STRONG POSITION

Evening Post, Volume CVII, Issue 145, 20 June 1924, Page 7

STRONG POSITION

BANK OF NEW ZEALAND

ELASTICITY OF CURRENCY

REMARKS BY ACTING-CHAIRMAN.

Mr. William Watson, acting-chairman of the Bank of New Zealand, 'presented the report and balance-sheet of the Bank of New Zealand for the year ended 31st March last.

There was a . large attendance of shareholders at the meeting, which was held at the bank to-day. The other directors !preseut were :—Sir Harold Beauchamp, Mr. William'Kecce, and the general manager, Mr. Henry Buckleton.

In moving the adoption of the report and balancj-sheet (published in %"Tha Post" 13th June), Mr. Watson ';first apologised for the absence of the chairman, Sir George Elliot, who is at present visiting thu Old/Country. At the last annual meeting, said the acting-chairman, shareholders were informed of the boardls decision to issue at par £1,125,000 of "new capital. Onethird of the amount was. iu'terms of tho Bauk of New Zealand Act, 1920, offered to His Majesty the King.in the form of preference "B".shares, arid was iii due course accepted. The remaining £750,000, viz., the ordinary capital, \va3 offered to the ordinary shareholders in the proportion' of one new share for every/three shares held by them. Shares not" applied for by the shareholders who were entitled to them numbered 953. These and 1247 fractional shares were -offered to holders of ordinary shares for purchase by tender, and were over-ap-plied, for, with the result that tenderers at £2 11s Id and over received a full allotment, "which was made as from Bth March, while those at £2 11s received 33.82 peAcent. The premiums totalled £3455, which amount, in terms of. the bank's deed, of settlement, has been credited to the reserve fund.

Capital, reserve fund, and undivided profits,.after -dealing, with the year's profits as recommended' in the directors' report, will stand as follows:—Preference capital held by the Government of New' Zealand, £1,500,OGO; • ordinary share capital, £3.000,000; reserve fund. £2.----325,000; .undivided profits, £506,513; total, £7,331,513. -

In.addition, there, was the 4 per cent, stock guaranteed by the Government of New Zealand, amounting to £529,988, and due in 1934, which ranks \ for repayment subsequent to the liabilities of the- bank to depositors and other croditors. These fund.3, aggregating £7,861,---501, arc equal to over 20 per cent, of the bank's liabilities to the public. But these figures did not alone indicate thefulli strength of the bank's position, for, "likfei all banking institutions of first-, class standing,"; remarked Mr. Watson, "we have for many years been steadily accumulating internal reserves to' provide for the effects o£ any exceptional setback which might overtake the. Dominion. As this country -is dependent for its welfare on the conditions of overseas markets—the course of which we are powerless to shape—these large 'ml ternal. reserves against unforeseen" contingencies are essential to the maintenance of the credit of the bank and the country." NOTE CIRCULATION. During the year the note circulation jof the bank averaged about £3,920.000, the highest figure reached being £4,-.. 835,658, and the lowest?. £3,655,870/ whilst the legal right of issue is about £10,500,000. They had,' therefore, an ample margin of currency available to meet the ordinary requirements of customers and to provide a.' substantial reserve for an emergency. The banks in New Zealand issue notes up to the value of the coin and Government securities which they hold in New Zealand, and, further, under certain conditions, against Government securities held in London. These notes are legal, tender, and are the first charge on the assets of the banks. There was, however, a limitation to the right '■ of issue in that, no matter how large the "amount'of securi- j ties held might be, the circulation must not exceed three times the amount of the coin. The'coin held by- the six banks doing business, in New Zealand had,' for the past eight years, ranged between £7,0Cf1,000 and £3,000,000, and had for the past year been something more than £7,8C0,000. The , securities held in New Zealand amounted to about £5,OM,COO. If, therefore, the limit of issue of all the banks operating in New Zealand were fixed by the holdings in New Zealand of coin and securities, it .would be about £13.C03,0C0. "If, however, the permission to issue notes against^securities in London, were availed of (and I have no doubt that all the banks coukl easily comply with the necessary conditions), the limit would be increased to about £23,000,000," added Mr. Watson.

