THE BANKING INQUIRY.

Lyttelton Times, Volume XCVI, Issue 11051, 1 September 1896, Page 6

THE BANKING INQUIRY.

THE COMMITTEE OP THE HOUSE

[Pee Press Association.]

WELLINGTON, August 31. The House Banking Committee resumed its sittings sit 10 a.m. A discussion took place upon the motion to confirm the minutes, Mr Montgomery complaining that a question of his was not recorded, while on a previous occasion a question of Mr M’Gowan’s had been. Eventually the minutes were confirmed on the casting vote of tho Chairman. Mr Watson produced a statement with regard to the position of the trading concerns of the bank. The total book value of these on March 31, 1895, was .£567,658, which was reduced at that time by writings off down to £421,062, the amount of writings off being £14(3,600. There had since been sold or deducted from the book values £103,342, On August 28, IS9G, there remained £451,242 of old book values,, of which the actual value Was £317,820. The earnings for the year ending March 31, 1896, were £29,618. This was • 6 per cent on the hook values and 9 per cent on the writing down values, and these were the' trading concerns that it had been said did not pay. , , . Mr Watson also produced a statement regarding the transfer of shares on tho Loudon' register. • Mr Watson said that he had been asked at a previous sitting whether the fact of the sum of £54,000 having been written off for bad and doubtful debts last year was disclosed to the Government. His reply then was that he thought it was disclosed to the Government in the auditors’ statement. On mailing further inquiries he found that that was so, and that it was mentioned in the auditors’ report to the Colonial Treasurer of July 1, 1596. The Premier asked when the balancesheet was made up to. Mr Watson: March 31, 1896. The Premier: Then the Government were not informed of the matter till after the balance-sheet was compiled ? ' Witness : That is so. Mr Watson said' that' he had obtained a legal opinion‘on the question of the dividends of the preference shares being provided for before the net profits were ascertained. The legal advice was that the dividend on preference shares must he paid out of the net profits, which bore out bis own view of the matter. With regard to the retirement of officers from tho Bank of New Zealand, Mr Watson said that he had had a return prepared which showed that since Nov. 18, 1895, seven officers had been retired on pensions, five had been compelled to retire for misconduct and other causes, and thirty had voluntarily left''the bank’s service in order to better' their positions elsewhere. He did not think that these retirements were out of proportion to the bank’s staff, which numbered about six hundred employes. He furnished this return with a view of negativing an assertion that tho Bank of New Zealand had retired some of its officers in order to make way for Colonial Bank officers. The Premier then continued his examination of Mr Watson. The witness stated that he had never refused to send the Colonial Treasurer any information that should have been sent to him. The auditor knew nothing of the occasion referred to by Mr Booth, and neither did the other Directors, and Air Booth declined to say what particular case he referred to. It was compulsory.upon witness to forward to the Government any information which the auditor desired to communicate to them, and if witness did not send tho information the auditor could forward it himself. Witness thought that there should be an assistant auditor, as Air Butt was rather too heavily worked. He was perfectly certain that if any director pointed out . to Air jßutt that certain information should he sent to the Government Air Butt would send it. Mr Butt thought Air Booth’s suggestion a reflection upon himself, but Air Booth said that it was not meant as such. He knew nothing that should have been reported to the Government that had not been. He knew as much, more in fact, than Air Booth about the bank. As a matter of fact, the little Air Booth knew about the bank and banking witness taught him. Air Seddon: At any rate the bank Directors are not a happy family. Witness: Air Booth is the only one who is not. He did not think that this fact and the fact that Air Booth was adverse to witness and to Air Alackenzie affected the welfare of the bank. There must be differences of opinion, and perhaps they were for the good of the hank. The private agreement by which Alessrs Alackenzie and Butt were to be appointed joint general managers of the hank had not been purposely destroyed or kept out of the way for the purpose of keeping back information. It’was quite possible that the Government knew of the agreement. It was likely that the Government did know about it. The transfer of shares from Mr Hallenstcin to Air Forbes, a late manager of the bank, was approved after ascertaining tiiat Mr Forbes was in a position to pay the calls. Where there was no doubt as to the ability of persons to pay the calls, transfers were not usually objected to. The particular case mentioned was a bond fide business transaction, and without any interference from the bank. Ho did not know how many years it took for the trading concerns to fall into the hands of the bank. Some might have been twenty years ago, while others were as late as IS9I, though they might have bean run on the hank’s money for some time then. The falling into the hands of the hank was due to the depression existing. There was no record in the bank of a balance-sheet prepared and submitted by Mr Murray to the Government in 1894. There ought to be a duplicate of the balance-sheet in the London branch. He, however, knew nothing about the particuculars in the balance-sheet, which was before his connection with the bank. The balance-sheet produced (Air Murray’s) showed that, on June 25, 1894, the total liabilities of the bank in the colony were £5,546,908, and in Australia £525,757. The published balance-sheet of March 31 of the same year showed the total liabilities to be £11,125,504. There was a difference of

