FINANCIAL AMD COMMERCIAL CONDITIONS.

Manawatu Standard, Volume XLI, Issue 9823, 13 June 1914, Page 3

FINANCIAL AMD COMMERCIAL CONDITIONS.

SOMrS INTERESTING'REMARKS. In hi* address to the shareholders of the Bank of New Zealand. at the annual meeting yesterday the chairman of directors, Mr 11. fieauchamp, gave an interesting review of existing financial and commercial conditions. He pointed out that the London money market underwent a sudden transformation early in the year. The best informed financial writers in London had failed to predict the impending change. In December hist there was very httle prosEect of any ease in the money market, yet y the middle of January it had become clearly evident that money was in übundant supply. The Now South Wales 4 per cent loon for £3.000,000, issued during the first week in January at the price of £96. was a failure, as the underwriters' were saddled with 90 per cent of it, that is to say, the public subscription* amounted to only 10 per cent. A fortnight later, the Victorian loon of £1,000.000, also at 4 per cent, with o minimum insue price of £97. was subscribed threefold, and formed the first of a succession of loan issues (including one of the New Zealand Government) which were eagerly subscribed for by Investors. The London Times, commenting on the success of the Victoriun loan, which was the first colonial issue to be fully subscribed for many months, remarked:—"What the recovery of Imperial Consols means to our colonial kinsmen may bo gathered from tho cheering success of the \ictorian loan. It would seem as if the long pentup forces of investment needed but a little more encouragement to break forth into o flood of buyiuir. Imperial Consols, which auring 1913 had dropped to £7l. and which during the first week in January stood at £7l 15s. a fortnight later has risen to £74—an advance of £2 5s in two weeks. An immediate improvement in colonial Government stocks also t(K)k pk.ee, and prices, on the whole, have since been well maintained. The up; ward movement in Consols continued, and on 4th February tho quotation was £77 12s 6d. the highest recorded for a long time. The turn of affairs was very acceptable, for gilt-edged securities had suffered very severely during 1913, and UnEnglish Banks had to use over two millions of their profits to meet the declension in values.

The Rank of England discount rate, which had stood at 5 per cent since the beginning of October, was reduced on Bth January to 4j per cent. On 22nd January it wasagain toduced to 4 per cent, and on 29th January to 3 per cent, at which it now stands. The buoyancy of the money market inducexl many Governments to issue louns in London. New Zealand, and every State of the Common wealth, have been on the market, and have placed their loans sue cessfully. The* New Zealand Government 4 per rent loan of £4,500,000. issued it Jaam.ry—£l.ooo.ooo for redemption pur poses, the balance for Public Works—was a great success. The minimum price of issue was £IOOJ, as comparqd with £9B' for the last preceding loan of £3.500,000 issued in October, 1913. olearlv indicating the improvement that had taken place in the interim in the condition of tho market. Upon the opening of the lists, a strong demand was apparent, and within an hour and a half, applications totalling £25.800.000 were received: The lists were then closed. The scrip immediately went to a premium of 1 per cent. The time for emission o f the loan wns well chosen, and tho results no doubt exceeded all expectations. In the course of my remarks at. our last meeting, 1 pointed out that the New Zealand Government had been ahle to obtai:; for its October loan the- highest price of the year for colonial Government loans. It has maintained that position in its recent issue, as will l>e seen by the following: Date of i'.sue. January 5, 1914, name o' Government. New South Wales, amount of loan, £3,C00.00, rate per cent. 4. issue price, £96. Jnnuarv 10, 1914, Saskatchewan, £1.000,000. 4J, £96 J. January 21. 1914. Victoria. £1,000.000. 4, £97. January 30, 1914, West Australia, £2,000.000. 4. £984. February 2, 1914. New Zealand. £4.500.000. 4. £lQO£. . February 3, 1914. South Australia, £2.000.000'. 4. £IOO.. February 13, 1914, Union of South Africa, £4.000,000, 4,.£68£. March 4 -1914, linminion of Canada. £5.000.000, £5.000,0GG, 4. £O9. /March 20, 1914, Tasmania £1.500,000, 4. £99.

