TEE BANKING INQUIRY.

New Zealand Herald, Volume XXXIII, Issue 10252, 2 October 1896, Page 4 (Supplement)

TEE BANKING INQUIRY.

V, ' • '"' ' COUNCIL COMMITTEE'S REPORT -;"'. ''>* / ,'/'■■ Wellington, September 18. '■■^:-;'-''lr.' : Ajif th 6 Legislative Council, this,. afternoi Mr. Stevens brought! down the report of tl ••' J ■Banking Committee. The report recoun ~;.''. : ': the commencement of banking legislatio: ;£•''•', ;■.* and the circumstances which led up to M \" John Murray's application to the Gover. ': meut in 1894, and points out that with one i M •'.':' two exceptions no information as to the pos ■'<■'-.'. ---/.V'.. tion of the Bank in London was given to tl v- ''••'■*■■:-• ■ Government. Tho report then proceeds m . It is clear that without this a proper know 11 '-.. ledge of the Bank's affairs could not be arrive \ -■■: | at, and that such information ought to hat m$L been obtained trom London by cable. No 1* -. withstanding that) a thorough disclosure < !.v' ; : .• the condition of the Estates Company wa Hf'- - essential to a proper understanding of tr r•' ' affairs of the Bank (the Bank being the sol ; Y\ ' owner of the Estates Company) Mr. Murra >--• did not more than inform the Governmei that there was a ' big bole to be filled up l I <k "■ the Estates Company,'whilst at that tim< '•. - according to the evidence of Mr. J. C. Haunt W. then Genera! Manager of the Estates Con W pany; he was then in possession of th ;*.'■ information contained in Mr. J- C. Hanua' sS- memorandum dated 9th Jane, 1894, u days before Mr. Murray's apphcatioi i>. to the Government. Mr. flanna's memo S, random shown that at that time wliilsl M thebalance-sheet took the assets at £3,-y-',AI sgV ' the land aud income tax values for thelaudec •f> properties and the book values for the tradinj concerns, live stock, and liquid assets, onl; :i ;, amounted to £2,675,195, leaving a shortage o p', ■ £524,063, to which ought to be added the cos p • of debenture issue and preliminary expenses tS 1 £201,493, and also a variety of shares am ¥.' other items, £250,000, making a total o £975,561. Other deficiencies in the Londoi f- balance-sheet amounted to £200,000. Mr : «-; Banna's memorandum further shows by ai ||. ■'-. extract from the Estates Compauy's annua # •> report to the board dated 12th May, 1894 4* •? that the years outrun of profit fell short o *"£ v the estimate bv £45,000, and comparin: $■■ the returns of 1594 with those of 1891 aw I 1892, a falling off in profits of £65,000. Ii s ■ view of Mr. flanna's evidence, and the faci •v. that there is nothing to disprove it, youi "■< committee considers that Mr. Murray with k3 i held from the Government information re■i; -''■' specting the Estates Company that he could >¥ have given, and that it was all important ':'•■' the Government should have received. ;f Although full information as to the position W - of the Bank in London, and as to that of the t£ Estates Company, was essential to a sufficient |sj knowledge of the Bank's affairs as a whole, t the Government, although they pressed for mL it, did not insist on that information being f'--' , supplied before they agreed to invite Parlia- <; ment to giro the guarantee of £2,000,000. 'The report then proceeds to deal with the amalgamation, and traces the overtures made W to the National Bank in 1593 and 1894, and trusters subsequently taken to acquire the fl'" busines's of the Colonial Bank. The propo'h -;" ' sals submitted by Messrs. Murray and McLean, contemplated the severance ot the % Estates Company from the Bank and the |o establishment of a Board to manage the ■' " estates, and the starting of the combined banks upon a fresh basis. Nothing, however, '": .'- came of these proposals at that time. Refer- / ence is next made to the legislation of 1895, which, inttr alia, empowered Bank of New Zealand to purchase the business and W\ assets of any other bank in the colony, the pi selling bank to be wound up under the Companies Act, ISS2. The report then says:— K i The Colonial Bank having become the selling Wt bank, and this provision having apparently proved disastrous to the _ interests of its fl ' shareholders, your Committee thought it P» •■ advisable to ascertain the authorship of this v~ '■ -••" section. The only information on this b[ . point seems to show that the section was *'■ prepared by the solicitor who was act- '; ing for the Bank of New Zealand, '?o': who appears to have drafted the Bill, but %M the directors of both banks appear to have 0 been ignorant of the effect if not of the existence of the section, whilst the Governr ment accepted it as part of the machinery of •-<.. the Bill. 1 ~ The report next refers to the appointment a* ■ of Mr. Watson as president. It says there R, is no evidence to show that the Government i; showed any special anxiety to appoint the £"■'. officer in question. The Committee has no if. • evidence to establish the special fitness of ir * the president or otherwise. With regard to the general manager, the evidence tends to % ; show that he was specially competent in the j? . management of exchanges and in the finance of a bank whilst general manager of the p. - Colonial Bank. TheCommitteesees no reason m to think that the information given to the P i joint Committee on the Bank of New Zealand ':' ■ '. in 1895 was incomplete or inaccurate. Your Mi Committee has anxiously inquired as to the . ■■■■:-, future prospects of the Bank, and although 'r ■' the expectations of witnesses vary as to the |.'