He continued : "As a matter of fact, the. highest point .which'the total circulation lias ever reached was 8{- millions in December, 1920, and einco that timo has gradually come down until, at the end of March last, it was -£6,CCO,CCO. . Owing to the incidence of the business of the various banks, it constantly happens that some of them arc- holding the. notes of other bunks. On an average approximately half a, million is Urns held* so that the notes in the hands of the public arc less by that amount than the figure quoted. CURRENCY ALWAYS AVAILABLE.

"It.will ba seen, from these figures that the New Zealand banks have, always, even during periods of considerable monetary pressure, been in a position, to, .supply the currency requirements of the country with the greatest ease. If, nt certain seasons of the year, owing to the nature of its business) the notes of other banks accumulate in the hands of a particular bank, it has the option of holding them in its cash until the 'turn of events changes, and it "requires to make use of them in its settlements with the other., banks, cr, if it holds more than it requires for this purpose, of specially arranging - with, the other banks •to redeem the surplus. There is thus the necessary elasticity in' ths currency to meet the requirements of trade, commerce, and production, and, at the same time, the necessary provision for" the removal of redundant currency when there are more notes in circulation, i.e., moles held hy the public and notes held py the banks, than the needis of the community call for.

"It may be that some of those whom I address, contrasting the present New Zealand circulation of approximately £G,000.000 with the issue before the war (about £1,700,000), may feel that the notes at present in circulation represent a measure of inflation. It must be remembered, though, that prior to the war the currency of the country consisted. not only of the note issue but also of a large quantity of.gold which was constantly passing from hand to hand. This -coin probably amounted to something like 2£ millions, which, when gold' ceased to lie issued, came into the coffers of the banks. The currency in circulation was, therefore, something over £f.000,000.. .

"Bearing in mind that there jias been an increase of population and trade during the past ten years, that the- cost" of

the necessaries- of life has increased, and that other important changes have occurred, the increase of about 50 per cent., is hardly more than might have been expected to take place during the period."-

. THE BANK'S BUSINESS. > Turning to the. deposits, the actingchairman pointed out that they amounted to £30,501,719. When compared with the figures of the previous year, these show an increase of £497.793. The deposits include those which we hold on Government account, in 'which there' were sometimes ■" very large fluctuations and it happened that the Government balances on 31st March, 1924 were nearly £1,80j0,000 less than on the corresponding date in 1923, so that the deposits held on account of other customers had really increased during the year under review by more than £2,200.000. Bills payable and other liabilities.—The reduction for the year of £37.9,388 iv this item does not call for special comment. r .

Shareholders would observe that for tho full year it was proposed to distribute in dividends £187,307 Is 3d. Cash balances at bankers, Government and. municipal securities, and other readily realisable assets, apart from or&mary. advances to customers, equalled rather more than 70 per cent, of the bank's liabilities. This position must bo' gratifying not only to depositors but also to borrowing customers. • denotiw as it did ability to withstand any string ent monetary conditions which" nu«ht arise, without the necessity for calliii" m advances. „- °

A5. compared with two years a«o there was an increase of £1,G48,000Vi investments in securities of the' Commonwealth and of the various States of Australia. The greater portion of the amount was^in comparatively short-dat-ed stock falling due at dates to suit the bank s interests.

The bank had had to pay out very large sums in the Commonwealth. Often it was difficult and,expensive to provide the necessary funds in Australia, -therefore, it was prudent to hold investments which, in an emergency, might be realised; and, apart from the ■ advantage* tor exchange purposes of these investments, they were quite profitable The advisability of holdmo- a - i ar^o . amount of first-class and readily realisable investments in London and *u=traha should be obvious. - If, in n - time of stress, it became necessary to tell' m £ew Zealand a, large „amount of" New Zealand Government securities which are domiciled in the Dominion, th 3 effect would be to deplete deposits, because lor the most part,, the purchasers would reqmre to draw on their balances at their banks.

