PROPOSED AMALGAMATION OF BANK OF NEW ZEALAND AND COLONIAL BANK OF NEW ZEALAND.

Appendix to the Journals of the House of Representatives, 1894 Session I, B-26a

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1894. NEW ZEALAND.

PROPOSED AMALGAMATION OF BANK OF NEW ZEALAND AND COLONIAL BANK OF NEW ZEALAND.

(FURTHER CORRESPONDENCE.)

Laid upon the Table by the Hon. Mr. Ward, with the Leave of the House.

No. 1. The Hon. the Colonial Treasurer to John Murray, Esq., and the Hon. George McLean, Wellington. Gentlemen, — Colonial Treasurer's Office, Wellington, 22nd September, 1894. I have the honour to acknowledge the receipt of your joint letter of the 11th instant, covering proposals for an amalgamation between the Bank of New Zealand and the Colonial Bank. In reply, I have to state that the matter has received the careful consideration of the Government. Without in any way committing the Government to any fixed course or approval of the proposals, it will be necessary— 1. If any legislation is undertaken by the Government, that it shall be of a permissive character, to enable the Government to be satisfied, before assenting to an amalgamation, that the general interests of the colony are conserved and protected. 2. That, in addition to the scrutiny which is proposed in the memorandum of agreement, the Government to appoint a special representative or representatives, independent of either bank, to examine and report to the Government on the various accounts and assets proposed to be dealt with. 3. The shareholders of each bank to be responsible for and to make good all losses on existing business that is not passed by the colony's valuers. 4. That, upon the expiration of ten years, the profits of the combined bank shall still continue to be paid to the Estates Company, until any deficit in the winding-up of the Estates Company is liquidated. The Government lien upon the interests of the shareholders in the Bank of New Zealand to be continuous until all liability to the colony is at end. 5. The Government to nominate a chairman and two directors of the Estates Company, and the shareholders of the Bank of New Zealand to nominate two directors to the same, the said Board to have full control over the uncalled capital of £1,500,000 of the Bank of New Zealand shareholders. 6. In addition to the appointment of a president and auditor to the Bank of New Zealand, the Government to appoint one director to the combined bank. I should like to have your reply to the foregoing before noon on Monday. The Government will then further consider the matter, and decide what course they deem it desirable to take. I have, &c, J. G. Ward, Colonial Treasurer. John Murray, Esq., and the Hon. George McLean, Wellington.

No. 2. J. Murray, Esq., to the Hon. the Colonial Treasurer, Wellington. Sir, — Bank of New Zealand, Wellington, 24th September, 1894. I have the honour to acknowledge receipt of your letter of 22nd September having reference to amalgamation of the Bank of New Zealand and the Colonial Bank of New Zealand, and setting forth certain supplementary conditions as necessarily precedent to any action therein by the Government. These conditions — 1 to 4 inclusive — I should willingly recommend to bank shareholders, but I greatly regret that I cannot say so of Nos. 5 and 6, nor do I think that even were I to recommend them, the shareholders in the Bank of New Zealand would entertain them. It will probably make the position more clear if I begin with 6, which is that, " in addition to the appointment of a president and auditor to the Bank of New Zealand, the Government toappoint one director to the combined bank."

