BANK OF AUSTRALASIA

Otago Daily Times, Issue 21647, 18 May 1932, Page 4

BANK OF AUSTRALASIA

THE EXCHANGE PROBLEM EXPANSION OF GENERAL BUSINESS GRATIFYING RESULTS. (From Ouk Own Correspondent.) LONDON, April 7. The Right Hon. the Earl of Midleton, K.P., presided over the ninety-eighth annual general meeting of the proprietors of the Bank of Australasia, held at 4 Threadneedle street on March 31. “ We meet under somewhat peculiar conditions,” he said.' “ This bank has had a long .run of prosperity, and our reports to you have cemented the happy relations which have always existed between our directors and shareholders. To-day the review of the past is less favourable, and the outlook for the future is less settled. “ I do not propose to trouble you with any excursion into the political arena, or with a discussion of how far reactions from this world-wide *depression might have been avoidable in Australia. My experience in public life, which has been a pretty long one, is that, valuable as financial knowledge is to statesmen, the more financial institutions can be freed from politics the better for , both; though we nave, throughout this crisis, spared no effort to assist the Commonwealth Government by every means in our power, consistently with the stability of the bank. Since our last meeting the difficulties which have arisen with regard to sterling and the Australian currency have figured largely in our operations. The necessity under which Australia has been of com trolling all London exchange to meet indebtedness on loans payable in the London market has reduced our ordinary exchange operations. There has also been a reduction of general business, a conversion of Australian loans, and a reduction of interest. These have combined to reduce profits, and to somg extent to alter our balance sheet. TRANSFER TO CURRENCY RESERVE. “ I should like to explain the transfer of £2,000,000 from the reserve fund to currency reserve. This does not represent a realised loss, but is set aside because we are a British company with our head office in London, and, as such, must compile our balance sheet in terms of pounds sterling—consequently the depreciation in' relation to sterling of our surplus Australasian assets should be provided for. Our Australasian assets can he used to pay our Australasian liabilities, but the surplus assets from our funds here are employed in the' busine'ss in Australasia, and the larger these are. the larger is the amount required to write down the surplus assets in terms of sterling, if and when Australia’s exchange moves towards parity the amount now specially earmarked will proportionately become freed; and should parity be established, the whole amount will be liberated. In point of fact, since the date of the balance sheet, the discount on the Australian pound has already been reduced, and thus the restoration of sev- ' era] hundred thousand pounds of the above £2,000,000 to the reserve fund is practicable. The transfer causes us no anxiety, though he would be a bold man who would prophesy what the position of any currency, including sterling, would be six months from now. BALANCE SHEET FIGURES. “Our general business has expanded. The ttotal of our- balance sheet ha*, increased by £2,700,000 as compared with October, 1930. Deposits at interest are £2,500,000 higher, while there is nearly £1,000,000 increase in current accounts — the latter movement (.feeing exceptional, as those of the Australian banks generally have decreased. Specie bullion, and cash balances show an increase of £2,000,000. Government securities in Australasia also show an increase of nearly £2,000,000, but the expansion in this item is all represented by Treasury Bills, which we have the right to rediscount. Liquid assets are over 45 per cent, of all deposits. Specie, cash, etc., is nearly 75 per cent, of current accounts, and, including Treasury Bills, which, as mentioned before, we have the right to rediscount; exceeds 100 per cent., so that our liquid funds are more than sufficient to pay ~ off all our current accounts on demand. Though the margin of profit is less, there has been no falling off in the balance sheet figures and the security with which the name of this hank i s associated has in no way suffered. “ The profit and loss account is not such satisfactory reading as the balance sheet. There has been a large falling off in our gross profits and a reduction in interest rates, due to legislation; and though ultimately this affects both interest received and interest paid, the reduction falls on us at once, but the bank alters the deposit rqte only when the deposit matures. Advances have decreased by £550,000. We have felt it right in these anxious days, before computing the amount of our profits, to make special reserves for interest due in respect of trade advances which seem to us to some extent tainted, and it is inevitable that, with general depression, a certain number of accounts, which formerly seemed fully secured,, should become suspect. The reservation of interest on this account has affected our gross profits, but it may be hoped that, when better tjmes come, the greater portion of this interest may be released and become available profit, but in the present circumstances it is wiser not to take credit for profits which may never be realised. This is apart altogether from the general writing-off on account of bad debts. “ Australasian and London taxes amounting to £324,689 4s lOd are now added to-gether, one of the reasons being that it is difficult to apportion between the Mother Country and Australasia the amount of relief received in respect of double taxation within the Empire. The reduction in the amount is due to special circumstances connected with the exchange position, .but income tax rates generally have increased considerably both here and in Australasia. “ The directors have charged to contingency funds the depreciation on our investments. Our balance sheet is dated about three weeks only after this country was forced off the gold standard; consequently British investments were practically at, their lowest point. Even so, very little was required to write down their book values to market values, and, since that date they have fully recovered. Since the date of the balance sheet an appreciation of roughly 60 per cent, of the amount set aside has actually taken place,— (‘Hear, hear.’) INNER RESERVES. “ Last year there was a good deal of comment in the press about inner reserves. They appear under the heading Bills payable, etc., including provision for contingencies.’ The changes which I have detailed in our. reserves emphasise the value of the provision which we have built up in happier times. “In the last 40 years’ history of the bank these contingency funds have been on three occasions of great value to the bank. In the bank crisis in 1892 our contingency funds were not large, and they were almost entirely utilised in providing for bad debts made during that crisis. During the severe droughts, which ended in 1903, some of our large pastoral advances seemed certain to become bad debts, and had to be provided for out of the contingency funds, which our additions enabled us to meet. Fortunately, during the good seasons which came after 1903, some of these, apparently bad debts were ultimately paid off in full, and the whole cost of the site and buildings of our fine Sydney premises were provided for out of these fortunate recoveries. Since 1909 we have steadily added to our contingency funds, and, as a result, we have been able to meet the present exceptional crisis without exhausting opr balance of reserve, and. the load placed upon them has already been lightened. SUBSTANTIAL DIVIDEND With all the storms around us, a reduction in dividends was inevitable. The 9 per cent., less tax, which we have been able to pay, though considerably less than the dividend of two years ago, is still substantial, and in consequence of the incidence of colonial income tax, is equal to £7 12s 8d per cent. CO-OPERATION ON SOUND LINES • NEEDED. “ It is difficult to prophesy as to the future. The measures taken, by the new Federal Government have, as in this country, restored a measure of confidence. A genqine effort is being made to provide for interest payable abroad. The increase of exports, apart from gold, over imports, which, expressed in sterling, amounts to £27.000,000 for 1931, is an exceedingly | good showing. The prospects of Empire 1 trade due to our new departure in tariff are reassuring, but the period of convalescence so far as earning power is con- j cerned must necessarily be considerable. 1

