BANK OF NEW ZEALAND

Dominion, Volume 9, Issue 2635, 4 December 1915, Page 14

BANK OF NEW ZEALAND

HALF-YEARLY MEETING A REVIEW BY THE CHAIRMAN POLICY OF STRICT ECONOMY URCED. The half-yearly general meeting of the proprietors of the Bank of New Zea-' land, was held in, the Banking House, Lambton Quay, yesterday. Mr. Harold Beauchamp (chairman of directors) oc-, cupied the chair, and the other directors were: Messrs. Martin Kennedy, Win. _ Watson, R. W. Kane, Wni. Reece (Christchurch), and J. H. Upton (Auckland). About twenty shareholders ■were present. •• Before formal business was dealt witli, the chairman delivered somo interesting observations' with regarcl to _ existing conditions—financial, industrial, and otherwise. "Everything,"- said Mr.rSeauchainp, "continues to be dwarfed .. a.nd overshadowed'by the great European conflict which is still m progress, ami which day by day becomes more and more acute. AH the circumstances seem now to point to the conclusion that the war is'to'be a war of exhaustion, and that yictory ultimately will be on tlie sido of the combination'possessing the greater capacity ; for. endurance. The financial might of Britain has been a tliemo -of constant encouragement and confidence when we have speculated upon, the finaJ'vissue of the war. ...Most of us recognise* that, in a test of'endurance, the side which controls the longest , purse, is- -in • a. position of ■ immense I superiority. But we must not close our eyes to tho fact that a measure of ad- , vantage will also lie on the side which, • -by rigid economy and caution in both private and public expenditure, maintains itself - in a position to support its people and prosecute the war at a sub- - sUntially_ lower cost than its enemies. The application of the old adage,' 'a penny saved is a penny gained ; ' be- . comes at once apparent, and it is quite possible by the exercise of extreme caro in the private and national outlay tbat our enemies may in great measure counterbalance the superiority we possess in the way of more ample financial resources. In.this respect, Germany, par- : tknilarly, lion gre mal gro, has been forced to economise through the effec-' tivo blockade of her ports by our Navy. Prodigal Expenditure Deprecated. "While our enemies themselves have .'admitted the terious handicap under which they labour—that,, is, viewing their position from the financial standpoint—and while 'we freely recognise Britain's preeminence and vast financial resources, it will nevertheless be prudent that each constituent part of the Empire should take stock of the position, : for it is to be feared that an overweening confidence in our financial supremacy may encourage, nay, is encouraging, a recklessness and prodigality in expenditure which mayj if not checked, expose the Allies to a risk of that first exhaustion which is to be the determining factor in the struggle. - I hope I shall not he classed as pessimistic or unpatriotic, for I assure you that I am i neither the one nor the other; but I'am -porsuaded that, at the present juncture, ■the greatest optimist and the . truest patriot is one who,proclaims, in certain tones, the .supreme importance . of the utmost care in the. conservation of the national resources. Unless the source of supply be limitless, it is plain ; ; that it is only, a question of time, and of rate of outlay, when the end of even the most iample resources must be reached. This obvious fact is the one which, at the present time, the British Empire stands_ most in need of realising. ; "Owing to the segregation of the Allies, and the distances which separate tho ■ component parts of our own farflung Empire, the cost of marshalling the Allies' forces, and placing them at the points. where ' they are required to engage in hostilities, is in itself enormous. This 'is an expense from which our enemies are almost: entirely free. But these are not the only advantages they enjoy, for, we have, to admit that oui entiro • outlay is on a vastly more costly scale than theirs. Our soldiers v., are better paid, better clothed, better .fed, and better eared for. This superiority of conditions, though most commendable, is purchased at- a very great price. Again, instead of being, ■ as our enemies largely are, sclf-contain-ed and self-dependent, producing within our own borders the greater part of , .what we require for our supporWnd for the prosecution of tlie war, anddischarging our internal obligations by means of a paper currency, we are drawing supplies, civil and military, -from almost every quarter of the globe and paying our debts in coin. This' of course, involves us in enormous addi™nal expense, for the price' demanded , 'Py the foreign manufacturer or producer flas to be paid in gold or kind, and transit charges added.. Generally, therefore,_ it is a case of making war, on a basis_ that is calculated to strain : our financial resources to tho utter•<nost.

