BANK OF NEW ZEALAND.

Taranaki Herald, Volume LXVIII, Issue 16914, 10 December 1920, Page 6

BANK OF NEW ZEALAND.

HALF-YEARLY MEETING. The half-yearly general meeting of the proprietors of the Bank of Now Zealand was held at the head office of the bank, Wellington, to-day, Mr. H. Beauchamp, chairman of directors, presiding. After announcing that the directors had declared an interim dividend of Siper cent, for tho half-year ended September 30, and declaring Mr. William Watson re-elected unopposed to the directorate, Mr. Beauchamp went on to refer to the provisions of tho Bank of Now Zealand Act, 1920, You will doubtless, ho said, regard as the most important portion of the Act the sections which deal with tho Capital and Reserve Fund. These provide that, of the amount now standing at the credit of tho Reserve Fund (£2,500,000), £1,125,000 is to bo transferred to Capital Account. This is to bo allotted to the Government and the ordinary shareholders in the same proportions as those which their present holdings bear to the whole capital of tho bank. The Government, which at present owns one-third of the paid-up capital,—“A’' shares £500,000, “B” shares £250,000 —is to have its holding increased by £375,000 in “U” shares. Tho ordinary shareholders, whose capital is now £1,500,OUO, will have £750,000 of tho reserve allotted to them. As to the dividends which may bo paid in future, it- is provided in the first place that the “A” shares are to receive a fixed, but not cumulative, dividend of 10 per cent. — the same as the present maximum dividend upon that class of shares and, it may be added, tho dividend which has been paid on them for ten years past. The dividend which was paid last year upon the “B" shares and the ordinary capita! was at tho rate of 17) per cent. The payment of this dividend aud tho 10 per cent, on the "A” shares required a distribution of £268,750. As tho ordinary capital has since been increased by £500,000 (the call of £3 6s 8d per share upon the ‘'old” ordinary shares which was made on April, 1), it would now take £356,250 to provide dividends at the same rate upon tho capital as it now stands, i. 0., before the proposed transfer from tho Reserve Fund. Tho Act provides that tho distribution of dividends in future, if they do not exceed the figure mentioned (£356,250) shall give, to the Government and the ordinary shareholders respectively, precisely the same amounts ns they would have received had no re-adjustment of capital taken place. Tho rate, being calculated on a larger capital, would of course bo different, but the amount would bo exactly the same. If, however, tho profits of tho bank aro on such a scale as to allow of a larger sum than £356,250 being distributed in any year, it is provided that one-third of the additional amount distributed shall bo paid to the holders of tho “B” shares —tho Government, and two-thirds to the ordinary shareholders. The directors think that, in proposing this allocation of tho incroasea profits which may bo earned in the future, they were consulting the best interests of tho shareholders, of whoso approval of the now Act they have already received many proofs. It is their hope that in years to como tho shareholders may receive, under this section of tho Act, an even bettor return upon their capital than that which was distributed to them for last year.

