GUARANTEE GIVEN

New Zealand Herald, Volume LXXIII, Issue 22444, 13 June 1936, Page 15

GUARANTEE GIVEN

STATE MEASURE IN 1894

SERVICE WELL REWARDED 44 A BOUNTIFUL HARVEST"/ [BY TELEGRAPH —FRKSS ASSOCIATION] WELLINGTON, Friday The events which accompanied the banking crisis in 1894 and the action of the New Zealand Government in standing behind the Bank of New Zealand at that time were reviewed at the annual meeting of the bank to-day, when Sir George Elliot, chairman of directors, pointed out the benefits which had accrued to the State. When the bank was in difficulties in 1894, the Government guaranteed for the bank a loan of £2,000,000 in London, and the loan had since been repaid. " I have heard much public reference to the great service rendered by the Government, to the bank, but I have never heard reference to what the Government received for the service," said Sir George. "The Government now holds £500,000 in A preference shares, carrying a fixed preferential but noncumulative dividend of 10 per cent, £1,370,000 in B preference shares and £2.34,375 in C long-term mortgage shares. The A and B preference shares rank for capital before the ordinary shares, and would also participate in any surplus assets.

Value of State Holdicg " For these 2,109,375 shares, . the Government paid £1,859,375. To-day on a 4 per cent return basis they are worth, on present dividends, £'4,100,000. It will be seen then, that for this guarantee, against a high-class security, the Government has done exceedingly well. Furthermore, over the years, the Government has received an average of 10J per cent per annum by way of dividends on its investment in Bank ofJ*ew Zealand shares. Following the Government's assistance to the bank a change was made in the constitution of the board. The Government, although the owner of only one-third of the capital of the bank, has the right to appoint four directors, while the private shareholders, owning two-thirds, have the right to elect only two. Benefit to Country " I do not suggest that the Government of that day was overpaid for the service it rendered to the bank," said Sir George. " Although the' guarantee wa3 primarily given more for the welfare of the country than for the bank, the bank derived benefit, and for this the Government was entitled to some compensation. I am glad it has reaped such a bountiful harvest, but I am sure that the most optimistic person sitting round the table on that fateful night in 1894 never dreamed that, as a consequence of the arrangement entered into, the country would benefit so remarkably. From time to time New Zealand Governments have guaranteed the repayment of funds borrowed in London by local bodies, naturally without looking for specific rewards, hut never did they enter into a guarantee that did more for the financial well-being of the Dominion as a whole, nor one,-that has been more remunerative to theP country than that entered into with the Bank of New Zealand."