THE BANKING NEGOTIATIONS.

Evening Star, Issue 9501, 25 September 1894, Page 4

THE BANKING NEGOTIATIONS.

MINISTERIAL STATEMENT,

THE GOVERNMENT REQUIRE MODI FICATIONS.

[From Our Parliamentary Reporter.]

WELLINGTON, September 25. The Treasurer, in placing on tho table the correspondence that had passed between the Government and the representatives of the Bank of New Zealand'and Colonial Bank, said that the communications had been unanimously arrived at by the Cabinet, and the rumors of strained relations between the Premier and himself on this important matter were entirely without foundation. There had not only been no diversity of opinion, but they had been in absolute accord—(Ministerial cheers.) While lion, members had been naturally anxious that an investigation should be made into both institutions, it would be seen from the correspondence how impossible it would be to have referred this matter to a committee before the Government had considered il. To have intercepted the decision of the Government by its relegation to the Public Accounts Committee or to any other committee would simply have been to place a buffer between the Government and the country.—(Sir K. Stopt : " What about the lariii'f") The Government had endeavored to obtain information to guide them to a reasonable conclusion, but the matter was a very difficult one. While the Government recognised the advantages that would accrue by amalgamation, they had first to consider what were the best in the interests of the colony. They had consequently in their replies pointed out that they regarded it as essential that the interests of the colony should be conserved and safeguarded before anything else. The correspondence would disclose the fact that the proposals of the banks in certain esierttial features could not be regarded as sufficient to warrant the Government in assenting to the proposals. —(Cheers.) He hoped that members would give the Government the credit of doing what they believed to be right and ih the best interests of the country.—(Cheers.) The following is the correspondence : No. 1. Colonial Treasurer's Office Wellington, 22nd September, 1894.

I have, the honor to acknowledge receipt of your letter of the 11th inst. covering proposals for amalgamation between the Bank of New Zealand and the Colonial Bank. In reply I have to state that the matter has received the careful consideration of the Government. Without in any way committing the Government to any fixed course or approval of the proposals it will be necessary : 1. If any legislation is undertaken by the Government that it shall be of a permissive character, to enable the Government to be satisfied before assenting to amalgamation that the general interests of the colony are conserved and protected. 2. That, in addition to the scrutiny which was proposed in the memorandum of agreement; the Government appoint a special representative or representatives, independent of cither bank, to examine and report to the Government on the various accounts and assets proposed to bo dealt with.

3. The shareholders ot each bank to be responsible for and to make good ali losses on the existing business that is not passed by the colony's valuers. 4. That upon the expiration of ten years the profits of the combined banks shall still continue to be paid into the Estates Company until any deficit in tho winding up of the Estates Company is liquidated; the Government lieii upon the interests of shareholders iii tile Bank of New Zealand to be continuous until all liability to the colony is at an end.

5. The Government to nominate the chairman and two directors of the Estates Company and the shareholders of the Bank of New Zealand to nominate two directors to the same said board, to have full control over the uncalled capital of £1,500,000 of the Bank of New Zealand shareholders.

6. In addition to the appointment of president and auditor to tho Bank of New Zealand, the Government to appoint one director to the combined bank.

I should like to have your reply to the foregoing before noon on Monday. The Government will then further consider the matter and decide what course they deem it desirable to take.—l liave, etc., J. G. Wauii, Colonial Treasurer. No. 2. Bank of New Zealand, Wellington, 24th September, 1004.

Sir, —I have the honor to acknowledge receipt of your letter of the 22ud September having reference to the amalgamation of the Bank of Now Zealand and the Colonial Bank of New Zealand, and setting forth certain supplementary conditions as necessarily precedent lo any action therein by the Government.

These conditions (1 to 4 inclusive) I would willingly recommend to the bank shareholder.'- - , but I greatly regret that I cannot say so of Nos. 5 or 6, nor do I think, even were I to recommend them, that shareholders of the Bank of New Zealand would entertain them.

