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3. Draw up a memorandum ox precis of the same correspondence— -i.e., a brief and clear statement of what passed, not letter by letter, but in narrative form. The precis should include everything material, and be expressed very clearly and as briefly as is compatible with completeness and distinctness.

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 of 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, John Murray, Esq , and the Hon. George McLean, 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—l to 4 inclusive—l should willingly recommend to bank shareholders, but I greatly regret 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 to appoint one director to the combined bank." 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 a 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 2—E la.