BANK OF NEW ZEALAND

Dominion, Volume 14, Issue 29, 29 October 1920, Page 7

BANK OF NEW ZEALAND

• AMENDING BILL INTRODUCED

INCREASE OF SHARE CAPITAL

STATE INTEREST MADE

LARGER

PROVISION FOR FUTURE EXTENSION

The Bank of New Zealand Bill, which Bad been expected for time, was introduced by Vice-Regal Message in tho Honße of Representatives yesterday afternoon. . ' ' '

• itt m-,^ ea^e r 'h® Opposition (Mr. T. BJ. Wuford) immediately asked that copies if >t. should.be made available at once in order that members might have an opportunity of consulting those who were experts in the. subject. He also suggested that the Prime Minister Imight givs some idea of what the Bill "ontained. Mr. said that copies of the Bill would be available at once. His idea'in introducing the Bill that day had, been to give everybody time to consider it. He did not propose'to go on'with it this week. With regard to the contents of the Bill, he did not wish to go into much detqjl. for it would be understood that . once •he began on tho details ha would have to go througn them all. He had referred the measure to the Public Accounts Committee, tho Treasury, the auditor of the bank, who was practically the representative of the Government, and to the Attorriey-General. All of them were satisfied.

•Mr. Wilford: If they are all satisfied we can hardly object. ' Mr. Massey: I have been particularly careful with it. It is my first banking Bill. So far as the proposals of the Bill were concerned, one of the most important was to transfer part of tile reserve to capital. At present the paidup capital was* .£2,250,000, mado up of 75,000 "A" preference shares, belonging to the. Crown, 37,500 "B" preference shares also, belonging to tho Crown, and 225 000 ordinary shares -of a nominal value of .£1,500,000, making the paid-up capital .£2,2-50,000. The Government's interest now was, tho. "A" preference phareg, and the "B" preference shares. In connection with the transfer of i 51,125(100, from reserve to capital, a certain, proportion was coming to the Crown as the representative of the peonle of the country. They would • lie "B" shares. The new shares cominj added to the .£250,000 in "B" shares which tho Government had would give the Crown an interest in the. bank -under the "B" shares of ,£625,000. The additional income to'accrue uYider this, which was only 'an estimate, but from a particularly pood source,- would be approximately .£18,750 per annum. The Government's present share in the bank was < ne-seventh of the total, plus the "A" shares. -What ®waa aimed at by the .Bill t was to increase that interest from cne-seventh to one.third. The readjustment that was also intended was probably as imnortant as the transfer. When it took placo it would leave the capital a 5 follows:— "A" shares, ,£500,000; "B" shares. .£(!25,000; ordinary shares at each. ,£'2.250.000, mnkinjr the capital of the bank iC3.370.000. The,.shares of the hank had been of the nominal value of jE6 13s. 4d. Now it was intended to, make these - shares up to to divide the .£lO . shares, each into ten .£1 eh nips. The intention was to democratise the institution and make it the small man's bank. . The capital transferred would be more easily handled as working capital than as reserve. There would be a number of other details that would be explained when the Bill was before the House.

. Dr. Tli acker (Ch'ristchurch East): Can these shares he aggregated? , Mr; Masseyi' The shareholders themselves will have 'the first chance of buying the shares, and then they will go to the public.

Mr. W. A. Veitch (Wanganui): Do they. j?et them- at par? . Mr. Massey: Tee. Ha added that the reserve fund which now stood at ,62,500,000, would be ,£1,375,000 temporarily at li'ast. He had looked very elos&ly the matter, and he did not* think that any bank in proportion to its capital could be sounder or in a better position than the Bank of New Zealand.

THE OFFICIAL SUMMARY

AN EXPLANATORY MEMORANDUM.

, An explanatory memorandum attached to the' Bank of New Zealand Bill states that before the passing of tho Bank of 'New Zealand Act, 1913, the Government had no share in the profits of the bank beyond tho preference rights'of its then holding of 75,000 preference shares, fully paid up, of <£6 13s. id each, totalling i 500,000 (named tho A shares in the Act of 1913). The ordinary shareholders held 150,000.shares, then paid up to ,43 09. 8(1., and since fully paid up to X'B 13s. 4d., and now totalling ,€1,000,000. The Government's A preference shares were created, urder the Bank of New Zealad Act of IDO3, which provided that tfoe dividends thereon should increase in certain proportions when dividends on the ordinary shares exceeded's per cent., but so that tho maximum dividnnd on the A shares should bo 10 per cent. . Preference shares of that nature do not confer an interest increasing with the prosperity of the bank, and do not crenfu any absolute share in the assets and reserve funds so long as the bank, continues to exist, beyond the security flf Kiicii assets and funds for the capital of tho preference shares.