Tho Economic Weapon. ''This _ cursory.. review 'of' the position wilt readily convince even tho most superficial thinker that the outgo of the 'Allies for war purposes must be enormously in excess of that of their enemies. It would be well that we should all keep this substantial disadvantage to ourselves prominently in view because, if victory is to crown the arms' vi tho side which can the longer ondure tile process of exhaustion, it-is obviously desirable that wo,' who, in tho matter of expenditure, are so unfavourably placed, as compared with our enemies, should economise and husband our resources in every possible direction. Our ioes arc, I am sure, keenly alive . , ~l s' an d are consequently Wielding the economic weapon with the same skill and intensity of purpose' as they handle their actual implements of . Tie? are "living". as : well as fighting' the battle. The civil population, as well as the military, are performing their own peculiar part—spinning out tho thread of the national resources to the last finest strand and to the utmost possible limit. . It can .only be by the exercise of an overwhelming determination to continue tho struggle to tho utmost extent of human and economic endurance that they have been able to thus far prolong the conflict. Life in.tho Austro-German confederate fetates must, at the present time be anything but pleasant. The truth, under such jealously guarded censorship as prevails in Germany, is dfficult to get at, but information which leaks out from timo to timo gives ft sufficient indox to the true position. •Tho iron ring of the British Fleet has closed in upon tho enemy's soas, and his external supplies have dwindled practically to the vanishing point. Having failed on bis military fronts and feeling the unsupportable pressure of his internal necessities, our foe is now engaged, with tho assistance of Bulgaria, in an endeavour to forco a passage through Serbia to Constantinople, with tho object of opening up a channel of supply through Asia Minor. The Allies are evidently alivo to this and aro bent upon frustrating his sign. ' Nevertheless, assuming that tho effort' is, as we hope, doomed to failure, it has been shown that AustroGcrmany's internal national resources are so considerable, and the capacity of her people for endurance and self-sacri-fico in what they conceivo to bo the interests of their Fatherland so great, that it is ' impossible to predict tho length to which their ingenuity and devotion may enablo them to protract hostilities. It behoves us, therefore, to face our own economic problems in th^

spirit in which they confront theirs, and to set our own affairs in tho best possible order with the least possible delay. Conserving Our Resouroes. I "If the resources of tho Empire are to be conserved to the extent necessary to enable them to meet the demands that will in all probability be made upon thorn before this war is brought to the conclusion that the interests of humanity and freedom necessitate, tho civil population of the Empire wil! havo to do their part by instituting a regime of much sterner personal economy and a wider range of personal industry than have'so far been practised. This point was stressed by the British Prime Minister in an address at the Guildhall delivered on June 29 last. I give you his own words:—

" "There remains only one courso which can be adopted without adding to tho necessary destruction and dislocation caused by the war, a permanent source of impoverishment of this country. What is that course ?. It is one we have come here to advocate and to press upon our fellow countrymen—to diminish our expenditure and to increase our savings. I put before you two very simple propositions. Tlie first i? this: If you save more you can lend to' tlie State more,. and the nation will be proportionately enabled to T>av for the w,%r out of its own pocket; and the •second proposition, equally simple and equally true, is this: If you spend less you either reduce the cost and volume of our imports or you leave a larger volume of commodities available for export: Tlie state of the trade balance between ourselves and other countries at this moment affords ground, I do not say for anxiety, but for serious 'thought! If .you look at tho Board of Trade returns for the first five months at the end of May .of the present Year you will find, as compared with, the corresponding poriod of last year, that our imports have increased by thirty-five and a half millions, while our exports and re-exports have decreased bv sev-enty-three, and three-quarter millions. What does that mean? It means a total addition in five months to our indebtedness to other countries of nearlv one hundred and ten millions. And if that'rate was to continue until we reached the-end of:a completed Tear, the indebtedness would rise to over two hundred and sixty millions. That is a serious problem, and I want to ask you and outside, how can that tendency' be counter-acted? The answer is a very simple one—by reducing nil unnecessary expenditure—first of imported goods. . . . That would mean

we should have to buy .less from abroad.'

