Bank of New Zealand

Southland Times, Issue 19276, 21 June 1924, Page 8

Bank of New Zealand

THE ANNUAL MEETING INSTITUTION’S PROSPEROUS YEAR. REVIEW OF THE POSITION TO DAY. WELLINGTON, June 20. The annual meeting of the Bank of New Zealand was held to-day, Mr William Watson presiding in the absence of the Chairman, Sir Henry Elliott. Mr William Watson, Acting Chairman of Directors, in moving the adoption of the report and balance-sheet, said that at the last annual meeting shareholders were informed of the Board’s decision to issue at par £1,125,000 of new capital. One-third of the amount was, in terms of the “Bank of New Zealand Act. 1920,” offered to the King in the form of preference “B” shares, and was in due course accepted. The remaining £750,000, the ordinary capital, was offered to the ordinary shareholders in the proportion of one new share for every three shares held by them. There were 958 shares not applied for by the shareholders who were entitled to them. These, and 1247 fractional shares, were of fered to holders of ordinary shares for purchase by tender and were over-applied for, with the result that tenderers at £2 11/1 and over received a full allotment, which was made as from March 8. whilst those of £2 il/- received 33.82 per cent. The pre miums totalled £3453, which amount, in terms of the Bank's Deed of Settlement, has been credited to the reserve fund. The capital, reserve fund, and undivided profits, after dealing with the year’s profits as recommended in the Directors’ report, would stand as follows: £ Preference capital held by the Government of New Zealand 1,500,000 Ordinary share capital .. .. 3,000,000 Reserve fund 2,325,000 Undivided prufits 506,513 £7,331,573 *n addition, there was the 4 per cent, stock guaranteed by the Government of New Zealand, amounting to £529,988, and due in 1934, which ranked for repayment subsequent to the liabilities of the Bank to depositors and other creditors. These funds, aggregating £7,861,501, were equal to over 20 per cent, of the Bank’s liabilities to the public. But these figures did not alone indicate the full strength of the Bank's position, for, like all banking institutions of first-class standing, it had for many years been steadily accumulating internal reserves to provide for the effects of any exceptional set-back which might overtake the Dominion. As the country was dependent for its welfare cn the conditions of overseas markets—the course of which it was powerless to shape—these large internal reserves against unforeseen contingencies were essential to the maintenance of the credit of the Bank and the country. NOTE CIRCULAHOiV. Turning to the subject of note circulation, Mr Wilson said: “During the year the not circulation of our Bank has averaged about £3,920,000, the highest figure reached being £4,885,668, and the lowest £3,655,870, whilst our legal right of issue is about £10,500.000. We have, therefore, an ample margin of currency available to meet the ordinary requirements of our customers and to provide a substantial reserve for an emergency. The Banks of New Zealand issue notes up to the value of the coin and Government securities which they hold in New Zealand, and, further, under certain conditions, against Government securities held in London. These notes are legal tender and are the first charge on the assets of the Bank. There is, however, a limitation to the right of issue in that, no matter hew large the amount of securities held may be, the circulation must not exceed three times the amount of the coin. ‘‘The coin held by the six Banks doing business in New Zealand has, for the past eight years, ranged between £7,000,000 and £8,000,000, and has for the past year been something more than £7,800,000. The securities held in New Zealand amount to abut. £5,000,000. If, therefore, the limit of issue of all the Banks operating in New Zealand were fixed by the holdings in New Zealand of coin and securities, it would be about £13,000,000. it, however, the permission to issue notes against securities in London were availed of (and I have no doubt that all the Banks could easily comply with the necessary conditions), the limit, would be increased to about £23,000,000. ‘‘As a matter of fact, the highest point which the total circulation has ever reached was 81 millions in December, 1920, and since that time it has gradually come down until, at the end of March last, it was £6,600.000. “Owing to the incidence of the business of the various Banks, it constantly happens that some of them are holding the notes of other Banks. On an average approximately half a million is thus held, so that the notes in the hands of the public are less by that amount than the figure quoted. It will be seen from the figures that the New Zealand Banks have always, even during periods of considerable monetary- pressure, been in a position to supply the currency requirements of the country with the greatest ease. “If, at certain seasons of the year, owing to the nature of its business, the notes of the other Banks accumulate in the hands of a particular Bank, it has the option of holding them in its cash until the turn of events changes and it requires to make use of them in its settlements with the other Banks, or, if it holds more than it requires for this purpose, of specially arranging with the other banks to redeem the surplus. There is thus the necessary elasticity in the currency to meet the requirements of trade, commerce, and production, and, at the same time, the necessary provision for the removal of redundant currency when there are more notes in circulation, Le., notes held by the public and notes held by the banks, than the needs of the community call for. “It may be that some of those whom I address, contrasting the present New Zealand circulation of approximately £6,000,000 with the issue before the war (about £1,700,000), may feel that the notes at present in circulation represent a measure of inflation. It must be remembered though, that prior to the war the currency of the country consisted not only of the note issue but also of a large quantity cf gold which was constantly passing trom hand to hand. This coin probably amounted to something like 2A millions, which, when gold ceased to be issued, came into the coffers of the banks. The currency in circulation was, therefore, something over £4,000,000. Bearing in mind that there has been an increase of population and trade during the past ten years, that the cost of the necessaries of life has increased, and tha: other important changes have occurred, the increase of about 50 per cent, is hardly more than might have been expected to take place during the pcr.od.” DIVIDEND. For the full year tiie Board proposed to distribute in dividends £487,307 1/3. Under the previsions of the “Bank of New Zealand Act, 1920,” this amount fell to be allotted a. lollows:

On the ordinary shares this works out at the rate of two shillings and eightpence per share on the capital as at April 1, 1923, one shilling and fourpence per share on the new capital paid up as at October 1 last; and twopence per share on the 2205 shares paid up as at March 8. INVESTMENTS IN AUSTRALIA. “As compared with two years ago,” said Mr Watson, “there is an increase of £1,648,000 in our investments in securities of the Commonwealth and of the various States of Australia. The greater portion of the amount is in comparatively shortdated stock falling due at dates to suit our interests. As I shall further mention, the balance of trade between Australia and New Zealand has for some years been heavily against this country, consequently our Bank has to pay out very large sums in the Commonwealth. Often it is difficult and expensive to provide the necessary funds in Australia, therefore it is prudent to hold investments, which, in an emergency, may be realised; and, apart from the vantages for exchange purposes of these investments, they are quite profitable. “The advisability of holding a large amount of first-class and readily realisable investments in London and Australia should be obvicus. If, in a time of stress, it became necessary to sell in New Zealand a large amount of our New Zealand Government securities which are domiciled in the Dominion, the effect would be to deplete our deposits, because, for the most part, the purchasers would require to draw on their balances at their bankers. Having regard to the proportion our deposits bear to those of the other banks, the net gain in our resources would probably be only about 55 per cent, of the proceeds of the sales. Then, too, it would be difficult to realise here any large amount of even first-class securities without demoralising the limited market. On the other hand, sales in London and in Australia mean that our resources would be benefited to the extent of the full proceeds of the sales.”

CONDITIONS IN THE DOMINION. “Producers of primary products here have, on the whole, experienced a fairly good year, though weather conditions were not altogether favourable. The severe losses made by mercantile houses through over-importations in 1920 and 1921 are things of the past, business now being conducted at profit, though heavy losses of capital have still to be made good. It is believed that retailers have not done so well as during the previous two or three years, despite the fact that extravagance is still rife. Stocks of goods on hand are said to be rather much in excess of requirements. The woollen manufacturing industry is feeling competition from abroad, consequently stocks are increasing and profits shrinking. Sawmillers and timber merchants have done very well, the demand for timber being heavy and continuous. “That this country with its abundant coalfields should have found it necessary to import no less than £624,649 worth of coal from Australia last year is most disappointing. Unfortunately, the tactics of the coalminers in recent years have scared investors and moneylenders, and, consequently, little money is likely to be invested in coalmining ventures. THE MEAT TRADE. “The majority of the meat freezing companies are in most unsatisfactory financial conditions. This is due largely to there being far too many works, particularly in the North Island, to under-capitalisation, to inexperienced management, and to failure to build up reserves when times were prosperous. Although in several instances shareholders have lost all the capital paid jip, it must be borne in mind that far too often shareholders were paid by their companies much more for their live stock than it was worth. Depositors with these particular companies lost their money; guarantors to the banks have also had to pay up, and even the secured creditors have suffered considerable loss. Several other companies are staggering on under loads of debt, and it is difficult to see how they are to escape liquidation unless some satisfactory merger of interests can be arranged. During the season just ending, there has been strong competition from freezing companies and exporters for sheep and lambs at remunerative prives to the producer, and at the prices paid it must be a difficult matter for the purchasers to make profit. The steady increase in wool values will help to some extent. The exceptionally dry season has been responsible for a large proportion of second-quality lambs reaching the freezing works. The market for beef shows no improvement, and it is evident that our frozen beef cannot, at the present time, compete successfully with the chilled beef of the Argentine. RECOVERY IN WOOL. “It is gratifying to note the great recovery in wool prices which have taken place during the last twelve months, with the demand for wool still unsatisfied. Although all qualities are wanted, the most satisfactory feature is the strong demand for medium and coarse wools, as these comprise the bulk of the New Zealand clip. Another gratifying feature is the great expansion in the export of wool to the East, which, during the past year, amounted to approximately 200,000 bales from Australia and New Zealand as compared with, say, 20,000 bales in 1914. Compared with values * ruling twelve months ago, crossbred wools show an increase in value of approximately 50 per cent, to 90 per cent., merinos and half-breds 25 per cent, to 40 per cent. THE DAIRY INDUSTRY. “The position of the dairy produce market is causing some concern. Although, owing to weather conditions, the quantity exported so far this season is not as great as last, heavy shipments have reached England during the last few months and have met with a poor demand at reduced prices. Mainly owing to the increasing quantities reaching the English market from other countries, it is probable that dairy farmers may hate to accept lower prices for their produce in the future, and this, of course, will be rejected in land values in this Dominion. The Dairy Produce Control Board recently formed is expected to improve marketing conditions, or, at any rate, to see that the interests of dairy farmers are protected to the fullest extent possible. “Owing to the serious shortage in the wheat yield of the Dominion, the Government has arranged to make large purchases in Australia. Much as it is to be regretted that sufficient wheat is not produced m this country to meet our requirements, it cannot be expected that our farmers should grow wheat whilst their land can be put to more profitable use. This wheat purchase has intensified the acuteness of the exchange position between the Dominion and Australia. PRICES OF LAND. “Country lands have not changed hands to any great extent, vendors’ ideas of value still being much in excess of those of prospective buyers. Unimproved or partiallyimproved bush lands are not easily disposed of, not only because of the present excessive cost of improvements but also because of difficulties of financing such propositions, lenders being extremely shy of that class of security. In several districts in the North Island, improved bush country, unless well handled, has a pronounced tendency to develop rubbishy growth, and experience has shown that, apart from that disability, the quality of the . pasture deteriorates a few years after it lias first been sown. Where the plough can be used, that difficulty can be overcome by its use, and by liberal manuring. Many deserving and industrioua settlers who took up rough bush land without possessing the necessary capital or credit to complete the required improvements and to adequately stock their properties have been obliged to abandon their holdings after years of battling against adverse conditions. There is no question that considerable areas of land, thrown open years ago by the Government for settlement under various leasehold tenures on what were at the time considered reasonable terms, should never have been grassed. “In view of the greatly increased cost of improvements, it would be but fair that there should be Dot only a revision of the