- degree of success that may be anticipated, p; the evidence all points to the stability of the Bank and to its being able to make sufficient 'v* '■ profit to justify the action of the Legislature ;•'- • in 1895. At the same time your Committee fU |y thinks it right to say that it has no doubt - ' that the exposure of the Bank's business ; '' 3 ?*' through the medium of Parliamentary inC.< quiry has done, and is doing, considerable x'■■-, ' mischief, and that if proceedings of that % ■■: kind are repeated the future profits of the Bank must be seriously endangered. %U The Committee recommends the adoption v ''■ of a more detailed balance-sheet. With reW ■ gard to the Butt agreement, the Committee, while recognising that it was entered into for '■/? ■ the purpose of preserving his right to a .•'}, : pension, thinks that the desired object might M . and ought to have been arrived at in another '.'.-"" way. It appeared to place the officer in a false position, and in the opinion of h : 4 .the Committee ought to be terminated. '■'"'•■. Your committee (then proceeds) has carefully ?;;'•': considered the question ot the position of •;' ; ' the Governmect relatively to the Bank in 4 •■■, V view of the great preponderance of State • %'. v interest now is; that institution. The subject |f> 'ia one of great difficulty. The Committee is '■. ,?;'• of opinion that however satisfactorily the '?■' I present arrangement may have worked, the fi■'?■'.'■" immense interest of the colony in the Bank >'.., when compared with the comparatively t : : ', small interest of shareholders under existing H& conditions points to the propriety, if not necessity, of additional representation of the ji-s'' colony on the Board of Directors. '.'<• .. •An incidental reference is made to the W ■ Bank of New Zealand Officers' Guarantee §£ and Provident Association. The following •:/".• . figures have been put before the Committee, v; : " under date 25th August, Amount of W. invested capital, £125,423; funds in Bank vi.' ■; ' awaiting or in course of investment. £9012; ".;• | ' total income per annum, £9374; total annual : i' 'y payments to pensioners, £4006; number of '.'•. pensioners, 22; total number of contributors, ■■:;•': 454. .'As the position of the Officers' H§» • Guarantee Provident Association was not in • ':'■ I'' ' the order of inference, the Committee has ■ '"; p| - not called evidence or enquired into the '-'.(. ". , position of the fund or the rules and condiv.'ti'f h'r tions under which pensions are granted, but '- • ; it desires to express an opinion that the m ' whole question requires careful investigation •'■:" : < \- .; -.. by tho directors and the Government. _~ , h ■". v. The report then deals very fully with the vV': ■/.'".■■' history of the Estates Company. It says :- The position of the company is shown by the ,"'•' following facts : The £1,500,000 debentures :■! . only produced £1,312,500 in cash, and esti.''k,v mating the average period during which the V, ' ;..' debentures were outstanding at four years, £.'■' .'•.'"7 the ultimate loss is as follows: Four years '£'••■■■■ . interest at '5£ per cent., £230,000; cost of ••-' >;. ■ ' floating, discount, and redemption, £305,286: ';•;:"• . total, £035,286, which is equal to'an - 'annual interest on the cash' proceeds lor four years of fully 12 per cent. That the '••'• '■-'■'';;' condition of the Bank required financial aid £','•-.. -; to be obtained at such a cost makes it impos- - 7 :. '■' sible to escape the conclusion that in ?; \; > t preference to the creation of the Estates ;i '•' Company in the form adopted the Bank if:*?? should have been liquidated in 1890. After i- : ':iy- ;.;,, • enumerating the various properties and their '„ I valuations, the Committee says the weight of '.y~ : . -■ ■ opinion is against a probable complete reali- "' sation within eight years, while some eviir:''- '■':■ dence points to twelve years or so. Your .-■'.'. "t'' Committee, says the report, is much Inpressed with the importance of the realisa- .' .• : •■." tion being accomplished as speedily as V '~■'•'. possible, and has no reason to doubt that the ■-\ ■ members of the Assets Board are fully alive ;>, : . . : to this consideration. Nevertheless your '1.-: - ; v Committee cannot fail to see that the post■!',';■.'••.v {ion of the v matter is exceptional. Practi- -.'•' :. -• cally the colony is carrying on as virtual "':", '.owner the management of a vast quantity V ; . ■•' of to a large extent improved land, with all Wfi U the risks attendant upon the ownership and rt>. - 'management of 373,300 sheep and 20174 yix - catttle. ;To discontinue these operations i'y- ' suddenly, without having at hand purchasers ;%i 1 iorthe lands, would be disastrous, and entail t& great loss of ; interest and depreciation of '■'V improvements. At the same ', time , your |fv Committee sees ' little prospect of readily ?':;•'. finding purchasers for, the large areas of W&s ; ' . lands. =It is worthy of notice that of the fe : '■' Balsa made of properties under the control of '.;■■■•,'. .. the Assets Board, £99,028,. is the result of ■•■.''