BANKING COMMITTEE.

Patea Mail, Volume IX, Issue 118, 12 October 1896, Page 2

BANKING COMMITTEE.

Wellington, Oct. 9.

The House Banking Committee brought down its report this afternoon. It finds that the total ascertained and estimated losses of the Bank of New Zealand since 1888 amounts to £4,040,799. Besides this there may be losses in trading concerns remaining in the hands of the Estates Company; of these, however, the committee have been unable to form any reliable estimate. During the period in which these losses were made no less than £265,688 were paid away by the directors in dividends. These figures tell the story of the past management of the bank. The committee consider it undesirable that the bank should engage in commerce, aad recommend that trading - concerns should be realised as soon as°possible, but to effect this the directors estimate from two to three years will be ! required. The committee have carefully inquired into properties now held by the Realisation Board, and evidence brought before them shows that the realisation will not fall far short of the estimates placed before the joint committee in 1895. On the other hand it seems unlikely that these properties will all be realised within the eight years now remaining. The report exhaustively reviews the progress of ;the banking legislation since 1889, and states from detailed information now in the possession of the committee they have no doubt that the action taken in assisting the Bank of New Zealand in 1894 was prudent, and that by so doing a national disaster was averted. It was not then practicable in the short time at the disposal of Parliament to pass legislation finally dealing with the subject, so intricate and so difficult was the separation of the Estates Company from the bank. After dealing fully with the circumstances surrounding the purchase of the Colonial Bank by the Bank of New Zealand, the report goes on to state that the balance-sheets of the Colonial Bank and the conduct of its directors _ and officers are included among the subjects mentioned in the order of reference. On these points, however, the committee have not made a detailed inquiry, but from evidence brought before them are oi opinion the balance sheet dated the 31st August, 1895, did not fully disclose the position of the Colonial Bank, This will be apparent when it is mentioned that the whole of the accounts which subsequently figured in tbe A, B, C and D lists were put down in it as good assets. The committee consider that the position of the Colonial Bank as disclosed in the exami nation which preceded the purchase agreement shows that mismanagement must have taken place, the responsibility for which rests upon the directors and officers of that institution. M) Ward in no way promoted the banking legislation of 1895, ratifying the purchase agreement. This Bill (originated with the Bank of New Zealand and was submitted to the Premier, who since 1894 had charge of this bankiing legislation Members of the Ministry were informed from time to time that negotiations were procee iiug for the purchase of Colonial Bank, but the evidence shows that no member of the Government took my part in the negotiations, or was informed of the contents of any of the lists* L’ue committee have made careful inquiry is to the results of the purchase of the Colonial Bank by the Bank of New Zea land. The evidence all goes to show tha. the purchase was a desirable one, and that the Bank of New Zealand made a good bargain. The committee have carefully inquired into the increased earning power of the bank, obtained by the purchase, and although it is somewhat early to speak with a certainty, the evidence supports the estimate given by the joint committee in 1895 by the president. Whilst the purchase is satisfactory to the IBank of New Zealand it has proved disastrous to some clients of the Colonial dank, whose accounts are in the “ B ” and “ G ” lists, and the liquidation under the Companies Act has entailed some los on the shareholders of the Colonial Bank. The evidence is in favour of additional power being given to liquidators, so as to enable them to compromise or nurse accounts. The evidence goes to show that it would be advisable for the directors of the Bank of New Zealand and the liquidators of the Colonial Bank to arrange for the taking over of accounts, the cover being determined by arrangement. Your committee are of opinion that if the suggestions of the witnesses, to give power to permit the present liquidators to continue the liquidation, as provided by the deed of settlement of tbe Colonial Bank, instead of being restricted by the provisions of the Companies Act which requires the liquidators to obtain an order from the Supreme Court before they can compromise any account, are to be given effect to, such power should be only given subject to the approval of the shareholders of the bank. Beyond this the committee have no recommendations to make on the subject. The committee are of opinion that the crisis in the bank’s history in 1888 was directly traceable to errors of judgement and the gross mismanagement of the directors and officers of the bank. The committee are further of opinion that the conduct of the directors and executive officers of that time ought to have been inquired into with the view to criminal proceedings being taken. That the directors were not warranted in recommending a dividend on the 26th April, 1888, or in paying dividends at any time subsequently, if the real losses of the bank had been I deducted from the profits made. That neither in their balance sheets nor in ! their statements to the shareholders did i they disclose the real position of the i bank, but based their estimates of value not upon the current market prices at j the time, but upon an imaginery rise in , the value of land and produce, which they 1 apparently expected to take place. The system of maintaining fictitious bookvalue of property, the real value of which had decreased year by year, is one which the committee cannot too strongly condemn, and that it should V a direction to the board of directors that th,e officers responsible should not be continued in the service of tbe bank. The present directors sinpe their appointment appear to have been anxious to discover the bed* rock value of properties and accounts of the bank, The committee are of opinion that the law preventing directors from having overdrafts in the bank should be extended to the officers of the bank and to companies, the directors of which arc also directors of the Bank of New Zealand. After dealing with the circumstances connected vyith the appointment of Mr Watson as president of the Bank of New Zealand, the report goes on to state that in the opinion oi the committee, it is essential for the success of the Bank of New Zealand, and to inspire and, mufutaw jg that

nstitution, that important alterations in management should be made. The committee therefore recommend that ieorganisation should take place. The office of president should be abolished, a new general manager shoud be appointed the directors should be increased to eight and should consist of three representing shareholders, three to be appointed by the Governor in Council, one to be elected by the House of Representatives and one iby the Legislative Council, the chairman to have power of veto and to be selected by the Governor in Council; that as far as practicable the chief commercial centres of the colony should be represented on such board of directors. The investigations made by the committee have shown that a large percentage of balance sheets of public companies have failed to show bills under discount as liabilities some cases even as contingent liabilities. They are of opinion that the present law is insufficient to provide for Banks or companies showing the exact position of their affairs in their balancesheets. and that legislation should be iutroduced to farther protect shareholders and the public. Shortly after the appointment of president and Government auditor the salary of the former was secured hy deed during the term of his engagement, and agreement was made with the latter that in the event of his losing his position as auditor he would be reinstated in the service of the Bank. These agreements were entered into without the knowledge of the Government. The committee are of opinion that they should not have been made without the approval of the Government and that Mr Butts’ agreement should be cancelled. In conclusion the committee consider that in New Zealand the business of the Bank of New Zealand is now sound, but recommend that it should be confined as far as possible to this colony, except for the purpose of exchange. The committee are of opinion that if the outlook for our commerce and agricultural products continue as it is at the present time, and if com> petent, expert and reliable management is assured, the Bank will ultimately be able to meet all its engagements.