"In the directions mentioned nearly everyone can afford, help, and those who act on the suggestion will be rendering to the Empire a service, second onlv in importance .to that (riven by those who offer themselves for the war and take their places on the battlefield., Hitherto supplies have been largely drawn from outside—particularly from the United States of America—but, while outside supplies may have been right enough at the commencement of the war pending organisation of our ■ own productive capacities, it would bo suicidal to go on relying upon them because it is patent that they may, in the event of the war being much further prolonged, be closed to us by our inability to pay for what we require. Therefore,-wo should increasingly mako it our aim, to produce as far as practicable within the Empire's own borders all that is necessary to satisfy its needs. ■ : \ Abnormal Exchange Rate. _ "Many of you will doubtless havo no-' ticed in the Press, within the last few months, • references from time to time in regard to the abnormal state of the exchange between Great Britain and the United States of America. Some of you, who may have business dealings with America have had the significance of the condition of the exchange brought home to you very forcibly, by your personal experience in discovering that your British pound has converted into a , much smaller number of American dollars than has ever before been the case. At one time the rate fell as low_ as. 4.48 dollars per pound, as against the par of exchange, 4.867 dollars. This is equivalent to a loss in British money of £7 18s. 4d. per cent., so that for every £100 paid by Great Britain at that time for American goods she was receiving goods to the value'of only £92 Is. Bd. If; therefore, with tho exchange market in such a- position, slio had bought £100,000,000 of American goods, she would have lost TOUEhly about _ £8,000,000 through the transaction, in consequence of the adverse state of the exchange. This unfavourable position was created through the that arose for Britain to place such enormous orders for munitions and goods with America. There was no'immediate prospect of tho lingo balance in favour of America being adjusted, either by exports to America (these having shrunken to small figures since : the commencement of the war), or by a settlement in coin, which would have been _ disadvantageous to both countries, if. not. altogether impracticable,- and the exchange rate fell_ persistently until it reached the ruinous level I have mentioned;

"An Anglo-French Commission visited Ajnerica with a view to discussing remedial measures, and it was finally arranged that Britain and France should raiso a joint loan in New York for as largo an amount as possible. A billion dollars was talked of in the first place, but tho amount was ultimately fixed at 500,000,000 dollars (about £100,000,000 sterling). This issue was made in 5 per cent, notes at £98, having a currency of five years, with an option of conversion at maturity into 15-25 year 4i . per cent, bonds. The whole loan was underwritten by a New York syndicate at £96. The terms arc sufficiently onarous, the cost to' tho borrowers being, at £96, about £5 19s. per cent., and at £98 about £5.95. 3d. per cent. The effect of the raising of the loan has been to improve the exchange rate somewhat. It stood on November 20 at _4.69| dollars, but, unless tho Empire can reduce her demands for American supplies by increasing her own internal productiveness, it is almost certain to recede again before long, and the borrowing operation will in that case have to be repeated, probably upon even more disadvantageous terms than those exacted in this instance. This contingency will stress what I have already mentioned with regard to tho need for production, within ourown borders, of all tho essentials of national subsistence and munition supplies. It will further emphasise what I have said upon tho subject of economy in individual expenditure, for it is an indisputable fact that every purchase of American goods by New Zealanders has gone to swell the.balance of tEe huge indebtedness of London to Now York, and helped to intensify the exchango difficulty to which I have just referred. Britain's Outlay.

"Britain's outlay connected with the war is, as already indicated, of a steadily increasing character. Commencing, at the beginning of the war, with about £750,000 per day, it has now, the British Prime Minister informs us, reached tho enormous total of £5,000,000 per day, or say £1,825,000,000 per annum. Of this, 1 probably at least £1,500,000,000 por annum will, havo to be raised by way of loan; and in addition to providing for her own outlay Britain has, to a largo extent, to finance tho requirements of lier Allies both in money and munitions. In the early stages of the war, Britain financed by the issue of Treasury bills by tender at varying rates, but all below 4 per cent. Her first effort to fund her war liabilities was made in Novepibor, when tho 3i per cent. War Loan of £350,000,000 was issued at £95. This was equivalent to a borrowing at .i .nor. cent. Tho Treasury, shortly, af-