In 1913 the.bank desired to call up the uncalled capiiiil on the 150,'.00 ordinary shares, and to create further capital by tho creation and issue of new shares Legislation was necessary for the purpose, and the t.dvantages then gained for the Government were that of the r.ew issue authorised by Vhe Act of 1918 the Government should bo entitled to take up one out of evory three issued. The Government's new sWes had preference over ordinary shares as to capital, and are called "B preference," but the "B preference" in all other respects rank for dividend and for share in the assei ! s with the ordinary shares

The new shares issued under tho Act of 1913 wero 37,500 B preference shares, totalling .8250,000 to tho Government, and 75,000 ordinary shares totalling ,£500,000 to the shareholders.

As the result of the Act of 1013 tno Government then obtained its present, actual beneficial holding in tho assets and future of the bank of 37,500 shares, as against 225,01!0 shares held by the ordii nry shareholders. That is to say. tho Government holds one-seventh of the total of such shares and'the shareholders elicscveni'hs.

But every future increase in the capita! will ertect an increase of the direct interest and share of the Government in the bank, if the principle of the Act of 1013 bo adhered to, and if of every three 'new shares i!he Government tubes ono' The Government's proportionate sharu o( the whole beneficial interest will be thereby gradually Increased. On tlto other hand, an Increase of capital involves a less dividend upon each share, and the result; might'be to reduce below 10 per cent tto (liyidond on title A preference shares.

The bank's reserve fund aS shown on its last balance-sheet amounts to J82.500,000, and the bank desires to capitalise .f1.120.00fl of that reserve by the issue of shares fully paid up. It also desires to make all its shares of the nominal value of .£1 instead of .£6 13s. 4d.

There is no objection on business principles to either'such proposal, and tho bank offers to fl)o Government the following advantages:— (1) The dividend on the A preference' shares shall be henceforth a fixed preferential dividend, of 10 per cent.

<2) Out of tho new 1,250,000 shares of JBI each to be issued there Bhnll bo added J3375,000 to tho Government's B prefer6nce present holding of ,£250,000— that is one-third of the whole of the, new issue: The Government's proportionate share of the whole beneficial interest being thereby increased from one-seventh to more than one-fifth.

(3) But the Government is at. present entitled to only one-seventh of the reserve funds, and would therefore actually be entitled to only a little more than 160.700 of the shares to bo paid up in full out of the realm tod. The adjustment of th« position which allota

to the 'Government nearly, 215,000 more Shares than its actual quota lias been arrived at by two provisions: firstly, that the sunt distributed in dividends in any year (exohisive of 10 per cent, on the A preference shares) shall up to ,£306;250 bs divided, one-seventh to the Government and six-seveiiths to the ordinary shareholders, which is exactly what the Government would receive if this Bill did not pass; and, secondly, that any amount distributed above that sum shall be divided, one-third to the Government and two-thirds to tho ordinary shareholders. The second provision is a substantial benefit to tho Government in comparison with its present share in the divisible profits.

