BANK OF NEWS ZEALAND

Hokitika Guardian, 10 December 1920, Page 4

BANK OF NEWS ZEALAND

wiSLLINGTdN' t|ec. 18. The half-yearly general Mehting was heid to-day, Mr j. H. Uptoii, Efirfecfcbt-, presiding.

The Chairman said,:— As you are ait a re, the only formal business at this meeting is the declaration of an Interim Dividend and * the election of a Shareholders’ Director. INTERIM DIVIDEND.

The profits for the half-year ended 30th September were again satisfactory, and the Board feel justified in declaring ,»n interim dividend of 8;| per cent. This will lie payable at Wellifigtori to-inotrbiV, and at branches on receipt of advifcei.. . iIOARD Uf DIRECTORS.

The retiring Director on this occasion is Mr William Wntsoti, wliose term will empire on 31st Marfcil . next. He has given due notice of his intention to seek re-election ; lind as there is no other candidate, bis ejection follows as ii matter of course. It gives me much pleasure to now declare him duly elected. CAPITAL. When addressing yoU at .the Annual Meeting in June last, i informed you that proposals fdr tiie. re-arrangbiiient of the bank’s capital and reserve fund had been under the consideration of the liohrd, and that it was intended to introduce legislation on the subject into Parliament during tire session which would shortly open.

Thb proposals which were formulated iiy tlie Board, anti aA to which all the Directors were in complete agreement, have since then received, the.'.careful consideration of the Prime Minister and tlie Cabinet. As a result, of this consideration, Mr Massey laid before the House of* Representatives, on 26th October, a Bill embodying the proposals of the Board. The Bill met with little opposition or criticism in tlie House of Representatives, and was passed by a very large majority. „In tlie Legislative Council, where it was introduced by the Attorliey-General, Sir Francis Bell, it was, jtassed without discussion, and on sth November it re'Ccived the assent of tlie Governor-Gen-eral and became law tinder tile title of the “Bank of New Zealand Act, 1920.” As to the dividends which may be paid in future, it is provided in the first place that tlie “A” Shares are to receive a fixed, but not cumulative, dividend of 10 per cent —the same as the present maximum dividend upon that class of shares and,'it may be added, the dividend which has been paid on them -for ten years past. EXCHANGE: It is, I think, desirable that I should make some reference to a matter connected with banking which .has, during the last few months, been attracting an amourit of attention from the commercial community, and from the public generally, which is not usually bestowed upon it. I refer to the Exchange position between this country and Britain.

For many years, exchange between Australasia and Great Britain has perhaps been more stable—subject to fewer and smaller fluctuations —than the exchange between any other countries separated by anything like such a .long distance. Indeed, it lias usually fluctuated less, and within narrower limits, than the exchanges between most countries which are comparatively short distances from each other. If people here had Bills on London to sell, or if they desired to buy Bills on London, they could always rely upon the willingness and ability of their; bankers to carry the transaction through at a rate very close to the face value of tlie Bills. This was ensured by the fact that it has been the practice of Australasian banks to hold large cash resources both iii London and in the Dominions, so that they were always in a position either to buy or to sell Bills. The needs of the community, for the financing of its import and export trade, were thus always met without difficulty.

Many of you have become aware—tlie fact has been rhentioned by writers in Australian and New Zealand papers, aiid has even' been the subject of a question in the House,of Commons — that, during the last few months, riiany importers in these Dominions, and other persons ivho wished to remit money to London, have had an unusual experience'; as they . have met with, difficulty in obtaining the drafts which tliey Heeded to make their payments, although tliey possessed abundant money for the purpose. The causes of tliis are not far to seek. They are written with the utiiiost planless in the trade figures which I shall quote lator. We have had to pay out in London many millions more than we have been providing there. Similar conditions have been experienced in the trade of Australia during tlie present year. Large-imports have had to be paid for, while the produce of various kinds sent abroad to effect tlie payment has decreased very greatly. In addition to tliis adverse trade balj ance which lias had to be met out of funds which had accumulated in London up to the end of last year, several large payments have recently had to be made in London on Australian account; and the result has; been that the resources available there have been so fully drawn upon that most of tlie banks have .had to place great restrictions upon tlieir operations in tlie sale of London exchange by telegraph or Indrafts at short currencies, or—what amounts to the same thing—tlie purchases which tliey were willing to make in London of Bills ußon tlie Colonies. Tliis is the explanation of. the difficulty which many.- traders have been experiencing in making remittances to Britain, or elsewhere abroad, to meet the liabilities which they had incurred in those distant places. I am pleased to say that the resources of the Bank of New Zealand . have proved sufficient for all the requirements of its customers in this direction.

