LOAN CORRESPONDENCE.

Globe, Volume IV, Issue 350, 27 July 1875, Page 3

LOAN CORRESPONDENCE.

The Loan Agents to the Hon Sir J. Vogel. London, April 12, 1875.

Sik, —We have received your letter of the 25th ultimo, respecting the recent negotiations of the New Zealand Government Loan of four millions. From it we learn that you take exception, not so much to the draft report and letter which accompanied Sir P. G. Julyan's communication to you of the 17th ultimo, as to the whole proceedings which led to their production. You state also that although you were one of the agents, we, the other three, held a meeting at which we did not invite you to attend, and without consulting you agreed as to the report we would send out.

We would remind you that the state of your health forbade us to hope for the possibility of your meeting us. We considered that we adopted the most convenient course open to us under the circumstances of the case—viz, to prepare a draft report, and to furnish you with a copy of it. We regret that it has appeared to you that we did not desire to consult you on the subject. We certainly were ready to confer with you, not only as regards the draft report, but also as regards the letter; and we think that the concluding paragraph of Sir P. G. Julyan's letter of the 17th ultimo fairly conveyed our views on the subject. It is as follows: "Be good enough to return the draft, with any alterations you may have to make on it at your early convenience ; or if you prefer a personal conference with your co-agents on the subject, I am sure they will be willing to meet your wishes in the matter at any time you may name." With respect to the preparation of the draft by us, to which step you take exception, we would observe that you had yourself prepared a report of your joint proceedings without consulting any of us, that you read your draft letter to one of us, and that the other two have not yet even seen it.

As the draft report and letter forwarded to you in Sir P. G. Julyan's semi-official letter were, as you were afterwards officially informed, withdrawn, with a view of meeting the objections you had verbally expressed to one of us, and another report substituted, they may be properly treated as having no existence, discussion based on them would therefore seem superfluous. You observe that we have wisely modified the remarks in which we implied that only embarrassed States used the services of " financial houses," and that the Government of New Zealand exposed themselves to that charge by employing Messrs Rothschild and Sons. Without pausing to discuss your comments on that paragraph, we think it due to ourselves to point out that we are not aware of having used the term "financial houses," but "financial contractors," and in our opinion there is a wide difference between the two. A financial house, remunerated by a fixed commission, should have no interest to serve but that of its employer; it is obviously otherwise with a financial contractor.

You state that, in the letter we have sent out, we " disguise " the fact that, after calling for tenders for the last two issues at a certain rate, we disposed of a portion at that rate, and the balance at £1 8s 3d percent less. It appears to us that the term "disguise" is quite inapplicable under the circumstances of the case.

We were not reporting to the Government of New Zealand the course we had pursued on previous occasions : that we had already done most fully, and we would invite your attention to our letters of the 9th February and 2nd June last year, in which these circumstances are fully set forth, and to your replies of the Bth and 29th August. Our letter of the J2nd June last explained at length the result of our negotiations with respect to the sale of the one and a half million debentures, and in your letter of the 29th August last you informed us that our letter had received your careful consideration, and you thanked us for the "clearness of our statements."

We agree with you in thinking that the sale of a loan, or a portion of|one, a few days after public tenders had been sent in, at less than the advertised price, is a proceeding which nothing but necessity can justify; but in our opinion it is equally objectionable to sell a loan to a contractor, say at 91, and allow him, acting as the declared agent of the borrowing Government, to invite subscriptions at 93. We think that nothing but necessity could justify either proceeding. In the case of the one and a half million issue you say that we sold .£826,600 at £1 8s 3d per cent less than the advertised price, by making an allowance to the buyers of 1 per cent under the name of commission, and 8s 3d per cent for accrued interest. The course we adopted may be thus described: We certainly agreed to take less cash for the debentures than we first asked, and we did so to force a sale. It is, however, somewhat inconsistent with this view of the case, or •' fact," as you describe it, to urge us not to forget that, as against the 2 per cent paid to Messrs Bothschild and Sons, the various charges for commission agency and brokerage paid by us for that portion of the loan amounted to at least I 5 per cent. We accepted either the lower price, or we paid a higher commission—one or tbe other —not both; but in whatever way that operation may be described, there is no gainsaying the fact that, after deducting commission and allowances to the purchasers by way of accrued interest on each transaction, the net average prices respectively on the three issuesTof New Zealand Government 4£ per cent 5-30 debentures were, — Price realised. £ £ s. d. January, 1874 500,000 97 7 3 May, „ 1,500,000 95 4 2 March, 1875 4,000,000 91 0 0 We had no desire] to enter into any discussion as to the commission paid by the Government of New Zealand on the respective operations under review. Thinking it of importance, we recorded a comparison we had made with respect to the results of the three issues of 5-30 4£ per cents as had been done on former occasions. Neither had we any wish to refer to our discussions prior to our contract with Messrs Rothschild and Sons ; but as you have alluded to those discussions, we have no option in the matter, and must therefore recall to your memory what passed between us. On the 18th February last we met, at your request, at your residence, No 49, George street, Portman square. We found a leading member of the Stock Exchange with you, and you stated to us that he had informed yon that, in his opinion, two millions might be placed at a price to realise 92 per cent ; three millions, 91 ; and four millions, 90 He added, that if two millions were sold to I a syndicate at 92, he was of opinion that

