ALTERNATIVE SCHEMES.

Star (Christchurch), Issue 5349, 29 August 1895, Page 2

ALTERNATIVE SCHEMES.

[from oub own cobbispondbnt.] I WELLINGTON, Atjguet 29. | The following are the proposed schemes ' submitted separately by the direotors ot the bank, the Hon J. G. Ward and Sir Bobert Stout to the Bank Committee, and published among the documents attached to the report : — PROPOSED SCHEME OP THE DIBECTOBS. Sir,— As requested by you last night, we have now the honour to submit herewith j .proposals for putting tbe Bank of New ' \ Zealand into a Bound position. We would ! respectfully direct your attention to the j following necessary considerations to ■ 1 enable a bank carrying on suoh a large I [ business as Vhe Bank of New Zealand to maintain itß position .— l. The first-class • credit of the institution is paramount, both : to insure the confidence of depositors and to enable it to conduct the vast i business connected with the trade and ; industry of the colony. 2. The removal of • the incubus represented by the attachment ; of the Estates Company to the bank, i whicb, under ezis'ing conditions, mußt appf-ar in the bank's balance-sheet, and is properly a subjeot for attack, and for injurious comments from opposing banking jDstiutions, both in and out of the colony. *3. The importance of the Government Bauk having the confidence of the financi il discount bouses in London. 4. The confidence of the shareholders of the in- . sti tation, whioh, owing to the uncertainty of its financial position, must to Borne extent be weakened, and the goodwill j and active co-operation of- a large bedy of shareholders in such a colonial institution is desirable. Under the existing conditions we regret to Bay that many of the foregoing desirable conditions do not exist. The balance-sheets of the different institutions attached to the bank, whioh are in your possession, will, we apprehend, clearly demonstrate that on August 30 next the placing before the shareholders of the true position of the institution would be certain to have a disastrous effect. In order to enable the bank to be rehabilitated, we would, after 1 anxious and careful deliberation, submit the following proposals : — (A) The capital of the bank iB £2,000,000 "A" Btock, called capital, but in reality and effeot a fired loan on deposit, £900.000 in 100,000 Bhsue. of £5 5s each and 5000 Bhareß of £7 103 each. Besides the above, there is a call of one-third, of which the last- is due on Nov. 25 next. This is estimated to produce £450,000. (B) We propose that the £900.000 capital and the proceeds of the call, estimated at £450,000— total ; £I.3so.ooo— should be applied asfollowB: —£376,900 to writing ofi the existing bad ; debtß of the bank, £200,000 to be put to 9 ' contingency fund for writing off existing debts which may hereafter prove to be irre- : coverable, the balance— about £778,100— to writing down the Estates Company shareß in the bank's books, and to be applied in , the books of the Estates Company in the : wiping off of the deficiency against which no assets exist, and in writing down to : the latest valuation all those assets other • than the freehold properties in New Zealand i and Btock and implements. (C) In lieu j of the £900,000 capital written off, and ; the reserve liability written off and other- • wise applied, it will be necessary for the' ' bank's credit to oreate £1,000,000 of fresh 1 capital, and this we would propose should, be done by the Government subscribing for that amount in preference shares to :' carry a 3£ per oent per annum cumulative : dividend on the amount paid up, payment to be made by the Government for these ' shares in Government securities bearing : Si per cent per annum, payable in London. j Ib will not be neceßßary that the money for these shares should be paid into the bank at once, or tbat the whole of it should !be paid at all ; but that the Bhares should be subscribed for we consider absolutely necessary. We therefore suggest that payment for the Bhareß Bhould be made from time to time as agreed-upon between the bank and the Government, and that the bank may from time to time re-purchase these shareß at a price equal to par value with accrued interest. (D) We would propose to create deferred shares amounting to £1,400,000, ranking at pari passu with eaoh other; these shareß to beisßuedas fully paid up, free from other liability, and to be divided as follows :— £900,000 in 150,000 shareß of £6 each to be issued, share per share, to Buch of the present shareholders as pay up the call on one-third of the reserve liability; £500,000 in shares of £10 each to be held by the Assets Board as hereinafter provided against a poßßible deficiency on the realisation of the freeholds in New Zealand, and stook and implements.; the dividends, when earned, to be payable on these deferred shares, but not without the consent of the Colonial Treasurer, bo long as the £2,000,000 "A" slock is outstanding. The ordinary shareholders of the bank are to remain liable for the whole of the reserve liabilities, and may not transfer the deferred shares without the sanction of the bank. All ordinary shares are to cease to oarry dividends, and after the next half -j early meeting any voting rights of the remaining two-thirds of the reserve liability to be hypothecated to the Assets Board as security for the deficiency, and to be called up as the j Colonial Treasurer from time to time requires ; the estates with their stock and implements and the other freehold properties iv New Zealand, to !he taken over by the Government !at the present book values at which they stand in the books of the Estates Company, and veßted in a Board of Administration, to be called "the Assets Board," and to consist of a chairman and two ! directors, to be appointed by the Govern- j ment, and to receive from Government , 8£ per cent securities, payable in London, j The Assetß Board are to administer and ! realise the assets taken over, and are to j keep an account, putting on the one side— 1 (a) the total cost ; (6) interest payable on , the securities given for the cost; (c) charges, outgoings, and expenditure of the • Board; and on the other side— (a) all pro- ! ceeds from realisations ; (6) all income , from the properties held or other revenue ; (c) proceeds of further calls on reserve liability; (d) dividends on the £500,000 deferred shares; (c) any balance of the £200,000 contingency fund not required to t

