BANK AND STATE.

Dominion, Volume 6, Issue 1826, 12 August 1913, Page 5

BANK AND STATE.

■ SHAREHOLDERS' VIEWPOINT, DEPUTATION TO MINISTER. A deputation from tho Shareholders Committee of tho Bank of Now Zealand consisting of Messrs. S. Kirkcaldio, A. Macintosh, J. A. Plimmer, W. W. Knowles, and Dr. C. I'. Knight, was introduced by tho Hon. A. L. Herdman. to tho Jlon. James Allen, Minister of finance yesterday, when tho following •memorandum was submitted to him;— Wellington, I August 11, 1913. / To tho Hon. Jatacs Allen, Minister of Fiuanco. Sir,— \Ye aro present to-day ns a committee of ordinary shareholders of the Bunk of Now Zealand, cleofced at a special general meeting held on July i, to "represent and safeguard" tho interests of shareholders. Wo desire to make it clear beyond tho point of contradiction t'hat wo are not voicing tho opinions of any sectioji of shareholders, but that wo aro expressing tho views of shareholders both in New Zealand and in London with whom wo ■ aro in clot'o touch and in complete accord. \ Wo view with consternation llio proposals submitted to. you by tho chairman of tho bank in his memorandiflu to. you of liny 15, and which we regard as au unjustifiable and unwarrantable attempt to-increase tho Stato's proprietary interest in the bank at tho expense of tho •ordinary shareholders.

The chairman refers in his memorandum to three interests which ho claims must bo separately weighed and allowed for in considering t.lio present position in the affairs of the bank. They aro: 1. The. permanent interests of the institution'. 2. .Tho interests of the present shareholders. ' 3. Tho interests of tho State. As to the No. 1 and 2 wo conccdo nothing to tho chairmaiu in tho desdro to eeo that tho permanent interest of tho bank should bo paramount. It is so manifestly obvious that tho permanent interests of tho bank is the only suro foundation upon which to l>aso tho interests of tho present shareholders that I hardly need to stress that point. As to No. 3—tho interest of tho State:— Wo claim that after assuring to tho State tho maximum dividend payablo upon tho Stato's preference shares, tho interest.') and functions of tho Stato should bo limited to tho extent of requiring: Firstly, that a sufficiency of capital should be provided by tho tank for its • largo and increasing business, and .Secondly, such effective check upon any pwasilility of l mismanagement which might occasion any subsequent necessity for outsido intervention to preserve its stability. We claim that wo as shareholders of tho bank are justified in assorting, that wo can provide that sufficiency of capital, and that wo are quite prepared to concede to the Government tliat effective check which tho exigencies of the circumstances' may require. l It would assist us considerably in stating the ease as viewed by tho ordinary shareholders of tho bank, and possibly lo tho means of saving much of your valuable time, if you could .see your way to givo ns nny indication as to whether the legislation lcfciTcd to in tho Financial Statement as affecting tho Bank of New Zealand is modelled on tho lines of tho scheme submitted to you'by tho chairman, or whether you uharo already renewed tho • position from tho ordinary shareholders' point of view, and so modifie4 tho proposals as to ensure that tho rights of shareholders will not bo interfered with. Wo claim as of right—

1. That wo tiro entitled to—and that tho posititm of tho bank warrants— tho repayment of, llio .£1,000.000 guaranteed stock maturing in July, 1914. 2. That wo as ordinary shareholders —and we only—too'responsibly for tho provision of such increased capital as may become necessary for the carrying on the business of tho bank consequent, upon tho withdrawal of tho Ji1,000,000 worth of guaranteed 6tock from the bank's resources. ' 3. That tho altered conditions of tho affairs of the bank ginoe tho passing of the Act of 1903 is sufficient jusiifiraWon for our approaching you and asking to be fully reinstated in tine enjoyment of our property directly we liavo ■ pfTectod tho redemption of our obligations to the State, and subject only to such reasonable .restrictions' as Parliament • inay require for tho proper and officiant management of tho bank's affairs. Dealing with tho first question, I would l reminil 1 you of tho statement made by t'lie chairman of tlio bank at tho annual, mooting of 6'hareholders hold in December, 1907, as follows:— "If the board continues tho existing policy, of steadily piling up tho reserves theiy were hopeful they would bo ablo to pay the ,£1,01)0,000 maturing in 1914 without' increasing tho present share, capital of the bank." Again, in his memorandum to you of May 15, wlwiro the following statement appears "Although tho bank would now have no difficulty m redeeming or otherwise providing for this stock without tho guaranty) <kp ©titer aid of t-lio State, it would obviously bo better both for tho bank and for tho financial interests of the Dominion generally if a satisfactory, basis for a renewal of this State guarantee could ba arran'ged with tho Government." Ono is alnnst compelkul to ixtupo lie.ro ami inquire what possible combination Of circuinstances could have arisen whicli made it undesirable for tho chairman to contemplate an increase of capital in 1907 whan the bank's ability to redeem Iheso debentures was more or less' problematical, and the dhnirman's statement to-day,

"that .the bank would now have no difficulty in redeeming or otherwise providing for this slock," coupled as it is with hii proposal for a substantial increase in both tlu-j ordinary and prelorential share capital cf the Ixmk. ...