ter the issue of tho loan, discontinued the placing of Treasury bills by tender, and adopted tho method of issuing them, as applied for, at fixed rates, viz.; 2J, 35, and 3J for 3, 6, and 9 months' bills respectively. In June last the per cent. War Loan (without limit as to amount) was offered at par, and cash subscriptions of about £585,000,000 wore received. Issues of Treasury bills continue to be made, and the rates are now fixed at 5 per cent, for all currencies. In view of the present rate of expenditure, it cannot bo long before another Imperial War Loan must be placed on the market, and the increase of the Treasury bill rate seems to indicate that, when that time arrives, at least 5 per cent, interest will have to be offeree!. In this connection it is interesting to note that just prior to the commencement of the war, the British national debt amounted to £706,154,110. On March 31, 1915, it stood at £1,161,951,702; and by .March 31, 1916, it is estimated that it will have reached the stupendous total of £2,200,000,000. It is sad to think that such vast liabilities should have been incurred in a policy of destruction. Local Conditions Still Coocl. "Turning now to matters of local concern, I would remark that prospects continue good for all descriptions of tlie Dominion's primary products. A wider market for wool has been assured by the conditional removal of the embargo placed, shortly .after the opening of the War, on exports of wool to neutral countries. Tho export of wool to certain neutral countries can now he arranged upon compliance with such formalities as are deemed necessary for the purposes of assuring that the wool will not reach tho hands of tlie enemy. The effect of this has been to enlarge the area of competition, and to appreciably stimulate prices, more particularly for tho class required by American buyers; that purchased on Bradford account has not advanced to a correspondingly high level. The arrangement, under which tho whole of tho Dominon's meat export is commaiuleored by tho Government, still continues in operation and, I believe, has worked on the whole smoothly and quite satisfactorily. The aggregate payments, made by the Imperial Government in this connection and disbursed by the Dominion Government on its account, amount, up to November 24, to £5,914,624. Tho pressure on storage space and the shortage of insulated steamers to carry the meat away, which were features on the last season's export, are not likely to recur this year. Additional storage will be available in tlie Dominion—the result of fresh constructions comploted or in progress—in addition to which the prospective supply' of carriers is said to be adequate.' An analogous call has also beon made upon the cheeso product of the country, the Government having, it is understood, Imperial orders to requisition" 15,000 tons of cheese, to the value of about £1,000,000 in all. Experts and Imports. "The trade returns exhibit a marked fluctuation in favour of tho Dominion. "For the year ended September 30 last, - tho exports were ... £29,710,000 and the imports ... 19,786,000 Surplus £9,924,000 Tho figures compare as follows with those for tho year ended September 30, 1914:- , . , Exports—Sept. 30,1914 ... £23,759,000 Exports—Sept. 30, 1915 ... 29,710,000 Increase £5,951,000 Imports—Sept. 30, 1914 '... £21,057,000 Imports—Sept. 30, 1915 ... 19,786,000 Decrease £1,271,000 "Together,' the figures represent a net improvement during the year in the Dominion's financial position of £7,222,000. "More than half of the increased value of the exports is due to the higher values that havo been ruling, and the rest represents increase in the quantity exported. are very satisfactory figures, but tho growth, as far as dependent upon increased value, is, of <purse, quite abnormal, and duo to tho exceptional conditions at present existing,- which will undoubtedly pass away upon termination of the war, or shortly thereafter. It should be hardly necessary for me to utter a word of warning against tho assumption of liabilities, dependent for their satisfactory liquidation upon maintenance, for any length of time, of the present high range of prices. It would ho folly, to assume for one moment that such abnormal prices can continue after the present huge expenditure of borrowed money incidental to the war comes to an end. It is almost certain that, immediately ,thc end of the war is reached, prices will drop heavily, and the recoil may carry us to a- point of depression as abnormal as that of the present inflation.

It -will- be wise policy , on tie part of everyone to keep the probability of "lean years" to come steadily in view. Revenue and Expenditure. "The revenue of the Dominion is well maintained, and is exceeding the estimate made by the Minister of Finance for Budget purposes, in which the estimated revenue for 1915-1916 was set down at' £11,676,254, as against. actual revenue for £12,443,525. The actual rovonue for the first seven months of the financial year, i.e., to October 31 last, was £6,099,402, which . compares with £6,022,836 for the corresponding period of 1914—a surplus of £76,566. The estimated expenditure for 1915-16 is £12,653,242, which leaves a deficiency on estimated revenue of £827,941. This is without making, provision for war pensions, and. for interest and sinking fund on war loans. The former are estimated at £1,000,000 per annum, and the latter at £700,000 per annum, but the full amount will not fail to be provided during the current fiscal year. "In view of the above, additional taxation has of course become necessary. Increases in income tax, in stamp duties (including a mortgage tax of ss. per cent.), and in a few lines of Customs and Excise, together with an increase in the rates of the Post and Telegraph, and railway s'ervices, have accordingly been made, and theso, it is believed, will suffice to cover the extraordinary additional expenditure referred to, being estimated to produce £2,032,600 of extra revenue. The Dominion's Financial Position. "The artificial prosperity, created here as in the Old Country, by the expenditure incident to the war, continues to bo reflected in the banking returns of the Dominion. The returns furnished to Government of quarterly average banking figures at September 30 last compare as follow with those- for September 30, 1914: — Sept. JO, Sept. 30, 1914. 1915. Inc. £ £ £ Interest bear- - ins deposits :0,828,900 11,609,100 780,200 Hon - interest hearing de- >, deposits 14,172,800 17,545,900 3,373,100 £25,001,700 £29,155,000 £4,153,300 Dec. Discounts ... 1.745,000 1,357,700 387,300 Other fldv'nc's 22,717,600 21,991,200 726/00 £24,462,600 £23,348,900 £1,113,700 "This represents an improvement of tlio position between tho public and the banks amounting to of £5,250,000 during the year. • It is safe to say that this is an unprecedented movemen t'in the banking experience of tho Dominion. Never before lias tho public been in such an easy financial position or in command of such ample resources. "The Post Ofiice Savings Bank figures tell the same story. For the year ended September 3Q last the Post Office