rentals of such properties but also that an occupier should be allowed to relinquish any unimproved portion of the property, provided the latter area is large enough to support a settler when improvements can, if ever, be effected at a reasonable figure. The settler who goes out into the wilderness to carve out a home for himself is entitled to every consideration —in a great many cases it would pay to let him have the land for a mere trifle, subject to his making satisfactory improvements within a reasonable period, but he should not have the right, save in exceptional cases, to sell out. As a rule, unimproved bush country should be handled only by men of ample means. On the other hand, some twenty years ago considerable areas of improved land were leased on terms which have enabled the fortunate lessees to transfer at a handsome profit after allowing for the capital expended on improvements. “It is desirable to sound a note of warning with regard to city and suburban properties which in some centres have changed hands at such high prices that, whether the occupiers be owners or tenants, the rent charges are necessarily so great that success in business is rendered very difficult. THE OUTLOOK. “On the whole, I believe we may regard the immediate outlook with equanimity. Prices for some of our most important products may decline, although during the coming season there should still be a considerable balance of trade in our favour Many of our producers are carrying on under adverse conditions, but their competitors abroad are having trouble also. It must not be forgotten that the great majority of our settlers are in fair circumstances, and quite able to withstand a fall in value of their assets and reduction in income. Had economy been practised during the years when phenomenal prices were received for our products, there would be less grumbling to-day over the burden of taxation and the difficulty of getting an adequate return on capital. “We must look forward to a gradual deflation of land values as the cure for the worst of the evils from which we are at present suffering. Stabilisation at present values is out of the question. I would urge one and all not to lose sight of the very important fact that economy in its wider sense is absolutely necessary to the welfare and prosperity of this country. We have in New Zealand most things suitable to healthy life, but, unless our exports can be produced as cheaply as those of other countries, and unless we avoid excess of luxury in our imports, it stands to reason that, considering our heavy obligations, ultimate prosperity will not be ours. No one should idle or go slow in his working years, and the fertility of our lands should be carefully maintained. We have one of the finest countries in the world; let us keep it so by showing example to those who will inherit it after us. I now move the adoption of the report and balance-sheet, and ask Mr Reece to second the motion.”

£ s. d. 10 per cent preference “A” capital 50,000 0 0 One-seventh of £306,250 on preference “B” capital 43,750 0 0 Plus l-3rd of the profits for distribution in excess of £356,250 43,685 13 9 And on • ordinary capital:— Six-sevenths of £306,250 262,500 0 0 Two-thirds of £131,057 1/3 87,371 7 6 £487,307 1 3