THE BANK OF NEW ZEALAND AND THE ESTATES COMPANY.

Otago Witness, Issue 2201, 7 May 1896, Page 12

THE BANK OF NEW ZEALAND AND THE ESTATES COMPANY.

In the course of a recent address to hi* constituents at Cromwell, Mr William Fr«ser, i M.HR, devoted a good deal of attention to a consideration of the banking legislator) of 1894-95 and of the position of the Bank of New Zealand. After lucidly explaining the purport of the legislation, particulars of which have more than once appeared in our columns, Mr Fraser proceeded to discus* the bank* prospects, I and the' probability of the arraogements, which have been made, being carried out, and it will be of interest to quote the following remarks on these points nude by him : — " Considerable diversity of opinion exists on two points — viz , (1) The necessity for the separation of the Estates Company's properties from the bank ; (2) the possibility of the mutual obligations between the board and the bank being fulfilled. Let us take them in order :— ln the past the fact of the bank's fuuds being li*b!e to be used for the purpose of making up any deficiency in the profit aud loss account of the Estates Company was an everpresent danger to all the bank's customer*, and especially so to the depositors. Under the new arrangements this source of peril is eutirely [ removed, and the credit of the bank should in j consequence be re-established. This deficiency, ' as already shown, has ultimately to be borne ! by the colony if the profits of the bank, the 1 share capital about to be called up, and the reserve liability will not suffice. In short, the , bank, as a bank, will be relieved from the incubus of the Estates Company, hut the shareholders will still remain liable. Now, as to the second point, what are the respective obligations of the board and bank to each other? The board h»3 to pay to the bank annually per cent, on £2,731.000— viz., £95,580. The bank has to pay annually to the board £50 000 from its ntt " '■>• « Lei; us see if.Jfhis i» possible of at'-.H.u.j. ufc is io Coo much to a.iiume that the bank iv future will be able to earn by its purtly hanking business sufficient to pay interests on deposits, interest on £2,500,000 lent by the colony, and also to make provision for future bad and doubtful debts? If not, the .bank. can then pay the the £50,000 it owes to the board out of the £95,580 the board has to pay to it. "I now propose to examine into the condition 1 of the hank under (he new Arrangement,

I " Some years ago the bank borrowed in Lon«. don £1,500,000 on the security of the properties' of the Estates Company ; there were extent some £289,000 of debentures issued by the Aucklaud Agricultural Company, which brought! the total indebtedness in regard to landed property up to £1,789,000 in round numbers ; £250,000 worth of these debentures, were redeemed out of cash-in band arising .out of talo of properties prior to 189*, leaving theipresenb indebtedness of the bank on that account at - £1,539,000. Since the passing of the act of 1894 negotiations have been entered into for the redemption of these £1,539,000 debentures, and, as a. matter of fact, they will all be paid off by June 1896. Thab does nob me.an that ' the bank will ha ve^ extinguished that liability, but that it will have used £1,539,000 of the £2,500,000 advanced by the colony. The sanog in interest by this operation is considerable. In tho former oaae the bank had to pay 5£ per oent. on £1,500,000 and 4- per ceut. on £289.000 ; now it pays 3£ per cant, on £800,000 and 4- per oent. on £1,039,000. "It may be urged that the bank, having s<v l«cked up a large portion of the moneys lent by the colony, oannot nse the said sum in its bank* ing business. Ifc must be borne in mind, how- , ever, that the - bank has in- its possession £2,731,000 debentures of the Assets Board, foe the ultimate payment of which the colony is liable after the estates' have all been realised or at the expiry of nine years. This is a valuable baoauso negotiable asset on which. the bank can. raise in London at a very low rate of interest, far more thaa the amount locked up. Tho bank bannob sell these debenture*, ai the _ Assets Board has the right to redeem them with the,pr.ooeed9 of the sales of its properties. At, ■ howjeVer, it wilt take msny years to complete the retlisaHoD, the bank is quite safe in hypothecating them, for- varying - terms, ■ and thus obtain the usa of the money and employ it profitably, lot as hope. The- net annual payment from the Assets Board of £45,580, together with the profit the bank ought to make on the moneys raited on said debentures, should be ampletoprovidethe in te res ton the £1,539,000 looked up. ' ••Now let us-seA-what ther liibilUy of the colony amounted toiu regard-to the £2,731,000. It is clear that if tho realisation of the ai«ets board properties amount* to- £1,539,000 the bank will -have extinguished its liability in regard thereto, as it will have received that Bum in cash from the board. Consequently* every pound that c»n be^ Realised over and above that sum means that the bank will recover so muoh of it» lost old capital. If the properties only revise £1,539,000 the consolidated revenue is luble to the bank for the difference between that sum and £2,731,000 or £1,192.000. Bat what will it avail the bank to ■■ demand payment of this sum when it would immediately have to repay it out of — first, the ; £500 000 called-up capital ; second, the reserve r liabiliiy.on shares of £500 000 ; and third, its future profits. It mu*t be ovidenb. therefore, tha v if the properties of thu Asset* Board-yield on letlisation £1,539,000, the liability of the colony in regard to the £2,731.000 oeaiei' absolutely. Of course if the total realisation amounts to less than that sum, then the shareholders or .the bank profits must- recoup the colony. " I bave assumed, however, tbat during all these years the bank bat earned no dividend beyond. sufficient ro pay 5 per cent onjts called up capital of £500,000. . lathia prubable, seeing the strong position it starts in with all its bad debts wiped out and a large and increasing business ? " What ftum the properties of the A*sets Board will realise mutt necessarily be a matter for conjecture. I give mv opinion for what it may be worth, that they oujth'i to rtaltso fully that amount. It will be said, however, what about the £2,500,000? My reply is that in 189* £2,000,000 was advanced to an institution on the vergeof bankruptcy ; in 1895 to save that £2.000,000, £500,000 more wai put into a reorganised institution, which, uuder careful management, should build up again a sound and lucrative busmeas. " Whioh was the wiser plan, to let the bank drop and loss the greater portion, if not the whole, of the £2.000,000 or do what has been douep- I accept my share of responsibility for the act of 1895; 1 acknowledge no responsibility for the act of 1894. The former is a' consequence of the latter " Two men named Alfred Fetersen «nd Frederick Power have been arrested for highway robbery at Hinting!., It is alleged that they attacked a coa jfam»n 'named Prae (in the emp'oy of W. . N«Uon), felled him to the ground, relieved him of vaiuiVles and money, and stripped him of his wearing apptrel. Tha -victim wan found by some Maori*, who attended to him and informed th« police The, arrest •-was made by Sergeant Mitchell and Detective Kirby at Waipatu.