. Similar conditions have been experienced in tho trade of Australia during the present vear. Large imports Have had to be paid for, while, the produce of various kinds sent abroad to effect the payment has, decreased very greatly. in addition to this adverse trade balance which has had to be met out of funds which had accumulated in London up to the.end of last vear, several largo payments have recently had to bo made m London on Australian account; and the result has been that tho resources available there have been so fully drawn upon that most of the Banks have had to place great. restrictions upon their operations in the sale of London exchange by telegraph or by drafts at short currencies, or—what amounts to the same thing—tho purchases which they were willing to make in London of" Bills upon the Colonies. This is tho explanation of the difficulty which many traders have been experiencing in making remittances to Britain, or elsewhoro abroad, to meet the liabilities which they had incurred in those distant places. I am pleased to sny tfaat. tho resources of the Bank of Now Zealand have proved sufficient for all tho requirements of its customers in this d're^tinn. The position will not bo effectively relieved until there is a very great diminution ill the value of import# and until this season's produce begins to reach Britain in considerable quantities and finds a market there. Except as_ regards butter, we are not now receiving payment in London for our produce as soon as it is_ ready for shipment, as was fhe case during the years of the ''commandeer." It is most evident that the principal relief, as far as exchange is concerned, will have to come from a reduction of imports—especially in the cessation of tho import of costly luxuries. Unless there is a great reduction in the value of goods brought from abroad, tho present difficulty with regard to exchange is not likely to pass. This Bank has in the past been frequently criticised for holding in London so large a portion of its resources. Those funds were kept there because it was felt to be certain that such conditions as have now arisen must occur sooner or later. They were available when wanted, and, now that they are required, we are drawing upon them as occasion aVises. Had they not been there, the exchange situation of the last few -weeks would not liavo been so easily met, and® our customers. would have been placed in circumstances of considerable difficulty. GENERAL REMARKS. New Zealand, as is generally known, enjoyed a wonderful prosperity during the war period, owjng mainly to tho requisition of the principal primary products of tihe country by the Imperial Governmeflt. Cash was paid for the produce on delivery into store, the Imperial authorities assuming all the risks of storage, fire insurance, etc. The total amount actually paid by tho Imperial Supplies Department from the commencement of the commandeer until October 31st, 1920, was £147,850,293, made up as follows:— £ ' Frozen meat .. ... .. 51,687,230 Cheese .. .. .. 21,144,512 Butter .. .. ... 8,233,0-12 Butter, Equlisation Funds .. 944,461 Sheeliie .. .. .. 178,481 Wool 51,118,714 Wool profits distribution .. 727,543 Freezing companies' slipe wool .. 7,742,761 Sheepskins .. .. .. 3,225,562 J Hides •• •• •• 740,362 Sundries •. .. .. 968,052 Other business (non-Imperial) .. 1,135,673 j£147,530,293 This huge sum had a fertilising effect on business, on trade, and on prices generally, but it was not wholly responsible for tho war prosperity. The New Zealand Government borrowed £80,039,025 for war purposes, and most of this money was obtained and spent locally. But the Imperial Supplies Department has practically run its course, and has now'merely to arrange for the shipment of its accumulated purchases, and also for the shipment of the butter manufactured up to March 31st next, which has been purchased by the Imperial Government. A very great change in. the economic

conditions has developed within the past few months, and the outlook generally is rot so favourable as it was. There is an increasing demand for loans on t..0 part of the Government, also by many lo.Til bodies and large joint stock compr. ir.es. The Government issued a £2.000.000 loan for public works in April last, and the interest, rate was 5 per cent, subject to in"ome-tax. There is now being offered to the public a 5$ per cent, loan of £6.000,000. This loan, which is also subject to income-! tax, is intended to provide for the repatriation of soldiers, and subscriptions to it are compulsory on tho part of those who pay land and income-tax. : Local bodies have obtained authority to borrow, in the aggregate, about £6.0C0.C00. and su?h of them as managed to appeal to the market early in the year, secured their loans: the majority of them have ? so far,- not been able to arrange their finances. There a' - e probably two reasons for this: (1) That the rate of interest is lower than