EXCHANGE. Referring to the exchange position botween tin's country and Britain, Mr. Beauchamp said: For many years ex-' change between Australasia and Great Britain has perhaps been more stable than the exchange between any other countries separated by anything like such a long distance. Indeed, it has usualy fluctuated loss, and within narrower limits, than the exchanges between most countries which are comparatively short distances from each other. If people hero had Bills on London to sell, or if they desired to buy Bills on London, they could always rely upon the willingness and ability of their bankers to carry tho transaction through at a rate very close to tho face value ol the Bills, This was ensured by tho fact that it has been the practice of Australasian banks to hold largo cash resources both in London and in the Dominions, so that they were always in a position either to buy or to sell' iiills. The needs of tho community, for the financing of its import and export trade, were thus always met without difficulty. Many of you have become aware that, dining tho last few months, many importers in these Dominions, and other persons who wisiicd to remit money to London, have had an unusual experience, as they have met with difficulty in obtaining the drafts which they needed to make their payments, although they possessed abundant money for the purpose. The causes of this are not far to seek. We have had to pay out in London many millions more than wo have been providing there. Similar conditions have been experienced in the trade of Australia. In addition to this adverse trade balance which has had to be mot out of funds which had accumulated in London up to the end of last year, several largo payments have recently had to bo made in London on Australian account; and the result has boon that the resources available there have been so fully drawn upon that most of the banks have had to place great restrictions upon their oper. atious in the sale of London exchange by telegraph or by drafts at short currencies, or—what amounts to the same thing—the purchases which they were willing to make in London of Bills upon tho colonies. Phis is the explanation of tho difficulty which many traders have been experiencing in making remittances to Britain, or elsewhere abroad, to meet the liabilities which they had incurred in those distant places. I am pleased to say that the resources of the Bank of New Zealand have pj'oved sufficient for all tho requirements of its customers in this direction. The position will not be effectively relieved until there is a very great diminution in the value of imports and until this season’s produce begins to reach Britain in considerable quantities and finds a market there. Except as regards butter, wo are not now receiving payment in London for our produce as soon as it is ready for shipment, us was tho case during tho years of tho “commandeer.” It is most evident that the principal relief, ns far as- exchange is concerned, will have to come from a reduction of imports—especially in the cessation of tho import of costly luxuries. Unless there is a great reduction in the value of goods brought from abroad, the present difficulty with regard to exchange is not likely to pass. This bank has in tho past been frequently criticised for holding in London so largo a portion of its resources. Those funds were kept there because it was felt to be certain, that such conditions as have now arisen must occur sooner or later. They were available when wanted and, now that they are required, we are drawing upon them as occasion arises. Had they not been there, tho exchange , situation pi' tho last levy, weeks .would

not have been so easily met, and our customers would have been placed in circumstances of considerable difficulty.

GENERAL REMARKS,

Now Zealand, as is generally known, enjoyed a wonderful prosperity during tho war period, owing mainly to the requisition of the principal primary products of tho country by the Imperial Government. Cash was paid for the produce on delivery into store, tho Imperial Authorities assuming all the risks of storage, lire insurance, etc. The total amount actually paid by the Imperial Supplies Department from the commencement of tho commandeer until October 31,1920, was £147,830,293. This huge sum had a fertilising effect on business, on trade, and on prices generally, but it was not wholly responsible for tho war prosperity. 'The New Zealand Government borrowed £BO,089,025 for war purposes and most of this money was obtained and spent locally. But the Imperial Supplies Department has practically run its course, and has now merely to arrange for tho shipment of its accumulated purchases, and also for the shipment of tire batter manufactured up to March 31 next, which has been purchased by the Imperial Government. A very great change in the economic conditions has developed, within the past few months, and the outlook generally is not so favourable as it was. There is an increasing demand for loans on the part of tho Government, also by many local bodies and large joint stock companies. The Government issued a £2,000,000 loan for Public Works in April Jast, and the interest rate was 5 per cent, subject to income tax. There is now being offered to the public a of per cent, loan of £6.000.000. Local bodies have obtained authority to borrow, in the aggregate, about £6,000,000, and such of them as managed to appeal to the market early in tin; year, secured their loans: the majority of them have, so far, not been able to arrange their finances. Manv joint-stock companies have raised capital by the issue of preference shares and debentures, and while, earlier in tho year, 6 and 6$ per cent, were considered sufficient, higher interest is now demanded by investors.

The banking averages for the past quarter gave striking evidence that a change had commenced. This was shown by the very substantial increase in the advances and discounts. There was also an increase in the two classes of deposits, but the increase in the deposits is considerably less than the expansion of the advances, and it is doubtful whether the deposits have been increased by fresh income: it is more likely that the increase follows naturally on the increase in bank advances, since it is well known that bank advances usually make bank deposits. The mortgages registered and discharged in the Dominion also furnish indications of the changed conditions. For the 12 months ended September 30, the excess of mortgages registered over mortgages discharged is considerably more than double that of the previous year, and is in some measure duo to the mortgages registered in connection with the Government’s arrangements for placing discharged soldiers on the land, and partly to the generally inflated values of urban, suburban and rural land.

