THE FINANCIAL CRISIS IN MELBOURNE.

Otago Daily Times, Issue 9299, 15 December 1891, Page 3

THE FINANCIAL CRISIS IN MELBOURNE.

« THE PRESENT POSITION AND FUTURE OUTLOOK. (Fiioji Ouii Owx Cohiikstoxdkxt.) Jlei.tiouhxk, December 8. '• Marvellous Jlelbourne " has passed through a very anxious and trying week. It was : thought when the mail to New Zealand went out last Tuesday that the City of Jlelbourne Building Society would probably be the only suspeiision ; but before nightfall the County of Bourke Building Society had been compelled to close its doors, and since then there have followed in rapid succession -.— The Land Credit Bank of Australasia, the Jlelbourne ; Permanent', Building Society, the Metropolitan | Bank, and the Standard Bank ; and the latest, only last evening, was the Federal Building I Society. All these institutions have been forced to close their doors forthe same reason— namely, a steady demand by depositors for a return of their money. The recent suspensions in Sydney aud the general depression nowexisting in Jlelbourne have caused depositors to take alarm, They hax-e also been alarmed by rumours concerning the safety of the loans made by the societies. Loans upon boom period values may or may not be safe ; but it j does not need more than a hint to shareholders j and depositors that they are not safe to bring j about a belief to that effect. Hence the steady ! drain which could not be met. J The City of Jlelbourne Buildiug Society, the j County of Bourke Building Society, the Land Credit Bank of Australasia, and the Jlelbourne Permanent Building Society all did their banking business -with the Commercial Bank. Por some time past there has been a steady fall in the price of the shares of this bank—a drop of over Ll took place in a month. To the outside public there seemed no apparent reason for the decline; but there must have been a knowledge oil the part of some holders of the stock that the bank had been indulgfng in heavy advances. This has proved to be the fact. The City of Melbourne Society had au overdraft of L 70,000, the County of Bourke of £7000, the Land Credit Bank of L 45,500, and the Jlelbourne Permanent Society of 1,24,000. Altogether the Commercial held the accounts of 14 building societies, and all would appear to hax-e been more or less overdrawn. Two of the leading societies—the Modem Permanent and the Arictoria Permanent—succeeded in getting their accounts transferred to otlier banks; but the four which hax-e suspended could not do this. The Commercial has had a great deal of blame thrown upon its shoulders by angry shareholders and depositors in the suspended societies for its action; but one can easily understand xvhy it has taken such a course. The steady drain from the societies xvas not decreasing and the o\-erdraft was consequently growing steadily larger. Take the City of Melbourne Society, for instance, with an overdraft of L 70,000. If the drain of deposits had shown signs of ceasing, no doubt the Commercial Bauk would have gone on honouring demands a little longer, but there was no such sign, and with times as they are—new deposits few and far between, probably a less prompt repayment of loans than usual, and due deposits being withdrawn—can it be wondered at that tho bank cried "AYe can go on advancing no longer." The fact that justifies its action is the significant one that no other bank would take up the accounts. The strongest efforts wens made to arrange a transference of the accouut iv the. case of the Jlelbourne Permanent Building Society, for instance, hut they were unsuccessful; though the society has always been regarded as one of the strongest in the city. The policy of all the banks just now is of the careful character; and accounts in debit are not desired. The extent to which these various suspended institutions held deposits is surprising. The City of Jlelbourne Building Society holds L 280,000 in this way; the County of Bourke Society, L 144,000; the Jlelbourne Permanent Society, L 430,000; and the Metropolitan Bank, which had been evolved from a building society, L 743,000. You will see, therefore, that ths building societies were all actually doing banking business; aud not only did they hold these deposits on fixed terms but considerable portions of them at call. They utilised these vast deposits, of course, by lending them out at building society rates —that is, in loans the repayment of which extended over terms of years up to 12. In the case of a scare, therefore, and a sudden demand for the deposits at call, as well as for large sums as their due date expired, where was the building society to get the money ? It is