THE H.B. TRIBUNE MONDAY, AUGUST 29, 1927 “TIGHT” MONEY

Hawke's Bay Tribune, Volume XVII, Issue 218, 29 August 1927, Page 4

THE H.B. TRIBUNE MONDAY, AUGUST 29, 1927 “TIGHT” MONEY

yyHEN touching last week upon the subject of the Commonwealth Government’s eight million (sterling) flotation in New York, it was noted that, in the cable message announcing it, the price of issue was not mentioned, leaving us to the assumption that it was being put out at par. The doubts cast at the time upon this as being likely are now justified by the New York message received to-day telling us of the ‘‘unequalled success of the issue-” This presumably means that it has been very substantially oversubscribed by the public—or possibly by the big financial institutions associated with the underwriting houses. Incidentally, however, an expectation is mentioned that the price of the stock ‘‘will rise and should reach £9B 10/- within a few months.” This, of course, implies that the issue has been offered at something appreciably less than that price, indicating that the Federal Government is getting an even poorer capital return on this loan than it did on its last previous issue in America. It must also turn out to be considerably less than on the ten million Commonwealth loan which recently fell so flat in London, when the underwriters had to shoulder no less than 90 per cent, of the whole. For anything like precise figures as to the net outcome we shall probably have to await Australian newspaper files, but in the meantime we may take it that the Federal Government, and through it the States on whose account a large proportion of the loan has been secured, will have to pay dearer for this money than for any of their recent borrowings—a fact which w e here in New Zealand should take to heart.

That the American promoters of the loan have done pretty well out of it may be guessed from the cordial invitation that to-day’s message gives for further applications of a like kind. There is every likelihood that, so far as Australia is concerned, this invitation will have to be accepted. This, too, is not only with regard to fresh capital required for developmental purposes, but with regard also to the redemption of internal war loajis. Of these latter no less than 40 million falls to be met before the end of this calendar year and,

although the Federal Finance Minister has announced his intention to seek their conversion at home, very serious doubts are entertained as to whether conditions are such that he will he able to carry it out. In fact, Australian financiers are pressing him not to drain local resources for such cash subscriptions as may be needed for paying off present bondholders unwilling to renew, but to go abroad for them. It is pointed out that the Australian markets are at present, unable to provide anything near the amount of new money, on loan, which is needed. The heavy increase in the sum of local accommodation provided recently by the trading banks in the Commonwealth,, and the relative meagreness of the augmentation of their deposits, is held to indicate that there is in Australia outlet of more than usual dimensions for loanable funds. An adverse season, thus far, is causing something akin to a strain on local credits, owners of pastoral and agricultural properties in parts of the Commonwealth finding themselves in need of assistance from their financiers. Municipal and other non-Governmental borrowings are expected to remain rather high in total, for some time ,and private enterprises have been responsible for substantial withdrawals of floating capital from the markets-

Even in Australia, where the sum of the deposits held by the trading hanks is quite substantially in excess of the advances made, bankers are expressing some misgivings as to the maintenance of the margin fhey deem prudent. What, then, have they to say about the position here in the Dominion, where the aggregate of advances is materially in excess of the deposits? There, as here, much more ' favourable terms than heretofore are being offered in order to induce a greater volume of deposits. But apparently the result has not been such as altogether to satisfy the banking fraternity. In its August circular, for insta ce, the National Bank of Australasia insists th-+ the remedy is in the hands of the fl positing public, “with whom lies the obligation to recognise the full range of the functions of the tradin' banks.” Those institutions, ’* 1 explained, pay for deposit moneys up to 5 per cent, per annum, “a rate which, certainly, is less than th return obtainable from ‘rage nvestments and first-class Gove ment and other debentures. On tin other hand, however, the princip.i not being subject to market fluctua tions, is returnable in full et maturity, and there is no brokerage or other charge. There is a full range of terms at varying rates and, in short, the more money given to the banks by the public the better they will be equipped to assist borrowers.” These indications of continued financial stringency among our neighbours are mentioned because of the intimate connection between the financial institutions of the Commonwealth and the Dominion. They certainly do not seem to point to any likelihood of much support coming from that direction to ease the strained situation here, a fact of which those who may be relying upon our banks for extended accommodation should make note.