As to our second claim doaling with tho question of capital contribution, t'lio circumstances fcmneobed with the issue,of tho preference shares in 11)01 to the Uiell Government are no doubt present in your mind, and while it is useless to review tho past in this regard, we respectfully submit to you that that exaction was imido at a time'when the kink was not in need of the capital represented by the pureliaM) of these whiiriw #s proved by tine fact that tho bank was aide to pay to its .shareholders a 5 per cent, dividend sineo 191)!!, and that the is-m? ■of these shwes.was dono without the cons?nt or knowledge of tiharoholders. To-day we are in & totally differout position, and a.s I have already stated, can see ouir way clear to provide such, capital as may be deemed nco.ossary. Iu this connection 1 cannot do bolter than to quota the language- used by Messrs. Kennedy and Wtikon in their memorandum to'you of July 15: "Wo do not think it possable-riior havo wo any reason to" 1 Ix'licve —that the Government will olaim a further interest iu t'he capital of the kuilc. There oan bo no just foundation for such a claim. If tho interest exaetcd by the. Government in. 1903 should be mads! the basis of the claim,' it wou'id bo making oiw exaction tho justification of another, and slKirehohiers both in New Zealand and in Kuuiaud would bf justified in entertaiuing tho opinion that: rights oi' property and justice art? loosely regarded by the-Govern-ment of this country." '

nit* weighty .words, mid full of a preirnanl: montring. and tkould teeeivo vmir t\«riif.<t consideration.

W.o desire to draw your attention In the <tll'ect of -tho chairman's proposal, which, implies t'lmt tho Government has established' a right to u further increjisa, iu tile capital of tho bank. This claim wo positively deny olid cannot concede.. It must lx* borne an mind that we have on ncouniulntod rcsirvo of .£1,375,001), . to which wo may reasonably expect to mid another ,£175,000 Ijefovo tho end "of .liine, 1014. These reserves nre lit-cd in tho business of the lionk, and' form part of our dividend-cumins eapita.l. In ki;i pvopmals tho ohainnan would evidently utilise tlieso reserves for tho purpose of oaniinpr.dividends npo:i the pieposod preferential li shares, without contributing a penny pioco by way of compensation for {'no privileges h'o welca to obtain. Wo maintain that tho Government is liuithor legally nor equitably entitled to any inareaso ill tho share capital of t'ho bank, and wo nro unanimously of tho opinion that if eav incroiso is desired by tho Government, it should bo sought for. by way of agreement with

