HELP FROM STATE

Gisborne Times, Volume LXXXIV, Issue 12887, 13 June 1936, Page 2

HELP FROM STATE

EARLY BANK OF N.Z. HISTORY. THAT GUARANTEE OVER £2,000,000 OF STOCK. GOVERNMENT’S SHARES COST £1,859,375. A BOUNTIFUL HARVEST. NOW WORTH £4,100,000. (Special to the Times). WELLINGTON, June 12. Soma interesting information concerning the State’s position in relation to the Bank of New Zealand was given by tho chairman of directors (Sir Geo. Elliot) at the annual meeting of the bank to-day : “Before we disperse,” he said. “I should like to touch very briefly on one or two matters connected with tho Bank. In 1894, owing to excessive losses, a crisis in Australasian hanking circles arose, and several banks in Australia were forced to close their doors so that a breathingspace might he ensured for managements to formulate reorganisation schemes. At rhe 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 members of the 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, n fresh issue was made for £1,000,000 for 10 years, the balance being repaid. In 1914 tho 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 he gained by dismissing the wisdom or otherwise of tho transaction. Apparently it was considered the best way out of the difficulty at the time. Tt certainly had the merit of enabling the hank to carry on without disturbance of its own business and that of its many dependencies.

“All this is no doubt ancient history L; most of the shareholders present at this mooting; hut Avliat is npparentl.v not generally realised is the quid pro quo gi\ r en hy the hank for this guarantee. “I liave heard many public speakers tolling their audiences of the great servico rendered by the Government to the hank, and I agree with most of their statements, hut I have never heard one tell 'his audience what tho Government received for that service. May I remind you of it. The Government nOAV holds £.100,000 in A Preference Shares, carrying a, fixed preferential hut non-cu-rn id a tiro dividend of 10 per cent., £1,375,000 in 33 Preference Shares, and £234,375 in C Long-Term Mortgago Shares. The A and B Preference Shares rank for capital before tho ordinary shares, and Avould also participate in any surplus assets. “For theso 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 Avill ho seen then, that for this guarantee, against a high-class security, the Government has done exceedingly avoll. Furthermore, over tho years, tlio Government has received an average of 10| per cent, per annum by Avav of dividends on its investment in Bank of Noav Zealand' shares. “PolloAving 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, oAvning two-tliirds, have the right to elect only two. “I Ayant you to understand that 1 do not suggest for, one moment that the Government of that day,. Avas overpaid for the service it rendered to the bank/ Although the guarantee, was primarily given more for the welfare, of the country tlwm for the

bank, tlio bank derived the benefit, and for this the Government was entitled to some compensation. I am glad it has reaped such a bountiful harvest, but L am sure that the most optimistic person sitting round the table on that fateful night in 1894 never dreamed that., as a consequence of tho arrangement entered into, tho 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, hut never did they enter into a guarantee that did more for the financial wellbeing of the Dominion as a whole, nor one that has been more remunerative to tho country than that entered into with the Bank of New Zealand.

“The point .! desire to make then is this—when speakers or writers aro referring to the service rendered to tho bank, they should not entirely ignoro tho benefits the Government has derived as a consequence of that service. No one studying the successive balance-sheets since 1895 can help being impressed with the remarkable progiess the hank has made. Much credit is due to directors nnd / management for steering tho hank safely through those early, highly dangerous times. "For some years subsequent to 1895, although increasing profits were earned annually, no dividends were paid to shareholders, all surpluses being used to write down assets and place the hank ir a strong financial position. To-day tho shareholders are reaping the benefit of 'that policy. “You have,, no doubt, noticed that there has been a gradual redn vtion m file earning power of the hank. This lias been brought about by a, general fall of interest rates both here and in London, by a curtailment of advances, owing to lessened demand, and by increasing deposits which cannot at present ho profitably employed. Moreover, tho amendments of the Ro-

serve Bank . Act and certain provisions of the Primary Products Marketing Act, already referred to, will have a tendency to further reduce, banking profits. “Mr. Watson, at flic last annual meeting, drew attention to the fact that a strong financial institution must bo of great. Amine Jo. any country. If this bank had not, over many years, built up strong reserves, it ooukl not have carried on the business of the country so smoothly, nor would it have emerged from the depression (through which,, happily, avc seem to be passing) in the strong financial position avo find it holds today.

“It gives me groat pleasure to he ablo to say that during r.h-* years .1 have been a director oi ilie bant, In the best of my knowledge and belief, no customer has been hardly treated On tho other land, any cilia it find)hg himself in financial difficulties, and shoAving a readiness to help himself, has ever received the most sympathetic consideration.’’