The export and import returns for tho nine months to September 30 also emphasise the change that is taking place, for while the exports decreased during the nine months by about 12 por cent., tho imports increased by about 90 per cent. This-is a'complete reversal of tho trade tendency during the past few years. The imports lor the current quarter may ho expected to show a considerable increase on tne figures lor the Uecemoei quarter ot last year, wiido the exports, as a result of the lower prices now rilling, may not denote any expansion. In respect to a large proportion ot our exports, it must ho remembered tliut payment for these—wool m full, and moat to the value of 75 per cent—lias already been made in advance by the imperial Government: ■ consequently the real margin of imports over exports is much greater than that disclosed in tho published figures. In comparing imports with exports, the true position will not ho shown until we are able to eliminate entirely, from our exports, all produce shipped on beJialr of the Dome Government and previously paid tor. The nett result for the year must there, lore exhibit a big margin between exports and imports.

Imports eau only bo paid for by exports, and difficulty is being experienced this year, and especially since the turn ol tho luilf year, m financing tuo imports.

A check to over-importation is being applied now by the operation of tho law 01 supply ana demand, as well as by tho restrictive policy pursued by tins and otlier banks m tho - Dominion, in normal times there aro available four principal means for tho settlement of trading differences. They comprise shipment of goods for goods; tho slupment of gold; the raising gf loans; and tho selling ol securities. in the past, loans floated in Loudon always gave to Now Zealand a fair amount of credit with winch to finance purchases of merchandise and interest on loans, but credit cannot be so readily obtained in London just now because the British money market is not able to meet all the demands that are being made on it even at high rates of interest. Tho raising of loans in London therefore is just now out of the question. New Zealand lias not yet become, to any considerable extent, an investor in tho securities of otlier countries, so that the sale of securities held abroad is not a practicable method of remittance. The after-war conditions which still exist render impossible those movements of gold coin which were formerly common banking transactions. The only movements of gold at present are the shipments which are regularly made-of the bullion produced from the mines of the Dominion, and which are properly included in tho export figures already .quoted. The .value of the gold exported iu the nine months, ended September 30 last was £580,374, as compared with £933,842 in tho corresponding term of 1019. I would emphasise the point that, to preserve pur financial equilibrium, it is imperative that we should stimulate production, expand exports b y every means in our power and curtail imports. The need for increasing the volume of our exports becomes more urgent in view of the substantial decline in value of most of our primary products. THE WOOL OUTLOOK. During the first three or four' months of tho current year the wool outlook was satisfactory, but in May there was a sudden change. At, the sales at Antwerp, held on May 21, 125,000 bales of Colonial wool were offiered and prices declined from 10 to 15 per cent. About the same time 18.569 bales—mostly merinos, and other fine grades—were offered in New York on behalf of the British Government, and prices suffered a decline of from 10 to 20 per cent. Since these sales the market has been depressed, and while fine wools aro in demand at reasonable prices, medium and coarse crossbreds have slumped appreciably. The new clip from Australasia is not under requisition, and is therefore free .to he marketed haw. and

when the producers choose. The statistical position is against any recoveryin values for some time to come. The Australasian total of 2,635,978 bales was not the only wool that was available to the world’s woollen mills. _ At the end of September, Argentine growers held about 22,471,231 kilogrammes of wool, there wore thousands of tons' or domestic wool in tho United States, and considerable quantities in South Africa. Tho demand as it exists to-day is not equal to absorbing the available, supplies in a reasonable time, consequently efforts must be made to stimulate the consumptive demand; but this demand if it is to increase must be tempted into expansion by low prices. So long as the statistical position of wool remains as menacing as it is, low prices will rule for this staple.. What is best to be done to get the large volume of wool into consumption? It was thought at one time that the United States, with its wonderful a ccupi elation of war wealth, would be able to consume a fair quantity of wool, but the position in that countr.v is unsatisfactory. As the new President is a Republican, wc may bo sure that the wool-growers of America will secure all the protection they want—in fact, protection of farmers was ono of the chief planks of Mr. Harding’s political platform. Wc cannot. therefore, look with any degree of confidence to America as a buyer, to any extent of Australasian wool. Tho only ray of hope visible at present is m poverty-stricken Europe, chief among the countries being Germany. But Europe, unfortunately, has not the cash or the credit to pay for wool, and it would appear desirable that Now Zealand should adopt some scheme of extending to Continental buyers of wool long credits. The Argentine scheme is dcsfgned to give foreign buyers two years in which to pay for their purchases of wool, and New Zealand might find it advantageous to arrange similar terras. In any case it must be evident that nothing like tho prices obtained under the British commandeer can bo expected for this country’s free wool, lii the 12 months ended September 30 hist 165,821,0051b5. of wool, valued at £l2 351,396 were exported from New Zeafand. For a similar weight of wool now we should get probably about £7,000,000, and a good deal of that money will be owing to the country for some time especially it sales are made to foreigners on long term credits. To assist growers who desire to hold their wool, the Government has obtained authority to guarantee advances, and it is probable that many will take advantage of this privilege. If so, that will mean the creation of a consicTeratiTo additional amount of banking credit, which will be locked up in comparatively long-term investment. Such advances would naturally tend to curtail credit itt other directions.

