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Evening Star, Issue 15293, 19 September 1913, Page 6

The long-anticipated Bill for adjusting the relations of the The Bank Of Now Bank of Now Zealand Zealand. to the Government has

been introduced into the House of Representatives. For nearly a year past the shareholders, under the leadership of Messrs Martin Kennedy and Watson, have been employing all their resources with a view to terminating the partnership of the State in New Zealand’s leading financial institution. Nothing has been neglected which might be calculated to awaken enmity to the maintcnanc'' cf the people’s interest in the Bank, and to transform the predisposition of shareholders into an unshakeablc resolution to expel the - State. Fortunately all efforts have been unavailing, all contrivances have failed, and the “Bill submitted to Parliament preserves the proprietary interest of tho people and continues the predominance of the Government in the management of tho Bank’s affairs. The effect has been the keenest disappointment to shareholders, and meetings toexpress indignant protest have been held in Dunedin, Auckland , Wellington, and Christchurch. The resolutions carried at these; meetings might lead the unwary to imagine that the ordinary shareholders are subjected to a grievous injustice, for which they despair of obtaining redress. Their resentment finds vent in the wild predictions of Mr Studholme and in the railing accusations of Mr Weston. The former foresees that the Bill of the Minister of Finance will shake the confidence of the British investor in the honesty and justice of tho New Zealand Government, and create in them a belief that in this benighted country we “confuse right with might. ’ The latter is so overcome with righteous wrath that ho can only exclaim that the Government’s proposals represent “ a piece of rank robbery.” Now, what is the truth of the matter? A plain, straight statement is wanted, free from the warping influence of self-interest. To understand rightly the issues of the controversy a few facts require to be borne in mind. In June of next year £1,000,000 of New Zealand Bank stock guaranteed by the Government matures. The guarantee was originally given in 1894, and renewed again 10 years later. According to the State’s undertaking the Consolidated Fund was to be drawn on if necessary to maintain the solvency of the Bank., This assistance was rendered at a time when grave disaster threatened tho Bank. Ultimately the controlling voice in the management -was assumed by the Government by their, nomination of a majority of the directors, and by the statute of 1895 they purchased £500,003 of preference shares. The capital of the Bank now consists of £2,500,000, of which £1,000,000 is stock guaranteed by the State, £500,000 preferred shares held by His Majesty, and £500,000 ordinary shares, with an uncalled liability on the latter of half a million sterling. The State, it will be noticed, has taken upon itself responsibility for three-fifths of the capital. It seems but a natural consequence that the Government should exercise a paramount influence in tho administration of the Bank’s affairs. The spokesmen of the ordinary shareholders are net insensible of the difficulty of resisting the cunc.ijinitance of control and responsibility. Hence their eagerness to discharge the obligation to tho Government. They point out that the Bank no longer needs under-propping. The crisis which overlook it has passed. Its financial stability has been restored. It can dispense with the security afforded by the right of its stockholders to fall back in case of need upon the public revenues. Shareholders are not slow to realise that to regain the management, which is the great desideratum with them, they must make out a conclusive case of the ability of the Bank to stand unaided by the State. A few weeks ago wc demonstrated that the withdrawal of the support furnished by the Government could only be attended with a weakening of the financial condition of the Bank. The repayment of the £1,000,000 guaranteed stock, without the renewal of the guarantee for a loan of equal amount, is not possible, except on terms which would increase the annual ijai&SS 1£25 PijSk> .WSgugSg &M

lessen the profitableness of its business. Admittedly the Bank has not reached a condition in which it can afford to lessen its capital. Whatever stock it redeems it must redeem out of borrowed money. Only by a loan can a loan be discharged. It were, therefore, the height of folly to cancel one' debt by incurring another more onerous. Indeed, the Bank is in need of more capital to cope with its extending business and to make up for the tendency of free deposits proportionately to decline. It will scarcely bo denied .that but for the Government’s control of the directorate there would be no agitation to dispense with guaranteed stock.

