A DIRECTOR'S ADVICE.

Dominion, Volume 6, Issue 1615, 5 December 1912, Page 6

A DIRECTOR'S ADVICE.

BANK'S RELATIONS WITH THE ' STATE. J ..'.'. V SHAREHOLDERS' INTERESTS. .' •Mr. William Watson, thanked the share- ] holders for having again- re-elected him < to the Board of Directors. : : "In view of the legislation which the s board are of opinion should bo applied i for to-be enacted early next Parliamen- ". tary session," he said, "it will be well ( for you to carefully consider'.your re-- ' (juirements and to formulate them. Na- i Rurally you will expect your represents- 1 i.tives to lead in. the matter, and to pro- i ivide a'.basis for discussion. At this stage,' I what I recommend should 'engage your ■ attention as the principal objects to be 1 'desired are, freedom to increase capital, (c 'renewal-of the .£1,000,000 Guaranteed i Stock maturing in July, 1914, and greater t representation on the Board of Directors.- £ Other matters for consideration may. arise i at a later date.. .With regard to increase i of capital, our solicitors are of opinion -i I that, notwithstanding the general Banking Act:of 1908, a further Act of Parliament i [is necessary in, our case. The .provisions £ of such an Act-may be the subject of j considerable diversity of .opinion, and i it is of the very first importance that the c Bank's' shareholders. in . Great .Britain, Australia, and New Zealand should have 1 ample knowledge of the situation, and pp- s portunities to discuss' and resolve upon it. "At. the" meeting of shareholders held 1 on June 16, 1911, the chairman gave a > brief review of the history.of the bank, , 1 and an inset to the printed report cir- 1 culated among shareholders contained a t table of figures showing'the position and i business from 1862 to 1911. I shall now 1 supplement that review to some extent. 1 ' ; ■ ':,:,.■: '■: : '"}".'!■ ■■-,£'■ E The capital subscribed.' and •-, ' written off was .j:,'.y....!.. : ....v...'1,'500,000 Premiums paid on certain shares, ' s ' written oii .....,„ ■' 276,427 : Reserve liability paid up. and ■■•'•. ■ .i written, off. .....,........'..,... 457,046 1 .... ~.,. .;„, . ..'"■"' i,:;'":_.-. 2,233,473. ] Present ordinary share capital ■'.;..". ' ' paid up and carrying ,£500,000 , further liability" :,:...'..'.; ~ 500,000 Amount paid in' by" ordinary" shareholders ■. 2,733,473 Bank Belongs to Shareholders, . "It is legally held, and has been stated. '• mParliament-'by a-former Prinie"'Minis- ■'■ ter without""controversion,- that tho-'re- ' .serve fund and goodwill of the' bank"be- ' long to the ordinary shareholders, ..and thisi must-be the view taken by all 'fairminded 'men;.■■. In the present -'circuni-stancc-s, the benefit you derive from these magnificent assets is £1 Us.'lOd. per cent. '■ on the money actually paid in, and for many years you'derived nothing at all. 'I have had numerous communications ■ ;from shareholders, suggesting that, as in oth'er institutions,' the capital lost in times of adversity should be replaced :from profits in times of prosperity, and.l , .cannot'regard "thiir views as either unfair or unreasonable. In Australia, when the same wave of depression compelled . several banks'there'to close'their doors, legislation was passed by which they were rehabilitated : without liability- by the State,'or recompense to it beyond ward-' ', •ing off financial trouble. In this Dominion different arrangements were made, whereby the .State did incur temporary liability, and they are so well known that, Ineed not recapitulate, them here, beyond saying that, besides certain guarantees, the Government, without loss to the. State, took .£500,000 in preferred shares,' bearing 3J per cent. . interest,. to , be paid off '_at'..;...th© ..bank's., option. These were paid off in 1900, and for a few years the Government held no share interest whatever in the bank. ; The. preferred share's so paid off, or rc-pur- , ■c.ha ; Eed;:.were held by;-.the bank, in terms 'of'.'i'the : Act,' available for re-issue at the lboard's~bpt;on, and had the board decided inponi'rjhissue, the shares would, as prejsfcnb'ed. by-'the-.Act, have been offered in ;the .-first:;iristance to the ordinary shareholders- rateably. ■ The latter provision 'clearlyj'irecognised and safeguarded the :right'of the ordinary shareholders to be the proprietors of the whole of the shares in the bank, both ordinary and preferred. ■«'..;- The State'sv Rights. "This right continued in existence until it was withdrawn in consequence of legislation passed: in the year 1903. The ten years .for -which • the -Government lent assistance to the bank were expiring in .1904, and legislation. 'was sought—in the session of 1903—for a renewal,of it, but to only about half the. extent of what was given previously. At the time, viz., in 1903, the bank was doing 'so well that, three years' afterwards, it paid off all its liability 'in respect of the Assets Board, and there only remained the .£1,000,000 guaranteed stock for .which the State had any liability. For that partial renewal the Government at>nrst demanded to be allowed to purchase .£500,000 fully-paid shares to be called 'State shares,' which were to rank equally with■ the,.ordinary shares for dividend and for all other pur■pbses,' s , : but to confer no . voting-' power. They, also asked for a commission ■'■ at 'the! rate .of 1 iPer cent, per annum-<on ; tho amount guaranteed: These,onerous.terms.'were strenuously objected .to, and-it was 1 ultimately arranged that the then existing preferred shares should be'cancelled, and that the State should be permitted to .take up iESO(J,OOO preference shares in tho then flourishing institution, on a slid-' ing scale as regards dividends: the yield on the investment being 5 per cent, at the beginning, with rapid increases, until two years aep it reached the maximum of 10 per cent.,' which has since been the rate paid. This was conceded without— so far as I.am.aware—any strong grudge on the part of the shareholders. But it was understood then that tho concession was a full one from a business standpoint, and it was expressly agreed to be full and final compensation'for any claim the Government had for the assistance they had given, and were to give; and proof of this agreement can bo produced if necessai.With regard to the > .£1,000,000 guaranteed stock, the bank is now quite able tr -redeem it from its own resources; but seeing that we do not toke any fixed deposits in Great Britain, and that good business might have to. be curtailed in consequence of redeeming it. T mn of .opinion that, as much in the interests of Jhe Dominion oh of tho bank, il; should continued. ■ As it bears interest at 4 per ceiit.y-.however, that is as much as the bank should, have to pay for it. '. ■;..' ■ .' No Loss to the Country, .. i'l again rtate here what I have said in. thia elaca before, and srhat is bu>w4