£5,000,000 in the two balance-sheets. That difference, however, was probably accounted for by the London business, accounts in transition, bills payable, capital of bank', &c., not being stated in Air Murray’s balance-sheet, Air Alurray evidently had not had particulars of the bank’s business outside the colony, and had therefore confined himself to the position of tho hank in the colony. As stated, Air Alurray estimated the total liabilities in the colony on June 25, 1894, as £6,072,665. This made the total assets of tho bank on the same dates £8,115,388, made up of £6,773,710 in New Zealand and £1,341,678 in Australia, as against total liabilities amounting to £6,072,665. Witness said that he could find no trace among tho records of the bank of a letter sent to the Government by Air John Alurray on June 25,1894. The Hon E. J. Seddon handed in a copy of the letter, and asked witness to read it. Hr Hutchison and Mr Alontgomery objected to this proceeding as being-irre-gular. • - ' ■ ' A '6The Chairman - ruled that- the witness could road the letter to himself.' ' . .Witness having done thisy.the Premier was proceeding to examine him upon the contents, when Air Hutchison rose to a point of order, and objected to this mode of examining the witness.

Tho Hon E. J. Seddon said that he was only following a proceeding that would be allowed in any court of law. Air Hutchison said that the proper course would he to call the Premier as - a witness, and then ask him to produce all the documents in the possession of the Government.

The Premier objected to this suggestion, on the ground that he was on the Bench, and was not going to be forced into the witness-box.

After some discussion, the Premier took tho letter from the witness, and read it aloud to the Committee. The letter was as follows:

Mr John Murray to the Colonial Treasurer —“ Bank of New Zealand, Wellington.— Wellington, Juno 25, 1894, —Sir, —I have the honour to inform you that I have been commissioned by the Directors of this bank to communicate with the Government regarding its affairs, and to say that, owing to low prices, bad seasons and other circumstances, the Directors find that it will be quite impossible to declare a dividend to shareholders at the approaching annual meeting, the certain result of which must be the closing of the bank, because even now, notwithstanding efforts to collect resources, the executive find the utmost difficulty in maintaining the gold reserve prescribed by law. The very low price of the bank shares in the market is itself evidence of distrust, which may at any moment develop into a panic. That the closing of the Bank of New Zealand would be a calamity to the colony of the first magnitude can be questioned by no one. Its business relations in New Zealand are larger and more important in proportion to the population and resources of the country than are those of any bank in any other colony. This will appear more strikingly wdien the following- figures are considered:—The bank has within the colony 95 branches or agencies. At these there are kept 25,000 current accounts, with an aggregate on deposit of i 11,600,000, and 12,000 fixed deposits, =£2,800,000, which means, after allowing for cases of persons holding more than one fixed deposit, say 35,000 separate depositors with a total of .£4,400,000 on deposit. On the other hand, there is afforded accommodation, by way of overdraft, to 4600 persons to the total amount of <£2,550,000, and there are besides 950 discount accounts, representing a large number of traders’ acceptances, the aggregate amount being .£600,000. That many of these persons would find accommodation elsewhere is no doubt true, but these would be the better off. A large number of well-doing, but not rich men, would be ruined, promising enterprises crushed, and the industries of the colony would suffer damage from which it would take years to recover. That the lock up of the money of 33,0C0 depositors would cause immense dislocation of business, inconvenience and loss goes without saying. ; Among these depositors there is the Auckland Savings Bank, with, say, .£60,000 at its credit in the Bank of New Zealand. You are aware that a run on it took place last year. There is also the Government of New Zealand with about .£BOO,OOO between actual deposits and drafts of the bank held. This large sum is in addition to the liabilities of the public detailed above. There are, say, £1,500,000 of London deposits which, as quickly as the money could be collected in the colony, would be withdrawn from use there. I will only add that the bank has 1300 shareholders in New Zealand who, besides the capital they have at stake, are liable for £720,000. It is not my place to allude to other banks, but I think I only echo a general opinion when I say that the trouble would not stop short with the Bank of New Zealand. On this point recent Australian experience is suggestive. Finally it is clear that the evil would be intensified by the depression .admittedly now existing in the colony, or would greatly intensify it. Employment, already scarce, would become scarcer, and the finding of work for the unemployed would strain the resources of the Government and unavoidably involve much waste of these, while as a matter of course the public revenue would suffer seriously. He would be a bold man who would permit such a calamity to overtake New Zealand if he could prevent it, and I am firmly persuaded it may be prevented if the Government will meet the crisis wisely, boldly and in good time. The business of the bank is as yqt practically intact, distrust has not to any material extent reached the depositors, and it only needs that the bank be prit on a stable footing to avert the mischief which as yet happily is only imminent, but I must respectfully warn the Government that it is imminent. If they determine to adopt any measures to deal with the. situation these would need to be taken at once to be effective. To do'tins two things are required;—(l) That the bank be placed in possession of increased capital resources, partly to fortify its cash reserves, partly to enable it to extend to its customers the accommodation they require in the second half of the year in anticipation of their wool clips and crops of the ensuing season; (2) and that this must bo done to an amount that will suffice to maintain confidence in the bank’s stability, even if no dividend be paid for a time on its existing capital. The Directors hoped to have been able themselves to have issued the required amount of preference capital, but this has been found impracticable. I have, therefore, to propose to the Government that the colonial guarantee be given to an issue of two millions in preference shares, bearing not exceeding 4 per cent interest, the period to be ten years, such issue to be then replaced by a fresh issue of ordinary shares or otherwise, and the State relieved of its guarantee, no dividend to be in the meantime paid on the present capital till the Estates Company’s assets be disposed of, and the business of the bank declared by an auditor of the Government’s appointing to be clear and sound. In seeking the interposition of the State I have no idea of the bank shareholders being relieved of one penny of the loss which may fall upon them at the expense of the taxpayer. As cover to safeguard the State from loss there is the bank’s paid-up capital £900,000, reserve liability £1,500,000 —total £2,400,000, aud as the bank’s assets have twice in recent years been subjected to severe scrutiny and writing off, such as no other bank in these colonies has undergone, it is not to be questioned that £2,400,000 affords an ample margin. Of the proposed two millions, one to be at the disposal of the bank in its ordinary business, the other million to be held in reserve, and invested only in such manner as the

