REDUCTION OF INTEREST

Otago Daily Times, Issue 21598, 19 March 1932, Page 14

REDUCTION OF INTEREST

TO THE EDITOR.

Sir, —Intimations from political circles indicate that a proposed 20 per cent, reduction of interest is to include preference shares. It is probable that only preference shares will be dealt with, as obviously the earnings of a company cannot be reduced or its ordinary dividend fixed. A restricted dividend would mean that its reserves would be increased from the profits remaining undivided. ,The preference shares, if reduced, would, therefore, in many eases be openly robbed so as to add to the dividend, or the capital reserves, of the ordinary shareholder. There are still companies that are paying from 8 to 10 per cent. Is the preference shareholder to have his 6 per cent, dividend reduced to 4 4-5 per cent, in order to increase the ordinary dividend to 10 or 12 per cent.? The preference shares will be immediately decreased in capital value as well as in income; the ordinary shares will correspondingly obtain an immediate increase in capital value and prospective income. If preference shares are to be reduced there should be provision that, they participate in any ordinary division over a stated per cent. As to reduction of mortgage interest, how is any hardship clause to operate? Take the case of a widow whose total capital of £ISOO is invested on mortgage at 6 per cent., yielding £9O a_ year, her sole income? The mortgagor is a small, struggling man, to whom the 6 per cent, is a heavy burden. Any _ reduction of the widow lender’s small income by 20 per cent, would indeed inflict a hardship. Who is to suffer the hardship, she or the mortgagor? If the mortgagor, is he to go on paying 6 per cent, while his more prosperous mortgagor neighbour across the fence pays only 4 4-5 per cent.? . Interference with contract will prove a thorny path. Personally, I recognise the cogency, and do not blame the Government, but I have severe doubts if it will not react heavily against those intended to benefit, the mortgagor and the Treasury. " Once bit, twice shy.”—l am, etc., S. F.