THE OTAGO DAILY TIMES. SATURDAY, MARCH 14, 1896.

Otago Daily Times, Issue 10619, 14 March 1896, Page 4

THE OTAGO DAILY TIMES. SATURDAY, MARCH 14, 1896.

The affaire of the City of Melbourne Bank have jiist undergone a somewhat severe overhaul by Mr Edmund Kousb, who has reported to the official receiver, and the publication of his report in the Argus of March 5 does much to throw light on banking methods id Melbourne, not only before, but since the reconstruction in 1893. The report is fraught with value, as a matter of course. There is always a lesson to be derived from such a story as Mr Rouse has to tell, for by pointing out the shoals On which previous management has struck it makes the task of the future navigator easier. Mr Rousr's report is trenchant enough in all conscience, and it ranks high among the many exposures which have been made of the devious means by which financial affairs wore conducted in Australia during the boom period, and subsequently to it, in the vain hope of concealing former malfeasance. ; The report deals principally with the bank's transactions between the periods of March 1891, when land boom prices and valuations collapsed, and the date of its suspension in August 1895, and for the purposes of his reporb the ojd bank which suspended in May 1893 and the • present bank are treated as one institution. The report stigmatises the management as " of the most reckless character, large advances being made from time to time to / land • speculators and others without sufficient inquiries as to the value or earning power of the securities taken to seciu'e such, and it appears from the securities book that in. the majority of cases no outside valuations were obtained." Eegai'ding the policy that dominated the management, Mr Eousb says: " The only one line of policy discernible in the past management of the bank was never to face ,'a loss, and to submit to any additional losses that might ba incurred by bolstering up and keeping afloat hopelessly insolvent customers in order to prevent publicity being given to their enormous commitments to such persons. Indeed, it is impossible on any j other theory to account for the otherwise wanton manner in which the bank's funds have been wasted." The receiver has been forced to the conclusion that the management must in some eases have had personal motives for the very generous manner in which obligants of the bank were treated. For instance, from March 1891 to date of suspension the advances by way of Overdrafts, special loans, and past-due bills amounted to £701,799, but, as during that period the sum of .£338,698 had been applied in reduction of these accounts to the debit of bad and doubtful debts, the actual increase amounted to .£1,040,497. The increase in this class of accounts was made at the expense of the more liquid portion of the bank's assets—viz., bills under discount, and Britishand colonial bills—which stood at £1,049,652 in March 1891, and have now fallen to X 246,298, showing a decrease of £803,854.'

The mode adopted in preparing balance sheets is' of general interest just now, and Air Rouse has a good deal to say about the method by which the half-yearly balance sheets of the' City of Melbourne Bank were jgre-

pared. "At the end of July 1892 the unusual step was taken of transferring certain overdrafts to a separate ledger, entitled ' Special Loans.' This ledger was placed under the sole charge of the chief clerk, with instructions to prevent the general office staff from having any access to it, and special precautions Vero taken in passing entries through it to keep all transactions in. the various accounts (which were operated on only by the bank) from the knowledge of any but the chief officers." The balance sheet was also inflated by charging interest on. advances, and carrying such interest to profit. For example, the balance sheet of March 31, 1893, showed interest on bad and doubtful accounts to the amount of £32,286. Out of the profits claimed to have been made that half - year a' dividend of 8 per cent., absorbing £20,000, was declared and paid. This could not have been done but for taking to profit the above amount of £32,286. About this time a special investigation was made of the affairs of the bank, and £210,000 was taken from the bank's reserve fund as a provision for bad and doubtful debts. This sum. with the exception of £5635, was all appropriated. Besides this special investigation, an inquiry was made by a wellknown accountant, Mr Andrew Lyell, and he reported that he ' regarded the bank's position as absolutely safe, but ■with the reservation that the bank had amongst ' its advances and current risks a large amount, probably £2,000,000 or £2,500,000, which would most likely require some considerable time to realise with advantage and to minimise loss. In view of all these facts, it is not surprising to find that the British creditors were not placed in possession of the whole facts of the bank's position, when the reconstruction scheme was hurriedly carried through, and it is almost ■ needless to say that-" there can be no doubt that had the true position been disclosed, the scheme of the directors, formulated in Melbourne, would have been most strongly opposed" in Britain. Coming to minute particulars, Mr House finds tllat the directors, the manager, six companies with which the directors of the bank were concerned, and ten special accounts were/indebted to the bank in no less than £2,257,546, and he gives particulars of the method by which this indebtedness was incurred. One "special account"—that of D. Mujteo and Co. (Limited), afterwards known as the Melbourne Locomotive and Engineering Works—owed the bank in August 1895 £437,229, and for the protection of the bank's interest one of its directors (Mi'Jenkin Collier) joined the board of D. Muneo and Co. To enable Mr Collier to take his seat without personal liability for calls five hundred shares were transferred to his name, and calls thereon to the amount of £1250 were paid by the bank to the credit of D. Munbo and Cp.'s call account, and debited to bad and doubtful debts account. This transaction is a specimen of what was being done. The company are now in liquidation, with a liability to the bank—practically the only creditor—of £370,000, besides a contingent liability or! £16,750, the securities being valued on the bank's books at £282,000. One of the largest individual debtors ■to the bank was Mr B. J. Pink, who owed in September 1889 a direct liability of £112,000, on overdue bills £54,884, and a contingent liability of £937. At that time Air Pink held 6548 shares in the bank, and they were sold between that date and March 1891 at prices averaging about£6 per share; but the proceeds, although received by the bank, do not appear to have materially reduced his indebtedness to it. Mr Fink's affairs came to a crisis in 1892, and to keep from the public the enormous amount of his indebtedness to the bank it was arranged that an assets company should be formed to purchase his securities. The outcome of this transaction was an indebtedness to the bank of £156,041, against which there were securities Worth about £10,000. Mr Finic, and with.him one Mr AkoN, formed a company to take over the furniture business of Wallaoh Bros. Messrs Pink and Aron were to draw £2000 per annum as directors, but in four years and ' a-half Mr Fink had drawn £22,500 and Mr Aeon £10,400. The company is now in liquidation, and has been carried on by the bank for some time at a considerable loss. 'Mr House's report contains other examples of which the foregoing is a fair specimen. Such being the nature of the report, it is not surprising that inquiries" have been instituted as to the criminal or civil liability of those responsible for the past management of the bank's affairs. It is now possible to see behind the scenes, and trace the iniquitous methods that were used to stimulate the "boom" of unhappy memory.