plainly evident that it would have to depend on its bankers. And when the complaisance of the Commercial gave out, nothing was left but to shut doors. AA re read day by day in the newspapers that " the depositors are said to be amply secured," "the society is declared to be undoubtedly solvent," and so forth. I suppose it is a praiseworthy thing of the press to do, to try to maintain confidence iv every possible way. But severe criticisms could be passed upou the statements of accounts of some of these suspended institutions. The Jletropolitan Bank, for instance, has an overdraft of no less than £90,000. It began the halfyear with an overdraft of £70,000 at the Bank of New South AVales, and as the amount increased - that bank declined to continue advancing, and the account was then transferred to the Bank of A rictoria, which allowed ths overdraft to increase to L 90,000. This Metropolitan Bank was a curious mixture. It started many years ago as the Jletropolitan Building Society, and four years ago—in the boom timo —it blossomed, into the Jletropolitan Bank. Having the requisite capital, it obtained leave to become a bauk of issue, and had at the date of suspensiou issued notes to the value of LII,OOO. It held current accounts to the amount of about L 80.000; and what brought it to grief was a "run" by these customers to withdraw their balances. Haviug already an overdraft ] of oyer L7o,ooo,'your readers can imagine how probable it was to obtain anything like the necessary amount of funds to meet the sudden demand. But does it not deserve the title of reckless financing, that a bank which has LII,OOO out in notes aud LSO,OOO in current account practically at call has not a penny in its coffers to meet its liabilities, but has to depend on the complaisance of another institution. As a matter of actual fact, also, this Metropolitan Bank had paid its last dividend out of overdraft. So you will see that a critic who desired to add to the scare feeling would not lack matter. Still I believe that tho Jletropolitan Bauk is perfectly solvent, and if it is given time will work out its salvation. It owes 1,743,000 to depositors, aud it values its assets at L 1,400,000. If these assets had to be realised under pressure they would shrink \-ery considerably, no doubt; but in addition to its paid-up capital of L 390.000 it has an uncalled capital of 1,260,000 to fall back upon. The Standard Bank has a deposit account of about L 1,000,000, and its stated assets are L 1,565,000. Its shareholders and depositors met yesterday, nnd the former agreed to pay up another 10s a share to enable the hank to meet the demands of depositors at call. The Standard, remember, is not a bank of issue even on so small a scale as the Jletropolitan. It was originally a buildiug society, then the Australian Freehold Banking Corporation, and now the Standard Bank. Its assets are thus described by the manager-.—" The assets of the bank were not squatting properties beset with fluke in sheep, and troubles xvith shearers, but were assets that could not run axvay unless a convulsion occurred in the country. They consisted of loans to the amount of L 164,000 5s Bd, which were repaid fortnightly and monthly, and were always beiug reduced. The fixed mortgages amounted to L 229,622 10s Bd, and xvere generally for one, two, or three years, interest being payable thereon half-yearly. There xvere also overdrawn accounts, ex-eryone of which was secured satisfactorily either by real estate or otherwise, to the amount of L 872,419 18s 4d." As I said before, one has to take the press statements with a grain of salt. It was reported yesterday morning in a summary of the situation that "most enthusiastic meetings" of several societies had been held ; (i depositors are coming forward with renewals and new deposits, and'there is every indication that the storm is o\-cr." Yet last night the Federal Building Society put up its shutters ; and acute commercial men fear worse things. No doubt the meetings of shareholders and depositors have been enthusiastic. But there is this to he pointed out, that these men may well- lie acting on the principle of the old proverb that it is an ill bird that fouls its own nest. The County of Bourke Society has already arranged to resume business; but it is an exceptional case, for its overdraft was only L 7600, and there cannot bo the faintest doubt of its solvency. But the depositors in some of the other institutions arc plainly enough making the best of a bad job. They would like their money out no doubt; but they cannot get it; and if they press for it and force the society into compulsory liquidation, they knowthat in the present depressed state of the property market the assets would be so sacrificed that they might fare very badly. Tbe shareholders are of course in a still more unfavourable situation; for they come into the division only after the, depositors. These reflections may assist readers at a. distance to account for the "enthusiasm." 