It will probably make the position more clear if I begin with 6, which is that " in addition to the appointment of a president and auditor to the Bank of New Zealand the Government to appoint one director to the combined bank." In considering this stipulation I would ask the Government to bear in mini that the Bank of New Zealand shareholders are responsible for the future of the bank, not only to the extent of their large paid-up capital, ■future profits without limit of time, and reserve liability of £1,500,000, because under the terms of the provisional agreement 4 per cent, is to be debited to the Estates Company on account of the large item, "share account," and in consideration therefor the surplus profits, after a dividend of 6 per cent., and £20,000 to reserve, are to be returned to the Estates Company. Now, should there be ineffective management, the cdrtseqiiehces would appear i-i the amount of surplus to be paid over to the Estates Company, for the outcome of which shareholders are liable in the great sums I have named. While with only four directors on the new board to the Colonial Bank's three, and the director and president (also a director) nominated by the Government, the Bank of New Zealand shareholders would be in a minority, though primarily liable for the results, and would be at the mercy of persons not of their own appointment to manage the bank, the Government maintaining the audit and power of veto on objectionable business. To take the ordinary management out of the control of shareholders, while yet holding them responsible for its results, would, I feci Bure, be regarded by them as inequitable. The explanations I have given above will serve to make clear the reason why clause 5 also would not be assented to. Shareholders being held responsible to the extent of over £2,000 000 cannot, I submit, be reasonably expected to part with the control of their property to a person in whose selection they have no say, and hand over to him the power to make calls upon them. Clearly, as between two directors appointed on each side, the chairman would exercise, at least as regards the shareholders, supreme power. At the same time, I feel sure there will be no objection made to the Government taking an effective part if they wish in the management of the Kstates Company. In conclusion, I desire to point out that an erroneous impression has been disseminated that legislation is in some way necessary to free the bank from the Estates Company. Except as a condition of amalgamation made by the Colonial Bank, there is no necessity. It is already a separate company and separately administered, though to a large extent under the bank's control. As to its being a burden of the bank, it is only so in the sense of being a burden on bank shareholders, which it must to necessity rcmaui till it be liquidated, unless the colony "were to relieve them, which nobody proposes.—l have, etc., John Ml'hkay. No. 3. Dunedin, 24th September, 1891. Sir,—l have the honor to acknowledge receipt of your letter of the 22nd September, and have submitted the contents to my colleagues here. In reply I am desired to state that the conditions imposed by you make the scheme such as we could not recommend to our shareholders. Taking the clauses of your letter seriatim—1. "We do not object to the permissive character of the proposed legislation. 2. We have not the slightest objection to your appointing representatives to examine the condition of our accounts and assets, and refer you to our letter otHhe 20th July applying for a share of the Government account. We specially asked the Government to do this before giving us that share. 3. This stipulation is all right, and was fully provided for in the agreement so far as a scrutiny by the other bank was concerned. We liave no objection to its application to suggest further scrutiny. 4. This so vitally affects the interests of our shareholders that we will not under any circumstances agree to propose it to them. It would be an invitation to spread the realisation of the Assets Company over an indefinite period, and would make our shareholders' dividends responsible beyond what can fairly be asked or was ever intended. This bank will have no voice in

the management or realisation of the assets. Regarding the Government lien on tho interests of the present shareholders in the Bank of New Zealand we can raise no objection. 5. This does not immediately concern us. 6. The powers possessed by tho Government representative, on whoso report tho acceptance by tho Government of the proposed scheme will depend, must be held to be sufficient. It is obvious that the presence of a nominee of the Government on the Board would detrimentally affect the business of the bank.

