BANK OF NEW ZEALAND.

New Zealand Herald, Volume LVII, Issue 17614, 29 October 1920, Page 5

BANK OF NEW ZEALAND.

AMENDING BILL DOWN, ] CROWN HOLDING ENLARGED. ISSUE OF NEW CAPITAL. TRANSFER FROM RESERVE. [BY TELEGRAPH. —SPECIAL REPORTER.] WELLINGTON. Thursday. The Bank of New Zealand Bill was introduced by Vice-regal Message in the House of Representatives this afternoon. The Leader of the Opposition, Mr. T. M. Wilford, immediately asked that, copies of it should be made available at once so that members might have an opportunity of consulting those who were experls on the subject. He also suggested that the Prime Minister might give some idea of what the Bill contained.

Mr. Massey said copies of the Bill would be at once. His idea in introducing it to-day was to give everybody time to consider it. He did not propose to go on with it this week. With regard to the contents of the Bill, he did not wish to go into much detail, for it would be understood that once he began on the details he would have to go through them all. He had referred the measure to the Public Accounts Committee, the Treasury, the auditor of the bank, who was practically the representative of the Government, and to the Attorney-General. All of them were satisfied. So far as the proposals of the Bill were concerned one of the most important was to transfer part of vhe reserve to capita!. At present the paid-up capital was £2,250,000, made up of 75,000 "A" preference shares belonging to the Crown, 37,500 "B " preference shares, and 225,000 ordinary shares of a nominal value of £1,500,000. The Government's interest now was the " A " preference shares and the " B ° preference shares.

Crown to Have One-filth Interest. 11l connection with the transfer of £1,125,000 from reserve to capital a certain proportion was coming to the Crown as the representative of the people of the country. They would be B " shares. The new shares, added to the £250.000 in " B " shares which the Government already had!, would give the Crown an interest in the bank under the "B" scares of £625,000. The additional income to accrue under this, which was only an estimate, but from a particularly good source, would be approximately £18,750 per annum. The Government's present share in the bank was one-seventh of the total plus t|je "A " shares. What was aimed at by the Bill was to increase that interest from one-seventh to one-fifth.

Tile readjustment that was also intended was probably as important as the transfer. When it took place it would leavs the capital as follows:"A" shares £500,000, "B" shares £625,000, ordinary shares at £1 £2,250,000, leaving the capital of the bank £3,375,000. The shares of the bank had been of the nominal value of £6 13s 4d. There had been a call during the'last few months. Now it was intended to divide the shares each into ten £1 shares.

Democratising the Bank. The intention was to democratise the institution and make it the small man's bank. The capital transferred would be more easily handled as working capital than as reserve. There would be a number of other details that would be explained when the Bill was before the House. ■ Mr. Massey added that the reserve fund, which now stood at £2,500,000, would be £1,375,000, temporarily at least. He had looked very closely into the matter, and he did not think any bank in proportion to its capital could be sounder or in a better position than the Bank of New Zealand.

Provisions of the Bill. The Bill itself necessarily provides the machinery by which both the transfer and the readjustment of assets are to be effected. The bank is foroidden to issue any further guaranteed stock beyond the amount now outstanding. The sum of £1,125,000 is to be transferred from the reserve fund to the capital account. The directors are then to cancel the whole of' the existing capital of the bank except the outstanding guaranteed stock. In lieu of it the "A" preference shares, "B" preference shares, and ordinary shares are to be issued in the numbers detailed by the Prime Minister. As he stated, the "A" shares and 625,000 of the "B" shares are to be allotted to the Government direct. The holders of old ordinary shares are to receive ten of the new ordinary shares ih return for each old share. After the various allotments have been made the new "B" shares and ordinary shares issued in excess of those allotted to the Government and to the holders of the old ordinary shares respectively, are to be offered for subscription, at such times, in such amounts, and at such premiums as the directors, with the approval of the Minister for Finance, may decide. The "B" shares and Ordinary shares are to be offered simultaneously, in the proportion of one "B" share to two ordinary shares, both subject to the same premiums, terms of issue, and dates of payment of calls. The whole amount of these shares is to be called up immediately on issue, but may be made payable by instalments.

Order of Preference. Upon any issue the Crown is to have the option of purchasing the whole of the shares of both descriptions offered. Next in order of preference come the holders of shares, who are to have the right of purchasing from each issue in proportion to the shares they already hold. After that, the issue'is to be available for subscription by the public of New Zealand or elsewhere. Authority is conferred on the Minister for Finance to purchase the whole or any of the "B " preference shares offered to the Crown at a price not exceeding 100 per cent, above the nominal value. ' He is empowered to issue debentures. inscribed stock, or ether securities to raise the funds necessary for the purchase. The means whereby the fixed ten per cent, dividend upon the " A preference shares is secured is as follows :Out of the profits for distribution in any year of the bank's operations after March" 31, the first £50.000 shall be paid as a fixed preferential but non-cumulative dividend upon the preference "A" shares. Then comes the distribution of profits a| described in the memorandum. These provisions do not affect the powers c-f the directors to pay interim dividends. The Government's share of the profits is to be paid into the Consolidated Fund.