tho ordinary shareholders, and not by way of statutory'enactment, and in return for adequate compensation. Wo venture to suggest, hqwover, as a matter well worthy of your consideration as Minister for Financo, as to whether it is desirable for the Government to entertain the suggestion to lock up a large amount of capital in the bank in view of tho frequent and openly-made statements that all the available resources of the G-overnment are ■required for -urgent public works. As to owr third: claim—that tho timo has arisen wlion the ordinary shareholders b'hould bo fully reinstated in tho onjoylueut of tlieir i>roperty—-wo recognise that as long the State was in any way responsible for tho due payment of tho debentures issued, by tho bank, it was justified in assuming, the position of mortgagee in_ possession, but that so soon as ■ that liability is extinguished, we claim we are ontitt'wl once more to bo placed in full possession of out property, subject only to tho conditions to which I liavo already referred. • 'This raises the question of representation upon the. Board of Directors, and upon tiias subject I would refer you to the statutory provisions of tio Bank of Now Zealand Share Guarantee Act, 1894. Under thiis Act it was required that the shareholders should" elect a now Board of Directors, of wlioiii tho president only was to bo appointed by the Governor-in-Council, and in' whom was vested tho power of veto. This Act also provides for the appointment of a Government auditor. And this was the timo when tho bank was in its direst .straits yet tho Parliament of that day 'considered repreBEintativcs to be the fit and proper persons to manage its affairs. By tho Bank of New Zealand and Banking Act, IS'Jo, the Government was given ■t'lie power to appoint one director, and this at a timo when the State's liability '/under. g'uaraiiiteß amounted to about ,5i millions, and .the power of veto given to t'he presidleiit of the bank by the -previous 'Act was confirmed:. : The Amendment Act of 1898 was responsible for thle board, as constituted at preBsnt, fear under this Act four directors /ware to be appointed by the- Governor-in-. Coupcil, and two only elected by the shareholders., Tho ofiico of president was abolished and provision was made, for tho election of the chairman of the bank' by It ho board; and, as past experience has ■proved, this is tantamount jto giving another vote to tho Government. Wo have therefore-arrived at the present jmdesirablo and uuusuaA method for .providing a Board of Directors for carrying on the most important financial institution in t'lio Dominion. Out 01 a 'board of six, there ace four persons who need not have any pecuniary, interest in the welfare of tho bank, their chief in'■terest' being their ability to £0 conduct 'themselves as may ensure their reappointjneut from timo to time, and two persons , 'to represent the ordinary shareholders in ' influencing tho policy of the,board, and (whoso powers in this connection are entirely valueless in consequence of the disproportion in representation. If,any effective proof is necessary of tho. neod for readjustment in respect of the - 'Board of Directors, ■ the present unsatisfactory position affords a complete illustration. 'Here, without doubt,, a' tactful precognition of the rights of others might Veil have been contemplated as being "jpapable of effecting that hision of interests which would have enabled j;he board.us a ,<vhoilo to-have agreed uipon a scheme of ■reconstruction that would have been acceptable to tills Governinent and to the ' ordinary shareholders of t'he bank ns well. ; On the contrary, we have a board ar- : rayed in factious dispute, and from which ,-it is impofciblo to extricate it except by ''intervention from without: I think. lam '•'justified, however, in calling attention to the -fact that despite the inharmonious ! (relations that exist amongst the directors !of the bamk at the present moment, they jJiave one, and ail individually been able to so far restrain their public utterances ■<is not to disolosa either diiirectly or inferjntially any of the business matters they Jire" required -to deal with affecting the ,l>ank. ,If, however, the present unsatisfactory conditions are to prevail, I . suggest to you, that with your wide knowledge of human nature, you must be prepared ,at any .time to see, the restraint gentlemen have placed upon t'hem..felves, shattered by tho intolerable conditions imposed upon them A When a>»;er !nnd resentment (jain the upper hand, then iprudence will give place to personil. recriminations, to tho sorious disadvantage ( of the bank. There is a,.diversity of opin- . Son among shareholders as to whether 'we nre not entitled to demand the right to elrct t!s> \holo of the board,, reserving to the Government the right to appoint a Government auditor, who shall have th'o power of veto vested in 'him, subject to tho apiprovaJ of the Governor-in-Coundl. Or, on- tho other hand, whether .we should not claim- the - right 'to elect only four directors to' represent shareholder, the Government to appoint two directors, and the auditor with the' powers previously mentioned; Personally, I ,am of the opinion that it would ■be to the distinct advantage of;the bank to inako the whole board elective by tho ' fe'liareholdcrs, and thus relieve this and .subsequent Governments of the necessity ' of making appointments which invariably cause more discontent and dissatisfaction than appreciation. • • I

As to the position of tlie Government auditor, wo are prepared that tho fullest powers considored desirable should be vested in him, provided that his'position and salary . should be fixed by statute, mid, further, that ho should not be subsequently eligible for the position of general manager. It is immaterial to us whether the salary in question for such a position is equal to or above that of the general manager of tho bank. The main point being that the fixation of tho matter of remuneration by statute would render the holder of this position above tho influence or goodwill of the Board ~of Directors, and would tend to that "independence of thought and action that tho position suggested calls for. Having submitted to you the views of ordinary shareholders to the best of our ability, it now only remains for me to say that in advancing what we. believe to beonr legal and equitable rights as proprieof the Bank of-"J*ew Zealand, we realise that we are entirely in . tho hands, of yourself aiid Cabinet, and that wo confidently anticipate receiving at your hands that square deal which your Government lias' upon several occasions promised various sections of/the community.

Wo ore not claiming— and ire do not desire to fclaim'—anything at the 'hands of the Government to which we are not held to ho entitled by the highest Court in the' Dominion, • b-.t we respectfully submit thaKin 'tho interests of' shareholders both in New Zealand- and .abroad, and in the of„the .Dominion,"it is tlesiri.i>le that this matter should 'be faced with a full recognition of the various interests 'affected. • In order to determine the legality of our claims, wo have submitted all questions upon which there is any possibility of division of opinion to the Supremo Court, and we desire to respectfully suggest to you that any legislation contemplated may bo delayed until tho opinion, of the Court is obtained. . ' " On the other hand, should you consider it necessary, and desirable,, to proceed without according us the opportunity, of the Court's interpretation of the rights of the respective parties, might wo ask for an updertaking from you that you will -submit any legislation you may deoide' to introduce .to a Select Committee of tho before whom we might appear to urge our claims, if we consider such a course necessary? I have the honour to be Your Obedient Servant. ; (Signed) SIDNEY KIRIfCALDTE, Chairman Shareholders' Committee. [Tlie Minister for Finance promised the deputation that, provided the judgment of the Court on the matters submitted to it was not too long delayed, tho Government would await it before definitely drafting its Bill. Also, that the Bill, when prepared, would be submitted to the Shareholders' Committeo for their consideration. At tho present time, Cabinet had not arrived at any definite decision concerning the future relations of the State and tho bank.]