the other two millions might, in about eight months, be likewise disposed of. He suggested that the syndicate should have the option of taking tho l.i ' two millions at any time within the eight months. You objected to those terms, and stated in his presence that "the necessities of the Government of New Zealand were such that you must have the four millions taken firm," and added, " In fact the Government was in a mess, and must get out of it as best it could."

We, the four loan agents, subsequently discussed the matter (the member of the Stock Exchange having left), and you informed us that, in your opinion, it would be very advantageous to dispose of the whole four millions to Messrs Rothschild and Sons, if necessary, at the price offered by them—viz, 88 net—but that you had reason to believe that they would give more, a net 90. One of us declared in the most emphatic manner that he for one would neither accept nor entertain such a proposition till it had been proved that better terms could not be obtained elsewhere, and in this determination your other co-agents agreed. You informed us that you considered that a serious responsibility would rest with us if we rejected such terms. In tun wegstated that, in our opinion, we should assume a much heavier responsibility by agreeing to such a sacrifice.

You stated that in your opinion it would be an immense advantage to the colony to have at its back such a financial house as that of Messrs Rothschild and Sons ; that the credit of New Zealand had already suffered seriously from the want of such an agency ; and that, if Messrs Rothschild and Sons had held such a position, you were sure that they would either have immediately answered the articles hostile to New Zealand which appeared in " Fraser's Magazine" and the Pall Mall Gazette, or have telegraphed to the Government for instructions on the subject. We did not concur in either opinion. During our discussion, finding that material differences of opinion existed between you and ourselves, we reminded you that we were clothed, by the order of the Governor in Council, with equal powers with yourself, and that we were therefore bound to express our opinion freely, and exercise our own judgment, guided by past experience.

You then stated that if you, as Colonial Treasurer, gave us an order, as loan agents, to accept Messrs Rothschild and Sons' terms, we should be bound to do so ; and when, on a subsequent occasion, you repeated the same, we, without calling in question the propriety of such an intimation from our co-agent, or allowing it to influence our independence of action in the trust confided to us by the Colonial Government, expressed our readiness and our intention to be guided by the necessities of the Government, upon which you alone could enlighten us. But, at the same time, one of us told you distinctly that, in his opinion, the order of the Govenor in Council appointing the loan agents, gave you no power to give your co-agents such an order; that he had carefully considered the question, and that if you were determined on yonr own responsibility to sell to Messrs Rothschild and Sons, at a price he considered unsatisfactory, he would withdraw from all participation in the transaction; but guided by the necessities of the New Zealand Government, would not decline to sign the debentures. Such appeared the only course open to him; but in return for the confidence which successive Colonial Cabinets had reposed in himself and Sir P. G. Julyan, which he had always highly prized, he would be compelled to record the reasons which had induced him to pursue such a course of action.

We have been forced most reluctantly to refer at some length to these discussions, because the eighth paragraph of your letter under acknowledgment appears to us to be open to erroneous inferences. We allude to the following portion of it. in which you say that, "in substance, what I stated to you was, that during this and the next year very heavy works would be completed, and that the requirements of the colony were such as to make me desire the negotiation of the whole amount, if possible, and to make me not content with the negotiation of less than three millions."

