Speculation

NZ Truth, Issue 405, 29 March 1913, Page 4

Speculation

OR SWINDLE

BY "CAMBIST." —

In this -column vrtll be made an effort to protect the public rrom rotten financial methods m business, finance or government. Shareholders In companies are Invited to send the balance-sheets of the companies they are interested m to "CAMBIST," c/o "N.Z. : Truth," for review. "Cambist" will also be «lad to notice m cases where called for the prospectus of any new company which may be sent him. , -

New Zealand Loan and Mercantile Agency Co., Ltd., and Reduced.

In the bad old days. when the Bank of \ New Zealand was on its worst financial jag the New Zealand lioan and Mercantile Agency Co., Ltd., was a convenient with which to keep the • ship balanced. In these past days the two concerns were called tne "Fijian canoe," the big part of the contraption being the Bank, the smaller one the Loan Co. It worked this way: "When the Bank overloaded itself with land-grabbing advances it shoved on to the^Loan Co. what it could no longer carry" Itself. At last, this policy canoe to grief. The Bant passed its dividend, committees investigated, glozed over the worst features, but to no purpose. The public became alarmed, and the general lwirsting of theAustralian Banks gave things such a shake that the Bank of New Zealand became "Insolvent," to use the memor« able words of Mr. Harold Beauchamp. It then happened that the Government took the Bank of New Zealand m hand, and from that moment the New Zealand Loan and Mercantile Co., Ltd., was cut off and treated as a friend 'no longer. In 1894 the Loan Co. had to face the wortd, so to speak, and make a fre3h start. Practically its past was wipotl out. and it Is now quite a juvenile, since, the report and balance-sheet presently to be reviewed is only number 18. Thisfact brings out another feature, viz., that the present concern is absolutely a London concern, and Its policy is completely directed from that city, of much riches and still greater poverty. In the bad old days Auckland was its head office, aotl Its directors were mostly Wowsers. A ftne mess of things those holy men made of everything they had anything to do with. In looking over the past 20 years. It is: wonderful to mark the progress made by the Bank and the New Zealand Loan and Mercantile • Agency Co.. Ltd.. and Reduced. One, the Bank, was protected by the Government's intervention and aid. The other had to fly to London, and m consultation with men who have goad reason to plume themselves on their financial astuteness, make a fresh start put things on a new basis and get to work strong and hard. Moreover, they got no Government aid. they had to push ahead on their own efforts. In both of ■these institutions the credit for the successful outcome cannot be allotted to any particular person or persons. It cannot be said that any Board of direction was responsible, for during the past 20 years, both institutions were constantly changing m their personnel of direction and executive officials. This is indeed remarkable. It is more. It seems as i* the personal equation, never counted, and m truth it never did. To-day no director or general manager can extend his chest and say, "I saved the Bank." or "I mad* the Loan Co. solvent." and for this reason there is silence m the press on the subject. "Cambist" will, hewever, point out m a few words what the factors were m both cases leading to the remarkable recovery shown by both these Institutions. There were two, viz., the prevention of creditors demanding payment from the concerns and the unbridled powers these concerns retained to earn profits from their customers. Once the Bank obtained the Government guaranteo their creditors ceased to bo Insistent. The creditors gave the Bank the needed time which enabled it to sell Its assets at high prices and straighten things up. The same principle worked for tho New Zealand Loan and Mercantile Agency Co. Once its creditors took over £3,300.000 worth of debentures In payment of their debts the concern was made solvent, and could, and did, go Its way liquidating dependencies, also making profits from its current business. From the long period of rest from % creditors, these concerns emerge well buttressed by large profits made from sales of properties at "boom" prices, as well as surplus profits accruing from a period of, great development In trade and agricultural advancement. The creditors wero kept quiet with, say. 4 per cent.. Interest, which is a cheap "rate for money that was used m businesses yielding anything from 6 per cent to 15 per cent per annum. From these differences of rates enormous reserves have been built up. The Bank paid off £1,000.000 Government debentures and has now a reserve fund of over £1.200,000. while the Loan and Mercantile Co. shows reserve fund of £730.000-^pllod up In much moro difficult circumstances. In both cases there was primarily a gross misuse of credit, but forbearance on the part of creditors, aided by ttme. has effected almost a complete cure for past injuries. The extraneous Influences which have helped enormously tho Bank and Loan Co. during the past 20 years are to he found In this era of excessive borrowing by tho State. Over £45,000.000 of debt has been loadnd on to tho general public, and thin expenditure has benofltod land -owners and. speculators alone. It has. therefore, pushed considerable sums Into the coffers of every land -owner, or land speculator, the chief of which was the Bank and Loan Co. It was so. both by choice, us well oa by force of circumstances. However, nil ore now. comparatlvoly speaking, auHe reformed characton». Tho 18th balance-flhcet for year ending June 30. 1912. In the precursor of further change In the constitution of tho N - ew Zealand Loan and Mercantile Agency Co.. Ltd.. and Reduced. It Is a well not out document, leaving very little to doubt or speculation. In thin respect It stands fix an object Iwwon to the woeful examples which companies In thin Dominion »re prono to hand out to their shareholders. The Loan Co.'* di- j rectors and the accountant responsible j for the balance-iiheot have given a j wealth of detail on both the ousels and j liabilities "«<le which I* truly refreshing j In U* candldness. It appears that the | authorised capital la £2,000.00*. of which £1 910.528 Ui BUb«crlbe«l. but tho paid-up capital Is only £135.349 Us IA. Comporing the Utter sum with the flubscribed amount, there must be borne In mind the peculiar capital «rrangem<snui. Ftrat there aro 00,000 shares fully p*ld up of IO». »o nothing moro la l«ft In thin lot. Tlicro aro 208.342 ordinary nhares of £9 each on which W* p«r nhsre Is p»l4. leavtßK * HabuUy of £ » JO » P*r nhnre. 50 more ordinary share*, on which ha* tM}«n paid £154 13* I<l. and, finally, capital p*l<l In advance £"2*. Threw fact* mako plain that tho r>r«M>nt nbarehold. cr * are liable for n<> l«»* «h«n £1.775.579. which utim U plod«e<l «" the demurshoidorn In the company. Probably th* fthorehoiaern wero not atrons «!«du«r»j m moke a call on. for sine* tho recorwlrueitloa'Of th« company only JOa p«r share

