BANK OF SEW ZEALAND

Wanganui Herald, Volume LIII, Issue 160797, 3 November 1920, Page 6

BANK OF SEW ZEALAND

THE GOVERNMENTS PROPOSALS TEE BILL PASSE!}. , (Per United Press Association.) WELLINGTON, Nov. 2. ' In moving the second- reading of the ■: (Bunk of New Zealand Bill in the House . this afternoon, the Prime Minister said . that so far as he had seen, with one j. exception, there had been no adve-se 1- criticism of the proposals. He pro- : ceeded to place on record the history . of the bank from the time of its foundation to the present date, includi ing the difficulties which led to the. Government coming to the assistance of the bank in 1894. He recalled that , of the members who were in the House on that, date ? cnly two were row mem- ■ - bers—the Speaker (Sir Frederick Lang) - and himself—while two others. Sir Wm. Fraser and Sir Francis Bell, were members of the Legislative Council He remembered well the passing of the Bank . of New Zealand Guarantee Act. The House met on the 22nd June, and they ■ were asked to deal with the Bill on the 29th June as a matter of urgency. The Act authorised the issue of a further tvo millions of capital, guaran- | teed both as to principal and interest ■. by the Government, also a call of £3 6s 8d was made on 150,000 shares. The Prime Minister referred to the various steps made in recovery by the bank, , and especially the splendid success which attended the work of the Assets Realisation Board, which was enabled- in a few years to pay 20s in the £ and re- , turn some of the assets to the bank.' That was due in a large measure to ; the fact that the separator and refrigerating machinery came into general use, enabling our products to find a better market. The present position of the bank was that it possessed in capital, reserve fund, and undivided profits a total sum of .£5,426,212. That was a splendid position for the bank. During - the last few years the bank had been on the top of the wave of prosperity which had been experienced by the whole of the country. They hoped it would continue to prosper. They were taught to expect that history would repeat itself, and they would experience adversity in the future, but tho hi nk was now in a position, to meet adverse conditions. For the year ended March 31st last the hank paid in taxation : Income tax, £272,037; note circulation tax, .£146,068; and land tax, £17,123; a total of £435,288. For the same year the Government received in dividends on its A and B shares £93,759. The rate of interest on debentures issued for the payment of A shares was 31 per cent., and for B shares (costing £375,000) 4 per cent. The total interest paid by the Government on debentures was £52,500, leaving a net annual profit from shares of £61,230. The Government tl/as received by way of taxes and net dividends from the bank a sum of £436,533. In addition the bank paid £7630 in mu- • nicipal rates. He explained that banks were not taxed upon their profits in the same way as ether ordinary commercial houses, but upon the total busi- * ness done. The bank at present paid about 30s per cent, on its business, and on/its last year’s profits it paid £140,000 moie than if it had been taxed on the same basis as . a commercial house. Debentures issued by the Government in payment of B shares had not been sold, and the bank had since their issue written down their value by £120,000. The price paid, for these shares, including a premium of £125,101, was £375,000. The. total number of shareholders in the bank was 3100, of whom 1700 were resident in New Zealand. Of those in Great Britain 6CO had been on the registe • since as far back qp 1895. From 1895 to 1901 ordinary shareholders received no dividends, though substantial profits were being made, as every effort was being made to build up a reserve. Dividends commenced at 0 per cent, in 1902, and had risen to 17£ per cent, for last year. Overdrawn accounts of the bank under £3OO number 7530, and between £3OO and £SOO J339, equal together to 68 per cent, of the total cf overdrawn accounts. This was a contradiction of the impression held by some that the bank did business mainly with wealthy persons. Without wishing to make any invidious comparisons, the Prime Minister said he congratulated the Commonwealth Bank and the Commonwealth upon its connection with that bank, but •so far as he knew the State had not drawn anything in dividends from that bank, nor in taxation. The Prime Minister quoted instances of the issue of new shares, fully paid up, by British banks in recent years to show that there was ample precedent for the course at was now proposed should be taken by the Bank of New Zealand, dated 22nd June, in which proposals were submitted to the Government, and from which negotiations proceeded. The general ;■ manager set out the strong financial position which the hank had attained since 1914, and which led the directors to believe steps might now he taken to reinstate jmrtion of the capital written off. A strong position had been reached by limiting dividends and transferring large sums from profits to reserves. The directors believed that portion of the reserve, which stood at £2,500,000, should be applied to reinstating portion of the capital written off on a basis which would be just to ordinary shareholders and the Government alike. At present the Government had a one-seventh share in the bank and a first charge on the revenues of the bank, represented by its A preference shares. The proposal of the directors was that the Government should he enabled to participate in a proportion of one-third in the future profits of the hank. It was proposed to increase the total capital to £3,375,000, made up as follows: —A shares .