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In considering this stipulation, I would ask the Government to bear in mind that Bank of New Zealand shareholders are responsible for the future of the bank not only to the extent of their large paid-up capital, future profits without limit of time, and reserve liability £1,500,000, because, under the terms of the provisional agreement, 4 per cent, is to be debited to the Estates Company on account of the large item "Share Account," and in consideration therefor surplus profits after a dividend of 6 per cent, and £20,000 to reserve, are to be returned to the Estates Company, Now, should there be ineffective management the consequences would appear in the amount of surplus to be paid over to the Estates Company, for the outcome of which shareholders are liable in the great sums I have named; while, with only four directors on the new Board to the Colonial Bank three, and a director and the president (also a director) nominated by the Government, Bank of New Zealand shareholders would be in minority—though primarily liable for results, would be at the mercy of persons not of their appointment and beyond their control. It is of the essence of the arrangement embodied in the Share Guarantee Bill that the shareholders should, by directors of their own appointment, manage the bank, the Government maintaining audit and power of veto on objectionable business. To take the ordinary management out of the control of shareholders, while yet holding them responsible for its results, would, I feel sure, be regarded by them as inequitable. The explanations I have given above will serve to make clear the reasons why clause 5 also would not be assented to. Shareholders, being held responsible to the extent of over £2,000,000, cannot, I submit, be reasonably expected to part with the control of their property to a person in whose selection they have no say, and hand over to him the power to make calls upon them. Clearly, as between two directors appointed on each side, the chairman would exercise, at least as regards the shareholders, supreme power. At the same time I feel sure there will be no objection made to the Government taking an effective part if they wish in the management of the Estates Company. In conclusion, I desire to point out that an erroneous impression has been disseminated that legislation is in some way necessary to free the bank from the Estates Company. Except as a condition of amalgamation made by the Colonial Bank there is no such necessity. It is already a separate company, and separately administered, though to a large extent under bank control. As to its being a burden on the bank, it is only so in the sense of being a burden on bank shareholders, which it must of necessity remain till it be liquidated, unless the colony were to relieve them, which nobody proposes. I have, &c, The Hon., the Colonial Treasurer, Wellington. John Murray.

No. 3. The Hon. G. McLean to the Hon. the Colonial Treasurer. Sir, — Dunedin, 24th September, 1894. I have the honour to acknowledge the receipt of your letter of 22nd September, and have submitted the contents to my colleagues here. In reply lam desired to state that the conditions imposed by you make the scheme such as we could not recommend to our shareholders. Taking the clauses of your letter seriatim, — 1. We do not object to the permissive character of the proposed legislation. 2. We have not the slightest objection to your appointing representatives to examine the condition of our accounts and assets, and refer you to our letter of 20th July. When applying for a share of the Government account we specially asked the Government to do this before giving us that share. 3. This stipulation is all right, and was fully provided for in the agreement so far as the scrutiny by the other bank was concerned. We have no objection to its application to the suggested further scrutiny. 4. This so vitally affects the interests of our shareholders that we will not under any circumstances agree to propose it to them : it would be an invitation to spread the realisation of the Assets Company over an indefinite period, and would make our shareholders' dividends responsible beyond what can fairly be asked or was ever intended. This bank will have no voice in the management or realisation of the assets. Begarding the Government lien on the interests of the present shareholders in the Bank of New Zealand we can raise no objection. 5. This does not immediately concern us. 6. The powers possessed by the Government under the scheme submitted and under clause 2 above —namely, a President with a power of veto, an Auditor, and a preliminary scrutiny of assets and accounts to be made by a Government representative, on whose report the acceptance by the Government of the whole scheme will depend—must be held to be sufficient. It is obvious that the presence of a nominee of the Government on the Board would detrimentally affect the business of the Bank. Einal clause : The assent to amalgamation on the part of the Colonial Bank would greatly depend upon the shareholders being represented in the amalgamated institution by men in whom they had confidence. Without this guarantee there would be little prospect of obtaining the necessary consent. The attitude which the directors at the general meeting on Wednesday must take up with regard to the proposed amalgamation will evidently so largely depend upon the answer which we receive to this, that I must ask you to reply as definitely as possible on the whole affair not later than noon to-morrow. I have, &c, The Hon. the Colonial Treasurer, Wellington. Geo. McLean.

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No. 4. The Hon. the Colonial Treasurer to John Murray, Esq., Wellington. Sir,— Wellington, 24th September, 1894. The Government have carefully considered your communication of to-day, and in reply I have the honour to inform you that they cannot see their way to depart from the conditions named in my letter of the 22nd instant. I have, &c, J. G. Ward, J. Murray, Esq., Wellington. Colonial Treasurer.

No. 5. The Hon. the Colonial Treasurer to Hon. G. McLean, Dunedin. Sir,— Wellington, 24th September, 1894. The Government have carefully considered your communication of to-day, and, in reply, I have the honour to inform you that they cannot see their way to depart from the conditions named in my letter of the 22nd instant. I have, &c, J. G. Ward, The Hon. G. McLean, Dunedin. Colonial Treasurer. Approximate Cost of Paper.— Preparation, not given; printing (1,375 copies), £2 2s.

By Authority : Samuel Costall, Government Printer, Wellington.—lB94.

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