deposits amounted to £12,943,458, and withdrawals to £10,356,942, showing ail excess of deposits over withdrawals of £2,586,516. The 'excesi in the . second half-year was considerably greater than that in tho first, viz: Excess. £ First half ended March 31, 1915 1,188,071 Second half, ended September 30, 1915 1,398,445 Excess for the year ... £2,586,516 Slackening of Enterprise. "The position in a measure indicates a slackening of industrial enterprise, and a heavy drop in imports—the latter being due to the inability of manufacturers in the United Kingdom to execute orders owing to shortage of labour, and to inadequate transit facilities. It is well, however, that our financial situation is so easy, for it pl»es us in a position to bear our share of the war expenditure —local and Imperial—without difficulty. Tho abnormal profits that are being made by the producers of this country and others as the result of tlie .war should be freely placed at- the disposal of the Empire by subscription to war loans—or otherwise—in order that there may be no lack of financial strength in pressing the war to a triumphant conclusion. There is, I am glad to say, evidence that our people as a whole feel this and act accordingly. Tlie large donations that have been made to war and benevolent funds testify to the public recognition of the obligation, and the recent success of the Government's local loan of £2,000,000, which was largely over-subscribed, furnishes additional testimony. We have subscribed for and obtained a substantial amount of this loan." Formal Business, Tlie resolution to effect tho deed of settlement, passed by a special general meeting on October 22, was confirmed on the motion of the chairman, secondied by Mr. Kennedy. The chairman, statedl that in response to the request for proxies for use at tho special general meeting, and at that meeting, in carrying the proposed amendments, they had received proxies from shareholders representing 73,324 shares, which clearly indicated the general approval with which the proposals were viewed by tho shareholders. Board of Directors. The retiring director on this occasion was Mr. Martin Kennedy. Mr. Kennedy gave due notice of candidature for the seat becoming vacant, and as he was the only candidate he was declared duly elected. The chairman took the, opportunity to congratulate hiiji upon-the attainment of his "majority" as adirector of the bank, and to' express to him tho hope that he might continue in the enjoyment of good health and vigour to serve shareholders' interests as a director of the bank for many years to come.

The chairman said that he had pleasure in informing shareholders that the profits for the. half-year ended September 30 last had been quite satisfactory, and the board had felt fully justified in declaring tho usual interim dividend of 6 per cent, on the capital paid up in respect of the preference and ordinary shares.

Mr. Martin Kennedy said: "I thank you very cordially for having re-electcd me unopposed to the sert on the board which, by effluxion of time, becomes vacant on March 31 next by my retirement. I havo also to thank you, Mr. Chairman, very much for the -personal good wishes you expressed in announcing my election to fill the vacancy. As you are aware, the board consists of six members, four of whom are appointed by tho New Zealand Government as representing the Dominion's interests in the capital of the bank, and two being olected- by tho holders of the ordinary shares in the bank. I may mention that, though the retirement of your representatives takes placo by rotation on March 31 in each year, the nominations for election close in July previous. Tho object of this is that, in the event of a contest for the seat, there may be time to give notice to distant-shareholders and afford them the opportunity of voting by post iii terms of the regulations. In tho earlier years of liiy becoming one of your representatives on the board, when speaking at these statutory meetings, I called attention to what appeared to my mind the ai.omaly of Government nominees taking part in the discussions, especially as neither they nor tho Government held any shares in the capital of the bank. Gentlemen, that anomaly, if such it were, now no longor exists. As you aro aware, tho Dommion Government now holds a substantial number of shares in tho capital of the bank, and its nominees, moreover, are not debarred from holding shares. I conclude by repeating that I have entire confidence in the future of the Bank of New Zealand as at present constituted. The bank's position reflects credit on the management. _ It also reflects credit on the Dominion,' which came to its rescue in its time of need.'