■:■•'•'-.purchases made by the Government under '.'.'''• the Land for Settlements Act. The evidence ''-'■'■•V "■."/* taken by the Committee shows that there i ''■< :■'■ is practically no sale iii the colony at present ;'• V; • .' for ! the • larger properties, ■ and the' Com- , mittee consider that these properties should ; L ;=.'.''..; be utilised, so far as they are suitable for settlement under the Lands for Settlements Ir'k f-'Act."--; ■■''/'■ ■■:■:,: ' : '' ■' ' Wi: v...... ..!,.. The report next briefly refers to the Auck- :;■; .• land Agricultural Company, and proceeds bo : -tr\- ■■.:-'/. deal at great length with the agreement.be!'i'-''," tween the Bank of New Zealand and Colonial y Bank for the purchase of the latter. ;< The I--:':.l.'Committee states that the evidence without exception' supports the',' purchase •of the ■ ■■: i Colonial Bank as a judicious transaction, and also shows that it has in the wotkiu'g of . the '•':: . Bank.of New Zealand proved to be profit-

able. •• Reference is made to the connection of -'the Ward Farmers', Association with the Colonial Bank, and 1 to the oats .transaction, ; and the report conoludes as follows*:- Your i Committee is ;of i opinion : that Mr. Ward ought, when f> he ■•• became <• aware that , his ■'■ financial ,■ position; was i seriously ini volved, to have : acquainted his colleagues in' the Government, • and that jhe ought to 1 have tendered his resignation of the office of Colonial Treasurer. •' Considering the financial position ot the then Colonial Treasurer,' and having in view the necessity that has been known to exist for negotiating for the purchase of the Colonial Bank, and of the passing of legislation to give I effect to the same, and the knowledge that those transactions and legislation must necessarily affect him, it was in the opinion ot the Committee extremely unfortunate that Mr. Ward should have continued to hold the office of Colonial Treasurer. Your Committee think it right, however, to state that they found no evidence to show that Mr. Ward was associated with the negotiations for» the purchase of the. Colonial Bank. Amongst the subjects that came under your Committee's notice during these inquiries, and showing how undesirable it was that the position of Colonial Treasurer should have been held by Mr. Ward while the banking agreement was under arrangement, was the item of £55,1130 in the C list. The evidence shows that at the time the agreement between the Banks was under negotiation the Hon. J. G. Ward was indebted to the Ward Farmers' Association £55,150; that in order to place the said Association in a position which it was then considered would enable that account to be taken over by the Bank of New Zealand or some other Bank, the sum of £55.150 was placed to the credit of the Ward Farmers' Association by the Colonial Bank, and a promissory note was taken by the Colonial Bank from Mr. Ward for that amount. Thisipromissory note was secured by all the assets Mr. Ward could offer, which are variously estimated, but which were not adequate security for the promissory note. The Bank of. New Zealand appears not to have been satisfied with the account, and required time to consider it. With this view the account was retained in the C list, and three months allowed within which the Bank of New Zealand was to decide whether they accepted it. Prior to the end of the three mouths they declined the account, and it afterwards went into liquidation. Your Committee cannot avoid expressing their opinion that considering Mr. Ward's position, and that the placing of the £55,150 in the 0 list under the above mentioned conditions was subjecting him and the account to grave disadvantage, he ought to have been informed by the Colonial Bank of what was propoeed to be done before such an agreement was concluded. It appears from the evidence that no member of the Government was made acquainted with any particulars relating to the A, B, C, an/1 D Fists. Your Committee has also taken evidence as to the second banking legislation in 1895 found necessary to give effect to the agreement for the purchase of the Colonial Bank. The evidence shows that a short Act was first drafted by the solicitor to the Bank of New Zealand, and submitted to the Premier, who i referred it to the Government draftsman with instructions to make it as complete as possible. On examining the agreement the Government draftsman concluded it was necessary to provide specially for the carrying out of the part of the agreement referred to in the lists, and he did so without instructions from anyone. The evidence further is that at this stage the Premier had charge of the whole banking question. When the Bill had to be submitted to Parliament it was introduced by the Colonial Treasurer, and explained by him from a written memo, furnished by the Government draftsman. Your Committee, after careful enquiry, have found no evidence that Mr. Ward was further connected with this legislation than as above stated.'