Having regard to the proportion our deposits bear to those of the- ether banks, said .Mr. Watson,, "the net «nm in our resources would probab'v be oniv about So pe_r cent, of the proceeds Jf thesales. Then, too, it WO iUd be difficult to realise here any large amount of even .first-class securities without demoralising the limited market. On the other nand, sales in London and in Australia mean that our resources would bo benefi^d to the extent of the. full proceeds of the sales. Our investments in. Australian Government securities and in New Zealand-municipal securities duriry the last twelve months account for the" reduction m cash items."

PROFIT- AND LOSS. / The ordinary operations of the bank 4?»s«?i year .resulted> a Profit of ~><<fo,B<U, an increase of £18'> 134 ■,* compared v/ith the precedingyy e ar but of course tve had'the use o! practical' the whole of the new capital since. Ist October last, and, in addition, its resources had been fully and profitably cmP Pa ■ \ F/ U' tW' less Provision for bad and doubtful debts was remmvd During the year the directors derided to realise portum of the holditi" of British Government securities ami to "reinvest the proceeds in .other. British Government stocks maturing on mere suitable dates. The transactions resulted in a surplus of £148,112 or«"l!ie bookvalues, of the stocks sold, cud it w 3 proposed to transfer this surplus to the reserve fund. They had also been ;,W 0 to take into profit-the sum of £iSl,i(jj, wuidi had been allocated from t'-e v--u fits of previous years as prevision a-rin^ possiole loss da certain- doubtful" -tdvauces. These particular-advaiKßs h-1 eit.ier been-repaid or placed on a qciVa satisfactory footing. It v .-as r-U; p<-o-po'sed to transfer this amount to"'{lie reserve fund.

Adding the amount of the bank's re- ' serves to the capital, ressrvs fund, and undivided-; proSts, the earnings of tfca bank did not represent a hirh percentage on all these furais, although substantial on the capitaj it-e'f. "i> ~r>~-n m . l'e r l" last the full year's di-.-:d«ndr"ci £50,000 was paid on the pr-Pe-cnc- A. shares, and a half-year's divi-' ue:id on preference B sh.rVcs £-?o O'-O - and on ordinary share?, £150,CC0~ ' balance of the year's dividend \vou!d~ii» paid at Wellington to-morrow and at ' branches on receipt of advice. ADVANCES TO CUSTOMERS. The,, advances to customers amounted to £18 : 737 ; lC0-an increase upon tb'e figures of last year of just rjyjut £1,000.-" 000. In view of the rcc-nf'increr.re c'f the' bank's capital, applications for ad- - vances wsre being enccai-a-ed. and the .. effect ot'tius was seen in the iV-.ir.e-' i-'Tj. ' quoted Ampin, -provisio;. had been made for all bad and doubtful sttounls. Landed property, bank prswises sho'^ ed an increase of £44,035/ d;'e usaitdv to the- cost of additions' to existing build--' ings and the erection of new promises. With the deve!opme:it of the Dominion and tho consequent, growth of the bank's operations, expenditure of lliis nature v.ci'Ud bo.constant. '.'... BOAED OF ©I.RECTORS AND . STAFF. ' . j The two Government mo^bcrs of tSia ooavd, whose term1 of office c:;iuved on-' ilst Starch last, v/crts Sir Harold Beauj champ and Mr. J; H. Upton, and they V,-cre reappouitcd: Si:- George Ellict ■ was re-elected chairman for th 6 current ' year, and he Qlr. - Watson) was elected/ acjbing-chairaian. When in I on- > don Sir George would attend the meet- . ings of the Loudou board.

Mr. Upton has,, however, since resignod and the Government W.'acjjoiuted in his stead Mr. Oliver Nicholson of Auckland. " The board line placed on record its appreciation of the noon services Tendered to the bank by O.'lr. Uptcn in the capacity of director. ' '

"Mr. Nicholson is.^as n:;;nv of you may k:icv,\": E ,iid Mr. WV.t:on.-"cb'air-m;-.n of directors of the New Zea!-.i:d Inonrance Company and vica-piesider.t of the Auckland Savings Bank, ;:nd will bring to bear upon ' the duties of his position.-as a director of •tho'b.-.nk a wide knowledge of men r.ml afCuirs."