£500,000, J3' shares £625,000 (at present £250,000), ordinary shares £2,250,000 (at present £1,500,000). The total amount paid in dividends last year was: A shares £50,000, B shares £43,750, ordinary shares £268,720. The rate on A : shares was 10 per cent., and on B and ordinary shares 17% per cent. When distribution was made the bank would he able to pay in dividends £356,250. The Government

would receive £112,250, and this, deducting the amount paid in debenture interest, would yield a net , profit of £77,500. The dividend on preference shares would be fixed at 10 per cent, instead of being liable to diminish to five per cent. The Government would have the right to a return of capital represented by £625,000 instead of £250,000 in profits distributed over £306,250. The Government would share in the proportion of one-third instead of one-seventh. In the la§t Seven months, the Prime Minister ed, the funds held in London had been reduced by about £10,000,400. There had been a contraction in note issue of 1% millions up to August of this year. Money had been coming into New Zealand all" the time from produce sold to the Imperial Government, most of which was paid for while it was still in store. During the last three, months very little had been coming in. That position would now commence to improve, The fact that cheese could now be shipped up to 100,000 crates per month would be a great help. Each crate of cheese represented about £9. Funds held by the bank in London had enabled the bank to medtr the requirements of its customers in London, and also by exchange . with other banks to meet the requirements of their customers. The amount of reserve that was being distributed was £1,125,000, and of this the- Government was receiving one-third instead of one-seventh, to which it would be entitled according to its share in the bank. It would receive £375,000, which was roughly £214,000 more than its share according to its holding. Mr Wilford: Tell us what the shareholders are getting. * The Prime Minister: They are getting their shaye, but, from our point of view it is a very fair arrangement. The Government holding of shares would be increased from one-seventh to one-third. The last dividend to ordinary and B shareholders was 17'% per cent., and on the distribution of returns it would ,be 11 1-3 per cent. Under the proposal for the distributing of extra dividends if the profits increased by £300,000 over the amount in which the Government would commence to share at the rate of one one-third, the Government would receive*£l43,7so, or 31-105, and ordinary shareholders would receive £462,500, or about two-thirds. The additional revenue from the bank was estimated at about £20,000 per annum The Prime Minister read letters from the auditor of the bank, the Secretary to the Treasury, and the Attorney-Gen-eral, approving the proposals. He then proceeded to explain the details of the Bill, which have already been telegraphed. , , „ . , Mr Wilford said he had listened carefully to Mr Massey’s speech, and he had listened in vain for. any hint as to what the shareholders were getting out of the transaction. He had seen many Bills introduced into Parliament, but he had never seen one yet that, if it offered something to the State, someone else was not getting something out of it. Mr Massey: They are getting their position stabilised. Proceeding, Mr Wilford recounted the incident when the country came to the rescue of the Bank of New Zealand in 1834, claiming that it was the statesmanship of the late Mr SeJdon then which made it possible for Mr Massey to make the speech which he had made that day. , Mr Massey: I frankly acknowledge that. ' . . , Continuing, Mr Wilford pointed out that* these banking bills always appeared to be passed in a rush. The blame was all on the side of the Government, for the Premier had read a letter he had received from the general manager of the bank on 22nd June last, which pointed out the advisability of this legislation, but the legislation was only coming down now. In further criticising the Premier’s speech, he said that the Premier’s remark that the Bill would “democratise” the bank was the “veriest political eye-wash,’ because the principal shareholders would mop up