FROZEN MEAT,

With the exception of lamb and lightweight mutton, the market for this product is in a similar position to wool, but there is a prospect that a certain, amount of lamb and light-weight mutton will be marketed in tho United States, to which country large.quantities of such meat have already been shipped, and it is anticipated further big shipments will bo sent. Still, _it would be unwise to place much faith in the’American market, because if the wool-growers succeed in having an embargo placed on foreign wool, then those handling domestic mutton and lamb are certain to receive similar consideration.

DAIRY PRODUCE, ETC.

It is a matter for congratulation that the butter output of the Dominion, available for export up to March 31 next, has been bought by tho Imperial Government at 280 s per cwt.—the highest price over realised for this product. Payment for butter will bo made 14 days after it has been passed by tho Government grader. New season’s cheese, a short time ago, was in strong demand; but serious industrial troubles in Great Britain, bringing in their train a large amount of unemployment, have had a very depressing effect on the market and values have fallen substantially. If there be no recovery in price, it is most probable that many of the dairy factories equipped with dual plants will at once commence to make butter instead of cheese: so, from a financial standpoint, wo should not be prejudiced to the same extent that we would be were they compelled to confine their operations to the production of cheese only. It may be mentioned that arrangements for the shipment of butter can be made much more promptly than those for cheese. I believe I am warranted in assuming that the exports of dairy produce for the present season will realise something in the neighbourhood of £12,000,000, which would far exceed the result obtained in any previous year. Tallow, hides, pelts, sheepskins, rabbitskins and hemp have all dropped in value, and the outlook appears to be for a further decline. Thus it must be apparent that the income of the Dominion will be less than it has been, and the spending power of the community must contract. The changed conditions are also marked by the vast amount of borrowing that is going on. Bcaring_ in mind the amount of money that will be required hv the Government, by local bodies, fanners and traders, and the less payable prices we shall receive for our produce within tho near future, wo must anticipate a strong demand for loans and for banking and an increase in entrant