We frequently discussed with you the expediency or otherwise of raif ing the money by instalments, instead of dealing with the whole loan by one operation. We are not aware of your having told us that the proceeds of the sale of the Four Millions debentures would be required to pay for public works to be completed " during this and the next year." On the contrary, we endeavored to elicit from you what the wants of the Government were which would justify us in consenting to the course you advocated of disposing of the whole at once; and although we failed to obtain from you any exact statement of your requirements, you distinctly informed us that negotiations must be conducted on the basis of a fixed or firm price for the whole—three-fourths of the money to be paid at short intervals ending in August, 1875, and the remaining fourth not later than February, 1876. Had we been given to understand that the expenditure of the money was to have been spread over two years, we should moat certainly have been no parties —in the absence of instructions —to the raising of the whole amount so far in advance, a step which may, and probably will, entail upon the colony considerable loss, inasmuch as we cannot hope to obtain upon proper security, for the temporary loan of the money, the same rate of interest as will be paid for it, the difference between the two rates being at this moment upwards of 2 per cent against the Government. We still think that a better price would have been secured for this loan if the requirements of your Government had permitted the sale of it by two instalments, and we agreed to the price finally given by Messrs Kothschild and Sons (91), on the understanding that it was necessary to secure at once a " firm price" for the whole; but we beg to repeat what we have already stated in our report to the Colonial Secretary, dated 19th ultimo, that, considering its magnitude, " the terms upon which this transaction has been carried out appear to us exceptionally favorable." We have, &c, P. G. July an. I. E. Featherston. W. C. SERGEAUNT. The Hon Julius Vogel, C.ftl.G. Sir J. Vogel to the Loan Agents. 7, Westminster Chambers, Victoria street, Westminster, S.W. sth May, 1875. Gentlemen, —I have tte honor to acknowledge the receipt of your letter of 12th April.

There are some points in it to which I think it desirable to reply. 2. I cannot agree with you that the state of my health forbade you to hope for the possibility of my meeting you, seeing that I had never been unable to grant you an interview. It is true you had had to meet at my house—a course which had I been well it would not have been unreasonable to expect you to follow. About the time of your preparing the report, I had been out several times ; so that my illness could have had nothing to do with your isolating me from your proceedings. I prepared, as you state, a draft letter, and read it to one of you. I read it to Mr Featherston, at his office, and he told me that a report had already been prepared, and was being forwarded to me. la the course of an hour or two, when I reached my house, I found there two documents about which we are corresponding. On the afiernoon of 9th March, when the Californian mail was leaving, I was first informed of the desire to send a report. Mr Featherston and Mr Sargeaunt called on me with one prepared. I pointed out it£ inaccuracies, and said I would prepare one. They took the document away to point out its mistakes to Sir P. G. Julyan. When I afterwards asked for it, I was told Sir P. G. Julyan had it, and that he was not at the office. I prepared a letter without it, and took the draft to Mr Featherston, who then told me of another report having been prepared ; and, as I have said, when I reached home, I found it with the cepy of the letter which purported that the original had been signed by each of you. 3. I do not consider those documents beyond the right of comment. I had already written to the colony before your letter of March 19th, enclosing another report which you had adopted, reached me. Besides, I should not in any event have consented to the document purporting to be a copy of a signed original, but which original, it afterwards appeared, had not been signed, being withdrawn. The whole proceeding was of a nature which my duty forbade me to overlook.

4. A great deal of your letter of April 12th does not require reply. All that you urge does not do away with the facts that Messrs L. N. Rothschild and Sons sold the loan well; that we obtained a very good price for it; that they procured a large circle of new investors, thereby occasioning much annoyauce to some persons who had grown to look upon colonial loans as a sort of monopoly ; and that, in stating the rates of your previous transactions, you do not accurately describe the sales effected.

