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LVIII

the Government on the matter, and beg to request that you will arrange for a conference at the earliest possible time which will be convenient to the- Government, and inform me, so that the board may duly attend. I have, &c, The Hon. the Colonial Treasurer, Wellington. W. Watson, President. [Note. —The balance-sheets enclosed appear in Exhibit No. 49.] Parliament being then in session, on the recommendation of the Government, and with the approval of the bank, a Joint Committee of both Houses was appointed to inquire into the position of the bank and the Estates Company. This Committee reported on the 28th August, 1895 : — "There is a deficiency in the bank of £376,900, and a contingent dependency of £200,000. " There is a deficiency of £467,077 in the Estates Company, against which no assets exist, and a further deficiency of £444,601 in trading concerns, and properties outside New Zealand. These altogether amount to £1,488,578. Of this sum, £148,110, though shown as a liability, is really a debt due by the Agricultural Company, and represented by assets. Deducting this from the aforesaid sum of £1,488,578, there remains £1,340,468. This is provided for as follows : — £ Capital, bank ... ... ... ... ... ... 900,000 Estimated amount of call made ... ... ... ... 450,000 £1,350,000 leaving a balance of £9,532, which goes to a dependency account." They recommended that " the colony should render such assistance to the bank as will restore confidence, insure stability, and enable it to carry on its business in a satisfactory and profitable manner." To carry this recommendation into effect, they advised that legislation should be introduced to transfer the whole of the freeholds, leaseholds, stations, stock, and implements belonging to the Estates Company to a Realisation Board to be established for that purpose ; that the Board should be authorised to issue debentures for £2,734,000, bearing 3J per cent, interest. Such-debentures were to be handed over to the Bank of New Zealand, and the deficiency, if any, thereon, after realisation of the Estates Company's properties, guaranteed by the colony to the bank. Further important recommendations were made by the Committee to protect the interests of the colony, these are contained in the Committee's report (Appendix, 1895, 1.-6). The Bank of New Zealand and Banking Act, passed on the 4th September, 1895, gave legislative effect to the Committee's recommendation. THE PURCHASE OF THE COLONIAL BANK. Some negotiations for amalgamation of the Bank of New Zealand with the Colonial Bank took place as early as 1889. Nothing, however, was then done, and the subject seems to have dropped till 1894, when the National Bank was approached by Mr. John Murray on behalf of the Bank of New Zealand. His proposals were not favourably considered by the National Bank, and the negotiations fell through. Mr. Murray then turned his attention to the Colonial Bank. The Hon. G. McLean, chairman of directors of the Colonial Bank, appears for some years past to have advocated the amalgamation of the businesses of several New Zealand banks, so as to form one strong bank for the colony. When consulted on the subject of the proposed Share Guarantee Act of 1894, he advised the Government not to uphold the Bank of New Zealand, but to take the Colonial Bank as the bank for the colony, and through its agency to liquidate the Bank of New Zealand. This proposal was not adopted. Shortly after the banking legislation of 1894, negotiations for the amalgamation of the Colonial Bank and the Bank of New Zealand began in earnest. These culminated in an agreement, which was forwarded to the Colonial Treasurer on the 11th September, 1894, and subsequently laid on the table of the House. These proposals contemplated an amalgamation between the two banks, but not the purchase of one by the other. On receipt of this agreement the Treasurer wrote the following letter : — Colonial Treasurer's Office, Wellington, The Hon. the Premier. 12th September, 1894. I received last night the attached proposals for an amalgamation between the Bank of New Zealand and the Colonial Bank. Since the colony guaranteed £2,000,000 to the Bank of New Zealand the whole matter has given me the greatest concern and anxiety, not so much on account of the guarantee to the bank proper, but on account of the position of the Bank of New Zealand Estates Company. Attached to the bank as it now is, it will, in my opinion, render it impossible for the bank to extricate itself, even with the colony's guarantee, and must, if not now dealt with, call in the future for further substantial aid from the colony. If the Estates Company is left under the same control as the bank itself, the duties of the President, Auditor, and Colonial Treasurer will be greatly interfered with, —and, indeed, I may add that, in my humble opinion, the Treasurer's life would not be worth living. To insure himself against the possibilities of disaster in the guarding of the £2,000,000, he would require to know almost every detail of the way in which the two concerns —namely, the Estates Company and the bank itself—were operated upon, otherwise the possibility of a loss in either of being transferred or even absorbed by the other would be not only easy to do, but exceedingly difficult over so huge a concern to detect. No President or Treasurer would feel safe (where two large businesses, conducted ostensibly as two establishments, but in reality one) in assenting to the investment of the funds guaranteed by the State. I recognised at the time, and stated so in the House, that the Government would take steps this session to separate the Estates Company from the bank. How to effect this has been the difficulty to solve, and day by day since the House passed the bank legislation it has engaged my