all the available shares, and no new blood would come itito* the bank at all, T-he Premier had said this Bill would increase the Dominion’s share in the bank from one-seventh to one-third, but so far as he could see there was no proposal to increase the country’s share of control- This g should certainly be done, and done in this Bill. The qualification for the directorate (£4000) was too high, and was certainly not calculated to democratise the bank. Again, the holding of Single shareholders had been increased from £6OOO to £60,000. Was that calculated to democratise the bank? The public,' he declared, would not get a “look in” under the Bill, because the shareholders would get the lot. This explained, why there had been such big speculation in parcels of Bank of New Zealand shares during the past few months. He wanted to see some provision made for the men who went bankrupt through having Bank of New Zealand shares in the bad old days of the past. He asked if we had no moral responsibility to these men? He also wanted _ to see a clause inserted in the Bill to increase the pensions yof men who gave the best of their lives to the bank in the days of its adversity, and who retired on pensions much too small to meet the necessities of The moment. Mr Craigie criticised past balancesheets of the bank, in which he contended there was a good deal hidden in order to put a good face on the position; He also complained that while it was proposed to increase the remuneration of the directors, the rank and file of the staff was too poorly paid. Many young men in the service of the bank were unable to marry and indulge in the luxury of a family because they could not afford it. That was not as it should be, and he hoped the uosition of -the staff would receive proper consideration in view of the enormous profits the bank was-making. Those profits were, such that if- the directors had chosen the bank could have paid 25 per cent., but they did not choose to do so. - Depositors should get credit for deposits and we should, insist on hanks in New Zealand doing as many Scottish banka did, pay on the. daily balance,. The Bank of

New Zealand was a good paying institution, but the Government should not lie associated with any institution run purely for the benefit of the shareholders. It should be run as the Bank of France was. for the benefit of the people. He had ah open mind on the question of a State Bank. He wanted trie fullest information on the subject, arid with the object of securing that information he proposed to move the following amendment;" That this House is of opinion thato the Government should vet up a special .committee, representative of the commercial, agricultural and industrial classes of this House, to inquire into (1) the relationship between the State and the Bank of New Zealand-as now 7 existing, and to submit recommendations as to the manner in which the present capitalinterest could , be best adjusted with a view of promoting in the most effective manner the permanent interests and the future prosperity of the Dominion; (2) the desirability of the Government taking steps to have the hank State owned and managed, and, if desirable, what terms and conditions would be fair and reasonable in the interests of the State and private shareholders; (3) whether it is desirable in the interests of the State to establish an independent State Bank and, if so, what proposals ori .steps should bo adopted; (4) that the committee report to the House next session of Parliament. ‘ Mr Veitch contended that the country would not get any great benefit out of the Bill. The bank had -power to issue shares dealt with under the measure by the legislation of 1913, but what tho Bill did was to allow the hank .to use up some of its accumulated profits in the issue of new shares. The country would get its cut out of the plunder because it would get an increase in its holding, but that was nothing new, because under existing legislation it could get that now. Shareholders, however, were in a different position. They held shares valued at £3 6s Bd, on which they were getting 15 per cent. They were to be allowed to pay another £3 6s 8d in cash, on which they presumably got another 15' per cent. They were to he presented with another £3 6s 8d out of the* profits of the bank. That was the uosition, so he was not disposed to accept any picture painted by the Premier. Mr Massey: You are off the track, anyway. The discussion was interrupted by the 5 30 adjournment. The House resumed at 7.30. The- Speaker ruled that an amendment could not be moved at the present stage, but it would be in order after Ihe second reading. Mr, Downie Stewart said it seemed some of the criticisms of the Bill indicated that speakers were not possessed of a full appreciation of the effects of the Bill’s proposals. The position was that the Government owned one-third of the capital of the Bank, but was only entitled to onessventh of the reserves accumulated ficni