most investors now expect to receive, and C 2) the average investor is overloaded with such securities. This difficulty on tho part of local bodies in raising money may not be without its advantages, for it must be obvious that many of them were' influenced by a d»>sire to carry out too ambitious programmes in respect to municipal enterprises. A great modification in the views of those in control of boroughs, county councils, etc., must result from this difficulty in borrowing. This, however, may prove a blessing in disguise, for when money is again available at a more moderate rate of interest, industrial conditions may then be more favourable, and tho projected public undertakings will in that case cost much less than they would if put in hand now. Many jofnt-stock companies have raised capital by the issue of preference shares and debentures, and while, earlier in the year, G and 6J per cent, wero considered sufficient, higher interest is now demanded by investors. Tho banking averages for the past quarter gave striking evidence that a change had commenced. # This was shown by tho very substantial increase in the advances and discounts, as exhibited in the following table:— Sept., 1919. Sept., 1920. Increase. £ £ £ ' Advances .. 28,7R.5,870 37,191,941 0,406071 Discounts .. 1,363,903 1,525,867 461,9 ft 30,149.773 39,017,803 8,863,035 There was also nn increnso in the two classos of deposits, which show: — Sept., 1919. Sept., 1920. Increaf e. £ £ £ Free deposits 30.331.817 36.406.999 6,155.6*2 Fixed deposits 15,011,563 16,644,694 1.003,125 45,372,835 53,131,693 7,758,806 The 'increase in tho deposits is considerably less than the expansion of tho advances, and it is doubtful whether the deposits have been increased by fresh income; it is'more likely that tho increase follows naturally on the increase in bank advances, since it is well known that bank advances usually make bank deposits. The mortgages registered and discharged in tho Dominion also furnish indications of tho changcd conditions. For the twelve months ended September 30th the figures are: — Year to Year to Sept. 30, Sept. 80, 1919. 1920. £ £ Mortgages registered .. 29,924,312 65,947,629 Mortgages discharged .. 15,078,291 80,541,820 Amount advanced .. 14,846,021 35,405,809 The excess of mortgages registered over mortgages discharged in tho past twelve months is considerably more than double that of tho previous year, and is in somo measure duo_ to tho mortgages registered in connexion with tho Government's arrangements for placing discharged soldiers on the land, and partly to the generally inflated values of "urban, suburban and rural land. The export and import returns for the nine months to September _ 30th also emphasize the change that is taking place. Compared with tho corresponding nine months of last year the figures are:— EXPORTS. 1919. 1920. £ £ £ Six months to Dec. Juno 30th.. 29,570,848 22,824,872 6,746,476 September nCI „ quarter .. 11,005,619 12,360,695 1,355,076 Deo. 40,675,967 35,185,567 6,890,400 IMPORTS. 1919. 1920. Increase. £ £ £ Sl J*mo n 3oth°. 15,876,502 24,198,674 8,322,172 .. 6,516,602 18,980,970 12,461,363 22,393,104 43,i79,644 20,786,540 It will bo seen from these figures that wliilo the exports decreased during the nino months by about 12 por cent., the imports increased by about 90 per cent This is a complete reversal of the trade tendency during the past few years, as the tal>le from which I now quote shows: — Total Year to Exports. Imports, trade. Slnt "Dec. £ £ ■> £ 1913 .. 22,810,363 21,653,633 44,463,995 iqii 26,253,925 21,144,227 47,398,152 ToiS .. 31 430,822 20,658,720 52.089,542 191G .. 33,281,057 25,045,403 68,5)26,460 1917* .. 80,613,184 20,742,121 51,355,308 iqiß* 28,438,187 21,131,729 62,569,916 1919* -■ 62,573,520 30,308,908 82,882,428 Months) •• 155,159,037 43,143,579 78 302,616 •Figures relating to gold bul.ion not available for publication. Specie excluded. Tho imports for tihe current .quarter may be expected to show a considerable increase on tlio figures for the December quarter of last year, while the exports, as a result of tho lower prices now ruling, may not denote any expansion. In respect to a large proportion of our exports, it must bo remembered that payment for these—wool in full, and meat to the value of to per cent.