Mr. Richard Waine Gibbs and Sir James Henry Guiison gave due notice of candidature for the vacancy on the board1 caused by the death of-Mr. E. Vv. Kane,, one of the representatives of the ordinary shareholders. ' . ■

"The poll closed on 26th ultimo, and I now declare Mr. Gibbs elected, he having received 960,731 votes, against 459,501 recorded for Sir James Gunson.'" said the acting-chairman. "Mr. Gibbs rose in the bank's Service to the important post of manager at Dunedin, from whence he was apnointcd by the Government to-the chief \iuditorship five years ago. ■' He resigned from that high position to stand as director, and I, and my colleagues also, welcome .him to the board. His vjdo experience and intimate knowledge of

."pHhe^busiriess-^of the brink will be of „:..;-great value i!in--our deliberations. ■'■■';, ;•-• ''The business of .the bank in London ;■',, has been most satisfactorily conducted. vj "We.have marked our appreciation of .!■" the work of the staff during the past :,» year by'granting bonuses to all the'mem■Wi bers, with the. exception of the junior ■*\ unmarried men .who receive animal in- £ creases of pay according to a' fixed scale. ;j?. In a great many cases ■ substantial mc-: 5; creases of salary have been granted, and *<*• we can safely say that the pay of our •» staff, including the bonus, is on a libJj eral 6cale. . In salaries, bonus and the 'i'l ann\jal contribution. to our officers' pen-' 4. sion fund we paid last year £455.844,' "fj. which is £30,864 greater than the figure 'it two years,ago, although the business of £ the bank has not increased in anything jj like the same proportion." . ! ■«■'■ ' OUTSIDE NEW ZEALAND. .-'" . >~. In London and Australia the bankjs -.ill .branches continue to progress and to per-. r*J. form the functions and maintain the cob g liections, ;for which they are necessary. . i-' Fiji had lately undergone a period of ts: depression "owing to the low; prices of yi copra and rubber, and: the lalipur cohdi- ,.;..' tions,.,while- the trade in: bananas—fpr- ■■'•'■ merly one of importance—has been le:A diiced to small figures since the imposi- ;', tion of a duty-in, Australia. Latest' ad*>s vices, from, the, colony are, however, of a S u."?f'P,, r che.erful ..character, tlian for some ■Hi :I! 1l?' Pa^> a"dj notwithstanding the j.. troubles f 'customers, have experienced, 'there "continues to be satisfac- ;^ toTynnd reasoniibly profitable. fen} n Western Samoa,.owing to the low -;.' price of copra, the value of the exports ,',• fell from .£565,000 in 1922 to shVhtly : ; : less than £300,000 last year, but It is ; (.hoped.-that the steps now-being taken1 :p; by. the present able administration, com-' ,■■!, bined with,; better prices, may. beneficiall; ; Jy" affect : both production and values g Ther-Apia branch had justified its estabg Jishment, and had, been of assistance to .£>■ tlie. business -community, and a conveni-ij-enqe : to. the Government.. .' •.. ■ ■ ; ■ :. .^ discussion follows ;; ';"■ Mr. W.. Recce: The chairman has so :; ; comprehensively and. ably 'presented to ■■:■-.;'; you matters concerning the;bank,' and ■;■; also., regarding .matters of great interest 'li generally' that there is-. not very much ■j;: for ime to Prefer to. I would like to say, ,;..howev.er,. , with.'', regard to land values, '.f'j thai;,.this/is one of . the most1 important \i things; affecting, this country ati the ■.; P*es? n*; time. I do not see how ; our !■;. farmers can be prosperous until there is ;'/ sotne' readjustment. Surely the real 1; value'of land must be its earning power i": throughout several years—the good years. '■■_& and' the'lean'years; and I think "that .vf has" been" rather overlooked.: Regarding, . iS exchanges, I' think that probably in New ' ■-'■'■ Zealand the true perspective is lost sight . -j-\ of. -'We forget that we "are merely a cog" financial wheel of the world; and '. therefore banks, in New Zealand cannot _')i'. do- many-of those things which they }} would like to do in the interests of the f:; people . of.this country.-. Take, for. inst-: 5 i ance/as an example .of the peculiarity. |'| of. exchange, the enormous flow of goldl ;'; into. America,;, see how that possibly .j1. will affect for some years to come'the '■I position of other nations. It is fortun- ■) .ate, ' indeed, that the Continental nations \ ' are recovering,! and that many of them 1 11 are returning, again .to prosperity. And ;..' if-.tlie affairs with regard to Germany ..