THE TWO BANKS.

Hastings Standard, Issue 44, 17 June 1896, Page 2

THE TWO BANKS.

The recent exposure of certain matters in connection with the Colonial Bank will be construed in different ways by different people. The question Ave wish to deal with is as to the hearing of the evidence given in the Supreme Court at Dunedin and its effects upon the Dank agreement. I'>y the Memorandum of Agreement of the 18th October, 1895, the Bank of New Zealand purchased the Colonial Bank, the basis of such purchase being the balance-sheet of the Mist August, 189-», which was guaranteed as being a true statement, except in so far its it was varied by the Memorandum of Agreement. The terms of purchase included a sum of £73,000 for goodwill and it is with this payment that we wish to deal. In ordinary commercial transactions goodwill is valued according to the average profits, or the profits of a single period as may be agreed. As between the two banks the value of the goodwill of the business of the Colonial Dank appears to have been based on the profits for the half year ending 81st August, 1895. The balance-sheet for this period was taken as a fair average of the earning power of the institution 1 . This balancesheet disclosed a profit of £19,980 or thereabouts, equal to about £40,000 per annum. The, profit of £19,980 was apparently arrived at by including the now famous oats draft for and which has been discovered —and the fact was known to some of the officials before the agreement was ratified —to have been a total loss. So that it is clear that the balance-sheet of the Colonial Bank which purported to show a profit of £19,980, should really have disclosed a loss of £10,020. If this view of the ease is admitted it becomes apparent that the £7,500 paid for goodwill was paid through a misrepresentation of facts, whether a wilful misrepresentation or otherwise may be regarded as an open matter, although the evidence of Mr Tigers, a former Inspector of the Colonial Bank, leaves no room for doubt on that score. If the amount of goodwill was paid through misrepresentation would not the purchasing bank have just cause of action to have the amount so paid refunded ? We fancy it would, and we should not be surprised if Parliament views the matter in the same light and insists upon the Bank of New Zealand enforcing its claim for a refund. We are sorrv for the shareholders of tlie Colonial Bank, who will ir. !! proability be called upon to disgorge a portion of the first dividend <A 10paid with such unseemly haste by provisional liquidators. The banking 1 gislation is becoming decider ; y inte-

resting, not alone for what has already been made public but also for the sensational possibilities of the near future: