BANK OF NEW ZEALAND

Otago Daily Times, Issue 18899, 27 June 1923, Page 4

BANK OF NEW ZEALAND

RELATIONS WITH THE GOVERNMENT. POSITION OF ORDINARY SHAREHOLDERS. STATEMENT IVY DIRECTORS (Per United Press Association.) WELLINGTON, June 26. A statement regarding the interests of the Government in the Bank of New Zealand and itg connection with that institution was made by Messrs Wm. Watson and it. W. Kane, the two directors elected by the shareholders. The statement is as follows ; “The relationship between the Government and the bank in respect of the shareholding interests of the State and the ordinary shareholders is so .constantly misrepresented that for the welfare of the bank the true state of affairs should he set before the public. “In 1894 the bank found it advisable to appeal to the Government for assistance in the difficulties which had arisen owing to the losses made in previous years having proved to be larger than had been formerly thought were the case. 'Hie Government’ agreed to render the desired assistance, and an Act was passed authorising the issue to the public of 2,000,000 new shares. subsequently altered to stock guaranteed by the State, the bank on its part calling up half a million of the reserve liability—then £1,500,000—0n the existing ordinary shares. In 1895 another Act was passed in the terms of which ordinary share capital (£1,350,000), which sum included the £600.000 called up as mentioned above, was written off as lost. Half a. million of preferred shares carrying a fixed cumulative dividend of per cent, was issued to the Government in exchange for debentures carrying a similar rate of interest, the bank being given the right to repurchase these preferred shares, which it did in 1900 and cancelled the shares. The Act also provided that a further halfmillion of reserve liability, then amounting to £1,000,000, on the old ordinary shares should'be called up, and that amount constituted the ordinary share capital of the bank until 1914, leaving the balance of reserve liability of £500,000 as uncalled capital. The Act further provided for the creation of the Assets Realisation Board to take over certain assets of the bank of a book value of £2,731,705, payment for the assets being made by debentures of the board, maturing in 1904 and guaranteed bv the State by an Act passed in 1893. The board of the bank was reconstituted, the Government acquiring the right to appoint four directors and the ordinary shareholders being allowed only two representatives. Thus the Government’s appointees are in a position of control of the affairs of the bank. In 1903, in view of the approaching maturity of 1 both two millions of guaranteed stock and the debentures of the Assets Realisation Board, the board of directors intimated to the Government that the bank was in a position to, and desired to, repay one million of guaranteed stock. The outstanding debentures of the Assets Realisation Board then amounted to £1,800.000, but these were all held by the bank., rrior to 1903 the Government had not asked for recompense for the assistance it had rendered to the bank in the shape of its guarantees, but in that year it demanded the right to take up half a million of preference shares, which it still holds, carrying a preferential dividend increasing from 5 to 10 per cent., the latter rate having been paid since 1911. It was a clear understanding that the acquisition of the preference shares should be a complete recompense to the Government for its assistance and that no future claim would' be made. In 1906 the Assets Realisation Board was dissolved, the deficiency having been made good from the bank’s Qrofits, and the Government’s guarantee in respect of the board’s debentures lapsed. By the Act of 1913 the renewal of £1,000,000 of guaranteed stock was provided for, but only £529,983 was issued. As a matter of fact, the representatives of the ordinary shareholders on the Bank’s board desired that the bank should repay the remaining one million of guaranteed stock, which it was in a position to do and which it had a statutory right to do. The Government, however, refused to agree. It was also arranged between the Government and the bank in 1913 that the existing liability of £500,000 on the old ordinary capital should be called up within seven years. Although the bank on several occasions requested permission to call up the amount the Government refused its assent until August, 1919. The Act also provided that additional preference capital to the extent of £1,000,000 and new ordinary capital to the extent of £2X00,000 might be issued. Under the provisions of this Act the board issued in 1914 to the Government “B” preference shares to the value of £250,000 and to the ordinary shareholders ordinary shares to the value of £500,000. Both issues carried a premium of 50 per cent. In 1920 £1,125,000 was transferred from the reserve fund to the capital account. Of that amount, £750,000 was allocated to the ordinary shareholders and £375,000 to the Government, which was nearly £215,000 more.than the State was legally entitled to, as £500,000 worth of the “A” preference shares held by the Government conferred no right to the Government to share in the distribution from, the reserve fund. Hie Act of 1920 also empowered the bank, subject to the approval of the Minister of Finance, to issue further capital, of which £1,125,000 is now about to be raised, the State getting onethird of the amount in preference “B” shares and the ordinary shareholders two-thirds in ordinary shares. Allowing for interest cost to the Government of the capital which it has put into the bank, the State will, when the new shares become dividend paying, make a not profit of £IIO,OOO per annum from its investment in the capital of the bank. Capitalised, this is equivalent to a goodwill of £2,200,000, and that, apart from substantial annual dividends, is the measure of recompense that the State has received for the assistance it rendered to the bank. Further, it was not until the bank had recovered from its difficulties and had again reached the dividend paying stage that the Government insisted upon being granted preference shares in the bank and at a price from 40 to 50 per cent, below their real value.

“On every occasion that the bank has approached the Government to re-arraugo its capital the rights of tho ordinary shareholders have been sacrificed for the advantage of the State. In coming to the assistance of the bank in 1894 the Government had no thought of benefiting shareholders, for if tho desired assistance’’had not been rendered the alternative was tho reconstruction of the bank on the . lines followed by most of the banks in Australia in 1893—viz., locking up the depositors' money for a long term of years at low rates of interest. That course would have seriously retarded the progress of this country for many years, but judging from the present position of the i-econstructcd Australian banks the Bank of New Zealand would have boon vastly better off by reconstructing than it is through having obtained State help. The hank has been forced to pay dearly for that help, and had to submit to a forced realisation of the properties which had fallen into its hands. “From 1889 to 1906 the bank wrote off from capital, reserves and profits no less than £3,874,745 to cover its losses. Almost all those losses were incurred in assisting in the development of this country, and the country during the last 20 years ha? reaped a rich harvest from developments which involved tho ordinary shareholders in such a stupendous loss. Now that iho hank has attained to n position of groat, strength and a reasonable profit-earning capacity tho ordinary shareholders may well protest against the misrepresentations that for political or sclf_ interested purposes are being made repeating its connection with the Government. If anyone thinks that tho hank receives any favours from the Government of the day they labour under a de lusion. No one chives such hard bargains with the bank as the Government, and not infrequently tho hank has refused to do business with tho Government because tho terms sought for particular transactions wo”ld have left little or no profit, to tho bank. “That the connection between the State and the hank has been in the best interests of tho country as a whole is unquestionable, but reconstruction in 1894 on tho lines followed in Australia would have been vastly more advantageous to tho ordinary shareholders. For a period of seven years and n-lndf subsequent fo 1893 tho ordinary shareholders did not receive any dividend, and for the five succeeding vears only 5 per cent. During all that period—some 12 years -the foundations were being solidly laid on which the present earning power has been built up.”