The position will not be effectively relieved until there is a very great diminution in the value of imports and until this season’s produce begins to reach Britain in considerable, quantities and finds h market there. Except as regards butter, we are not now receiving payment in London for our produce as soon asr it is ready for shipment, ns was the case during tlie years of the “commandeer.” It is most evident that the principal relief, as far as exchange is concerned, will have to come from a reduction of

imports—especially in the cessation of the iiiiitdrt of cbltly luxuries. Unless there is d great redaction in the vfilue of goods brought from abroad, tlie present difficulty with regard, to exchange is not likely to pass.

This Bank -lias iii the past been frequently hriticiseci for lioldiifg in London so large a portion of its resources. Those funds were kept there bCcnuse it was felt to be certain that shell conditions as have now arisen must occur sooner or later. They were available when wanted arid, now that they are required, we .-ire drawing upon them as occasion arises. Had they not been there, the exchange situation of the last few weeks would not iilive been so easily met, and our customers would have been placed in circumstances of considerable difficulty. GENERAL REMARKS. New Zealand, its is generally known, enjoyed a wonderful prosperity during the war period, owing mainly to the requisition of the principal primary products of tlie country by tiie Imperial Government. Cii :b was paid for the produce on delivery into store, tlie Imperial authorities assuming all tlie risks of storage, fire insurance, etc. The total amount actually paid by the Imperial Supplies Department from the cbmihonebtrient of tlie coriinlandeer until the 31st October, 1920, was Li-17,§50,293. This huge sum had a fertilizing effect on business, on trade, and on prices generally, but it was not wholly responsible for the war prosperity. The New Zealand GoVeriimellt borrowed £80,089,025 for war purposes and most of this money was obtained and spent locally. But the imperial Supplies Department has practically run its course, and has now inertly to arrange for the.shipment of its accumulated purchases, and also for the shipment o! the butter manufactured up to 31st March next, which .has been purchased by tlie Imperial Government. The excess of mortgages registered ovbi : riibftgrtges discharged in the past twelve months is considerably more tliaii double that of the previous year, and is in some measure duo to the mortgages registeted in connection with the Government’s arrangements for placing discharged soldiers on the land, and partly to the generally inflated values of urban, suburban and rural land.

The imports for the current quarter may be expected to show a considerable increase on tlie figure.*, for the December quarter of last year, while the exports, as a result of the lower prices now ruling, may not denote any expansion. In respect to a large proportion of our exports, it must be remembered that payment for these—wool in full, and moat to the value of 75 per cent—has already been made in advance by the Imperial Government: consequently the real margin of imports over exports is much greater tliaii that disclosed in the figures I have placed before you. In comparing imports with exports, the true position will not be shown until we are able to eliminate entirely, from our exports, all produce shipped on behalf of the Home, Government an dprevioilsly paid for. The nett result for the year must therefore exhibit a big margin between exports and imports.

Imports can only he paid for by exports, and difficulty is being experienced this year, and especially since tlie turn of the half year, in financing the imports. I have already referred to this difficulty under the heading of Exchange. In addition to financing tlie imports, there is the obligation of paying interest on our loans raised in London.

A.oheck to over-importntion is being applied now by the operation of the law of supply and demand, as well as by the restrictive policy pursued by this and other banks in the Dominion. In normal times there are available four principal means for the settlement of trading differences. They comprise shipment of goods for goods-—that is, equalizing the value of imports by those of exports ; the shipment of gold ; the raising of loansand the selling of securities. In the past, loans floated in London always gavei to New Zealand a fair amount of credit with which to finance purchases of merchandise and interest on loans, but credit cannot be so readily obtained in London just now because the British money market is not able to meet all the demands that are being made on it, even at high rates of interest. The raising of loans in London therefore is just now out of the question. New Zealand has not yet become, to arty considerable extent, an investor in the securities of other countries, so. that the sale of securities held abroad is not a- practicable method of remittance. The after-war conditions which still exist render impossible those movements of gold coin which were formerly common banking transactions, The only movements of gold at present are the shipments which are regularly made of the bullion produced from the ' mines of the Dominion, and which are properly included in the export figures already quoted. The value of the gold exported in the nine nfonths ended 30th September last was £580,374, as compared with £933,842 in the corresponding term of 1919. I would emphasise the point that, to preserve our financial equilibrium, it is imperative that we should stimulate production, expand exports by every means in our power, and curtail imports. The need for increasing the volume of our exports becomes more urgent in view of the substantial decline in value of most of our primary products. - THE IVOOL OUTLOOK. During the first three or four months of the current year the wool outlook was satisfactory, hut in May there was a sudden change. At the sales at Antwerp, held on May 21’St', 125,000 bales of Colonial wool were offered and prices declined from 10 to 15 pet cent. About the same time 18,569 bales—mostly merinos and Other fine grades—were offered in New York oil behalf of the British Government, and prices suffered a decline of friihi 10 to 20 per cent. Since these sales the. market has been depressed, arid while fine wools are in j demand at reasonable prices, medium t and coarse crossbreds have slumped appreciably. .... *, The only ray of hope visible at pro, ' sent is in poverty-stricken Europe, chief among. the countries being Germany. But Europe, unfortunately, has not the casli or the credit to pay for wool, arid it would appear desirable that New Zealand Should adopt some scheme of extending to Continental buyers of wool long credits. The Ar«