April 6, 1914. Queensland. £2.000,000, 4. £99 May 19. 1914. New South Wales. £3.000,000, 4, £99. Some Authorities hold that the opinion that the trouble* that have of late been experienced by the bond-holders of some foreign slates (Mexico and Brazil), will operate in the direction of enhancing the popularity of British and Oversea Dominion securities, as being, (bough less remunerative from the [joint of view of annual yield, decidedly more dependable as regards security of both principal and interest. The inference seems reasonable, and we may perhaps hope to see the stocks and bonds, not only of the Dominion Governments, but also of the municipalities and other local bodies of the British Dominions, presently increasing in public favour. Wo took prompt advantage of the opportunity, afforded by the favourable market earlier in the year, to launch some Municipal loans which we had had in hand for some lime. The followiug were successfully placed: On January 28th, City of Auckland, £224.500. 4| per cent at par. February 11th. City of Christchurch, 100.000, 4i per cent at par. February 20th, City of Dunedin, 150.000 44 per cent at par. The Auckland loan, being first in the market, was over-subscribed. Those of Christchurch and Dunedin. which were offered Inter, after the market' had been flooded with other issues, were not so fortunate, and their underwriters were loaded with allotments in increasing ratio. The present disposition of Iho market towards Colonial loans of this character has been clearly shown to be hike warm, and we have accordingly desisted from attempts at further issues in the meantime, Other opportunities will no doubt' arise in future, and those nublio bodies who are contemplating an appeal to the London money market would do well to perfect all the necessary antecedent formalities, and have their arrangements in such forward condition that issue of the lean can be made promptly when a favourable juncture occurs.

While the treatment accorded to loans of this class is now much less favourable than that extended to them a few years ago, we in New Zealand have, I think, reason to congratulate ourselves upon the terms we are able to obtain. When ,we compare our prices with those which others have to |wiy. our better position becomes at once evident. Each of the three loan? above-mentioned was, it will bo observed, issued at pur, but an examination of the terms of otl%- issues made during the first few months of the year by municipalities in other parts of the British Empire, and elsewhere, shows tluit several towns and cities of importance have issued 4£ per cent and 5 per cent loans at prices below par—some as low as £9l. It is_ therefore clear that a municipality which is able at the present time to issue its 4£ per cent bonds at a minimum of par. has good reason to be very well satisfied with the achievement. Although loans. Colonial and Foreign, have been issued iri London with consider able success during the past five or six months, and the value of money there is at present low. the terms on which flotations can be arranged remain comparatively high, and political disturbances mav at any time send them still higher. Caution is no doubt being exercised by British financiers, nnd that there is need for it is evidenced by the unsatisfactory state of affairs in Mexico, and the financial troubles in France, CJiina, and Bmil. According to telegraphic messages to the press. France «™ hp . new * sit y of raising some £24.000,000 almost immediately if she is to be in a position to meet her obligations. China and Brazd are suffering from financial sfcriigeney. while- Mexico, alter a period of exhaustion from internal anarchv. is now at war with the United States. Some weeks ago the financial conditions in Mexico were extremely bad. and oxchango had reached the. worst |>oint known for many yoars. British investors" have Tery extensive interests in Mexico, and the "clean up" will involve many millions sterling. The United States Government alone talks of providing war funds to the extent of/ £30.000.000 sterling. There are other contingencies also that may jeopardise the money market, or* at least cause a 'disturbance. In past years Great Britain has lent vaat sums to fitianoe tlio tradt and industries of the world, and

