LVII

1.—6

be removed from London to Wellington, and authorised the calling-up of £500,000 of the shareholders' reserve liability. The Government were also empowered to appoint the President, with a power of veto, and the Auditor. An amendment Act was passed later in the session authorising stock to be issued instead of shares. Mr. Hanna, in his evidence before this Committee, stated that he furnished a report to Mr. Murray on the 9th June, 1894, giving in detail the position, pointing out that the deficiencies in the Estates Company, including the deficiencies in the London balance-sheet (£200,000), amounted to £1,175,561, and recommending that application should be made for Government assistance. Mr. Murray, however, states that he does not recollect having received this memorandum. Beyond the assurance that there was " a big hole to fill," the Government did not obtain information as to the financial position of the Estates Company, and, seeing the important bearing it had in respect to the Bank of New Zealand, the Committee are of the opinion that it was essential that information should have been insisted on by the Government and the Committee of the Legislative Council, and that the withholding of this information, if intentional, was reprehensible. Had, however, fuller information been obtained at the time, it would not have been sufficient reason for the Government to refuse to assist the bank. From detailed information now in possession of the Committee, they have no doubt that the action taken in assisting the Bank of New Zealand in 1894 was a prudent one, and that by so doing a national disaster was averted. It was not then practicable, in the short time at the disposal of Parliament, to pass legislation finally dealing with a subject so intricate and so difficult as the separation of the Estates Company from the bank. 1895. In consequence of discoveries made at the end of the previous year by the President and directors of the bank, assisted by the Government Auditor, Mr. Butt, it became apparent that the position of the bank was even worse than had been previously represented, and the directors deemed it necessary to bring the matter under the notice of the Government. On the 23rd July the President wrote to the Colonial Treasurer as follows :— Sir,— Bank of New Zealand, Wellington, 23rd July, 1895. I have the honour to hand you herewith balance-sheets of the Bank of New Zealand, the Bank of New Zealand Estates Company, and the Auckland Agricultural Company, as of 31st March, 1895. You are aware that the Bank of New Zealand Estates Company is entirely owned by the Bank of New Zealand, and the £750,000 debentures of the Estates Company guaranteed by the bank. In like manner the Auckland Agricultural Company is owned by the Estates Company, and the debentures of the Agricultural Company guaranteed by the bank. In the remainder of this letter, therefore, the term "Estates Company" will include the Auckland Agricultural Company. I have also, with much regret, to enclose a letter, dated yesterday, which I have received from the Government Auditor of the bank for the colonies, and to state, with the concurrence of the other directors, the true position of the bank, involved as it is with the affairs of the Estates Company. In the bank itself there are £3,085,296 represented as assets which are entirely unremunerative, £1,850,000 of this amount being shares of the Estates Company, and £1,235,296 consisting of other debts, of which £376,898 are irrecoverable, and others are of so doubtful a character that the board consider provision to the extent of £200,000 should be made for them to place the bank in a thoroughly sound position. In the Estates Company there is a deficiency of £472,938, which sum is not represented by assets at all, and is altogether apart from the book-values of the properties and other assets. Besides the amount of £3,085,296 above mentioned, there is amongst the debts due to the bank at 31st March the large sum of £1,442,000 due by the Estates Company, on whose debit balances it has hitherto been the custom to charge interest at the rate of 5 per cent. —a charge which, owing to the recurring yearly deficits accruing from the working of the Estates Company, the board do not feel justified in continuing any longer. The severest economies have been introduced into both the bank and Estates Company — economies which, with other adjunctive measures instituted, are calculated to produce, without impairing efficiency, no less than £85,000 annually to better the results of the two concerns ; but, whilst the magnificent portion of the business which is sound might enable the bank to stagger along under its load, the entanglement with the Estates Company is such that, without severance from it, the bank can no longer carry on. The board of the bank have given lengthy and careful consideration to the whole matter, and, in view of the report which they will have to present to shareholders at the annual general meeting in August, have decided to request the Government to take steps to prevent disaster. In the opinion of the board it is imperatively necessary that action should be taken by the Government by way of further legislation, to be declared before the shareholders' meeting takes place; otherwise the necessary disclosures would imperil the existence of the bank and the safety to the colony of the £2,000,000 stock guaranteed by the Government, besides rendering any subsequent efforts to save the bank and the good-will of its really valuable business very problematical. The board consider it their duty to point out to you the widespread ruin and disaster which, by deterioration of values and impossibility of sales, would be caused to kindred institutions and all classes of the community, let alone numerous shareholders of the bank, if the business and assets of the bank and the Estates Company should be exposed to immediate or even protracted liquidation. Such a calamity, they think, would result as has never yet been experienced by any British colony, and such they are convinced that prompt and judicious legislation would now avert and render altogether unnecessary. To this end I and the other directors are anxious to confer with viii—l. 6.