“Authorities claim that, 1932 once over, we shall have passed our moat troublous time, but this can only be achieved if all parties co-operate on sound lines. 1 can assure you that no body of men realise more than the directors of. this bank the danger of new fiscal doctrines which are fatal to the security of States as well as of bankers. Proceedings such as ours to-day are scanned, in interested quarters, and it will greatly assist us in the pressing responsibility which we have to incur in these difficult times if our shareholders will support us not merely by their confidence, but by their reticence. I have endeavoured to put before you fully the position of the bank. I hope for your unanimous support.” Mr Harold Nelson seconded the motion for the adopting of the report and ac- - counts. SHAREHOLDERS’ REMARKS. Mr F. Tomkinson expressed his extreme gratification, and also that of other shareholders, who were not present, at the results of the past year. They thought the bank hfid done extremely well in a most difficult period. He also desired to thank the chairman for his lucid speech. Mr E. Levy was sorry he could not repeat his congratulations of last year qn the report and balance sheet, but he did not think the directors expected it. He was quite satisfied that they had weathered as far as it was possible the peculiar circumstances they had had to encounter during the last 12 months. He felt sure that the state of trade was now. a great deal better in Australia than it was at the time of the publication of the balance The report and accounts were unanimously adopted. _ Mr Frederick V. C. Livingstone-Lear-mouth, D. 5.0., Mr Harold Nelson, and Mr Charles Edward Barnett, were unanimously re-elected as directors, and the auditors were reappointed. OFFICIALS AND STAFF, The chairman proposed a vote of thanks to 'the officers of the Bank in Australia and in London, and said they must all be aware that the bank had done well under difficult circumstances.' The conditions in Australia had been extremely trying to the general manager in the Commonwealth and his staff. The proprietors had every reason to be satisfied at the admirable way and the resource with which the staff had met a very difficult period. He, of course, included their head office manager, Mr Godward, and the London staff in the resolution. . • Mr A. J. Waley, seconding a vote of thanks to the chairman and board, hoped that the optimism of the chairman would be justified. He thought, to a certain extent, it had been, because when they heard that the balance of trade was so largely in favour of Australia they must feel that conditions were on the move towards an improvement. In addition to their thanks, the directors were entitled to their sympathy. Wfeen they realised how world-wide the crisis had been, and how the responsibilities, doubts, and anxieties of directoi's had been increased, they had every reason to thank them and to renew their confidence in them. At the same time they could express thexr sympathy with the directors, who still had a very difficult time to overcome. He believed those difficulties, would be overcome with, the same satisfaction to the shareholders in the future that they had been in the past. He did not think there was any bank where bne met with a greater amount of courtesy and efficiency than the Bank of Australasia. The resolution was carried unanimously. ■