The question at issue is whether the passionate desire of the shareholders for restoration of power should be yielded to and the cost disregarded. Messrs Kennedy and Watson contend that the ordinary shareholders are the real proprietors of the Bank, that if they can by any means discharge their obligations to the State they have the right of owners to do eo, and to resume the control of their own property. In other words, the Bank of Now Zealand is a private concern, in the affairs of which the Government have no more right to interfere than they have in the affairs of a butchering business. It is here that we join issue with the shareholders. Banking is at the centre of our commercial system. Derangement there impairs every function of industry. The failure of a large bank is the collapse of the industrial organisation. The Government were right in 1894 in pledging the resources of the country to maintain the solvency of the Bank of New Zealand—not for the sake of the Bank, but for that of the public interest. The same public interest will constrain any future Government to vouchsafe similar aid in the event of a like emergency arising. More and more the State must watch over the doings of banks. Not to do so would be to betray the high trust incumbent upon it as custodian of the general welfare. If this reasoning be correct, it follows beyond gainsaying that the present Government would have neglected their duty had they permitted the Bank to be embarrassed in the exercise of its functions of service to the community by yielding to the clamor of shareholders for the ordinary independence of owners of property. The public would, perforce, have suffered if the Bank had been allowed to increase the cdst of carrying on its operations. Here is the justification—nay, the obligation—of the Government to refuse their sanction to the redemption of the £1,000,000 guaranteed, except on terms providing for its renewal.

What, now, does tho Bill of the Minister of Finance provide? Briefly, it provides for increasing the capital of the Bank and thus augmenting its resources. Tho preamble recites that it is expedient to make provision for the raising of further capital. Beyond question this is a matter that is of the first importance to the Dominion just now. Most of tho ether banks operating in New Zealand have lately increased their capital. The Supreme Court has decided that tho Bank of Now Zealand cannot do so without legislative authority, and in this connection tho judgment of Mr Justice Edwards gives a masterly exposition of the relationship of the State to the Bank, In conferring that authority tho Bill is careful to preserve the commercial advantage afforded by the State guarantee. On the redemption of the stock which matures next year, £1,000,000 of capital stock is to be issued with a currency of 20 rears and will bear interest at the rate of 4 per cent, per annum This is to be secured on the Consolidated Fund tinder the conditions provided by tho Act of 1903. In other words, the guaranteed stock is to be renewed for 20 years. The result is that tho Bank will obtain £1,000,000 on terms more advantageous than could possibly be secured without the guarantee of the State. It necessarily follows that the Government are to retain their control of the Board of Directors through their right of nomination. Thus the Bank gets cheap money to the benefit of the public, and the Bank s shareholders are smarting under a sense of wrong because their assumed interests have been subordinated to the real interests of tho community. Power is then given to the Bank to raise an additional £3,000,000 of capital by the issue of shares, under such conditions, however, that the State shall have the option of purchasing £1,000,000 of preferred. shares ranking apparently equally with ordinary shares as to rate of dividend. This means that the proprietary interest of the State in the Bank is to be increased. And we think the Government will be wise in excising the provision (clause 5) for the creation of a reserve fund, and in recognising that the time has arrived when the stock should he made permanent. The effect of sections 6 and 7 of the Bill would seem to entitle the State to pay for its preferred shares by Government debentures or inscribed stock bearing interest at the rate, of 4 per cent., while the State would obtain the eamc rate of dividend on its shares as ordinary shareholders. If this is the correct interpretation, tho State will only be receiving the advantage to which it is justly entitled. The details of the Bill, however, will require our further attention. In tho meantime we desire to express our satisfaction that the Government’s apparent intention is to retain the State’s interest in the Bank of New Zealand, with the accompanying control of the management. It is gratifying to note that the protest of a section of the Press against the inequitable proposals of the committee of the shareholders of tho Bank have not been unavailing.