gentine scheme is designed to give foreign buyers two years in which to pay for their purchases, of wool, and New Zealand might find it advantageous to. arrange similar terms. In any case it must be evident that nothing like tlie prices obtained under tlie British cominandeer can he expected for tins country's free wool. In the twelve months ended September 30th last, 165,821,508 lbs of wool, valued at £12,351,30(5 were exported from New Zealand. For a similar weight of wool now ive should get probably ‘'about £7,000,000, and a good deal of that ifioney will lie owing to the country for some time, especially if sales are riiiide to foreigners on long term credits. To assist growers who desire to hold their wool, the Goveriiinent lias obtained authority to guarantee advances, arid it is probable that many will take advantage of tills privilege. If so, that will menu tile creation of a considerable additional aihount of liaiikihg credit, ivliicH will be locked lip iii boinparritivtely lbrigtei'in investnielit. Siicli advances! wriuld naturally teiUl to curtail credit in btlier directions. FROZEN MEAT. W'itii tiie exception of liinilj arid lightweight mutton, tlie market for this product is in a similar position tb wool; but there is a prospect that a certain aihount of lrihiti and iight-weight mutton will be inarkbted in the United States, to which country large quantities of siicli irieat have already been flipped drill, it is anticipated, further big shipmeilts will be sent. Still, it ivbuld be unwise to pliicc much faith in the American liiarket; because if the I S'bolgnSwcrs succeed iii having ail embargo placed oil foreign iVool, then those handling dbmes+ib mutton and lamb are certhiri to rbccivb similar consideriitiofl. DAIRY PRODUCE, ETC. It is; I ain sure, a matter for milch congratulation that the blitter output of the Dominion, available for export up to 31sit March next, luis been bought by the Imperial Government at 280 s per cwt —the highest price ever realized for this product. Payment for butter will he made 14 days after it has been passed by' tile Goverhriibnt glader.

New season's cheese, a short time ago, was iii strong dbmand; but serious industrial troubles in Great Britain, bringing in tlieir train a largo amount of unemployment, have had a very depressing effect on the market and values have fallen substantially. If there bo iio recovery in price, it is most probable that many of the dairy Factories equipped with dual plants will at once commence to make blitter instead of cheese: so, from a financial standpoint, we should not be prejudiced to the same extent that we would be were they compelled to confine tlieir operations to the production of cheese only.

• It may be mentioned that arrangements for tlie shipment of butter can be made much more promptly than those for cheese I '. I believe I am warranted in assuming that the exports of dairy produce for the present season will realize something in the neighbourhood of £12,000,000, which would far ' exceed the result obtained in any previous year.

Tallow, hides, pelts, sheepskins, rabbitskins and hemp have all dropped in value, and the outlook appears to be for a further decline. Thiis it must be apparent that the income of the Dominion will be less than it lias been, arid the spending power of the eommunitv must contract.

The changed conditions are also marked by the vast amount of borro-v----mind the amount of money that '"ill lie required by the Government, by local bodies, farmers and traders, and the less payable prices we shall rec.’ive foi- our prodiioe within the near future, we must anticipate a strong demand for Morins and for brinkihg credits, and in increase in t current rate of inter‘St, ! and probably an ihcr'easo of the note ! circulation. As I have already irtdieat,ed the position is a difficult one for local bodies who Sre restricted to a rate of SJ, per cent. The rate of even 53 per ebnt; for gilt-edged securities, under existing conditions, would not piove attractive to investors. Trite, the re-cently-passed Finance Act provides that the Minister of Finance may permit a local body to pay a higher rate of interest, to be prescribed by the Govern-or-Geherai-in-Cbuneil J blit I tint not aware that this provision has yet been 'made operative. | Money is at present dearer in Aus- , tr'iilin, London and New York than it is in New Zealand, so if the country’s produce is entitled to be sold at the ! world’s parity of value, it surely follows that those who have credit, to sell : will also expect to receive the world’s parity. France. Switzerland and Sweden borrowed in New York during the past few months arid all three hnd .to pay 8 per cent. Hie people of New i Zealand, as 1 have already said, must j expect to pay there for their loans, both public and private. The chances that 1 have endeavoured ( to indicate hie such as one ivotild expect in a transition period. The outlook is not as promising as it was a few months ago. The effect upon our prosperity of the reduction of-the tin tional income with which we are fne- ’ ed will be in proportion to the prudence and courage we display in facing j it. Undue ■ dptimisfn may .prove as . dangerous as extreme pessimism; we | must keep our heads arid believe that j whatever troubles may be ahead of us in the coming year we will surmount j them—in short, we imist have cohlidi once in ourselves and in our 'destiny ! New Zealand with ifs marvellous pow- | ers of recuperation, cannot be perrhiiheritly injured even by such a r'edueI tion in the value of sbrii'e of its chief pioducts as has takeri place. All our j past experience jForbids Us to expect I that low leVel which has been reached by sb'riie of our proj ducts . will lie perinanerii.. Tliere will Ibe a recovery, but meanwhile those , whose incomes are fbr the pireseiit diminished must adjust' expenditure to income Arid if, as seehis probable', the era of low r prices is coining—riot only with regard to tlie things we produce but those in ivhich our interest is only that of -c'bnsrjmers—the adjustment when it is over arid ‘settled conditions of trade are again established, will perhaps be to the benefit lj'bth of bur community and our customers in distant lands—especially our kith arid kin in the Mother Conti try who have found it hard, and sbirietiriles impossible, to riTTT- 't -n~r