is paid up, with the exception of GOshares already referred to. The deben-•ture-noWers are divided into prior Jien £2,350,0©# second debenture stock £540,764 10s 2d. third debenture stock £405,573 7s 9d, making a total; of £3,296.337 17s lid,, so that m addition to | the assets pledged to the debenture-hold^ ers the shareholders would be liable m the case of liquidation for over flfty"*per cent, of the face value of the debentures. The terror of such a call, viz., £8 10s per share, must have been something real j to the unfortunate shareholders, and noJ doubt the force of lc is teeing brought | home to them In the present scheme of. \ re-arrangement. There is a feature connected wKh the debentures which Is not' explained, i.e., how the company became | holder of its own debentures to the tune, of £438.969 8s 2d. They hold: Prior Hen £387,554 Ss 2d, second £29,380, third £22,035. It Is possible these have come to them as owners of the New Zealand Land Association, Ltd, which company will m future be merged with the New Zealand Loan and Mercantile Co. when the reconstruction is completed. At anyi rate this cross entry of close on to half* a million sterling Is bound to disappear, and to that extent help the next washing up. The remaining Items on the liability side of the balance-sheet are of comparative unimportance, being for accrued Interest on the various debenture stocks. -Deposits of the New Zealand' Land Association, Ltd., £512.615. As already stated, this company Is part andparcel ofth* Lo*n Co. Current accounts £183,659, money owing to clients, is small considering the volume of business* handled, it has a visible sum of cash, viz, £268,175, on the-assets.sldo to meet it, so no anxiety need be felt on that score. Next comes a long list of •ffrstclass investments totalling £242,4€6, These are mostly first grade stocks and bonds of various British dependencies. There Is only one line of New Zealand Government bonds. £50,090, cost price £49,651. India, Canada, Ireland, Africa, Australia and London provide the difference. Thls-shows how little sentiment enters into business. If our bonds were so good as the politicians are never tired of saying they are, one would expect a company of this kind to invest rather heavily m them. Especially when it Is remembered this is the place, of the company's origin.. But it la now purely a London concern, and can be assumed to know the value of a Government bond better than we can. Leave it at that. There does not appear to be anything to cavil at m the remainder of the assets. Advances, stocks, premises are within reasonable limits, and have doubtless been well overhauled for the purposes of the new arrangements. The balance of Income from all sources "after making provision for bad and doubtful debts Is £435485 34s 4d, a handsome figure for twelve months. General expenses, writing down of premises account, and bonus to staff, also land and income taxes reduco the amount to £201,323 13s IQd. Prom this is taken interest on the three debenture stocks, vis.. £116.211 19s 3d; carry to reserve £60,000. staff benevolent fund £5000, leaving £10,151 4s 6d to pay 1% per cent, on the capital paid-up; also £9688 9s 2d to provide 2ft per cent additional interest on the third debenture stock— £372 6s lid being the balance to carry forward.'