5. You correctly state that I approved of the sale of the £1,500,000, and I do not recall that approval, although until I reached London I was not aware of the discontent which the syndicating, after obtaining a higher price from the public for a part of the loan, had occasioned. 6. You dwell upon my having required the sale of the £4,000,000 without having given you the particulars of the requirements of the colony. You will permit me to say that those requirements were freely discussed between us, and that on one occasion Mr Featherston produced a calculation, from which he showed the expediency of negotiating the whole loan, and the necessity of negotiating at least £3,000,000. You are not, however, accurate when you say that I insisted upon the sale of the £4,000,000. I stated to you that I would be satisfied with the sale of £3,000,000, but that I thought it better the £4,000,000 should be sold ; for that until the whole amount was sold the market for our securities would be depresssd. 7. Your recollections of what has passed between us ut different interviews are inconsistent with my own. I am aware that you have the advantage of numbers ; but as I can prove some of your recollections to be erroneous, and as some, though vouched by all, are statements as to what took place n the absence of some of you, I venture to strongly affirm that you are very much mistaken in a great deal of what you state. 8. At the interview on the 18th February, the gentleman to whom you refer (Mr Scrimgeour), who was present by appointment to meet us all, gave it as his opinion that 92 might be obtained for £2,000,000, 91 for £3,000,000, and 90 for £4.000,000. The first, he said, he thought was probable ; the second less probable ; and the third only possible. 1 deny making the statement about the Government being " in a mess," and that I must have the four millions sold firm. On the contrary I said I would consent to a sale of £3,000,000; and when it was proposed to sell to a brokers' syndicate £2,000,000, accepting their undertaking to lend us money on part of the balance, I said I would have nothing to do with such a dangerous transaction, and would prefer obtaining the money in a different way, by short-dated debentures. On Mr Scrimgeour withdrawing, I expressed my opinion that we should, if necessary, take 90 from Messrs Rothschild and Sons, if we could not get more; 90 was the price the broker had said it was barely possible to obtain for £4,000,000. It is absolutely incorrect that I stated, " it would be very advantageous to dispose of the whole £4,000,000 to Messrs Rothschild and Sons, if necessary, at the price offered by them, namely 88 net." The proof that this statement is incorrect is, that Messrs Rothschild and Sons had not offered 88 up to that time, nor was that price ever mentioned at that interview. On the 18th we were all of opinion that we could get 90 from Messrs Rothschild and Sons, and 1 proposed an authority to Sir P. G. Julyau to close at that price, on the understanding that he was to endeavor to get more. But the other agents refused to allow Sir P. G. Julyan to accept less than 92, and it was agreed that he was to offer Messrs Rothschild and Sons not less than £3,000,000 at 92; and failing their acceptance at that price, he was to ask Mr Scrimgeour to get up a syndicate at the same rate, and for the same amount. On the following day Sir P. G. Julyau wrote me that Messrs Rothschild and Sons would not give more than 88. This was the first time such a price was ever mooted to me. In the evening he came to me and told me the same, adding that he would have taken upon himself the responsibility of selling at 90, if Baron Rothschild would have given it. Sir P. G. Julyan further told me that he had written to Mr Scrimgeour, authorising him obtain offers for the whole or any part of the loan. I quite agreed that 88 was inadmissible, and stated so emphatically : but I asked Sir P. G. Julyan why he had not limited Mr Scrimgeour to not less than 92 for not less than £3,000,000, as agreed to on the previous day. He said he thought it was better not ; and I expressed myself strongly that the absence of a limit might lead to the loan being hawked about at any price. Sir P. G. Julyan, however, explained that Mr Scrimgeour was only to have until Monday, to