1 know a depositor to the extent of '1,5000 in the Standard Bank, which held a meeting yesterday. 1 do not know if he displayed * enthusiasm " at the meeting, because I was not present at it; but he does not display any emotion of the enthusiastic kind when he indulges in a casual chat over the prospects of getting his money back. Parliament stepped in the other night and passed a bill to stop the panic. The main provision is one which takes away the power of in- I dividual creditors to demand from the Supreme Court compulsory liquidation of any society. The court can only be moved thereto by onethird of the creditors, both in number and amount. This practically means that the court cannot be moved at all, for it is almost impossible to obtain tin; united action of one-third of tbe creditors of any society. ||. is a most iniquitous law, passed, one would almost think, in the interests of "crooked" concerns. For instance, would it have been possible to have obtained oiie-thinl of the creditors of the Premier Permanent Society i-i move the c.airl for compulsory liquidation. Anil another instance of how it might prevent justice j

being done occurred in the case of the Imperial Bank a few weeks agoj The shareholders- in this institution agreed to voluntary liquidation, and appointed the managing director as liquidator. .I-of. the Supreme Court, being moved by a dissatisfied creditor, declared after investigation that such a winding up was most unsuitable, and ordered compulsory liquidation. It would have been impossible to have secured this result under the present bill. The bill was expected to stop the panic, by enabling the institutions to defy the depositor who asked for his money, and threatened, if he did not get it, to issue a writ. But it has not yet had this effect. The Federal Building Society bounced its depositors for a day or two on 'the strength of it; but it has found that bouncing is of no avail, aud last night closed its doors. It has branches in j Sydney and Adelaide, where the run continued in spite of the bill. The bill does not protect institutions from being compelled to suspend ; it only protects them from uncomfortable inquiries afterwards by Supreme Court officers. And there arc disagreeable people who say that no one knew this better than those who conceived the bill, though they hoodwinked members one and all into the belief that it was to be a sovereign remedy against panic. The Government brought in the bill, and Jlr Munro i.s the head of the Government; and Jlr Munro is also the head of the Federal Building Society (now closed), tlie Federal Bank (its twin brother), ahd . the. Ileal Estate Bank, whose shares paid up to 50s now sell at 3d. Aud Sir JIJ H. Davies was a strong supporter of the bill, and he is the head (by head 1 mean the original promoter and principal controller) of the Jlercantile Bank, the Colonial Investment aud Agency Company, the Freehold Investment and Banking Company, and the English and Australian Mortgage Bank. These two gentlemen may not have conceived the bill, and possibly they did not appreciate its true effect. I One would like to be able to say that the end had arrived, but I know that men best able to form an opinion look forward with grave fears [ to the future, and not only to the immediate future, but to the eifects upon this place for years to come. It may be that our troubles are at their culminating point; but the signs are the other way. Just imagine the harm that must ensue from the locking up of de- . posits, even if the societies do come out | all right in the end. Somewhere near three millions of money held on deposit is involved in the institutions already iii suspension. Confidence has received a check ; speculation is dormant; the public treasury is empty, without prospect of early replenishment; business is dull; land and houses are a drug ; wages are being reduced (witness the Tramway Company); the banks are putting on the screw. Are there any other signs of depression required ? Jlelbourne saw its biggest boom three years ago. Has it seen the bottom of the depression yet ? In the meantime we have only two facts to console us and give us heart. The farmer is certain of a good harvest and the pastoralist of a good clip. But for these two things, there is no saying when bottom would be reached.