To carry out the scheme for re-ar-rangement of capita! a call of £5 per share Is to be made on those not fully paid up. This will, produce £1,944,106. Prior lien debentures will be paid off to the extent of £953,4«. Second debenture stock will be increased by £459,335. Third debenture stocks will be Increased by bonus additions to £366,(07, and be converted Into 5 per cent, cumulative preference stock. " These are very striking changes m themselves, but In the future all debentures and shares are to be changed Into stock. This Is sii;n(ncant of a possible complete chango In the ownership of the shares. It Is probable that the holdings of those who have tho £G call to face may pass to the underwriters or guarantors who are to carry the scheme through. Whatever body of shareholders may remain will be freed from all further liability In respect of the shares. The prospects of the Company m such circumstances are apparently rosy to Induce those who can to pay up and retain their shares. Whero the guarantors hAve to take over the full share, they receive eighteen per cent, of tho call. In cases where they take over half of the call, the guarantors receive 9 per cent, of the call. The money, apart from calls on shareholders, comes from the distribution of the largo reserves, so that the next Balance Sheet will be very much altered In respect of this Item, a forecast of the company's capitalisation reveals the following: First mortgage debenture £ stock 4 per cent. .. 1,000,000 \ Second mortgage debenture stock 4 per cent. . . 700.000 Preference stock T per cent. I cumulative .. .. 935.011 Ordinary stock (late aharo capital) .. .. .. S2S.GO* £3.523.515 The first item is fully Issued, m respect of the second 4 per cent there will bo £300.000 unissued. There will bo unissued £ 19*3 ot preference stock, while tho unissued ordinary stock totals £174.49«. Therefore, the amount of unissued stocks is £476.485. making tho total capitalisation of £4.000.000 altogether. With such a capita. *-h« Company is pushing lUself into a foremost place. On this j bn*U the company will have to earn £169.175 per annum to provide interest, j Taking this year's earnings as an Jn«H- i cation. vU.. £301.323 net. it appears that j thero will be from £40,000 to £60.000 left j for tho rtMrven after paying Interest as above. Ifowever. tho profit* will depend upon avoidance of bail debts, the reason*, cic, and with ordinary prudence iney should arrive fairly consistently. Tn» company haii as branches and I agencies m Now Zealand and only alx In Australia, bo that thU country on the face of thing* win |»rovyie tho bulk of profit*. What a wonderful HUM country It lx Jn overy direction it In tuut&iied by commercial and political namnltea. The day. it i* hop** l - ***'" 4«trn when iho foreign exploiter w»» «* v « to pack ht« bag «n<i j e »v«. On tho Board of Local Director* there ar« < Wd merchant* *n*» on* pollUcrian. Tho farmers never mom to get »nyon« u> I* 9 * a' 1 *"* lU **r »nt«>re«u« m a concern which so intimately eone<?riw I lhcm _ft eonewn Which owns up to pro** profit* of nearly half «x million pound* par annum. "Cwnblm" wond<tm what they ***> «lr<*amlnp ttbmit™-|t I* time iboy woke mp