A number of other provisions affecting the governing of the bank are included. The qualification of a director to be elected by the shareholders is to be made the holding of 1000 ordinary shares. The term of office of all directors, whether elected by the shareholders or appointed by the Governor-General, is to be three years. The amount to be divided among the directors by way of remuneration is fixed at £5000. A director appointed to fill a casual vacancy is to hold office only for the remainder of the term of the one whom he replaced. 4 Following on the division of the £10 shares into £1 shares the maximum shares to be held by ■ one proprietor is increased from 6000 to 60,000. The maximum votes exercisable by one shareholder is raised from 200 to 2000, and in the same way the number required in the case of a demand for a special general meeting, requiring an adjournment, or constituting a quorum, is multiplied by ten. Power is given to' the auditor or the assistant auditor, on the instructions of the Minister for Finance and the directors, to visit and report upon any branch or agency of the Dank in the United Kingdom, and)

he is for that purpose given the same jJbtvers as he exercises in branches elsewhere. This is provided without- limitation of the powers of the auditor appointed by the High Commissioner in respect of the business of the bank in the United Kingdom. The limit of £1000 a year placed on the salary of the assistant auditc-i is abolished. By section 16 of the Bank of New Zealand Act, 1898, the authority of the chief auditor and the Minister for Finance (or the Colonial Treasurer as he then was) was required to validate all transfers of shares- This authority is to be no longer necessary in the case of fully paid up .shares.

THE BILL EXPLAINED. WHAT THE STATE GAINS. INCREASED INTEREST IN BANK. [BY TELEGRAPH. —SPECIAL REPORTER.] . WELLINGTON, Thursday. An explanatory memorandum issued with the Bill details the different arrangements of capital leading up to the legislation now proposed. It states that before the passing of the Bank of New Zealand Act, in 1913, *he Government had no j share in the profits of the bank beyond ' the preference rights of its then holding of 75,000 preference shares, fully paid up, of £6 13s 4d each, totalling £500,000 < (named the "A" shares in the Act of 1913). ) The ordinary shareholders held 150,000f| ] shares, then paid up to £3 6s Bd, and ] j since fully paid up to £6 13s 4d. and | I now totalling £1,000,000. The Govern- j ' ment's "A" preference shares were created ! under the Bank of New Zealand Act of I 11903, which provided that the dividend i | thereon should increase in certain propor- j J tions when dividends on the ordinary ! shares exceeded 5 per cent., but so that i | the maximum dividend on the "A" shares j I should be 10 per cent. Preference shares ] jof that nature do not confer an interest I , increasing with the prosperity of the | i bank, and do not create any absolute j ] share in the assets and reserve funds so j long as the bank continues to exist beyond I the security of «uch assets and funds for I the capital of the preference shares. In 1913 the bank desired to call up the uncalled capital on the 150,000 ordinary shares and to- create further capital by the creation and issue of new shares. Legislation was necessary for the purpose and the advantages then gained for the Government were that of the new issue authorised by the Act of 1913, the Gov- . ernment should be entitled to take up one ! out of every three issued. The. GovernI ment's new shares had preference over ' ordinary shares as to capital and are I called "B " preference, but the '* B " j preference in all other respects rank for : dividend and for share in the assets with I the ordinary shares. The new shares is--1 sued under the Act of 1913 were 37,500 ' " B " preference shares, totalling £250,000 I to the Government, and 75,000 ordinary I shares totalling £500,000 to the sha.re- ! holders. As the result of the Act of 1913, j the Government then obtained its present I actual beneficial holding in the assets and future of the bank of 37,500 shares as against 225,000 shares held by the ordinary shareholders. That is to say, the Government holds one-seventh ol the total of such shares and the shareholders sevenths, but every future increase in the capital will effect an increase of the direct interest and share of the Govern- | ment in the bank if the principle l of the Act of 1913 be adhered to, and if of every three new -shares the Government takes one. The Government's proportionate share of the whole beneficial interest will be thereby gradually increased. On the other hand an increase of capital involves a less dividend upon each share, and the result might be to reduce below 10 per cent, the dividend on the -■»" preference shares. The bank's reserve fund, as shewn in its last balance - sheet, air-ounts to £2.000,000. and the bank desires to capitalise £1,125,000 of that reserve by the issue of shares fully paid up. It also desires to make all its shares of the nominal | value of £1 each, instead of fib 13s 4d. i There is no objection on business princiI pies to either of such proposals, and the ; bank offers to the Government the follow- : ing advantages:—(l) The dividend on the "A" preference shares shall be henceforth a fixed preferential dividend of 10 per cent. (2) Out of the new 1,125,000 shares of £1 each to be issued tljere shall be added £35,000 to the Government's "B" prefer- | ence present holding of £250,000 —that is, I one-third of the whole of the new issue— ! the Government's pioportionate share of | the whole beneficial interest being thereby I increased from one-seventh to more than j one-fifth. (3) But the Government is at present entitled to only one-seventh of the j reserve funds, and would therefore actu- ; ally be entitled to only a little more than 160,700 of the shares to be paid up in full out of the reserve fund.

The adjustment of the position which allots -to the Government nearly 215,000 more shares than its actual quota has been arrived at by two provisions :Firstly : That the sum distributed in dividends in any year—exclusive of 10 per cent, on the "A" preference sharesshall, up to £306,250, be divided one-seventh to the Government and six-sevenths to the ordinary shareholders, which is, exactly what the Government would receive if this Bill did not pass; and secondly, that any amount distributed above that sum shall be divided one third to the Government and two-thirds to the ordinary shareholders. The second provision is a substantial benefit to the Government in comparison with its present share in the divisible profits.