~ ' CLAUSES OF THE BILL SOME DETAILS OP THE MEASURE. Tho clauses of the Bill provide for the cancellation of all the existing shares of the bank, except euch guaranteed stock as is outstanding, from a date to bo fixed by the directors. . In lieu of such cancelled capital the directors shall issue 3.375.000 shares of .-21 each, fully paid up, divided as follows: 500,000 preference A shares (to be handed to the t Government), 625,000 preference B shares (to be handed to the Government), and 2,250,000 ordinary shares. (to be issued to holders of old ordinary and new ordinary shares). ( ; Now crpltal. Clause 12 gives power to create further capital with the consent of the Minister of Finance. It reads:— (1) Notwithstanding anything in the deed of settlement, or any Act or law to tho .contrary, 'the directors aro hereby empowered to raise, with the consent of the Minister of Finance, now capital for t.h!o bank to an amount not exceeding' two million two hundred and fifty thousand pounds sterling by the creation and issue of a' further 6even hundred and fifty thousand preference B shares of one pound each and a further one million five hundred thousand ordinary shares .of one pound each, upon all of which there shall be no further liability in any evbnt 'whatever, (2) Such shares may (be created either at one and the.same time or at different times, but in no case shall any number of preference B shares be created without the simultaneous creation of twice that number of ordinary sharks, nor shall any number of ordinary shares be created without the simultaneous creation of half that number of preference l! shales. (3) The preference B. shares and ordinary shares created under this section shall rank, equally with the preference B shares and ordinary shares respectively created under sections 7 and 8 of this Act. (4) The preference B shares and ordmnry share* created under this section shall be offered for subscription at such times, in such amounts, on 6uch terms and conditions, and at 6uch premiums (if any) as the directors, with the approval of the Minister of Finance, may presoribo and not otherwiso, subject, however, to the following conditions(a) Preference B shares.and ordinary shares iihall b« offered for subscription simultaneously in the proportion of one preference B share to 'two ordinary shai>;». " , ~, (M The terms of issue, premiums (if ■ nnvi. and dates of payment of calls shall bn the fame for all preference B shares and 'ordinary shades which are so s 1 ™' 11 " taneously offered for subscription. The whole amount of every share so created, including any premium payable in re•sppct thereof, shall be called up forthwith after, tho issue thereof, but may bo made payable by instalments. The Government is tq hnve the first option of purchasing the whole or any of the B preference shares so issued. Subject. to thls.option the B Preference shares will W&lferri to d the bank in proportion to their holdings. The Minister of Finance is empowered to purchase B preference, shares from time to time offered at a price not greater than 100 per cent, above tho nominal value. , Distribution of Profits.

• The clause dealing with tho distribution of profits is as follows:—_ (1) Notwithstanding anything in -the deed of settlement, or any Act or law to the contrary,'the profits of the commended by the directors for distribution to the shareholders im rwpect of each year's operations, commencing with the year ending March 31, 1921, shall bo distributed as followßi— (a) The first fiftv thousand pounds shall be paid to His Majesty the Kin#, or other the holder., as . a fixed preferential but nonxiumutative. dividend upon tho preference A shares. (bV The residue of such annua) profUs up to the sum of three hundred and six thousand two hundred and fifty pounds phall be paid to Jthe holders of the preference B share.? and ordinary .shares in the pronortlon of one-seventh part thereof to His Majesty the King, or other the holders, of the preference B shares! and, .lix-sevenths part thereof to aifd aniongst the holders-of ordinary shares.

(c) If tho profits in any year so recommended for distribution amount to over throe hundred and'fifty-six thousand itwo hundred and fifty pounds the 'excess shall be distributed to His Majesty the Kins, .or other the holder, of the ,pre-ference-B shares and to the holders of the ordinary ■ shares in the proportion of one-third to His Majesty the King, or other the holder of the preference R shares, and two-thirds to and amongst the holders of ordinary shares. Other Provisions. The Bill provides that the qualification of a shareholders' director shall be the holding of 1000 ordinary shares. The term of ofhee of directors is to be three years. The remuneration of directors is increased to a total of ,£SOOO a year.

Another provision is as follows.-.— From and after the date fixed under the provisions of section G (the issue of the new shares); (a) The number of 'shares in .the oapital of the bank that may be held by one proprietor 6hall be increased from six tuousand to sixty thousand: (b) The maximum number of votes exercisable by one proprietor shall be increased from two hundred to two thousand:

(c) The number of votes to bo held by proprietors requiring* tho adjournment of a general meeting shall bo increased from thirty to three hundred i (d) The number of shares to be held by proprietors requisitioning ; i'or a special general meeting shall be increased from three thousand to thirty thousand: •

(e) The number of shares requisite to constitute a quorum at a meeting ot proprietors shall bo increased from one thousand, to ten thousand.

The auditor and assistant-auditor appointed by. the Government are authorised, if instructed by the Minister of Finance, upon request of the directors, to visit and inspect any branch of the bank in Great .Britain. <