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Colonial Treasurer may approve. I have verbally suggested to you precautions which the Government may take to secure itself, and to guard against a recurrence of the state of things which calls for such exceptional treatment, but it is for the Government to impose conditions. I need not, therefore, dwell on that aspect of the matter herein. I will only ask permission to add that apart from preventing so terrible a misfortune to the colony, such arrangements as I have suggested, including State supervision and public audit, would have the effect of placing and maintaining the banking business of the colony fundamentally on a sound footing. The want of a State bank, the true position of which was known to the Government by independent audit of its own appointee, and through which the financing assistance of the State could, in time of monetary crisis, he extended to the community without hesitation, was severely and even disastrously felt recently in Australia. The great nations in the Old World have each their national banks in more or less intimate relations to the State. It is felt that these banks have in case of need the State', behind them, and on their stability the ’ immense fabric of banking currency and credit .rests, . In entering upon such relations the Govern-," ment of New Zealand would only he following the highest examples.—l have, &c., John Alurbat.”

After the letter had been read, witness said, in reply to the Hon E. J. Seddon, that he had no reason to believe that the letter did not contain a fair statement as to the position of the hank. The letter, however, was not meant to he a complete representation of tho bank’s affairs, as it contained no allusion to the balance-sheet. The letter seemed quite correct so far as witness knew. He agreed with Air Alurray’s anticipations as to the widespread disaster that would ensue in the colony if the Government did not come to the assistance of the bank. He' also supported Air Alurray’s statement that the colony was not likely to lose anything through having come to the bank’s rescue. Air Alurray had stated that the £2,400,000 of the uncalled capital and reserves would be sufficient guarantee for any risk the ' Government might take in assisting the bank, and witness believed that Mr Alurray honestly thought' so.

The Premier at this stage commenced to read other letters relating to the banking legislation, when another discussion arose on the question of order. Air Hutchison aud Air Alontgomery objecting to letters being put in in this indiscriminate manner.

The Hon E. J. Seddon said that this Committee was appointed to inquire into the circumstances leading up to the banking legislation, and now that they had for the first time the letters which had brought about the legislation, the member for Patea was trying to prevent their being read. It was a clear attempt to burke Hie inquiry, and he was sick and tired of these tactics. These letters contained the foundation of all the hanking trouble. • Air Hutchison repeated his contention that these letters could not be used as evidence unless the Premier presented himself as a witness.