pay liigli prices' which during the past years have been rilling for- all our pinduce. In connection with the financial outlook of the Dominion generally, I desire bo associate myself with the Right. Hon. W.- F. Massey in the statement he made tin that subject in the closing hours of the last session of Parliament. Mr W. Watson said: —I heartily thank my fellow-shareholders for again ret/urning ine unopposed as ond of their representatives on the Board of Directors;

As usual, tile Chairman has exhausted tlie topic of the hank’s business, so I shall confine my few remarks to our present position as Ojfdinary Shareholders, and my idea of what tho future holds for. us.

You have had ample time since receiving the General Manager’s circular regarding tho .re-arrangement of the capital to digest its terms, as well ns those of the Act of Parliament enclosed with it. Tlie circular fully explains that profits tip (6 £356,250, based ell* the dividends of 17} per ceiit. which you received Inst year, hut computed on your increased capital of £17500,000 instead of £l,000,0t)0 as it stood last year, will be apportioned, after payment of jLO per cent, on “A” Preference Shares, in the ratio of six-sevenths to you and one-seventh to the “B” Preference Shares. Dividends in excess of £356,250 will he likewise apportioned, two-thirds to you and one-third to the “B’’ Preference Shares. Further, the “A” and “B” Preference Shares together will amorint to only one-third of tiie total capital against your twothirds, of the whole. Your rights in the property of tlie'Bank are thus established and acknowledged by the Government.' On 31st. instant you will receive from the Reserve fund £3 6s Sd as an addition to each share of £6 L3s 4d, you now possess, and this will practically amount of a refund to the £3 6s 8d per share which was paid by holders and written off in 1895. Shares of high aiiionnts are considered old-fash-ioned and unwieldy in the present day. and ten of our new shares of £1 each arc expected to be more convenient, and probably more valuable, than one share of £lO. Much as wo should have liked to consult the shareholders before /finally deciding oii the terms of the Act, this was found to be impossible, the main reason being that it was a Government measure and could not be made public until placed before parliament. You will have noticed Clause.l2 cf the now Act of Parliament which gives power to the Directors with tli e consent of the Minister of Finance, lo raise now capital for the Bank to an amount not exceeding £2,250,000 a ini sets forth the terms upon which such

capital may be raised. I have been asked by shareholders what this por tends. Some appear to hope for the clause being given effect to shortly, and others to dread having either to find fresh money or lose the opportunity.

Now, when the Chairman of the Board speaks to you he is the voice of the Board; but when Mr Kano or I- speak as your representatives we speak for ourselves only, and as I have been asked to this new capital, and. am likely lo be asked again, I consider it best to say the little I have got to say to all

the shareholders at once. I do not anticipate it will be necessary to make any further extensions of. capital so soon after what has been doiio, but the elaboration of the clause is suggestive, and when th e business of the Dominion and the Bank warrant it, I have no doubt the Directors will avail themselves of the powers given. Matters of finance rush on somewhat more speedily nowadays than they formerly did; arid when, we consider the pace of the past few years, the placing of many returned soldiers on the land, the present rate of immigration and; other legitimate ■ calls for extension of banking facilities it appears unlikely that many years will elapse ere fresh banking capital will be required in New Zealand. In conclusion, I heartily eorijgfalillat'e you on the position to-day. Oiir best customer—tlie Government—is our partner on terms which a few years Ago few of your anticipated; you have a sound and progressive business, rind those of you who look for a good permanent investment, rather than to the vagaries of the sharemarket; will not be disappointed by retaining your shares.