Boom and Boomers.

Ashburton Guardian, Volume XIV, Issue 2894, 9 February 1893, Page 2

Boom and Boomers.

(New Zealand Herad.) J (Continued). The Freehold Investment and Banking Cwmptnf was a Drtvies institution, Its assets were set dowi at £1,982,733. r)h« nominal capital was £10,000,000, in 40,000 £25 shares, of wh'ch £272,461 was paid Uf>. Sir ftlatth«w Davus, J. IS. Davies, ' and J. Moodie held £1,000,000 worth of shares, on which they m-ver paid utiu farthing. The total receipt* of t!i company ainuuaieu ro £212,583, and tin uxpendituiv to £371,15 J. Yet the directors declared hve halt yearly dividends, ab Morbing £111,148 out ot the deposits. Mr Ji-hn Munro owed ihn bank £160,000, with £38,000 interest. H* had bought laud from die bank with its own money, .iiid the proceeJs of this were set down nn profit.- There *»«« a fieticiuncy of t'1,019,27>. The shrinkage in the value uf properties was £300,000, and in share investments £1,000,000 At the last hill-yearly meeting the directors represented that a profit of £21,000 had accrued during the preceding six months. Out of this they declared a dividend of eight per cent., and carried £5000. to the reserve fund. (Shortly afterwards the company was hopelessly insolvent, with a deficiency of £90,000 even after confiscating the entile capital and deposits. Many of the properties were sold to notoriously bad marks. Mi John Munro ha j made a pretended purchase from the company of the La Rose estate, on which he never paid a penny. Yet the directors entered in the books a fictitious profit of £53,000 on this transaction. This Davies Company also made fictitious siles to another Davies Company, the Melbourne Property Company, and took credit for large profits. It bought land from another Davies Company without paying a shilling, and the latter, when it failed, took credit for a pretended protit of £150,000. The whole business was confined to a few speculators. Even after the boom collapsed, the direct era continued to effect bogus sales, representing fictitious profits. Is it any wonder that when a £1 call was made upon 60,000 shares, it only realised £6000? Perhaps the biggest swindle of all was thd Mercantile Bank. Its very name was deceptive, because it conveyed the idea that the operations of the institution would be confined to safe commercial business, and would eschew risky speculation iv the land boom. We shall presently see how these expectations were ialsified. Sir Matthew Davies, who dominated the bank, at once entered upon a series of the most astounding transactions between this institution and others which ha controlledll In fac', subsequent disclosures proved that the Mercantile Bank was real'v started to buttress up those other sh».>j> concerns, by means of bogus exchanges and advances; The bulk of the advances were made to companies in which Sir Matthew Davies was a large shareholder, and which were at the tiii,e practically r insolvent. At the end of February, 1892, the directors declared a dividend of eight per cent., and a glowing report was presented to the shareholders. Sir Matthew declared that with the exception of one smill advance to a director, for whJGh he could give his cheque next day, no other director had personally obtained au advance (com the bank, that he himself, though a large shareholder and depositor, had never received a shilling of the bank's money, had a biil discounted, or git an overdraft, and 'hat neither tho Real Estate Hank nor the Colonial Investment Company owed a penny to the Mercantile. Six days later, namely, on March 5, the Mercantile B.»nk suspended payment, *nl it transpired thai tho dividend had been paid out of the depositors' money, and that, the institution was h pcK'ss'y oankrupt. Sixteen days pricr to this Sir Graham Beiry, just arrived from ISugland, wih all his hlushins? honors thick up ;n him, was put up lo do somo rallying, and many people were induced to buy shares. Liquidators were appointed on July 11, and their interim rereport was a startling revelation. Out of advance* amounting to £1,830,000, £835,000, or 4ojper cent., had bee;i lost. The shareholders who had paid up £400,000 would, when the unsubscribed capital was called up, stand to k.se between £750,000 and £1,000,000. Eighteen institutions with which Davies was connected had received advances ti> the amount of £659,789, out of a total of £1,830,328, and the estimated loss on the Davies advances was £512,117Moodie, another director, had guaranteed £13,000 overdraft to Arm[ sttong, which money was afterwards transferred to the credit' of Moodie, in reduction of his own overdraft of £59,615. J. B. Daves, another director, owed the bank £66,151, on which the estimated loss was £38,991. Three institutions known as Gascoigne and Co., the Gascoigue Investment Company, and the Gascoigne Trust and Agency Company (afterwards called the Victorian Trust and Agency Company), in which Sir Matthew Davies held 325 000 shares out of a total of 400,000, owed the Mercantile Bank £101,295, on which there was an estimated loss of £62,752. The Australian Mortgage and Finance Company was debited with an overdraft of £30,175, £18,000 of which it had paid over to the Colonial Investment Company. The Henry Arnold Company, another Davies concern, had sjld shares to the value of £8000 to tho Mercantile Bank. Tha latter resold these to the Gascoigne Company (Davies) for £13,250, but the alleged protit was somehow paid over to another Gascoigne Company. J here was a special open account in the Mercantile Bcnk's books on which the manager speculated, and he actually bought that bank's shares with its own money in order to boom the p:c rs. At tho meeting held in October la-. , :.!> Ducker, the liquidator, reported thao the last dividend was paid out of deposits, the profits being shown by writing up interest on accounts known to be bad^ Prjoi l-> issue of the balance-sheet, some of the Davies banks were insolvent, a fact which was ponpealed from, the shareholders. Mr Ducker thought the Melbourne directors had used the London directory as conduit pipes to convey the money, of the deluded English depositois. Everybody connected in any way with the bank, evan its solicitors, had been accommodated with advances. This led to criminal prosecutions being instituted against Mr P. Millidge (the manager), Sir Matthew Dr/ies, J. Bell, M.L.C., W. Anderson, and T. B. Muntz (the local directors), and against C. W. Ellis ?nd C. J. Richardson (the auditors), Sir Graham Berry was legally e^oherated, not having been on the directory when the false balance-sheet was issued.' The case is expected to ppen up the whole of the network of transaction a bptiyeen the Davies banks, and result in even more shocking disclosures than have yet come to lighr,