try what ho could do. Meanwhile, he told me he had instructed Mr Scrimgeour, in accordance with a desire I expressed, to communicate with me direct. This was on the Friday evening, and Mr Scrimgeour was to have until Monday. Before Monday, circumstances had come to my knowledge which convinced me that the negotiations with Messrs Rothschild and iSons had fallen through on account of the manner in which Hir P. G. Julyan had conducted them. I saw Mr de Rothschild, and learned from him that his father, driven to make an offer, had offered 88, but that he had advised we could do better, and had offered to sell the loan on commission. He believed that his father would procure quite a new circle of investors in colonial loans, and had no doubt that if they offered the loau it would go off. I learned enough to show me how Sir P. G. Julyan had managed the negotiation with Messrs Rothschild and Sons. I sent for Mr Featherston, and, after telling him what I thought of the matter.calleduponhimtosupport me. We agreed that we were bound to give Mr Scrimgeour until Monday evening, but no longer ; and Mr Featherston agreed to go into town on Monday, and give Mr Scrimgeour to understand that he must let me know on Monday evening the result of his negotiations. On Monday evening Mr Scrimgeour came, and told me that he had done nothing, He attributed his failure to Messrs Rothschild and Sons refusing to deal with him, and their asserting that they still considered themselves in negotiation with us. Mr Scrimgeour said he could not do anything unless we were finally off with Messrs Rothschild and Sons, but he added that he did not ask us to do anything of the kind—we most use our own discretion. I said (I do not vouch, for the exact words) : " I undestand that if you are to continue to act, it will be necessary to finally close with Messrs Rothschild and Sous. What justification can you give me for so doing? Will you undertake to sell even £2,000,000? Will you make me any offer ?" He said he was not able to do so. On the Tuesday the agents met, with the exception of Sir P. G. Julyan, who was unable to be present. In the course of the meeting Mr Sargeaunt showed some warmth, and asked me what I meant by saying that, if necessary, I would give 'directions to the Loan Agents. I explained to him that the Loan Act provided for different powers being given to the agents —that it was not thought necessary to state this in the warrant —that it was supposed i the agents would recognise my position. I admitted that, the warrant not stating otherwise, as agent I stood on an equality ; but I added that I considered that if, as Colonial Treasurer, I gave directions, I should expect them to be complied with. Mr Sargeaunt said, in that case he would be relieved of responsibility. I said of course the responsibility would be mine if I adopted that course, but I hoped it would not be necessary. I then proposed to take the negotiations with Messrs Rothschild and Sons into my own hands, and said I should try to get 91 net, free of all allowances ; that was to say, the issue price to be 94, with 1 per cent allowance to the public for accrued interest, and 2 per cent commission to Messrs Rothschild and Sons, they to guarantee the sale. I said I was willing to be bound by the limit of 91, and call the agents together if I could not get it; or they could, if they liked, agree that I should take 90, failing my being able to sell for 91. Mr Featherston at once said he voted for my undertaking the negotiation at 91 net. Mr Sargeaunt acquiesced. It was agreed he should, for form sake, consult Sir P. G. Julyan. I then turned to Mr Featherston, and asked if he would come into the city, and hear all that passed with Messrs Rothschild and Sons. Whilst we were with Messrs Rothschild we received a note from Mr Sargeaunt, saying that Sir P. G. Julyan agreed to 91 for £3,000,000, and wou'd, if necessary, agree to take 90 for £4,000,0(0. 7. Now, these are the facts, and they rebut the assertion that I was willing to take 88. I may say that I expected to get 90, and knew that I could do so for £2,000,000. I feel quite certain, from the most reliable sources, that Mr Scrimgeour could not have done better than 90, and that for £2,000,000 only ; and then there would have been \ per cent to the Crown agents, and \ per cent to Messrs Scrimgeour, so that the price realised would not have been more than 894 net.

8. Throughout, I urged that Messrs Rothschild and Sons would do what they have done —obtain new investors in colonial loans. Sir P. G-. Julyan contemptuously snapped his fingers at this possibility, when he described to me that Messrs Rothschild and Sous themselves told him they could do so.

9. You do not now support your former statement, that you could have sold £2,000,000 to the public. You narrow the issue to the statement that the £4,000,000 sale was a good one, but th*t you could have done better by selling in two parcels of £2,000,000 each, This statement is evidently made to prejudice me with distant readers. Any one in London, not concerned in keeping up the old monopoly, could contradict it, and would support me in recognizing how damaging and objectionable it would have been to make a sale of £2,000,000, with arrangements for borrowing on the security of the balance, with the risk of a forced sale in the case of disturbance of the money market. When I reached Iflorence, I was told it was desirable to keep out of the market as long as possible—that the last sale of £1,500,000 had been managed with difficulty. When I reached London, I was told £1,000,000 was possible ; and shortly it rose to the possibility of £2,000,000 at most. An excellent authority, introduced to me by Mr Featherston, told me that, as it was known we required to sell £4,000.000, selling half and keeping half would just as much depress the market as offering the whole. No one whom I consulted thought wc could do so well as we have done. No one whom I have met since the operation has failed to congratulate me on it as a most brilliant success.

* * * I have, &c,

Julius Vogel. Sir PenroseG. Julyan, K.C.M.G., C.B. I. E. Featherston, Esq. W. C. Sargeauut, Esq.