MORTGAGE CORPORATION.

Evening Star, Issue 22030, 16 May 1935, Page 12

MORTGAGE CORPORATION.

TO TEE EDITOR. Sir,—lt was interesting to see ii£ your last -'night’s issue the unstin .ed praise with which the chairman of the Stock Exchange welcomed the prospectus of the New i Zealand' Mortgage Corporation.' There are ono or two matters, however, which the public may consider with, advantage. In tha first place the figures used by Mr Reeves in estimating the profits of tha corporation available for, payment of dividends are entirely hypothetical* Ho assumes that the Government ,will accept bonds hearing interest at 3J per. cent.-in return, for mortgages apparently bearing approximately 5 per ■ cent; At present, as far as'l am aware, no , one knows what the bond rate of; interest is to be. It may b® 3J per cent, as Mr Reeves surmises. It may, ; on the other hand, be 4J per cent,, which on the figures he ia using would make.- a 'difference of ii® less, than £400,000. The fact of th® matter is that, given the liberty' fa* assume whatever rate of interest oh® thinks fit, it is'a matter of very simple arithmetic to. slider the .scale of profits up and down just as one’s fancy; inclines. . It is quite; easy, too; to presuppose figures, on . which the Corporation would show a loss. No doubt the Stock Exchange is familiar with the method of. working out the profits of a proposed company from figures" which cannot bo .proved and can only, bo assumed. This w quite common, for example, in gold mining propositions. On the other hand, however, that sort of company, flotation' is well understood by the public to be speculative, and, if the speculator is lucky, there is no limit to th® rate of * dividend he may receive’. ' Inf the Mortgage Corporation, however, the : dividend is strictly limited, to 4s| per cent., and that does .not allow; much room for a gamble on possible losses. I understand also that.au State mortgagors are being given the opportunity of calling on the Corporation to rearrange, their mortgages so as t® give - them the advantage of any ' redaction in- the rate of interest' as disclosed in* the Corporation’s bonds. The result of this t will be that if the Corporation borrows at Si per cent. , da bonds it. will, ! have .to lend * at. 4J per cent.,’ even in regard to, existing State mortgages,, as the statute does not allow it to charge more tjian 1 per cent* more than it pays. ' Consequently, Mr Reeves’s large margin of profits must bo heavily reduced on this account. In conclusion, I notice the statement that the Corporation; will be completely outside Government control .and political interference.. Is it not a . fact that the ..Government appoints the board of directors' which controls the. Corporation; ■ that the Government owns half , the shares; that the Government will own most or the bonds; and-that the existing head and staff- of- the'.State Advances Department are most likely to form the manager and staff of the Corporation?. It, is fair • comment in - this instance to out that- to : the members-of th® toea Exchange the- New Zealand Mortgage Corporation, offers a vast opportunity of increased business. It is ho' exaggeration to say that the scheme of. the. Mortgage Corporation contemplates, the disposal of million* upon millions of pounds’ worth ■ of bohds through the medium of th® Stock Exchanges ?of New Zealand and similar organisations. Ido not for a moment suggestthat Mr Reeves* is biased, but quite definitely both ‘he and those whom, he was addressing ar® interested parties.—l am. etc.. ' May 16. Sceptic.