make good deficiencies on any present debts due to the bank. Any defloienoy after realisation of properties is to be made good (a) by proceeds from any remaining' reserve liability of tho bank shareholders, and (6) if after that a deficiency should etill remain by pale of so much of the -£500,000 deferred shares as may be requisite. Any of thn fifty thousand deferred shares not required are to be cancelled, and any part of the reserve liability fond not required is to be likewise cancelled, any credit balance to tbe realisation account to go to the redemption of "A" stock. The Government to have tho appointment of one director of tho bank :n addition to the Prosiden -, co long as they hold preferred ehsres. In order to restore tbe bank's earning power the disability, bo faTaa tho purchase by the bank of the business of another bank is concerned, caused by the Aot of 1894, ehould be removed. This is, in our opinion, absolutely imperative. The bank should, therefore, be empowered to purchase the sonnd business and assets of any other bank carrying on business ia the colony. With the inoreased burdens thrown upon the bank, tho of additional stock and the readjustment of capital which is proposed herein, a large addition to the bank's earning power is essential. The only way in which tbis can be got sufficient to enable the bank to make profits, to pay its way and sustain its credit, ia by the scouring of the business of another institution. At present the banis of the oolony are beyond the colony's resources to properly maintain. If the Bank of New Zealand, after rehabilitation, desired to obtain the necessary increase of business to enable it carry on. it could only be done by cutting the rates in order to take accounts from existing institutions. Betaliation on their part would be certain td follow, and the outcome of Buch course wonld be that the earning power of the ! bank could not be inoreased within a reasonable time fco a sufficient extent to enable it to provide for its requirements. In any proposal for tke purchase of another banking institution it wonld obviously be j a oondition that the reeponsibility for bad : and doubtful debts would require to be borne : by the selling institution. As a loss at the present time accrues to the bank through ; the investing of tho large sum of -81,000,000 in Government or liquid securities, in terma of Clause 10 of the Bank of New Zealand Guarantee Aot, 1894, we would propose that thia clause ahould be repealed, aa under the reconstruction scheme unnecessary. We have for several weeks given the various points of this soheme our moat earnest attention and consideration, [ and have satisfied ourselves that no less I help from the Government than the I scheme requires will suffice to plaoe the ' bank on a firm andseoure footing} but we ' are equally satisfied that if the soheme be carried out tbe bank will at onoe be placed in a secure position and on a profit* earning basis, tbat no loss will ultimately accrue to the oolony from the guarantee for* the £2,000,0008t0ck, and that the deferred sharts herein mentioned will earn 5 per cent per annum dividend for the benefit of the shareholders and of the colony.— We have, &c„ W. Wat_*on, President | Wactbb ;W. Johnston, Wm. Booth, T hob. G. | McCaetht, M. Kknnedt, Directors.