to most shareholders, that the money lost by the bank went in most part to develop the Dominion of New Zealand, and that tho hnlp tho Government gave has not involved the country in the loss of a sing, poiinr. The position and equities of t case being known to you, I have no doubt you will safeguard your interests by communicating your concerted views to your representatives in good time, to enablo them to make the representations yuu desire in the proper quarter and at tho proper time. Mr. Kennedy is shortly proceeding to England, and as about half the shares are held by residents there, J trust that the opportunity will bo taken by a committee of the British shareholders to favour him with their views. On his return to New Zealand the ehar ers in this country will have an opportunity to express theirs in general meeting before the next session of Parliament. "SPECULATIVE SECURITIES." A SERIES OF QUESTIONS. Mr. Alexander M'lntosh .asked the chairman the following series of questions:— What is the exact nature of the British Government securities held to the value of ,£500,000 as part investment for tho Reservo Fund ? . - - What was the cost, of these securities, and what is'the market value to-day? If there has been any depreciation, has full provision been made? When was the purchase made, and at whose instance? Did it have the approval of tho Lonvdon Board ? The chairman, replying to tho ques' tr.ons, said he thought it most undesir. able that detailed information of this nature should bo given—not that there was any difficulty about replying to the present questions, but it would set up a l:-ad precedent. Tho business of the bank was confined to the Board of Directors .by deed of settlement, and so long as the shareholders had confidence in that board it- would be undesirable- to disclose dotailed information. The question of whether the purchase had the approval of the London Board or not .was not of any importance. The purchase was the act of the present board, for they were quite in harmony, and the London Board was appointed by the Board of Directors. He asked the shareholders to accept his assurance that on. all the securities • held by the bank ample, provision had t-een ; made for .such depreciation* as had occurred in the value of them during the year. This was the course always pursued. But it would not be a very serious matter in an institution like.the Bank of \ew Zealand if it did not take account of a depreciation of £20,000 or ,£30,000, when it added .£200,000 to its reservo fund. . However, the directors had not taken this view;. the writing down was ■ done at once. Many lends of securities 'Uuctuated very largely. - Mr. M'lntosh thanked the chairman for his reply, but said it had not touched the Question. Why should the board invest in speculative securities, at ■ all, .when there was no need to do it? There were securities offering which were not speculative. It might be politic for the chair-, man not to answer the question; he did not find fault with that. The chairman said the purchase was- a matter for the discretion of the board, and he had supported it individually. The purchase had paid the bank better than if the money had been kept to take the current rate in the ordinary market. Mr. T. S. Weston: I should like : to know, whether the highly-speculative stocks referred to are British consols? ■ The chairman: We don't say they are British consols-. He added that if they were highly speculative, there was still hardly a bank in. the world .that did not hold them, Tho probability was that the bank held consols, but hecertainly would not call them highly speculative. They had taken a downward turn during the last few years, . ; but the bank got the same rate of interest for.them, and.. they might rise. Mr. Watson:. They have risen thirty shillings in the last week. . , .. . The discussion did' not proceed further, and tho chairman closed it, and ended the meeting by' announcing that there was no more business,, thanking the shareholders for their attendance, and .leaving. the chair. '