—'has nlready been made m advance by the Imperial Government: consequently the real margin of imports over exports is' much greater than that disclosed in tho figures J have placed before you. In comparing imports wiuh. exports, the true position will not bo shown until we are able to eliminate entirely, from our ejgwrts, all produce shipped on behalf -of the Homo Government and previously paid for. The not result for the year must therefore exhibit a big margin between exports and imports. Imports can only be yaid for by exports, and difficulty is being experienced this vear, and especially since the turn of the half-year, in financing tho imports. I have already referred to tlhis difficulty, under the heading of Exchange. In addition to financing the imports, there is the obligation of paying interest on our loans raised in Londan. A check to over-importation is being applied now by the operation of the law of supply and demand, as well as by tho restrictive policy pursued by this and other banks in tho Dominion. In normal times there are available four principal means for the settlement of trading differences. They comprise shipment of goods for goods—that is, equalising the value of imports by those of exports; tiio shipment of gold; tho raising of loans; and the selling of securities. In the past, loans floated in London always gave to New Zealand a fair amount of credit with which to finance purchases of merchandise and interest on loans, but credit cannot bo so readily obtained in London just now because the British money market is not able to meet all the demands tthat aro being made on it, even at high rates of interest. The raising of loans in London, therefore, is just now out of the question. • New Zealand has not yet j become, to any considerable extent, an investor in the securities of other countries, so that tihe sale of securities held abroad is not a practicable method of remittance. The after-war conditions which still exist render impossible those movements of gold coin which were formerly common banking transactions. The only movements of gold at

present are the shipments which qtc regularly made of the bullion produced from the mines of the Dominion, ana which arc properly included in the export figures already quoted. Tho value of the gold exported in the nine months ended September SOtli last was £580,374, as compared w;th_ £933,84;: in the corresponding term of 1919. I would emphasise the point that, to preserve our financial equilibrium, it is imperative that we should stimulate product ion. expand exports by every ' means in our nower, and curtail imports. The need for increas'ng the volumo of our exports becomes more ur- : gent in view of tho substantial dc- j cline in value of most cf our primary products. THE WOOL OUTLOOK. During tihe first three or four months of the current year the wool outlook was satisfactory, but in May there was a sudden change. At tho sales at Ant- j werp, held on May 21st, 125,000 bales j of colonial wool were offered, and prices | declined from 10 to 15 per cent. About j tho same time, 18,569 bales —mostly j merinos and other fine grades—were j offered to New York on behalf of the , British Government, and prices suffered a decline of from 10 to 20 per cent, j Sinco these sales the market has been depressed, and while fine wools are in j demand at reasonable prices, medium and coarse crossbreds have shunned appreciably. The average prires obtained for wool under tho Imperial Government's requisition were as follows: — Greasy Merino: Medium to good .. .. 16d to 17Jd Inferior .. .. .. 13d to 14Jd Halfbrcd: Medium to good .. .. 15d to lfljd Inferior .. .. .. lid to IEJd Crossbred: Medium to good .. .. 14d to 17d Inferior and 9oarso .. .. 12d to 14d Lambs: Good .. .. .. 17d to 20d Medium -• •• • •• 14d to 162 d Tho new clip from Australasia is not j under requisition, and is therefore free; to be marketed how and when the pro- i ■ ducers choose. The statistical position 1 i is against any recovery in values for' j some time to como. In the closing I hours of the session tho Prime Minister i was able to make an authoritative statement as to tho quantity of wool held on behalf of tho British Government on vSeptember 30th last. The figures wero:— Austrian .. 1,870.622 bales New Zealand .. 765,356 bales 2,635,973 I and the quantities of tho different grades:— Merino .. 914,134 bales Crossbred •• 1,571,617 bales SHpo .. .. 150,227 bales 2,635,078 The grades of New Zealand's proportion of 705,356 tales were as under:— Merino .. . 12,939 bales Crossbred «• 602,190 bales Slipe .. • • 150,227 bales 765,35G The Australasian total of 2,635,978 bales was not the only wool that was available to the world's woollen mills. At the end of September, Argentine ( growers held about 22,471,231 kilo-j grammes of wool„thero were thousands of tons of domestic wool in the United; States, and considerable quantities _ in . South Africa. The demand as it exists j ! to-day is not equal to absorbing the I available supplies in a reasonable time, ! consequently efforts must be made to ' stimulate the consumptive demand: but, i this demand if it is to increase must bo tompted into expansion by low 1 prices. So long as the statistical position of wool remains as menacing as it : is. low prices will rule for this staple. What is best to bo done to get tho largo volumo of wool into consumption? It was. thought at one time that tho | United States, with its wonderful accumulation of war wealth, _ would be able to consume a fair quantity of wool, but the position' in that