tates of interest, and probably an increase of the note circulation. As I have already indicated,* the position is a difficult one for locaj bodies who are restricted to a rate of per cent. That rate, or oven 5:1 per cent., > for giltedged securities, under existing conditions, would not prove attractive to investors. Money is at present dearer in Australia, London and New York than it is in New Zealand, so if the country’s produce is entitled to bo sold at the world’s parity of value, it surely follows tbat those who have credit to sell will also expect to receive the world’s parity. Franco, Switzerland and Sweden borrowed in New York during the past few months, and all three had to pay 8 per cent. The people of New Zealand, as I have already said, must expect to pay more for their loans, both public and private. _ , The changes that I have endeavoured to indicate are such as one would expect in a transition period. The outlook is not as promising as it was a few months ago. The effect upon our prosperity of the of the national income with which we are faced will be in proportion to the prudence and courage we display in facing it. Undue optimism may prove as danger-, ous as extreme pessimism; we must keep our heads and believe that, whatever troubles may bo 'ahead of us m the coming year, we will surmount tiiem jn short, we must have confidence in ourselves and in our destiny. Nev Zealand, with its marvellous powers of recuperation, cauuot oo permanently injured even by such a reduction in the value of some of its chief products as has taken place. All our past experience forbids us to expect tliat the low level which has been reached by some of our products will bo permanent. There will be a reco very, but meanwhile those whose incomes are for the present diminished must adjust expenditure to income. And if, as seems probable, tho era of low prices is coming—not only with regard to the things we produce but those in which our interest is only that of consumers—the adjustment, when it is over and settled conditions of trade are again established, will perhaps be to the benefit both of our community and our customers in distant lands—especially our kitli and kin in the Mother Country, who have found it hard, and sometimes impossible, to pay the high prices which during the past years "have been ruling for all our produce. ' In connection with the financial outlook of the Dominion generally? I, desire to associate myself with tho Bight Hon. W. F. Massey in the statement he made on that subject in the closing hours of the last session of Parliament. Mr. W. Watson confined his few remarks to the present position of ordinary shareholders, and his idea of what the future holds for them. The general manager’s circular regarding the rearrangement of the capital fully explains (he said) that profits up to £356,250, baaed on the dividends of 174 P er cent, which, you received last year, but computed on your increased capital of £1,600,000 instead of £1,000,000 as it stood last year, will be apportioned, after payment of 10 per cent, on the “A” preference shares, in the ratio of six-sevenths to you and oneseventh to the “B” preference shares. Dividends in excess of £356,250 will be likewise apportioned, two-thirds to you and one-third to the “B” preference shares. Further, the “A” and “B” preference shares together will amount to only one-third of tho total capital against your two-thirds, hut, as long as the bank pays more than 10 per cent, on its total capital, your dividend will be more than two-thirds of the whole. Your rights in the property of the hank are thus established and acknowledged by the Government. On the 31st inst. you will receive from the reserve fund £3 0s 8d as an addition to each share of £6 13s 4d you now possess, and this will practically amount to a refund of the £3 6s 8d per share which was paid by holders and written off in _ 1895. Shares of high amounts -at'c considered old-fashioned and unwieldy in tho present day, and ten of our new shares of £1 ’each are expected to be more convenient, and probably more valuable, than one share of £lO. Much as we should have liked to consult the shareholders before finally deciding on the terms of the Act, this was found to he impossible, the main reason being that it was a Government measure and could not be made public until placed before Parliament. You will have noticed Clause 12 of tho new Act of Parliament which gives power to tho directors, with tho consent of the Minister of Finance, fo raise new capital for the hank to an amount not exceeding £2,250,000, and sets forth the terms upon which such capital may he raised. I have been asked by shareholders what this portends. Some appear to hope for the clause being given effect to shortly, and others to dread having either to hud fresh money or lose tho opportunity. Now, when tho chairman of the board speaks to you, he is tho vpice of the board; but when Mr. Kane or I speak as your representatives, wo speak for ourselves only, and as. I have been asked as to this now capital, and am likely .to bo asked again, 1 consider it best to say tho little I hare got to say to all tho shareholders at once. I do not anticipate it will be necessary to make any further extensions of capital .so soon after what lias been done, hut the elaboration of tho clause is suggestive, and when the business of the Dominion and the bank warrant it, I have no doubt the directors will avail themselves of the powers given. Matters of finance rush on somewhat more speedily nowadays than they formerly did; and when we consider the pace of the past few years, tho placing of many returned soldiers on the land, the present rate of immigration, and other legitimate calls for extension of banking facilities, it appears unlikely that many years will elapse ere fresh banking capital will be required in New Zealand. In conclusion, Mr. Watson heartily congratulated shareholders on the position to-day. Tho bank’s best customer ,—tho Government —is its partner on terms which a few years ago few anticipated, They had a sound and progressive business, and those who look for a good permanent investment, rather than to the vagaries of tho sharemarket, will not be disappointed by retaining their shares. HALF-YEABLY MEETING. Per Press Association. AVEL KINGTON, Dec. 10. The half-yearly meeting of shareholders of the Bank of New Zealand was held this morning. In the absence of Mr. Harold Beanchamp. the Chairman of Directors, owing to' illness, Air. J. H. Upton presided. An interim dividend of 8J per cent, wag declared payable in AVellington to-morrow and at tho branches on advice. The secretary of the board read an address prepared by Mr. Beauchamp. Mr. AVilliam AA'atson, tho retiring director, was re-elected unopposed. In returning thanks he stated that directors had pleasure in announcing that they had decided to give an additional bonus to the lower paid officers, whose balaiifei were not according to scale.