profits. Under the Bill the Government was to get a qne-third interest in these reserves. Thus the Government was making a good bargain if the change was made, ihe suggestion that the public should have a look in was hardly justified because the adjustment proposed affected only the accumulated funds earned by the Bank, and not the new issue of capital. It might almost as well he suggested that a member of Parliament rejected bv the electors at the last election should gst a “look in” at the increased honoraria which the House had smee voted itself. „ , , _ . Mr McCallum said the Bank’s first com sideratibn ’ should be for depositors. If their interests were not protected by the Bill, then there was something wanting in it. If shares were made smaller so that they may be more widely distributed among the people, it would make for greater strength. Mr Savage urged that the time had arrived for-the establishment of a State Bank wholly controlled by the Government of the country. The present purpose of banks was to find dividends for shareholders. He quoted.the example of the Australian Commonwealth Bank as a successful State hanking institution. It would be a good thiug to utilise the Post Officfe Savings Bank as the nucleus of a State Bank, to. which full banking functions could .be extended by legisla-" tion. Mr Lysnar supported _ the Bill as a sound business proposition for the Dominion. He protested against the action of the head of the Bank decrying the prospects of the Dominion’s products as had been done. A voice : He gave good advice. Mr Lysnar said it was no part of this gentleman’s duty to talk about a slump coming or, being here already. Fluctuations in markets were sure to come, hut he did not think the country would suffer. He had not heard of any bank refusing to give a client a square deal. Dr Newman, supported the. Bill, hut urged that the Bank’s powers to. issue notes should be strictly limited. Mr Atmore contended' that banks should be compelled to pay interest on free deposits as was done by the Post Office Savings Bank, which held a greater amount of such money than all the other banks in the Dominion. The Bank of New Zealand was practically a State Bank (it had the credit of the country behind it). If we had a capital levy and a larger share in the conduct of this Bank, the country would" soon find its financial affairs put in the soundest position. , Mr McCombs said he Would heartily support the suggestion of the member for Auckland West that the time had arrived when there should be a State Bank to assist our primary and secondary industries, and to assist the commercial life of the country, instead of parasitical institutions like the existing

banks. He supported Mr Craigie’s amendment, because he felt that this Bjll was being rushed through, and was being accepted because of the misleading explanatory , memorandum which was issued with the Bill. The Bill was then read a second time on the voices, and the House went into committee. • Mr Craigie asked the Premier if he would have an opportunity of moving the amendment of which he had given notice. Mr Massey said he knew the spirit ,in which the amendment was moved. He knew Mr Craigie was not hostile to the Bill or to the Governriient. he was simply after information, and he saw no reason why he should not get it. He, therefore, . suggested that when they came back next session they should put their heads together and set up a Parliamentary Committee to go into " the whole question. Mr Craigie asked if the Premier could not see his way to set up a committee this session, and let the committee do its work during the recess, so that the information would be available for the House when they met again. Mr Massey greatly deprecated the suggestion, and assured Mr Craigie that he could rely on the Government to do the right thing;. _ - Mr Craigie accepted this, and Mr Holland then said he proposed to divide the House on the first clause, his reason for .doing so being a desire to affirm the desirability of establishing a State Bank. On a division the clause was carried by 57 votes to 8. The Premier moved a new clause, giving the Public Trustee power to hold an unlimited number of shares in the Bank. Mr Wilford asked if this would give the Public Trustee power to buy up shares. Mr Massey explained that he would have power to buy up shares with money held in trust. Mr Wilford: Then it does not go far enough. The Public Trust should have power to invest some of its large profits in the Bank of New Zealand, and so help to “democratise” the institution. Mr Atmore endeavoured to get the Premier to pomise that the Minister of Finance or some other official should Have power to buy up shares, but the Premier said that was a matter of policy that required consideratiori, and he declined to be driven up in a comer about it, . The Bill was then passed with this single amendment, and the amendment was agreed to. The Bill was read a third time and passed.