country is unsatisfactory. A cable message, dated New York. October 16th, and published in the local papers, stated that at Salt Lake City, Mr Marshall, secretary of the National Woolgrowers' Association,announced that the woolgrowers of the United States would make a determined effort to secure legislation placing an embargo on foreign wool. As the new President is a Republican, we may be sure that the woolgrowers of America will secure all the protection they want —in fact, protection of farmers was one of tho chief planks of Mr Harding's political platform. Wo cannot, therefore. look with any degree of confidence to America as a buyer, to any extent, <*f Australasian wool. i Tho only ray of hope visible at present is in poverty-stricken Europe, chief among tho countries being Germany. But Europe, unfortunately, has not tho cash or the credit to pay for wool, 1 and it would appear desirable that New ! Zealand should adopt some scheme of I extending to Continental buyers of wool lone credits. Tho Argentine scheme is J designed to give foreign buyers two i years in which to pay for their purchases of wool, and New Zealand might find ,ifc advantageous to arrange, similar terms. In any case, it must be evident that nothing like the prices obtained under the British comm'andeer can bo expected for this country's free wool. In the twelve months ended September j 30th last 165,821,5081b of wool, valued L at £12,351.395 were exported from Now f Zealand. For a similar weight of wool ! now wo should get probably about £7,000,000, and a good deal of that money will bo owing to tho country for some time, especially if sales are madeto foreigners on long term credit. 1 * To assist growers who desire to hold their wool, the Government has obtained authority to guarantee advances, and it is probable that many will take advantage of this privilege. If so, that will mean the creation of a considerable additional amount of banking credit, which will be locked up in comparatively long-term investment. Such advances would naturally tend to curtail credit in other directions. FROZEN MEAT. With the exception of lamb and light-weight mutton, tho market for this product is in a similar position to wool;. but t here i 3 a prospect that a certain amount of lamb and light-weight mutton will be marketed in tho United States, to which country largo quantities of such meat have already been ' shipped and, it is anticipated, further big shipments will bo sent. Still, it would be unwise to place much faith in the American market, because if the woolgrowers succeed m having an embargo placed on foreign wool, then those ! handling domestic mutton and lamb are certain to receive similar consideration. DAIRY PRODUCE, ETO. It is, I am sure, a matter for much congratulation that butter output of the Dominion, available for export up ; to 31st March next, has been bought by tho Imperial Government at 2Slis per cU -t —the highest price ever realised for j this product. Payment for butter will be made 14 days alter it lias been passed , by the Government grader. New season's cheese, a short time ago, I was in strong demand; but serious industrial troubles in Great Britain, bringi ing in their train a large amount of un- ' employment, have had a very depressing effect on the market and values have I fallen substantially. If there be no re- ' covery in price, it is most probable tha£ ! many of the dairy factories equipped : with dual plants will at once commence : to make butter instead of cheese; so, from a financial standpoint, we should 1 not bo prejudiced to the same extent that we would be were they compelled to confine their operations to tho production of cheese only. I It may be mentioned that arrange--1 ments for the shipment of butter can be made much more promptly than those for cheese. > I believe I am warranted in assuming ' that the exports of dairy produce for ; the present season will realise something > in the neighbourhood of £12,000,000, j which would far exceed the result ob- j tained in any previous gear. I

Tallow, hides, pelts, sheepskins, rabbitskins and hemp havo all dropped in , value, and the outlook appears to bo for j a further decline. Thus it must be ap- I prrent that tho income of tho Dominion j will be less than it has been, and the | spending power of the community must j contract.' , j Ti 7 e ch Jin ceil conditions aro also mark- t od bv tho vast amount of borrowing | t*at is going on. Bearing in mind .the | amount of money that will bo required bv the Government, "by local boflies, fi'-mers. and traders, and tho less payable prices we shall receive for our yrow'thin the near future, wo must -,nt ; cipate a strong demand for loans and for banking credits, and an increase in current, rates of interest, nnd probably an increase of the note circulation. As I havo already indicated, the position is h difficult ono for lowd who are restricted to a rate of oi per cent That