The Colonial Bank.

Oamaru Mail, Volume XXII, Issue 6793, 19 January 1897, Page 3

The Colonial Bank.

DcnrEDiN, January 19. The interim report of the Colonial Bank liquidators has been presented. After setting out the terms of purchase of the Colonial Bank they say that unfortunately for liquidation sufficient discrimination has not been excercised in the classification of the accounts, particularly as regarded the B list. A large number of accounts placed on that list should have appeared in the A list, while some of those appearing in the I) list might well have been put in the B list. Making the purchasing Bank worth the B and C lists necessarily placed the liquidators in a very disadvantageous position, leading to much unnecessary routine, loss of time, etc. It has, however, a more prejudicial effect, inasmuch as it may lead to the officers of the purchasing Bank limiting their exertions to the mere protection of their institution's interest in accounts, and allowing those of the selling Bank to suffer. ' After a lengthy analysis of the Bank's position they say :—" With reference to Mr Ward, It would appear that at the end of 1592 Mr Ward's account was considered to be assuming too huge dimensions, the overdraft then being L 51,635. To the Farmers' Association, which was formed with the object of relieving the account and obtaining greater facilities for carrying on business, the directors of the Colonial Bank authorised accommodation with a limit of L 45,000. This limit was not adhered to, for a latitude of many thousands in excess was allowed ; indeed, in December 1894, the Association's accommodation had risen under all heads to L 122,159. This latitude must have been within the knowledge of the directors, as weekly reports of the state of all accounts were laid before them. Te relieve this large overdraft, in December 1594 debentures were issued for L 50,000. When we say that the authorised limit of accommodation was never adhered to, we must except a few days after the 30th of June in each year, when, for the purposes of the Association's balance-sheet, the overdraft was reduced by special operations, in 1893 and 1894 Mr Ward giving his cheques for L 21,000 and L 35,000 respectively for a few days, and in 1895, Mr Ward -being out of the colony, a draft in London for L 30.000 being discounted at the request of the General Manager of the Colonial Bank. Of the deceptive effect of the first two of these operations on the Farmers' Association's balance-sheet it can hardly be assumed the Bank's management could be ignorant; but we failed to discover that the slightest notice was taken of them before or after the publication of the Farmers' Association's balance-sheet by the Bank's auditors. Of theoperation of June 29th, 1895, we are satisfied that its immediate object was the reduction of the Association's bank balance in view of the issue of the Asssociation's balance sheet. It is true the draft was supported by a store warrant, but it is also true that that draft which was a British bill and was exceptionally treated by the Bank authorities, was retained in the Invercargill branch, instead of going forward to London by the first mail in the ordinary course, which certainly gave the transaction the color of being irregular from its inception, especially when road in the light of subsequent events, and it appears to us was a transaction that the gene-1 ral manager should have known of, and did not come within the scope of the cablegram he received on June Ist, 1895." Speaking of the assistant inspector's report of August, 1895, and its alarming disclosures, the liquidators say: " It is not surprising to find that when before the directors of the Colonial Bank they were shocked and alarmed, being then engaged in negotiating with the Bank of New Zealand for an amalgamation. Up to that time it does not appear from their minutes that they anticipated any serious loss by Mr "Ward's or the Association's accounts. Certainly they did not think they were to be the victims of such deception as they then for the first time discovered themselves to be. Their task became most difficult, as they were then considering the balance-sheet which was to form the basis of the proposed amalgamation, and had been drawn up prior to the disclosures. The balancesheet was such that the figures may not have been affected by the disclosures, but certainly the character and substantial nature of the securities were. The directors of the Colonial Bank elected to disclose their position to the directors of the Bank of New Zealand, and proceeded with negotiations. With tte concurrence of the' latter they came to the conclusion to write L 55,000 off the indebtedness of the Farmer's Association to the Colonial Bank, as being better in the interests of the shareholders of the Colonial Bank to try to bolster up at their expense the Association than, with the accounts of the Bank all disclosed to the Bank of New Zealand, meet shareholders of the Colonial Bank with a statement that they must either wind up or make a large calL In giving effect to this agreement, we cannot agree that the course followed was a proper one—namely, taking a promissory notefrom Mr Ward, then undoubtedly insolvent, for L 55,150, and giving authority for transfers in the books of the Bank of New Zealand, which were made as if the promissory note had been cash. Indeed, we can hardly think the directors recognised the position, for the promissory note, if of value, was of no benefit to the Colonial Bank, as it was not put into the D list, and in terms of the agreement became the pioperty of the Bank of New Zealand. Before closing our remarks on these accounts, we must call attention to the guarantee given by the directors of the Colonial Bard:, to the "Rani- of New Zealand by endorsation on the C list, amounting to L 25,000. We have had to pay these sums in terms of the guarantee, but have failed altogether to discover why the guarantees were given,

and can only sarmise that it was done with a view of smoothing a way for the taking over of the Farmers' Association's account by the Bank of New Zealand. The following transactions in reference to Mr Ward's accounts the liquidators also fail to understand :—l. London draft for L 25.000, drawn on Cooper and Sons, why it was specially instructed that it was not to be presented, and why it was kept in London for nearly 12 months. 2. What was the reason of the transference on August 23rd, 1895, of L 16,000 of Mr Ward's indebtedness to London. Certainly a desire to sell Nelson's 1600 shares could not have been the reason. 3. Why were Mrs Barron's guarantees for LSOOO given up on September 4, 1895, as a condition of payment of L 24.000 on the authority of the president of the Bank of New Zealand, Mr Ward's real position being unknown. Much light may be thrown on these accounts when the liquidator of the Farmers' Association makes his report. We are glad to say that there is now reason for anticipating a more favorable result from the realisation of these accounts than we at one time expected." There is another account involving very large figures, and which will result in a very heavy loss to the Colonial Bank — namely, Mr R. Anderson's and Mr John Ryley's, of which the history is given, and concerning which the liquidators say: " From what has been since disclosed in the bankruptcy proceedings, attempts were made to protect the Bank's interest. Even had they been carried out in their entirety this would have been too late to save the bank from the deception and fraud of which it had already been made the victims at the hands of a man in whom apparently they placed the blindest confidence. Looking at the history of these accounts, we can only express our unbounded astonishment that the management had ever been induced to advance so large an amount of money belonging to the Bank on such inadequate security, and that the directors should have sanctioned it. The business is of its nature a risky one, and certainly the risk was increased a hundredfold in the hands of a man who had no previous experience of it, as was the case with Mr Ryley. Matters would not have turned out so badly had Mr Ryley not deceived and defrauded the Bank, which he certainly did ; but it was not till 1894 that the Bank's officers appear to havo taken any means of ascertaining whether they were being defrauded or not, or to even suspect such a thing possible. The exact loss on this account we cannot now state, as the result of the proceedings in bankruptcy are not yet known ; but it will certainly amount to a very large sum. In conclusion, we may be permitted to say that it was our intention to have presented this report along with oui first accounts, filed on the 31st August, but owing to Parliamentary inquiries into banking affairs then proceeding, as well as to projected legislation then pending, it was thought advisable to delay it."