the disbursements under this licad are worth I recording.'• Thev arc as follows: I dated Kingdom 26,145,900drthbrashrdhi U)ll.-l'lined Kingdom, £26,145.900; British-Possessions £64,994.800; Foreign Countries. £100.61b,700. Total, £191.759.700. 1912.—United Amgdom, £45,335,300; British Possessions. £ 72.6*2,400; foreign Countries, 5J92.872.300. Total, £210.850.000. 1913—United Kingdom, 36,951,200; British Possessions, £76.137.200; Foreign Countries, £84.48tf,600. Total, £196,537,000. Canada Was, a* usual, the biges: borrower lust year, her totil being £44,119.000, as against £35.951,200 for tho United Kingdom, £18,628,900 lor Australasia. £13.000.000 for the United States, £15.000,000 for I Bruiil, and £12,000.000 for Argentine. As , one authority observes, "the immediate I course of markets must be determined . mainly by the nature of the borrowing. '■ Consolidation of floating loans i* eompara- ' tively unimportant: fresh borrowing icr j new enterprises is qf the greatest import- ; ancc. Capital taken off the market for tho • first time in loans and put into reproduc- i tive trade o;- unproductive armaments, I must diminish the supplies of money and j tend to raise discount rates and lower the prices of securities." I The,demand for capital supplies is pour- 1 ing in from all quarters of the world, and j aupears to be quite insatiable. You will I appreciate the immensity <>f the "rush" j when I tell you that the applications dealt . with in the L«»ndoii market during flic in-i I two months ot" the current year amounted ' to nearly 72j millions, being nearly double tho amount dealt with during tln» corresponding period* of each of the three preceding years. Such an enormous turnover must, it continued, sooner or later exhaust the supplies and lead to an enhancement of money values. The condition of trade is. of course, an important element in forecasting tlvj future of the money market. For the past four years, trude lias been active and money hits been dear, but the boom in trade seems to have ended, and slackness may now provail for some time. Some of the relief of the monetary tension which has l>eeii experienced has been a consequence of this. Tho British Chancellor, however, wntru a few weeks ago that h<> did net anticipate any serious set-back in trade, and. while the phenomenal activity of 1913 was not likely to be repeated, In- expected the trade of 1914 to be iti» to \ he averajre. It will not Ik> safe, therefore, at present, to count upon a prolonged period of cheap money. Localiy, there i;; a tendency towards ease, but it is. not at present pronounced, and no reduction of tho ruling rates for accommodation is, in the moatitinie. likely. We have also to bear in mind that ll: • gold production of the world oxhibiui a shrinking tendency. The labour troubles in the Transvaal and the war in .Mexico will ie.;d ta a restricted output in those countries. The following table i* a summary of tho production for the past years:

Year £ 1907 82.258.692 1903 . . 85.65d.905 1909 91.985.496 1310 30.842,730 1911 .. ... 91.875,461 1912 ... ... 91.866.653 1913 . . 92,662.534 The total production for 1913 shows a decline of £2,204.119. or 2.3 per cent. Th • T/ransyaal, which contribu'es more than one-third of the whole world's supply, appears to have reached ii< maximum capacity as to output, and there i« no ether known field at the present time offering prospect* of substantially improved yield.-. If tho production of ihe previous mcial continue* to decrease, it must ultimately have an adverse effect on the prices of commodities. Some authorities hold that a reduction in the gold output of the world would not Uan altogether unmixed evil. They consider that the rise in the price of commodities that has taken place during the last decade has been brought about bv the concurrent large growth in. the world's gold-produe-tion. J cannot, however, myself see that the whole responsibility for hardened prices can U> laid ; -.: lh«> ckx;r of gold production. It probably has had some influence in the matter, hut the principal reasons for tin increase, must. I think, be sought for in other direction;*. Tho main factor, i: sexmis to me, lias been that of supply and demand following upon ih,~ higher standard of living that has gradually come into vogue during tue last twenty years—the period throughout wnich the appreciation it values has boon most marked. Population is increasing, and the producing taction of the community i-. not increasm r correspondingly, either in numbers, <■■ volume of output. The producers arc clam ourim* for, and obtaining, hijrber pav end shorter hour* <>♦" labour, which mci.ns •,!:.-. the product of thei r toil can be sold v the world's markets only at a price prn-,<<i tionatelj in Kclvanco <>: thct nl whicu' i« comd be sold Winn tho cost of production was le«s. Ihus. ovt-i v advnntago tha: !-- hour secures in its eiruft'le for improv." mom oi its eruditions is won at [\c e\. penso of the community :>.» ,■, whole. Tin consumer musi. in tin> ,t!(l, r>ny f (l| tj... ~.,.,• of producing the crtirles consumed ;■• ' hence, in lartro measure. ,I„. jncrrn.W C U' of livimr. of which in tiicM da\s «■<■ l u -ai so much.