rate, or even 5J nor cent., for gilt-edged securities, under existing conditions, would not prove attractive to investors. True, the reccntlyi>a«sed Finance Act- provides that tho Minister of Finance may permit a local body to pny a higher rate of interest, to l>e inscribed bv tho Governor-Gcn-eral-in-Council: but 1 am not aware tliat this provision has yet been mado operative. Money is at present dearer in Australia, London, and New York than it is in New Zealand, so if t«he country s produeo is entitled to bo sold at the world's parity of value, it surely follows that those who have credit to sell will also oKpect to receive the world s parity. France, Switzerland, and Sweden borrowed in New "Vork during the past few months, and all three had to nay 8 per cent. The people of Now Zealand, as I have already said, must oxr>°ct to pay more for their loans, both public and private. Tho changes that I havo endeavoured to indicate arc such as one would expect in a transition period. The outlook is not as promising as it was a few months ago. Tho effect upon our prosperity of the reduction of the national income with. which we aro faced will bo in proportion to tho prudenco and courage we display in facing it-. Undue optimism may prove as dangerous as extreme, pessimism; wo must keep our heads and . believe that, whatever troubles may be ahead of us jn the coming year! wo will surmount them— in short, we must have confidence in ourselves and in our destiny. New Zealand, with its marvellous powers of recuperation, cannot be permanently injured even by such a reduction in the value of some of its chief products as has taken place. All our past experience forbids us to expect that tho low level which has been reached by some of our products will be permanent. There will be a recovery, but meanwhile those whose ineomcs are for tho .present diminished must adjust expenditure to income. And if, as seems probable, tho era of low pric.es is coming—not only with regard to-the things wo produce but those in which our interest is only that of consumers —tho adjustment, when it is over and settled conditions of trade aro again established, will perhaps be to the benefit both of our. community and our customers in distant lands—especially our kith and kin in the Mother Country, who have found it hard, and sometimes impossible, to pay the high prices which during the past years have been ruling for all our produce. . . . , In connexion with ttio financial outlcfak of the Dominion generally, I desire to associate myself with the Right Hon. W. F. Massev in the statement lie made en that subject in the. closing hours of the last session of Parliament. Mr W. Watson's Remarks. Mr W. Watson, after referring to the rearrangement of the Bank's capital, said: — . You will have noticed Clause 12 of the new Act of Parliament which gives power to the Directors, with the consent of the Minister of Finance, to raise new capital for the Bank to an amount not exceeding £2,250,000, and sets forth the terms upon which such capital may bo raised. I have been asked by shareholders what thjs portends. Some, appear to hope for the clause being given effort to shortly, and others to dread having either to find fresh money or lose the opportunity. Now, when the chairman of the Board sneaks to vpu, he is the voice of the Board; but when Mr Kane or I speak as your special representatives, we speak for ourselves only, and as I- have been asked as to this n'ew capital, and am likely to be asked again. I consider it best to say the little I have got to Bay to all the shareholders at once. I do not anticipate it will be necessary to. make any further extensions of capital so soon affer what has been done, but the elaboration of the clause is suggestive, and when the business of the Dominion and tho Bank warrant it. I have no doubt the Directors will avail themselves of the powers given. Matters of finaiieo rush on somewhat more speedily nowadays than thev formerly did; and when we consider the ,pacfe of the past few years, the placing of many returned soldiers on the land, the present rate of immigration, and other legitimate calls for extension of banking facilities, it apyears unlikely that many years will elapse ere fresh banking capital will be required in New Zealand. In conclusion, I heartily congratulate you on the position to-day. Our best customer—the Government—is our partner on terms.which a fgw years ago few of you anticipated; you have a sound and progressive business," and those of you who look for a good permanent investment, rather than to tho vagaries of the share market, will not be disappointed by retaining your shares. BONUS TO LOWER-PAID OFFICERS Mr William Watson, a retiring director, was re-elected unopposed, and in returning thanks, stated that the directors had pleasure in announcing they would give an additional bonus to tho lower-paid officers whose salaries were not according to scale.