ASSISTANCE TO GOVERNMENT

Press, Volume LXXII, Issue 21808, 13 June 1936, Page 11

ASSISTANCE TO GOVERNMENT

Bank of New Zealand MUTUAL ADVANTAGES CLAIMED (FROM OUR OWN CORKB jI’ONOENT.) WELLINGTON,’ June 12. The complaint that critics too often overlooked the benefits the New Zealand Government had received from its connexion with the Bank of New Zealand was made by Sir George Elliot, chairman of directors of the bank, in his address to shareholders to-day. Speakers had often mentioned the assistance received by the bank from the Government, he said, but he had never heard a speaker mention what the Government received in return. “In 1894, owing to excessive losses, a crisis in Australian and New Zealand banking circles arose, and several banks in Australia were forced tu close their doors so that a breathing space might be ensured for managements to formulate reorganisation schemes,” said Sir George Elliot. ‘At the same time the Bank of New Zealand had also got into difficulties. “In its case the course of procedure was different. The position was discussed with the members of .the then Government, and an arrangement was entered into whereby the bank was enabled to borrow £2,000,000 on an issue of stock in London under the guarantee of the New Zealand Government both as to payment of interest and repayment of principal. I may mention that in 1904, on maturity of the guaranteed stock, a fresh issue was made for £1,000,000 for 10 y Qars > the balance being repaid. In 1914 the amount was reduced to £529,988, redeemable in 20 years. This was duly repaid in 1934, and the Government guarantee extinguished. "There is nothing to be gamed in discussing the wisdom or otherwise of the transaction. Apparently it was considered the best way out of the difficulty at the time. It certainly had the merit of enabling the bank to carry on without disturbance of its own business, and that of its many dependencies.

Ancient History “All this is no doubt ancient history to most of the shareholders present at this meeting: but what is apparently not generally realised is the quid pro quo given by the bank for this guarantee. “I have heard many public speakers telling their audiences of the great service rendered by the Government to the bank, and T agree with most of their statements, but I have never heard one tell his audience what the Government received for that service. May I remind you of it. The Government now holds £500,000 in A preference shares, carrying a fixed preferential bi\t non-cumulative dividend of 10 per cent., £1,375,000 in B preference shares, and £234,375 in C longterm mortgage shares. The A and B preference shares rank for capital before the ordinary shares, and would also participate in any surplus assets. “For these 2,109,375 shares the Government paid £1.859,375. To-day on a 4 per cent, return basis they are worth, on present dividends. £4,100,000. It will be seen, then, that for this guarantee, against a high-class security, the Government has done exceedingly well. Furthermore, over the years, the Government has received an average of 10£ per cent, per annum by wav of dividends on its investment in Bank of New Zealand shares. “Following the Government’s assistance to the bank a change was made in the constitution of the board. The Government, although the owner of only one-third of the capital of the bank, has the right to appoint four directors, while the private shareholders. owning two-thirds, have the right to elect only two. Benefit to Country “I want you to understand that- I do not suggest for one moment that the Government of that day was overpaid for the service it rendered to the bank. Although the guarantee was primarily given more for the welfare of the country than the bank, the bank derived benefit, and for this the Government was entitled to some compensation. I am glad it has reaped such a bountiful harvest, but I am sure that the most optimistic person sitting round the table on that fateful night in 1894 never dreamed that, as a consequence of the arrangement entered into, the country would benefit so remarkably. “From time to time New Zealand Governments have guaranteed the repayment of funds borrowed in London by local bodies, naturally without looking for specific rewards, but never did they enter into a guarantee that did more for the financial well-being of the Dominion as a whole, nor one that has been more remunerative to the country than that entered into with the Bank of New Zealand. “The point I desire to make then is this—when speakers or writers are referring to the service rendered to the bank, they should not entirely ignore the benefits the Government has derived as a consequence of that service.”