The Dominion. FRIDAY, SEPTEMBER 5, 1913. THE BANK OF NEW ZEALAND.

Dominion, Volume 6, Issue 1847, 5 September 1913, Page 6

The Dominion. FRIDAY, SEPTEMBER 5, 1913. THE BANK OF NEW ZEALAND.

While the decision of the Government to retain tho financial interest of the State in the Bank of New 'Zealand and to claim a right to increase that interest if new share j capital is issued may be "expected to meet with the general approval of Parliament, there are some details of the measure introduced to give effect to this determination that call for comment. In the first place, the proposals with respect to the new share capital are not altogether satisfactory. For instance, authority is given- under the Bill to issue 300,000 new ordinary shares of a value of £6 13s. 4d. each. These Bhares may ho issued in separate lots at different times as the directors may deem advisable, but the'whole of the capital of each issue must be called up forthwith after the issue is made, although payment may be made by instalments. In other' words, those taking up the new issue of ordinary, shares will pay up £6 13s. 4d. on 'each shaje, and the shares will carry iw further liability. Holders of the existing ordinary shares, which are of the same face value, but on which only -£3 6s. Bd. is paid up, are not given the privilege of extinguishing the liability on their shares. Most people w.ill no doubt agree that bank shares which carry a liability are less attractive to the ordinary investor than those which do not, and it is probable that if the Bill is passed in its present form the old shares will not maintain a market value relatively equal to the new shares. The purpose in leaving the liability on the old shares was of course to provide a reserve of capital for emergencies, and is quite sound, but if the _ new share capital is to be issued it is only reasonable that that liability should be spread over the whole of the capital. If, for instance, instead of the_ liability of £3 6s. Bd. per share being continued on the 150,000 of the old issue the holders were permitted to pay off £2 of the liability, leaving £l 6s. Bd. still remaining, and the same amount should be left uncalled on the new issue, the shares would have a uniform value and an equal liability. Then, also, in connection with the B preference shares which. the State is to have the option of taking up. Tho Bill provides that these shall _he paid for by debentures or inscribed stock bearing interest at 4 per cent. ' It might happen that at_ the time the purchase was made this 4 per cent, stock or debentures was at a discount, in which case the bank would be at a loss on the transaction. This was recognised under the Bank of New Zealand Act of 1903, in which provision was made for the State making up the deficiency out of the Consolidated Fund. Some such proviso should be included in the measure now introduced.

' So far as the control of. the bank is concerned, the Bill proposes to leave things as they are at the present time; that is to say, four out of the six directors are to be appointed by the Government of the day. This means, as we pointed out previously, that even in the event of the Government failing to exercise , its right to take up the new preference shares, and the whole of the new share capital being subscribed by the ordinary shareholders, the State will still continue to dominate the institution. Assuming that the whole of the new capital was issued the position would then bo that the State holding a share interest of £500,000 would nominate four directors, and the shareholdfirs, holding a share interest (with liability) of £4,000,000—0r eight times as much as the State —would only have two directors. In addition, the State has the right to appoint the auditor of tho bank, who has a special power of veto. Obviously, this state of things would bo most unjust to the shareholders. No doubt it will be said that the Government is not likely to fail to exercise its right to take up the B preference shares. This may be true, but the fact remains that no provision is made in the Bill to meet a position which is at any rate possible. As a matter of fact, the Government might very well have conceded a point to the shareholders in the matter of representation on tho Board of Directors, and made the representation equal; throe Government and three shareholders' directors. There is another point in connection with the appointment of the Government nominees on the board which deserves consideration, and that is the term for which they are appointed. At the present time tho appointments are for a term of two years, with the result that under the system followed two directors retire c'nch yc-ir, This abort tenure hii.n it* drawoacka, cepeoially when it' ia y

borue in mind that where political considerations are liable to creep in short term appointments incrciise tho danger of improper inilncnces being brought to bear cither in the making of the appointments or in bringing pressure on those appointed. ' If thp appointments were made for a term of four years, with four directors one could retire each year. Ono result would be the probability of a more settled and stable policy in the management of tho bank's affairs, but tho most direct advantage would be the lessening of the risk of undue political interference in the conduct of the institution's business. Another suggestion, and ono that has been frequently made, is that in the choice of its nominees the Government should avoid the selection of gentlemen actively engaged iu business and commercial undertakings likely to be in competition with the bank's customers. This is a matter perhaps which can hardly be dealt with in an Act of Parliament. ' It may not be an easy thing to find men sufficiently; detached from aotive business life, and possessing the required qualifications, who aro willing to undertake the duties of the position; and some discretion must be left to the Government of tho day. At the same time, the question is one of considerable importance, and possibly some useful suggestion may be forthcoming on the subject.