THE BANKS' CHALLENGE

Evening Post, Volume CX, Issue 70, 19 September 1930, Page 8

THE BANKS' CHALLENGE

(To the Editor.)

Sir,—The first letter published by you in reply to "The Public," signed "Watta Nark," was beneath contempt. Hence was unanswered. The second, published on 16th September, with the sub-heading, "Some Facts in Defence," is evidently a carefully-considered reply of the associated banks to the allegations of "The Public" in your issue of sth September, and as such is accepted.

"Fair Play" traverses "The Public's" allegation that the banks refuse to assist the Dominion fti the presentl financial crisis, and whilst flatly denying the charge, gives no proof except that the banks' income tax has been increased—in which, of course, all other income tax payers participate— "and," says "Fair Play," "they have borne this without complaint." Quite so. Have other companies and large firms howled? No; they have accepted the situation. It is, however, upon the allegation of "The Public" that the withdrawal of the 10s notes and the doubling of the annual fee on accounts from 10s to £1 that "Fair Play" pours out his verbosity. He now declares: (1) "The note tax has been raised to the point where it will be 'difficult' for the banks to sustain the note issue without material loss." To that "The Public" replies that the banks are under no obligation, to issue notes. They can at once, without legislation, dig out from their cellars "the gold holdings amounting to £6,000,000" (says "Fair Play," on which he says "the interest alone at 7 per cent, amounts to £420,000") and put sovereigns and half-sovereigns once more into circulation. YSpll they do it? Here is their opportunity to cut'down the charge on the note issue. "The Public" is very, very doubtful over that six millions of gold. The total of "coin and bullion" normally held by the banks averages 7% millions sterling, and the suggestion that all the banks at all their branches in the Dominion are able to carry on with a total holding of 1% millions sterling of silver and copper is diflicult of digestion. In his letter "Fair Play" alleges "the banks perform an important social service, and are really public utilities."' Do not the merchant, the draper, the newspaper, the cobbler, come under the same category? But banking is a "sheltered" business, and few (if any) of the above are able to pay 14 and 15 per cent, year after year, as the banks do. I take it the attitude of the Cabinet is that at, a time like this a group of institutions—the banks—are able to assist the country's finance even at the cost of a lower dividend for a year or two. And why not? Seeing the banks themselves have fixed the value of money (overdraft rate) at 7 per cent., even if their profits were temporarily limited to 10 per cent, on their New Zealand busi* ness—and "The Public" is of opinion that some day .there may be a Government in power that will apply that • brake—no great harm would be done even to "persons of small means" whom "Fair Play" says are the principal holders of bank shares. .

But "Fair Play" takes the field openly in other parts of his long letter. He says (1) "The first duty of a bank as a commercial institution is to its proprietors." Mark that, sir! The "social service" and "public utilities" gags are flung aside. (2) "Because of this responsibility in New Zealand banks owe their shareholders to conduct their business in the most economical manner and to avoid loss." Not, be it noted, a loss on the total, but a loss on every section and department of its business. In this case there is the cost of printing the 10s notes, the counting, tie holding, the storing, the handling—all are charged up, and the final verdict is, "They don't pay! Out with them! Blow the social service and public utility business! With us every post must be a winning post!" And so on.

■ (3) "Fair Play" admits the backs are "passing on" "through their customers to the public at large" all the increased taxation that "can be passed on." In opposition to this "The Public" considers that institutions which are able to pay such huge dividends do not need to adopt the tactics of the struggling grocer or draper. Were a wise and broadminded policy ruling the banks they would say, "We are rich institutions, and pay good dividends, let us accept the position and not squeal." They have chosen the other alternative, and have not only squealed, but from "pure cussedness"—l repeat the termhave attacked the whole people by threatening to withdraw the 10s notes and intend to hit their own customers by doubling the'amount charged. They should remember -the old gag, "Those whom the gods intend to destroy they first deprive of their reason." The large and very representative deputation of M.P.'s from all sides of the House to the Acting-Prime Minister on Saturday is a warning. A telegram from Dunedin is another.

Finally, "Fair Play" saya ex cathedra, "if dividends are reckoned on the total of proprietors' capital invested, and this is the only intelligible basis on which to reckon, very few banks anywhere are making more than 7 per cent, on total shareholders' funds." There is "a catch" in this, which "The Public" will expose. It is a- rule of banks never, in times of prosperity, to pay in dividends all their profits. They fix, say ; 10, 14, 15 per cent, as the maximum dividend. All the rest of the profit is added to the reserves. Now and then they eat up portion of the reserves by increasing the number or amount of the shares, the increase being spread over the fortunate shareholders. This has' been done in this Dominion. These reserves are thus practically all built up out of undistributed profits earned from the customers of the banks. Let us now take off the gloves and see how we stand in this Dominion. The following table explains the position:— Paid up Restrre* Dividend capital. and inc. bonus. balance. £ £ New Zealand Sanies— New Zealand .. *3,750,000 4,X73,15T 14 1/* Nat. of N.Z. .. 2,000,000 2,174,17 Xl2 Australian Banks— Australasia .' 4,500,000 4,636,943 14 Com. of Aus. .. $1,924,000 2,255,549 15 N.S.W , 7,500,000 6,313,479 10 /Union of Aus. . 4,000,000 4,949,404 12% 'Includes 4 per cent. Government guaranteed Stock, £529,988, also Government preference shares, £1,875,000: , JAlso has £2,117,350 or 4 per cent. cum. pref. capital paid up. A glance at the table will show how rich and magnificently endowed- these institutions are, also how little reason they have for squealing over an increase in taxation. With the vast reserves they have built up out of profits they can well afford to help the Dominion at a time of crisis. . Our advice to the Government is: "Be strong! Stand to your guns! Insist on 10s notes being maintained!" And to the banks: "Be wise! Let sleeping dogs lie! Accept the inevitable, and leave things as they are! Kemember, next year is election year!" With apologies and thanks for so much of your space.—l am, etc. THE PUBLIC. Wellington, IStli Sept., 1930.