RANK OF NEW ZEALAND.

Otago Witness, Issue 3101, 20 August 1913, Page 29

RANK OF NEW ZEALAND.

STATEMENT BY THE CHAIRMAN

PRESENT POSITION DEFENDED,

POLITICAL INFLUENCE DENIED

(From Our Own Correspondent.)

WELLINGTON, August 13. The reference to Bank of New Zealand matters and the reiterated announcement that a Bill dealing with the bank is to be introduced, which appeared in the Budget, together with the memorandum presented to the Minister of Finance yesterday by the shareholders’ committee, lias had the effect of again drawing public attention to this important question. Following on the presentation of the shareholders’ side of the controversy to the Minister yesterday comes the publication of a long letter which was sent to the Minister by the chairman of the directors of the bank (Mr H. E. Beauchamp) on July 24.

Mr Beauchamp deals first with the proposal that the bank should be permitted to pay' and should pay off this million pounds of guaranteed stock. He says: “My first point is that, this repayment would not be in the best interests of the institution ; and my second point that the proposal is insisted upon merely' for the purpose of strengthening the ground upon which the shareholders seek to take the control of the bank from the State and vest it in themselves. These conclusions become obvious if we contrast the consequences of renewal with those of repayment. In effect, the renewal of the stock means a fixed deposit in the bank of a million pounds for 20 years at 4 per cent. It cannot be seriously suggested that any' bank in Australia or New Zealand would refuse such a benefit. It would be readily and gladly taken at the present moment by any banking institution in New Zealand. The interests of the Bank of New Zealand would undoubtedly be promoted by this renewal, while repayment would bo as distinctly disadvantageous. This seems beyond question. The bank, so far from having a plethora of capital out of which this million could next year be paid, is, in common with all other similar financial institutions, in need of further capital to meet the legitimate requirements of its customers.” CONSTITUTION OF THE BOARD. In dealing with the demand that the constitution of the board should be altered with a view to giving the shareholders the control of the bank by a majority representation on the directorate, Mr Beauchamp says : “As by critics point out, the State control of the institution was increased by the Act of 1898. This was after the bank had passed through its period of greatest stress and had reached a position of comparative stability and safety. It is impossible to read the Act of 1898, in the light of the State’s previous assistance to and connection with the institution from the year of the great crisis in 1894 and onwards, without clearly recognising that the Legislature in 1898 came to the definite conclusion that it was in the interests of both the dominion and the bank, and certainly due to the people of New Zealand, that the control of the institution should be taken from the shareholders and vested in the Government.

“Whatever,” Mr Beauchamp proceeds, “may have been the view of the Legisla tnre when the Act of 1894 was passed, it certainly in 1898 clearly recognised that in no circumstances could the Bank of New Zealand, which has become a great national institution intimately bound up with the interests of the people of this dominion, be allowed to fall into liquidation. Then as now the State found itself committed to a permanent sponsorship for the financial stability of the institution. It is that permanent sponsorship which is to-day the bank’s strongest foundation. It was by and through the State’s action, its guarantees, and its assistance that a derelict institution, which undoubtedly would have foundered, was repaired into a fine seaworthiness and efficiency, and the Legislature in 1898 determined that so far as State control could prevent it the bank should never again in its history reach a foundering condition.’’ THE UNCALLED CAPITAL. Mr Beauchamp then passes on to the contention that the uncalled capital on the existing ordinary shares should be called up. He remarks : “In answer to this contention I would first point out that there never was at any time any understanding either between the shareholders and the board, or between the bank and the Government, that this capital should be called up. It is a well-recognised rule of sound banking that it is desirable in the interests of the safety and stability of a banking institution that it should have a large uncalled capital.” NO POLITICAL INFLUENCE. In regard to the question of political influence, Mr Beauchamp says: “In my critic’s letter that ‘ it is utterly impossible to have sound, strong, and prudent management of so great a commercial institution as the Bank of New Zealand if political influence is to predominate on the board, as it certainly will if each successive Government is to have power to nominate the majority of the Board of Directors ’ a complete answer to this argument can be found in the history of the bank for the last 19 years. The shareholders’ control prior to 1894 brought the institution to a condition so disastrous that only the prompt intervention of the State’s assistance saved it from liquidation. Since 1894 the bank has been under what my critics would call the ‘ evils of political influence and control,’ and the institution, in spite of what we are to infer is pernicious Government interference, has risen and expanded along unbroken lines of prosperity and success until to-day its stability, its growth, and its operations may be fairly termed amazing. I am not aware of one instance of the evil of what my critics call political influence having arisen during the last 19 years of the bank’s history.”