[ \ are settled,- there is no doubt at all ,f'| that that will have an immense effect s ■ not^dfflyj'pfuthis Dominion-but also, on W otheKc.pjmtTiesjjand \vi]l help to stabilise. W the chief irijiustrias'.of. this' country.. I V would" ;like-'*to congratulate ( the, shareJ] holders on being, partners in an institui: tion which has; practically; passed und scathed through-. the world war;: Js* and through the ('commercial "crisis ; <;j which 'followed. There is no doubt that . Spf this and other ..banks in New Zealand . '"?'ara;desle.r.ying of the very-greatest credit -.: for '*the" public 'spirit that they: showed. : ;.«'duHng--those severe times pi- crisis. ...,I : .<[ should like, to join in the, welcome'of the chairman to the; new directors. Mr., ;;• Gibbs is a veteran in your service, and a you know him well; therefore, I need ■ » say nothing about him. Mr. Nicholson "■•£■ comes to.us 'with a reputation of busiJ ness ability, and I am quite sure be:.will' . ? be welcomed in" the deliberations, of % the. ,~ bank. I think they will find that-they ■. +■ are not, as some writers have depicted, : ;• entering a; bear-garden, but that they ■ are taking. part in deliberations in. the interests of the bank. We are not con- * cerried —whether we are directors' apv • pointed by; the Government or by the * 'shareholders—we all equally take thjs ; greatest; interest' in the affairs of.-, the; *' bank'^ Swithout distinction. as :to how ire > arrived "at the position of" directors. I Z . wpuld'like. before sitting downj to .pay ■. | a tribute '■■■ to.. the general manager and ;. i- the staff on the way in which they have .'; conducted the.affairs of the bank during - r trying years. \ Only -those who have been * associated' with■ them,;know the- great t t strain; .they have.been under. As far J ;'as the general manager is concerned, he '-'.• worships :at the shrine of the Bank of -.- New.Zealand night and day. There is. 1 J ■ ■ notljing'imore that, I. need say riow." T '•'.: liave-pleasure in seconding the adoption >- 'of the Teport and balance-sheet; I' '■ TRUE POSITION, PRESENTED. "'""Mr".'R."W.,:Gibbs said they had listened attentively to the, long ,and made by.the chair- * man, and they had :also listericV to the i ]'emar,Ks made by Mi\' Reece,-one 'pf the "., dirqcJm'S.^TS-lipsfe gentlemen had pro- ;| : vided them with what he might term a *. strong financial .meal, and. anything ,ho ■' ;'.' might now cay would be -of a lighter ': nature—a little dessert, sb to speak, to, ;' finish up .with. He'thought they would r all agree that the balance-sheet was. a C xei-y-interesting : and a very satisfactory * ojjfi^.-fs;,Chief Auditor, nothing had * ever given him greater pleasure than to j affix.-Jiis- signature 'to the balance-sheet " beforer.tliem.,: He wished those present ,*; to remember, however, that'a balance' ■; sheet of that nature was not possible* « unless they had the staff and. brains II behind, ifc. to put the facts1 and figures ; before, them in the form in which they. ;i had been presented. After going •J through the balance-sheet, from1 A to Z J he could assure them that the rtruo posi- » tion was presented there. 'He ■ was glv.'d v alr.^Reede had referred /to' the , staff. . t Having "cut the painter," and being J no -longer- one of the gallant band, he * (Mr-.T-Gibbs) rriight perhaps be permitted i to-refer to .the staff. He had known 1 the general ■ manager, Mr. Buckleton, I 'for many years. They had advanced in > .the _ service together. They had had % - their differences of opinion, at times',' bub I*, £ueh differences' had not; affected their j friendship. The general, manager had X rehind him the support of a:good staff. ■"'Mr^.Reece had stated' that the'general Snanager,.worshipped : . at - ; , the sbrino of j ;ihe liarik. From his knowledge of Mr. the speaker said he ruight "add that, ; the ' general ' manager . "lived- ?:| with- "-the bank—he : r/ad:| : r-interests,'so -much at heart. .Sir. Gibbs .added, humorously, that iJie was sure when Charon paddled „: Ihim across the Styx Mr. 'Buckleton's ;iirst inquiry would be /.as to the state.