Air Montgomery said that he offered no objection to the Premier handing in the documents as evidence, if other members of the Committee were allowed to do so. Air Hutchison said that his objection was to the irregular manner of production, and not to the contents of the documents. The Premier said that no member of the Government would appear before this Committee as a witness.

After further discussion, the Chairman ruled that the letters could be read by the Premier, and they were read as follows : Mr John Murray, to the Premier.— “Bank of hiew Zealand, Wellington, June 29, 1894—Sir,—I have the honour to hand you a copy of the balance-sheet of the Bank of New Zealand. Since that balancesheet was issued the position has become impaired, and indeed seriously compromised, by causes set out in my letter to you of June 25, but this does not imply that any heavy losses in the bank’s business have been made. To the best of my knowledge and belief no such losses have been made. The difficulty arises rather out of the circumstances stated in my letter. As a banker of forty-five years’ standing, thirty years of which have been spent in New Zealand, and having occupied a prominent position, during much of that time, and being in no way personally interested (some shares in the bank standing in my name do not directly or indirectly belong to me), I wish to be. permitted to give my honourable assurance (1) That the Occasion is one of the gravest public urgency; (2) that by the measure I have proposed I am absolutely convinced that the State will not lose one penny, but will, on the contrary, avert great loss to itself as well as to the community; (3) that by this measure the banking affairs of the colony will be placed on a greatly improved footing for the future; (4) and that if the Government finally determine to go on with the measure it should be put through to-day.—l have, &c., John Mubeav Mr John Murray tCT the Premier. — “ Bank of New Zealand, Wellington, 4th July, 1894 Dear Mr Seddon, I am cabling to London about arrangements for this issue, which, owing to the approach of the autumn holidays in England, should be made at once if possible. I should like, if you could get out, to see you for a minute or two, as to what you will permit the Agent-General to do in the way of certifying to London financiers that the guarantee of the colony has been given. The London people will not, of course, accept the pure statement of the bank. — Yours, &c., John Murray.” The Premier adds the following note to this letter: —“I promised Mr Murray that I would authorise the Agent-General to certify in a business manner that the colony of New Zealand would guarantee the two million loan, but that the Agent’s name shall not go on the prospectus.— E.J.S. July 4,1894.” The Secretary of the Treasury to Mr John Murray:—“ July 5, 1894. Sir, —I have the honour, by direction of the Colonial Treasurer, to request that you will cause a carefully prepared statement of the position of the Bank of New Zealand as on June 30 to be furnished to me with the least possible delay. The information should contain the several amounts of the ledger balances representing the bank’s business within the colony and Australia on the date above named, and the London balances separately stated as on the date of the latest advices received. These balances should show the whole of the liabilities and assets of the bank under the heads set out in the usual quarterly statements furnished to the Government. Under ‘assets’ I am directed to ask you to distinguish the amount due by the Estates Company. The Colonial Treasurer would also be glad to be favoured with any other information you might consider to be of value to him. It is, of course, understood that the particulars you may be good enough to furnish will be treated as strictly confidential and only for the guidance of the Government. — I have, &c., J. B. Hetwood, Secretary of the Treasury.” _ Witness continuing, said that the copies of cables referred to in th® letter could be obtained in London. There were no copies of them here. The Premier had never during the legislation negotiations acted secretly with witness. The Premier was very seldom in witness’s private house, and at no time could he remember the Premier talking to him in his (witness’s) house about the banking negotiations. He was almost certain that the Premier never mentioned the subject to him in his (witness’s) private residence. He had no recollection of having met the Premier in his (witness’s) private house during the session. The Premier never communicated with him prior to his appointment as President. Witness was positive that there had been no writings off from any of the accounts in the C list either for losses or bad debts.

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The guarantee of the .£20,000 and .£SOOO did not influence him in regard to the bargain for the purchase of the Colonial Bank. He was satisfied with the agreement in connection with these two advances. About a couple of months after witness took office he found by investigation that the bank was between £300,000 and £400,000 to the bad. He stated this at a meeting of shareholders on Fob. 7, 1895. That was about four months after he had taken office. After subsequent investigations were made the bank placed the full position before the Government. The reports of some of the Bank of New Zealand’s officers had been inaccurate, but he did not wish to convey the impression that the reports were intentionally misleading. Particulars of the accounts of the Colonial Bank were submitted by Mr Henry Mackenzie, and were overhauled by Messrs Andrews, Buller, Litchfield and Butt, of the Bank of New Zealand staff. There was no reluctance on the part of the Colonial Bank to submit.their accounts to the fullest investigation. At 1 p.m. the Committee adjourned till 10.30 to-morroy.