THE STATE’S INTEREST. As to the contention of his critics that the Government is entitled to no further interest in the bank than it at present holds, Mr Beauchamp says: “At present the State is a shareholder in the bank to the extent of £500.000 of paid-up capital. The shareholders have paid up the saxna amount. It is now proposed to increase the capital of the institution, but my critics say that, while the shareholders are entitled to subscribe the increased capital required and obtain additional shares afc par, the State’s claim to an increased interest is to be ignored and the State denied the right of subscribing for any of the proposed new shares. Upon what principle of equity or of company law or practice can such a contention be justified? My proposal is that for every ehar* issued to the State two should be issued to the shareholders. In my judgment this proposal is in the highest degree equitable to the ordinary shareholders, and I am confident that Parliament would never tolerate such a sacrifice of this country’s plain rights as to deny it the privilege of increasing its interest in an institution which owes its magnificent position to-day mainly to the State’s assistance.”

Mr Beauchamp observes : “It cannot ba denied that the present acrimonious con-* flict between the shareholders’ representatives on the board and the Government representatives is not in the best interests of the institution. The controversy and recrimination which have already taken place, so far from tending to assist the shareholders’ interests, are much mora likely to induce members of Parliament to terminate the spectacle of a house apparently so divided against itself as tho present board has recently by my critic** been made to appear to bo by taking over complete control of the institution rather than surrender to the shareholders tho dominant power over its policy and management.’’

APPLICATION FOR ORIGINATING SUMMONS.

WELLINGTON, August 14. At the Supreme Court to-day, before a full bench consisting of the Chief Justice (Sir Robert Stout) and Justices Edwards and Chapman, an application was made for an originating summons asking the court to make a declaratory order in the case of Sidney Kirkcaldie and Charles Prendergast Knight versus the Bank of New Zealand. The point on which the quea tions were put dealt with the shareholders’ rights of increasing the capital and what restrictions and conditions, if any, were imposed; also whether the shareholders were entitled to direct the directors to call up the uncalled liability of £3 6s 8d per share. Mr C. P. Skerrett, K.C., in opening for the shareholders, said that the object of the shareholders was not in any way to deprive the Crown of what the shareholders considered their right by priority and preference according to section 10 of “The Bank of New Zealand Act, 1903.’' Thcir desire was to increase the ordinary capital of the hank so that the relative rights of ordinary shareholders and preference shareholders might not ha disturbed. These questions the shareholde-a desired to be authoritively determined, as they had some hearing on the character of the legislation the Government was about to introduce. The shareholders had always possessed extensive powers for increasing the capital of the bank, and never in legislation affecting the hank had there been any extensive repeal of these powers, nor was tliere any indication that a repeal of these powers was intended by the Government. Section 5 of the Act of 1908 was couched in the most emphatic languageIt provided that, notwithstanding any Act of the General Assembly relating to banks, the proprietors might from time to time authorise the capital to be increased to such an amount and upon such terms to holders of shares as they might think fit. Mr Justice Chapman : You don’t suggest that this will authorise the overriding of the priority provided by legislation? Mr Skerrett; I even go as far as that. Tne Chief Justice: Why do you want to increase the capital. Is it to get rid. of the £500,000 belonging to the Crown!

Mi- Skerrctt: Oh, no. Mr C. U. Morrison, K.C., who also appeared for the plaintiffs, contended that the statute should be held to imply that the capital of the bank could be increased. If the bank were unable to increase it* capital it would be an absurd business anomaly. The Solicitor-general submitted that a series of special acts had completely taken away the power of the bank to increase its capital, and had established th* bank on an entirely new basis. The constitution of the bank, so far as shara capital was concerned, was and had been for years in the hands of the legislature and' not in the hands of shareholder*. Any increase of ordinary capital would b« a device ’for transferring part of the dividend now paid to the Crown into the pockets of ordinary shareholders. The hearing was then adjourned until to-morrow.