Final Clause.—The assont to amalgamation on the part of the Colonial Bank would greatly depend upon the shareholders being represented in the amalgamated institution by men in whom they had confidence. "Without this guarantee there would be little prospect of obtaining the necessary consent. The attitude which the directors at the general meeting on Wednesday must take up with regard to the proposed amalgamation will evidently so largely depend upon the answer which we nave to this that I must ask you to reply as definitely as possible on the whole affair not later than noon to-morrow.—l have, etc., C. M'Lkan. No. 4. Wellington, 24th .September, 1894. fc*ir, —The Government have carefully considered your communication of to-day, and in reply I have the honor to inform you that they cannot see their way to depart from the conditions named in my letter of the 22nd inst.—,l have, etc., J. G. Wakd, Colonial Treasurer. [Per Press Association.] CHRISTCHURCH, Skitkmiseii -M. A special general meeting of the Canterbury Chamber of Commerce was bold to-day to consider the proposed bank amalgamation. Representatives of the Industrial Association, Liberal Association, and Employers' Association were present by invitation. It was resolved—'' That in the opinion of this meeting Parliament should decline to ratify any scheme for the amalgamation of the Bank of New Zealand with the Colonial Bank which entails upon the taxpayers of the colony the responsibility of making good any ultimate deficiency after liquidation in the assets of either bank." Mr G. G. Stead, who proposed the resolution, said no one would object to the amalgamation of the banks* which in all probability would be a source of strength to them, and to that extent would be of service to the colony, but he objected to the proposal that the taxpayers of New Zealand should be saddled with the unrealisable assets of one bank to relieveitsshareholders of their responsibility, and thus improve their position at the expense of thecolony, andhecouldnotunderstand how the gentlemen connected with this movement had the audacity to ask the people of New .Zealand to come to the rescue of shareholders in a joint stock bank in this way. It was all very well for Mr Murray to say that the undertaking in point of fact already existed under the two millions guarantee. At present the colony was liable for two millions on preferential shares guaranteed by the Government, and if the worst came to the worst could only lose that sum. If the colony took the proposed guarantee in respect of the Estates Company upon it it would be impossible to say how much it might lose. No prudent man or set of men would take the responsibility of endorsing a bill in blank, which was practically what the colony was asked to do. They had quite enough to do with their own responsibilities without taking Unprofitable factories and unsaleable farms on their hands. He detailed the history of the Estates Company, and quoted figures to support his argument that it Mas highly inexpedient that the colony should accede to the proposal of the banks in this matter. It was decided to send copies of the. resolutions to the Premier and Chrislolntrch members.

[Special to the Star.]

AUCKLAND, September _■!.

The 'Star' says!—" The tenor of the messages from our parliamentary reporter to-day on the subject of the bank amalgamation makes us doubt very much whether the project for bank amalgamation will conic to anything. A difference on a side issue will probably be given as the reason, but we think the real reason will be found in an impression—rightly or wrongly prevailing •- that there is an undisclosed condition made by the Colonial Bank as to the appointment of the Hon. George M'Lcan to the presidentship, which, though apparently not objected to by Mr Murray on behalf of the Bank of New Zealand, is generally disapproved of on the ground of placing the bank too much under the Colonial Bank and its allied influences. There is, we believe, also a general opinion, in which wc to a great extent concur, that the Government should not appoint as president to the bank a mail heretofore prominently connected with cither bank. The nomination of president by the Government, provided for under the Bank of New Zealand Guarantee Act was intended to secure such supervision of the new bank's business as would afford security for the due payment at maturity of the two million pounds' worth of stock carrying the Government guarantee. It appears to us, therefore, of the highest importance that some capable public officer is preferable ; but if no such person capable of fulfilling the duties is available, then some able banker should be appointed under conditions which would secure a perfectly impartial administration of the oflicc as between the interests of the two banks concerned, and would at the same time guard the interests of the public. We sincerely hope that the Government will firmly insist upon their unhampered exercise of the right now secured to them by law of appointing the president and auditor of the State guaranteed bank, and we further hope that they will not be bustled into any hasty appointments to these most important offices. It would be preferable to make temporary appointments from the public service until they are able to negotiate for the services of men who possess all the essential qualifications. The entire success of the scheme depends upon this, and the onus of making these appointments imposes a very grave responsibility on the Cabinet, and one which will be subjected to the keenest criticism and scrutiny. On no consideration should the matter be dealt with hastily."