jof exchanges, between the new world *:ind the .old, and how they affected-the (Laughter.) Mr. Gibbs'thehthanked the shareholders' for having Jplaced'him in the proud position of begng their Representative on the board cf •directors. While he did riot claim above his fellows, or any superior .business, knowledge more than would naturally come in the course of years, still he ■ did claim, after /nearly lialf a century of banking and business, that he did know something about it. Jn view ot tiis experience, he claimed fo Have "some knowledge of the duties

and requirements of a bank director. Iney had passed through strenuous times, and he hoped that in the future lit any crisis arose they would be able to meet and deal with it is they had done in the past. With devotion to business and work, he was sure that they would solve all their i difficulties. Mr Gibbs Isaid as they all .knew,' he was only elected for the, balance'of. the term of office of the late Mr. Kane; and he would, therefore, submit himself for election again-at the end of the year. The report, and . balance-sheet were adopted unanimously. 'The'Chairman:.•""That is all the business. ■ ■ . ■- DIRECTORS THANKED., ".- !Mr. T. Shailer Weston thought that was-not all the business, for the meeting should not be allowed to disperse without expressing its thanks to the directors, the general manager, and the statt of the bank for the very good bal-ance-sheet. -As -Messrs. Gibbs and I Recce had remarked, it was a most satisfactory ■ balance-sheet. It must be- a matter of sincere satisfaction to realise that the Bank of New Zealand had pulled . through during the last five ye.u-s. Banks in Canada had gone down, and there had been a heavy amount of water ' shipped by some of the. South African institutions: Because the Bank «_ Ne>v. Zealand had done well there might be a disposition to ta.ke the view that it v;wasonly natural that it should do' so; ''but?that was really due to the, general manager and his staff. Mr.-Will (Dnnedin), in seconding the • vote of ■ thanks, remarked that he, for one, knew that the interests of shareholders were -carefully safeguarded by tliq present -board- of directors, the gen- ' eral -manager, and the staff. The bank had'been - a great support to many a straggler. . It had itself been helped: by the, Government, but' now it was'in a thoroughly sound position—a' matter for. the greatest satisfaction. The votl of thanks' was carried with acclamation./ .;' •':.,' -

Tho acting-chairman, \in responding, said it seemed the fashion nowadays to, regard. banking as an easy: enterprise, but. the majority of ; shareholders, he knew, held ' v^ry ■ diflererit views at the beginning of the 30 years, ; when ' thebank began to strive for the;,high posi-,/ tion it has reached to-day. '-.The directors gratefully appreciated the remarks'made recognising their -services to the bank.

■'. ilr. Buckletbn; endorsed what Mr. Wat-son-had said—every word of ik4-as to banking. It was not easy. There was an immense ofMvork to be done, and he was pleased to, say that it'had been well done by■:the very : capable staff of the bank. .For himself, he had, to confess he was, ; as'Mr; .Gibbs had,put it, a man of one idea: The Bank of New Zealand.- . ' ', , '.. , _ - j : . On the motion of Mi. George Shirtcliffe. seconded by: Mr. T. Shailer Weston, ifc was resolved to forward 'to Mr. Ji H.^Upton, on behalf of the shaveholders ati appreciation of his past services as a director, and wishing'him good will and the, enjoyment of many years' of; his retirement from active work. -The act-ing-chairman said' the'directors would have very'great;pleasure in forwarding the resolution to Mr.; Upton. ■■ .' This; closed /the proceediriga; .': ■•■.•'•